Opinion
No. 12–1039.
2014-08-20
LUBBOCK COUNTY WATER CONTROL AND IMPROVEMENT DISTRICT and Tommy Fisher, in his official capacity as President of the Board of Directors of the Lubbock County Water Control and Improvement District,, Petitioners, v. CHURCH & AKIN, L.L.C., Respondent.
Brian Benitez, Jody Dewayne Jenkins, Jenkins, Wagnon & Young, P.C., Lubbock, TX, for Petitioner Lubbock County Water Control and Improvement District. Elizabeth G. Hill, Gary M. Bellair, Ryan Bigbee, Craig, Terrill, Hale & Grantham, LLP, Lubbock, TX, for Respondent.
Brian Benitez, Jody Dewayne Jenkins, Jenkins, Wagnon & Young, P.C., Lubbock, TX, for Petitioner Lubbock County Water Control and Improvement District. Elizabeth G. Hill, Gary M. Bellair, Ryan Bigbee, Craig, Terrill, Hale & Grantham, LLP, Lubbock, TX, for Respondent.
Justice BOYD delivered the opinion of the Court, in which Chief Justice HECHT, Justice GREEN, Justice GUZMAN, Justice LEHRMANN, Justice DEVINE, and Justice BROWN joined.
In this interlocutory appeal from the denial of a governmental entity's plea to the jurisdiction, we determine whether the parties' lease agreement constituted “a written contract stating the essential terms of [an] agreement for providing goods or services to [a] local governmental entity” under Chapter 271 of the Texas Local Government Code. We hold that, although the lease generally prohibited the lessee from using the property for any purpose other than operation of a marina, the lessee did not agree to provide marina-operation services or any other goods or services to the governmental entity. Chapter 271 therefore does not waive the governmental entity's immunity from suit, and we dismiss the lessee's claims for lack of jurisdiction.
I.
Background
The Lubbock County Water Control & Improvement District operates the Buffalo Springs Lake. Patrons who use the lake for recreational purposes must pay to access the lake area through a controlled gate. For many years, the Water District operated a marina on the lake, which included a restaurant and gas station. In 2007, the Water District stopped operating the marina and leased the marina premises to Church & Akin, LLC, for a three-year term. The lease provided that the premises were “to be used only as a Lake marina, restaurant, gasoline and sundry sales and as a recreational facility,” unless the Water District gave written consent for Church & Akin to use the premises for other purposes. The Water District agreed in the lease not to unreasonably withhold such consent. Church & Akin agreed to pay rent in the amount of $3,000 per year plus 5% of its gross sales, excluding sales of gasoline. The lease also contained a provision stating that the marina would issue “catering tickets,” which the marina would redeem for $1.00 each.
The lease gave Church & Akin an option to extend at the end of the initial three-year term for up to five additional five-year terms, as long as it was in compliance with the lease. When the initial term expired in 2010, Church & Akin elected to extend the lease and tendered payment for the following year's rent. The Water District accepted the payment but then terminated the lease six months later. Church & Akin sued the Water District for breach of contract, alleging that the Water District had no right to terminate the lease. The Water District filed a plea to the jurisdiction asserting governmental immunity and arguing that several possible statutory waivers of immunity, including chapter 271 of the Texas Local Government Code,
did not apply. Church & Akin responded by arguing that chapter 271 did apply and amended its pleadings to assert waiver of immunity.
.Tex. Loc. Gov't CodeE § 271.151(2)(A) (defining “[c]ontract subject to this subchapter”); id.§ 271.152 (waiving sovereign immunity to suit for purposes of certain breach of contract claims arising out of a “contract subject to this subchapter”).
The trial court denied the plea to the jurisdiction, and the Water District filed an interlocutory appeal. SeeTex. Civ. Prac. & Rem.Code § 51.014(a)(8) (granting courts of appeals jurisdiction to hear interlocutory appeals from the grant or denial of governmental unit's plea to the jurisdiction). The court of appeals affirmed the trial court's denial of the plea to the jurisdiction, concluding that chapter 271 waived the Water District's immunity from suit for breach of the parties' written lease agreement.
The Water District petitioned this Court for review, which we granted.
Church & Akin also asserted claims alleging a constitutional taking and various torts. The court of appeals held that the trial court erred in denying the Water District's plea to the jurisdiction with respect to these claims and dismissed the claims for lack of jurisdiction. 442 S.W.3d at 307. Church & Akin has not appealed from the court of appeals' dismissal of these claims, so we do not consider them here.
Generally, a court of appeals' judgment on interlocutory appeal is final. SeeTex. Gov't Code § 22.225(b)(3). This Court has jurisdiction to review such a judgment, however, when “the justices of the court of appeals disagree on a question of law material to the decision or in which one of the courts of appeals holds differently from a prior decision of another court of appeals or of the supreme court.” Id. § 22.225(c). In this context, “one court holds differently from another when there is inconsistency in their respective decisions that should be clarified to remove unnecessary uncertainty in the law and unfairness to litigants.” Id. § 22.225(e). Here, the court of appeals held that Church & Akin agreed to provide services to the Water District because the lease “provided [the Water District] the benefit of an operating marina.” 442 S.W.3d at 303. As we explain below, this holding is inconsistent with our holdings in Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 839 (Tex.2010) (holding that the waiver of immunity under Chapter 271 does not extend to “contracts in which the benefit that the local governmental entity would receive is an indirect, attenuated one”) (quoting Berkman v. City of Keene, 311 S.W.3d 523, 527 (Tex.App.-Waco 2009, no pet.)), and Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909, 925 (Tex.2013) (holding that a party does not seek or acquire services when “when it merely arranges for a service to be provided to its customers, even if the party indirectly benefits from the provision of that service”). We therefore have jurisdiction to review the court of appeals' judgment on interlocutory appeal.
II.
Immunity and Waiver
The Water District is a local governmental entity. SeeTex. Loc. Gov't CodeE § 271.151(3)(C). Local governmental entities “enjoy governmental immunity from suit, unless immunity is expressly waived.” Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 836 (Tex.2010).
Governmental immunity includes both immunity from liability, “which bars enforcement of a judgment against a governmental entity, and immunity from suit, which bars suit against the entity altogether.” Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex.2006). A governmental entity that enters into a contract “necessarily waives immunity from liability, voluntarily binding itself like any other party to the terms of agreement, but it does not waive immunity from suit.” Id. Unlike immunity from liability, immunity from suit deprives the courts of jurisdiction and thus completely bars the plaintiff's claim. Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 696 (Tex.2003).
“Sovereign immunity” protects the State and state-level governmental entities, while “governmental immunity” protects political subdivisions of the State such as counties, cities, and districts like the Water District in this case. Ben Bolt–Palito Blanco Consol. Indep. Sch. Dist. v. Tex. Political Subdivisions Prop./Cas. Joint Self–Ins. Fund, 212 S.W.3d 320, 324 (Tex.2006). The two doctrines are otherwise the same, and courts often use the terms interchangeably. Id. at 323–24 n. 2.
The doctrine of governmental immunity arose hundreds of years ago from the idea that “the king can do no wrong,” but it remains a fundamental principle of Texas law, intended “to shield the public from the costs and consequences of improvident actions of their governments.” Tooke, 197 S.W.3d at 331–32. Because the decision to require the public to bear the costs and consequences of a particular governmental action requires balancing numerous policy considerations, we have consistently deferred to the Legislature, as the public's elected representative body, to decide whether and when to waive the government's immunity. Id. at 332; see also Ben Bolt–Palito Blanco Consol. Indep. Sch. Dist. v. Tex. Political Subdivisions Prop./ Cas. Joint Self–Ins. Fund, 212 S.W.3d 320, 326–27 (Tex.2006). When the Legislature makes the policy decision to enact a statute that waives governmental immunity, it can do so “only by clear and unambiguous language.” Tooke, 197 S.W.3d at 328–29; see also Wichita Falls State Hosp., 106 S.W.3d at 697 (“a statute that waives the State's immunity must do so beyond doubt”). The Legislature itself has demanded such clarity. Tex. Gov't Code § 311.034 (“In order to preserve the legislature's interest in managing state fiscal matters through the appropriations process, a statute shall not be construed as a waiver of sovereign immunity unless the waiver is effected by clear and unambiguous language.”).
Church & Akin contends that the Legislature has waived the Water District's immunity against this suit through section 271.152 of the Local Government Code, which “provides a limited waiver of immunity for local governmental entities that enter into certain contracts.” Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 412 (Tex.2011); see also Kirby Lake, 320 S.W.3d at 838 (stating that the statute “waives immunity from suit for certain contract claims”). This waiver applies only to contracts that are in writing, are properly executed, and state “the essential terms of the agreement for providing goods or services to the local governmental entity.” Tex. Loc. Gov't CodeE § 271.151(2)(A).
When a local governmental entity enters into such a contract,
In 2013, the Legislature added a second type of contract to which chapter 271's waiver of governmental immunity applies: “a written contract, including a right of first refusal, regarding the sale or delivery of not less than 1,000 acre-feet of reclaimed water by a local governmental entity intended for industrial use.” Tex. Loc. Gov't CodeE § 271.151(2)(B). The new provision only applies to claims that arise under a contract executed on or after the effective date of the amendments in 2013. See Act of May 22, 2013, 83rd Leg., R.S., ch. 1138, § 2, 2013 Tex. Gen. Laws ––––, –––– (codified at Tex. Loc. Gov't CodeE § 271.151(2)(B)). That provision is not at issue here.
it “waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to the terms and conditions of this subchapter.” Id.§ 271.152; see also Sharyland, 354 S.W.3d at 412–13 (describing “limited waiver of immunity” under section 271.152). One of the “terms and conditions” of the subchapter limits the claimant's recovery to “the balance due and owed by the local governmental entity under the contract,” plus attorney's fees and interest. Tex. Loc. Gov't CodeE § 271.153(a)(1).
The local governmental entity must be “authorized by statute or the constitution to enter into a contract.” Tex. Loc. Gov't CodeE § 271.152. The parties do not dispute that the Water District was authorized to enter into the lease with Church & Akin.
The principal dispute in this appeal is whether the parties' contract includes an “agreement for providing goods or services to the [Water District].” Id.§ 271.151(2)(A). The Water District contends that the parties' contract is a lease of real property, not an agreement to provide goods or services. We agree with Church & Akin, however, that courts must look beyond the title of a written contract to determine whether it satisfies chapter 271's waiver requirements. In Kirby Lake, for example, although the parties' contract was entitled “Sales Agreement and Lease of Facilities,” 320 S.W.3d at 832, we looked to the contract's terms and found that it included an agreement to provide services to the governmental entity. Id. at 839. The statute does not require a written contract that is an agreement for providing goods or services; rather, it requires a “written contract stating the essential terms of the agreement for providing goods or services.” Tex. Loc. Gov't CodeE § 271.151(2)(A). Although the contract at issue in this case is a lease of real property, “a contractual relationship can include both the granting of a property interest and an agreement to provide goods or services.” Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909, 925 (Tex.2013) (emphasis added). Any written, authorized contract that states the essential terms of an agreement for providing services to the governmental entity triggers the waiver of immunity under chapter 271.
We also agree with Church & Akin that the agreement to provide services to the governmental entity “need not be the primary purpose of the agreement.” Kirby Lake, 320 S.W.3d at 839. We noted in Kirby Lake that this Court had “liberally construed a government-pooled insurance policy” in Ben Bolt “as encompassing ‘services' rendered by its members based on the fact that the Fund's members elect[ed] a governing board, and a board subcommittee resolved claims disputes.” Kirby Lake, 320 S.W.3d at 839 (citing Ben Bolt, 212 S.W.3d at 327). We recognized that the primary purpose of the contract in Ben Bolt was for the fund (a governmental entity) to provide insurance services to its members (also governmental entities), but we concluded that the members had also agreed to provide services to the fund by participating in the election of its governing board and in the resolution of disputed claims. Ben Bolt, 212 S.W.3d at 327. The existence of the essential terms of that agreement within the written contract was sufficient to trigger the statute's waiver of immunity. Id.
Thus, a written contract that triggers chapter 271's waiver of immunity is one that states the essential terms of an agreement to provide goods or services to the local governmental entity, regardless of the document's title and even if the provision of goods and services is not the primary purpose of the contract. In this case, Church & Akin argues that the lease includes agreements to provide services to the Water District because Church & Akin agreed to “(1) operate the marina; (2) issue and redeem catering tickets; and (3) return a percentage of its profits from sundry sales.”
We address each of these arguments in turn.
The lease also requires Church & Akin to maintain the premises, maintain adequate insurance coverage, and pay ad valorem taxes imposed on the property. The Water District contends that these duties are merely standard obligations of a lessee, and do not constitute agreements to “provide services” separate from those standard duties. Church & Akin does not argue to the contrary, so we do not address these agreements in this case.
A. Operation of the Marina
Church & Akin contends that it agreed in the lease's “use” provision to provide a service to the Water District by operating the marina. The court of appeals agreed, relying on our opinions in Kirby Lake and Ben Bolt. See 442 S.W.3d 297, 306. In Kirby Lake, we observed that chapter 271 does not define the term “services,” and that the ordinary meaning of the term “is broad enough to encompass a wide array of activities.” 320 S.W.3d at 839. In support of this statement, we cited authorities holding that the term “includes generally any act performed for the benefit of another under some arrangement or agreement whereby such act was to have been performed,” id. (quoting Van Zandt v. Fort Worth Press, 359 S.W.2d 893, 895 (Tex.1962)), but would not extend to “contracts in which the benefit that the local governmental entity would receive is an indirect, attenuated one.” Id. (quoting Berkman v. City of Keene, 311 S.W.3d 523, 527 (Tex.App.-Waco 2009, no pet.)).
Applying these authorities, the court of appeals concluded in this case that, “[a]lthough the operation of a marina was not the stated primary purpose of the contract,” the contract's “use” provision “elevated the lease to more than simply a lease of real property ... it provided [the Water District] the benefit of an operating marina.” 442 S.W.3d at 300. The Water District argues that the “use” provision of the lease did not, as the court of appeals implied, obligate Church & Akin to operate a marina on the leased premises; it merely prohibited Church & Akin from using the premises for any other purpose, at least without first obtaining the Water District's consent. Church & Akin disagree, contending that the “use” provision's restriction that the premises “are leased to be used only as a Lake marina” indicates that the lease not only prohibited other uses but also mandated that the premises “be used” as a marina.
We agree with the Water District on this point. Under the terms of the written lease agreement, Church & Akin could have elected not to use the premises for any purpose. Specifically, the lease states:
The premises are leased to be used only as a Lake marina, restaurant, gasoline and sundry sales and as a recreational facility. Lessee agrees to restrict their use to such purposes, and not to use, or to permit the use of, the premises for any other purpose without first obtaining the consent in writing of Lessor or Lessor's authorized agent. Lessor agrees not to unreasonably withhold consent.
Under this language, Church & Akin was not required to operate a marina; it was merely restricted from using the premises for a different purpose without consent. This Court has previously recognized the important difference between an agreement that restricts the use of property to a specific purpose and one that requires the use of property for a specific purpose: “a provision in a lease that the premises are to be used only for a certain prescribed purpose imports no obligation on the part of the lessee to use or continue to use the premises for that purpose; such a provision is a covenant against a noncomplying use, not a covenant to use.” Universal Health Servs., Inc. v. Renaissance Women's Grp., P.A., 121 S.W.3d 742, 747 (Tex.2003) (quoting Weil v. Ann Lewis Shops, Inc., 281 S.W.2d 651, 653 (Tex.Civ.App.-San Antonio 1955, writ ref'd)). Thus, although both parties may have contemplated that Church & Akin would operate a marina, the language of the contract did not require it to do so, and thus Church & Akin did not contractually agree to do so. When a party has no right under a contract to receive services, the mere fact that it may receive services as a result of the contract is insufficient to invoke chapter 271's waiver of immunity. At best, such services are only an “indirect” and “attenuated” benefit under the contract. Cf. Kirby Lake, 320 S.W.3d at 839.
Moreover, even if we could construe the lease to include a contractual agreement to use the property as a marina, Church & Akin's provision of marina services to the Water District's constituents would not constitute the provision of such services to the Water District itself. We recently rejected a similar argument in Coinmach, 417 S.W.3d at 924–26. There, a lessee leased rooms in an apartment complex and installed coin-operated laundry machines for use by the apartment complex's other tenants. Id. at 913. Like Church & Akin here, the lessee in Coinmach paid rents based on the income it earned from operations on the leased premises. Id. at 925. The owner of the apartment complex argued that it was a “consumer” under the Deceptive Trade Practices Act because the lessee provided a “service” to the owner by maintaining the laundry machines, collecting and accounting for the proceeds from the machines, and providing the convenience of the laundry rooms to the other tenants. Id. at 925. We disagreed, observing that, as to the owner, the lessee was itself a tenant, and it provided its laundry services to the other tenants, not to the owner of the apartment complex. Id. We stated that “[a] party is not a consumer when it merely arranges for a service to be provided to its customers, even if the party indirectly benefits from the provision of that service.” Id. The benefits to the lessor were “at best indirect” and therefore were not sufficient to make the lessor a consumer of “services” under the Deceptive Trade Practices Act. Id. at 925–26.
Here, as in Coinmach, Church & Akin provided its marina services not to its landlord but to its landlord's customers. Although the landlord indirectly benefitted from the provision of these services, Church & Akin was not contractually obligated to operate the marina for the Water District. When the Water District decided to stop operating the marina, it could have elected to contract with a company to manage the marina for it. In the same way, the owner of the apartment complex in Coinmach could have contracted with a company to operate the owner's laundry rooms. But in both cases, the owners elected instead to lease the premises, and the lessees did not agree to provide services to the lessor.
At least in this context, the distinction between the terms of such a services agreement and the terms of a lease agreement is not simply a matter of form over substance: under chapter 271, the terms of the written agreement are themselves the substance that determines whether immunity is waived. Unless the written contract includes the essential terms of an agreement to provide goods or services to the governmental entity, the waiver of immunity does not apply.
The dissent overlooks this important distinction when it suggests that this lease constitutes an agreement to provide services “[j]ust as” a contractor's agreement to build roads or bridges for a governmental entity constitutes an agreement to provide services. Ante at 302 (citing Kirby Lake, 320 S.W.3d at 839). If Church & Akin had not leased the premises but had instead agreed to serve as the Water District's contractor to operate the marina for the Water District, the result in this case would be different and chapter 271 would waive the Water District's immunity. By contrast, if a road developer purchased or leased property from a governmental entity and operated its own road on that property, chapter 271 would not waive immunity, because the developer would not have agreed to provide a service to the governmental entity.
Finally, we note that when chapter 271 waives immunity for a contract claim, it limits a successful claimant's recovery to “the balance due and owed by the local governmental entity under the contract,” plus attorney's fees and interest. Tex. Loc. Gov't CodeE § 271.153(a)(1)(3). Construing section 271.152's waiver of immunity with section 271.153(a)'s limitation on damages to which the waiver applies, the waiver will typically apply only to contracts in which the governmental entity agrees to pay the claimant for the goods or services that the claimant agrees to provide to the governmental entity. This lease agreement contains no terms in which the Water District agreed to pay Church & Akin any amount for its services, so there is no amount that is “due and owed [from the Water District to Church & Akin] under the contract.” Instead, Church & Akin agreed to pay the Water District for a leasehold interest in the property. While a party may agree to provide goods or services in exchange for something other than payment, the absence of any agreement by the governmental entity to pay for goods or services may indicate that the claimant did not in fact agree to provide goods or services to the governmental entity. Such is the case here. The fact that the Water District did not agree to pay Church & Akin for services supports our conclusion that Church & Akin did not agree to provide services to the Water District.
We agree with Church & Akin that the term “services” is broad and encompasses a wide array of activities, including activities such as the operation of a marina. See Kirby Lake, 320 S.W.3d at 839. But the contract did not require Church & Akin to provide marina-operation services. And at best, the operation of the marina only indirectly benefited the Water District. See id. (citing Berkman as distinguishing “indirect, attenuated” services); Coinmach Corp., 417 S.W.3d at 925 (discussing indirect services under a lease). For these reasons, we cannot conclude that the lease's restriction on Church & Akin's “use” of the premises stated, in writing, “the essential terms of [an] agreement for providing [marina-operating] services to the [Water District].” SeeTex. Loc. Gov't CodeE § 271.151(2)(A).
B. Catering Tickets
The lease's “use” clause also states: “The marina will issue catering tickets that will be redeemed at the gate for admittance to the lake. These tickets will be redeemed by the marina at the price of $1.00 each. They will only be available to persons coming into the marina.” Although Church & Akin did not rely on this language in the trial court or the court of appeals, it argues here that this provision required Church & Akin to provide a service to the Water District by “issuing catering tickets.” The Water District responds that Church & Akin “completely misconstrues the catering ticket provision,” which provides for a contractual benefit to Church & Akin, not a contractual obligation that Church & Akin assumed. The dissent agrees with Church & Akin, but we disagree for at least two reasons. First, their position is based on a construction of the catering-ticket language that neither the agreement's language nor the record supports. And second, even accepting Church & Akin's assertions about how the catering tickets worked, the lease does not state “the essential terms of [an] agreement for providing [catering-ticket] services to the [Water District].” SeeTex. Loc. Gov't CodeE § 271.151(2)(A).
The Water District had the burden, in its plea to the jurisdiction, to establish that it is a governmental entity entitled to governmental immunity. Once it satisfied that burden, the burden shifted to Church & Akin to establish, or at least raise a fact issue on, a waiver of immunity. See City of Corsicana v. Stewart, 249 S.W.3d 412, 413 (Tex.2008) (considering whether “claimants met their evidentiary burden of showing” waiver of immunity under the Texas Tort Claims Act); Tex. Parks & Wildlife Dep't v. E.E. Lowrey Realty, Ltd., 235 S.W.3d 692, 694 (Tex.2007) (holding that claimant failed to meet its burden of showing a waiver of sovereign immunity). Although Church & Akin asserted a waiver of immunity under chapter 271, it did not rely on the catering-ticket provision in the trial court or the court of appeals and, in fact, never mentioned this provision in its response to the Water District's plea to the jurisdiction or in its court-of-appeals briefing. As a result, the record contains very little evidence relating to catering tickets or how they worked.
The only evidence we have located in the record relating to catering tickets is in the deposition testimony of Tommy Fisher, a member of the Water District's board of directors. This testimony indicates that the parties had a separate dispute over the Water District's demand that the marina stop selling something called “marina bucks.” Apparently, Church & Akin contended that “marina bucks” were the same thing as “catering tickets,” and that the lease's catering-tickets provision permitted the marina to issue them. Fisher testified that “[t]he catering ticket is not the same thing as a marina buck,” that the catering tickets were “for parties and things that [Church & Akin] would cater at the lake,” that Church & Akin would “give them out personally” when it catered events, and that “they could be redeemed at the front gate.” Fisher's deposition testimony does not support Church & Akin's contention that the catering-ticket provision obligated Church & Akin to provide a service to the Water District. To the contrary, it indicates that the catering-ticket provision provided a contractual benefit to Church & Akin, and the parties disputed whether that benefit include the right to sell “marina bucks.” This evidence is certainly not conclusive, but Church & Akin did not put forward any contradicting evidence.
Church & Akin's counsel contended at oral argument that this provision's references to “the marina” are references to Church & Akin. Based on that contention, she asserted that Church & Akin would issue catering tickets to persons who visited the marina; the Water District would “redeem” these tickets at the gate to allow the person entry to the lake; and Church & Akin would then “redeem” the tickets from the Water District for $1 each, so that the Water District would receive $1 for each ticket-holder's entrance instead of the $6 that it otherwise charged at that time. Although the actual meaning of this provision seems less than clear, even accepting Church & Akin's explanation we cannot construe it to constitute an agreement by Church & Akin to provide a service to the Water District. To the contrary, the catering tickets appear—from Church & Akin's own contentions about how the tickets would be handled—to be a benefit that Church & Akin “will” give to its marina customers to promote its own business.
The dissent acknowledges that the word “will” has “many possible meanings” depending on the context, but determines that the context here indicates a promise to provide a “ticketing service.” Post at 311. Actually, the contract makes no reference to any “ticketing service.” It only references “catering tickets,” which Church & Akin contends it had a right under the lease to sell to its patrons. And as we have explained, the record does not tell us much about the context of the “catering tickets” provision because Church & Akin never argued it expressed a promise in the courts below. So for context we can only look to the contract itself, and consider Church & Akin's assertions about the provision's meaning. For the reasons we explain, the contract, taken as a whole, indicates that the parties expected Church & Akin to operate a marina on the leased premises, and they restricted Church & Akin's ability to use the premises for any other purposes, but they did not contractually require Church & Akin to operate a marina on the premises. Under Church & Akin's own explanation, the catering tickets provision gave it the right to sell “catering tickets” to its patrons and obligated the Water District to admit ticket-bearing patrons without paying the usual access fee. Within this context, we read the provision as expressing the parties' acknowledgment of Church & Akin's intent to issue tickets, not as a contractual promise to do so.
Church & Akin contends that the catering tickets would benefit the Water District as well as Church & Akin because the issuance of the tickets would potentially increase the amount of marina sales and thus also increase the amount that Church & Akin must pay to the Water District as rent. But there is nothing in the lease language or in the record to support the contention that the tickets would, were intended to, or in fact did increase traffic. Nor does the lease or the record substantiate the implication that any such increase would benefit the Water District, particularly considering that (at least, under Church & Akin's explanation) the Water District took a $5 loss on each person who accessed the lake with a catering ticket. And even to the extent the tickets may have increased marina sales, any indirect benefit to the Water District from Church & Akins increased profits could not, alone, convert Church & Akin's efforts to promote its own business into services to the Water District. Cf. Kirby Lake, 320 S.W.3d at 839.
Church & Akin also asserts that the catering-tickets provision is evidence that the lease required Church & Akin to operate a marina. According to Church & Akin,
If [Church & Akin] simply declined to open its doors to the Buffalo Springs community, then no persons could enter the marina and purchase catering tickets. Further, the Lease Agreement specifically mandated that the catering tickets could only be redeemed at the marina. Therefore, no catering tickets could be issued or redeemed at all if [Church & Akin] did not open the marina to allow persons to enter.
We agree that Church & Akin would not have been able to sell or “issue” catering tickets if it did not operate the marina, because the lease only permitted catering tickets for “persons coming into the marina.” But we disagree that the catering-ticket language created an implied duty to operate the marina. Since the purpose of the catering tickets was to benefit Church & Akin's marina business, and the lease did not require Church & Akin to operate the marina, we cannot construe the provision that states that the marina “will issue catering tickets” as an agreement not only to issue catering tickets but also to operate the marina. Rather, we read this provision of the agreement as the parties' acknowledgement that Church & Akin intended to and could issue marina tickets for the benefit of its business, not as agreement to issue such tickets as a service to the Water District.
Moreover, even if we read the catering-ticket provision to constitute a contractual agreement by Church & Akin to “issue catering tickets,” the contract does not state the “essential terms” of that agreement. Tex. Loc. Gov't CodeE § 271.151(2)(A) (providing that a contract waives immunity only if it states “ the essential terms of the agreement for providing goods or services to the local governmental entity”) (emphasis added). The lease provides no requirements as to how many catering tickets Church & Akin must issue, when it must issue them, to whom it must issue them, or any other details necessary to make the issuance of catering tickets an enforceable agreement by Church & Akin.
The dissent disagrees, concluding that the lease “tells Church & Akin everything it needs to know” about the catering tickets, including “what is to be provided, for how much, and to whom.” But the dissent does not explain how Church & Akin was to perform such “ticketing service.”
The lease indicates that the marina “will issue” catering tickets, but Church & Akin contends it was entitled to “sell” the tickets. Was Church & Akin obligated to give out tickets to marina visitors to encourage them to visit the lake area, as the dissent contends, or could it sell the tickets for a profit as Church & Akin contends?
The lease states that the marina will “redeem” the catering tickets for $1, which Church & Akin asserts is the price it was to pay the Water District for each catering ticket used for gate access. If the lease requires Church & Akin to sell catering tickets, as it contends, at what price must it sell them? Can it sell them for $6 (the usual cost of gate access, according to Church & Akin), such that the patron receives no benefit and the only effect is that the patron pays $6 to Church & Akin rather than $6 to the Water District?
The lease provides no minimum, maximum, or other parameters on quantity. Could Church & Akin issue one catering ticket during the lease's three-year term and satisfy its supposed obligation?
Absent such specifics, the provision lacks the essential terms that would be necessary to create an enforceable contractual agreement to provide a ticket-issuing service to the Water District.
We thus cannot conclude that the lease's catering-ticket language stated, in writing, “the essential terms of [an] agreement for providing [catering-ticket] services to the [Water District].” SeeTex. Loc. Gov't CodeE § 271.151(2)(A).
C. Profit-based Rent
Finally, Church & Akin argues that its agreement to pay rent in the amount of 5% of its gross revenue for sales of products other than gasoline represents an agreement to provide services to the Water District and further supports its contention that the lease required it to operate a marina. Again, we disagree. The rent provision requires that Church & Akin pay the Water District 5% of its non-gas sales proceeds. But it does not require that Church & Akin have any sales proceeds. If Church & Akin had $0 in sales for the year, payment of only the $3,000 base-rent would satisfy its contractual obligation. See, e.g., Weil, 281 S.W.2d at 655.
Like this lease, the lease in Weil restricted use of the leased premises to a particular purpose (a retail store) and required the lessee to pay the lessor base-rent of $650 per month plus 5% of its sales proceeds, less the base-rent. Id. at 653. The lessee never opened the store on the premises and the lessor sued, arguing that the lease obligated the lessee to operate a store on the premises and that it was due damages for the absence of sales proceeds. Id. As discussed above, the court disagreed, holding that a lease provision that restricts use of the leased premises to a certain purpose “imports no obligation on the part of the lessee to use or continue to use the premises for that purpose.” Id. at 654 (quoting Dickey v. Phila. Minit–Man Corp., 377 Pa. 549, 105 A.2d 580, 581 (1954)). The court reached that conclusion in spite of the lease's payment requirement, observing that even if it were to hold that the lease required operation of a store on the premises, it could not imply some minimum amount of sales proceeds that the lessee would have to generate. Id. at 655–56. We adopted this holding in Universal Health Services and relied on it to hold that a contract that restricted Universal's use of the premises to operation of a hospital and required Universal to obtain related permits and insurance agreements nevertheless did not obligate Universal to operate a hospital on the premises. 121 S.W.3d at 747. For the same reasons, we conclude that Church & Akin's agreement to pay the Water District 5% of its sales revenue does not constitute an agreement to generate sales revenue, operate a marina, or provide other services to the Water District.
III.
Conclusion
Having determined that the parties' lease does not include an “agreement for providing services to the [Water District],” we hold that chapter 271 of the Local Governmental Code does not waive the Water District's immunity against Church & Akin's breach of contract claims. We reverse the portion of the court of appeals' judgment with respect to those claims, the only claims remaining in the suit, and dismiss them for lack of jurisdiction Justice WILLETT filed a dissenting opinion.
Justice JOHNSON did not participate in the decision.
Justice WILLETT, dissenting.
For decades the Lubbock Water District operated a marina at Buffalo Springs Lake. In 2007, the District leased the marina property to Church & Akin. The lease agreement specified that the property could only be used as a marina, and the lease required that “the marina” issue tickets to visitors for admission to the lake. When Church & Akin declined the District's request to increase the marina's hours of operation, the District terminated the lease before the end of the fixed term. Church & Akin sued for breach of contract. The Court holds the District enjoys governmental immunity because the lease agreement does not contain a contract for services to the District. I respectfully dissent because I believe the lease agreement obligates Church & Akin to operate a marina as a service to the District.
I. Waiver of Governmental Immunity
The Legislature has waived local governments' immunity for breach of contract claims arising from “a written contract stating the essential terms of [an] agreement for providing goods or services to [a] local governmental entity.”
A contract contains its “essential terms” when it outlines the material terms necessary to make a contract enforceable.
And “services” is a term “broad enough to encompass a wide array of activities.”
See Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 838 (Tex.2010) (holding that an agreement satisfied the “essential terms” requirement because it “clearly outlined” “[t]he names of the parties, property at issue, and basic obligations”).
Id. at 839.
“[W]e construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served.”
Each portion of a contract must be read in light of its other operative parts. “We consider the entire writing to harmonize and effectuate all provisions such that none are rendered meaningless.”
FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59, 63 (Tex.2014) (internal quotation marks omitted).
While contract interpretation does involve close scrutiny of its individual components, “we must evaluate the overall agreement to determine what purposes the parties had in mind at the time they signed the [agreement].”
Id.
When seeking to determine the intent of the parties, we also look to the text “as understood in light of the facts and circumstances surrounding the contract's execution.”
Kirby Lake, 320 S.W.3d at 841.
We must interpret contracts as entire instruments, with an eye toward the practical intent of the parties and the surrounding circumstances, and we must give meaning and harmony to the contract's various parts. I believe the Court has deviated from this well-worn course in its analysis of the District's lease agreement.
Houston Exploration Co. v. Wellington Underwriting Agencies, Ltd., 352 S.W.3d 462, 469 (Tex.2011).
II. Interpretation of the Lease Agreement
Applying the above principles, I would hold that the District has waived its immunity by contracting for the obligatory operation of a marina as a service to the District. A. The lease agreement requires Church & Akin to operate a marina.
The Court concludes that any benefit that accrues to the District from Church & Akin's operation of a marina is too indirect to constitute a contract for services to the District because the lease agreement did not require operation of a marina. I agree that contingent terms in a contract can be too attenuated to trigger waiver of governmental immunity. But I believe the lease agreement did not simply commend marina operation—it commanded it.
The lease agreement contains the following language under the “USE” provision of the contract:
The premises are leased to be used only as a Lake marina, restaurant, gasoline and sundry sales and as a recreational facility. Lessee agrees to restrict their use to such purposes, and not to use, or to permit the use of, the premises for any other purpose without first obtaining the consent in writing of Lessor or Lessor's authorized agent. Lessor agrees not to unreasonably withhold consent.
The Court says that this “marina only” provision does not require Church & Akin to do anything—it is only a restriction on use. Thus, Church & Akin would not be violating the provision if it did nothing with the property.
But another clause in the “USE” section indicates that Church & Akin cannot just abandon any use of the premises. The ticketing clause in the “USE” section of the lease says:
The marina will issue catering tickets that will be redeemed at the gate for admittance to the lake. These tickets will be redeemed by the marina at the price of $1.00 each. They will only be available to persons coming into the marina.
The ticketing clause requires Church & Akin to use the premises. In mandatory language, the clause demands that Church & Akin will issue the tickets. In other words, Church & Akin cannot, as the Court claims, do nothing with the property given the ticketing clause's requirement that Church & Akin issue catering tickets. And if it uses the property at all, Church & Akin triggers the “marina only” clause, thus requiring operation of a marina, a restaurant, a retail and gas store, and a recreational facility. Thus, the ticketing clause and the “marina only” clause lead to this inexorable syllogism:
If Church & Akin decides to actually use the premises, it must operate a marina. Church & Akin must use the premises to issue tickets for admission to the lake. Therefore, Church & Akin must operate a marina.
Harmonizing these two clauses, as we must, I would hold that they invariably lead to the conclusion that Church & Akin was obligated to operate a marina.
Also, the ticketing clause seems to take for granted that Church & Akin will operate a marina because it states that “the marina” will issue and redeem the tickets. The Court disregards this necessary implication by deciding that the ticketing clause is a benefit to Church & Akin rather than a service that Church & Akin provides to the Water District. This reading of the contract flouts the wording of the contract, which states the marina will provide the ticketing service. In this context, “will,” although it has many possible meanings depending on context, here indicates a mandatory requirement.
The Court points out that “will” can also indicate a statement of intent. But the phrase “will issue catering tickets” is situated in a contract in which parties lay out their respective duties and rights. In that context, “will issue catering tickets” establishes a duty, not a statement of intent. To read this as a statement of mere intent or plan makes the phrase at worst gratuitous and at best a very roundabout and awkward way of stating that Church & Akin is allowed to issue and redeem catering tickets. Neither is the most natural reading of the contract. If the contract was not establishing a duty but simply recognizing that the catering tickets are allowed and intended, language like “may” or “will be allowed to” issue catering tickets should be expected. And we should avoid readings that turn contract language into gratuitous surplusage. I believe the phrase “will issue catering tickets” reads most naturally as an obligatory act. It strains language and logic to construe a binding obligation (“the marina will issue catering tickets”) as nothing more than a possible benefit to the bound party.
SeeWebster's Third New International Dictionary 2617 (3rd ed.1961) (“will” may be “used to express a command, exhortation, or injunction”).
Moreover, the Court's analysis strips the language in the “USE” provision of independent meaning. The Court says “to be used only as a Lake marina” is just a restriction on use. But that reading renders meaningless the clause that immediately follows. After stating that the property is “to be used only as a Lake marina, restaurant,” etc., the agreement says: “Lessee agrees to restrict their use to such purposes, and not to use, or to permit the use of, the premises for any other purpose....” We can only give independent meaning to both clauses by reading the first clause as a mandated use, and the second as a restricted use. Under the Court's reading, these two clauses mean the exact same thing.
The headings and structure of the lease agreement also indicate that the District contracted for a marina with other attendant uses. The “marina only” provision falls under the “USE” section in the lease. Immediately following the “USE” section is a section titled “PROHIBITIONS ON USE.” Under the Court's reading, the “USE” section contains only a prohibition on use. It seems odd to read the “USE” section as nothing more than a restriction on use, since it is so clearly separated from the “PROHIBITIONS ON USE” section. I would give some weight to the structure and headings of the agreement that provide further support for the conclusion that Church & Akin was obligated to operate a marina.
Even if Church & Akin need not operate a marina, it must at the very least provide a ticketing service. The Court worries that the ticket provision does not provide the essential terms of the contract. But a contract satisfies this requirement where it outlines the parties, subject matter, and basic obligations.
The ticketing clause meets this low threshold. It tells Church & Akin everything it needs to know—what is to be provided, for how much, and to whom. I do not see how Church & Akin could be confused about its responsibility under this clause. The Court argues that the clause does not supply essential terms because it does not tell us the price at which the tickets should be sold to the public or the quantity. I disagree. We have held that “[w]here the parties have done everything else necessary to make a binding agreement for the sale of goods or services, their failure to specify the price does not leave the contract so incomplete that it cannot be enforced.”
See Kirby Lake, 320 S.W.3d at 838.
If the price for a sale or service between the parties need not be stipulated, then surely the price of an ancillary transaction between a contracting party and the third-party visitors to the lake is not necessary to create an enforceable contract either. And as for quantity, the clause can be reasonably read as requiring the marina to provide ticketing services to all visitors to the lake. But even so, enforceable contracts such as output or requirement contracts regularly do not stipulate quantity. Thus, the Court's concerns regarding price and quantity are unfounded.
David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex.2008) (quoting Bendalin v. Delgado, 406 S.W.2d 897, 900 (Tex.1966)).
As with any other contract, we should also take into consideration the surrounding circumstances at the time of contracting.
The District had been using this property as a marina for decades. A practical reading sensitive to context and circumstance confirms that these parties never envisioned the possibility that Church & Akin could be allowed to let a massive recreational area sit fallow, while at the same time carrying out its contractual duties to prevent permissive waste, maintain the premises in “as good” condition, make necessary repairs, prevent nuisances, and purchase property and liability insurance for “all activities.” The Court's wooden approach to language stands in uneasy opposition to other portions of the agreement, the circumstances surrounding the contract, and our “practical” and “utilitarian” approach to contract interpretation. Church & Akin had a contractual obligation to operate a marina, and, at the very least, provide a ticketing service for admission to the lake. B. The services required by the lease are services to the District.
Houston Exploration Co., 352 S.W.3d at 469.
I would also conclude that these obligatory services are services to the District. We have held that construction of public infrastructure by third-party contractors constitutes a service to the contracting authority (even though the public enjoys the benefits of the infrastructure).
Just as a third-party contractor who builds roads or bridges primarily for the public thereby provides a service to the governing authority, Church & Akin provides a service to the District by operating the marina. After all, Church & Akin took over a function that the District would have otherwise performed. The District had operated a marina on the property for many years, and considered those operations to be an important part of its service to the public. Further, the specific ticketing service, while small, is also a direct service to the District because selling the tickets assisted the District in managing the flow of visitors to the lake.
See Kirby Lake, 320 S.W.3d at 839.
The Court says this case would be different if Church & Akin were not a lessee and had just contracted to operate the marina. But surely Church & Akin's status as a tenant does not determine whether its use of that property is a service to the District. The more accurate version of the analogy posited by the Court
is that of a local government entity leasing a pre-existing road to a construction company and including a requirement that the lessee repair potholes. The fact that the pothole repair clause is part of the lease agreement does not change the nature of the service being provided. Nor should it. I worry that the Court's decision paves the way for local governments to avoid immunity waivers. All they need do now is turn the service provider into a lessee. Not only is this result problematic, but the statutory language does not support a distinction that relies on the label we apply to the contracting party. Thus, I reject the Court's argument that Church & Akin's tenancy changes the analysis of whether operating the marina is a service to the District.
Church & Akin was obligated under the lease agreement to operate a marina, restaurant, retail and gas store, and recreational facility. Church & Akin also had a duty to provide ticketing services. These are services to the District. I would therefore conclude that the District does not enjoy immunity. Because the Court holds otherwise, I respectfully dissent.