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noting direct and consequential damages are those that result from the defendant's breach
Summary of this case from Envirodigm, Inc. v. Tex. InstrumentsOpinion
No. 17-0905
05-01-2020
SAN ANTONIO RIVER AUTHORITY, Petitioner, v. AUSTIN BRIDGE & ROAD, L.P. and Hayward Baker, Inc., Respondents
Patrick J. Wielinski, Travis M. Brown, Cokinos | Young, Irving, for Amici Curiae Associated General Contractors of America and Texas Building Branch - Associated General Contractors of America. David W. Ross, Law Offices of David W. Ross, P.C., San Antonio, Scott Keller, Baker Botts LLP, Austin, for Petitioner. Anton Ernest Hackebeil, Bexar County Criminal District Attorney, Hondo, Gregory A. Harwell, Matthew M. Waterman, Slates Harwell LLP, Dallas, for Respondent Austin Bridge & Road, L.P. Jennifer M. Lee, Thomas W. Fee, Timothy R. George, Fee Smith Sharp & Vitullo LLP, Dallas, for Respondent Hayward Baker, Inc.
Patrick J. Wielinski, Travis M. Brown, Cokinos | Young, Irving, for Amici Curiae Associated General Contractors of America and Texas Building Branch - Associated General Contractors of America.
David W. Ross, Law Offices of David W. Ross, P.C., San Antonio, Scott Keller, Baker Botts LLP, Austin, for Petitioner.
Anton Ernest Hackebeil, Bexar County Criminal District Attorney, Hondo, Gregory A. Harwell, Matthew M. Waterman, Slates Harwell LLP, Dallas, for Respondent Austin Bridge & Road, L.P.
Jennifer M. Lee, Thomas W. Fee, Timothy R. George, Fee Smith Sharp & Vitullo LLP, Dallas, for Respondent Hayward Baker, Inc.
Justice Bland delivered the opinion of the Court, in which Justice Green, Justice Lehrmann, Justice Blacklock, and Justice Busby joined.
This construction contract dispute involves repairs to the Medina Lake Dam that went over budget. The San Antonio River Authority hired Austin Bridge and Road L.P. as its general contractor for the project. The parties agreed—in bid documents proffered by the River Authority—to submit any disputes about the contract to arbitration. When disagreements about the scope of work and payment arose, Austin Bridge invoked the contract's arbitration provisions. Arbitration proceedings commenced. But after the arbitrator denied the River Authority's plea of governmental immunity, the River Authority objected to continuing the arbitration. The River Authority then sued its contractors in state district court, contending that it had lacked any authority to agree to the contract's arbitration provisions.
We conclude that Local Government Code Chapter 271 provided that authority. Chapter 271 authorizes local governments, like the River Authority, to agree to arbitrate claims brought under the chapter. Chapter 271 further provides that the final resolution of an arbitration proceeding is "enforceable" insofar as immunity is waived. What is enforceable is authorized. Because the River Authority possessed the authority to agree to arbitrate claims under chapter 271, and exercised that authority in this contract, we must determine whether an arbitrator may decide matters of governmental immunity. Immunity implicates subject-matter jurisdiction; it may be waived only by the legislature's consent. And enforcement of a judgment against a local government requires the exercise of state judicial power. Courts are empowered to enforce such judgments only to the extent that immunity is waived. Accordingly, the judiciary retains the duty to decide whether a local government has waived its immunity, and the extent to which any arbitration award is recoverable against a local government—the parties' agreement to arbitrate notwithstanding. Finally, we conclude that the River Authority's immunity has been waived in this case. Because the court of appeals reached similar conclusions, we affirm its judgment.
I
The Bexar–Medina–Atascosa Counties Water Control and Improvement District No. 1 owns and operates the Medina Lake Dam, built more than a hundred years ago. About twenty years ago, the District discovered that the dam was falling apart. The Texas Legislature authorized $4 million in state funds for needed repairs.
For a brief description of the Medina Lake Dam and its storied history, see Lance v. Robinson , 543 S.W.3d 723, 726–27 (Tex. 2018).
See Act of May 27, 2009, 81st Leg., R.S., ch. 1409, § 17, 2009 Tex. Gen. Laws 4416, 4420. The legislature appropriated the funds to the Texas Water Development Board for the Board to then grant to the District to assist with the repairs.
The District and four other local governments—Bexar County, the Bexar Metropolitan Water District, the San Antonio River Authority, and the Edwards Aquifer Authority—agreed to undertake the repair project through a "Cooperative Agreement." In that agreement, the District and Bexar County each promised to provide $3 million for the project. For its part, the San Antonio River Authority agreed to serve as the "project manager and contract administrator." In exchange for a fee for its services, the River Authority promised to "ensure quality construction and execution of the project" and to "manage and deliver the [project] within authorized funding levels."
After soliciting bids for the work, the River Authority awarded the construction contract to Austin Bridge. The construction contract required Austin Bridge to repair the dam within a year. In return, the River Authority agreed to pay Austin Bridge under a project-management schedule.
The contract includes an arbitration provision requiring that disputes arising under the contract "be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association." The contract further provides that an "award rendered by the arbitrators will be final, judgment may be entered upon it in any court having jurisdiction thereof, and will not be subject to modification or appeal except to the extent permitted by Sections 10 and 11 of the Federal Arbitration Act."
Austin Bridge subcontracted part of the repair work to Hayward Baker, Inc. Hayward Baker expended more in labor and materials than projected, increasing the cost of the project. Both Austin Bridge and Hayward Baker attribute these costs to faulty specifications in the River Authority's bid documents, which resulted in change orders to the scope of their work; the River Authority disagrees. When the River Authority refused to pay these additional costs, Hayward Baker demanded arbitration against Austin Bridge, which in turn demanded arbitration against the River Authority. In its demand, Austin Bridge alleged that the River Authority breached the construction contract by failing to pay additional amounts owed under the agreement.
The River Authority appeared before the arbitrator and moved to dismiss the arbitration proceeding on the ground that governmental immunity bars the claim against it. The arbitrator denied the motion. Having lost that ruling before the arbitrator, the River Authority sued Austin Bridge and Hayward Baker in state district court. The River Authority requested that the court enjoin the arbitration proceeding and declare that governmental immunity bars the claim against the Authority. The parties moved for summary judgment on the immunity question. The trial court denied the River Authority's motion and granted Austin Bridge and Hayward Baker's, ruling that the arbitration provisions in the construction contract are enforceable.
The court of appeals reversed in part. It agreed with the trial court that the River Authority had the authority to agree to arbitrate but concluded that a court, not an arbitrator, must decide whether the River Authority is immune from the claims against it and from enforcement of any resulting award. The court of appeals then addressed the immunity issue, ruling in accord with the arbitrator and the trial court that Local Government Code Chapter 271 waives the River Authority's immunity from suit. The court of appeals remanded the case to the trial court with instructions to enter an order compelling arbitration and staying all other court proceedings pending the arbitrator's award.
581 S.W.3d 245, 259 (Tex. App.—San Antonio 2017).
Id. at 252, 258.
Id. at 256–57.
Id. at 259.
We granted the River Authority's petition for review. In this Court, the parties present three issues: (1) whether their agreement to arbitrate is enforceable, (2) if so, whether the courts must decide matters of governmental immunity, notwithstanding the agreement of the parties, and (3) whether immunity bars this breach-of-contract claim against the River Authority.
II
"Final and binding resolution of a dispute by arbitration is an accepted and adequate alternative to its resolution by a judge or jury." But it "is a matter of consent, not coercion." Thus, "a party cannot be forced to arbitrate absent a binding agreement to do so." When deciding whether parties must arbitrate their dispute, "the question is not which forum is quicker, cheaper, or more convenient, but which one the parties picked."
Royston, Rayzor, Vickery, & Williams, LLP v. Lopez , 467 S.W.3d 494, 502 (Tex. 2015).
In re Merrill Lynch Tr. Co. FSB , 235 S.W.3d 185, 192 (Tex. 2007) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ. , 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ).
Jody James Farms, JV v. Altman Grp., Inc. , 547 S.W.3d 624, 632 (Tex. 2018).
Merrill Lynch , 235 S.W.3d at 187.
The parties agree that Austin Bridge and the River Authority agreed to arbitrate any dispute arising under the construction contract. The River Authority, however, is a local government created under the Texas Constitution. As a "political subdivision of the State [that] operates as a governmental agency performing governmental functions," the River Authority may "only exercise those powers granted by statute, together with those necessarily implied from the statutory authority conferred or duties imposed." Absent legislative authorization, the River Authority's agreement is "void ab initio," and the River Authority has "the right to declare it null, and to refuse to comply with it." Accordingly, we examine whether a statute authorized the River Authority to agree to arbitrate this dispute.
The River Authority is a conservation and reclamation district under article 16, section 59 of the Texas Constitution. See Act of May 3, 1937, 45th Leg., R.S., ch. 276, § 2, 1937 Tex. Gen. Laws 556, 557. The 1937 Act named the entity the San Antonio River Canal and Conservancy District. Id. § 1(a), 1937 Tex. Gen. Laws at 557. The 53rd Legislature changed its name to the San Antonio River Authority in 1953. See Act of March 30, 1953, 53d Leg., R.S., ch. 60, § 1, 1953 Tex. Gen. Laws 82, 82. Since 1961, the River Authority has been responsible for coordinating water resources along the San Antonio River and its tributaries within Bexar, Wilson, Karnes, and Goliad counties. See Act of May 12, 1961, 57th Leg. R.S., ch. 233, § 3, 1961 Tex. Gen. Laws 466, 468.
Clear Lake City Water Auth. v. Clear Lake Utils. Co. , 549 S.W.2d 385, 391 (Tex. 1977).
City of Sherman v. Pub. Util. Comm'n of Tex. , 643 S.W.2d 681, 686 (Tex. 1983) ; see also Quincy Lee Co. v. Lodal & Bain Eng'rs, Inc. , 602 S.W.2d 262, 263–64 (Tex. 1980) (holding local governmental entities "can exercise no authority that has not been clearly granted by the Legislature"); Tri-City Fresh Water Supply Dist. No. 2 of Harris Cty. v. Mann , 135 Tex. 280, 142 S.W.2d 945, 948 (1940) ("The powers of such districts are measured by the terms of the statutes which authorized their creation, and they can exercise no authority that has not been clearly granted by the legislature."); cf. TEX. CONST. art. XVI, § 59 (b) (granting conservation and reclamation districts "authority to exercise such rights, privileges and functions concerning the subject matter of this amendment as may be conferred by law").
Clear Lake , 549 S.W.2d at 391.
City of Brenham v. Brenham Water Co. , 67 Tex. 542, 4 S.W. 143, 149 (1887).
A
The legislature has granted the River Authority "all of the powers of the State of Texas" to manage the waters within its four-county territory and "to do all things as are required therefor[e]." Among its powers is the power to "make contracts and to execute instruments necessary or convenient to the exercise of the powers, rights, privileges and functions conferred upon it," including "contracts with municipalities and others involving the construction of reservoirs [and] dams" and "provisions for the operation, maintenance and ownership of such properties." As the construction contract in this case provides for repairs to the Medina Lake Dam, the legislature generally has authorized the River Authority to agree to it. The River Authority asserts, however, that its agreement to arbitrate required additional, express authorization.
Act of April 8, 1981, 67th Leg., R.S., ch. 60, § 3, 1981 Tex. Gen. Laws 123, 123.
Id. § 3(j), 1981 Tex. Gen. Laws at 127.
Id. § 3(c)(10),1981 Tex. Gen. Laws at 126.
Austin Bridge responds that Local Government Code Chapter 271 provides that authorization. Chapter 271, it argues, vests courts with jurisdiction to adjudicate a claim for breach of a contract with a local governmental entity. The chapter defines "adjudication" to include both "the bringing of a civil suit and prosecution to final judgment" and "the bringing of an authorized arbitration proceeding and prosecution to final resolution in accordance with any mandatory procedures established in the contract subject to this subchapter for the arbitration proceedings." Section 271.154 of the chapter further provides that agreements to arbitrate claims brought under the subchapter are "enforceable."
Id. § 271.154. Although Austin Bridge has invoked chapter 271 throughout these proceedings, it did not specifically address section 271.154. After oral argument, the Court ordered supplemental briefing to address section 271.154, which the parties provided.
B
The legislature has granted the River Authority broad powers to contract. Broad as it is, that enabling legislation does not mention arbitration (or any other specific contract provision). Until recently, no need existed to determine whether a local government could agree to arbitrate in an otherwise authorized contract.
No need because, until chapter 271, governmental immunity shielded a local government from enforcement of its contract obligations. Though a local government could sue a contractor, a contractor had no corresponding ability to sue a local government for breach of its contract obligations without "legislative consent"—by statute or resolution. Thus, at the time the legislature empowered the River Authority to agree to a contract to repair and maintain the dam, the prospect of a claim against the River Authority for breach of that contract was dim. The availability of arbitration to resolve the claim was as ephemeral as the claim itself.
See Wasson Interests, Ltd. v. City of Jacksonville , 489 S.W.3d 427, 429–30 (Tex. 2016) ("Political subdivisions of the state ... share in the state's inherent immunity.").
Tex. Nat. Res. Conservation Comm'n v. IT-Davy , 74 S.W.3d 849, 853–54 (Tex. 2002) ; see also Gen. Servs. Comm'n v. Little-Tex Insulation Co. , 39 S.W.3d 591, 597 (Tex. 2001) ("[T]here is but one route to the courthouse for breach-of-contract claims against the State, and that route is through the Legislature.").
But times change. First, the legislature codified its pro-arbitration public policy stance and recognized an array of arbitration procedures. It later applied these procedures to some government disputes, encouraging local governments to "develop and use alternative dispute resolution procedures" consistent with statutorily-recognized practices. Second, the legislature began to authorize, and sometimes require, arbitration in government-related contexts. And finally, the legislature enacted Local Government Code Chapter 271, which, for the first time, made local governments accountable for their obligations in goods-and-services contracts by granting a limited waiver of immunity for claims brought within the chapter's parameters. To remove doubt about whether arbitration is among those obligations, chapter 271 provides that agreements to arbitrate claims brought under the chapter "are enforceable."
See generally Tex. Civ. Prac. & Rem. Code §§ 154.001 –.073; see also id. § 154.002 ("It is the policy of this state to encourage the peaceable resolution of disputes ... and the early settlement of pending litigation through voluntary settlement procedures.").
Tex. Gov't Code § 2009.003(1) (" ‘Alternative dispute resolution procedure’ [in the Governmental Dispute Resolution Act] includes: (A) a procedure described by Chapter 154, Civil Practice and Remedies Code; and (B) a combination of the procedures described by Chapter 154, Civil Practice and Remedies Code.").
Id. § 2009.051(a); see also id. § 2009.002 ("It is the policy of this state that disputes before governmental bodies be resolved as fairly and expeditiously as possible and that each governmental body support this policy by developing and using alternative dispute resolution procedures in appropriate aspects of the governmental body's operations and programs."). However, these provisions are not independent statutory authorization for local governments to submit to binding arbitration. Id. § 2009.005(c) ("Nothing in this chapter authorizes binding arbitration as a method of alternative dispute resolution.").
See, e.g. , Tex. Educ. Code § 29.012(d)(6) (requiring specified state agencies to enter an agreement that provides for binding arbitration); Tex. Gov't Code § 2258.053(a) (requiring disputes over penalties assessed against government contractors that fail to pay prevailing wage rates to be resolved through binding arbitration); Tex. Health & Safety Code § 242.252(a) (permitting certain disputes between state agency and nursing facilities to be resolved through binding arbitration as an alternative to a contested case hearing or judicial proceeding); id. § 247.082(a) (providing that assisted living facilities may invoke binding arbitration in response to certain enforcement actions); id. § 775.0221(a) (requiring municipalities and emergency-services districts to resolve certain territorial disputes using binding arbitration); Tex. Ins. Code § 2210.554(a) (permitting persons insured by Texas Windstorm Insurance Association to purchase an endorsement requiring binding arbitration of coverage disputes); Tex. Loc. Gov't Code § 142.064(b) (permitting public employers and police officer associations to provide for binding arbitration in meet-and-confer agreements); id. § 242.0015(a) (requiring counties and municipalities to resolve certain disputes over extraterritorial jurisdiction through binding arbitration); Tex. Occ. Code § 2027.056(b) (permitting greyhound racetrack association and state greyhound breed registry to resolve certain disputes by binding arbitration); Tex. Tax Code § 41A.01 (permitting property owners to resolve certain appraisal-review-board appeals through binding arbitration); Tex. Transp. Code § 451.756(b) (permitting certain agreements between public employers and peace officers to provide for binding arbitration).
Tex. Loc. Gov't Code § 271.152 (emphasis added).
Id. § 271.154.
Titled "Purchasing and Contracting Authority of Municipalities, Counties, and Certain Other Local Governments," chapter 271 broadly addresses a local government's authority to finance the acquisition of public property and to contract for personal property. This case involves subchapter I, titled "Adjudication of Claims Arising Under Written Contracts with Local Government Entities."
See generally id. §§ 271.001–.908.
Subchapter I is a framework for resolving contract disputes between governmental entities and private parties by (1) providing a limited waiver of governmental immunity "for the purpose of adjudicating a claim for breach of [a] contract" against local governments, (2) setting limits on damages for those claims, and (3) clarifying that "contractual adjudication procedures" to resolve those claims are "enforceable."
Id. § 271.152.
Id. § 271.153.
Id. § 271.154.
"Adjudication" is a defined term under chapter 271. "Adjudication" means "the bringing of a civil suit and prosecution to final judgment ... and includes the bringing of an authorized arbitration proceeding and prosecution to final resolution in accordance with any mandatory procedures established in the contract subject to this subchapter for the arbitration proceedings." Under this definition, arbitration—to a "final resolution"—is unmistakably authorized as an "adjudication" for which immunity can be waived.
Id. § 271.151(1).
Section 271.154 further emphasizes that contractual arbitration provisions "are enforceable" unless they conflict with another provision:
Adjudication procedures, including requirements for serving notices or engaging in alternative dispute resolution proceedings before bringing a suit or an arbitration proceeding, that are stated in the contract subject to this subchapter or that are established by the local governmental entity and expressly incorporated
into the contract or incorporated by reference are enforceable except to the extent those procedures conflict with the terms of this subchapter.
Id. § 271.154.
Section 271.154 begins with the term "adjudication," which is expressly defined to include "an authorized arbitration proceeding and prosecution to final resolution in accordance with any mandatory procedures established in the contract." The legislature combines "adjudication" with "procedures" in an open-ended reference to provisions that govern disputes arising under the contract—making these provisions "enforceable." An "adjudication" may be brought to "final judgment" or "final resolution," including through arbitration. Arbitration is an "adjudication procedure" under the plain meaning of the statute, even without the clarification supplied by the statutory definition of "adjudication." To remove any argument, the legislature supplied that definition, reinforcing the unremarkable proposition that arbitration "to a final resolution" is an "adjudication procedure."
Id. § 271.151(1).
Id .
The dissenting justices would read section 271.154 to enforce undefined procedures associated with arbitration but not any "final resolution" as contemplated by the definition of "adjudication" found in section 271.151. The dissent reaches this conclusion because section 271.154 refers to arbitration as a "proceeding," as distinguished from a "procedure," and reasons that section 271.154 therefore "addresses contractually incorporated ‘[a]djudication procedures ' that may apply to an authorized ‘arbitration proceeding ’ and makes those procedures (but not the arbitration proceeding itself) ‘enforceable.’ " Post at 636 (quoting id. § 271.154 ). Thus, "adjudication procedures" consist only of "procedural ‘requirements'—such as a notice requirement or a requirement that parties engage in nonbinding dispute resolution—that the party must satisfy ‘before bringing a suit to an arbitration proceeding .’ " Id. This construction insists that "procedures" and "proceedings," though they derive from the same root word, are mutually exclusive categories. However, it ignores the supplied statutory definition of "adjudication," which includes an "arbitration proceeding" brought to a "final resolution." See Tex. Loc. Gov't Code § 271.151(1). The subsection rendering arbitration proceedings "enforceable" neither conscribes adjudication procedures nor excludes binding arbitration—rather, that subsection expressly lists it. See Sneed v. Webre , 465 S.W.3d 169, 190 (Tex. 2015) (stating that usage of the words "includes" or "including" "does not create a presumption that components not expressed are excluded" (quoting Tex. Gov't Code § 311.005(13) )). Applying the statutory definition of "adjudication" results in the sensible reading that binding arbitration to a "final resolution" is a type of enforceable "adjudication procedure."
We should not, as the River Authority suggests, stretch "authorized arbitration proceeding" in section 271.151 to require authorization outside chapter 271. The River Authority's reading is belied by a separate reference to authorization in section 271.252 that explicitly includes the distinction the River Authority suggests we should imply in section 271.151 : in section 271.152, the legislature waives immunity for a local government entity "that is authorized by statute or the constitution to enter into a contract." The legislature could have similarly modified "authorized" in section 271.151, but it did not. Instead, "authorized arbitration proceeding" in section 271.151 refers to the contract governed by the subchapter: arbitration is authorized "in accordance with any mandatory procedures established in the contract subject to this subchapter for the arbitration proceedings." Imposing additional "authorization" marginalizes the obligation that the legislature expressly enforces. "Authorized" is best read to refer to the clause that modifies it in the statutory text: authorized "in accordance with the contract subject to this subchapter."
Tex. Loc. Gov't Code § 271.152 (emphasis added).
Id. § 271.151(1).
Section 271.154 reinforces this construction. To "enforce" is to "compel observance of or obedience to." And "enforceable" means "capable of being enforced." "Authorized" means "[t]o grant authority or power to" or "[t]o give permission for." "Capable of being enforced" includes the authorization to do so—the legislature would not compel observance of the unauthorized. Section 271.154 does not contemplate adjudication procedures that may be enforceable; it declares they "are enforceable except to the extent those procedures conflict with the terms of this subchapter." Making contract provisions "enforceable" is itself an authorization. Chapter 271.154's directive grants "authority or power to" or "give[s] permission" to local governments to agree to arbitration in contracts within chapter 271's scope.
See Enforce , American Heritage Dictionary of the English Language (5th ed. 2016).
See Enforceable , Webster's Third New International Dictionary (2002) (emphasis added).
See Authorized , American Heritage Dictionary of the English Language (5th ed. 2016).
Tex. Loc. Gov't Code § 271.154 (emphasis added).
Authorize , American Heritage Dictionary of the English Language (5th ed. 2020); see also Authorize , Webster's Third New International Dictionary (2002) ("to endorse, empower, justify, or permit by or as if by some recognized or proper authority").
Finally, one evident purpose of subchapter I is to permit local governments to agree to alternative dispute resolution for claims allowed to proceed against a local government under the subchapter's waiver of immunity. Section 271.152 provides a prospective waiver of governmental immunity for breach-of-contract claims against local governments for contracts involving goods and services. The waiver is "for the purpose of adjudicating a claim" under the subchapter:
The dissenting justices view chapter 271 as wholly about immunity and not at all about adjudication. The subchapter is better read to authorize contracting parties to devise methods for dispute resolution in their contracts for claims now viable through the subchapter's limited waiver of immunity. Arbitration to a "final resolution" is one method the statute expressly authorizes.
A local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter 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 chapter.
Chapter 271 altered decades of one-sided bargains, in which local governments were wholly immune from breaches of their obligations. Before chapter 271, there was no "adjudication" of a contract claim against a local government. Now, a local government can be held to promises made within the chapter's framework. Arbitration can be a part of that bargain. Accordingly, we hold that the River Authority was authorized to agree to arbitrate disputes arising from its contract with Austin Bridge, within chapter 271's expressed limits. III
See Tex. Nat. Res. Conservation Comm'n v. IT-Davy , 74 S.W.3d 849, 853–54 (Tex. 2002).
See Gen. Servs. Comm'n v. Little-Tex Insulation Co. , 39 S.W.3d 591, 597 (Tex. 2001).
See Tex. Loc. Gov't Code §§ 271.151 –.154.
We turn to the question of who must decide whether the River Authority's immunity is waived for this breach-of-contract claim—the arbitrator or the trial court.
The construction contract provides that "[a]ll claims, disputes, and other matters" arising under it "shall be decided in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association." The Construction Industry Arbitration Rules permit an arbitrator to decide the validity and scope of an arbitration agreement:
The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.
See Am. Arbitration Ass'n, Construction Industry Arbitration Rules and Mediation Procedures , R-9(a), 18 (2015), https://www.adr.org/sites/default/files/ConstructionRules_Web.pdf (last accessed Apr. 30, 2020).
Austin Bridge argues that these rules vest the arbitrator with "power to rule on his or her own jurisdiction," including the jurisdictional question of whether the River Authority has governmental immunity from Austin Bridge's claims. The River Authority responds that a court must answer whether chapter 271 waives the Authority's immunity because the question implicates the court's subject-matter jurisdiction to stay or compel arbitration and to enforce any judgment confirming an award against a local government.
Tex. Dep't of Parks & Wildlife v. Miranda , 133 S.W.3d 217, 224 (Tex. 2004) ("In Texas, sovereign immunity deprives a trial court of subject matter jurisdiction for lawsuits in which the state or certain governmental units have been sued unless the state consents to suit.").
The trial court ruled that the parties' agreement required the arbitrator to decide the governmental immunity question. The court of appeals reversed the trial court on this ground, holding that a court must determine matters of governmental immunity. We agree with the court of appeals. Because immunity bears on the trial court's jurisdiction to stay or compel arbitration, and to enforce an arbitration award in a judgment against a local government, a court must decide whether governmental immunity is waived. An agreement to arbitrate is unenforceable against a local government to the extent it purports to submit immunity questions to an arbitrator.
581 S.W.3d 245, 252–53 (Tex. App.—San Antonio 2017).
The United States Supreme Court has explained that whether a dispute is arbitrable is ordinarily a threshold matter for a court to decide. Austin Bridge observes, however, that parties may supplant this general rule with "clear and unmistakable evidence" that the parties agreed to submit arbitrability questions to an arbitrator. Because arbitrators "derive their jurisdiction over disputes from the parties' consent and the law of contract," it further argues, courts must defer to an arbitrator's decision about the scope of their agreement if the parties assigned that matter to the arbitrator. The River Authority responds that it had no authority to assign immunity as a matter to be arbitrated, and thus "the proper procedure is for a court to first determine if there is a binding arbitration agreement that delegates arbitrability to the arbitrator."
First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 942–43, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ; see also RSL Funding, LLC v. Newsome , 569 S.W.3d 116, 120 (Tex. 2018) ("The U.S. Supreme Court has explained that there are three types of disagreements in the arbitration context: (1) the merits of the dispute; (2) whether the merits are arbitrable; and (3) who decides the second question. ... The default rule for the third question is that arbitrability is a threshold matter for the court to decide." (first citing id. at 942, 115 S.Ct. 1920, and then citing Forest Oil Corp. v. McAllen , 268 S.W.3d 51, 61 (Tex. 2008) )).
Jody James Farms, JV v. Altman Grp., Inc. , 547 S.W.3d 624, 631–32 (Tex. 2018) ; see also RSL Funding , 569 S.W.3d at 121 ("[A]s parties have a right to contract as they see fit, they may agree to arbitral delegation clauses that send gateway issues such as arbitrability to the arbitrator.").
See, e.g. , Haddock v. Quinn , 287 S.W.3d 158, 175 (Tex. App.—Fort Worth 2009, pet. denied) (holding that the agreement in that case did not "clearly and unmistakably" reflect the "parties' intent to refer the issue of waiver by litigation conduct to the arbitrator" because "[t]he agreement is silent as to whether the parties intended to incorporate the current rules, silent as to whether the arbitrator is to decide issues of ‘arbitrability,' and silent specifically regarding who is to decide waiver, repudiation, or similar matters"); Burlington Res. Oil & Gas Co. v. San Juan Basin Royalty Tr. , 249 S.W.3d 34, 41–42 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) ("[T]he agreement's mere reference to the AAA's rules does not provide clear and unmistakable evidence of the parties' delegation of issues of arbitrability to an arbitrator.").
RSL Funding , 569 S.W.3d at 122 ; see also First Options , 514 U.S. at 943, 115 S.Ct. 1920 ("Did the parties agree to submit the arbitrability question itself to arbitration? If so, then the court's standard for reviewing the arbitrator's decision about that matter should not differ from the standard courts apply when they review any other matter that parties have agreed to arbitrate.").
See RSL Funding , 569 S.W.3d at 121.
Governmental immunity implicates jurisdiction to allow a suit to proceed and to enforce an award against a governmental entity in a judgment. A court lacks jurisdiction to compel or stay arbitration, or to enforce a later arbitration award, if a governmental entity is immune from any suit or liability. The parties cannot contractually agree to define a court's jurisdiction. A court's subject-matter jurisdiction "cannot be conferred upon any court by consent or waiver." Thus, the judiciary must determine in the first instance the existence and boundaries of governmental immunity. And, as in chapter 271, the legislature determines whether that immunity is waived and to what extent.
See Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83–84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) ("[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to decide. ... Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court."); First Options , 514 U.S. at 943–44, 115 S.Ct. 1920 ; Lower Colo. River Auth. v. Papalote Creek II, L.L.C. , 858 F.3d 916, 922 (5th Cir. 2017) (holding that, in a motion to compel arbitration, when one party challenges the ripeness of the dispute, the court must first " ‘look through' the petition to compel arbitration in order to determine whether the underlying dispute presents a sufficiently ripe controversy to establish federal jurisdiction").
See, e.g. , Tex. Dep't of Parks & Wildlife v. Miranda , 133 S.W.3d 217, 225–26 (Tex. 2004) (recognizing that "[s]overeign immunity from suit defeats a trial court's subject matter jurisdiction"); Prairie View A & M Univ. v. Chatha , 381 S.W.3d 500, 512 (Tex. 2012) ("Sovereign immunity bars suits against the state and its entities, and this immunity remains intact unless surrendered in express and unequivocal terms by the statute's clear and unambiguous waiver."); 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.").
Dubai Petroleum Co. v. Kazi , 12 S.W.3d 71, 76 (Tex. 2000) (quoting Fed. Underwriters Exch. v. Pugh , 141 Tex. 539, 174 S.W.2d 598, 600 (Tex. 1943) ).
See City of Dallas v. Albert , 354 S.W.3d 368, 374 (Tex. 2011) ("[T]he boundaries of sovereign immunity are determined by the judiciary ...." (citing City of Galveston v. State , 217 S.W.3d 466, 471 (Tex. 2007) )).
Id. ("[W]aivers of sovereign immunity or consent to sue governmental entities must generally be found in actions of the Legislature.").
A trial court must have jurisdiction to enforce an agreement to arbitrate and to enter any award. Its jurisdiction to do so in this case is bounded both by the authority vested in a local government and by the legislature's waiver of governmental immunity in chapter 271. Accordingly, an arbitrator may not decide the River Authority's immunity or confer jurisdiction on the trial court; it is the non-delegable role of the judiciary to determine whether governmental immunity exists, whether such immunity has been waived, and to what extent.
See Kansas City S. v. Port of Corpus Christi Auth. of Nueces Cty. , 305 S.W.3d 296, 303–04 (Tex. App.—Corpus Christi-Edinburg 2009, pet. denied) ("[I]f a party is immune to a suit ... it is also immune to the judicial enforcement of any arbitration award based upon that same claim. Just as it is the judiciary's proper role to determine whether a claim is covered by an arbitration agreement, ... it is similarly the primary function of the courts to determine whether a government defendant retains immunity as to any arbitration award." (citing Tex. Civ. Prac. & Rem. Code § 171.021(b) )); Lower Colo. River Auth. , 858 F.3d at 922–24 (explaining that a federal court that lacks subject-matter jurisdiction lacks jurisdiction to compel arbitration).
IV
Having concluded that a court must determine whether immunity is waived, we turn to that question. The court of appeals held that Local Government Code Chapter 271 waives the River Authority's immunity from suit for this breach-of-contract claim. We agree.
Chapter 271 waives a local governmental entity's immunity from breach-of-contract claims brought under the chapter. An authorized local government entity "that enters into a contract subject to this subchapter 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." A "contract subject to this subchapter" means "a written contract stating the essential terms of the agreement for providing goods or services to the local governmental entity that is properly executed on behalf of the local governmental entity."
The parties do not dispute that the River Authority is a local government for purposes of chapter 271. See Tex. Loc. Gov't Code § 271.151(3).
Id. § 271.152 ; see also id. § 271.153 (limiting awards and damages).
Id. § 271.151(2)(A).
The River Authority contends that chapter 271's waiver does not apply because the construction contract required Austin Bridge to provide services to the District, which owns and operates the Medina Lake Dam, not the River Authority. The River Authority further suggests that it merely acted on the District's behalf as project manager and contract administrator. Austin Bridge responds that it provided services to both. The parties do not dispute that the contract states its essential terms.
We have interpreted the scope of chapter 271's waiver of immunity several times in recent years. "Services" in section 271.151(2)(A) is "broad enough to encompass a wide array of activities" and "includes generally any act performed for the benefit of another." But chapter 271 does not apply to a contract that provides only an "indirect, attenuated" benefit to the local government.
See, e.g. , Lubbock Cty. Water Control & Imp. Dist. v. Church & Akin, L.L.C. , 442 S.W.3d 297 (Tex. 2014) ; City of Houston v. Williams , 353 S.W.3d 128 (Tex. 2011) ; Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth. , 320 S.W.3d 829 (Tex. 2010) ; Ben Bolt–Palito Blanco Consol. Indep. Sch. Dist. v. Tex. Political Subdivisions Prop./Cas. Joint Self–Ins. Fund , 212 S.W.3d 320 (Tex. 2006).
Kirby Lake , 320 S.W.3d at 839.
Id. (quoting Berkman v. City of Keene , 311 S.W.3d 523, 527 (Tex. App.—Waco 2009, pet. denied) ).
Applying these principles, we held in Byrdson Services., LLC v. South East Texas Regional Planning Commission that a government contractor's services that primarily benefitted a third party also directly benefitted the government, because the contractor performed services the government was "otherwise obligated to perform itself." When a local government "relieve[s] itself of contractual obligations" to provide "real and direct services" through securing that performance by a contractor, the contract may be subject to chapter 271.
Byrdson Servs., LLC v. S. E. Tex. Reg'l Planning Comm'n , 516 S.W.3d 483, 486 (Tex. 2016).
Id. at 487.
The River Authority argues that our reasoning in Byrdson is inapplicable here because the River Authority had no obligation to repair the Medina Lake Dam. Instead, the District, as owner and operator of the dam, is charged with repairing and maintaining it. The Cooperative Agreement required the River Authority to manage the project, not to repair the dam. As a result, the River Authority contends, its contract required Austin Bridge to provide construction services to benefit the District, not the River Authority.
While the project unquestionably benefitted the District, we conclude that the contract also required Austin Bridge to provide services that directly benefitted the River Authority. The contract required Austin Bridge to perform management and oversight tasks that fall within the Authority's project management role. In fulfilling the Authority's role as "project manager and contract administrator," the contract required that Austin Bridge:
Noting that the Cooperative Agreement between the five governmental bodies required the River Authority to "ensure quality construction and execution of the project" and to "manage and deliver the [project] within authorized funding levels," Austin Bridge argues that the River Authority was obligated to ensure that the dam was properly repaired. And, Austin Bridge argues, the River Authority acknowledged this obligation in its contract with Austin Bridge by, for example, referring to itself as the project "Owner" and providing that the contract "be performed for" the River Authority. Because the contract required Austin Bridge to provide services to the River Authority as the contract administrator and project manager, benefitting the River Authority by enabling it to fulfill its obligations in those capacities, we need not address these further reasons for waiver of immunity.
• report conflicts or discrepancies in contract documents to the River Authority
• deliver a progress schedule to the River Authority
• provide insurance certificates to the River Authority
• provide the River Authority with evidence of the kind and quality of goods used on the project
• deliver specifications, drawings, and samples to the River Authority
• notify the River Authority of deviations from contract requirements
• provide the River Authority with an itemized "cost breakdown together with supporting data"
• notify the River Authority of "readiness of the Work for all required inspections, tests, or approvals"
• furnish labor, materials, and equipment necessary to make the Work available "for observation, inspection or testing as [the River Authority] may require"
• provide payroll transcripts and payment applications to the River Authority
The contract may primarily require Austin Bridge to provide construction services to the District, but it further requires Austin Bridge to provide services directly for the River Authority, fulfilling the River Authority's management obligations. Even if these services were not the contract's "primary purpose," they were neither "indirect" nor "attenuated." Accordingly, we hold that the contract provided goods and services to the River Authority as chapter 271 requires.
See Lubbock Cty. Water Control & Imp. Dist. v. Church & Akin, L.L.C. , 442 S.W.3d 297, 302–03 (Tex. 2014).
See Byrdson , 516 S.W.3d at 486 ; Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth. , 320 S.W.3d 829, 839 (Tex. 2010).
See Tex. Loc. Gov't Code §§ 271.151 –.152.
Finally, the River Authority contends that chapter 271 does not waive its immunity because Austin Bridge seeks consequential damages. Section 271.153 provides that any recovery under the chapter "is limited to the following:"
(1) the balance due and owed by the local governmental entity under the contract as it may have been amended, including any amount owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays or acceleration;
(2) the amount owed for change orders or additional work the contractor is directed to perform by a local governmental entity in connection with the contract;
(3) reasonable and necessary attorney's fees that are equitable and just; and
(4) interest as allowed by law, including interest as calculated under Chapter 2251, Government Code.
Id. § 271.153(a)(1)–(4).
Further, any monetary recovery "may not include ... consequential damages, except as expressly allowed under Subsection (a)(1) ...." These provisions "define the scope of [chapter 271's] waiver of immunity," so the chapter "does not waive immunity from suit on a claim for damages not recoverable under Section 271.153."
Id. § 271.153(b)(1).
Zachry Constr. Corp. v. Port of Hous. Auth. of Harris Cty. , 449 S.W.3d 98, 108, 110 (Tex. 2014).
We explained in Zachry Construction Corp. v. Port of Houston Authority of Harris County that "the balance due and owed" by the local government under the contract is "the amount of damages for breach of contract payable and unpaid," even if the amount is not "stated in," "expressly provided for in," or even "ascertainable from" the contract. And we acknowledged more recently that section 271.153 "expressly provides that the damages awardable on a contract claim for which chapter 271 waives governmental immunity cannot include ‘consequential damages, except as expressly allowed under Subsection (a)(1).’ " Subsection (a)(1) permits recovery of "compensation for the increased cost to perform the work as a direct result of owner-caused delays or acceleration," but subsection (b)(1) precludes recovery of any other type of consequential damages.
Id. at 110–12, 114.
Dall./Fort Worth Int'l Airport Bd. v. Vizant Techs., LLC , 576 S.W.3d 362, 374 (Tex. 2019) (quoting Tex. Loc. Gov't Code § 271.153 ).
Id. § 271.153(b)(1) ; see also Zachry , 449 S.W.3d at 112.
The River Authority contends that it agreed to pay "unit prices" for each task, and Austin Bridge's claim seeks consequential damages because the cost of extra materials and labor used to complete each task is above the unit prices in the contract. According to the River Authority, these payments are not part of "the balance due and owed ... under the contract," TEX. LOC. GOV'T CODE § 271.153(a)(1), but instead are "for costs already included in the calculation of the unit prices."
In response, Austin Bridge asserts that the damages it seeks are payments for "work actually performed" and were made necessary by the River Authority's faulty design specifications. For example, Hayward Baker claims $255,000 for unpaid work it insists that it performed under the contract's unit-priced items, along with $1,314,673 in work that it alleges it performed because of "change orders, defective specifications, and required changes to those specifications." Austin Bridge claims that it seeks to recover "its costs for work performed in accordance with the [contract] for which [Austin Bridge] has not been paid."
Consequential damages are those that " ‘result naturally, but not necessarily,’ from the defendant's breach, and are not ‘the usual result of the wrong.’ " In contrast, direct damages are those that the breaching party is " ‘conclusively presumed' to have foreseen as a result of its breach because they ‘are the necessary and usual result of,’ and ‘flow naturally and necessarily from,’ that wrongful act." Though the parties' arguments have yet to be fully developed on this point, we conclude that Austin Bridge has alleged some damage that flows naturally and necessarily from the River Authority's alleged breach. Austin Bridge alleges that the River Authority breached the contract by failing to pay for materials and labor required to complete the project. The heart of the parties' dispute is whether the contract in fact required the River Authority to pay for these additional costs. That question—which the parties do not present and we do not address—reaches the merits of Austin Bridge's breach-of-contract claim. If Austin Bridge is correct in its position, then the damages it seeks flow from the River Authority's failure to pay amounts due and owed under the contract. Based on the parties' characterizations of Austin Bridge's claims, we conclude that Austin Bridge seeks direct damages for amounts it alleges are "due and owed by the local governmental entity under the contract." Accordingly, we hold that chapter 271 waives the River Authority's immunity from suit on those claims.
Vizant , 576 S.W.3d at 373 (quoting Arthur Andersen & Co. v. Perry Equip. Corp. , 945 S.W.2d 812, 816 (Tex. 1997) ).
Id. (quoting Arthur Andersen , 945 S.W.2d at 816 ).
* * *
We hold that Local Government Code Chapter 271 authorized the River Authority to agree to arbitrate disputes arising from its construction contract with Austin Bridge. We further hold that a court must decide a local government's immunity from suit and liability, notwithstanding a contractual agreement to the contrary. Thus, the River Authority could not agree to permit an arbitrator to decide questions of governmental immunity. Finally, chapter 271 waives the River Authority's immunity from suit for Austin Bridge's breach-of-contract claim. Accordingly, we affirm the judgment of the court of appeals.
Justice Boyd filed a dissenting opinion, in which Chief Justice Hecht, Justice Guzman, and Justice Devine joined.
Justice Boyd, joined by Chief Justice Hecht, Justice Guzman, and Justice Devine, dissenting. Jeffrey S. Boyd Justice
Because I do not agree that the San Antonio River Authority was authorized to resolve its dispute with Austin Bridge & Road through binding arbitration, I respectfully dissent.
The Court also holds that (1) the courts (and not the arbitrator) must decide whether governmental immunity bars the claims that Austin Bridge asserted against the River Authority, and (2) governmental immunity does not bar the claims because chapter 271 of the Local Government Code waives that immunity. I agree that chapter 271 waives the River Authority's governmental immunity against Austin Bridge's claims, for the reasons the Court explains. See ante at 620. In light of my conclusion that the River Authority lacked authority to agree to engage in binding arbitration, I would not reach the question whether the court or the arbitrator should decide whether governmental immunity bars the claim.
I.
No Authority to Engage in Binding Arbitration
This case presents a deceptively significant issue. Although we have often acknowledged the benefits that binding arbitration can provide over litigation in the courts, we have also recognized that a party's election to submit disputes to binding arbitration is "consequential" for a number of important reasons. Robinson v. Home Owners Mgmt. Enters., Inc. , 590 S.W.3d 518, 526 (Tex. 2019). Binding arbitration substantially limits the role elected judges and our constitutionally provided judicial process can play in resolving the dispute. See id. (noting that a trial court "can set aside the arbitrator's decision only in finite circumstances"). While private parties may decide that the benefits of binding arbitration are well worth the trade-off, the decision to allow private individuals (instead of elected judges) to utilize private procedures (instead of constitutionally authorized and enacted procedural rules and standards) to resolve disputes involving governmental entities raises substantially different considerations.
Nevertheless, our resolution of this important issue depends on the legislature's assessment of the wisdom of resolving governmental disputes through private proceedings, not on ours. When deciding whether a dispute must be resolved through binding arbitration instead of through litigation in the courts, "the question is not which forum is quicker, cheaper, or more convenient, but which one the parties picked." In re Merrill Lynch Tr. Co. FSB , 235 S.W.3d 185, 187 (Tex. 2007). Austin Bridge and the River Authority indisputably "picked" binding arbitration as the method to resolve their contract dispute, but because the River Authority is a statutorily created local governmental entity, its "pick" does not ultimately matter. See ante at 620. As a political subdivision of the State, the River Authority can only exercise powers that a statute expressly or impliedly confers. See ante at 620. Ultimately, the State itself—acting through the legislature—must have authorized the River Authority to resolve this dispute through binding arbitration. If (as I conclude) it didn't, the River Authority's agreement to engage in binding arbitration is void and unenforceable. See ante at 621.
A. No express authority
Three statutes are relevant to the question of whether the legislature has expressly authorized the River Authority to engage in binding arbitration, but none of them supports the Court's conclusion.
1. The GDR Act & the ADR Act
The first relevant statute is the Governmental Dispute Resolution Act (the GDR Act), see TEX. GOV'T CODE §§ 2009.001 –.055, which expresses the state's policy that "disputes before governmental bodies be resolved as fairly and expeditiously as possible and that each governmental body support this policy by developing and using alternative dispute resolution procedures in appropriate aspects of the governmental body's operations and programs." Id. § 2009.002. To support this policy, the GDR Act authorizes governmental entities to "develop and use" the "alternative dispute resolution procedures" described in the second relevant statute, the Alternative Dispute Resolution Procedures Act (the ADR Act). Id. §§ 2009.003(1), .051(a).
Similar to the GDR Act, the ADR Act expresses the state's policy to "encourage the peaceable resolution of disputes ... and the early settlement of pending litigation through voluntary settlement procedures." TEX. CIV. PRAC. & REM. CODE § 154.002. To support this policy, the ADR Act authorizes courts to refer pending disputes for possible resolution through specified alternative-dispute-resolution procedures. Id. § 154.021(a). These procedures include "[n]onbinding arbitration" and—if "the parties stipulate in advance"—arbitration that is "binding " and "enforceable in the same manner as any contract obligation." Id. § 154.027 (emphases added). Except for binding arbitration to which the parties stipulate in advance, none of the ADR Act's authorized procedures result in a binding opinion or resolution.
Nonbinding arbitration is "a forum in which each party and counsel for the party present the position of the party before an impartial third party, who renders a specific award" that "is not binding and serves only as a basis for the parties' further settlement negotiations." Tex. Civ. Prac. & Rem. Code § 154.027 (emphasis added).
See id. §§ 154.023–.026. The ADR Act's other authorized methods are mediation, mini-trials, moderated settlement conferences, and summary jury trials.
Read together, the provisions of the GDR Act and the ADR Act would appear to authorize governmental entities to engage in binding arbitration, so long as the parties stipulate to that method in advance. But the GDR Act—which specifically addresses the use of alternative dispute resolution by governmental entities—expressly forecloses that conclusion. Anticipating the issue before us today, the Act authorizes governmental entities to engage only in the ADR Act's nonbinding procedures: "Nothing in this chapter authorizes binding arbitration as a method of alternative dispute resolution." TEX. GOV'T CODE § 2009.005(c) (emphasis added). In light of this provision, we cannot read the GDR Act or the ADR Act to authorize governmental entities to engage in binding arbitration. 2. Chapter 271
The court of appeals construed subsection 2009.005(c) to mean only that "the [GDR] Act does not waive governmental immunity if a governmental agency decides to engage in binding arbitration." San Antonio River Auth. v. Austin Bridge & Rd., L.P. , 581 S.W.3d 245, 258 (Tex. App.—San Antonio 2017) (emphasis added). So construed, the court held, "subsection (c) of section 2009.005 does not prohibit the River Authority from engaging in binding arbitration." Id. (emphasis added). But the issue is not whether subsection (c) prohibits the River Authority from engaging in binding arbitration. Because the River Authority possesses only the authority that the legislature has expressly or impliedly granted to it, the issue is whether some statute authorizes it to engage in binding arbitration. Section 2009.005(c) clearly and unambiguously provides that nothing in the GDR Act (including, therefore, its authorization of the use of methods described in the ADR Act) grants such authorization.
The third potentially relevant statute, and the one on which the Court hangs its hat, is chapter 271 of the Local Government Code. This statute provides that a local governmental entity that is "authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter 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." TEX. LOC. GOV'T CODE § 271.152 (emphases added). The statute defines the term "adjudication" to include not only litigation, but also "the bringing of an authorized arbitration proceeding and prosecution to final resolution in accordance with any mandatory procedures established in the contract subject to this subchapter for the arbitration proceedings ." Id. § 271.151(1) (emphases added).
Noting that section 271.152 refers to governmental entities that are "authorized by statute or the constitution " to enter into a contract but section 271.151(1) refers to an "authorized arbitration proceeding" without any reference to statutes or the constitution, the Court concludes that "an authorized arbitration proceeding" refers to any such proceeding the governmental entity has contractually authorized, including a binding arbitration proceeding that results in a "final resolution." Ante at 624. But even if section 271.151(1) impliedly refers to a "[contractually ] authorized arbitration proceeding," we must still determine whether the governmental entity was "authorized by statute or the constitution" to enter into that contract authorizing binding arbitration.
Section 271.152 "waives sovereign immunity to suit" for the purpose of "bringing an authorized arbitration proceeding" to enforce a contract against a governmental entity, but it does not itself authorize the arbitration proceeding, and it does not waive immunity at all unless the governmental entity itself is "authorized by statute or the constitution" to enter into the contract. Id. §§ 271.151(1), .152. So although section 271.152 waives immunity to allow claims to be resolved through a binding arbitration proceeding, it does so only if the parties have agreed to resolve their dispute through binding arbitration and that agreement itself was "authorized by statute or the constitution." Id. § 271.152. A local governmental entity that contractually "authorizes" binding arbitration accomplishes nothing if it has no statutory or constitutional authority to engage in binding arbitration.
To be sure, the legislature knows how to statutorily authorize—and even require—governmental entities to resolve disputes through binding arbitration, and it has done so in several specific contexts. When a governmental entity that is legislatively authorized to engage in binding arbitration agrees to resolve disputes through that process, section 271.152 waives immunity to allow an "adjudication" through the authorized binding arbitration proceeding, which provides a "final resolution." TEX. LOC. GOV'T CODE §§ 271.151(1), .152. But when the governmental entity lacks authority to engage in binding arbitration, its agreement to resolve disputes through that process is not "authorized" by statute or the constitution, and that method of adjudication is unavailable. See id. § 271.152. Sections 271.151 and 271.152 waive immunity to allow adjudication of a contract claim, including adjudication through binding arbitration when that method is authorized, but they do not themselves authorize governmental entities to authorize that method. Id. §§ 271.151(1), .152.
See, e.g. , Tex. Educ. Code § 29.012(d)(6) (requiring certain state agencies to enter an agreement that provides for binding arbitration); Tex. Govt. Code § 2258.053(a) (requiring disputes over penalties assessed against government contractors who fail to pay prevailing wage rates to be resolved through binding arbitration); Tex. Health & Safety Code §§ 242.252(a) (permitting certain disputes between state agency and nursing facilities to be resolved through binding arbitration as an alternative to a contested case hearing or judicial proceeding), 775.0221(a) (requiring municipalities and emergency-services districts to resolve certain territory disputes using binding arbitration); Tex. INS. Code § 2210.554(a) (permitting persons insured by Texas Windstorm Insurance Association to purchase an endorsement requiring binding arbitration of coverage disputes); Tex. Loc. Govt. Code §§ 142.064(b) (permitting public employers and police-officer associations to provide for binding arbitration in meet-and-confer agreements), 242.0015(a) (permitting counties and municipalities to resolve certain disputes through binding arbitration); Tex. Occ. Code § 2027.056(b) (permitting greyhound racetrack association and state greyhound breed registry to resolve certain disputes by binding arbitration); Tex. Tax Code § 41A.01 (permitting property owners to resolve certain appraisal-review-board appeals through binding arbitration); Tex. Transp. Code § 451.756(b) (permitting certain agreements between public employers and peace officers to provide for binding arbitration).
The Court holds, however, that section 271.154 authorizes the River Authority to engage in binding arbitration. Section 271.154 provides:
None of the parties relied on section 271.154 in the courts below or in their briefing in this Court. We invited the parties to submit supplemental briefs addressing section 271.154, and they did so. The State of Texas, represented by the Attorney General, also filed an amicus curiae brief, arguing that section 271.154 does not authorize local governmental entities to engage in binding arbitration.
Adjudication procedures, including requirements for serving notices or engaging in alternative dispute resolution proceedings before bringing a suit or an arbitration proceeding, that are stated in the contract subject to this subchapter or that are established by the local governmental entity and expressly incorporated into the contract or incorporated by reference are enforceable except to the extent those procedures conflict with the terms of this subchapter.
Id. § 271.154.
According to the Court, the "adjudication procedures" this section makes "enforceable" include "an arbitration proceeding," and therefore the section declares "that agreements to arbitrate claims brought under the subchapter are ‘enforceable.’ " Ante at 623; see also ante at 622 (construing section 271.154 to provide that "agreements to arbitrate claims under [chapter 271] ‘are enforceable’ "). This construction contradicts the statute's language, punctuation, and structure.
Focusing first on the statute's language, the Court's construction ignores the distinction that chapter 271 consistently recognizes between "procedures" and "proceedings." As noted, section 271.151(1) defines an "adjudication" to include both litigation and "the bringing of an authorized arbitration proceeding and prosecution to final resolution in accordance with any mandatory procedures established in the contract subject to this subchapter for the arbitration proceedings ." TEX. LOC. GOV'T CODE § 271.151(1) (emphases added). This definition distinctly refers separately to an "arbitration proceeding " (which must be "authorized") and to any "mandatory procedures " that may govern the arbitration proceeding (which must be agreed to in the contract). Under this definition, an "adjudication" includes an "authorized arbitration proceeding ," and contractually agreed-upon "mandatory procedures " may apply to that proceeding . In the same way, section 271.154 addresses contractually incorporated "[a]djudication procedures " that may apply to an authorized "arbitration proceeding " and makes those procedures (but not the arbitration proceeding itself) "enforceable." Id. § 271.154 (emphases added). As the section itself explains, these contractually agreed-upon "[a]djudication procedures" consist of procedural "requirements"—such as a notice requirement or a requirement that the parties engage in nonbinding dispute resolution—that the party must satisfy "before bringing a suit or an arbitration proceeding ." Id. § 271.154 (emphasis added).
As several courts of appeals have recognized, these "adjudication procedures" include requirements like filing deadlines, notice-of-claim requirements, and appraisal requirements. See , e.g. , Mission Consol. Indep. Sch. Dist. v. ERO Int'l, LLP , 579 S.W.3d 123, 126–27 (Tex. App.—Corpus Christi-Edinburg 2019, no pet.) (holding that contractual deadline to file administrative complaint and contractual requirement to initially file a "level 1" appeal were "adjudication procedures" under section 271.154 ); Tex. Mun. League Intergovernmental Risk Pool v. City of Abilene , 551 S.W.3d 337, 345 (Tex. App—Eastland 2018, pet. dism'd) (holding that contractual appraisal provision "constitutes an adjudication procedure under Section 271.154"); Port Freeport v. RLB Contracting Inc. , 369 S.W.3d 581, 592 (Tex. App.—Houston [1st Dist.] 2012, pet. denied) (recognizing contractual notice-of-claim requirement as an adjudication procedure under section 271.154 ).
The Court concedes its unwillingness to even address chapter 271's clear and consistent distinction between "procedures" and "proceedings" because "they derive from the same root word." Ante at 624 n.37. On this erroneous foundation, it concludes that, because section 271.151(1) defines "adjudication" to include an "arbitration proceeding " and section 271.154 makes "adjudication procedures " enforceable, section 271.154 must also make "arbitration proceedings " enforceable. Id.
The Court suggests that section 271.151(1)'s definition of "adjudication" supports its construction, but like section 271.154, section 271.151(1) clearly distinguishes between procedures and proceedings . Section 271.154 makes "[a]djudication procedures " enforceable, and section 271.151(1) defines "adjudication" to include an "authorized arbitration proceeding ." Importing the definition into the phrase at issue, section 271.154 does not make "arbitration proceedings" enforceable—it makes "[arbitration proceeding] procedures" (that is, procedures that apply to an arbitration proceeding) enforceable.
By discounting the statute's clear distinction between "adjudication procedures" and "arbitration proceedings," the Court slides easily into its erroneous conclusion that section 271.154, which declares that "adjudication procedures" are enforceable, somehow also declares that an "arbitration proceeding" is enforceable. To reach that conclusion, however, the Court must ignore not just the section's plain language, but also its punctuation and grammatical structure. Section 271.154 consists of a single sentence containing only two commas, which appear in the middle of the single sentence. The commas set off from the rest of the sentence the nonessential phrase that appears between them, which serves only to provide additional information about the noun that proceeds it ("procedures "). Visually reflecting the punctuation's natural effect, the provision reads as a single sentence in which is embedded a non-essential phrase that describes the noun that precedes it:
See Tex. Health Presbyterian Hosp. of Denton v. D.A. , 569 S.W.3d 126, 131 (Tex. 2018) ("Punctuation can be helpful, and even determinative, when construing statutes and other written texts.").
See The Oxford Dictionary of English Grammar 279 (2d ed. 2014) (defining "non-defining relative clause" as "a relative clause that gives additional information about the head with which it is associated, but is not a defining relative clause because the noun phrase of which it is a part is already defined and its referent is identifiable" and noting that it "is usually separated from the rest of the sentence in which it occurs by a comma or commas, and if it is omitted, the sentence will still make complete sense"). See also Bryan A. Gardner, The Redbook: a Manual on Legal Style § 1.6(a) (3rd ed. 2013) (defining nonrestrictive clause as "one that could be taken out of the sentence without changing the essential meaning" and instructing to use commas to set off the nonrestrictive phrase); Bryan A. Gardner, A Dictionary of Modern English Usage 766 (2nd ed. 2001) ("Nonrestrictive clauses ... are so loosely connected with the essential meaning of the sentence that they might be omitted without changing the essential meaning.").
Adjudication procedures,
including requirements for serving notices or engaging in alternative dispute resolution proceedings before bringing a suit or an arbitration proceeding ,
that are stated in the contract subject to this subchapter or that are established by the local governmental entity and expressly incorporated into the contract or incorporated by reference are enforceable except to the extent those procedures conflict with the terms of this subchapter.
Removing the non-essential phrase, the section reads naturally:
"Adjudication procedures ... that are stated in the contract subject to this subchapter or that are established by the local governmental entity and expressly incorporated into the contract or incorporated by reference are enforceable except to the extent those procedures conflict with the terms of this subchapter."
Id. (emphases added). Focusing on the noun and verb in this sentence's structure, the section provides simply that "[a]djudication procedures ... are enforceable" if the procedures are stated in or incorporated into the contract unless the procedures conflict with the subchapter's terms. Id.
The phase "arbitration proceeding," on which the Court's construction relies, does not appear in this language at all. Instead, it appears in the non-essential appositive phrase between the commas, which merely provides more information about the "adjudication procedures." Contrary to the Court's construction, the appositive phrase does not explain that adjudication procedures "include" an "arbitration proceeding." Instead, it explains that adjudication procedures include "requirements," and it lists two examples of such "requirements" (serving notice and engaging in ADR), which must be met "before bringing a suit or an arbitration proceeding" (that is, before initiating an "adjudication," as section 271.151(1) defines that term). Id. Read as written, the section does not make enforceable "adjudication procedures, including ... arbitration proceedings;" it makes enforceable "adjudication procedures, including" notice and ADR requirements that must be met before initiating an adjudication in the form of a suit or an arbitration proceeding. Id. Consistent with section 271.151(1), section 271.154 makes enforceable "procedures" that govern an "authorized arbitration proceeding," but it does not itself authorize an arbitration proceeding. Id. §§ 271.151(1), .154.
B. No implied authority
Having concluded that none of the three potentially relevant statutes expressly authorizes the River Authority to resolve this dispute through binding arbitration, I further conclude that the statutes do not impliedly grant such authority. It is a "general and undisputed proposition of law" that governmental entities have and may wield only powers that are (a) "granted in express words," (b) "necessarily or fairly implied in or incident to the powers expressly granted," or (c) "essential to the accomplishment of the declared objects and purposes of the corporation"—that is, "not simply convenient, but indispensable." Anderson v. City of San Antonio , 123 Tex. 163, 67 S.W.2d 1036, 1037 (1934). Should doubts arise, we presume that the legislature did not impliedly grant a power. See id. ("Any fair, reasonable, substantial doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.").
The specific power to engage in binding arbitration is not "fairly implied in," "essential to the accomplishment of," or "indispensable" to the River Authority's general power to manage water resources or its more specific power to enter into a contract for that purpose. See id. ; see also Town of Lakewood Village v. Bizios , 493 S.W.3d 527, 536 (Tex. 2016) ("A power is not ‘reasonably necessary' unless it is ‘indispensable’ to the purpose of the municipality."). If it were, section 2009.005(c) —which confirms that nothing in the GDR Act authorizes a governmental entity to engage in binding arbitration—would be meaningless, because all governmental entities would already have that authority by virtue of their general authority to enter into contracts. And if that general authority to contract included the authority to do anything the governmental entity contractually agrees to do, or even anything it is not expressly prohibited from doing, it would no longer be true that governmental entities "may only exercise those powers granted by statute, together with those necessarily implied from the statutory authority conferred or duties imposed." City of Sherman v. Pub. Util. Comm'n of Tex. , 643 S.W.2d 681, 686 (Tex. 1983).
The legislature granted the River Authority broad authority to "do all things as are required" to manage the waters within its territory and to "make contracts and to execute instruments necessary or convenient" to accomplish that purpose. Acts of April 8, 1981, 67th Leg., R.S. ch. 60, 1981 Tex. Gen. Laws 123. But the ability to resolve disputes that arise from those contracts through binding arbitration is neither essential to accomplish its purpose nor fairly implied in the authority granted. As a result, the River Authority lacked implied authority to engage in binding arbitration, and thus its agreement to do so in this contract's binding-arbitration clause is unenforceable. II.
See, e.g. , Tex. Student Hous. Auth. v. Brazos Cty. Appraisal Dist. , 460 S.W.3d 137, 143 (Tex. 2015) (holding higher education facilities authority had no implied authority "to acquire, hold, or use property beyond its statutory authorization"); Cent. Educ. Agency of State of Tex. v. Upshur Cty. Comm'rs Court , 731 S.W.2d 559, 561 (Tex. 1987) (holding statute granting state education commissioner authority to "promot[e] efficiency and improvement in the public school system" did not impliedly grant commissioner authority to detach territory from one school district and annex it to another); City of Sherman , 643 S.W.2d at 686 (holding PUC is "neither expressly nor impliedly granted power to regulate groundwater production or adjudicate correlative groundwater rights"); Mobil Oil Corp. v. Matagorda Cty. Drainage Dist. No. 3 , 597 S.W.2d 910, 913 (Tex. 1980) (holding county drainage district had no implied authority to annex "lands upon which it cannot perform the services that the water code authorizes it to perform"); Stauffer v. City of San Antonio , 162 Tex. 13, 344 S.W.2d 158, 160 (1961) (holding statute requiring reinstatement of firefighter returning from military service if firefighter is physically and mentally fit did not impliedly grant state commission authority to conduct hearings and decide that issue).
This holding does not mean that the parties' entire contract is unenforceable, because the unenforceable arbitration clause is severable from the rest of the agreement. See In re Poly-Am., L.P. , 262 S.W.3d 337, 360 (Tex. 2008) (citing Williams v. Williams , 569 S.W.2d 867, 871 (Tex. 1978) ) (holding an illegal contract provision "may generally be severed so long as it does not constitute the essential purpose of the agreement").
Conclusion
I would hold that the San Antonio River Authority lacks statutory or constitutional authority to resolve the parties' dispute through binding arbitration, and its agreement to do so is thus void and unenforceable. In the absence of an enforceable arbitration agreement, the arbitration proceeding should be stayed. See TEX. CIV. PRAC. & REM. CODE § 171.023(a) ("A court may stay an arbitration commenced or threatened on application and a showing that there is not an agreement to arbitrate."). I would further hold that chapter 271 waives the River Authority's governmental immunity against Austin Bridge's breach-of-contract claims, for the reasons the Court explains. I would reverse the court of appeals' judgment and enter judgment staying the arbitration proceeding and declaring that governmental immunity does not bar Austin Bridge's breach-of-contract claims. Because the Court affirms the court of appeals' judgment, I respectfully dissent.