Campbellton Rd. v. City of San Antonio

688 S.W.3d 105

CAMPBELLTON ROAD, LTD., Petitioner,

v.CITY OF SAN ANTONIO BY AND THROUGH the SAN ANTONIO WATER SYSTEM, Respondent

No. 22-0481

Supreme Court of Texas.

Argued November 30, 2023

OPINION DELIVERED: April 12, 2024

On Petition for Review from the Court of Appeals for the Fourth District of Texas

Stephanie Huser, for Amici Curiae Texas Municipal League, Texas City Attorneys Association.

S. Mark Murray, San Antonio, Stacy R. Sharp, Lisa S. Barkley, Lamont A. Jefferson, for Petitioner.

Thomas E. Sanders, Brooke Bohlen, Melanie Lynn Fry, San Antonio, Eva M. Guzman, Eric Boettcher, Raffi O. Melkonian, Bradley W. Snead, Houston, Priscila Mosqueda De La Garza, for Respondent.

Manuel (Ned) Munoz, Jr., Houston, for Amicus Curiae Texas Association of Builders.

Justice Devine delivered the opinion of the Court.

The Local Government Contract Claims Act waives immunity from suit for breach of contract when a local governmental entity enters into certain written contracts, including those "stating the essential terms of the agreement for providing … services to" that entity.¹ In this breach-of-contract suit to enforce alleged vested rights in sewer-flow capacity, the issue on appeal is whether a written instrument documenting the terms and conditions for a municipal water system to provide sewer service to and guarantee capacity for a developer’s planned subdivisions formed a contract for which the Act waives immunity. Central to the dispute are the terms of an option for the developer to participate in and fund the construction of off-site oversized infrastructure, which the system would then own to ensure sufficient capacity for the new developments. The court of appeals concluded the Act did not apply, and therefore did not waive immunity, because there was no agreement for providing services to the system; that is, the system had no contractual right to receive any services and would not have "any legal recourse" if the developer "unilaterally decided not to proceed."²

We disagree and hold that the Act waived the system’s immunity from suit because the developer adduced evidence that (1) a contract formed when the developer decided to and did participate in the off-site oversizing project, (2) the written contract states the essential terms of an agreement for the developer to participate in that project, and (3) the agreement was for providing a service to the system that was neither indirect nor attenuated. We therefore reverse the court of appeals’ judgment and remand the case to the trial court for further proceedings.

I. Background

In 2003, Campbelton Road, Ltd. (the Developer)³ and San Antonio Water System (SAWS) signed an Outer Service Area Sewer Service Contract.⁴ The Contract identifies SAWS as the City of San Antonio’s water, wastewater, and water re-use agency and the City as the responsible government agency for constructing, operating, and maintaining the sewerage system in a defined area. Outside city limits but within the service area,⁵ the Developer owned a 585-acre tract of land, which it planned to develop into two residential subdivisions with sewer service. To this end, the Contract recites that SAWS’s collection and treatment of the tract’s wastewater are in the public interest and that the parties wished to document the agreement’s terms regarding such services.⁶

The Contract states that it would "remain in full force and effect" for ten years. Among other terms and conditions, the Developer would submit a project master plan, engineering report, and water plan and comply with design, construction, and permitting procedures for sewer-infrastructure development. Off-site systems would be considered temporary facilities until SAWS’s director of infrastructure development determined they were "an integral part of [SAWS]’s regional sewerage system." After SAWS accepted the infrastructure, the Developer would convey its "right, title and interest" to it, and SAWS "shall thereafter own, operate, and maintain said systems" with "the right to connect wastewater flows from other developments."⁷

Before the development can be connected to SAWS’s sewer service, the Contract requires the Developer to pay sewer-collection and wastewater-treatment components of an impact fee,⁸ to be calculated in accordance with the fees in effect at the time of plat recordation.⁹ Impact fees are means by which a governmental entity may recoup the costs of necessary capital improvements to serve a new development.¹⁰ Once the Developer satisfied the initial payment obligation, SAWS would then charge monthly fees for treatment and disposal of the tract’s flows.

The Contract sets the maximum average daily flow from the tract at 450,000 gallons per day, which equals 1,500 equivalent dwelling units (EDUs), a standardized measure based on wastewater use attributable to a single-family residence.¹¹ Before plat approval, however, SAWS’s director would "make a final determination" of the maximum allowable flow capacity but "may not reduce the capacity" below 1,500 EDUs if the Developer materially complied with its contractual obligations. And by paying "the collection and/or treatment" impact fees, the Developer would acquire vested rights to the capacity. On the other hand, if the Developer had not "completed construction of the off-site line and/or not paid all impact fees required herein [in] order to earn vested rights and collection component credits" before the ten-year term ended, the parties agreed in the Contract that SAWS would continue to accept flows from the tract, recognize the Developer’s right to any unused capacity, and apply any impact-fee credits to which the Developer was entitled.

At the time the parties signed the Contract, SAWS was planning a wastewater consolidation system for the Southside Independent School District to serve the schools and surrounding developments. Given the potential wastewater flows from the Developer’s nearby tract, the Contract states that SAWS expected to include in its construction bid an alternative oversize option for the sewer infrastructure—lift stations and force mains¹²—at two schools to increase SAWS’s flow capacity (the Southside project). The Developer "must decide if [it] wish[es] to participate" and be responsible for the share of the costs to build the oversize option. But it had to decide "within 2 weeks of bid opening" without "interrupt[ing] the project schedule," pay its share "to SAWS prior to contract award," and be responsible for costs related to any relevant change orders. If the Developer did not elect to participate, it would be responsible for only the engineering fees related to preparing the oversize option and, presumably, SAWS would bid the construction of only the base model.

In exchange for its participation, the Developer would be eligible under the Contract for collection impact-fee credits for its cost share.¹³ These credits "attach to the real estate" and could be used to satisfy some, or all, of the collection component of assessed impact fees,¹⁴ depending on whether the credits exceeded the assessed amount. The Contract states that the collection component of the impact fees "may currently be estimated … at $366.00 Per EDU" (in other words, $549,000 for 1,500 EDUs). SAWS also would be obligated to supply sewer service "upon completion of the oversized project" and "acceptance of an impact fee" without "the construction of a specific facility to provide such sewer service, other [than] the [Southside] Project." But because the Southside project would not connect to the subdivisions, the Developer would remain responsible for the costs, easements, permitting, and construction of connecting infrastructure.

The record indicates that the Developer decided to participate in the Southside project and paid its share of the costs—according to the Developer, it "spent millions." But the Developer acknowledged in its pleadings that it did not develop the subdivisions within the Contract’s ten-year term. Instead, it waited until 2019—six years after the term ended—to "commence development" and reach out to SAWS re- garding the 1,500-EDU capacity. Noting that the capacity had been set aside for ten years,¹⁵ SAWS responded that it now had no unused capacity. SAWS offered to execute a new utility-service agreement with the Developer to allocate capacity for the subdivisions but would require either further upgrades to the Southside project or the construction of an alternative lift structure for connection. SAWS estimated that to supply 1,500 EDUs, the necessary upgrades would cost $7.7 million.

After an unsuccessful administrative appeal,¹⁶ the Developer sued the City by and through SAWS for breach of contract, seeking both money damages and specific performance to supply the Developer with a capacity of 1,500 EDUs.¹⁷ The Developer alleged that by participating in the Southside project and earning collection credits, it had acquired a vested right to the capacity and that SAWS breached the Contract by allocating the capacity to others.¹⁸ In response, SAWS asserted its governmental immunity in a plea to the jurisdiction and then took an interlocutory appeal from the trial court’s order denying the plea.¹⁹

The court of appeals reversed, concluding that the Act did not waive SAWS’s governmental immunity because the Contract was not an agreement for providing goods or services to SAWS.²⁰ Relying primarily on our opinion in Lubbock County Water Control & Improvement District v. Church & Akin, L.L.C.,²¹ the court of appeals held: (1) the Contract’s purpose was for the Developer to receive services from SAWS; (2) SAWS, on the other hand, had no right to receive any services under the Contract and no legal recourse if the Developer "unilaterally decided not to proceed with the developments and not complete any provisions of the contract"; (3) the Contract does not require SAWS to purchase any services from the Developer; (4) the purpose of the Southside project was...