Opinion
No. 21-0307
06-09-2023
CITY OF LEAGUE CITY, Texas, Petitioner, v. JIMMY CHANGAS, INC., Respondent
Ramon G. Viada III, Houston, for Amici Curiae Texas Municipal League, Texas City Attorneys Association. William S. Helfand, Houston, Andrew W. Gray, Austin, for Petitioner. Nicole Cordoba, Kendyl Taylor Hanks, Austin, for Amici Curiae The Restaurant Law Center, Texas Restaurant Association. Alfred Flores Jr., C. Larry Carbo III, Kellen Ross Scott, Houston, Amy Foreman, Steven Knight, Houston, for Respondent.
Ramon G. Viada III, Houston, for Amici Curiae Texas Municipal League, Texas City Attorneys Association.
William S. Helfand, Houston, Andrew W. Gray, Austin, for Petitioner.
Nicole Cordoba, Kendyl Taylor Hanks, Austin, for Amici Curiae The Restaurant Law Center, Texas Restaurant Association.
Alfred Flores Jr., C. Larry Carbo III, Kellen Ross Scott, Houston, Amy Foreman, Steven Knight, Houston, for Respondent.
Justice Boyd delivered the opinion of the Court, in which Chief Justice Hecht, Justice Lehrmann, Justice Devine, Justice Busby, Justice Huddle, and Justice Young joined.
This interlocutory appeal involves the thorny governmental/proprietary dichotomy in a breach-of-contract context. The court of appeals held that governmental immunity does not protect a city against a breach-of-contract claim because the city was acting in its proprietary capacity when it entered into the contract. We agree and affirm.
I.
Background
The Texas Local Government Code authorizes cities to grant and loan public funds for various beneficial purposes. Chapter 373, for example, permits municipal expenditures for "community development" purposes, including the "elimination of slums and areas affected by blight" and the "prevention of blighting influences and of the deterioration of property and neighborhood and community facilities important to the welfare of the community." TEX. LOC. GOV'T CODE § 373.002(b). Similarly, chapter 374 authorizes cities to fund "urban renewal" programs "to encourage urban rehabilitation" and "to provide for the redevelopment of slum and blighted areas." Id. § 374.013(a). This dispute involves an "Economic Development Incentives Grant Agreement" under chapter 380, which permits cities to provide "economic development" incentives "to promote state or local economic development and to stimulate business and commercial activity in the municipality." Id. § 380.001(a). The Agreement describes plans by Jimmy Changas, Inc. to invest $5 million to construct a 10,000-square-foot restaurant facility on a particular tract within the City of League City's entertainment district. Jimmy Changas projected the facility would be at least equal in quality to an existing Jimmy Changas restaurant in Pasadena, Texas, and would create at least eighty full-time and forty part-time jobs. League City agreed that, if Jimmy Changas completed the facility as projected, the City would reimburse all of Jimmy Changas's capital-recovery fees for water and wastewater services, all fees Jimmy Changas would pay to obtain plat approvals and building permits, and a percentage of Jimmy Changas's local-sales-tax payments based on the restaurant's total annual sales.
The Agreement did not require Jimmy Changas to build and operate the restaurant as projected, but it conditioned the City's incentive payments on its doing so.
Consistent with chapter 380's authorization, the Agreement recited that its purposes were "to promote state or local economic development and to stimulate business and commercial activity in the City," to "contribute to the economic development of the City by generating employment and other economic benefits to the City," and to encourage Jimmy Changas to develop the property "in a manner that establishes the area as a regional destination."
After Jimmy Changas completed the project, League City refused to provide the reimbursements, contending that Jimmy Changas failed to timely submit documentation establishing it had invested at least $5 million and created at least eighty full-time jobs. Jimmy Changas contends it submitted all the required documentation and that the City waived any complaint about the timeliness of its submission by continuously requesting additional documents beyond those Jimmy Changas initially submitted.
Jimmy Changas filed this suit asserting that League City breached the Agreement by refusing to pay the promised reimbursements. The City filed a plea to the jurisdiction, arguing that governmental immunity bars the claim and that no statute waives that immunity. The trial court denied the plea, and the City filed an interlocutory appeal. The court of appeals affirmed, holding that governmental immunity does not apply to Jimmy Changas's claim because League City was acting in its proprietary capacity—as opposed to its governmental capacity—when it entered into the Agreement. 619 S.W.3d 819, 828 (Tex. App.—Houston [14th Dist.] 2021). We granted the City's petition for review and now affirm.
See Tex. Civ. Prac. & Rem. Code § 51.014(a)(8) (permitting interlocutory appeal from an order that "grants or denies a plea to the jurisdiction by a governmental unit"). The City also filed a summary-judgment motion and a counterclaim to recover its attorney's fees and expenses. The trial court denied summary judgment, but we do not address that ruling in this interlocutory appeal.
II.
Governmental and Proprietary Functions
To "shield the public from the costs and consequences of improvident actions of their governments," sovereign immunity generally bars claims against the State and its agencies. Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006). Municipal corporations often function in a governmental capacity on the State's behalf but at other times function as "a private corporation," City of Tyler v. Ingram , 139 Tex. 600, 164 S.W.2d 516, 519 (1942), "for the private advantage and benefit of the locality and its inhabitants." Wasson Ints., Ltd. v. City of Jacksonville (Wasson I ), 489 S.W.3d 427, 433 (Tex. 2016). Because "sovereign immunity is inherent in the State's sovereignty," municipalities "share that protection when they act ‘as a branch’ of the State but not when they act ‘in a proprietary, non-governmental capacity.’ " Wasson Ints., Ltd. v. City of Jacksonville (Wasson II ), 559 S.W.3d 142, 146 (Tex. 2018) (quoting Wasson I , 489 S.W.3d at 430 ).
The common law has long recognized this dichotomy when cities are sued in tort, and we held in Wasson I that it also applies when cities are sued for breach of contract. See Wasson I , 489 S.W.3d at 439. To determine whether a municipality engaged in a governmental or proprietary function when it entered into a particular contract, we look to both the common law and to Texas statutes.
A. Common-law definitions
Under the common law, proprietary functions are those that a city performs "in its discretion," "primarily for the benefit of those within the corporate limits of the municipality," and not as "an arm of the government" or "a branch of the state" or "under the authority, or for the benefit, of the sovereign." Wasson II , 559 S.W.3d at 147 (quoting Wasson I , 489 S.W.3d at 427 ; Gates v. City of Dallas , 704 S.W.2d 737, 739 (Tex. 1986) ; Dilley v. City of Houston , 148 Tex. 191, 222 S.W.2d 992, 993 (1949) ). Proprietary functions "can be, and often are, provided by private persons." Id. (quoting Joe R. Greenhill & Thomas V. Murto III, Governmental Immunity , 49 TEX. L. REV. 462, 463 (1971) ).
Governmental functions under the common law are those that involve "the performance of purely governmental matters solely for the public benefit," are "normally performed by governmental units," and are performed "as a branch of the state—such as when a city ‘exercise[s] powers conferred on [it] for purposes essentially public ... pertaining to the administration of general laws made to enforce the general policy of the state.’ " Id. (quoting Wasson I , 489 S.W.3d at 433 (in turn quoting City of Galveston v. Posnainsky , 62 Tex. 118, 127 (1884) ); Tooke v. City of Mexia , 197 S.W.3d 325, 343 (Tex. 2006) (in turn quoting Dilley , 222 S.W.2d at 993 ); Greenhill & Murto, 49 TEX. L. REV . at 463 ).
B. Statutory definitions
The Texas Constitution specifically authorizes the legislature to define governmental and proprietary functions "for all purposes." TEX. CONST. art. XI, § 13. Exercising this authority, the legislature has addressed the dichotomy for purposes of tort claims but not for claims for breach of contract. Generally consistent with the common-law descriptions, the Tort Claims Act defines proprietary functions as "those functions that a municipality may, in its discretion, perform in the interest of the inhabitants of the municipality." TEX. CIV. PRAC. & REM. CODE § 101.0215(b). Statutorily, proprietary functions include, but are not limited to, "the operation and maintenance of a public utility," "amusements owned and operated by the municipality," and "any activity that is abnormally dangerous or ultrahazardous." Id.
By contrast, the Act defines governmental functions as "those functions that are enjoined on a municipality by law and are given it by the state as part of the state's sovereignty, to be exercised by the municipality in the interest of the general public." Id. § 101.0215(a). In addition to this general definition, the Act includes a non-exclusive list designating thirty-six specific activities as governmental functions, ranging from "police and fire protection and control" to "animal control." Id. § 101.0215(a)(1), (33).
C. Application to contract claims
"Although these statutory definitions and designations apply expressly to tort claims, we explained in Wasson I that they can also ‘aid our inquiry’ when applying the dichotomy in the contract-claims context." Wasson II , 559 S.W.3d at 147–48 (quoting Wasson I , 489 S.W.3d at 439 ). "We thus consider" in contract cases "both the statutory provisions and the common law in determining whether a city's contractual conduct is governmental or proprietary." Id. at 148.
If a particular activity is not included in the statutory list of governmental functions, we look to the general definitions under both the common law and the statute. Id. at 150. Based on those definitions, we consider the following four factors: (1) whether the city's act of entering into the contract was mandatory or discretionary, (2) whether the contract was intended to benefit the general public or the city's residents, (3) whether the city was acting on the State's behalf or its own behalf when it entered the contract, and (4) whether the city's act of entering into the contract was sufficiently related to a governmental function to render the act governmental even if it would otherwise have been proprietary. Id.
Our dissenting and concurring colleagues do not dispute that we have recognized the governmental/proprietary distinction as fundamental to the inherent nature of a municipal corporation for nearly as long as this Court has existed. See, e.g., Keller v. City of Corpus Christi , 50 Tex. 614, 622 (1879) (explaining that "municipal corporations possess a double character,—the one, governmental, legislative, or public; the other, proprietary or private,—and that for the acts of their agents in their public capacity no action lies unless it be given by statute; while for other acts done in their private capacity there is an implied or common-law liability"); Peck v. City of Austin , 22 Tex. 261, 264 (1858) (explaining that a municipal corporation, "though a municipal government, and therefore public, may also occupy towards individuals the position of a private corporation, and be liable upon its contracts, or for the wrongful acts of its officers, done under its authority, and in pursuance of its will, expressed or implied"); see also Wasson II , 559 S.W.3d at 146–47 (citing cases); Wasson I , 489 S.W.3d at 433–34 (citing cases). Instead, they question whether the Wasson factors provide a proper framework for drawing that distinction. See post at –––– ( Young , J., concurring), –––– ( Blacklock , J., dissenting). But we did not create the factors out of whole cloth in Wasson II. Instead, we derived them directly from a long line of this Court's common-law decisions and the Tort Claims Act's express statutory definitions. See Wasson II , 559 S.W.3d at 147–48, 150. No party in this case urges us to reconsider the governmental/proprietary distinction or the considerations we have long relied upon to draw that distinction.
III.
League City's Agreement
"The distinction between a municipality's governmental and proprietary functions ‘seems plain enough, but the rub comes when it is sought to apply the test to a given state of facts.’ " Id. at 146–47 (quoting City of Houston v. Wolverton , 154 Tex. 325, 277 S.W.2d 101, 103 (1955) ). Under these facts, League City argues that it engaged in a governmental function when it entered into the agreement at issue because (1) its action falls within the statutory list of governmental functions and, (2) even if it doesn't, it falls within the statute's and the common law's general definitions. We disagree with both arguments.
A. Statutory list
Among the thirty-six statutorily designated governmental functions, the Tort Claims Act includes "community development or urban renewal activities undertaken by municipalities and authorized under Chapters 373 and 374, Local Government Code." TEX. CIV. PRAC. & REM. CODE § 101.0215(a)(34). League City concedes that it entered into the Agreement with Jimmy Changas as an economic-development activity under chapter 380 of the Local Government Code and not as a community-development or urban-renewal activity under chapters 373 or 374. Nevertheless, the City contends that subsection (a)(34) encompasses a broad category of "community development" activities and that its Agreement with Jimmy Changas "falls within" that category. In support of this contention, the City relies on the San Antonio Court of Appeals’ opinion in CHW-Lattas Creek, L.P. v. City of Alice , 565 S.W.3d 779, 786 (Tex. App.—San Antonio 2018, pet. denied), and on a footnote in our opinion in Hays Street Bridge Restoration Group v. City of San Antonio , 570 S.W.3d 697, 705 n.46 (Tex. 2019).
As here, CHW-Lattas Creek involved an economic-development agreement under chapter 380 between the City of Alice and a developer, CHW. In that agreement, CHW agreed to convey undeveloped land to Alice in exchange for Alice's agreement to develop the property by constructing, among other things, an aquatics center, amphitheater, conference center, and hotel. 565 S.W.3d at 782–83. Relying primarily on legislative history rather than on subsection (a)(34)’s plain language, the court concluded that subsection (a)(34) specifies activities under chapters 373 and 374 only "because the two cases in which courts had found community development activities to be proprietary involved community development activities undertaken under those two chapters." Id. at 786 (citing City of Houston v. Sw. Concrete Constr., Inc. , 835 S.W.2d 728 (Tex. App.—Houston [14th Dist.] 1992, writ denied) ; Josephine E. Abercrombie Ints., Inc. v. City of Houston , 830 S.W.2d 305 (Tex. App.—Corpus Christi–Edinburg 1992, writ denied) ). The court held that Alice was engaged in a governmental function when it entered into the economic-development contract under chapter 380 because subsection (a)(34) includes "all community development activities regardless of which chapter of the Local Government Code applies." Id.
We disagree with the CHW-Lattas Creek court's construction of subsection (a)(34). "A statute's unambiguous language ‘is the surest guide to the Legislature's intent,’ because ‘the Legislature expresses its intent by the words it enacts and declares to be the law.’ " Tex. Health Presbyterian Hosp. of Denton v. D.A. , 569 S.W.3d 126, 135–36 (Tex. 2018) (first quoting Sullivan v. Abraham , 488 S.W.3d 294, 297 (Tex. 2016), then quoting Molinet v. Kimbrell , 356 S.W.3d 407, 414 (Tex. 2011) ). Subsection (a)(34) expressly includes only community-development activities under chapter 373 and urban-renewal activities under chapter 374, and we cannot rewrite the statute by judicially incorporating other types of activities. Although the legislature has specified that local community-development and urban-renewal activities intended to remove "slums" and "blight" qualify as governmental functions, it has never suggested that local economic-development activities intended to promote a local business environment do as well.
Moreover, even if we consider the history of the bill that resulted in subsection (a)(34), we note that the CHW-Lattas Creek court overlooked the fact that the bill as introduced would have included "community development activity" without identifying any particular chapter of the Local Government Code. See Tex. S.B. 1697, 75th Leg., R.S. 1997 (as introduced). The bill was amended, however, to specify only "community development activities undertaken ... under Chapter 373," and later amended to also specify urban-renewal activities under chapter 374. Tex. S.B. 1697, 75th Leg., R.S. (1997) (as amended). That the bill began with a broad reference to community-development activities and then narrowed to include only community-development and urban-renewal activities "authorized under" chapters 373 and 374 undercuts the CHW-Lattas Creek court's conclusion that the legislature intended a broad definition. See id. ; CHW-Lattas Creek , 565 S.W.3d at 786. We thus disapprove of the CHW-Lattas Creek court's construction of subsection (a)(34).
We do not pass judgment, however, on the CHW-Lattas Creek court's ultimate conclusion that the City of Alice was engaged in a governmental function when it entered into the contract at issue in that case. See 565 S.W.3d at 787. Even if that contract did not fall within subsection (a)(34)’s description, it concerned many different municipal functions that may otherwise be considered governmental, including "street construction and design," "sanitary and storm sewers," "waterworks," "parks and zoos," "civic, convention centers, or coliseums," and "recreational facilities, including but not limited to swimming pools, beaches, and marinas." Tex. Civ. Prac. & Rem. Code § 101.0215(a)(1), (9), (11), (13), (16), (23).
League City contends, however, that our opinion in Hays Street Bridge confirms the correctness of the San Antonio court's holding in CHW-Lattas Creek . Hays Street Bridge involved an agreement in which the City of San Antonio contracted with a group of concerned residents to restore a deteriorated bridge that served as a "historic cultural landmark." 570 S.W.3d at 699. We agreed that the city's actions in entering into the contract fell within the description of community-development and urban-renewal activities in subsection (a)(34), as well as the description of "bridge construction and maintenance" in subsection (a)(4). Id. at 705. In doing so, we disagreed with the residents’ argument that subsection (a)(34)’s reference to chapters 373 and 374 rendered that subsection inapplicable. Id. at 705 n.46.
We did so, however, not because we thought subsection (a)(34) means something different than it says but because the Tort Claims Act's classifications merely serve as "guidance in the contract-claims context—rather than binding lists to be interpreted narrowly." Id. We did not hold in Hays Street Bridge that any agreement that touches on "community development" falls within subsection (a)(34) such that courts must conclude that a city engaged in a governmental function by entering into such an agreement. Instead, we focused on whether the contract fell under the broader common-law and statutory definitions of a governmental function by considering the Wasson factors. Id. at 705–06. Nor can we conclude that economic-development activities under chapter 380 are so similar to community-development and urban-renewal activities under chapters 373 and 374 as to extend subsection (a)(34) by implication. As mentioned, chapter 373 allows municipalities to create "community development program[s]" designed to "improve the living and economic conditions of persons of low and moderate income" and "aid in the prevention or elimination of slums and blighted areas," among other things. TEX. LOC. GOV'T CODE § 373.004 (emphasis added). Similarly, chapter 374 enables municipalities to prevent and eliminate slums and blight through "the rehabilitation, the conservation, or the slum clearance and redevelopment of the area." Id. § 374.011(a)(1) (emphasis added). Chapter 380, on the other hand, permits municipalities to engage in activities "to promote state or local economic development and to stimulate business and commercial activity in the municipality." Id. § 380.001(a). Chapter 380 says nothing of slums, blight, or lower-economic living conditions, and League City does not assert that the Agreement was intended to address those concerns.
The City also relies on another San Antonio Court of Appeals opinion, which broadly construed subsection (a)(34)’s reference to "community development or urban renewal activities" as "activities which a municipality funds or incentivizes through tax abatements or grants to encourage development ...." City of Helotes v. Page , No. 04-19-00437-CV, 2019 WL 6887719, at *3 n.3 (Tex. App.—San Antonio Dec. 18, 2019, pet. denied). We need not agree or disagree with this definition but need only note that it does not transform a contract under chapter 380 into a contract under chapter 373 or 374. Indeed, the Page court did not hold that it did, but instead relied on the general definitions and applied the Wasson factors to conclude that the City of Helotes engaged in a "vendor's fair" as a proprietary function. See id. at *3–4.
The Comprehensive Annual Financial Report for the City makes no mention of blight or slum neighborhoods. It speaks of the City's low employment rate and its "outstanding neighborhoods, superior schools, parks, trails and waterfront." The City's Economic Development Profile notes the City "continuously ranks among the best communities in the state ... with the average annual household income of more than $100,000, strong school districts, high community public safety ratings, and abundant recreational activities."
The stated purpose of the Agreement was "to stimulate business and commercial activity," not to undertake "urban renewal activities," see id. § 374.003(25) (" ‘Urban renewal activities’ includes slum clearance, redevelopment, rehabilitation, and conservation activities to prevent further deterioration of an area that is tending to become a blighted or slum area."), or improve conditions of lower-income communities, see id. § 373.002(b) (stating that activities taken under this chapter should be "directed toward" "elimination of slums and areas affected by blight," "elimination of conditions detrimental to the public health, safety, and welfare," and "alleviation of physical and economic distress through the stimulation of private investment and community revitalization in slum or blighted areas"). As the City itself concedes, the Agreement's main purposes were "creating local jobs and increasing state sales tax revenue." In short, the purpose of the Agreement under chapter 380 was not so similar to the purposes of chapter 373 and 374 activities so as to consider this an agreement for "community development or urban renewal" under subsection (a)(34).
B. General definitions
When a particular municipal activity is not included in the statutory list of governmental functions, we look to the general definitions to determine whether the activity is "governmental" or "proprietary." Wasson II , 559 S.W.3d at 150. Particularly in breach-of-contract cases, we consider "both the statutory provisions and the common law in determining whether a city's contractual conduct is governmental or proprietary." Id. at 148. League City argues that, even if its conduct in entering into the Agreement does not fall within subsection (a)(34), it was nevertheless engaged in a governmental function under the general definitions.
As explained, we have identified four factors that summarize both the common-law and the statutory definitions. Id. at 150. League City argues that these factors establish it was engaged in a governmental function when it entered into the Agreement with Jimmy Changas. We disagree.
1. Discretionary activity
Under the first factor, we consider whether the City's act of entering into the contract was mandatory or discretionary. Id. Like the common law, the statutory definitions provide that governmental functions are those that "are enjoined on a municipality by law," while proprietary functions are those that "a municipality may, in its discretion, perform." TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).
League City does not dispute that its decision to enter into the Agreement was a discretionary act. Chapter 380 states that municipalities "may establish and provide for the administration of one or more programs ... to promote state or local economic development and to stimulate business and commercial activity in the municipality." TEX. LOC. GOV'T CODE § 380.001(a) (emphasis added). Neither chapter 380 nor any other statute required the City to use public funds to promote economic development or to stimulate local business. This factor clearly weighs in favor of concluding that the City engaged in a proprietary function by entering into the Agreement.
2. Primarily for the benefit of City residents
Under the second factor, we consider whether the municipality entered into the contract to benefit the general public or the City's residents. Wasson II , 559 S.W.3d at 150. Under the common law, this factor distinguishes a municipal corporation's local purpose to serve its residents from those it may perform "as the agent of the state in furtherance of general law for the interest of the public at large." City of Houston v. Shilling , 150 Tex. 387, 240 S.W.2d 1010, 1011–12 (1951). In the same way, the statute distinguishes between proprietary functions a city performs "in the interest of the inhabitants of the municipality" and governmental functions performed "in the interest of the general public." TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).
See also City of Houston v. Quinones , 142 Tex. 282, 177 S.W.2d 259, 261 (1944) (distinguishing an act that is "public in its nature and performed as the agent of the State in furtherance of general law for the interest of the public at large" from those "performed primarily for the benefit of those within the corporate limits of the municipality").
The Agreement between League City and Jimmy Changas expressly and repeatedly states that its purposes were to "stimulate business and commercial activity in the City ," to "contribute to the economic development of the City by generating employment and other economic benefits to the City ," "to encourage [Jimmy Changas] to develop the [restaurant] in a manner that establishes the area as a regional destination," to "promote local economic development," and to "raise funds for the city budget." [Emphases added.]
Nevertheless, League City contends that it intended the Agreement to benefit the State and all of its citizens because the State would receive most of (and thus be the primary beneficiary of) Jimmy Changas's sales-tax payments, the Agreement did not require Jimmy Changas to hire only League City residents, and the establishment of the entertainment district as a "regional destination" would benefit visitors as well as the City's residents. Although we do not doubt that Texas citizens other than League City residents could receive some benefit from a new Jimmy Changas restaurant within the City's entertainment district, the Agreement itself confirms that the City entered into it "primarily for the benefit of those within the corporate limits of the municipality." Wasson II , 559 S.W.3d at 151 (emphasis added) (quoting Gates v. City of Dallas , 704 S.W.2d 737, 739 (Tex. 1986) ). This factor weighs in favor of a proprietary function.
3. Acting on the City's own behalf
Under the third factor, we consider whether the City was acting on the State's behalf or on its own behalf by entering into the Agreement. Wasson II , 559 S.W.3d at 150. This factor further distinguishes between acts a city chooses to perform "in its private capacity" to benefit its residents from those "sovereign" acts it is required to perform as an "arm or agent of the state in the exercise of a strictly governmental function solely for the public benefit." Shilling , 240 S.W.2d at 1011–12 ; Dilley , 222 S.W.2d at 993. The statute similarly defines governmental functions as those "given it by the state as part of the state's sovereignty." TEX. CIV. PRAC. & REM. CODE § 101.0215(a).
We have recognized that when the first and second factors both indicate that a city entered into a contract as a proprietary function—that is, it entered into the contract as a matter of its own discretion and did so primarily to benefit its own residents—then the city was likely acting on its own behalf, at least absent some clear indication to the contrary. See Wasson II , 559 S.W.3d at 152. Nevertheless, even when a city exercises its own discretion to enter a contract, it may be acting on the State's behalf when, for example, the State provides funding or other support for the city's efforts. See, e.g., Hays Street Bridge , 570 S.W.3d at 706 (holding that the third factor weighed towards governmental function because the State provided most of the necessary funding).
League City contends that it entered into the Agreement on the State's behalf because its purpose was to "create new jobs in the state and increase tax revenue for the state, both of which develop the economy of the state." Again, while we do not doubt that local economic-development activities can improve the State's overall economy, the terms and requirements of this Agreement do not indicate in any way that the City entered into it on the State's behalf. This factor weighs towards a proprietary function.
4. Relation to a governmental function
The final factor considers "whether the city's act of entering into the [contract] was sufficiently related to a governmental function to render the act governmental even if it would otherwise have been proprietary." Wasson II , 559 S.W.3d at 150. "We have long held that not all activities ‘associated’ with a governmental function are ‘governmental,’ " and "[t]he fact that a city's proprietary action ‘touches upon’ a governmental function is insufficient to render the proprietary action governmental." Id. at 152–53. "Instead, a city's proprietary action may be treated as governmental only if it is essential to the city's governmental actions." Id. at 153.
League City contends that it engaged in a governmental function when it entered into the Agreement because that action was "sufficiently related" to the governmental function of "sustain[ing] and promot[ing] the economy, employment, and economic opportunities of the people of Texas." See TEX. GOV'T CODE § 315.003. The City notes that in chapter 501 of the Local Government Code—the Development Corporation Act—the legislature has recognized a "public purpose of this state in promoting the welfare of residents of this state economically by securing and retaining business enterprises and as a result maintaining a higher level of employment, economic activity, and stability," and has specifically authorized municipalities to create nonprofit corporations to promote that purpose. See TEX. LOC. GOV'T CODE §§ 501.004(a)(4), .051. Relying on City of Leon Valley Economic Development Corp. v. Little , 522 S.W.3d 6, 10 (Tex. App.—San Antonio 2017, pet. denied), the City contends that such actions constitute governmental functions.
We rejected that very conclusion, however, in Rosenberg Development Corp. v. Imperial Performing Arts, Inc. , 571 S.W.3d 738 (Tex. 2019). As we explained there, the Development Corporation Act describes economic-development corporations "as private, nonprofit corporations" and expressly denies them "significant governmental characteristics—political-subdivision status and attributes of sovereignty" and "thus evinces clear legislative intent that an economic development corporation is not an arm of state government." Id. at 749–50. Local economic development and job creation are undoubtedly "public purposes," and projects to promote such purposes "have a governmental flair, but not so uniquely or so definitively that only a governmental entity would engage in those activities." Id. at 750. In short, entities engaged in economic-development programs do not provide services that are "essential" to the functions of the government. Id. at 750–51.
The City also argues that chapter 381 of the Local Government Code authorizes counties to develop programs "for state or local economic development" and "to stimulate, encourage, and develop business location and commercial activity in the county." TEX. LOC. GOV'T CODE § 381.004(b)(1),(3). And, the City points out, these are governmental functions when performed by a county because "all of their functions are ‘governmental’ in nature." Nueces County v. San Patricio County , 246 S.W.3d 651, 652 (Tex. 2008). If a county's local economic-development activities are governmental functions, the City argues, then a city's local economic-development activities must be too.
This argument, however, confuses the nature of an entity with the nature of its functions. As we explained in Nueces County , all of a county's functions are governmental because counties are " ‘involuntary agents of the state’ without the power to serve the local interests of their residents" and as such "have no ‘proprietary’ functions." Id. (citing TEX. CONST . art. XI, § 1 interp. commentary; Posnainsky , 62 Tex. at 128 ). Unlike counties, municipal corporations are established to serve their local residents by engaging in both proprietary and governmental functions. Because of the nature of a municipality, the nature of its functions matters.
We do not hold, however, that governmental economic-development activities can never constitute a governmental function. Ultimately, all economic-development activities are "local," and circumstances could conceivably exist in which the State requires a municipality to engage in such activities as an arm of the State for the greater benefit of the general public. But that is not what happened here. Here, the State merely authorized cities to enter into contracts to promote their local economy, and League City made the discretionary decision to enter into such a contract with Jimmy Changas. But the contract itself confirms that it did so by choice and primarily to benefit the City and its residents. That discretionary decision was not essential to any governmental function. This factor, as the others, weighs in favor of holding that the City engaged in a proprietary function. IV.
Conclusion
The court of appeals correctly determined that League City engaged in a proprietary function when it entered into the Agreement with Jimmy Changas. As a result, governmental immunity does not apply to protect the City against Jimmy Changas's claim for breach of that Agreement. We do not address the merits of that claim or any other defenses the City may raise. We affirm the court of appeals’ judgment and remand the case to the trial court for further proceedings.
Justice Young filed a concurring opinion.
Justice Blacklock filed a dissenting opinion, in which Justice Bland joined as to Part III.
Evan A. Young Justice
It should not be so hard for a citizen of Texas to know the answer to the following question: "If I make a contract with a city and it breaches the contract, will the courts vindicate my claim?" The response, alas, will often boil down to this: We won't know until six or seven years after the breach, at which point the courts will have balanced some factors and parsed a statute limited to torts. At that point, either all will be well, or else it will be a total loss. "But good luck," a lawyer might tell a client, "and here's my bill."
Such a conversation may well have happened in this case many years ago when the contractual negotiations were underway—not so long ago, but long enough that our leading immunity cases were not even on the books. Those cases, as the Court today ably explains, require us to determine whether a municipality's challenged action was either governmental or proprietary. In making that determination, we are supposed to ask (1) whether the classifications listed in § 101.0215(a) of the Texas Civil Practice & Remedies Code provide any "guidance," and if not, (2) whether the action otherwise meets the common-law definition of "governmental function," as expounded through the four Wasson factors. No party has asked us to reassess our prior decisions, and I agree with the Court that, under the rather meandering process that those precedents compel, League City has failed to show that its contract with Jimmy Changas satisfies either inquiry.
I suspect, however, that the City could not satisfy any reasonable standard to immunize itself from Jimmy Changas' claim. I thus write separately because it is not clear to me that we are even asking the right questions in this breach-of-contract context. This area of law has long bedeviled us, and I do not propose to solve all of it today. Instead, my goal is to discuss how we got here, propose a way to distinguish between governmental and proprietary contracts that would simplify many cases, and suggest that, in an appropriate future case, it is not too late for us to systematically reconsider our precedents.
I
Many of the cases that the Court cites today were built on substantial confusion and fundamental disagreement about the nature of immunity and how it relates to breach-of-contract claims. Unfortunately, but perhaps predictably, that confusion and disagreement have grown into an analytical framework derived from two very different legal standards—one from a statute and the other from common law. I doubt the relevance of the former and the correctness of our current understanding of the latter.
A
Start with the first step—the statutory one. There, our current practice is to consult the Texas Tort Claims Act to determine whether a municipality is entitled to immunity for contract claims. See Tex. Civ. Prac. & Rem. Code § 101.0215(a) – (b).
Why would we do such a thing? Certainly not because the statute commands it. To the contrary, we are fully aware that the Act's "statutory definitions and designations apply expressly to tort claims," Wasson Ints., Ltd. v. City of Jacksonville (Wasson II) , 559 S.W.3d 142, 146 (Tex. 2018), "but not for claims for breach of contract," ante at 499 (emphasis added).
The statute's tort limitation is just the most obvious of several reasons that make it problematic to apply its "governmental functions" list in the contract context. I will start there by adding that the statutory limitation was no accident. Since 1987, our Constitution has expressly authorized the legislature to "define for all purposes those functions of a municipality that are to be considered governmental and those that are proprietary, including reclassifying a function's classification assigned under prior statute or common law." Tex. Const. art. XI, § 13 (emphasis added). Despite that broad "all purposes" authority, the legislature cabined its definitions to tort claims that same year. See Act of Sept. 2, 1987, 70th Leg., 1st C.S., ch. 2, § 3.02, 1987 Tex. Gen. Laws 37, 47–48 (codified at Tex. Civ. Prac. & Rem. Code § 101.0215(a) ).
I readily accept for this case and in general that our precedent makes the governmental-or-proprietary distinction dispositive. The Court is quite right that this distinction is longstanding for tort claims. Ante at 500 n.3. But as I note below, no comparable history undergirds its use in contract claims. We first suggested it just seven years ago. See Wasson Ints., Ltd. v. City of Jacksonville , 489 S.W.3d 427, 439 (Tex. 2016) ("[W]e have never decided whether the distinction between governmental and proprietary acts ... applies to breach-of-contract claims against municipalities."). The ink is barely dry. Whether there are additional grounds that might justify or require finding that governmental immunity does not apply to a governmental unit in the contract context is an interesting question that goes beyond the scope of my opinion today.
To be clear, when the legislature acts in ways that displace the common law—which is typically within its power and something our Constitution specifically invites here—the courts' duty is to follow the legislative choice. Indeed, as a general matter, today's judiciary should be extremely cautious about using its common-law authority to innovate in areas where the legislature has been particularly active. See Elephant Ins. Co., LLC v. Kenyon , 644 S.W.3d 137, 157–59 (Tex. 2022) (Young, J., concurring); Am. Nat'l Ins. Co. v. Arce , ––– S.W.3d ––––, 2023 WL 3134718, at *17 (Tex. 2023) (Young, J., concurring).
The circumstances before us today, however, are exactly the opposite. The legislature had clear authority to displace the common law and unambiguously exercised it, but only as to torts. We must credit the legislature with acting purposefully, and as a "text-centric Court," Ojo v. Farmers Group, Inc. , 356 S.W.3d 421, 441 (Tex. 2011) (Willett, J., concurring), I cannot help but think that we should draw a very different lesson from the legislature's choice: that it intended not to displace the common law with respect to contract claims against municipalities. The legislature could have made the Tort Claims Act list fully applicable in any or every context, but instead unambiguously limited it. I would respect that limitation until the legislature says otherwise. A patient should not take a pill with breakfast or lunch when the doctor prescribed one at dinner; a court should not expand a law's scope to an area its text expressly refuses to reach. In neither context is more necessarily better. A second reason to respect the textual limitation (although, in truth, the first should be enough) is that the legislature's choice to leave the common-law process intact in the contract context is quite sound. A laundry list of governmental (and thus immunized) functions for tort claims—and only tort claims—makes eminently good sense.
More specifically, the functions listed in § 101.0215(a), which are deemed "governmental," are brought within the Tort Claims Act, meaning that immunity is also waived —if and to the extent the claim can survive the gauntlet that the Tort Claims Act itself imposes. See Rattray v. City of Brownsville , 662 S.W.3d 860, 865–69 (Tex. 2023) (describing many of the manifold procedural and substantive requirements that burden Tort Claims Act, but not ordinary, litigation).
Tort and contract claims, after all, are fundamentally different. Future tort liability is a matter of risk, not certainty. Whether a tort will happen, how often it will happen, and the consequences of its happening cannot truly be known—only feared. Governmental immunity for torts removes at least most liability risks for activities and projects that the legislature may wish to encourage—like city-funded "parks and zoos," "museums," "recreational facilities," "swimming pools," "parking facilities," "firework displays," Tex. Civ. Prac. & Rem. Code §§ 101.0215(a)(13), (14), (23), (25), (27), and the like. Cities are more likely to undertake such activities if the cost of doing so need not include (or at least may largely discount) the uncertain future costs that ordinary tort liability would bring. To take a (literal) concrete example: Building a swimming pool is a positive good for a community, but even responsibly done, the frequency and consequences of injuries and accidents are unpredictable. A city with limited resources may reasonably choose not to go forward when it is faced with the prospect of sudden, substantial, repeated, and enduring tort liability. That basis for hesitation, however, should be largely obviated by the statutory classification in § 101.0215(a)(23), which ensures that damages from a city swimming pool or other recreational facility will be imposed only if and to the extent the Tort Claims Act itself authorizes it.
Contracts are an entirely different matter. Unlike tort liability, contract liability can be more readily foreseen. Opening a swimming pool to the public poses a wildly different kind of liability risk than entering into a contract to install one. A city can do the latter with far more certainty and awareness of the attendant risks and potential liability. Indeed, just like any private party, a city can negotiate a contract's terms and conditions up front—and, importantly here, define or limit the remedies available to each party in the event of a breach. See Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006) ("By entering into a contract, a governmental entity ... voluntarily bind[s] itself like any other party to the terms of the agreement ...."); Charles Fried, Contract as Promise: A Theory of Contractual Obligation 1 (1981) ("The promise principle ... is that principle by which persons may impose on themselves obligations where none existed."). Analyzing a city's entitlement to immunity for contract claims, in other words, is an inherently different endeavor than analyzing one based in tort. The incentives, mental states, foreseeability, and remedies will often differ. See, e.g., Sw. Bell Tel. Co. v. DeLanney , 809 S.W.2d 493, 494–95 (Tex. 1991) ; Formosa Plastics Corp. USA v. Presidio Eng'rs and Contractors, Inc. , 960 S.W.2d 41, 44–45 (Tex. 1998).
For these reasons, I am not puzzled by the legislature's express limitation of its "governmental-versus-proprietary" list to suits "under this chapter"—that is, the Tort Claims Act. Tex. Civ. Prac. & Rem. Code § 101.0215(a). For the same reasons, it is not obvious to me that the Tort Claims Act can even "aid our inquiry" all that much for breach-of-contract claims. Wasson Ints., Ltd. v. City of Jacksonville (Wasson I) , 489 S.W.3d 427, 439 (Tex. 2016). Whatever their similarities, their differences are greater. The former cannot safely inform the latter, just as a chef unfamiliar with Texas chili should not consult his bouillabaisse recipe for guidance on the ground that both are stews.
B
Happily, the potential misdirection the Tort Claims Act can create when it is conscripted into service for contract cases is at least limited in its scope. As this case demonstrates, if the statute's definitions or one of its thirty-six enumerated functions cannot provide us any "guidance," we move to the second step: applying the common law.
Here, the problem is not so much whether the common law applies but how we have come to apply it. To determine whether a municipality's action is governmental (and thus immunized), our cases direct us to apply a four-factor test, asking (1) whether the city's act was mandatory or discretionary, (2) whether it was for the benefit of the general public or only its residents, (3) whether the city was acting on its own behalf or the State's, and (4) whether the city's act, if otherwise proprietary, was sufficiently related to a governmental function. Wasson II , 559 S.W.3d at 150–54.
The recognition of sovereign immunity is within the proper common-law domain of the courts. See Wasson I , 489 S.W.3d at 432. If the courts recognize immunity, then it is up to the legislature to waive it or not.
Today's case, fortunately, serves as a fairly straightforward example of how a city can flunk each factor. But that does not mean it will always be so easy. As with most multifactored tests, the Wasson factors can point us in different directions, and I am unsure how to measure one against the other in the event of a conflict. Cf. Bendix Autolite Corp. v. Midwesco Enters., Inc. , 486 U.S. 888, 897 (1988) (Scalia, J., concurring in judgment) (likening balancing tests to "judging whether a particular line is longer than a particular rock is heavy"); National Pork Producers Council v. Ross , 143 S. Ct. 1142, 1160 (2023) (opinion of Gorsuch, J.) (questioning how courts can weigh economic and noneconomic costs and benefits under the Pike balancing test in a dormant Commerce Clause analysis and concluding that such a balance is "insusceptible to resolution by reference to any juridical principle").
See Wasson II , 559 S.W.3d at 154 ; see also Hayes St. Bridge Restoration Grp. v. City of San Antonio , 570 S.W.3d 697, 705–06 (noting that one factor supported a "proprietary" classification while the other three supported a "governmental" classification). Indeed, if a multifactored test were incapable of pointing in different directions, there would seem be to be no point in having more than one factor.
Potentially worse, counting the factors for and against could give the mistaken impression that the immunity analysis is reducible to simple arithmetic. Three against one or one against three provides only an illusion of being closer to the correct answer. These factors are, by their nature, incommensurable—a fact enjoyed perhaps only by the equivocating law student on exam day, but not by any judge, litigant, or member of the public who seeks more clarity in the law. To be sure, Wasson II instructs that when "some factors ... point to one result while others point to the opposite result," we "should consider immunity's nature and purpose and the derivative nature of a city's access to that protection." 559 S.W.3d at 154. I must confess, however, that I do not quite know what that statement means or what rule of decision it provides for our trial judges, who must make the legal call in the first instance. More importantly, I doubt that a Texan about to form a contract with a city (or a Texan who already did so and now finds that city in breach) will be able to know with much confidence whether immunity applies or not.
As Justice Blacklock eloquently puts it, "When the factors themselves become the inquiry—as seems to have happened—the underlying concepts recede into the mist, and we lose sight of what we are really asking and why we are asking it." Post at 518 ( BLACKLOCK, J. , dissenting). This comment applies here and to so many other areas of the law that currently rely on balancing tests.
Similarly lacking, I am afraid, is any confidence we may have in the potential answers the Wasson factors could produce. It seems entirely possible that even when the factors all point in the same direction, it could be the same wrong direction. Consider, for instance, a city's decision to create a police force. Jurists and laymen alike would intuitively (and rightly) regard that decision to be quintessentially governmental. The Wasson factors, though, might deem such an act proprietary. A city is not mandated to create a police force (factor 1); the police force would primarily benefit city residents by virtue of its limited jurisdiction, which is why the city's residents pay for it (factor 2); and that primary responsibility for funding its own police force, as well as its local chain of command, shows that the city would primarily be acting on its own behalf, not the State's (factor 3).
To be sure, this particular example assumes that I have understood factor 3 correctly. Based on our precedent, it is also unclear to me whether this factor requires us to look at the municipality's intentions or the effects of its decisions. Compare Wasson II , 559 S.W.3d at 151 (considering whether nonresidents benefitted from a city's decision) with id. (looking to the record to determine the city's "primary objective").
One could perhaps argue (under factor 4) that a police force is "sufficiently related" to a governmental function. Relying on that escape hatch, though, only illustrates my point. It would be strange indeed to say that something is "sufficiently related" to a governmental function after it fails the first three factors of a test purporting to suss out whether it is "governmental." Relying on the last factor, in other words, is essentially circular: it openly depends on already knowing what is "governmental" to determine whether something is "governmental."
One can easily imagine other examples where the factors mislead more than facilitate the ultimate governmental-or-proprietary inquiry. How about another classic governmental function: levying property taxes. Because the State opts not to levy such taxes, doing so is a municipal choice (factor 1). Those taxes fund municipal entities and primarily benefit their own residents, as with schools and streets (factor 2). In levying such taxes, a city could not claim to do so on behalf of the State, which does not assess property taxes, and the collected taxes do not go to the State's fisc (other than temporarily, in some cases) (factor 3). Maybe, again, the fourth factor could bat clean-up, but if so, what work do the first three achieve? How much weight should they receive in such instances? Is the fourth one doing anything other than stating "yes, this is governmental"—easy for taxes or police, but harder in other cases? If we cannot trust the first three factors in "easy" cases, why should we trust them in hard ones?
I have a sneaking suspicion that the "four-factor" test turns out to be a one- factor test and that—voila! —the paramount fourth "factor" is revealed as just another disguise for our ancient nemesis: Ye Olde Know-It-When-I-See-It Test. C
My thoughts thus far are admittedly rather pessimistic, but I proceed mindful of Chesterton's fence. The benefit of raising these issues in today's case is that we can explore them without any risk of tearing down a fence that was built for a good but unknown or forgotten reason.
Nonetheless, I doubt that the status quo reflects our best ability to distinguish between governmental and proprietary in the contract context. That governmental-or-proprietary distinction, I acknowledge, has a long historical pedigree with respect to tort claims. See City of Galveston v. Posnainsky , 62 Tex. 118, 130–31 (1884). But it is of surprisingly recent vintage with respect to contract claims. See Wasson I , 489 S.W.3d at 439. Indeed, it was only nineteen years before Wasson I that this Court appears to have first endorsed the antecedent premise that governmental units are entitled to immunity for contract claims just as they are for tort claims. See Fed. Sign v. Tex. S. Univ. , 951 S.W.2d 401 (1997). I mention this not to challenge the use of the dichotomy—our precedent, as fresh as it may be, prescribes its use. Instead, while I accept it as our current precedent, I think that it probably is too early to conclude that the only way that immunity might be lacking in a contract case is if entering into it qualifies as a city's "proprietary" action.
This is not to mention, of course, that the legislature has already waived any local-government immunity for certain classes of contract claims. See Tex. Loc. Gov't Code §§ 271.151(2), .152 (waiving, for example, such immunity for contracts involving the provision of goods or services). In 2005, when the legislature enacted Chapter 271, it was unclear what immunity (if any) municipalities had for breach-of-contract claims, so the waiver avoided any consequences of the confusion. See H. Rsch. Org., Bill Analysis, H.B. 2039 (April 20, 2005).
But for today, I proceed on the premise that the governmental-or-proprietary question will be dispositive. Given that principle, we should at least ensure that the nature of the claim does not become ultimately obscured by labels. In other words, when we begin classifying a municipality's acts as either "governmental" or "proprietary," we ought to still account for the inherent differences between tort and contract claims.
Perhaps one way to improve our current approach, as Justice Blacklock suggests, is to jettison the Wasson factors and simply deploy our "good judgment and practical knowledge" while applying the governmental–proprietary dichotomy. Post at 518. Indeed, as he sees it, regaining "a coherent theory" in this area of the law will require a more "firmly grounded" understanding of "the concepts conveyed by the words ‘governmental’ and ‘proprietary’ " and applying them accordingly. Post at 517. And perhaps building a common-law basis for this distinction in a series of cases will generate rules , not mere factors , that will provide the requisite clarity and predictability that the citizens and cities of Texas all deserve. I would welcome the endeavor.
That said, I cannot shake the notion that any rule or set of rules would characterize League City's contract with Jimmy Changas as a decidedly proprietary action. And so I propose a different rule: that a contract is proprietary if it asks a market participant to do the very kind of thing it could contractually bind itself to do with non-governmental market participants. The contract in this case—memorializing financial incentives to build a restaurant—reflects no material difference from a potential contract between similarly situated private parties.
To test this view, suppose that Jimmy Changas' counterparty was not a governmental entity but instead a commercial developer. Such a developer might offer incentives to Jimmy Changas to build a restaurant in its development. Why? To increase the desirability and thus the value of its homes and commercial spaces, to attract other commercial tenants to a shopping plaza, to serve as an amenity for employees that would help entice companies to open an office, or for other similar reasons. I would think that such an offer (if accepted) would be a standard commercial agreement. If Jimmy Changas performed and the private developer refused to do so, we would treat the dispute as an ordinary breach-of-contract action. We would not tell Jimmy Changas that the contract was illusory and that its dedication of resources to this project rather than others that it might otherwise have preferred was for nothing.
Like other legal rules, future cases may be required to refine this one, were the Court ever to adopt it. For example, determining the proper level of generality to assess whether a contract with a city is analogous to one that could be made with a private counterparty might require further elaboration. But I doubt that any such difficulty would appear in this case, and maybe not in many others, either.
My dissenting colleague, on the other hand, reaches the opposite conclusion and makes a strong argument that Jimmy Changas is no more than a "participant in a government-benefits program" and a "beneficiary of government largesse, not a counterparty in a commercial exchange" "in which private parties might engage for their mutual benefit." Post at 519–20. As with so much else in Justice Blacklock's opinion, I largely agree with this insight, but in my view, the inquiry he describes is antecedent to the one on which I focus.
Specifically, if we determine that a "contract," despite its name, is nothing but an exercise of public spending or "largesse," that would end our inquiry. We would never reach the immunity question at all because such a relationship, even if dressed up in contractual garb, would not truly be contractual. Whatever arguments a beneficiary of "largesse" might make if the munificence were to dry up, those arguments would not sound in contract if there was no true contractual relationship. In such a case, as Justice Blacklock notes, we would first turn to the public law creating the government program. Post at 519. Other areas of law, such as the procedural due-process jurisprudence on government benefits, might well apply, too.
There is substantial disagreement about whether (or the extent to which) the government must follow the strictures of due process when it makes a decision regarding benefits that it is under no duty to provide—benefits that "are sometimes referred to as government largesse." John E. Nowak & Ronald D. Rotunda, Constitutional Law 540 (5th ed. 1995). The key question in such cases is whether these benefits constitute "property"—a question I briefly address in Part II, infra. For purposes of answering that question in the due-process context, the U.S. Supreme Court has circled around the concept of "entitlement," e.g., Bd. of Regents v. Roth , 408 U.S. 564, 577–78 (1972), what some could easily transpose as a contractual promise, e.g. , Nowak & Rotunda, supra , at 542 ("[An] entitlement also may come from statutory law [or] formal contract terms ...."). If such entitlements can be characterized as contracts at all, it is probable that they are situated quite differently for immunity purposes from "contracts" of the traditional sort.
But if we pass that antecedent step, it becomes a contract case. Here, substituting the developer in my hypothetical for League City suggests to me that Jimmy Changas was not the beneficiary of "largesse" but was engaged in commercial activity. The focus on the contractual counterparty—who will bear all the risk if a city is able to slip out of its deal—is proper. To a city, everything it does will seem governmental; to a hammer, everything seems like a nail. But it will not seem that way to a business entering into a contract (just as my thumb does not feel like a nail when my hammer strikes it).
That said, Justice Blacklock is surely correct that "[g]overnment-sponsored ‘economic development’ programs are no stranger to political controversy" and that newly elected officials may not want to be bound by their predecessors' policy decisions as reflected in the contracts that arise from such programs. Post at 517. But I disagree that the promises made and memorialized in writing by a municipality can just be undone by nothing more than the whims of the political process. The law has other ways to mitigate the profligacy of poor leadership without heaping all the consequences of a poor choice on the contractual counterparty. In one statutory waiver of immunity for contract claims, for example, the legislature has chosen to enact limitations on the damages recoverable from a municipality. See, e.g. , Tex. Loc. Gov't Code § 271.153(a)(4) – (b)(2). Of course, any party to a contract may negotiate for such limitations of liability. If cities do not do so as a matter of course, nothing stops the legislature from enacting such a blanket term, whether as a default or as mandatory, for these kinds of contracts. Nor is it clear that the common law of government contracts would not have similar effects, allowing both parties to negotiate in the light of the law.
The justification for municipal power to restrict individual rights by force of law is that municipal corporations reflect local self-government. That self-government premise renders quite doubtful any wholesale immunization of municipal corporations for their leaders' improvident contractual undertakings. On the contrary, if unwise decisions generate no real consequences, the incentives for rigorous self-government cannot help but diminish. And, little by little, wise exercises of self-government will be punished, too; all local governments will have to pay more for a contract if some of them can renege. After all, how will a business be able to distinguish honorable municipalities whose word is their bond from those who will abandon agreements when short-term political or fiscal agendas make doing so convenient?
The upshot of all this is that if we abandon the Wasson factors but keep the governmental–proprietary distinction, as Justice Blacklock and I both propose, the application will look much different for contracts cases. And because many if not most of the contracts that municipalities enter into will be ones that private parties can similarly make, like the one between League City and Jimmy Changas here, those contracts will be correctly deemed proprietary and no immunity will attach. Cf. Gates v. City of Dall. , 704 S.W.2d 737, 739 (Tex. 1986) (noting that "proprietary functions have subjected municipal corporations to the same duties and liabilities as those incurred by private persons and corporations"). It is one thing to diffuse public goods and common resources; it is quite another to make bargained-for promises to specific entities. Differentiating between the two, I think, would be an example of "good judgment and practical knowledge of how the world works." Post at 518.
II
Many additional pages could illustrate with much more detail how governmental immunity in the breach-of-contract context is far from settled (if not unsettling). Reasonable minds can and will differ on what immunity (if any) municipalities can claim in such cases. Opinions from Justices of this Court have run the gamut, ranging from a categorical immunity rule, to no immunity at all, to someplace in between. I cannot say which is right without further consideration and briefing on the issue, of course, but given the inability of our current factor-ridden framework to generate consistent and predictable results, I doubt stare decisis will stand as an insurmountable barrier to a thorough recalibration of our approach. Thus, to the extent a future case asks us to reconsider our precedents, I offer a few tentative observations, intended not as any great effort to plumb the depths of this contentious and cacophonous area of the law, but instead as a modest offer of potential points of consideration if and when the occasion calls for it.
See, e.g., Tex. Nat. Res. Conservation Comm'n v. IT-Davy , 74 S.W.3d 849, 857 (Tex. 2002) (categorical immunity rule); Fed. Sign , 951 S.W.2d at 418 (Enoch, J., dissenting) (no immunity at all); id. at 412 (Hecht, J., concurring) (some place in between).
First , the fact that we are dealing with a municipal corporation might simplify our analysis. As a learned colleague on the federal bench recently opined, "at common law, both in England and the early American Republic, incorporated entities were not entitled to sovereign immunity." Springboards to Educ., Inc. v. McAllen Indep. Sch. Dist. , 62 F.4th 174, 191 (5th Cir. 2023) (Oldham, J., concurring). Whatever the support for that (some might say) proposed federal common-law rule, I find the general principle to be helpful at least as a rebuttable presumption. Municipal corporations are not remotely sovereign, of course, even as a matter of Texas common law. But just like individual human beings, corporations could be treated as such when performing roles delegated to them by the State. In such instances, if the presumption against being "the State" is rebutted, immunity would apply in the ordinary course.
Coincidentally, the full Springboards panel also expressed frustration with precedent that mandated—you guessed it—a multifactor-balancing test for immunity. Compare id. , at 179 (noting that the immunity factors derived from Clark v. Tarrant Cny. , 798 F.2d 736 (5th Cir 2019), have been "fairly described as having all the precision of a blunderbuss") (internal quotations and citations omitted), with id. at 187 (Oldham, J., concurring) (calling the factors "cumbersome" and proposing "a new single-factor test: Was the entity asserting state sovereign immunity considered ‘the State’ in 1789?").
Compare Ann Woolhandler, Interstate Sovereign Immunity , Sup. Ct. Rev. 249, 261 (2006) ("[T]he [U.S. Supreme] Court might have treated the immunities as matters of federal constitutional or federal common law."), with Caleb Nelson, Sovereign Immunity as a Doctrine of Personal Jurisdiction , 115 Harv. L. Rev. 1559, 1565–66 (2002) (positing that state sovereign immunity is a "concept ... relevant to personal jurisdiction"); William Baude, Sovereign Immunity and the Constitutional Text , 103 Va. L. Rev. 1, 8–22 (2017) (arguing that sovereign immunity is a "constitutional backdrop" and thus a form of common law that "can't be changed because of the properly limited nature of Articles I and III").
Second , aside from what we have said, perhaps we should consider what the People have said about when the government (including the State itself) must compensate private parties: "No person's property shall be taken ... without adequate compensation." Tex. Const. art. I, § 17. And as we have observed before, the Texas Takings Clause itself "waives immunity for suits," City of Dallas v. VSC, LLC , 347 S.W.3d 231, 236 (Tex. 2011), and applies to all property (real or personal), Gulf, C. & S.F. Ry. Co. v. Fuller , 63 Tex. 467, 469 (1885). Thus, when a municipality accepts property under a contract and refuses to pay for them, such an action might amount to a raw, compensable taking. Third , and finally, sprinkled about our immunity opinions are various appeals to pragmatism, including that immunity should shield the public from the costs of their government's "improvident actions." If "improvidence" typifies actions sounding in ordinary negligence, this rationale may make sense for torts. But as I noted above, I doubt it applies as much to a governmental entity's breach of contract. A deal may turn out to be less good than hoped, but negotiated contracts can always have adequate foresight. A momentary lapse in judgment resulting in a tort is unlike the conscious, studied decision to make a promise—or, for that matter, to break one. Granting immunity to obviate the consequences of "improvident" governmental actions, then, cannot be the only answer. The public—whom we have sought to "shield"—always retains the option of not electing improvident officials. Judicially relieving those officials' improvidence, by contrast, means that the only party to suffer any consequences is the one who entered into the contract. No governmental unit—especially in Texas , where promises really matter—should be able to evade its obligations so capriciously.
Cf. Fed. Sign , 951 S.W.2d at 415 (Hecht, J., concurring) ("The State may not take property without compensation, but it may determine how its Branches will participate in deciding its contractual disputes."); John Echeverria, Public Takings of Public Contracts , 36 Vt. L. Rev. 517, 530 (2012) ("[I]f the government has not only impaired the contract interest but deprived the party of her contract remedy, then the party's protected interests have been destroyed and allowing the takings claim to go forward is necessary to protect those interests.").
We have used such reasoning several times in suits against governmental entities for breach of contract. E.g., Tooke , 197 S.W.3d at 332 ; City of Houston v. Williams , 353 S.W.3d 128, 134 (Tex. 2011) ; Zachry Const. Corp. v. Port of Houston Auth. of Harris Cnty. , 449 S.W.3d 98, 121 (Tex. 2014) (Boyd, J., dissenting); Wasson I , 489 S.W.3d at 432.
* * *
With these observations, I respectfully concur and await another case in which the Court may appropriately revisit the principles of immunity as they apply to contract claims against municipalities.
Justice Blacklock, joined by Justice Bland as to Part III, dissenting.
James D. Blacklock, Justice
I agree with much of Justice Young's thoughtful concurrence. The "Wasson factors" employed by the Court to distinguish between the governmental and proprietary functions of a municipality have proven unsuited for their task. In addition, we should abandon the fiction that the Tort Claims Act's rambling list of governmental functions tells us anything about how to determine whether common law immunity applies to a contract claim. And it may very well be, as Justice Young suggests, that when a government accepts performance under a commercial contract and then refuses to pay, the government has committed a compensable taking. I cannot join my colleague's concurrence, however, because I conclude that running a Chapter 380 tax-incentive grant program is a governmental rather than a proprietary function.
The courts have thus far demonstrated ourselves incapable of devising coherent standards in this area. Given the judiciary's difficulty, the people of Texas wisely empowered their Legislature to distinguish for all purposes between "governmental" and "proprietary" functions and thus to determine when municipalities may be sued for breach of contract. TEX. CONST. art. XI, § 13. Perhaps the Legislature will exercise this authority and thereby bring welcome clarity to the law.
I.
Texas governments execute thousands of contracts every year with thousands of parties who rely upon, or at least hope for, the government to perform as promised. Determining which of these contracting parties will have a remedy against the public treasury in court and which will not seems to me a legislative undertaking. It requires balancing the value we place on holding our government to its promises against important competing values, such as (1) preserving the taxpayers’ money and (2) ensuring that our government is ultimately controlled by democratic processes rather than by contractual obligations.
The second point may require elaboration. Contracts like the one at issue here purport to bind the government years into the future. Under such an agreement, the official who controlled the government when the contract was executed has promised that in the future the government will do something, even though by that time the government may be controlled by new officials. But what happens if public outcry in response to a contract's execution causes the government to change course? What happens if the people elect a new government that disclaims the policy choices reflected in the contract? Must the new government nevertheless perform a deal it abhors? Are the people's representatives and the people's tax dollars tied to the mast of whatever deals have previously been executed in their name? How do we balance the obligation of contracts against the responsiveness of government to democratic influence? The Legislature is better suited than the Judiciary to answer these questions.
Government-sponsored "economic development" programs are no stranger to political controversy. People disagree in good faith about whether such programs are desirable. If the Court is right that the economic development agreement at issue here is a proprietary contract that may be enforced in court against League City, then the execution of the contract had the effect of limiting the options available to the people of League City for their future self-governance. In other words, if this agreement is enforceable in court like any other commercial contract, then its execution divested the people of League City of the power to end corporate welfare in their town, at least for the duration of the contract. If judicially enforceable, this agreement bound the city to future actions—actions laden with discretionary policy judgments—regardless of whether the city officials required to take those future actions continue to believe they promote the welfare of the people of League City.
Perhaps the courts ought to be empowered to issue judgments that bind municipal governments in this way. Perhaps not. The Legislature is better suited than the courts to answer such questions, and our Constitution empowers it to do so.
II.
I find the Wasson factors of little use, largely for the reasons expressed by Justice Young. If we are to regain a coherent theory of the difference between the governmental and proprietary functions of a municipality, it ought to be more firmly grounded in the concepts conveyed by the words "governmental" and "proprietary," as was much of our pre-Wasson case law. The distinction between these two concepts will not have sharp contours in every case, but in general the distinction is not so difficult to perceive that sensible judges must labor under an artificial list of "factors" in order to see it. Municipal corporations do some things in their capacity as the government, and they do other things in the non-governmental capacity of a property owner or a proprietor of a corporate entity. This is a natural, intuitive distinction, which should not be terribly difficult to grasp in most cases. The distinction is obscured rather than illuminated by mechanical application of judicial factors divorced from the underlying inquiry.
Compare City of Port Arthur v. Wallace , 141 Tex. 201, 171 S.W.2d 480, 481 ( 1943) (fire protection is a governmental function), Ellis v. City of West University Place , 141 Tex. 608, 175 S.W.2d 396, 397–98 (1943) (zoning is a governmental function), White v. City of San Antonio , 94 Tex. 313, 60 S.W. 426, 427 (1901) (public health is a governmental function), and Whitfield v. City of Paris , 84 Tex. 431, 19 S.W. 566, 567 (1892) (police protection is a governmental function), with Gates v. City of Dallas , 704 S.W.2d 737, 739 (Tex. 1986) (administering an insurance fund for employees is a proprietary function), Lebohm v. City of Galveston , 154 Tex. 192, 275 S.W.2d 951, 955 (1955) (maintaining streets owned by the city is a proprietary function), City of Houston v. Shilling , 150 Tex. 387, 240 S.W.2d 1010, 1013 (1951) (repairing a garbage truck is a proprietary function), and Ostrom v. City of San Antonio , 94 Tex. 523, 62 S.W. 909, 910 (1901) (cleaning streets owned by the city is a proprietary function).
I do not pretend that this is always easy, but it was not always so hard. In 1884, we said that a municipality's governmental functions are "the responsibilities of towns and cities for acts done in their public capacity, in the discharge of duties imposed upon them by the legislature for the public benefit." City of Galveston v. Posnainsky , 62 Tex. 118, 130–31 (1884). On the other hand, proprietary functions are "acts done in what may be called [a city's] private character, in the management of property or rights voluntarily held by them for their own immediate profit or advantage as a corporation, although inuring, of course, ultimately to the benefit of the public." Id. at 131. These definitions aptly convey a useful sense of the distinction between a municipality's "public capacity" and its "private character." Id.
This conceptual distinction was not created by the Court's decisions. It arises from the nature of modern government, and it exists whether this Court enunciates it or not. Our precedent notices the distinction and gives it legal consequence. But our precedent did not create the distinction, and if our precedent causes us to lose sight of it, we should abandon the precedent, not the distinction.
The Wasson factors are only useful if they make it easier to perceive and apply the conceptual distinction these 140-year-old definitions point us towards—the distinction between the "public capacity" and the "private character" of a municipal corporation. In other words, the Wasson factors ought to be merely a tool in service of the ultimate inquiry. When the factors themselves become the inquiry—as seems to have happened—the underlying concepts recede into the mist, and we lose sight of what we are really asking and why we are asking it.
In any given case, perceiving the line between governmental and proprietary functions may require good judgment and practical knowledge of how the world works, particularly the world of government. These are qualities we hope our judges possess. If judges lack these qualities, then requiring them to apply multi-factor tests divorced from a firm sense of the inquiry's conceptual foundations will not make the outcomes more sensible or more predictable. The search for scientific efficiency imagined by multi-factor balancing tests rarely delivers on its promises, as this case demonstrates. Instead, our propagation of these malleable judicial "tests" incorrectly suggests to judges and lawyers that "factors" announced by this Court are themselves the common law, rather than tools to be employed in service of better understanding the common law. This approach encourages all involved to ignore the moral and political foundations of the common law—or worse yet, to pretend those foundations do not exist and to think of the common law as nothing more than a list of "factors" announced by the Court a few years ago.
No matter the judicial methodology employed, judges will not always agree, as is the case today. But when we attempt to reduce intuitive conceptual categories with a deep common law history into "factors" to be mechanically applied in all cases, we strip away what should be our touchstone—the overall sense of the conceptual distinction from which the "factors" were derived. Judging often requires judgment, unsurprisingly. It is rarely a science. A common law judge's responsibility to grasp and apply conceptual distinctions using good judgment and practical knowledge can rarely be reduced to the scientific application of multi-part balancing tests.
III.
With these considerations noted, I conclude that the Chapter 380 tax-incentive program at issue here is a governmental function of the city. This is a case about the government's operation of a statutorily authorized grant program that awards tax incentives for economic development. The agreement between League City and Jimmy Changas has no "private character." It is not the kind of arms-length commercial exchange in which private parties might engage for their mutual benefit. Instead, it implements a tax-rebate grant program authorized by Article XI, Section 13 of the Texas Constitution and Chapter 380 of the Local Government Code and operated for the diffuse benefit of the public.
Only a government could or would run a grant program designed to generate diffuse public benefit by offering tax breaks to private entities. Taxation "is undeniably a governmental function." Fort Worth Indep. Sch. Dist. v. City of Fort Worth , 22 S.W.3d 831, 846 (Tex. 2000). Indeed, "[t]he collection of taxes is undoubtedly one of the highest and most characteristic of the governmental functions." Black v. Baker , 130 Tex. 454, 111 S.W.2d 706, 708 (1938). So the city's collection of taxes from Jimmy Changas to benefit the public is "undoubtedly" governmental, but the city's rebating of the same taxes to benefit the public is not. I do not follow.
Jimmy Changas’ role in all this is as a participant in a government-benefits program operated in the city's distinctly "public capacity" pursuant to a statute—not as a participant in a bargained-for exchange of a "private character." Put another way, Jimmy Changas is a government grant recipient, not a government contractor—a beneficiary of government largesse, not a counterparty in a commercial exchange.
Jimmy Changas would object to this characterization and point out that it acted in reliance on the city's promises, to its potential financial detriment. But the government often requires many things of the recipients of its largesse, and people frequently act in reliance on the government's promise that it will extend benefits to those who dance to its tune. We do not typically treat such interchanges as enforceable by the common law of contracts. Instead, the remedies available to a disgruntled participant in a government-benefits program are those provided by the laws governing the program, not those available under contract law.
This Chapter 380 agreement is just one instance of the implementation of a quintessentially governmental program operated for a diffuse public benefit. In running such a program, League City is acting in its capacity as the government, using authority delegated to it by the Constitution and statutes of our state. League City is not acting in its capacity as a corporation or a property owner, and the nature of this tax-rebate agreement bears little resemblance to any contract that might be found in the private sector. The Legislature could of course provide administrative or judicial remedies to participants in the local programs Chapter 380 authorizes, but it has not done so. Instead, the Legislature has provided Chapter 271, which authorizes breach-of-contract suits against municipalities only if the contract is "for providing goods or services to the" municipality. TEX. LOC. GOV'T CODE § 271.151(2). The recipient of a Chapter 380 grant does not provide "goods or services" to the municipality in the sense contemplated by Chapter 271. The city itself gets no direct benefit—no goods or services—out of the deal. It hopes for a diffuse benefit to the local economy, but there is no sense in which this agreement is an exchange of the city's money for an equivalent amount of goods or services owed to the city by Jimmy Changas.
Viewed alongside Chapter 271, the Court's decision today produces an awfully strange result. Private companies that enter into conventional commercial contracts to provide goods and services in furtherance of a city's governmental functions—for example, a company that sells computers to the police department—must abide by the procedural restrictions and liability limits of Chapter 271 if they decide to sue the city. Yet companies that receive economic development grant awards rebating their taxes under the authority of Chapter 380 have no need to consult Chapter 271 at all. They have a direct line to the courts, unmediated by the Legislature. The corporate welfare recipient now has more access to the courts than the government contractor. That this is where we have ended up speaks for itself about the pitiable state of the law in this area.
I respectfully dissent.