City prevails with plea to the jurisdiction on appeal

City of Pasadena, Texas v. Environmental Infrastructure Group, LP, Kinsel Industries, Inc. and Travelers Casualty and Surety Company of America, Crouch/KST Enterprises, LTD, No. (Tex.App.- Houston, Aug. 2, 2007)(Opinion by Justice Hanks)(sovereign immunity)(Before Judge Wilson, Justices Hanks and Bland)
Dispostion: Reversed and rendered
Appeal from 151st District Court of Harris County,
Trial court judge: Hon. Caroline Baker

MEMORANDUM OPINION

This interlocutory appeal arises from the trial court's order denying the City of Pasadena's ("the City's") plea to the jurisdiction filed in response to a breach of contract suit. In its sole issue, the City contends that the trial court erred in denying its plea because the City had not waived its immunity from suit with respect to appellee, Crouch/KST Enterprises, Ltd. ("Crouch").

We reverse the trial court's order, as to Crouch's claims only, and we render judgment dismissing Crouch's claims against the City for want of jurisdiction.

Background

In the summer of 2000, the City entered into a contract ("the Prime Contract") with Kinsel Industries, Inc. ("Kinsel"), whereby Kinsel agreed to furnish the labor, materials, and equipment necessary for the City's construction of a wastewater treatment plant. Shortly thereafter, Kinsel entered into a subcontract agreement ("the Subcontract") with Crouch for the performance of certain electrical work related to the construction of the wastewater treatment plant. According to Crouch's pleadings, the Subcontract documents consisted of the agreement between Crouch and Kinsel, the Prime Contract, and the conditions of the Prime Contract. The City was not a party to the Subcontract.

Crouch's pleadings further allege that, during the course of its performance under the Subcontract, it encountered numerous delays as a result of Kinsel's failure to properly schedule the other subcontractors working on the wastewater treatment plant. Crouch initiated the instant lawsuit seeking, in part, recovery of the expenses incurred as a result of the delay from Kinsel, its agent or successor, Environmental Infrastructure Group, L.P. ("EIG"), and its bonding company, Travelers Casualty Surety Company of America ("Travelers"). Kinsel, in turn, filed a motion for leave to designate the City as a Responsible Third Party, asserting that the unanticipated increase in the cost suffered by it and its subcontractors was a result of the delay caused by the actions and omissions of the City. Thereafter, Crouch amended its pleadings to assert a breach of contract claim against the City; specifically, Crouch argued that it was a third-party beneficiary to the Prime Contract and sought damages for the City's breach of that contract.

The City responded by filing a plea to dismiss the suit for lack of jurisdiction on the grounds that neither Kinsel nor Crouch were able to establish a waiver of governmental immunity for breach of contract claims under the Local Government Code. The trial court denied the City's plea, and the City filed this interlocutory appeal, complaining of the denial only as to Crouch's claims.

Plea to the Jurisdiction

In its sole issue, the City argues that the trial court erred in denying its plea to the jurisdiction because the City did not waive its immunity from suit. Specifically, the City argues that there was no waiver of governmental immunity because (1) the statutory waiver provided for in section 271.152 of the Local Government Code cannot be invoked by a third-party beneficiary to a contract and, (2) even if it could be invoked by a third-party beneficiary, Crouch is not a third-party beneficiary as a matter of law. (1) We hold that, because Crouch is not a third-party beneficiary to the Prime Contract, the trial court erred in denying the City's plea to the jurisdiction.

Standard of Review

A plea to the jurisdiction is a dilatory plea challenging a trial court's authority to determine the subject matter of the cause of action without defeating the merits of the case. City of Houston v. Northwood Mun. Util. Dist. No. 1, 73 S.W.3d 304, 308 (Tex. App.--Houston [1st Dist.] 2001, pet. denied) (citing Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000)). While the underlying claims may form the context in which a plea to the jurisdiction is raised, the purpose of the plea is not to preview or delve into the merits of the case, but to establish the reason why the merits of the underlying claims should never be reached. Id. This does not mean that evidence cannot be offered on a dilatory plea; on the contrary, the issues raised by a dilatory plea are often such that they cannot be resolved without hearing evidence. Bland Indep. Sch. Dist., 34 S.W.3d at 554. And, because a court must not act without determining that it has subject matter jurisdiction to do so, it should hear evidence as necessary to determine the issue before proceeding with the case. Id.

In a plea to the jurisdiction, "the pleader must allege facts that affirmatively demonstrate the court's jurisdiction to hear the cause." City of Houston v. Rushing, 7 S.W.3d 909, 913 (Tex. App.--Houston [1st Dist.] 1999, pet. denied). It is proper for a trial court to dismiss claims over which it does not have subject matter jurisdiction but retain claims in the same case over which it has jurisdiction. Thomas v. Long, 207 S.W.3d 334, 338-39 (Tex. 2006). That is, a trial court is not required to deny an otherwise meritorious plea to the jurisdiction concerning some claims because the trial court has jurisdiction over other claims. Id. at 339. A trial court's ruling on a plea to the jurisdiction presents a legal question which is reviewed de novo. See Northwood, 73 S.W.3d at 308.

Governmental Immunity in Breach of Contract Suits

In Texas, governmental immunity has two components: immunity from liability, which bars enforcement of a judgment against a governmental entity, and immunity from suit, which bars suit against the entity altogether. Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006). By entering into a contract, a governmental entity necessarily waives immunity from liability, voluntarily binding itself like any other party to the terms of the agreement, but it does not waive immunity from suit. Id. Texas courts consistently defer to the Legislature to waive sovereign immunity from suit because this allows the Legislature to protect its policymaking function. Id. This is particularly true in the context of contract claims, where "legislative control over sovereign immunity allows the Legislature to respond to changing conditions and revise existing agreements if doing so would benefit the public." Id. To ensure that legislative control is not lightly disturbed, a waiver of immunity must be "clear and unambiguous." Id. at 332-33.

Section 271.152 of the Texas Local Government Code clearly and unambiguously waives local governments' immunity from suit for certain contractual claims and damages. See Tex. Loc. Gov't Code Ann. § 271.152 et seq. (Vernon 2005). Specifically, section 271.152 provides that:

[a] local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to the terms and conditions of this subchapter.
Id. In the instant action against the City for breach of the Prime Contract, the City, as a municipality, is included within the statutory definition of a "local governmental entity," and the Prime Contract between the City and Kinsel is a "contract subject to this subchapter" because it is a "written contract stating the essential terms of the agreement for providing goods or services to [a] local governmental entity that [was] properly executed on behalf of the local governmental entity." See id. § 271.151(2), (3)(A). In addition, the delay damages sought by Crouch against the City are included within the statute's limited damages provision. Id. § 271.153 (indicating that the total amount of money awarded against a local governmental entity in a breach of contract action may include "any amount owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays . . . ."). As previously stated, however, the City argues that section 271.152 is inapplicable here because the waiver of governmental immunity provided therein cannot be invoked by a third-party beneficiary.

Assuming, without deciding, that a third-party beneficiary may invoke the waiver of governmental immunity under section 271.152, we determine whether Crouch is, as a matter of law, a third-party beneficiary to the Prime Contract. In so doing, we are constrained by the limits of our review of a plea to the jurisdiction and must construe Crouch's pleadings liberally in favor of jurisdiction. City of Alton v. Sharyland Water Supply Corp., 145 S.W.3d 673, 682 (Tex. App.--Corpus Christi 2004, no pet.).

Crouch's pleadings allege that it is a third-party beneficiary to the Prime Contract because (1) the Subcontract incorporated the provisions of the Prime Contract and (2) the Prime Contract was intended to benefit Crouch. It is well-established that the intention of the contracting parties is controlling in determining whether a third party can enforce a contract. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). We glean intent from what the parties said in their contract, not what they allegedly meant. Esquivel v. Murray Guard, Inc., 992 S.W.2d 536, 544 (Tex. App.--Houston [14th Dist.] 1999, pet. denied). The intention to confer a direct benefit on a third party must be clearly and fully spelled out in the four corners of the contract. MCI Telecomms., 995 S.W.2d at 651. Thus, we may not create a third-party-beneficiary contract by implication. Id. For these reasons, there is generally a presumption against, not in favor of, third-party beneficiary agreements. Id. That is, it is presumed that the parties contracted for themselves unless it clearly appears that they intended a third party to benefit from the contract. Id. Because of this presumption, third-party-beneficiary claims will generally be denied unless: (1) the obligation of the bargain-giver is fully spelled out, (2) it is unmistakable that a benefit to the third party was contemplated by the primary contracting parties, and (3) the primary parties contemplated that the third party would be vested with the right to sue for enforcement of the contract. Whitten v. Vehicle Removal Corp., 56 S.W.3d 293, 312 (Tex. App.--Dallas 2001, pet. denied). If there is any reasonable doubt as to the intent of the contracting parties to confer a direct benefit on the third party, then the third-party-beneficiary claim must fail. Id.

Here, the Prime Contract documents consist of nearly 100 pages. Crouch asserts that the Prime Contract's provision guaranteeing that "[a]ll work performed for [Kinsel] by a Subcontractor or Supplier will be pursuant to an appropriate agreement between [Kinsel] and the Subcontractor or Supplier which specifically binds the Subcontractor or Supplier to the applicable terms and conditions of the Contract Documents for the benefit of [the City]" demonstrates an intent to confer third-party benefits to subcontractors like Crouch. After reviewing the record, however, we cannot conclude that the Prime Contract clearly and fully spells out an intent on behalf of the City and Kinsel to confer a direct benefit upon Crouch. See MCI Telecomms., 995 S.W.2d at 651; Whitten, 56 S.W.3d at 311. Nowhere in the contract documents is it stated that the parties are contracting for the benefit of Crouch or any other subcontractor. In fact, the contract documents expressly state the opposite. In section 6.9.1 of the section titled "General Conditions," the Prime Contract states that "[n]othing in the Contract documents shall [be] for the benefit of any Subcontractor, Supplier or other person or organization . . ., nor shall it create any obligation on the part of [the City] to pay or see to the payments of any moneys due any Subcontractor, Supplier or other person or organization . . . ." Because the Prime Contract does not clearly express the intent of the parties to confer any benefit on third parties, Crouch's third-party-beneficiary claim necessarily fails. Absent third-party beneficiary status, Crouch cannot assert a claim for breach of the Prime Contract against the City and, thus, cannot invoke the waiver of governmental immunity under section 271.152 even if the statute permits it to do so. Because Crouch cannot invoke the waiver of governmental immunity, the trial court erred in denying the City's plea to the jurisdiction.

Conclusion

For the reasons stated above, we reverse the trial court's order denying the City's plea to the jurisdiction, as to Crouch's claims only, and we render judgment that Crouch's claims against the City be dismissed for want of jurisdiction.

George C. Hanks, Jr.
Justice
Panel consists of Justices Hanks, Bland, and Wilson (2)

Justice Wilson, concurring without opinion

1. The City also contends that Crouch's pleadings assert a claim for interference with the performance of a contract that cannot be brought under the waiver provided for in section 271.152, which applies only to breach of contract claims. In Crouch's third amended petition, the only cause of action asserted against the City is a breach of contract cause of action, which Crouch asserts as a third-party beneficiary. Pursuant to this cause of action, Crouch alleges that it incurred additional cost and expense in the performance of its duties as a result of the City's interference with the performance of the Prime Contract. Crouch does not, however, assert that this interference is a separate cause of action, and, thus, we do not consider whether a claim for interference with the performance of a contract invokes the waiver of governmental immunity
under section 271.152.

2. The Honorable Davie L. Wilson, retired Justice, Court of Appeals, First District of Texas at Houston, sitting by assignment. See Tex. Gov't Code Ann. § 74.003(h) (Vernon 2005).