The City of Houston v. Atser, L.P.--Appeal from 334th District Court of Harris County (Majority)

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Opinion issued April 5, 2012 In The Court of Appeals For The First District of Texas ———————————— NO. 01-10-00240-CV ——————————— THE CITY OF HOUSTON, Appellant V. ATSER, L.P., Appellee On Appeal from the 334th Judicial District Court Harris County, Texas Trial Court Case No. 2008-48039 MEMORANDUM OPINION This is a case stemming from an alleged breach of a contract between appellant, the City of Houston (the ―City‖), and appellee, Atser, L.P. (―Atser‖). The City appeals from an interlocutory order denying its no-evidence and traditional motion for partial summary judgment against Atser in which, according to the City, it asserted challenges to the trial court‘s jurisdiction. In two issues, the City contends that:(1) Atser‘s breach of contract allegations do not fall within the limited waiver of immunity set forth in Texas Local Government Code Chapter 271; and (2) Atser‘s allegations of failure-to-use services, allegedly causing it lost profits of $250,000, are not actionable under Chapter 271, Subchapter I of the Code.1 We dismiss the City‘s appeal as to its first issue for lack of jurisdiction, and we affirm the trial court‘s order as to the second issue. Background In 1999, the City and Atser entered into a construction contract (the ―1999 Contract‖) which required Atser to provide the labor, materials, and supervision necessary to complete various construction projects. In 2003, the parties amended the contract to require Atser to implement a computerized ―Project Management System‖ for the construction projects (the ―2003 Amendments‖). In 2006, the parties entered into a contract for software technical support and programming services (the ―2006 Contract‖). 1 On page seven of its appellate brief, the City lists four ―issues presented.‖ These ―issues,‖ however, differ from the issues listed in the Table of Contents and are not briefed by the City. Accordingly, we confine our opinion to the issues actually briefed by the City. See TEX. R. APP. P. 38.1(i) (―The brief must contain a clear and concise argument for the contentions made, with appropriate citations to authorities and to the record.‖). 2 Eventually, the City and Atserdisagreed about the parties‘ duties under these contracts. Their disagreements initially centered around a former Atser employee who had come to work for the City.Atser believed that this employee misappropriated trade secret information and began using the information to Atser‘s detriment and the City‘s benefit. Atser brought suit against this employee. Atser later substituted the City as a defendant and pled claims for breach of the 1999 Contract, the 2003 Amendments, and the 2006 Contract, as well as claims for quantum meruit and unjust enrichment. Atser alleged that the trial court had jurisdiction over its claims pursuant toTexas Local Government Code Chapter 271. The City answered Atser‘s petition and pled, among other defenses, immunity from both suit and liability. The City then filed two sets of special exceptions to Atser‘s claims. In its first special exceptions, the City claimed that Local Government Code Chapter 271 waived immunity only for breach of contract claims and, therefore, the City was immune from claims such as quantum meruit or unjust enrichment. It also claimed that, under the facts pled by Atser, section 271.152 did not waive the City‘s immunity from suit for breach of contract. In response, Atser filed a Second Amended Petition. The City then filed special exceptions to Atser‘sSecond Amended Petition. In those special exceptions, the City claimed that Atser‘s pleadings were so devoid of facts as to deny the City fair notice of Atser‘s claims, and it claimed that Atser failed to adequately plead 3 jurisdiction. The City also argued that Atser failed to plead the maximum amount of damages it sought,failed to plead special damages, and failed to prove that the damages sought were recoverable under Local Government Code section 271.153(b). Atser then amended its pleading again and dropped its equitable claims, leaving only its breach of contract claims. In this Third Amended Petition, Atser claimsthat:(1) it had valid, enforceable contracts with the City; (2)it has standing to sue the City; (3) the City has waived its sovereign immunity pursuant to section 271.152; (4) its claims are for an adjudication of the City‘s breach of contract; (5) it has performed, tendered performance, or was excused from performing its contractual obligations, and it has provided all goods, services, and materials as requested by the City and required by the terms of the contracts; and (6) the City breached the contracts by ―failing to meet its payment obligations and other duties under these contracts. Specifically it has not fully compensated Plaintiff pursuant to the terms of the contracts.‖ The City filed a plea to the jurisdiction concerning this Third Amended Petition. The City alleged that the only exception to governmental immunity thatAtser could plead was provided by Local Government Code section 271.152 and that Atser‘s claim did not fall within the parameters of thatsection, and itasked 4 the trial court to dismiss Atser‘s claim for lack of jurisdiction. The trial court denied the plea to the jurisdiction. Discovery proceeded in the lawsuit and ended in January 2010. The City then filed a ―No-Evidence and Traditional Motion for Partial Summary Judgment‖ (―Partial Motion for Summary Judgment‖). The ―no-evidence‖ section of the Partial Motion for Summary Judgment assertedthat Atser presented no evidence of one or more essential elements of its claim for breach of contract. The ―traditional‖ part of the Partial Motion for Summary Judgmentargued that the City was entitled to judgment as a matter of law on Atser‘s breach of contract claim. Within this Partial Motion for Summary Judgment,the City also claimed that one portion of Atser‘s breach of contract claim ―fails as a matter of law because the Legislature did not waive the City‘s immunity for the types of damages Atser seeks.‖ The trial court denied the Partial Motion for Summary Judgment. The City filed a notice of appeal from the denial of its Partial Motion for Summary Judgment as an accelerated appeal. As there has been no final judgment in this case, we gave the City notice that the appeal might be involuntarily dismissed for want of jurisdiction, and we gave the parties the opportunity to provide further briefing on the jurisdictional issue, which the City did. 5 This Court’s Jurisdiction Over This Appeal The City claims that, despite the fact that there is no final judgment or order in this case, it can appeal the interlocutory denial of its Partial Motion for Summary Judgment on the basis that this motionwas actually a challenge to the trial court‘s jurisdiction. A. The Law As a general rule, appeals may be taken only from final judgments or orders. SeeTEX. CIV. PRAC. & REM. CODE ANN.§ 51.014 (Vernon Supp. 2001); Qwest Commc’ns Corp.v. AT&T Corp., 24 S.W.3d 334, 336 (Tex. 2000). An exception to this rule, however, is found in Civil Practice and Remedies Code section 51.014(a)(8). This section allows an appeal from an interlocutory order that ―grants or denies a plea to the jurisdiction by a governmental unit as that term is defined in Section 101.001.‖ TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(8). An interlocutory appeal may be had when a trial court denies a governmental unit‘s challenge to subject matter jurisdiction, ―irrespective of the procedural vehicle used.‖ Id.;Thomas v. Long, 207 S.W.3d 334, 339 (Tex. 2006). The availability of an interlocutory appeal will not be decided by the form or caption of a pleading, but will be determined by the substance of the motion to determine the relief sought. Myers Corp. v. Abel, 997 S.W.2d 598, 601 (Tex. 1999). 6 In order for a party to be entitled to an interlocutory appeal, section 51.014(a)(8) requires the denial of a jurisdictional challenge. TEX. CIV. PRAC. & REM. CODEANN.§ 51.014(a)(8); Thomas, 207 S.W.3d at 339. Even in the absence of an explicit denial of a jurisdictional challenge, however, if a trial court rules on the merits of an issue without explicitly rejecting an asserted jurisdictional attack, it has implicitly denied the jurisdictional challenge.Thomas, 207 S.W.3d at 339– 40.This implicit denial satisfies section 51.014(a)(8) and gives the court of appeals jurisdiction to consider an interlocutory appeal. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(8); TEX. R. APP. P. 33.1(a)(2)(A); Thomas, 207 S.W.3d at 340. B. Application of Law to Facts The City‘s Partial Motion for Summary Judgment is divided into two sections: (1) the no-evidence section and (2) the traditional section. In the noevidence section, the City listed the elements of a breach of contract claim as (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages to the plaintiff from the breach. Wright v. Christian &Smith, 950 S.W.2d 411, 412 (Tex. App.—Houston [1st Dist.] 1997, no writ). In the no-evidence section of its Partial Motion for Summary Judgment, the City claimed that there was no evidence for each of the elements of Atser‘s breach of contract claim. However, the City did not challenge the trial court‘s subject 7 matter jurisdiction in any way in this section. We therefore have no jurisdiction over an appeal from the denial of the no-evidence portion of the City‘sPartial Motion for Summary Judgment. SeeTEX. CIV. PRAC. & REM. CODE ANN.§ 51.014(a)(8). In the traditional section of its Partial Motion for Summary Judgment, the City claimed that it was entitled to summary judgment as a matter of law on Atser‘s breach of contract claim. It dividedAtser‘sbreach of contract pleading into three claims, one for $5 million, one for $250,000, and one for $2,000.2 In the first section of its traditional motion concerning what the City calls the ―$5M Claim,‖ the City asserted that two alleged admissions byAtserdefeat the second element of a breach of contract claim, i.e., performance or tendered performance by the plaintiff. See Wright, 950 S.W.2d at 412. The motion presented evidence of these admissions and cited the City‘s summary judgment evidence. In the body of this section, however, the City made the following statement: 2 Atser‘sThird Amended Petition, however, makes no such division. It alleges a single breach of contract and an aggregate amount of damages, which Atser claims is the combination of the balance due and owed by the City under the contracts, the amount owed for additional work Atser performed at the City‘s request, and interest. The City apparently makes these divisions of the damages from breach of contract based on Atser‘s response to discovery in this suit and not based on the language of the petition itself. To determine the jurisdictional issue, however, we will look only to the City‘s motion to see if it appropriately challenges subject matter jurisdiction. 8 In essence, Atser‘s $5M Claim is nothing more than a tort or quasi-contract claim. Indeed, Atser has already termed it as such. In fact, Atser still maintains that it is an ―option‖ that its former employee stole the software and gave it to the City. But the City is immune from these types of claims because chapter 271 of the TEXAS LOCAL GOVERNMENT CODE, the only statutory waiver of the City‘s governmental immunity from suit claimed by Atser, contains a limited waiver of immunity from suit only ―for the purpose of adjudicating a claim for breach of contract,‖ not for any other claims in law or equity. Therefore, in response to the City‘s Pleas to the Jurisdiction, Atser attempts in its Third Amended Petition to recast un-waived tort/quasi-contract claims as a breach of contract claim. (Internal citations omitted.) However, although this passage cites the governmental immunity statute, it concludes with the following: In sum, Atser‘s admissions, as well as the January 8, 2008 Letter, conclusively establish that Atser failed to perform or tender performance, and that even if it had, such performance would not give rise to any contractual obligation for the City to pay for the ―core technology‖ source code because the City never agreed pursuant to the ―Supplemental Activities‖ provision of the 1999 Contract to pay for this ―supplemental‖ product. As there is no evidence to the contrary, and there is no disputed issue of material fact, summary judgment in favor of the City on Atser‘s $5M Claim is appropriate. Thus, although the City announced that the ―$5M Claim‖ was ―nothing more than a tort or aquasi-contract claim‖ and that ―the City is immune from these types of claims,‖ the City did not ask for relief from the trial court on this basis. Instead, it asked the trial court to grant summary judgment because the evidence established that Atser could not meet an element of its breach of contract claim. 9 We conclude that when the trial court denied the City‘s Partial Motion for Summary Judgment concerning the ―$5M Claim,‖ it did not implicitly or explicitly deny a challenge to the trial court‘s jurisdiction over that claim. SeeThomas, 207 S.W.3d at 339. As the substance of the motion on that point was a traditional motion for summary judgment, and not a challenge to the trial court‘s jurisdiction, we conclude that we have no jurisdiction to hear an interlocutory appeal on this issue. SeeMyers Corp., 997 S.W.2d at 601. C. Conclusion Concerning the City‘s first issue, challenging the trial court‘s ruling on its no-evidence motion for summary judgment and its challenge to Atser‘s ―$5M Claim‖ in its traditional motion for summary judgment, we dismiss this portion of the appeal for lack of jurisdiction. Remaining Issue Concerning Lost Profits In its second issue, the City claims that Atser‘s allegations of failure-to-use services, allegedly causing it lost profits of $250,000, are not actionable under Chapter271, Subchapter I. As the City in its Partial Motion for Summary Judgmentasked the trial court to rule that this claim failed as a matter of law ―because the Legislature did not waive the City‘s immunity for the types of damages Atser seeks,‖ we will review this issue as the denial of a jurisdictional challenge. 10 A. Standard of Review We review de novo a trial court‘s ruling on a jurisdictional plea. See Tex. Dep’t of Parks &Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). When reviewing a trial court‘s ruling on a plea, ―we first look to the pleadings to determine if jurisdiction is proper, construing them liberally in favor of the plaintiffs and looking to the pleader‘s intent,‖ and ―we consider relevant evidence submitted by the parties when necessary to resolve the jurisdictional issues raised.‖ City of Waco v. Kirwan, 298 S.W.3d 618, 621–22 (Tex. 2009). In considering this evidence, we ―take as true all evidence favorable to the nonmovant‖ and ―indulge every reasonable inference and resolve any doubts in the nonmovant‘s favor.‖ Kirwan, 298 S.W.3d at 622. We do not adjudicate the substance of the case, but instead determine whether a court has the power to reach the merits of the claim. City of Houston v. S. Elec. Servs., Inc., 273 S.W.3d 739, 744 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (citing Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000)). B. Governmental Immunity Governmental immunity protects political subdivisions of the State, including cities, from lawsuits for money damages, unless their immunity has been waived. Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 374 (Tex. 2006). Governmental immunity, like sovereign immunity, involves immunity from suit 11 and immunity from liability. Harris Cnty.Hosp. Dist. v. Tomball Reg’l Hosp., 283 S.W.3d 838, 842 (Tex. 2009). Immunity from suit is jurisdictional and bars suit, whereas immunity from liability is not jurisdictional and protects political subdivisions from judgments. Id. Governmental immunity is waived only by clear and unambiguous language indicating the Legislature‘s intent to do so.Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 838 (Tex. 2010). C. Waiver of Immunity for Certain Contract Claims Local Government Codesection 271.152, which waives a local governmental entity‘s immunity from suit for certain contract claims, provides: A local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to the terms and conditions of this subchapter. TEX. LOC. GOV‘T CODE ANN. § 271.152 (Vernon 2005). This statute defines a ―[c]ontract subject to this subchapter‖ as ―a written contract stating the essential terms of the agreement for providing goods or services to the local governmental entity that is properly executed on behalf of the local governmental entity.‖ Id. § 271.151(2) (Vernon 2005). The total amount of money which may be awarded under this section is ―the balance due and owed by the local government entity under the contract,‖ any amount owed for change order or additional work the governmental entity directed it to perform, and interest as allowed by law. Id. 12 § 271.153(a) (Vernon Supp. 2011).The purpose of this section is to ―limit the amount due by a governmental agency on a contract once liability has been established, not to foreclose the determination of whether liability exists.‖ Kirby Lake, 320 S.W.3d at 840. The jurisdictional elements for a claim of waiver of immunity based on section 271.152 are as follows: (1) the party against whom the waiver is asserted must be a ―local governmental entity‖;(2) the entity must be authorized by statute or the Constitution to enter into contracts; and (3) the entity must in fact have entered into a contract that is ―subject to this subchapter.‖ City of Houston v. Williams, 353 S.W.3d 128, 134 (Tex. 2011). D. Application of Law to Facts Inits second issue, the City argues that ―Atser‘s allegations of failure-to-use services allegedly causing it lost profits of $250,000.00 are not actionable under chapter 271, Subchapter I.‖ This issue apparently challenges a claim by Atser for lost profit damages, which the City contends are not allowed by statute. The City bases this assertion, not on the language of Atser‘sthird amended petition, which asks only for damages within the confines of section 271.153(a), but on Atser‘s discovery responses, in which Atser states that ―it has been damaged in the amount of $250,000 by Defendant‘s refusal to use ATSER pursuant to the 2006 Contract.‖ The City argues that it had no contractual duty to use Atser‘s services and, thus, 13 that there can be no amount ―due and owed.‖ It also claims that Atser‘s alleged request for consequential damages seeks damages outside the scope of damages allowed by section 271.153. These arguments, however, go far beyond a challenge to the jurisdiction and instead address the merits of Atser‘s claim. Our determination of subject matter jurisdiction is not to be based on the substance of the case, but on whether a court has the power to reach the merits of the claim. S. Elec. Servs., 273 S.W.3d at 744. This involves a review of the pleadings themselves and any jurisdictional matters raised therein, and not of the merits of the case. See Miranda, 133 S.W.3d at 226 (―When a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demonstrate the court‘s jurisdiction to hear the case.‖). As noted above, the jurisdictional elements for a claim of waiver of immunity based on section 271.152 are: (1) the party against whom the waiver is asserted must be a ―local governmental entity‖;(2) the entity must be authorized by statute or the Constitution to enter into contracts; and (3) the entity must in fact have entered into a contract that is ―subject to this subchapter.‖ Williams, 353 S.W.3d at 134. Here, Atser has pledall three of these elements, and the City has not contradicted or challenged them. 14 In its third amended petition,Atserpled breach of the pertinent contracts and asked for damages based on (1) the balance due and owing by the City, (2) the amount owed for additional work performed at the City‘s direction, and (3) interest as allowed by law. These are precisely the damages the statute allows when immunity is waived. See TEX. LOC. GOV‘T CODE ANN. § 271.153.The City‘s challenge to the trial court‘s jurisdiction, then, is not based on what Atserpled, but on its own construction ofAtser‘spleadings. This is not the proper function of a challenge to the jurisdiction.See S. Elec. Servs., 273 S.W.3d at 744 (holding that appellate court‘s duty in reviewing challenge to jurisdiction is not to adjudicate substance of claim, but to determine whether trial court has power to reach merits). The City in essence asks that we find that Atser‘s claim lacks merit and that Atser asks for improper damages. ―But an ‗adjudication‘ of such a claim is exactly what the Legislature allows in Section 271.152.‖ Id.Section 271.153, the damages section of the statute, does not retract the waiver of immunity granted in section 271.152 to adjudicate claims for breach of contract―if a plaintiff alleges facts to support such a claim and seeks recovery only of damages to the extent allowed.‖ Id.; see alsoCity of Mesquite v. PKG Contracting, Inc., 263 S.W.3d 444, 448 (Tex. App.—Dallas 2008, pet. denied) (holding that statutory limitations on contractor‘s recoverable damages imposed by section 271.152 did not deprive trial court of subject matter jurisdiction to adjudicate breach of contract claim); City of N. 15 Richland Hills v. Home Town Urban Partners, Ltd., 340 S.W.3d 900, 910 (Tex. App.—Fort Worth 2011, no pet.) (―We decline to adjudicate Appellee‘s damage claims by applying Section 271.153 within the procedural context of the City‘s pleas to the jurisdiction.‖). If the pleadings themselves ―allege sufficient facts to qualify the case as a waiver of sovereign immunity as granted by statute, by alleging facts to support their claim that the City has not paid ‗the balance due and owed under the contract,‘ then a challenge to the jurisdiction of the trial court must fail.‖S. Elec. Servs., 273 S.W.3d at 744. We conclude that Atser‘sthird amended petition alleges sufficient facts to qualify the case as a waiver of sovereign immunity as granted by statute. We overrule the City‘s second issue. 16 Conclusion We affirm the trial court‘s order denying the City‘s Partial Motion for Summary Judgment on the ground of governmental immunity. We dismiss the remainder of the appeal for lack of jurisdiction. Evelyn V. Keyes, Justice Panel consists of Justices Keyes, Sharp, and Massengale. Justice Sharp, concurring in the judgment only. Justice Massengale, concurring in part and dissenting in part. 17