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Sovereign Immunity and Contracts

This article discusses the concept of waiver of sovereign immunity in contracts, including the requirements for a valid waiver and the specific damages that may be awarded. It also explores the distinction between proprietary and governmental functions.

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Sovereign Immunity and Contracts

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  1. Sovereign Immunity and Contracts Eric C. Farrar Olson & Olson LLP

  2. Waiver of Immunity • Waiver is usually left to the Legislature. • Must be clear and unequivocal. • “Sue and be sued” or “plead and be impleaded,” alone, are insufficient. Tooke v. City of Mexia, 197 S.W.3d 325, 331 (Tex. 2006).

  3. Waiver by Contract General rule – “when the State contracts with private citizens, the State waives only immunity from liability” but “does not waive [its] immunity from suit.” Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, 408 (Tex. 1997).

  4. Chapter 271, Subchapter I A local governmental entity that … enters into a contract subject to this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to the terms and conditions of this subchapter. Tex. Loc. Gov’t Code Ann. § 271.152

  5. Elements of Waiver of Immunity • The party against whom waiver is asserted must be a local governmental entity. • The entity must be authorized by law to enter into contracts. • The claim must be for a contract and for damages specified in Subchapter I. See City of Houston v. Williams, 335 S.W.3d 128 (Tex. 2011).

  6. Proprietary vs. Governmental City has no immunity when it engages in “proprietary” function as opposed to “governmental” function. This includes a breach of contract claim. Supreme Court has stated its is appropriate to defer to list in Tort Claims Act.

  7. Local Governmental Entity • “Political subdivision of this state, other than a county or a unit of state government” • “Unit of state government” is, essentially, the state or a state agency, “including a university system or institution of higher education.” • Does not include a county, municipality, special purpose district, or other political subdivision of this state.

  8. Contracts Covered (1) In writing, stating the essential terms of the agreement. (2) Agreement to provide goods or services to the local governmental entity (3) Properly executed on behalf of the local governmental entity Tex. Loc. Gov’t Code Ann. § 271.151(2)(A)

  9. Waiver for Specific Damages Money awarded limited to: • The balance due and owed under the contract. • The amount owed for change orders or additional work ordered by the local governmental entity. • Attorney’s fees and interest allowed by law. Tex. Loc. Gov’t Code Ann. § 271.153(a)

  10. Balance Due and Owed “[S]imply the amount of damages for breach of contract payable and unpaid” • Direct Damages: “the necessary and usual result of the defendant’s wrongful conduct” • NOTConsequential Damages: “damages that result naturally, but not necessarily from defendant’s wrongful conduct” See, e.g., Zachry Const. Corp. v. Port of Houston Auth. of Harris County, 449 S.W.3d 98, 111 (Tex. 2014)

  11. Goods or Services • Services not defined in Ch. 271. • “[T]he term is broad enough to encompass a wide array of activities.” • “[N]eed not be the primary purpose of the agreement.” Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 839 (Tex. 2010).

  12. “Services” Examples • Self-insurance fund agreement • Contract for the construction of a middle school • ISD’s health insurance contract with employee (i.e., employee received insurance in exchange for work he did). • Performing services for a third-party that government was otherwise obligated to perform.

  13. Not Services No “indirect” or “attenuated” benefits. • Leasing land from Water district for purpose of “operating a marina.” • Agreement to provide water and sewer at no charge if property was used as a “home for children who are wards of the State”

  14. Contact Info Eric C. Farrar efarrar@olsonllp.com Olson & Olson LLP 713.533.3800 http://www.olsonllp.com/

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