Metropolitan Transit Authority of Harris County, Texas v. Cubic Transportation Systems, Inc.

Opinion issued August 21, 2008 In The Court of Appeals For The First District of Texas NO. 01-07-00399-CV METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS, Appellant V. CUBIC TRANSPORTATION SYSTEMS, INC., Appellee On Appeal from the 80th District Court Harris County, Texas Trial Court Cause No. 2005-17997 MEMORANDUM OPINION This is a statutory construction case concerning the retroactive applicability of a 2005 Act that waives a local government’s immunity for breach-of-contract claims. Act of May 23, 2005, 79th Leg., R.S., ch. 604, 2005 Tex. Gen. Laws 1548 (codified at Tex. Loc. Gov’t Code Ann. §§ 271.151–.160 (Vernon 2006)). The trial court signed an April 20, 2007 order denying appellant Metropolitan Transit Authority of Harris County, Texas’s motion for summary judgment based on governmental immunity. Metro brings this interlocutory appeal. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8) (Vernon 2008) (authorizing interlocutory appeal by governmental unit of denial of plea to jurisdiction); Tex. Transp. Code Ann. § 451.052(c) (Vernon 2007) (establishing Metro as governmental unit); Thomas v. Long, 207 S.W.3d 334, 338–40 (Tex. 2006) (court of appeals has jurisdiction under Civil Practice and Remedies Code section 51.014(a)(8) over summary judgment order denying assertion of governmental immunity). The 2005 Act applies retroactively, even though its effective date is September 1, 2005. Act of May 23, 2005, 79th Leg., R.S., ch. 604, §§ 2, 3, 2005 Tex. Gen. Laws 1548, 1549. However, section 2 of the 2005 Act conditions retroactive application to those cases in which no other law has waived immunity. The issue here, therefore, is: (1) whether Metro’s filing of a counterclaim was a separate waiver of governmental immunity under Reata Construction Corp. v. City of Dallas and (2) whether that waiver, if any, negates the retroactive application of the 2005 Act. 197 S.W.3d 371 (Tex. 2006). Because we hold that filing a counterclaim under Reata does not waive immunity, we affirm the trial court’s order. Facts Metro and appellee Cubic Transportation Systems, Inc. entered into a contract under which Cubic was to design and deliver to Metro an automated fare collection system. There were disputes between the parties about performance. Metro eventually informed Cubic that it was in default and gave Cubic 30 days to cure specified “deficiencies.” On March 18, 2005, Cubic filed suit against Metro, seeking a declaratory judgment that Metro was not entitled to terminate the contract. Metro terminated the contract that day. On April 13, 2005, Metro filed its answer to Cubic’s declaratory judgment action and a breach-of-contract counterclaim against Cubic to recover the $4,047,000 Metro had already paid to Cubic, plus attorney’s fees. Metro then filed a motion for partial summary judgment on Cubic’s claims, arguing that the 2005 Act waiving governmental immunity for breach-of-contract claims did not apply because Metro’s counterclaim triggered a common-law waiver of governmental immunity under which Cubic’s potential recovery was limited to an offset of any recovery Metro might obtain on its four million dollar breach-of-contract counterclaim. See Reata, 197 S.W.3d at 376–77 (governmental immunity does not bar claims against governmental entity if claims are connected to, germane to, and defensive to claims asserted by governmental entity). Discussion This appeal turns on the interpretation of section 2 of the 2005 Act: Sections 271.152, 271.153, and 271.154, Local Government Code, as added by this Act, apply to a claim that arises under a contract executed before the effective date of this Act only if sovereign immunity has not been waived with respect to the claim before the date of this Act. A claim that arises under a contract executed before the effective date of this Act and with respect to which sovereign immunity has been waived is governed by the law in effect on the date the contract was executed, and the former law is continued in effect for that purpose. Act of May 23, 2005, 79th Leg., R.S., ch. 604, § 2, 2005 Tex. Gen. Laws 1548, 1549 (emphasis added). The 2005 Act, which in enacting Local Government Code sections 271.151 through 271.160 waives a local government’s immunity from suit for breach-of-contract claims, clearly applies retroactively to contracts executed before September 1, 2005 if there has been no independent waiver of immunity before that date. See Act of May 23, 2005, 79th Leg., R.S., ch. 604, § 3, 2005 Tex. Gen. Laws 1548, 1549 (September 1, 2005 effective date). Metro claims that its April 13, 2005 counterclaim constituted a common-law waiver of immunity under Reata. Metro goes on to argue that, under the terms of section 2 of the 2005 Act, the general retroactive waiver of immunity for a breach-of-contract claim does not apply because that waiver occurred before September 1, 2005, the effective date of the 2005 Act. Metro thus claims that Cubic’s potential recovery is limited to an offset of any recovery Metro might obtain on its four million dollar breach-of-contract counterclaims. Metro’s argument can only be successful if the supreme court in Reata recognized a waiver of immunity. Although the Reata opinion itself does not directly address the issue, the supreme court has subsequently drawn a clear line between a statutory waiver of immunity and a party’s right under Reata to offset a claim by the state or its political subdivisions. In several cases, the supreme court has characterized the Reata rule as a situation in which immunity simply does not exist, rather than a situation in which governmental immunity is waived. City of Midland v. Goerlitz, 201 S.W.3d 689, 690 (Tex. 2006); City of Houston v. United Water Servs., 201 S.W.3d 690, 691 (Tex. 2006); Metro. Transit. Auth. v. M.E.B. Eng’g, Inc., 201 S.W.3d 692, 693 (Tex. 2006); City of Irving v. Inform Constr., Inc., 201 S.W.3d 693, 694 (Tex. 2006). Section 2 of the 2005 Act only saves Metro from the retroactive waiver of immunity for Cubic’s breach-of-contract claims if there was a preexisting waiver. Because Metro’s counterclaim under Reata did not waive Metro’s governmental immunity before the effective date of the 2005 Act, we hold that the trial court did not err in denying Metro’s motion for summary judgment based on governmental immunity. Conclusion We overrule Metro’s sole point of error and affirm the trial court’s April 20, 2007 order. The Clerk of this Court is directed to immediately issue the mandate. See Tex. R. App. P. 18.6. Sam Nuchia Justice Panel consists of Justices Nuchia, Jennings, and Keyes. Justice Keyes, concurring in the judgment only.