City of Angleton, Texas v. Usfilter Operating Services, Inc.

Affirmed and Memorandum Opinion filed December 23, 2004 Affirmed and Memorandum Opinion filed December 23, 2004. In The Fourteenth Court of Appeals ____________ NO. 14-04-00603-CV ____________ CITY OF ANGLETON, TEXAS, Appellant V. USFILTER OPERATING SERVICES, INC., Appellee On Appeal from the 149th District Court Brazoria County, Texas Trial Court Cause No. 27373 M E M O R A N D U M   O P I N I O N Appellant the City of Angleton appeals the trial court’s denial of its plea to the jurisdiction on the basis of governmental immunity. Appellee USFilter Operating Services, Inc. contends that governmental immunity has been waived. We affirm. This dispute arises out of the City’s cancellation of a service contract with USFilter. After cancelling the contract, the City retained certain property until ownership could be determined. Believing that it owned the property, USFilter filed suit for breach of contract and sought a writ of sequestration. The City counterclaimed for breach of contract and fraud. The parties subsequently signed an agreed order whereby the City would return the disputed property in exchange for USFilter posting a $53,600 bond with the trial court, to be released only upon order of the court. The service contract between the parties contained an arbitration clause covering in pertinent part any “dispute between the parties other than one . . . requiring equitable relief.” USFilter moved to compel arbitration, asserting that the City’s counterclaims sought non-equitable relief and therefore must be arbitrated. The parties entered into a Rule 11 agreement to stay all arbitration deadlines until the trial court ruled on USFilter’s motion to compel. Shortly before the hearing, the City nonsuited its counterclaims and filed a plea to the jurisdiction, asserting that immunity barred USFilter’s breach of contract claim. The trial court denied the City’s plea, and this accelerated appeal followed. In Texas, sovereign immunity protects the state against lawsuits for damages unless the state has consented to suit. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 224 (Tex. 2004). Cities, as political subdivisions of the state, are entitled to immunity unless it has been waived. San Antonio Indep. Sch. Dist. v. McKinney, 936 S.W.2d 279, 283 (Tex. 1996). Sovereign immunity encompasses two distinct principles: immunity from suit and immunity from liability. Miranda, 133 S.W.3d at 224. While immunity from liability is an affirmative defense, immunity from suit deprives a court of subject matter jurisdiction. Id. Because it affects the court’s jurisdiction, immunity from suit, unlike immunity from liability, is properly raised in a plea to the jurisdiction. Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 696 (Tex. 2003). USFilter argues that, by its conduct invoking the jurisdiction of the trial court, the City has waived its immunity from suit. We agree. The Texas Supreme Court has recently held that a city waives its immunity from suit by intervening in a lawsuit to assert claims for affirmative relief. Reata Constr. Corp. v. City of Dallas, No. 02-1031, __ S.W.3d __, 2004 WL 726906, at *1 (Tex. Apr. 2, 2004, reh’g granted). “When the City filed its plea in intervention against Reata, it subjected itself to the jurisdiction of the trial court and waived its governmental immunity from suit with regard to Reata’s claims germane to the matter in controversy.” Id. at *3. At least three other courts have applied Reata’s reasoning in concluding that when a city files a counterclaim and thereby invokes the jurisdiction of the court, it waives its immunity from suit. See Ray Ferguson Interests, Inc. v. Harris County Sports & Convention Corp., No. 01-04-00568-CV, __ S.W.3d __, 2004 WL 2250930, at *5 (Tex. App.—Houston [1st Dist.] Oct. 7, 2004, no pet. h.); City of Dallas v. Martin, 140 S.W.3d 924, 926 (Tex. App.—Dallas 2004, reh’g granted); City of Dallas v. Albert, 140 S.W.3d 920, 923 (Tex. App.—Dallas 2004, reh’g granted); Port Neches-Groves Indep. Sch. Dist. v. Pyramid Constructors, L.L.P., 140 S.W.3d 440, 442–43 (Tex. App.—Beaumont 2004, pet. filed). This is true whether or not the counterclaims are compulsory or permissive and even when a city later dismisses its counterclaims. See Ray Ferguson Interests, 2004 WL 2250930, at *5–6; Martin, 140 S.W.3d at 926–27; Albert, 140 S.W.3d at 923. We agree with this analysis and join these courts in holding that the City’s filing of counterclaims in this case waived its immunity from suit. Because we determine that the City waived its immunity from suit by filing counterclaims, we need not also determine whether the City’s immunity from suit is waived by either language in its charter that it may “sue and be sued” and may “implead and be impleaded” or by Texas Local Government Code section 51.075 providing that a municipality “may plead and be impleaded in any court.” See City of Houston v. Clear Channel Outdoor, Inc., No. 14-03-00022-CV, __ S.W.3d __, 2004 WL 63561 (Tex. App.—Houston [14th Dist.] Jan. 15, 2004, pet. filed). We affirm the trial court’s order denying the City’s plea to the jurisdiction. /s/ Leslie Brock Yates Justice Judgment rendered and Memorandum Opinion filed December 23, 2004. Panel consists of Justices Yates, Edelman, and Guzman.