Wasson Interests, Ltd. v. City of Jacksonville, Texas , 559 S.W.3d 142 ( 2018 )

IN THE SUPREME COURT OF TEXAS
══════════
No. 17-0198
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WASSON INTERESTS, LTD., PETITIONER,
v.
CITY OF JACKSONVILLE, TEXAS, RESPONDENT
══════════════════════════════════════════
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE TWELFTH DISTRICT OF TEXAS
══════════════════════════════════════════
Argued February 27, 2018
JUSTICE BOYD delivered the opinion of the Court:
Having granted Petitioner’s motion for rehearing, we withdraw the judgment and opinion
we issued on June 1, 2018.
This case comes to us for the second time. As we explained the first time, “we have long
held that ‘[a] municipality is not immune from suit for torts committed in the performance of
its proprietary functions, as it is for torts committed in the performance of
its governmental functions.’” Wasson Interests, Ltd. v. City of Jacksonville (Wasson I), 489
S.W.3d 427, 430 (Tex. 2016) (quoting Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006)).1
As a matter of first impression, we held that this governmental/proprietary dichotomy “applies in
the contract-claims context just as it does in the tort-claims context.” Id. at 439. The issue now is
1
This case concerns immunity from suit, not liability. See Wasson I, 489 S.W.3d at 430 n.4. (“When the
government contracts with private citizens, it waives immunity from liability, but not its immunity from suit.”).
whether the contract claim arises from the municipality’s performance of a governmental or
proprietary function. We hold that it arises from the municipality’s performance of a proprietary
function, so governmental immunity does not apply. We reverse the court of appeals’ judgment
and remand the case to the court of appeals.
I.
Background
The City of Jacksonville constructed Lake Jacksonville in the late 1950s to serve as the
City’s primary source of water. Over the next several decades, the City developed the surrounding
area and began leasing lakefront lots to private parties. In 1996, James and Stacy Wasson entered
into long-term leases of City-owned lakefront lots and constructed a seven-bedroom house. The
lease agreements incorporated the City’s Rules & Regulations Governing Lake Jacksonville by
reference. Those rules provide that all lots outside the City’s corporate limits—which include the
Wassons’ lots—“shall be restricted to residential purposes only,” and that no lot may be used to
operate a “business or commercial enterprise.” The rules also provide that breach of “any of the
regulations . . . shall be grounds for cancellation of the lessee’s lease.”
The Wassons initially lived on the property but later moved and assigned the leases
to Wasson Interests, Ltd. Planning to use the property as a bed-and-breakfast and event center,
Wasson sought several variances from the Lake Jacksonville Advisory Board and the City Council,
although it believed the variances were unnecessary. The Board denied the requests. Undeterred,
Wasson began advertising and renting the property for short lease terms, weddings, and other
events. The City determined these activities violated the leases’ requirement that the property be
used only for residential purposes and threatened to terminate the leases unless Wasson ceased the
business-related rentals.
2
In June 2010, the City terminated Wasson’s leases and issued an eviction notice. A few
months later, the parties negotiated an agreement that reinstated the leases and permitted Wasson
to rent the property to single families and small groups, but only for periods of a month or longer
and only for private residential purposes. In early 2011, the City again terminated the leases,
alleging that Wasson had been using a “sham monthly residential agreement” to “circumvent” the
reinstatement agreement and use the property for “commercial” activities. Wasson filed this suit
in response, alleging the City breached the lease agreements and seeking declaratory and injunctive
relief. The City moved for summary-judgment on the grounds that (1) governmental immunity
bars Wasson’s breach-of-contract claim, (2) immunity is not waived, (3) the City and Wasson did
not enter into a valid, enforceable contract, (4) Wasson did not perform under the contract and its
non-performance was not excused, and (5) the City did not breach the contract. The trial court
granted the City’s motion without comment, and Wasson appealed.
The court of appeals affirmed based on governmental immunity, rejecting Wasson’s
argument that the governmental/proprietary dichotomy applies to breach-of-contract claims.2 We
reversed, holding that the dichotomy applies “whether a city commits a tort or breaches a contract.”
Wasson I, 489 S.W.3d at 439. Because the court of appeals had not addressed “whether the contract
at issue was proprietary or governmental,” we remanded for a determination of that issue. Id. On
remand, the court of appeals held that Wasson’s contract claim arose from the City’s performance
of a governmental function, and thus governmental immunity applied to bar the claim. 513 S.W.3d
at 222–23. We again granted Wasson’s petition for review.
2
Wasson Interests, Ltd. v. City of Jacksonville, — S.W.3d —, No. 12–13–00262–CV, 2014 WL 3368413, at
*3–4 (Tex. App.—Tyler July 9, 2014) (mem. op.), rev’d, 489 S.W.3d 427.
3
II.
The Dichotomy
“Municipal corporations exercise their broad powers through two different roles;
proprietary and governmental.” Gates v. City of Dallas, 704 S.W.2d 737, 738 (Tex. 1986). The
governmental/proprietary dichotomy recognizes that immunity protects a governmental unit from
suits based on its performance of a governmental function but not a proprietary function. Wasson
I, 489 S.W.3d at 430. “Unlike governmental functions, for which municipal corporations have
traditionally been afforded some degree of governmental immunity, proprietary functions have
subjected municipal corporations to the same duties and liabilities as those incurred by private
persons and corporations.” Gates, 704 S.W.2d at 739.
The governmental/proprietary dichotomy is based on the reality that sovereign immunity
is inherent in the State’s sovereignty, and municipalities share that protection when they act “as a
branch” of the State but not when they act “in a proprietary, non-governmental capacity.” Wasson
I, 489 S.W.3d at 430. Whether a municipality enjoys immunity from suit thus depends on “the
relationship, or lack thereof, between the municipality and the state, not the relationship between
the municipality and the party bringing suit.” City of Georgetown v. Lower Colo. River Auth., 413
S.W.3d 803, 811 (Tex. App.—Austin 2013, pet. dism’d).
The distinction between a municipality’s governmental and proprietary functions “seems
plain enough, but the rub comes when it is sought to apply the test to a given state of facts.” City
of Houston v. Wolverton, 277 S.W.2d 101, 103 (Tex. 1955). As we noted in Wasson I, “determining
which functions are proprietary and which are governmental is not always a cut-and-dried task.”
489 S.W.3d at 438. “It is in the application of this rule to a particular fact situation that the difficulty
arises.” City of Houston v. Shilling, 240 S.W.2d 1010, 1012 (Tex. 1951).
4
We have explained that, “generally,” governmental functions consist of a municipality’s
activities “in the performance of purely governmental matters solely for the public benefit.” Tooke,
197 S.W.3d at 343 (quoting Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949)).
Historically, governmental functions have consisted of activities “normally performed by
governmental units” such as “police and fire protection.” Joe R. Greenhill and Thomas V. Murto
III, Governmental Immunity, 49 TEX. L. REV. 462, 463 (1971) [hereinafter Greenhill]. “Acts done
as a branch of the state—such as when a city ‘exercise[s] powers conferred on [it] for purposes
essentially public . . . pertaining to the administration of general laws made to enforce the general
policy of the state’—are protected by immunity.” Wasson I, 489 S.W.3d at 433 (quoting City of
Galveston v. Posnainsky, 62 Tex. 118, 127 (1884)).
Proprietary functions, by contrast, are those “performed by a city, in its discretion,
primarily for the benefit of those within the corporate limits of the municipality,” and “not as an
arm of the government.” Gates, 704 S.W.2d at 739; Dilley, 222 S.W.2d at 993. These are usually
activities “that can be, and often are, provided by private persons.” Greenhill at 463. “Acts that are
proprietary in nature, therefore, are not done as a branch of the state,” and thus “do not implicate
the state’s immunity for the simple reason that they are not performed under the authority, or for
the benefit, of the sovereign.” Wasson I, 489 S.W.3d 427.
Although we have recognized the governmental/proprietary dichotomy as a matter of
common law, the Texas Constitution authorizes the Legislature to “define for all purposes those
functions of a municipality that are to be considered governmental and those that are proprietary,
including reclassifying a function’s classification assigned under prior statute or common law.”
TEX. CONST. art. XI, § 13. Exercising that authority, the Legislature has defined and enumerated
5
governmental and proprietary functions for the purposes of determining whether immunity applies
to tort claims against a municipality. See TEX. CIV. PRAC. & REM. CODE § 101.0215.
The Tort Claims Act generally defines governmental functions as those “that are enjoined
on a municipality by law and are given it by the state as part of the state’s sovereignty, to be
exercised by the municipality in the interest of the general public.” Id. § 101.0215(a). The Act
enumerates thirty-six governmental functions, ranging from “police and fire protection and
control” to “animal control.” See id. § 101.0215(a)(1), (33). Conversely, the Act defines
proprietary functions as those “that a municipality may, in its discretion, perform in the interest of
the inhabitants of the municipality.” Id. § 101.0215(b). The Act provides a non-exclusive list of
propriety functions, such as “the operation and maintenance of a public utility;” “amusements
owned and operated by the municipality”; and “any activity that is abnormally dangerous or
ultrahazardous.” Id. Proprietary functions, however, do not include any of the Act’s enumerated
governmental functions. Id. § 101.0215(c).
Although these statutory definitions and designations apply expressly to tort claims, we
explained in Wasson I that they can also “aid our inquiry” when applying the dichotomy in the
contract-claims context. Wasson I, 489 S.W.3d at 439. We thus consider both the statutory
provisions and the common law in determining whether a city’s contractual conduct is
governmental or proprietary.
III.
The City’s Relevant Activity
The parties dispute which of the City’s various activities are relevant to the
governmental/proprietary inquiry. The City asserts that immunity applies because all of its
activities constituted governmental functions, including its creation of Lake Jacksonville as a water
6
supply, its decision to lease the property surrounding the lake, its adoption of ordinances and rules
governing use of the leased property, and its attempt to enforce those rules against Wasson. And
if one or more of these activities is not relevant, the City argues, its attempt to enforce the rules
against Wasson is independently controlling because Wasson bases its breach-of-contract claim
on that conduct.
The court of appeals agreed with the City and considered all of the “specific acts”
underlying Wasson’s claims.” 513 S.W.3d at 221–22. In particular, the court focused on “the
City’s act of enforcing its ordinance to prevent commercial activity and terminate [Wasson’s]
lease” because that “act form[s] the basis of” Wasson’s claim. Id. at 222. Concluding that the City
performed that act as a “government function to maintain a safe and healthy water supply for its
citizens and to preserve the property values of the lease lots,” the court held that governmental
immunity applies. Id. at 222–23.
Wasson, however, argues the only relevant activity is the City’s decision to lease the
property. Instead of focusing on the City’s reasons for creating the lake or engaging in the conduct
that allegedly breached the contract, Wasson contends the court of appeals should have focused
on the nature of the City’s conduct when it entered into the lease agreements—the “City’s decision
to lease the surrounding area for private use.”
We agree with Wasson. When we decided in Wasson I that the dichotomy applies to
breach-of-contract claims, we noted that the court of appeals had not “address[ed] whether the
lease contract was entered into in the city’s proprietary or governmental capacity.” Wasson I, 489
S.W.3d at 430 (emphasis added). We remanded the case for the court to consider “whether the
contract at issue was proprietary or governmental,” not whether the City breached the contract in
7
either capacity. Id. at 439 (emphasis added). Contrary to the court of appeals’ understanding, we
did not remand for the court to “determine whether the [City’s] actions in terminating” the lease
“is a governmental or proprietary function.” 513 S.W.3d at 219 (emphasis added).
Despite our directive in Wasson I, the City argues that the court of appeals properly focused
on the nature of “the actions complained of,” quoting City of Houston v. Downstream
Environmental, L.L.C., 444 S.W.3d 24, 32 (Tex. App.—Houston [1st Dist.] 2014, pet. denied) (“In
determining whether a governmental entity is immune from suit, we consider whether the actions
complained of were in furtherance of governmental or proprietary functions.”). Downstream cited
Tooke as authority, but we said no such thing in Tooke. We explained in Tooke that a “municipality
is not immune from suit for torts committed in the performance of its proprietary functions, as it
is for torts committed in the performance of its governmental functions.” 197 S.W.3d at 343
(emphases added). But we did not apply that rule to “breaches committed” in the breach-of-
contract context. To the contrary, we explained in Tooke that “even if the City were not immune
from suit for breach of a contract whose subject lies within its proprietary functions, the Tookes’
contract [did] not qualify” because that contract involved governmental functions like “garbage
and solid waste removal, collection, and disposal.” Id. at 343–44. Although we did not decide
whether the dichotomy applies to breach-of-contract claims in Tooke, we suggested that if it did,
the contract’s nature would determine the city’s immunity, not the nature of the breach.
In addition to Tooke, we have suggested in other cases that courts should focus on the
nature of the municipality’s contracting conduct, not the nature of its breaching conduct. In City
of Corpus Christi v. Gregg, for example, we held that the city’s suit to cancel oil-and-gas-leases
was subject to estoppel because the city acted in its proprietary capacity when “making the leases
8
upon which suit was brought.” 289 S.W.2d 746, 750 (Tex. 1956). In Gates, we held that a city that
breached an insurance contract by failing to pay benefits was subject to statutory attorney’s fees
because it acted in its proprietary capacity when it “entered into the insurance contract.” 704
S.W.2d at 739. In PKG Contracting, Inc. v. City of Mesquite, we held that immunity barred a
breach-of-contract claim against the city because the city “was acting in its governmental capacity
when it contracted with PKG to construct a storm drainage system.” 197 S.W.3d 388, 389 (Tex.
2006) (per curiam). And in Wheelabrator Air Pollution Control, Inc. v. City of San Antonio, in
which we first applied our holding in Wasson I, we held that governmental immunity did not shield
the city from a claim for attorney’s fees for breaching a contract to install pollution-control
equipment in a city power plant because the city’s actions “in entering the contract” were
proprietary. 489 S.W.3d 448, 450 (Tex. 2016).
On the surface, focusing on the breaching conduct may seem reasonable to decide whether
immunity applies to a breach-of-contract claim against a municipality. The dichotomy, however,
is a tool with a particular purpose: it determines whether a municipality shares the State’s sovereign
immunity because it was acting “as a branch” of the State, or whether it lacks immunity because
it was acting “on its own behalf.” Wasson I, 489 S.W.3d at 436. We do not see how a city can act
as a branch of the State when it breaches a contract it entered on its own behalf and in its proprietary
capacity. Even if the City terminated Wasson’s leases to enforce the rules that protect the City’s
water supply, the rules only applied to Wasson because the leases incorporated them by reference,
and the City would have had no reason to terminate the leases had it not agreed to them in the first
place. Enforcing rules that protect a city’s water supply is one matter, but it is another matter to
terminate a contract that incorporates those rules.
9
We hold that, to determine whether governmental immunity applies to a breach-of-contract
claim against a municipality, the proper inquiry is whether the municipality was engaged in a
governmental or proprietary function when it entered the contract, not when it allegedly breached
that contract. Stated differently, the focus belongs on the nature of the contract, not the nature of
the breach. If a municipality contracts in its proprietary capacity but later breaches that contract
for governmental reasons, immunity does not apply. Conversely, if a municipality contracts in its
governmental capacity but breaches that contract for proprietary reasons, immunity does apply.
This approach is most consistent with the purposes of both immunity and the
governmental/proprietary dichotomy, and it provides clarity and certainty regarding the
contracting parties’ rights and liabilities.
IV.
The Nature of the City’s Activity
In light of our holding, we must determine whether the City acted in its governmental or
proprietary capacity when it leased the lakefront lots to the Wassons. Because the Tort Claims Act
does not enumerate leasing property as a governmental or a proprietary function, we must apply
the general definitions. As explained, governmental functions “are enjoined on a municipality by
law and are given it by the state as part of the state’s sovereignty, to be exercised by the
municipality in the interest of the general public.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a).
And proprietary functions are those “that a municipality may, in its discretion, perform in the
interest of the inhabitants of the municipality.” Id. § 101.0215(b).
Applying these definitions in light of the parties’ arguments in this case, we consider
whether (1) the City’s act of entering into the leases was mandatory or discretionary, (2) the leases
were intended to benefit the general public or the City’s residents, (3) the City was acting on the
10
State’s behalf or its own behalf when it entered the leases, and (4) the City’s act of entering into
the leases was sufficiently related to a governmental function to render the act governmental even
if it would otherwise have been proprietary. We conclude that the City acted in its proprietary
capacity when it leased the property to the Wassons.
A. Mandatory or discretionary
The City’s decision to lease its lakefront property to the Wassons was discretionary. “To
carry out a municipal purpose, the municipality may . . . lease . . . property located in or outside
the municipality,” but nothing requires it to do so. TEX. LOC. GOV’T CODE § 51.015(a) (emphasis
added); see TEX. GOV’T CODE § 311.016(1) (“‘May’ creates discretionary authority or grants
permission or a power.”). That is why we and the courts of appeals have routinely held that a city’s
decision to lease city-owned property for private use may constitute a proprietary function.3 After
all, the discretionary management of property has served as a fundamental underpinning of the
dichotomy for over one-hundred years. See Posnainsky, 62 Tex. at 131 (noting that municipalities
are not exempt from liability “in managing or dealing with property or rights held by them for their
own advantage or emolument”).
As we observed in Wasson I, a city can control its contractual liabilities by “refusing to
enter into the contract.” 489 S.W.3d at 437 n.10. Here, the City had no obligation to lease the
3
See Gregg, 289 S.W.2d at 750–51 (holding that in granting an oil and gas lease upon property belonging to
it, city was acting in a proprietary capacity and thus subject to estoppel); City of Dallas v. Trinity E. Energy, LLC, No.
05–16–00349–CV, 2017 WL 491259, at *4 (Tex. App.—Dallas Feb. 7, 2017, pet. filed) (mem. op.) (“Consequently,
we conclude that the City was engaged in a proprietary function when it leased the minerals to Trinity.”); City of
Lubbock v. Phillips Petroleum Co., 41 S.W.3d 149, 163 (Tex. App.—Amarillo 2000, no pet.) (holding city was subject
to the doctrine of estoppel because it acted in its proprietary capacity in executing easement); City of Crystal City v.
Crystal City Country Club, 486 S.W.2d 887, 889 (Tex. Civ. App.—Beaumont 1972, writ ref’d n.r.e.) (“City was acting
in its proprietary capacity, as distinguished from governmental capacity, in its dealings with Country Club in executing
the lease in question.”); Moore v. City of Beaumont, 195 S.W.2d 968, 991–92 (Tex. Civ. App.—Beaumont 1946),
aff’d, 202 S.W.2d 448 (Tex. 1947).
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lakefront lots to private parties. It could have left the land unused, used it strictly for the City’s
purposes, or designated it as parks, a golf course, or some other form of recreational activity.
Instead, it chose to generate revenue by granting long-term leases to private parties. We think that,
under these circumstances, the City “should have no greater dignity as regards the controversy
presented than would any other person who subdivides property and imposes restrictions thereon.”
Blythe v. City of Graham, 287 S.W.2d 527, 530 (Tex. Civ. App.—Fort Worth 1956, writ ref’d
n.r.e.). We thus agree with Wasson that the City exercised its discretion when it entered into the
leases.
B. Public or Resident Benefits
Generally, a city’s governmental functions benefit the general public and its proprietary
functions benefit its own residents. TEX. CIV. PRAC. & REM. CODE § 101.0215(a). The City argues
that Lake Jacksonville benefits the general public and not just the City’s residents. More
specifically, the City contends that a proprietary action must be “for the benefit only of those within
its corporate limits.” The City submits that we cannot find the lease agreement to be proprietary
because Wasson’s leased property is not located within the City’s corporate limits. The City claims
this geographic distinction is “relevant, if not decisive,” and for support relies primarily on City of
Weslaco v. Borne, 210 S.W.3d 782, 794 (Tex. App.—Corpus Christi 2006, pet. denied) (mobile
home park located outside of city’s corporate limits did not “militiate[] in favor of classifying the
functions as proprietary”).
We have not been entirely clear with regard to the “benefits test.” We have said that
proprietary functions only benefit the municipality’s residents, but we have also stated that
proprietary acts are those performed “primarily for the benefit of those within the corporate limits
12
of the municipality.” Gates, 704 S.W.2d at 739 (emphasis added) (citing City of Crystal City, 486
S.W.2d at 889).4 We clarify today that Gates states the proper rule. A city’s proprietary contracts
will often benefit some nonresidents, and its governmental contracts will often benefit some
residents, but whether a contract primarily benefits one or the other will often indicate whether it
is proprietary or governmental.
Here, although non-residents certainly benefited from the City’s decision to lease its
lakefront property, the record indicates the City’s primary objective was to develop the lake and
that leasing the properties raised funds for the City’s budget.5 And as Wasson notes, “the very
nature of the private Lease Agreements necessarily excludes the general public from benefitting
from the premises.” We agree with Wasson that the City entered into the leases primarily to benefit
its own residents, not the general public.
4
See Wasson I, 489 S.W.3d at 433 (noting proprietary acts are performed “for the private advantage and
benefit of the locality and its inhabitants”) (emphasis added) (quoting Posnainsky, 62 Tex. at 127); Tooke, 197 S.W.3d
at 343 (“[P]roprietary functions are those conducted ‘in its private capacity, for the benefit only of those within
its corporate limits, and not as an arm of the government.’”) (emphasis added) (quoting Dilley, 222 S.W.2d at 993);
City of Gladewater v. Pike, 727 S.W.2d 514, 519 (Tex. 1987) (“A proprietary function is one intended primarily for
the advantage and benefit of persons within the corporate limits of the municipality rather than for use by the general
public.”) (emphasis added); City of Houston v. Quinones, 177 S.W.2d 259, 261 (Tex. 1944) (“The underlying test is
whether the act performed by a city . . . is performed primarily for the benefit of those within the corporate limits of
the municipality.”) (emphasis added).
5
See Trinity E. Energy, LLC, 2017 WL 491259, at *4 (noting that city’s lease of city-owned land for the
development of minerals “would benefit the residents within the City’s corporate limits, but they would not benefit
the public at large, that is, the State”); City of Dallas v. City of Corsicana, No. 10–14–00090–CV, 2015 WL 4985935,
at *4 (Tex. App.—Waco Aug. 20, 2015, pet. denied) (mem. op.) (noting that “business recruiting via tax abatement is
in the category of functions that a municipality may, in its discretion, perform and that, in this situation, benefits the
citizens of Dallas, rather than the general public at large”); City of Lubbock, 41 S.W.3d at 163 (“The land was
purchased to increase groundwater available to the City’s residents. That was primarily for the benefit of the residents
within the City’s limits rather than the public at large. There is nothing essentially governmental about the mere fact
of owning real property outside the City or in granting an easement across that property.”).
13
C. State’s or City’s Behalf
Consistent with the nature of sovereign immunity, which protects the State as a sovereign
and political subdivisions when they act on the State’s behalf,6 governmental functions are those
in which a city acts as a “branch of the state,” Wasson I, 489 S.W.3d at 430, or an “arm of the
government,” Tooke, 197 S.W.3d at 343, rather than on its own behalf. Here, we conclude the City
acted on its own behalf by leasing its lakefront property, not on behalf of the State. The fact that
the City’s decision to lease the property was entirely discretionary and primarily benefitted the
City’s residents supports this conclusion, and we find no facts to counter it. See Wasson I, 489
S.W.2d at 436 (“When a city performs discretionary functions on its own behalf, it ceases to derive
its authority—and thus its immunity—from the state’s sovereignty. Such proprietary functions,
therefore, do not stem from the root of immunity that is ‘the people,’ and lacking that common
root, they cannot be performed as a branch of the state.”) (internal citations omitted).
D. Relation to a governmental function
Finally, we consider the extent to which the City’s decision to lease the lakefront lots was
related to its governmental functions. The City contends it acted in its governmental capacity when
it entered into the lease agreements because the “overarching purpose” of the leases, rules, and
regulations “centers on the development of a water supply reservoir used as part of the City’s
waterworks.” The court of appeals essentially agreed. It observed: “In and of itself, a lease of real
6
Technically, “sovereign immunity” protects the State, while “governmental immunity” protects political
subdivisions. See Wasson I, 489 S.W.3d at 430 (referring to “the realm of sovereign immunity as it applies to such
political subdivisions” as “governmental immunity”).
14
property by a city could be a proprietary function in certain circumstances. But when it is on real
property used for a government purpose, it becomes part of that governmental function.” 513
S.W.3d at 222. According to the court, when a city’s activity involves “mixed functions, the rule
is that if any one component of a function is governmental, the entire function will be considered
governmental.” Id. at 221.
We disagree. We have long held that not all activities “associated” with a governmental
function are “governmental.” In Shilling, for example, we rejected the argument that a city’s
discretionary operation of a garbage-truck repair shop was a governmental function because it was
necessary to perform the city’s governmental function of garbage collection. 240 S.W.2d at 1011–
12. Noting that the city’s argument “would lead to the conclusion that in any operation necessary
to the collection of garbage the city would be immune to liability for the acts of its employees,”
we held that a “line must be drawn at which point the city ceases to be immune to liability.” Id. at
1012.
Consistent with our decision in Shilling, the courts of appeals “repeatedly have recognized
that governmental functions encompass activities that are closely related to or necessary for
performance of the governmental activities designated by statute.” City of Houston v. Petroleum
Traders Corp., 261 S.W.3d 350, 356 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (emphasis
added).7 We agree this statement more closely depicts the proper rule. The fact that a city’s
7
See also Davis v. City of Lubbock, No. 07–16–00080–CV, 2018 WL 736344, at *4 (Tex. App.—Amarillo
Feb. 6, 2018, no pet. h.) (mem. op.) (“[T]he sale of the baled hay is sufficiently closely related to the performance of
the City’s TCEQ-permitted activities as to come within the governmental functions the permit authorizes.”); Smith v.
City of League City, 338 S.W.3d 114, 128 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (holding city’s decisions
concerning bridge “were closely related to the governmental function of ‘bridge construction and maintenance.’”);
City of Elgin v. Reagan, No. 03–06–00504–CV, 2009 WL 483344, at *3 (Tex. App.—Austin Feb. 26, 2009, no pet.)
(mem. op.) (allowing the public to adopt animals from a city-owned shelter was “so closely related to” the enumerated
15
proprietary action “touches upon” a governmental function is insufficient to render the proprietary
action governmental. City of Corpus Christi v. Absolute Indus., 120 S.W.3d 1, 4 (Tex. App.—
Corpus Christi 2001, pet. denied) (holding that city’s threat to retaliate against refineries that did
not use city’s landfill was proprietary, even though it “touche[d] upon waste and disposal to [a]
remote degree”); see also Williams v. City of Midland, 932 S.W.2d 679, 683–84 (Tex. App.—El
Paso 1996, no writ); City of Dallas v. Arnett, 762 S.W.2d 942, 953 (Tex. App.—Dallas 1988, writ
denied). Instead, a city’s proprietary action may be treated as governmental only if it is essential
to the city’s governmental actions.
The Tort Claims Act identifies “waterworks,” “reservoirs,” and “water and sewer service”
as governmental functions. TEX. CIV. PRAC. & REM CODE § 101.0215(a)(11), (19), (32). Relying
on these designations, the court of appeals concluded that the City’s conduct in leasing the
lakefront property was also governmental because it was merely a part of the City’s broader
conduct in support of a governmental function.8 We disagree, because the City’s leasing of the
lakefront property was not “essential” to the City’s operation or maintenance of the lake.
Having considered the definitions and the parties’ arguments, we conclude that the City
was performing a proprietary function—not a governmental function—when it leased its lakefront
property to the Wassons. As we noted in Wasson I, drawing this distinction “is not always a cut-
governmental function of “animal control” as to be governmental); Ethio Exp. Shuttle Serv., Inc. v. City of Houston,
164 S.W.3d 751, 756 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (holding operation of shuttle service to airport
was “well aligned” with enumerated governmental functions of “airports, regulation of traffic, and transportation
systems”); Tex. River Barges v. City of San Antonio, 21 S.W.3d 347, 356 (Tex. App.—San Antonio 2000, pet. denied)
(“Clearly, the City’s removal of TRB’s barge from the City-owned marina was a governmental function, since the Act
expressly defines the operation of marinas as a governmental function.”).
8
See 513 S.W.3d at 221 (holding that because the Tort Claims Act “specifically classifies ‘reservoirs,’
‘waterworks,’ and ‘water and sewer service’ as governmental functions,” “[t]he operation and maintenance thereof
are likewise governmental functions”) (quoting TEX. CIV. PRAC. & REM. CODE § 101.0215(a)(11), (19), (32)).
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and-dried task.” 489 S.W.3d at 438. Based on the common-law and statutory definitions, we have
considered four factors relevant to these facts. In some cases, some factors may point to one result
while others point to the opposite result. In such cases, courts should consider immunity’s nature
and purpose and the derivative nature of a city’s access to that protection. Here, however, all four
relevant factors establish that the City was performing a proprietary function when it leased its
lakefront property. As a result, governmental immunity does not protect the City against Wasson’s
suit for breach of the lease agreements.
V.
Conclusion
We held in Wasson I that the governmental/proprietary dichotomy applies to the
determination of whether governmental immunity bars a breach-of-contract claim against a
municipality. We hold today that the nature of the function the municipality was performing when
it entered into the contract governs that analysis. In this case, we hold that the City was engaged
in a proprietary function when it leased its lakefront lots to the Wassons, and thus governmental
immunity does not bar Wasson’s claim that the City breached those leases.
Because the court of appeals affirmed the trial court’s summary judgment on the ground
that governmental immunity bars Wasson’s claim, it did not address any of the City’s other
summary-judgment grounds. Having concluded that governmental immunity does not bar
Wasson’s claim, we reverse the court of appeals’ judgment and remand the case to that court so
that it may consider the City’s additional grounds.
_____________________
Jeffrey S. Boyd
Justice
Opinion delivered: October 5, 2018
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