City Wide Community Development Corporation v. City of Dallas

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Signed October 6, 2023 $$

United States Bankruptcy Judge

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

§

In re: § Chapter 11

§

CITY WIDE COMMUNITY § Case No. 21-30847

DEVELOPMENT CORP. ET AL. §

§

Debtor. §

a

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CITY WIDE COMMUNITY §

DEVELOPMENT CORP., §

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Plaintiff, §

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V. § Adv. Pro. No. 22-03051

§

CITY OF DALLAS §

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Defendant. §

§

ORDER GRANTING MOTION TO DISMISS

]

Before the Court is the Motion to Dismiss for Lack of Subject Matter Jurisdiction and

Failure to State a Claim1 and Brief in Support2 (together, the “Motion”) filed on February 8, 2023,

by the City of Dallas (the “City” or the “Defendant”), as well as T.C. Broadnax, Robin Bentley,

and David Noguera (collectively, the “Individual Defendants”). The Individual Defendants have

since been dismissed without prejudice to refiling.3 By the Motion, the City seeks an order from

this Court dismissing the Amended Complaint filed by City Wide Development Corporation (the

“Plaintiff” and, together with the Defendant, the “Parties”) with prejudice for lack of subject

matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a

claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).4 On

February 28, 2023, the Plaintiff filed its Response of City Wide Community Development

Corporation to Defendant’s Third Motion to Dismiss (the “Response”).5 On March 14, 2023, the

Defendant filed its Reply (the “Reply”).6

On March 28, 2023, the Court held a hearing on the Motion. Counsel appeared for both the

Plaintiff and the City, and the Court heard argument. At the conclusion of the hearing, the Court

took the matter under advisement. After considering the briefing and oral arguments of counsel,

the Court concludes that the Motion to Dismiss should be GRANTED pursuant to Rule 12(b)(6)

as more fully detailed in this Order.

1 ECF No. 67.

2 ECF No. 68.

3 ECF No. 91. See also Motion for Nonsuit at ECF No. 89 (“Plaintiff no longer desires to prosecute Bentley, Broadnax,

and Nogura at this time unless the City of Dallas produces evidence involving the said defendants. Plaintiff reserves

the right to call Bentley, Broadnax, and Nogura if needed.”).

4 Hereinafter, all capitalized references to a Rule or the Rules shall be made in reference to the Federal Rules of Civil

Procedure (a “Rule” or the “Rules”). Similarly, any capitalized reference to a Bankruptcy Rule or the Bankruptcy

Rules shall be made in reference to the Federal Rules of Bankruptcy Procedure (a “Bankruptcy Rule” or the

“Bankruptcy Rules”).

5 ECF No. 79.

6 ECF No. 84.

I. Jurisdiction and Venue.

The Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), and the matter is a core

proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B). Venue is proper in this district

pursuant to 28 U.S.C. § 1409(a). Defendant has consented to the entry of a final order by this

Court.7

II. Factual and Procedural History.

In September 2008, the Plaintiff executed a loan agreement and note to memorialize an

agreement (together, the “Redevelopment Agreement”) with the City, whereby the City would

provide a $500,000.00 loan for the acquisition of certain properties to be redeveloped for

residential and commercial uses (the “Opal Project”). On October 21, 2008, the Plaintiff executed

a deed of trust securing the loan. By the terms of the agreement, the construction of the

development had to be completed within five (5) years of the execution of the loan documents.

The loan was modified in five separate instances to increase the amount of the loan to an ultimate

figure of $1,331,326.00 and extend the completion deadline to September 12, 2018. The loan was

also converted to a conditional grant with the City’s remedy for a default changing from

foreclosure to the conveyance of the properties to the City.

In early 2017, at least sixteen (16) months prior to the completion deadline set forth in the

loan documents, Sherman Roberts (“Mr. Roberts”), the President of the Plaintiff, was advised

that the City had placed a pause on housing and economic development. On December 18, 2020,

during the pendency of this “freeze” and ongoing negotiations between the Parties as to the next

steps in regard to the Opal Project, Mr. Roberts received a letter advising Plaintiff of its alleged

7 See ECF No. 67, p. 4, ¶ 2.

default in connection with the Redevelopment Agreement given that the Opal Project had not been

completed by September 18, 2018.

On April 30, 2021, the Plaintiff filed a voluntary petition for bankruptcy under Chapter 11

of the Bankruptcy Code.8 The City filed a Proof of Claim No. 16-1 (“Claim 16-1”) in the

bankruptcy case, which attached the deeds of trust, notes, and modifications.9 On March 21, 2022,

the Plaintiff conceded that the Redevelopment Agreement constituted an executory contract, and

elected the following:

Rather than dispute [Claim 16-1] on a contested basis, Debtors will amend their

Plan [of Reorganization] to acknowledge a default has occurred in the transactions

referenced under [Claim 16-1] that would be [incurable] under 11 U.S.C. § 365

principles. Rather, Debtors will file an amended plan that will include an adversary

complaint against the City of Dallas seeking Declaratory and Injunctive relief under

Inter Alia, interruption, hindrance, and prevention doctrines. This litigation will be

resolved post-confirmation.10

On May 20, 2022, the Plaintiff filed its Petition to Remove Cloud and Quiet Title by Injunctive

and Declaratory Relief (the “Complaint”) commencing the above-captioned adversary

proceeding (the “Adversary Proceeding”) against the Defendants.11

On August 2, 2022, the Defendant filed its original Motion to Dismiss for Failure to State

a Claim.12 On August 23, 2022, the Plaintiff voluntarily amended its Complaint, filing the First

Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief,13

prompting the Defendant to withdraw its original motion to dismiss and refile a second Motion to

Dismiss for Failure to State a Claim on September 6, 2022.14 Former Defendants Eric Johnson

8 Voluntary Petition for Non-Individuals Filing for Bankruptcy, Case No. 21-30847-MVL11, ECF No. 1 (Bankr. N.D.

Tex. 2021) (the “Main Bankruptcy Case”).

9 Claim 16-1 omitted the loan agreement itself.

10 ECF No. 355 in Bankruptcy Case No. 21-30847-MVL11 (Bankr. N.D. Tex. 2022).

11 ECF No. 1.

12 ECF No. 13.

13 ECF No. 17.

14 ECF No. 20.

and Raquel Favela filed their Motion to Dismiss for Lack of Subject Matter Jurisdiction Pursuant

to Federal Rule of Civil Procedure 12(b)(1) on September 29, 2022.15 On October 18, 2022, the

Plaintiff filed its Motion for Leave to File an Amended Petition, requesting that the Court grant it

an additional opportunity to amend its Complaint in order to “add an additional basis for denying

[Defendant’s second motion to dismiss.]”16 On the same day, the Plaintiff filed its Second

Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief.17 On

October 19, 2022, a hearing was scheduled on the Defendant’s second motion to dismiss.18 At the

hearing, the Court granted the Plaintiff’s unopposed motion for leave to amend its Complaint a

second time,19 and on the same day, the City and Former Defendants Johnson and Favela withdrew

their respective motions to dismiss.20

On October 25, 2022, the Plaintiff filed a Corrected Second Amended Petition to Remove

Cloud and Quiet Title by Injunctive and Declaratory Relief.21 The Defendants filed their Answer

to Plaintiff’s Corrected Second Amended Petition to Remove Cloud and Quiet Title by Injunctive

and Declaratory Relief on November 15, 2022.22 On January 18, 2023, the Plaintiff filed its

Unopposed Motion for Leave to File a Third Amended Petition.23 Based on the fact that the relief

requested was unopposed, the Court granted the Plaintiff’s motion for leave.

On January 25, 2023, the Plaintiff filed its Third Amended Petition to Remove Cloud and

Quiet Title by Injunctive and Declaratory Relief (the “Amended Complaint”),24 which is the

15 ECF No. 29.

16 ECF No. 34.

17 ECF No. 35.

18 ECF No. 43.

19 Id.; see also ECF No. 49.

20 ECF Nos. 41 and 42.

21 ECF No. 46.

22 ECF No. 47.

23 ECF No. 51.

24 ECF No. 53.

subject of the instant Motion to Dismiss.25 In the Amended Complaint, the Plaintiff asserts the

following causes of action:

(I) Suit for Injunctive Relief;

(II) Declaratory Relief;

(III) Declaratory Relief for Equitable Estoppel;

(IV) Declaratory Relief for Promissory Estoppel; and

(V) Attorney’s Fees.26

Thereafter, the Defendant filed the instant Motion. The Court held a hearing on the Motion

on March 28, 2023. On April 5, 2023, the Plaintiff filed its Post-Trial Brief in Support of Response

to Defendant’s Motion to Dismiss the Third Amended Petition (the “Supplemental Brief”).27 In

its Supplemental Brief, the Plaintiff abandoned its earlier arguments that the Defendant’s

governmental immunity from suit was waived as a result of either ultra vires actions or the Texas

Tort Claims Act (the “TTCA”).28 The Plaintiff further agreed to non-suit the Individual

Defendants.29 Accordingly, the City is the only remaining defendant.

III. Legal Standards: Rule 12(b)(1) and Rule 12(b)(6).

Rule 12(b)(1), incorporated into this adversary proceeding by Bankruptcy Rule 7012,

provides for the dismissal of a claim for lack of subject matter jurisdiction. When a Rule 12(b)(1)

motion is filed in conjunction with other Rule 12 motions, as it is here, a court should consider the

jurisdictional attack prior to turning to the merits.30 In considering a Rule 12(b)(1) motion, the

25 The Court notes that the Amended Complaint is the fourth iteration of the Complaint filed by the Plaintiff in this

Adversary Proceeding. See ECF Nos. 1, 17, 46 and 53.

26 ECF No. 53.

27 See ECF No. 88.

28 Id. at 15, ¶ 33.

29 Id.; see also ECF Nos. 89, 90 and 91.

30 Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (“This requirement [to first turn to jurisdiction]

prevents a court without jurisdiction from prematurely dismissing a case with prejudice. The court’s dismissal of a

court is empowered to consider matters of fact which may be in dispute.31 Ultimately, the motion

should be granted only if it appears that the plaintiff cannot prove any set of facts in support of his

or her claim that would entitle the plaintiff to relief.32

Rule 12(b)(6) authorizes dismissal of a complaint that “fail[s] to state a claim upon which

relief can be granted.”33 In evaluating a Rule 12(b)(6) motion to dismiss, the Court “must accept

all well-pleaded facts as true, and … view them in the light most favorable to the plaintiff.”34

However, the Court need not “strain to find inferences favorable to the plaintiffs.”35 To survive a

motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient factual allegations,

which, if accepted as true, state a plausible cause of action.36 This plausibility requirement sits

somewhere between possible and probable, and is satisfied where the plaintiff’s pleaded facts

allow the court to draw the reasonable inference that the defendant is liable for the misconduct

alleged.37

In this case, the City has asserted governmental immunity in its Motion, raising arguments

for dismissal under both Rule 12(b)(1) and Rule 12(b)(6). Therefore, the Court must first evaluate

whether subject matter jurisdiction properly exists before it can decide whether the Amended

Complaint properly states a claim upon which relief may be granted.38 Plaintiff argues that because

the City filed a proof of claim in the Main Bankruptcy Case, the City’s governmental immunity is

plaintiff’s case because the plaintiff lacks subject matter jurisdiction is not a determination of the merits and does not

prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction.”); In re Elcoteq, Inc., 521

B.R. 189, 195 (Bankr. N.D. Tex. 2014).

31 Ramming, 281 F.3d at 161 (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981)).

32 Id.

33 Fed. R. Civ. P. 12(b)(6).

34 Walker v. Beaumont Indep. Sch. Dist., 938 F.3d 724, 735 (5th Cir. 2019) (quoting Campbell v. Wells Fargo Bank,

N.A., 781 F.2d 440, 442 (5th Cir. 1986)).

35 Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 361 (5th Cir. 2004) (internal quotations omitted).

36 Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

37 Iqbal, 556 U.S. at 678.

38 In re Elcoteq, 521 B.R. at 195; see also In re USA Promlite Technology Inc., 636 B.R. 743, 756 (Bankr. S.D. Tex.

2022).

waived in toto pursuant to 11 U.S.C. § 106(b).39 However, as explained more fully below, while

the Court finds that although the City waived its governmental immunity from suit by filing Claim

16-1, the fact that this Court has subject matter jurisdiction is not the end of the inquiry.40

In order to survive the Defendant’s Motion, the Plaintiff’s Complaint must also properly

state a claim upon which relief may be granted.41 In Texas, governmental immunity has two

components: immunity from suit, which bars suit against the entity altogether, and immunity from

liability, which bars enforcement of a judgment against a governmental entity.42 Therefore, the

Court must separately determine whether the Plaintiff may be afforded the particular relief it seeks

in the Amended Complaint. This determination depends on whether the substantive law in question

provides an avenue for relief against a governmental entity.43 Plaintiff advances four substantive

causes of action in its Complaint, each of which is rooted in state law.44 After reviewing each of

the causes of action and applicable law, the Court hereby determines that none of Plaintiff’s causes

of action properly states a claim upon which relief may be granted against the City. As such, the

Court concludes that the Motion should be DENIED pursuant to Rule 12(b)(1) but GRANTED

pursuant to Rule 12(b)(6).

39 See ECF No. 88, p. 16, ¶ 37.

40 See U.S. Postal Service v. Flamingo Indus. (USA) Ltd., 540 U.S. 736, 744 (2004).

41 See FED. R. CIV. P. 12(b)(6).

42 Tercero v. Tex. Southmost Coll. Dist., 989 F.3d 291, 297 (5th Cir. 2021).

43 See U.S. Postal Service, 540 U.S. at 744; see also Supreme Beef Processors, Inc., 468 F.3d 248, 255 (5th Cir. 2006);

State v. Lueck, 290 S.W.3d 876, 880 (Tex. 2009).

44 Although the Amended Complaint does not explicitly reference Texas law with regard to each cause of action, in

responding to the Defendant’s Motion, the Plaintiff consistently relies upon Texas law to defend its causes of action.

See ECF No. 79, pp. 12–30.

IV. Analysis.

A. Should the Case Be Dismissed Under Rule 12(b)(1)?

In this case, the Parties have advanced arguments addressing two related, but distinct types

of immunity: sovereign immunity and governmental immunity.45 Sovereign immunity applies to

the states and its various entities while governmental immunity protects local units of government,

such as cities, when they perform governmental functions.46 The City has asserted its

governmental immunity from suit in a Rule 12(b)(1) challenge to the Court’s jurisdiction. For the

following reasons, the Court concludes that the City is entitled to governmental immunity from

suit under the Texas constitution, but that the City waived that immunity by filing Claim 16-1;

and, therefore, this Court has subject matter jurisdiction.

1. Does the City of Dallas Have Governmental Immunity?

The City claims that the Plaintiff’s state law-based causes of action for declaratory relief,

Counts II, III and IV of the Amended Complaint, are barred by governmental immunity from suit.47

Specifically, the City argues that the Court lacks subject matter jurisdiction to adjudicate a lawsuit

against a municipality on the basis of the causes of action alleged, absent a valid statutory or

constitutional waiver of its governmental immunity.48 The Plaintiff takes the position that

governmental immunity does not apply in this case.

Under Texas law, “a city is not a freestanding sovereign with its own inherent

immunity.”49 A city has no immunity of its own but is afforded governmental immunity under the

State’s constitution when acting as the State’s agent and performing governmental functions for a

45 See Promlite, 636 B.R. at 756; see also Travis Cent. Appraisal Dist. v. Norman, 342 S.W.3d 54, 57–58 (Tex. 2011).

46 Promlite, 636 B.R. at 756.

47 ECF No. 68 at 13–15.

48 Id. at 14 (citing Suarez v. City of Texas City, 465 S.W.3d 623, 631 (Tex. 2015)).

49 Wasson Interests, Ltd. v. City of Jacksonville (“Wasson I”), 489 S.W.3d 427, 433 (Tex. 2016).

public benefit.50 Governmental immunity does not protect a city’s proprietary functions because

proprietary functions are performed solely “for the private advantage and benefit of the locality

and its inhabitants.”51 Proprietary functions do not implicate immunity because they are not

performed under the authority, or for the benefit, of the sovereign.52 The Texas Supreme Court has

held that this governmental proprietary dichotomy applies to contract claims.53 Therefore, the

Court must determine whether the City was carrying out either a governmental or a proprietary

function in contracting with the Plaintiff for community development and urban renewal.

In conducting this analysis, the Court is guided by the Texas Supreme Court’s decision in

Wasson Interests, Ltd. v. City of Jacksonville (“Wasson II”).54 In Wasson II, the Texas Supreme

Court “considered both the statutory provisions and the common law in determining whether a

city’s contractual conduct is governmental or proprietary,” focusing solely on the nature of the

contract and not the nature of the breach.55 The Texas Supreme Court first looked for guidance

under the Texas Tort Claims Act (the “TTCA”), which 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 … in the interest of the general public[.]”56 Finding that the

statute did not provide for the actions taken by the city, the court found the act proprietary.57 In

coming to its conclusion, the Texas Supreme Court delineated four factors to aid courts in the

analysis of the governmental versus proprietary dichotomy:

(1) whether entering into the contract was mandatory or discretionary;

50 See id. at 434 (citing City of Galveston v. State, 217 S.W.3d 466, 478 (Tex.2007) (Willett, J., dissenting)); see also

Promlite, 636 B.R. at 756.

51 Wasson I, 489 S.W.3d at 434 (quoting City of Galveston v. Posnainsky, 62 Tex. 118, 127 (1884)).

52 Id.

53 Id.

54 559 S.W.3d 142, 150 (Tex. 2018).

55 Id. at 148–50.

56 Id. at 151 (quoting TEX. CIV. PRAC. & REM. CODE § 101.0215(a)).

57 Id. at 153-54.

(2) whether the contract was intended to benefit the general public or the city’s

residents;

(3) whether the city was acting on the State’s behalf or its own behalf; and

(4) whether the city’s act of entering the contract was sufficiently related to a

governmental function to render the act governmental even if it would

otherwise have been proprietary.58

The Wasson II court further instructed that when some factors point to a governmental function

and others to a proprietary one, “courts should consider immunity’s nature and purpose and the

derivative nature of a city’s access to that protection.”59

Applying these factors to the instant facts, the Court finds it unquestionable that the City’s

actions were of a governmental nature. The only factor that leans in the Plaintiff’s favor is that the

contract was not mandatory. The City chose in its own discretion to contract with the Plaintiff, and

there has been no argument that the action was mandated. Notwithstanding, each of the other

factors lead this Court to conclude that the actions were not proprietary in nature. First, the contract

was undoubtedly intended to benefit the general public. The City’s actions related to “street

construction and design; sanitary and storm sewers; building codes and inspection; zoning,

planning and plat removal; and community development or urban renewal.”60 The project was

intended to “improve the living and economic conditions of people with low and moderate income,

and to benefit a low- or moderate-income neighborhood.”61 Section 373.004 of the Texas Local

Government Code specifically provides for such programs.62

Second, it is clear that the City was acting on the State’s behalf and not its own.63 Section

101.0215 of the TTCA delineates a list of government functions provided to municipalities by the

58 Id. at 150.

59 Id. at 154.

60 ECF No. 68 at 22.

61 Id. at 23 (citing ECF No. 81 in Bankruptcy Case No. 21-30847-MVL11 (Bankr. N.D. Tex. 2021)).

62 Tex. Loc. Gov’t Code § 373.004.

63 See, e.g., Wasson II, 559 S.W.3d at 152 (finding the city was acting in its own behalf and not the state’s by leasing

lakefront property).

State to be exercised by the municipality in the interest of the general public.64 Such actions,

among others, include: health and sanitation services; street construction and design; garbage and

waste removal; sanitary and storm sewers; building codes and inspection; zoning, planning and

plat removal; and community development or urban renewal.65 These actions are exactly what was

intended by the City in entering this agreement. Finally, the fourth element, an element the Texas

Supreme Court in Wasson II described as potentially outcome determinative, militates in favor of

the governmental nature of the action.66 The Court finds that the actions necessitated by the Opal

Project were sufficiently related to a governmental function to render the nature of the act

governmental for the purposes of immunity. Accordingly, the Court finds that the City was

performing a governmental function—not a proprietary function—in contracting with the Plaintiff

for urban renewal and development. Therefore, governmental immunity bars the Plaintiff’s claims

for declaratory relief, unless the City’s immunity has been waived.

2. Has the City of Dallas Waived its Governmental Immunity From Suit?

As aforementioned, a city is not a freestanding sovereign with its own inherent immunity

under the Eleventh Amendment.67 Governmental immunity flows from the state’s constitution,

rather than as an extension of the Eleventh Amendment.68 The Plaintiff originally argued that the

City’s governmental immunity was waived under a number of different legal theories: (1) the

statutory exception contained within the TTCA;69 (2) the ultra vires exception to sovereign and

64 Tex. Civ. Prac. & Rem. Code § 101.0215(a).

65 Id.

66 Wasson II, 559 S.W.3d at 150.

67 Wasson I, 489, S.W.3d at 433; see also Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977)

(“The bar of the Eleventh Amendment to suit in federal courts extends to States and state officials in appropriate

circumstances, but does not extend to counties and similar municipal corporations … or other political

subdivision[s.]”) (internal citations omitted); Reynolds v. Sims, 377 U.S. 533, 575 (1964) (“Political subdivisions of

States–counties, cities, or whatever–never were and never have been considered as sovereign entities.”).

68 See, e.g., Promlite, 636 B.R. at 756 (holding same where lighting company brought breach of contract action in

state court against city before filing for bankruptcy under Chapter 7).

69 ECF No. 79, pp. 16–21.

governmental immunity;70 and (3) the waiver of sovereign immunity contained in the Bankruptcy

Code when a governmental entity files a proof of claim in a bankruptcy case.71 The Court will note

that after oral argument on the Motion, the Plaintiff abandoned its arguments that the City’s

governmental immunity was waived under the TTCA or the ultra vires exception.72 As such, the

Court will solely analyze whether the City’s governmental immunity from suit is waived under

section 106(b) of the Bankruptcy Code. The Court will first look to whether the Plaintiff has

adequately pleaded the facts necessary for section 106(b) to apply in the instant case, then the

Court will analyze whether section 106(b) waives governmental immunity from suit under the

Texas constitution as a matter of law.

a. Has Plaintiff Adequately Pleaded Waiver Under 11 U.S.C. § 106(b)?

Section 106(b) of the Bankruptcy Code provides for the waiver of “sovereign” immunity

where certain preconditions are met. Specifically, section 106(b) provides the following:

A governmental unit that has filed a proof of claim in the case is deemed to have

waived sovereign immunity with respect to a claim against such governmental unit

that is property of the estate and that arose out of the same transaction or occurrence

out of which the claim of such governmental unit arose.73

In the instant case, the Plaintiff has adequately pleaded that the City is a municipality under the

Texas constitution.74 “Municipalities” are explicitly included within the definition of the term

“governmental unit,” as referenced in section 106(b).75 Furthermore, there can be no dispute that

the Plaintiff’s causes of action against the City are property of the estate,76 nor that the Plaintiff’s

70 Id. at 21-26.

71 Id. at 26-31.

72 See ECF No. 88, p. 15, ¶ 33.

73 11 U.S.C. § 106(b).

74 The Defendant alleges that the City of Dallas is a “home rule city” in Dallas County, Texas. See ECF No. 53, p. 2,

¶ 3. Home-rule cities in Texas, such as the City of Dallas, derive their authority from Article XI of the Texas

Constitution, which deals with “Municipal Corporations.” See TEX. CONST. ART. XI § 5.

75 See 11 U.S.C. § 101(27).

76 See, e.g., ECF No. 53, pp. 4–11; see also ECF No. 53-1, pp. 1–2.

causes of action arose out of the same transaction or occurrence as that referenced in Claim 16-1

filed by the City.77 As such, the Court concludes that section 106(b) of the Bankruptcy Code

applies in the instant case.

b. Does 11 U.S.C. § 106(b) Waive the City’s Governmental Immunity From Suit?

The next question for the Court is whether section 106(b)’s waiver of “sovereign”

immunity waives the City’s separate governmental immunity from suit granted to the City in the

Texas constitution. The Fifth Circuit, in Tercero v. Texas Southmost College Dist., stated that in

the absence of Eleventh Amendment sovereign immunity, “a state cannot bar a federal court from

exercising jurisdiction over claims that state courts would recognize and enforce.” 78 “Political

Subdivisions that have waived governmental immunity, and that do not enjoy constitutional

immunity, can be sued in federal courts … without regard to state statutory provisions to the

contrary.”79 In determining jurisdiction, federal courts are directed to “look to the sources of their

power, Article III of the United States Constitution and congressional statutory grants of

jurisdiction, not to the acts of state legislatures.”80 “However extensive their power to create and

define substantive rights, the states have no power directly to enlarge or contract federal

jurisdiction.”81 “This rule is a consequence of the exclusive power of Congress to control the

jurisdiction of the federal courts and the Supremacy Clause implications of a state’s suggestion

that it might somehow (even indirectly) provide otherwise.”82

In consideration of the foregoing, the Court finds that by virtue of the City’s filing its Claim

16-1, the City waived its governmental immunity from suit to the extent allowed by section 106(b)

77 See, e.g., Claim 16-1 in Case No. 21-30847-MVL11 (Bankr. N.D. Tex. 2021).

78 989 F.3d 291, 297 (5th Cir. 2021).

79 Id. at 298 (alteration added).

80 Id. (emphasis added) (citing to Duchek v. Jacobi, 646 F.2d 415, 419 (9th Cir. 1981) (citation omitted)).

81 Id.

82 Id. at 298 (internal quotations omitted).

of the Bankruptcy Code. Therefore, the Court concludes that it has subject matter jurisdiction to

adjudicate the claims advanced by the Plaintiff in the Amended Complaint; therefore, that portion

of the relief requested by the Defendant pursuant to Rule 12(b)(1) is denied.

B. Should the Case Be Dismissed Under Rule 12(b)(6)?

Because the Court has determined it has subject matter jurisdiction, the Court must next

determine whether the Plaintiff has asserted a legally sufficient claim for relief.83 The Supreme

Court has consistently held that just because a government entity has waived its immunity from

suit does not mean that a plaintiff has a cause of action upon which relief may be granted.84 “The

Government’s consent to be sued must be construed strictly in favor of the sovereign and not

enlarged beyond what the language requires.”85 As such, once a court has determined that a waiver

of immunity should apply in a given case, the next step is for the court to determine “whether the

source of substantive law upon which the claimant relies provides an avenue for relief.”86 Said

another way, “[a]n absence of immunity does not [necessarily] result in liability if the substantive

law in question is not intended to reach the [governmental] entity.”87

This principle is also borne out in the requirement that claims against the governmental

unit be “property of the estate.”88 The Supreme Court has emphasized that bankruptcy law is not

itself a source of property rights.89 To determine whether something is property of the bankruptcy

estate, a court must look to both state and federal law. Specifically, a debtor’s property rights are

determined by state law, while federal bankruptcy law establishes the extent to which those rights

83 Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995).

84 See U.S. Postal Serv. v. Flamingo Indus. (USA) Ltd., 540 U.S. 736, 744 (2004); see also FDIC v. Meyer, 510 U.S.

471, 483–84 (1994).

85 See U.S. v. Nordic Village, Inc., 503 U.S. 30, 34 (1992) (internal quotations omitted).

86 See Meyer, 510 U.S. at 484; see also State v. Lueck, 290 S.W.3d 876, 880 (Tex. 2009); Wichita Falls State Hosp. v.

Taylor, 106 S.W.3d 692, 696 (Tex. 2003).

87 U.S. Postal Serv., 540 U.S. at 744.

88 See Supreme Beef Processors, Inc., 468 F.3d 248, 255 (5th Cir. 2006)

89 Butner v. United States, 440 U.S. 48, 54–55 (1979).

are property of the estate.90 Therefore, although immunity from suit is waived under section 106(b)

of the Bankruptcy Code, the Court must determine whether the Plaintiff’s causes of action are

viable against the City as a matter of state law.

1. Can the Plaintiff Be Awarded Injunctive and Declaratory Relief Against the City?

Plaintiff advanced four substantive causes of action in its Amended Complaint: (1) suit for

injunctive relief; (2) declaratory relief to remove cloud of title; (3) declaratory relief for equitable

estoppel; and (4) declaratory relief for promissory estoppel.91 Each of these causes of action are

rooted in substantive state law.92 The City argues that in a situation where a governmental entity

waives its immunity from suit by filing an affirmative claim for relief, the Texas Supreme Court

limited a Plaintiff’s available remedies to monetary relief as an offset to the government’s claim

in Reata Const. Corp. v. City of Dallas (“Reata II”).93 Therefore, the City asserts, because the

Plaintiff does not request monetary relief in the Amended Complaint, the Plaintiff has failed to

state a claim upon which relief can be granted. For the reasons stated below, the Court agrees with

the City.

The Supreme Court of Texas has held that although it defers to the state legislature to

determine whether the state has waived immunity, “sovereign immunity is a common-law creation,

and the responsibility to define the boundaries of the doctrine remains with the judiciary.”94 In

Reata II, the Supreme Court of Texas clearly defined one such boundary in holding that when a

90 In re Croft, 737 F.3d 372, 374 (5th Cir. 2013).

91 See ECF No. 53, pp. 11–14.

92 Although the Amended Complaint does not explicitly reference Texas law on each cause of action, in responding

to the Defendant’s Motion, the Plaintiff consistently relies upon Texas law to defend its causes of action. See ECF No.

29, pp. 12–30.

93 See ECF No. 84, pp. 8–9 (citing to 197 S.W.3d 371, 377 (Tex. 2006)).

94 Nazari v. State, 561 S.W.3d 495, 502 (Tex. 2018) (quoting Engelman Irrigation Dist. v. Shields Bros., Inc., 514

S.W.3d 746, 753 (Tex. 2017)) (internal quotations omitted).

governmental entity files an affirmative claim for relief, “immunity from suit no longer completely

exists for the governmental entity.”95 Specifically, the Court held:

[W]here the governmental entity has joined into the litigation process by asserting

its own affirmative claims for monetary relief, we see no ill befalling the

governmental entity or hampering of its governmental functions by allowing

adverse parties to assert, as an offset, claims germane to, connected with, and

properly defensive to those asserted by the governmental entity… save for the

limitation that the City continues to have immunity from affirmative damage

claims against it for monetary relief exceeding amounts necessary to offset the

City’s claims.96

Therefore, the Reata II court established that when a city asserts an affirmative claim for monetary

relief, a responsive party may assert a counterclaim for monetary relief as an offset.97 “This is not

because the governmental entity ‘waives’ its immunity by filing a claim for affirmative relief.

Instead, the scope of governmental immunity simply does not reach the defensive counterclaims

to the extent that any recovery on the counterclaims serves as an ‘offset’ against the government’s

recovery.”98 The central question for the purpose of the instant case is whether Plaintiff’s causes

of action for injunctive and declaratory relief could be allowed as counterclaims for the purpose

of “offsetting” the City’s potential recovery on its Claim 16-1. For the reasons discussed further

below, the Court finds that they cannot.

The Court notes that the Supreme Court of Texas addressed this question directly in its

opinion in Nazari v. State.99 The Nazari court explained, “[t]o the extent we used ‘monetary relief’

and its variants as something other than synonyms for ‘damages,’ our goal was to emphasize

‘monetary relief’ as opposed to injunctive and other types of relief rather than to abrogate the

95 Reata II, 197 S.W.3d at 376 (emphasis added).

96 Id. at 376–77 (emphasis added).

97 See Hillman v. Nueces County, 579 S.W.3d 354, 362 (Tex. 2019).

98 C. Borunda Holdings, Inc. v. Lake Proctor Irrigation Auth. of Comanche Cty., 540 S.W.3d 548, 550 (Tex. 2018)

(per curiam).

99 561 S.W.3d at 505–06.

state’s sovereign immunity every time it enters a court in pursuit of a money judgment.”100 The

relief requested by the Plaintiff in its Amended Complaint does not constitute an “offset” under

Texas law. The right of offset (or setoff) is a common-law doctrine with an ancient historical

pedigree.101 Under Texas law, the right of offset allows entities that owe each other money to apply

their debts to each other.102 The doctrine generally supports the public interest of preventing

“circuity of actions,” and promoting judicial economy by the avoidance of absurdity.103 However,

a party’s right to assert an offset is conditioned upon a mutuality of demand between the parties,

in the same capacity or right.104 The purpose of the right is “to adjust the demands between the

parties and allow recovery of only the balance that is due.”105 In light of the foregoing, the Court

finds that the injunctive and declaratory relief sought by the Plaintiff does not qualify as an “offset”

under applicable Texas law.

The Plaintiff does not assert any demand for monetary relief in the instant case. The

Plaintiff, similarly, does not allege a cause of action for breach of contract.106 Instead, the Plaintiff

100 Id.; see also Hilco Elec. Co-op., Inc. v. Midlothia Butane Gas Co., 111 S.W.3d 75, 81 (Tex. 2003) (“[W]hen words

of a general nature are used in connection with the designation of particular objects or classes … the meaning of the

general words will be restricted to the particular designation.”).

101 The right of offset dates back to Ancient Rome, as first codified in Justinian’s sixth-century Corpus Iuris Civilis.

See CODE JUST. 4.31.6 (S.P. Scott trans., 1932) (“It is not equitable that you should be compelled to pay what it is

established you owe, before your demand for money lent has been answered.”).

102 See Bandy v. First State Bank, Overton, 835 S.W.2d 609, 618 (Tex. 1992) (discussing the purpose, extent, and

roots of the doctrine of setoff.

103 Id.

104 Cap. Concepts Props. v. Mut. First, Inc., 35 F.3d 170, 175 (5th Cir. 1994) (interpreting Texas law).

105 Id. (quoting Anderson v. Vinson Expl. Inc., 832 S.W.2d 657, 666 (Tex. App.–El Paso 1992, writ denied)); see also,

e.g., City of McKinney v. Hank’s Restaurant Grp., L.P., 412 S.W.3d 102, 116 (Tex. App.–Dallas 2013, no. pet.)

(concluding that because the Reata II rule is limited to offsetting claims for monetary relief, the government’s

immunity from counterclaims for injunctive and declaratory relief is not waived even where the governmental entity

asserts its own claim for both monetary and declaratory relief).

106 ECF No. 53, pp. 11–14. Notably, the Plaintiff does not allege a cause of action for breach of contract, but instead

uses conclusory language to blame any default on the City’s own actions or inaction. Id. at 12. Plaintiff asserts that

Defendant’s Claim 16-1 is “both an impermissible cloud on Plaintiff’s title, and an invalid claim for monetary

damages.” Id. Under the Texas Uniform Declaratory Judgment Act (“UDJA”), the City is immune from all claims

except those challenging the validity of its ordinances, which is not the case in the Amended Complaint. See See Texas

Dept. of Transp. v. Sefzik, 355 S.W.3d 618, 621 (Tex. 2011) (reiterating the established rule that governmental entities

themselves are not liable for actions seeking declaratory or injunctive relief under the UDJA); see also Heinrich, 284

requests that the Court enjoin the Defendant from exercising its legal remedies under the Parties’

contract.107 Alternatively, the Plaintiff asks the Court to declare that the City of Dallas does not

have certain contractual rights.108 Although the Plaintiff aberrantly includes the words “breach of

contract” in the verbiage of its Amended Complaint, Plaintiff’s cause of action requests a

declaratory judgment stating that Defendant’s claim is an “impermissible cloud on Plaintiff’s

title.”109 Such relief is not contemplated by the common law doctrine of offset, and therefore is not

available to the Plaintiff as an offset to the City’s filing of Claim 16-1. Accordingly, the Court

concludes that Counts I and II of the Amended Complaint must be dismissed for failure to state a

claim upon which relief may be granted.

2. Can the City of Dallas Be Estopped from Exercising its Contractual Remedies for

Default in the Instant Case?

As an alternative to the relief requested in Counts I and II of the Complaint, the Plaintiff

requests that the Court estop the City from exercising its contractual remedies for default.110

Counts III and IV of the Amended Complaint are causes of action asserting equitable estoppel and

promissory estoppel.111 Taking them in reverse order, courts in Texas have consistently held that

S.W.3d at 371–73 (discussing which governmental entities – the state, its subdivisions, or the relevant governmental

actors in their official capacities – are proper parties to a suit seeking declaratory relief.).

107 ECF No. 53, pp. 11–14. In Count I of the Amended Complaint, the Plaintiff alleges that Defendant, through its

officials, “committed acts that either tortiously or contractually interfered with, interrupted, hindered, and delayed the

timely completion of [the Opal Project,]” and because the Defendant has demanded acceleration, foreclosure, and a

potential deficiency judgment, the Plaintiff would suffer irreparable harm if the Court did not impose an injunction

barring Defendant from pursuing its claims. ECF No. 53, p. 11. However, a governmental entity retains immunity

from claims for injunctive relief based on allegations that government officials violated the law or exceeded their

powers under the law. See City of El Paso v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009). Such ultra vires claims must

be brought against the individual actors in their official capacity, rather than against the government itself. Id. at 373.

In the instant case, the Plaintiff voluntarily dismissed the Individual Defendants in this matter.

108 ECF No. 53, pp. 11–14.

109 ECF No. 53, p. 12. Generally, a trespass to try title claim is the exclusive method for adjudicating disputed claims

of title to real property in Texas. See TEX. PROP. CODE § 22.001(a) (“A trespass to try title action is the method of

determining title to lands, tenements, or other real property.”); see also Texas Parks and Wildlife Dept. v. Sawyer

Trust, 354 S.W.3d 384, 389 (Tex. 2011) (holding that a declaratory judgment action cannot be brought against a

government entity to determine title to land); see also Sawyer, 354 S.W.3d at 389 (holding that the UDJA does not

create an exception to governmental immunity in suits to try title to land).

110 See ECF No. 53, pp. 12–14.

111 Id.

promissory estoppel claims are barred by governmental immunity unless the waiver contained in

section 271.152 of the Local Government Code applies, which the Plaintiff does not argue to be

applicable in this case.112 As such, and in consideration of the foregoing, the Court concludes that

Plaintiff’s Count IV must be dismissed for failure to state a claim upon which relief may be

granted.

Furthermore, it is well-settled in Texas that a city cannot be equitably estopped from

exercising its governmental functions.113 In general, the rule barring estoppel against the

government, like other forms of governmental immunity, derives from the overall structure of

government and separation of powers, “which at times requires that the interest of the individual

yield to the public interest, even where mistakes may be committed by the government’s

agents.”114 Stated differently, barring estoppel helps preserve the power of the legislature, which

“would be undermined if a government agent could – through mistake, neglect, or an intentional

act – effectively repeal a law by ignoring, misrepresenting, or misinterpreting a duly enacted statute

or regulation.”115 Likewise, barring estoppel “protects the public fisc.”116

While there is an exception to this rule, “[it] is applied with caution and only in exceptional

cases where the circumstances clearly demand its application to prevent manifest injustice.”117 A

municipality may only be estopped in those cases where “justice requires its application, and there

112 See, e.g., Dallas/Fort Worth Int’l Airport Bd. v. Vizant Tech., LLC, 565 S.W.3d 69, 75 (Tex. App.–Dallas 2017,

pet. granted) affirmed in part by 576 S.W.3d 362, 374 (Tex. 2019) (“[P]romissory-estoppel claims fall outside the

limited scope of waiver contained in Section 271.152 of the Local Government Code.”); see also Gay v. City of Wichita

Falls, 457 S.W.3d 499, 507 (Tex. App.–El Paso 2014, no pet); City of Deer Park v. Ibarra, No. 01-10-00490-CV,

2011 WL 3820798, at *6–7 (Tex. App.–Houston [1st Dist.] Aug. 25, 2011, no. pet.) (mem. op.); Somerset Indep. Sch.

Dist. v. Casias, No. 04-07-00829-CV, 2008 WL 1805533, at *3 (Tex. App.–San Antonio Apr. 23, 2008, pet. denied)

(mem. op.).

113 See City of White Settlement v. Super Wash, Inc., 198 S.W.3d 770, 773 (Tex. 2006); see also City of Hutchins v.

Prasifka, 450 S.W.2d 829, 835 (Tex. 1970); Rolison v. Puckett, 198 S.W.2d 74, 77 (Tex. 1946).

114 See Super Wash, Inc., 198 S.W.3d at 773.

115 Id.

116 Id. at 774 (quoting Office of Personnel Mgmt. v. Richmond, 469 U.S. 414, 433 (1990)).

117 Prasifka, 450 S.W.2d at 836.

is no interference with the exercise of its governmental functions.”118 Furthermore, courts have

consistently held that equitable estoppel cannot be advanced as an independent claim against a

governmental entity, nor does equitable estoppel effect an independent waiver of governmental

immunity.119 Therefore, there are considerable hurdles for the Plaintiff to overcome for an

equitable estoppel claim to survive court scrutiny.

For myriad reasons, the Court concludes that the Plaintiff’s Count III must be dismissed.

First, the Court notes that Plaintiff failed to cite the proper test for application of equitable estoppel

against a governmental entity in Texas.120 Likewise, the Plaintiff completely failed to address the

“justice requires” exception.121 In point of fact, the Plaintiff never cited to any authority holding

that equitable estoppel should be applied against a government entity, let alone survive an assertion

of governmental immunity from liability.122 Instead, the Plaintiff only cited to cases applying

equitable estoppel to non-governmental litigants.123 In doing so, the Plaintiff failed altogether to

address the Defendant’s arguments.124 In sum, for the above reasons and because a claim for

equitable estoppel is not an independent claim, Count III of the Amended Complaint must also be

dismissed for failure to state a claim upon which relief can be granted.

118 Id.

119 See Luce Bayou Public Utility District v. Kilpatrick, 653 S.W.3d 323, 328–29 (Tex. App–Houston [14th Dist.]

2022, no pet.) (“[i]n the Equitable Estoppel Cases, the courts do not conclude that the governmental entity is equitably

estopped from asserting sovereign or governmental immunity, not do the courts conclude that equitable estoppel is an

independent claim against a government entity as to which such immunity has been waived.”); see also North Texas

Municipal Water Dist. v. Jinright, No. 05-18-00152-CV, 2018 WL 6187632, at *3 (Tex. App.–Dallas Nov. 27, 2018,

pet. denied) (concluding that the doctrine of equitable estoppel may not be used as a basis for finding a waiver of an

entity’s governmental immunity) (mem. op.)).

120 Id.; see contra ECF No. 68, pp. 15–16.

121 See ECF No. 79, pp. 25–26.; ECF No. 88, pp. 22–23.

122 See id.

123 See id.

124 See ECF No. 78, p. 16.

C. Should the Case be Dismissed with Prejudice?

The Defendant requests the Court dismiss the Plaintiff’s Amended Complaint with

prejudice, for failure to state a claim upon which relief may be granted.125 The Plaintiff has

amended its Complaint four times,126 requiring the Defendant to file four iterations of a motion to

dismiss.127 In Foman v. Davis, the Supreme Court recognized that courts may deny leave to amend

a complaint based on the “repeated failure to cure deficiencies by amendments previously

allowed…[and] futility of the amendment.”128 In the instant case, the Court has carefully studied

the record and found in Plaintiff’s Response and Supplemental Brief only a narrow request for

leave to amend the pleadings if the Court were to find it lacked subject matter jurisdiction.129 The

Court has subject matter jurisdiction. Moreover, to the extent that a request for leave to amend the

pleadings may be implied by such a request, the Court finds that such a request would be futile in

the instant case.130

V. Conclusion.

Therefore, based upon the foregoing and the record before the Court, it is hereby

ORDERED that the Defendant’s Motion to Dismiss is hereby DENIED pursuant to Rule

12(b)(1), and it is further

ORDERED that the Defendant’s Motion to Dismiss is hereby GRANTED pursuant to

Rule 12(b)(6), and the Court hereby dismisses the Amended Complaint with prejudice.

###END OF ORDER###

125 See ECF No. 68, p. 28.

126 See ECF Nos. 1, 17, 35, 43, and 53.

127 See ECF Nos. 13, 20, 29, and 67.

128 371 U.S. 178, 182 (1962); see also Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305,

329 (5th Cir. 2002).

129 The Defendant cites to City of El Paso v. Chacon, 148 S.W.3d 417, 421 (Tex. App.–El Paso 2004, writ denied),

for the following proposition, “[i]f the petition does not allege jurisdictional facts, the plaintiff’s suit is subject to

dismissal only when it is impossible to amend the pleadings to confer jurisdiction.” See ECF No. 79, pp. 14–15, ¶¶

35–36, p. 27, ¶¶ 70–71; see also ECF No. 88, pp. 13–14, ¶¶ 26–28, p. 16, ¶ 36.

130 See, e.g. Great Plains Trust Co., 313 F.3d at 330.