Harris County Municipal District Number 156 v. United Somerset Corporation

Opinion issued September 4, 2008

In The

Court of Appeals

For The

First District of Texas

NO. 01-07-00220-CV

HARRIS COUNTY MUNICIPAL UTILITY DISTRICT NUMBER 156,

Appellant

V.

UNITED SOMERSET CORPORATION, Appellee

On Appeal from the 113th District Court

Harris County, Texas

Trial Court Cause No. 2005-51279

O P I N I O N

In this interlocutory appeal, appellant, Harris County Municipal Utility District

Number 156 ("the District"), appeals from the trial court's order denying its plea to

the jurisdiction. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014 (a)(8) (Vernon

2008). (1) Appellee, United Somerset Corporation ("United Somerset"), filed suit

against the District for breach of contract, quantum meruit, and a declaration of the

parties' rights under a purported contract with the District. In three issues on appeal,

the District contends that the trial court erred by denying its plea to the jurisdiction

because (1) "the District did not approve any contract with United Somerset and

therefore did not waive immunity from suit," (2) United Somerset failed to exhaust

its administrative remedies before the Texas Commission on Environmental Quality

("TCEQ"), and (3) there is no waiver of sovereign immunity for the quantum meruit

claim. In addition, in its reply brief, the District asserts that this suit is not ripe for

adjudication.

We conclude that this suit is not ripe. We therefore reverse and remand. Background The District was a municipal utility district created in 1980 pursuant to an order

of the Texas Water Commission, which is now known as TCEQ. On February 3,

1986, the District and United Somerset entered into an agreement entitled "Water,

Sewer and Drainage Improvement Financing and Construction Contract." The

District's vice-president and secretary signed the agreement. However, the Board of

Directors for the District was never called upon to ratify, approve or authorize the

agreement with United Somerset.

Under the terms of the agreement, the developer financed the construction of

utilities that the District agreed to later purchase by reimbursing approximately 70

percent of the developer's costs out of the proceeds of bond sales. The agreement

called for the sale of bonds after houses, in numbers sufficient to provide an adequate

tax base in the District, were built. The agreement defined United Somerset as a

developer, stating that United Somerset planned to develop a subdivision with

residential and commercial improvements. However, United Somerset did not own

any property within the District. According to the District, "Section 3.03 of the

purported agreement, if it was a valid agreement, required United Somerset to convey

all rights, title and interest in the constructed utilities to the District."

United Somerset constructed various utility improvements. United Somerset

claimed that it received engineering approval of the plans and specifications from the

District's engineer. During construction, United Somerset provided documentation

regarding the construction to, and received approval from, the engineer, the attorney

for the district, and the TCEQ's predecessor agency. United Somerset incurred

$2,220,431 in construction costs for the improvements.

By early 2006, a sufficient number of houses had been built in the District to

provide a tax base. The District requested United Somerset to provide documentation

to support the District's application to get approval from TCEQ to issue bonds. The

District submitted a $2,750,000 bond application to TCEQ to cover the costs of the

improvements. The application was supported by United Somerset's documents

showing the cost of constructing the improvements, as well as by the agreement with

United Somerset. The TCEQ approved the District's bond application on October 4,

2006.

In August 2005, over a year before TCEQ approved the bond application in

October 2006, United Somerset filed these claims for breach of contract, quantum

meruit, and a declaratory judgment to establish the validity of the agreement and its

right to future payments from the bond proceeds. The District answered with a

general denial, and several affirmative defenses, including that there was no waiver

of the District's sovereign immunity, that United Somerset's claims were not ripe for

adjudication, and that the TCEQ had exclusive original jurisdiction over United

Somerset's claims.

Copper Lakes Development, L.P. filed a "Plea in Intervention and Application

for Declaratory Relief," alleging that it was the "developer" and owner of the land on

which United Somerset's facilities were constructed, and, therefore, it was entitled

to the payment from the bond proceeds sought by United Somerset. However,

Copper Lakes agreed with the District that proper jurisdiction was with the TCEQ. (2)

The District filed a plea to the jurisdiction, contending that the District is (1)

generally immune from all suits, except where there is a specific waiver of immunity,

and (2) immune from United Somerset's claims because the two people who signed

the agreement for the District were an insufficient number of board members required

to enter into a contract with United Somerset. The District also asserted that

jurisdiction to decide any dispute about reimbursement of construction costs between

a developer and a utility district lies with the TCEQ.

In response, United Somerset asserted that the trial court had jurisdiction

because (1) municipal utility districts have waived immunity specifically for breach

of contract actions and the agreement here is a valid contract, and (2) the TCEQ does

not have exclusive jurisdiction of a contract dispute between a developer and a

municipal utility district.

Ripeness

On appeal, the District asserts this case is not ripe for adjudication. However,

that assertion was not made to the trial court. We must (A) determine whether we

have jurisdiction to address the question of ripeness in this interlocutory appeal, and,

if we determine we have jurisdiction, then (B) decide if the lawsuits for breach of

contract and quantum meruit are ripe, and (C) decide if the lawsuit for declaratory

judgment is ripe.

A. Our Jurisdiction Over Interlocutory Appeal

At the outset, we address whether we have jurisdiction in this interlocutory

appeal to address the issue of ripeness, which is a matter asserted by the District on

appeal but was not presented in the District's plea to the jurisdiction before the trial

court.

We conclude we have jurisdiction in this interlocutory appeal to address

ripeness, even though that matter was not part of the plea to the jurisdiction. See City

of Houston v. Northwood Mun. Util. Dist. No. 1 , 73 S.W.3d 304, 313 (Tex.

App.--Houston [1st Dist.] 2001, pet. denied) (addressing merits of sovereign

immunity challenge, although only standing was raised in plea to jurisdiction before

trial court). In Northwood , we explained, "Although the City did not raise sovereign

immunity in the trial court, a governmental entity's immunity from suit is a

jurisdictional issue that may be raised for the first time on appeal." Id. (3)

We follow our precedent in Northwood . See id. We conclude that Northwood

correctly states the duty of the court of appeals to address issues affecting subject

matter jurisdiction, even when not raised in a plea to the jurisdiction. See Waco

Indep. Sch. Dist. v. Gibson , 22 S.W.3d 849, 851 (Tex. 2000). In Gibson , Waco

Independent School District filed a motion to dismiss for want of jurisdiction,

asserting that Gibson had failed to exhaust administrative remedies. Id. The trial

court granted the motion, in part, dismissing all but one of Gibson's claims. Id. On

interlocutory appeal, the school district asserted both ripeness and standing as

additional grounds to affirm the trial court's dismissal, although neither issue was

raised before the trial court. Id. The court of appeals declined to address either

ripeness or standing, concluding that because the school district failed to raise these

issues before the trial court they were not "properly preserved for our review."

Gibson v. Waco Indep. Sch. Dist. , 971 S.W.2d 199, 200 (Tex. App.--Waco 1998),

vacated by Waco Indep. Sch. Dist. v. Gibson , 22 S.W.3d 849 (Tex. 2000). The

supreme court concluded that the court of appeals erred by failing to reach the

ripeness and standing issues, noting that "because subject matter jurisdiction is

essential to the authority of a court to decide a case, it cannot be waived and may be

raised for the first time on appeal." Gibson , 22 S.W.3d at 851 (emphasis added). We

hold that we have jurisdiction in this interlocutory appeal to address ripeness, even

though that matter was not part of the plea to the jurisdiction before the trial court.

See id.

B. Ripeness of Breach of Contract and Quantum Meruit Claims

In its answer to the lawsuit, the District contends that United Somerset's claims

are not ripe for adjudication. That position is also urged in its reply brief, where the

District asserts that

United Somerset chose to sue the District before the District even had

approval for the bond application, claiming "anticipatory breach of the

contract." The District has not yet sold the bonds and received any bond

proceeds, so it has not yet made any reimbursement decision. Therefore,

it is not only premature for the TCEQ to make a ruling on whether the

District made the proper reimbursement decision; it is premature for

United Somerset to have even brought this lawsuit.

United Somerset responds that the contract dispute is ripe for adjudication. United

Somerset states,

Twenty years after United Somerset's construction of the utility

improvements the District submits its bond application, but still has not

made a decision as to who, United Somerset, Copper Lakes or neither,

is entitled to reimbursement out of the bond proceeds, nor if the

construction contract which was submitted to TCEQ is valid. If United

Somerset delayed in initiating this lawsuit until the District made its

determination that Copper Lakes, rather than United Somerset, was

entitled to the reimburseables and paid the bond proceeds to Copper

Lakes, then United Somerset would be without any effective remedy or

recourse to the disbursed funds. Therefore, United Somerset in

protecting its interest did not bring this lawsuit prematurely.

Ripeness is a component of subject matter jurisdiction. Gibson , 22 S.W.3d at

850 . "Ripeness, like standing, is a threshold issue that implicates subject matter

jurisdiction, and like standing, emphasizes the need for a concrete injury for a

justiciable claim to be presented." Id. (quoting Patterson v. Planned Parenthood of

Houston , 971 S.W.2d 439, 432 (Tex. 1998)). However, where standing concerns who

may bring an action, ripeness concerns when that action may be brought. Id. at 851.

In considering whether a claim is ripe, we consider whether, at the time a

lawsuit is filed, the facts are sufficiently developed "so that an injury has occurred or

is likely to occur, rather than being contingent or remote." Id. at 851-52 (quoting

Patterson , 971 S.W.2d at 442 )). A claim is not ripe if it concerns "uncertain or

contingent future events that may not occur as anticipated or may not occur at all."

Id. at 852 (quoting Patterson , 971 S.W.2d at 442 ). "A case is not ripe when

determining whether the plaintiff has a concrete injury depends on contingent or

hypothetical facts, or upon events that have not yet come to pass." Id. (citing

Patterson , 971 S.W.2d at 443 ). A threat of harm can constitute a concrete injury, but

the threat must be "direct and immediate" rather than conjectural, hypothetical, or

remote. Id. (citing Abbott Labs. v. Gardner , 387 U.S. 136, 152 , 87 S. Ct. 1507

(1967)).

At the time this lawsuit was filed in August 2005, the District had not

submitted its application for approval of its bonds to the TCEQ. Consequently, the

District had not received, and United Somerset had not been denied, any proceeds

from the sale of bonds. Whether the District will sell the bonds and whether it will

or will not reimburse United Somerset are "uncertain or contingent future events that

may not occur as anticipated or may not occur at all." See id. Thus, United Somerset

has not yet sustained a concrete injury, nor is that possible future injury imminent. (4)

See id. United Somerset acknowledges this in its response to the District's claims

that this controversy is not ripe, stating "the District . . . still has not made a decision

as to who . . . is entitled to reimbursement out of the bond proceeds . . . ."

We conclude that United Somerset's breach of contract and quantum meruit

claims are not ripe for adjudication. See Patterson , 971 S.W.2d at 443 (holding that

claim that depended on State's implementation of future plan was not ripe when State

had not adopted plan and plan's impact on federal funding had not been reviewed by

federal agency in charge of administering funds). We therefore hold that the trial

court lacks jurisdiction over the breach of contract and quantum meruit claims, and

we reverse the trial court's order denying the District's plea to the jurisdiction and

remand this cause to the trial court with instructions to dismiss United Somerset's

breach of contract and quantum meruit claims.

C. Ripeness of Declaratory Judgment Act Claim

The remaining claim filed by United Somerset is the declaratory judgment

action, which the District also challenges on the grounds of ripeness. "A declaratory

judgment action does not vest a court with the power to pass upon hypothetical or

contingent situations, or to determine questions not then essential to the decision of

an actual controversy, although such questions may in the future require

adjudication." Tex. Health Care Info. Council v. Seton Health Plan, Inc. , 94 S.W.3d

841, 846 (Tex. App.--Austin 2002, pet. denied); see also Empire Life Ins. Co. of Am.

v. Moody , 584 S.W.2d 855, 858 (Tex. 1979). A declaratory action need not concern

a present lawsuit but may include "threatened litigation in the immediate future that

seems unavoidable." See Peacock v. Schroeder , 846 S.W.2d 905, 912 (Tex.

App.--San Antonio 1993, no pet.). In other words, an action for declaratory

judgment is appropriate when the fact situation manifests the present "ripening seeds"

of a controversy. See Save Our Springs Alliance v. City of Austin , 149 S.W.3d 674,

683 (Tex. App.--Austin 2004, no pet.). Ripening seeds of a controversy "appear

where the claims of several parties are present and indicative of threatened litigation

in the immediate future which seems unavoidable, even though the differences

between the parties as to their legal rights have not reached the state of an actual

controversy." Tex. Dep't of Pub. Safety v. Moore , 985 S.W.2d 149, 154 (Tex.

App.--Austin 1998, no pet.) (quoting Ainsworth v. Oil City Brass Works , 271 S.W.2d

754, 761 (Tex. Civ. App.--Beaumont 1954, no writ)).

Here, the threatened controversy is not unavoidable. If, after the bonds are

sold, the District's board meets and decides to pay the reimbursables to United

Somerset, then this current lawsuit would become moot. "[H]ypothetical or

contingent situations" such as this one are not ripe for a declaratory judgment action.

See Patterson , 971 S.W.2d at 443 (holding that claim that depended on State's

implementation of future plan was not ripe when State had not adopted plan and

plan's impact on federal funding had not been reviewed by federal agency in charge

of administering funds); City of Anson v. Harper , 216 S.W.3d 384, 390-91 (Tex.

App.--Eastland 2006, no pet.) (holding that claims for declaratory judgment and

inverse condemnation based on city's construction and operation of landfill did not

present ripe controversy when city's application was still pending before TCEQ). We

therefore lack jurisdiction over United Somerset's declaratory judgment claim. See

Gibson , 22 S.W.3d at 850 (noting that ripeness is component of subject matter

jurisdiction). We reverse the trial court's order denying the District's plea to the

jurisdiction and remand this cause to the trial court with instructions to dismiss

United Somerset's declaratory judgment claim.

Conclusion

We reverse the trial court's order denying the District's plea to the jurisdiction

and remand this cause to the trial court with instructions to dismiss United Somerset's

claims against the District.

Elsa Alcala

Justice

Panel consists of Chief Justice Radack and Justices Alcala and Bland.

1. Section 51.014 provides,

(a) A person may appeal from an interlocutory order of a district

court, county court at law, or county court that:

. . . .

(8) grants or denies a plea to the jurisdiction by a

governmental unit . . . .

Tex. Civ. Prac. & Rem. Code Ann. § 51.014 (a)(8) (Vernon. 2008).

2. Copper Lakes filed an appellate brief stating that it "is not adverse" to the District.

Copper Lakes's brief urges on appeal that we reverse the trial court's order that denies

the District's plea to the jurisdiction. Copper Lakes agrees with the District's

assertion that the District has not waived sovereign immunity and that only the TCEQ

has jurisdiction.

3. The Dallas court of appeals criticized the Northwood case, emphasizing that the

interlocutory appeal statute is a narrow exception granting jurisdiction over

interlocutory appeals and must be construed strictly. City of Dallas v. First Trade

Union Sav. Bank , 133 S.W.3d 680, 687-88 (Tex. App.--Dallas 2003, pet. denied).

Thus, the Dallas court concluded that it only had jurisdiction to address matters

actually raised in the plea to the jurisdiction. Id. at 688 ; see Tex. Civ. Prac. & Rem.

Code Ann. § 51.014 (a)(8) (providing for interlocutory appeal of order that "grants

or denies a plea to the jurisdiction by a governmental unit"). See also Kinney County

Groundwater Conservation Dist. v. Boulware , 238 S.W.3d 452, 461 (Tex. App.--San

Antonio 2007, no pet.) (citing and following First Trade Union Savings Bank ); Austin

Indep. Sch. Dist. v. Lowery , 212 S.W.3d 827, 834 (Tex. App.--Austin 2006, pet.

denied) (same); Brenham Hous. Auth. v. Davies , 158 S.W.3d 53, 61 (Tex.

App.--Houston [14th Dist.] 2005, no pet.) (same).

4. On appeal, United Somerset relies on one of the District's answers to an interrogatory

to show that injury is imminent. The District's answer states,

The District is now faced with competing claims for the payment of the

reimbursables and it will now be up to the court (or the agreement of all

the competing parties) to determine who, if anyone, owns the right to

receive the reimbursables.

However, United Somerset does not provide a record citation for this interrogatory

answer, and it does not appear in the record before this Court. Therefore, we may not

consider it. See Till v. Thomas , 10 S.W.3d 730, 733 (Tex. App.--Houston [1st Dist.]

1999, no pet.) (stating that appellate court cannot consider documents that do not

appear in record).