State of Texas/Operating Contractors ABS Emissions, Inc. v. Operating Contractors/State of Texas

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-97-00497-CV

State of Texas, et al./Operating Contractors ABS Emissions, Inc., et al., Appellants

v.

Operating Contractors/State of Texas, et al., Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. 95-14621, HONORABLE JOSEPH H. HART, JUDGE PRESIDING

Appellant, the State of Texas, et al. (the "State"), and appellee, the Operating

Contractors (the "OCs"), et al., bring cross appeals from the judgment of the trial court awarding

the OCs approximately $16 million in damages under the Texas and United States constitutions

and approximately $7 million in attorney's fees under the Uniform Declaratory Judgment Act (the

UDJA") (1) due to the State's alleged unconstitutional repeal of a centralized automobile emissions

testing program. We will reverse and render judgment that the OCs take nothing.

BACKGROUND

In response to amendments made by Congress to the Federal Clean Air Act in 1990,

the United States Environmental Protection Agency (the "EPA") mandated periodic testing of

vehicle exhaust emissions in certain geographic areas having high levels of air pollution. See 42

U.S.C. § 7401 (1994). In 1992, the EPA designated three such "non-attainment areas" in the state

of Texas: the Dallas/Fort Worth, Houston/Beaumont/Port Arthur, and greater El Paso areas. To

encourage compliance with the new federal air pollution standards, Congress conditioned the

availability of federal highway funds on the actions of state governments in bringing state

emissions testing programs into compliance with EPA guidelines. See 42 U.S.C. §§ 7509 ,

7410(m) (1994).

Accordingly, the Texas Legislature in 1991 authorized the Texas Air Control

Board, the predecessor to the Texas Natural Resource Conservation Commission (the

"TNRCC"), (2) to modify the existing state emissions testing program to better comply with the new

EPA guidelines. (3) The TNRCC designed a program whereby vehicle registration would be

dependent upon successful emissions testing performed by a centralized testing facility equipped

with high-technology equipment. The TNRCC submitted the proposal, or state implementation

plan ("SIP"), to the EPA for approval. Prior to formal EPA approval, the 1993 Legislature

provided express authority to the TNRCC to contract with private entities to implement and

operate the new program. See Tex. Health & Safety Code Ann. § 382.037 (f) (West 1992); Act

of May 24, 1993, 73d Leg., R.S., ch. 547, § 2. With EPA approval still pending, the TNRCC

contracted with Tejas Testing One and Tejas Testing Two (collectively "Tejas") to manage the

implementation and operation of the new program in two of the three non-attainment areas:

Dallas/Fort Worth and Houston/Beaumont/Port Arthur. Tejas signed two identical Emissions

Contracts (collectively the "Emissions Contract") with the State which established the

responsibilities of the two contracting parties and covered a period of seven years. The EPA

formally approved the Texas plan a year later.

The structure of the new program required Tejas, as the Managing Contractor, to

construct and staff numerous emissions testing facilities in the Dallas/Forth Worth and

Houston/Beaumont/Port Arthur areas. Pursuant to the Emissions Contract, Tejas hired local OCs

to run each individual testing facility. Each of the forty-three OCs signed both a lease with Tejas

leasing the testing facility from Tejas, and a Service Agreement with Tejas establishing the

obligations and responsibilities of the two contracting parties. (4) The OCs signed no contract

directly with the State.

The Emissions Contract between Tejas and the State and the Service Agreement

between each OC and Tejas contained exculpatory clauses designed to deal with the possibility of

an early termination of the new emissions testing program. The Emissions Contract contained a

provision stating:

9.3 Early Termination of the Contract without Fault by Managing Contractor.

The TNRCC may terminate this Contract in the absence of fault by the Managing

Contractor . . . . if the Program is repealed or substantially amended . . . . If this

contract is terminated by the TNRCC prior to the Normal Termination Date for any

such reason, the TNRCC agrees, to the extent funds are appropriated by the

Legislature of the State of Texas for the express purpose of this section 9.3, to pay

to the Managing Contractor the compensation described in this section 9.3 for

property used or intended to be used in the performance of this Contract. The

TNRCC agrees to take all steps necessary to request such funding from the

Legislature. (emphasis added).

The Service Agreement likewise contained a clause addressing the early termination of the

program:

31. Termination of the Emissions Contract or the Lease(s):

OC recognizes that both the TNRCC and Tejas have the right under the

Emissions Contract to terminate the Emissions Contract prior to the date on which

this agreement is to terminate in accordance with section 8 of this Agreement. In

the event (i) the TNRCC or Tejas terminates the Emissions Contract, or (ii) the

Lease(s) terminates, then this Agreement shall automatically terminate without

further action or notice . Termination of this Agreement pursuant to this section 31

of this Agreement shall immediately and automatically terminate the Lease(s). OC

agrees that it shall have no claim for damages against Tejas or any other person,

including but not limited to the TNRCC and Tejas' lessors, mortgagees, lenders and

assignees, in the event the TNRCC or Tejas terminates the Emissions Contract.

(emphasis added).

Tejas and the OCs made significant investments of time and money to ensure that the emissions

testing program would be operational at the agreed time. In return for this investment, Tejas stood

to recoup its costs and to gain an estimated $77 million in profits over the seven year term of the

Emissions Contract. Testimony by one OC at trial estimated each OC's annual salary over the

seven year period to be $140,000. On January 2, 1995, the new emissions testing program

became operational.

By the opening of the 1995 Legislative Session, political support for the new

centralized emissions testing program had begun to erode. In addition, the legislature may have

been responding to rumors that Congress was going to relax the EPA emissions testing standards. (5)

Whatever the reason, after only four weeks of operation, the Texas Legislature placed a 90-day

moratorium on the program. See Tex. S.B. 19, Act of Jan. 31, 1995, 74th Leg., R.S., ch. 1.

Senate Bill 19 ("S.B. 19") suspended operation of the program, and also appropriated $8.8 million

in order to make payments to the OCs for salaries, bonuses, and maintenance of the stations during

the moratorium. Following the 90-day moratorium, the legislature passed laws permanently

ending the centralized emissions testing program and reestablishing a decentralized program. (6) See

Tex. S.B. 178, Act of May 1, 1995, 74th Leg., R.S., ch. 34. Senate Bill 178 ("S.B. 178") further

provided that:

SECTION 13. Any change or amendment to the vehicle emissions inspection and

maintenance program allowed or contemplated by this Act, including any change

or amendment to that program negotiated and agreed to by the governor:

(1) is an amendment or repeal of that program under any contract for

implementation of that program ;

(2) does not constitute a default by the state under a contract for implementation of

that program;

(3) is not a waiver of the state's defenses available under law or under any existing

contract for the implementation of that program; and

(4) does not waive the state's sovereign immunity or any defenses available to the

state.

Id. (emphasis added). The OCs were reimbursed by Tejas for all start-up costs incurred during

the development and operation of the ill-fated program.

The TNRCC made some effort to redesign the program with Tejas to fit the new

political desire for decentralization, but these efforts failed. The TNRCC estimated Tejas's losses

and petitioned the legislature for the return of that investment. Pursuant to S.B.178, the TNRCC

designed a new emissions testing program and submitted it to the EPA in June 1996. The EPA

approved the new program in July 1997. See 62 Fed. Reg. 37138 -44, 40 C.F.R. § 52.2310

(1997).

After filing for bankruptcy protection in September, Tejas filed suit in district court

against the State in November 1995. The OCs intervened. Both Tejas and the OCs challenged

the state legislation ending the emissions testing program on a number of grounds, including both

constitutional and contractual claims. The trial began in January 1997, and final judgment was

signed on April 21, 1997. The trial court found that S.B. 178 amounted to an unconstitutional

impairment of contract under both the Texas and United States Constitutions, and an

unconstitutional taking and unconstitutional retroactive law under the Texas Constitution. See

U.S. Const. art. I, § 10; Tex. Const. art. I, §§ 16, 17. The trial court, however, found against

Tejas and the OCs on their breach of contract claims. The trial court awarded Tejas nearly $170

million in damages, interest, and attorney's fees. The trial court awarded the OCs approximately

$23 million in damages and attorney's fees. The monetary awards represented lost profits

estimated over the entire seven-year term contemplated by the Emissions Contract and Service

Agreement. After entry of the final judgment, the State settled with Tejas. The dispute between

the OCs and the State was not settled, and is now before this Court on cross-appeals. The State,

in several points of error, appeals the judgment awarding the OCs $23 million. The OCs, in four

points of error, appeal the trial court's failure to include pre-judgment interest in the award of

damages, and appeal the trial court's failure to recognize their contract claims as an alternative

basis of recovery.

STANDARD OF REVIEW

The ultimate determination of whether a statute acts in violation of the constitution

is one of law, and thus is reviewed de novo . See City of College Station v. Turtle Rock Corp. , 680

S.W.2d 802, 804 (Tex. 1984).

DISCUSSION

We begin by examining the OCs' strongest argument: that S.B.178 comprised an

unconstitutional taking under the Texas Constitution. The OCs argue that their interest in the

Service Agreement rises to the level of a vested right; that each OC was essentially awarded a

franchise by the State. Furthermore, by virtue of the State's legislative and administrative

interference with the emissions program, these vested rights were "taken." The State argues that

the Service Agreement entitled each OC to only an expectancy that the law would remain the

same, and that there can be no taking because the OCs possessed no vested right. The State

contends that the protections of both the Texas and U.S. Constitutions extend only to vested

rights. (7) Thus, the threshold question involves whether the OCs can claim a vested right.

Vested Rights

The State attacks the OCs' claim of a vested right in the continuation of the

centralized emissions testing program. The line of the State's argument proceeds as follows: (1)

the State, as a sovereign, cannot be sued for money damages without its consent, except for a

takings claim; (8) (2) because the State has not given consent, the OCs can only recover under a

takings claim; (3) the constitutional safeguard of "no taking without just compensation" present

in the Texas and U.S. Constitutions refers only to vested property rights; (4) the OCs had no

vested rights in the State's continuation of its emissions testing policy; (5) therefore, the OCs

cannot recover.

Before analyzing the State's argument, it is important initially to distinguish the

nature of the right at issue. Texas has long recognized that, pursuant to article one, section

seventeen of the Texas Constitution, a governmental taking of real property requires "just

compensation." A landowner is subject to the eminent domain power of the State, but the State

must award just compensation for the taking of property. See Green Int'l, Inc. v. State , 877

S.W.2d 428, 433 (Tex. App.--Austin 1994, writ dism'd); see also Long Island Water-Supply Co.

v. City of Brooklyn , 166 U.S. 685, 689 (1897) ("All of private property is held subject to the

demands of a public use. The constitutional guaranty of just compensation is not a limitation of

the power to take, but only a condition of its exercise."). Conversely, state courts have generally

denied recovery from the State for contract damages advanced under the rubric of a constitutional

takings claim. See Green , 877 S.W.2d at 433 ; Corpus Christi v. Acme Mechanical Cont. , 736

S.W.2d 894, 903-04 (Tex. App.--Austin 1987, writ denied) ("The concept of a taking as a

compensable claim has limited application to the relative rights of the parties when those rights

have been voluntarily created by contract."). (9) In a contractual arrangement, "whenever the

government acts within a color of right to take or withhold property, . . . the government cannot

be said to have effected a taking because there was no intent to take, only an intent to act within

the scope of the contract." (10) Green , 877 S.W.2d at 434 . The State argues that S.B. 178 concerns

the proper exercise of the State's police power, and therefore the State acted within a color of right

under the contract. Thus, without a vested right protected by the constitution, the OCs cannot

establish the necessary intent for their takings claim.

The OCs, however, advance the theory that their contractual interest in the

emissions testing program itself amounted to a vested right through the operation of the Service

Agreement in conjunction with the Emissions Contract, and that this vested contractual right

deserves constitutional protection similar to real property. The OCs further argue that S.B. 178's

interference with the performance of the Service Agreement and Emissions Contract amounted to

a taking; in other words, that governmental interference with their alleged vested rights can be

construed as a governmental taking rather than a mere breach of contract. The OCs cite federal

law to support this position. See, e.g. , United States Trust Co. v. New Jersey , 431 U.S. 1 (1977);

Lynch v. United States , 292 U.S. 571 (1934).

In United States Trust , the states of New Jersey and New York attempted to repeal

an earlier covenant with Port Authority bondholders that limited the ability of the Port Authority

of New York and New Jersey to subsidize rail passenger transportation from bond revenues and

reserves. The Supreme Court of the United States held that the covenant created a contractual

relationship between the states and the bondholders, and that the statutory repeal violated the

contract clause of the United States Constitution by diminishing the pledged revenues and reserves.

United States Trust , 431 U.S. at 32 . In Lynch , the United States Congress attempted to repeal the

yearly renewable term insurance policies established in the War Risk Insurance Act. The Supreme

Court of the United States held that Congress lacked the power to extinguish the contractual rights

of beneficiaries under the yearly renewable term policies, although it had the power to take away

the remedy. Lynch , 292 U.S. at 582-83 .

We need not decide whether these federal cases compel the conclusion that contract

rights can rise to the level of a vested right deserving constitutional protection because the situation

in the instant cause is distinguishable from the cases relied upon by the OCs. The covenant at

issue in United States Trust constituted an explicit contract between the states and the Port

Authority bondholders, and the statutory language of the covenant purposefully invoked the

constitutional protection of the contract clause. United States Trust , 431 U.S. at 18 . Similarly,

in Lynch , the War Risk Insurance Act authorized contracts with individual insureds who paid

monthly premiums as consideration for the government's obligation. Lynch , 292 U.S. 575 -76.

In contrast, the OCs have no contract with the State.

Furthermore, both United States Trust and Lynch speak to situations where the

legislation at issue primarily intended to eliminate or diminish the financial obligations of the

governmental entity. The legislation in the instant cause had as its purpose the exercise of the

police power of the State to regulate air pollution, and affected the State's financial obligations

only tangentially. (11) This distinction between the instant cause and the cited authority arises from

the applicable constitutional power under which each contested piece of legislation was passed;

"the police power and the power of eminent domain were among those that could not be

'contracted away,' but the State could bind itself in the future exercise of the taxing and spending

powers." United States Trust , 431 U.S. at 23-24 . Thus, the Supreme Court has struck down

legislation that impaired existing contracts intending primarily to diminish the government's

financial obligations; it has upheld legislation which impaired existing contracts, but which

exemplified a legitimate exercise of the State's police power. See Home Building & Loan Ass'n

v. Blaisdell , 290 U.S. 398 (1934). Because the OCs had no privity of contract with the State, and

because S.B. 178 flowed from the State's inherent police power, we find the federal precedent

established by United States Trust and Lynch to be inapposite.

The OCs can find support in Texas case law for the proposition that the

government's interference with a franchise implicates the takings clause and requires payment of

just compensation. A franchise is a special privilege conferred by government upon an individual

or organization which does not belong to the citizenry at large, and in which activity one otherwise

could not engage without the franchise. See West Tex. Util. Co. v. City of Baird , 286 S.W.2d

185, 187 (Tex. Civ. App.--Eastland 1956, writ ref'd n.r.e.). Under Texas law, a franchise

impresses its owner with vested rights. See Brazosport Sav. & Loan Ass'n v. American Sav. &

Loan Ass'n , 342 S.W.2d 747 (Tex. 1961). However, not every grant of an exclusive privilege

constitutes a franchise. See Johnson v. Austin , 674 S.W.2d 894, 897 (Tex. App.--Austin 1984,

no writ).

Franchises under Texas case law generally take the form of utilities, or other

monopolies, created to further the public interest. See Texas Power & Light v. City of Garland ,

431 S.W.2d 511 (Tex. 1968) (electric utility); Brazosport Sav. & Loan , 342 S.W.2d at 750

(savings and loan associations); City of Jacksonville v. General Tel. Co. , 538 S.W.2d 253 (Tex.

App.--Tyler 1976, writ ref'd n.r.e.) (telephone utility). Moreover, there must exist a contract

between grantor and grantee which is mutually binding and enforceable. City of Jacksonville , 538

S.W.2d at 255 . Whether an instrument, ordinance, or contract amounts to a franchise depends

largely upon the manner of its performance in compliance with its terms. See City of Wichita Falls

v. Kemp Hotel Operating Co. , 162 S.W.2d 150, 153 (Tex. Civ. App.--Fort Worth), aff'd, 170

S.W.2d 217 (Tex. 1942). There exists strong evidence that the State granted Tejas a franchise to

manage emissions testing facilities under the terms of the Emissions Contract. That issue,

however, is not before this Court.

The OCs would like to argue that they also were granted individual franchises with

the State to run each particular emissions testing station. We disagree. As previously established,

the OCs signed no contract directly with the State. Their inclusion in the emissions testing

program came about only through an intermediary: Tejas. One who claims a franchise right or

privilege in derogation of the common rights of the public must prove his title thereto by a grant

clearly and definitely expressed, and cannot enlarge it by equivocal or doubtful provisions or

probable inferences. Incorporated Town of Hempstead v. Gulf States Util. Co. , 206 S.W.2d 227,

230 (Tex. 1947). The grant of a franchise is construed in favor of the public, and, if the language

used is ambiguous, the grant is to be construed in favor of the grantor and against the grantee.

Id. ; see also 37 C.J.S. Franchises , § 19 (1997); 41 Tex. Jur. 3d Franchises , § 7 (1998). Nothing

passes by implication by the grant of a franchise except what may be necessary to give effect to

the obvious intent of the grant. Id. The Emissions Contract refers to the OCs only in the general

terms necessary to outline the program and to define the obligations of Tejas to staff and maintain

the emissions testing program. There is no language ambiguous or otherwise conferring franchises

on the OCs. Thus, any franchise granted by the State was granted exclusively to Tejas. We hold

that the OCs held no franchise.

Because the OCs cannot claim franchisee status, their interest in the emissions

testing program did not rise to the level of a vested right. Because the OCs did not have vested

rights in the continuation of the emissions testing program, they suffered no taking. Although the

lack of any vested property rights in the continuation of the testing program is itself sufficient to

reverse the trial court's award of damages based on constitutional violations, we will also discuss

the Service Agreement signed by the OCs that similarly restricts the ability of the OCs to recover

damages.

The Exculpatory Clause

The OCs could acquire no franchise because the OCs signed no contract with the

State. Therefore, the OCs' formal relationship with the State existed only to the extent that the

Service Agreement between Tejas and the State provided for their role in the centralized emissions

testing program. Because that relationship was created by the Service Agreement, the OCs'

relationship with the State terminated when that agreement was terminated.

The State advances the argument that the language of S.B. 178 itself acted to

terminate the emissions testing program and the contractual relationship between Tejas and the

State. Consequently, S.B. 178 similarly activated the exculpatory clause in the Service

Agreement. The State argues that the exculpatory clause in the Emissions Contract, entitled Early

Termination of the Contract without Fault by Managing Contractor , allowed the State to terminate

the contract with Tejas without fault should the program be "repealed or substantially amended."

The State further argues that the language of S.B. 178, specifically Section 13(1), states that the

bill acts as "an amendment or repeal of that program under any contract for implementation of that

program"; this speaks directly to the Emissions Contract and actuates the termination clause.

Thus, according to the State, the emissions testing program terminated at the time the legislature

passed S.B. 178. And, by virtue of the language in the Service Agreement that "[i]n the event the

TNRCC or Tejas terminates the Emissions Contract . . . then this Agreement shall automatically

terminate without further action or notice . . . ," and the "OC agrees that it shall have no claim

for damages against Tejas or any other person, including but not limited to the TNRCC . . . ,"

the OCs have no legal recourse.

The OCs agree that the legislature intended with its language in S.B. 178 to repeal

the program, but claim that the legislature lacked the authority to so act. The OCs argue that once

the original SIP was approved by the EPA as a means of enforcing federal environmental

standards, only a repeal or substantial amendment approved by the EPA could terminate the

contract and end the emissions testing program. The OCs cite Friends of the Earth v. Carey , 535

F.2d 165 (2nd Cir. 1976), (12) for the proposition that a delegated program retains its legal force

despite ongoing negotiations between the EPA and a state to amend the program. The trial court

agreed with the OCs and found that the emissions testing program could not have been legally

repealed without formal EPA approval, and therefore the termination clause was not actuated by

the language in S.B. 178. We disagree.

We find Friends of the Earth to be unpersuasive. The position of the OCs implies

that federal Supremacy Clause doctrine (13) compels the legislature to refrain from action until

obtaining new approval by the EPA. Consideration under the Supremacy Clause begins with the

basic assumption that Congress did not intend to displace state law. Maryland v. Louisiana , 451

U.S. 725, 746 (1981). A finding that state legislation violates the supremacy clause requires a

finding of at least one of the following: (1) the subject matter of the state law has been preempted

by Congress; (2) the state law prevents the achievement of a federal objective; or (3) there is an

actual conflict between the state and federal law. See Maryland , 451 U.S. at 746-47 . In allowing

states to regulate delegated environmental programs according to programs developed by state

legislatures, the SIP program itself provides evidence that Congress has not preempted state

regulation of air pollution. Furthermore, before commencement of trial, Congress passed

legislation preventing the EPA from requiring states to adopt centralized testing programs. See

National Highway System Designation Act of 1995, § 348 (P.L. 104-59, November 28, 1995).

Thus, the federal objective was in harmony with the State's objective in amending the SIP.

Finally, the State petitioned the EPA for approval of a substantially amended SIP, which would

comply with new federal guidelines. Formal approval of the amended SIP by the EPA occurred

in July 1997. 62 Fed. Reg. 37138 -44, 40 C.F.R. § 52.2310 (1997). Thus, there was neither an

actual conflict between state law and federal law, nor was there any interference with a federal

objective. The Supremacy Clause did not block S.B. 178's repeal of the centralized emissions

testing program.

The language of S.B. 178 could not have been clearer in its intent to repeal the

centralized emissions testing program. The language of both the Emissions Contract and the

Service Agreement clearly contemplates just such an eventuality. The Service Agreement signed

by each OC even included a waiver of the legal right to sue for damages. "[T]he right of property

is subject to the reasonable exercise of the police power of the State." See State v. Texas City , 295

S.W.2d 697, 704 (Tex. Civ. App.--Galveston), aff'd, 303 S.W.2d 780 (Tex. 1956). The

establishment of an emissions testing program falls squarely within the legitimate public purpose

of regulating air quality. Therefore, S.B. 178 constituted a reasonable exercise of the police

power of the legislature. As such, its repeal of the emissions testing program terminated both the

Emissions Contract and the Service Agreement.

The OCs' Constitutional Claims

Applying the above analysis to the trial court's specific findings, we must reverse

the judgment. Because the OCs lack a contract with the State, their interest in the continuation

of the emissions testing program cannot be characterized as a vested property right, either under

the federal authority cited by the OCs, or under an analysis of Texas franchise law. Without a

vested right, the OCs cannot claim constitutional protection under either federal or state takings

doctrine. Additionally, the contracts themselves compel the conclusion that any rights held by the

OCs ended when the legislature terminated the program. Furthermore, because S.B. 178 was a

valid exercise of the State's police power, "it does not matter that legislation appropriate to that

end 'has the result of modifying or abrogating contracts already in effect.'" Blaisdell , 290 U.S.

at 435 . Under these circumstances there could be no unconstitutional impairment of contract.

Sovereign Immunity

The OCs claim the trial court erred in not finding in their favor regarding two

alternative bases for the damage award: (1) that the Emissions Contract and the Service

Agreement should be read together as "one contract," and that the TNRCC breached that contract;

and (2) that the OCs were third party beneficiaries of Tejas's Emissions Contract with the State.

The OC's must construct a theory of contractual recovery based upon the Emissions Contract due

to the waiver clause included in the Service Agreement (that the OCs shall have no claim for

damages should the Emissions Contract be terminated). Both of these theories, while novel, share

the same fatal flaw. The Texas Supreme Court has recently held that, while the State waives its

immunity from liability upon contracting with a private entity, the State retains its immunity from

suit unless the legislature expressly waives its sovereign immunity. See Federal Sign v. Texas S.

Univ. , 951 S.W.2d 401, 408-09 (Tex. 1997). "It is the [l]egislature's sole province to waive or

abrogate sovereign immunity." Id. at 409 . S.B. 178 contains language expressly stating that the

legislation repealing the emissions testing program "does not waive the state's sovereign immunity

or any defenses available to the state." Thus, the legislature retains its immunity from any

contractual claims advanced by the OCs. (14) We agree with the trial court and overrule the OCs'

two points of error regarding their contractual claims.

CONCLUSION

The OCs maintained no vested right in the continuation of the centralized emissions

testing program. Without a vested right, the OCs could not claim constitutional protection.

Furthermore, sovereign immunity and the OCs' explicit waiver barred any contractual claim

against the State. We therefore reverse the trial court's award of damages. Because we reverse

the trial court's award of damages, we fail to reach the OCs' complaint regarding prejudgment

interest. Similarly, because we render judgment that the OCs take nothing, we need not address

the State's appeal of the trial court's award of attorney's fees.

Mack Kidd, Justice

Before Justices Kidd, B. A. Smith and Powers *

Reversed and Rendered

Filed: January 28, 1999

Publish

* Before John E. Powers, Senior Justice (retired), Third Court of Appeals, sitting by assignment.

See Tex. Gov't Code Ann. § 74.003 (b) (West 1998).

1. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1997).

2. For convenience, we will refer to both the Texas Air Control Board and the TNRCC

collectively as the TNRCC.

3. Prior to 1990, Texas had a decentralized emissions testing program; any qualified auto

repair shop or gas station could perform emissions testing.

4. The relevant obligations of each OC under the terms of the Service Agreements were

identical. For convenience, we refer to the agreements collectively as the "Service Agreement."

5. Congress did relax emissions testing standards in November 1995: "The Administrator of

the [EPA] shall not require adoption or implementation by a State of a test-only I/M 240 enhanced

vehicle inspection and maintenance program as a means of compliance with section 182 or 187 of

the Clean Air Act, but the [EPA] may approve such a program if a State chooses to adopt the

program as a means of compliance with such section." National Highway System Designation Act

of 1995, § 348 (P.L. 104-59, November 28, 1995).

6. S.B. 178 provided: "The Commission may not require in any non-attainment area an

emissions testing technology or procedure that is more stringent than a technology or procedure

used or in place . . . before January 1, 1994."

7. See City of Dallas v. Trammell , 101 S.W.2d 1009, 1013-15 (Tex. 1937) ("A right, to be

within the protection of the Constitution, must be a vested right. It must be something more than

a mere expectancy based upon an anticipated continuance of an existing law.") (citing Dodge v.

Board of Educ. of City of Chicago , 5 N.E.2d 84 (Ill. 1936)); see also National Carloading Corp.

v. Phoenix-El Paso Express , 176 S.W.2d 564, 569-70 (Tex. 1943) ("[P]laintiff does not possess

such a vested right as to come within the inhibition of the Fifth Amendment. Such a right must

be something more than a mere expectation based upon an anticipated continuance of the existing

law. It must have become a title, legal or equitable, to the present or future enjoyment of

property, or to present or future enforcement of a demand, or a legal exemption from the demand

of another.").

8. See Federal Sign v. Texas S. Univ. , 951 S.W.2d 401, 408 (Tex. 1997).

9. We are mindful that the OCs cite Texas Parks & Wildlife Deptartment v. Callaway , 971

S.W.2d 145 (Tex. App.-- Austin 1998 , no pet.) for the proposition that contractual rights can be

the subject of a governmental taking under Texas law. We note, however, that Callaway

concerned an easement, and involved the State's affirmative actions which changed the character

of the waterway adjacent to Callaway's property from private to public. Thus, Callaway does not

support the proposition that mere contract rights are protected by the takings clause of the Texas

constitution. Moreover, easements, as opposed to the contracts at issue here, touch and concern

real property.

10. To recover under a takings claim, claimant must establish: (1) the State intentionally

performed certain acts; (2) which resulted in a "taking" of property; (3) for public use. Green

Int'l, Inc. v. State , 877 S.W.2d 428, 434 (Tex. App.-- Austin 1994 , writ dism'd).

11. The monies appropriated by S.B. 19 for the OCs during the moratorium imply that the

legislature's purposes were other than the avoidance of any financial obligation.

12. "Since abatement and control of air pollution through systematic and timely attainment of

the air quality standards is Congress' overriding objective, a plan, once adopted by a state and

approved by the EPA becomes controlling and must be carried out by the state." Friends of the

Earth v. Carey , 535 F.2d 165, 170 (2nd Cir. 1976).

13. The Supremacy Clause provides that "[t]his Constitution, and the Laws of the United States

which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . . . any

Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const. art.

VI, cl. 2.

14. The OCs attempt to interpret Texas Health & Safety Code Ann. § 382.032 as a waiver by

the State of its immunity from suit in this case. See Tex. Health & Safety Code Ann. § 382.032

(West Supp. 1999) . We disagree. Section 382.032 allows suit in a Travis County district court

by a person "affected by a ruling, order, decision or other act of the Board or of the Executive

Director." Id. This section, however, contemplates rulings of a regulatory nature, not of a

contractual nature.

/EM> Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1997).

2. For convenience, we will refer to both the Texas Air Control Board and the TNRCC

collectively as the TNRCC.

3. Prior to 1990, Texas had a decentralized emissions testing program; any qualified auto

repair shop or gas station could perform emissions testing.

4. The relevant obligations of each OC under the terms of the Service Agreements were

identical. For convenience, we refer to the agreements collectively as the "Service Agreement."

5. Congress did relax emissions testing standards in November 1995: "The Administrator of

the [EPA] shall not require adoption or implementation by a State of a test-only I/M 240 enhanced

vehicle inspection and maintenance program as a means of compliance with section 182 or 187 of

the Clean Air Act, but the [EPA] may approve such a program if a State chooses to adopt the

program as a means of compliance with such section." National Highway System Designation Act

of 1995, § 348 (P.L. 104-59, November 28, 1995).

6. S.B. 178 provided: "The Commission may not require in any non-attainment area an

emissions testing technology or procedure that is more stringent than a technology or procedure

used or in place . . . before January 1, 1994."

7. See City of Dallas v. Trammell , 101 S.W.2d 1009, 1013-15 (Tex. 1937) ("A right, to be

within the protection of the Constitution, must be a vested right. It must be something more than

a mere expectancy based upon an anticipated continuance of an existing law.") (citing Dodge v.

Board of Educ. of City of Chicago , 5 N.E.2d 84 (Ill. 1936)); see also National Carloading Corp.

v. Phoenix-El Paso Express , 176 S.W.2d 564, 569-70 (Tex. 1943) ("[P]laintiff does not possess

such a vested right as to come within the inhibition of the Fifth Amendment. Such a right must

be something more than a mere expectation based upon an anticipated continuance of the existing

law. It must have become a title, legal or equitable, to the present or future enjoyment of

property, or to present or future enforcement of a demand, or a legal exemption from the demand

of another.").

8. See Federal Sign v. Texas S. Univ. , 951 S.W.2d 401, 408 (Tex. 1997).

9. We are mindful that the OCs cite Texas Parks & Wildlife Deptartment v. Callaway , 971

S.W.2d 145 (Tex. App.-- Austin 1998 , no pet.) for the proposition that contractual rights can be

the subject of a governmental taking under Texas law. We note, however, that Callaway

concerned an easement, and involved the State's affirmative actions which changed the character

of the waterway adjacent to Callaway's property from private to public. Thus, Callaway does not

support the proposition that mere contract rights are protected by the takings clause of the Texas

constitution. Moreover, easements, as opposed to the contracts at issue here, touch and concern

real property.

10. To recover under a takings claim, claimant must establish: (1) the State intentionally

performed certain acts; (2) which resulted in a "taking" of property; (3) for public use. Green

Int'l, Inc. v. State , 877 S.W.2d 428, 434 (Tex. App.-- Austin 1994 , writ dism'd).

11. The monies appropriated by S.B. 19 for the OCs during the moratorium imply that the

legislature's purposes were other than the avoidance of any financial obligation.

12. "Since abatement and control of air pollution through systematic and timely attainment of

the air quality standards is Congress' overriding objective, a plan, once adopted by a state and

approved by the EPA becomes controlling and must be carried out by the state." Friends of the

Earth v. Carey , 535 F.2d 165, 170 (2nd Cir. 1976).

13. The Supremacy Clause provides that "[t]his Constitution, and the Laws of the United States

which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . . . any

Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U