City of North Richland Hills v. Home Town Urban Partners, Ltd. and Arcadia Land Partners 25, Ltd.

02-10-224 & 236-CV REH

COURT OF APPEALS

SECOND DISTRICT OF TEXAS

FORT WORTH

NO. 02-10-00224-CV

City of North Richland Hills

APPELLANT

V.

Home Town Urban Partners, LTD.

and Arcadia Land Partners 25, Ltd.

APPELLEES

----------

FROM THE 96th District Court

OF Tarrant COUNTY

----------

AND

NO. 02-10-00236-CV

City of North Richland Hills

APPELLANT

V.

Arcadia Land Partners 25, Ltd. AND ARCADIA HOLDINGS

APPELLEES

----------

FROM THE 67TH District Court

OF Tarrant COUNTY

----------

OPINION ON REHEARING

----------

We

have considered Appellees’ motion for rehearing of our February 17, 2011

opinion and Appellant’s response. We grant the motion for rehearing, and

we withdraw

our February 17, 2011 opinion and judgments and substitute the following.

I. Introduction

In

these consolidated interlocutory appeals, the City of North Richland Hills (the

City) challenges the trial courts’ respective denials of the City’s partial

pleas to the jurisdiction in the lawsuits filed against it by Appellees

Hometown Urban Partners, Ltd. (Urban Partners), Arcadia Land Partners 25, Ltd.,

and Arcadia Holdings (collectively, Arcadia). [1] The City contends that

governmental immunity protects it from the breach of contract claims, two of

the declaratory judgment claims, and one of the inverse condemnation claims

asserted against it by Appellees. The City also contends that Urban Partners

does not have standing to challenge a zoning amendment based on lack of

statutorily required notice. We affirm in part and reverse in part.

II.

Background

A.

Factual Background [2]

This

case concerns the Home Town Development (the Development) in the City of North

Richland Hills, Texas. Arcadia was the original developer, and Urban Partners

owns real estate within the Development.

In

1999, the City adopted a regulating plan to zone the area within the

Development, approved a preliminary plat for the Development, and created a Tax

Increment Financing (TIF) District to capture increased property tax valuations

generated by the Development. The regulating plan and preliminary plat

included a general street layout, development plan, and sites for a library and

a recreation center.

In

2001, the City and Arcadia entered into the Home Town North Richland Hills

Comprehensive Development Agreement (the Development Agreement). Among other

things, the Development Agreement set forth the City’s and Arcadia’s

responsibilities for the design, construction, and eventual acceptance by the

City of public improvements in the Development. The public improvements included

water and sewer improvements, drainage improvements, irrigation, streets,

street signs and lights, parks, and landscaping. The Development Agreement

also provided that if certain conditions were met, Arcadia would convey a tract

of land to the City for construction of a recreation center and would grant the

City an easement for 400 parking spaces (to be constructed by the City) adjacent

to the proposed site.

In

2004, the City adopted an amended preliminary plat for the Development. The

amended plat included a new elementary school site but retained the original

sites for the library and recreation center. The library was built and opened

in accordance with the preliminary plat, regulating plan, and Development

Agreement, but the recreation center has not been constructed within the

Development because the City purchased a ten-acre tract outside the Development

to construct the recreation center. Appellees allege that the City breached

the Development Agreement by changing the location of the recreation center

without Appellees’ consent.

When

the City created the initial zoning district for the Development, multi-family

uses were allowed within the zoning district as a matter of right without

further approval from the City. In 2007, however, the City amended the zoning

district to allow multi-family use only with a specific use permit (SUP) from

the City. Appellees allege that this zoning amendment occurred despite the

City’s knowledge that Urban Partners had built a multi-story apartment building

in the Development and was buying another thirty acres from Arcadia to develop

additional multi-family uses. Appellees also allege that they were not

previously notified of the proposed zoning amendment or the City’s approval of

the zoning amendment and that Urban Partners purchased the thirty acres for

several million dollars without knowledge of the zoning amendment. Appellees

further allege that Urban Partners applied for a SUP for multi-family use on

the thirty-acre tract after the zoning amendment and that the City imposed numerous

impossible conditions and eventually denied the SUP applications.

Private

developers have spent more than $20 million and have invested more than $140

million for land development and park improvements in the Development. Approximately

seventy percent of the Development has been constructed, and approximately

thirty acres has been or will be dedicated to the City for public improvements.

B.

Procedural Background

Urban

Partners filed suit in the 96th District Court of Tarrant County in March 2009

(the Urban Partners suit), seeking declaratory, mandamus, and injunctive relief

and monetary damages relating to the City’s multi-family use zoning amendment,

and Arcadia subsequently intervened in the Urban Partners suit. The live pleading

in the Urban Partners suit alleges claims against the City for declaratory

relief, violations of due process, inverse condemnation, estoppel, and breach

of the Development Agreement.

In

addition, Arcadia filed suit against the City in the 67th District Court of Tarrant County (the Arcadia suit). In the Arcadia suit, Arcadia alleges causes of

action for declaratory relief, inverse condemnation, estoppel, and breach of

the Development Agreement.

The

City filed partial pleas to the jurisdiction in both cases, and after hearings,

each trial court denied the City’s pleas to the jurisdiction. These

interlocutory appeals followed.

III.

Applicable Law

Whether

the trial court had subject matter jurisdiction is a question of law that we

review de novo. Tex. Natural Res. Conservation Comm’n v. IT-Davy ,

74 S.W.3d 849, 855 (Tex. 2002). A plea to the jurisdiction is a dilatory plea

that challenges the trial court’s subject matter jurisdiction. Bland Indep.

Sch. Dist. v. Blue , 34 S.W.3d 547, 554 (Tex. 2000). It is used to defeat a

cause of action without regard to whether the claims asserted have merit. Id.

“[S]overeign

immunity deprives a trial court of subject matter jurisdiction for lawsuits in

which the state or certain governmental units have been sued[,] unless the

state consents to suit.” Miranda , 133 S.W.3d at 224. In Texas, sovereign immunity has two components: immunity from liability and immunity from

suit. Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006); Miranda ,

133 S.W.3d at 224. Immunity from liability “bars enforcement of a judgment

against a governmental entity” and is an affirmative defense. Tooke ,

197 S.W.3d at 332 ; Miranda , 133 S.W.3d at 224. Immunity from suit, on

the other hand, “bars suit against the [governmental] entity altogether”

because it “deprives a court of subject matter jurisdiction.” Tooke ,

197 S.W.3d at 332 ; Miranda , 133 S.W.3d at 224. This appeal involves

immunity from suit.

When

a governmental entity such as the City enters into a contract, it waives immunity

from liability but does not waive immunity from suit unless the legislature has

clearly and unambiguously waived the governmental entity’s immunity from suit.

Tooke , 197 S.W.3d at 332–33. To invoke the trial court’s subject matter

jurisdiction over a claim arising out of a governmental entity’s contractual

obligations, the plaintiff must allege a valid waiver of immunity from suit and

plead sufficient facts demonstrating the trial court’s jurisdiction. Miranda ,

133 S.W.3d at 226; Tex. Ass’n of Bus. v. Tex. Air Control Bd. ,

852 S.W.2d 440, 446 (Tex. 1993). We construe the pleadings liberally in favor

of the plaintiff, look to the pleader’s intent, and accept the pleadings’

factual allegations as true. Miranda , 133 S.W.3d at 226. If, as in

this case, a plea to the jurisdiction challenges the existence of

jurisdictional facts, we consider relevant evidence submitted by the parties

that is necessary to resolve the jurisdictional issues. Id. at 227; Bland ,

34 S.W.3d at 555 . We take as true all evidence favorable to the nonmovant, and

we indulge every reasonable inference and resolve any doubts in the nonmovant’s

favor. Wise Reg’l Health Sys. v. Brittain , 268 S.W.3d 799, 805 (Tex. App.—Fort Worth 2008, no pet.) (citing Miranda , 133 S.W.3d at 228). If the

evidence creates a fact question regarding jurisdiction, the trial court must

deny the plea to the jurisdiction and leave its resolution to the factfinder. Miranda ,

133 S.W.3d at 227–28. But if the evidence is undisputed or fails to raise a

fact question on the jurisdictional issue, the trial court rules on the plea to

the jurisdiction as a matter of law. Id. at 228.

V. Parties’

Contract Involved Services

The

City contends in its first issue that the trial courts do not have subject

matter jurisdiction over Appellees’ breach of contract claims. The City argues

that the Development Agreement is not a qualifying agreement under local

government code section 271.152 because it does not involve the provision of

goods or services to the City. Appellees respond that they provided several

services to the City that fall within the waiver of the City’s immunity from

suit and that the trial courts therefore have subject matter jurisdiction over

their breach of contract claims.

Section

271.152 of the local government code states:

A

local governmental entity that is authorized by statute or the constitution to

enter into a contract and that enters into a contract subject to this

subchapter waives sovereign immunity to suit for the purpose of adjudicating a

claim for breach of the contract, subject to the terms and conditions of this

subchapter.

Tex. Loc.

Gov’t. Code Ann. § 271.152 (Vernon 2005). A “contract subject to this

subchapter” is defined, in relevant part, as “a written contract stating the

essential terms of the agreement for providing goods or services to the local

governmental entity.” Id. § 271.151(2) (Vernon 2005).

The

City argues that the Development Agreement is not a contract for “goods or

services” because the Development Agreement is ultimately a contract for the

conveyance of real property. [3] The City also argues

that even though Appellees used or provided goods or services to construct the

improvements on the property, the “provision of goods and services as a

precursor or condition to the conveyance of real property is not the provision

of ‘goods or services.’” [4] But we cannot agree with

the City’s contention that the Development Agreement is merely a conveyance of

real property. Instead, we believe the City’s first issue is resolved by two

of the supreme court’s recent decisions. See Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth. , 320 S.W.3d 829 (Tex. 2010); Ben

Bolt-Palito Blanco Consol. Indep. Sch. Dist. v. Tex. Political Subdiv.

Prop./Cas. Joint Self-Ins. Fund , 212 S.W.3d 320 (Tex. 2006).

In Ben

Bolt , ninety-two governmental entities formed an insurance fund to provide

casualty insurance to fund participants. See 212 S.W.3d at 322 . Fund

members elected a governing board, and a board subcommittee resolved

self-insurance claim disputes. See id. at 327 . The Fund argued that

its immunity from suit was not waived by local government code section 271.152

because no goods or services were provided to the Fund under the insurance

contract with a member entity. See id. Disagreeing, the supreme court

held that the Fund’s immunity from suit was waived because the members provided

services to the Fund in that the members elected the governing board whose

subcommittee resolved claim disputes. See id. Thus, in Ben Bolt ,

even though the service provided to the Fund was not the primary purpose of the

contract, the members’ provision of claim dispute services was sufficient to

fall within the waiver of immunity under local government code section

271.152. See id. at 327–28.

In Kirby Lake , several developers entered into agreements with the Clear Lake

Water Authority. 320 S.W.3d at 832 . Similar to the Development Agreement in

this case, the agreements in Kirby Lake required the developers to build

water and sewer facilities and lease the facilities to the Water Authority free

of charge. Id. In addition, the agreements provided that the

Developers would “cause the Facilities to be constructed under contracts with

third-party contractors.” [5] The court of appeals

held that the developers’ “agreement to hire third parties to construct the

Facilities and to build the streets, roads, and bridges” was “sufficient to

constitute the provision of services to the [Water] Authority.” Friendswood ,

256 S.W.3d at 751. Affirming and holding that the Water Authority’s immunity

from suit was waived by section 271.152, the supreme court stated:

We agree with the

court of appeals that the Agreements entail services provided directly to the [Water]

Authority. The Developers contracted to construct, develop, lease, and bear

all risk of loss or damage to the facilities, obligations far more concrete

than those at issue in Ben Bolt . We therefore hold that the Agreements

contemplate the provision of services under the statute.

Kirby Lake ,

320 S.W.3d at 839 (internal citation omitted).

In

this case, the Development Agreement provides:

From time to time,

[Appellees] shall commence the development of various Tracts within the

Development, and [Appellees] may contract, at [their] sole cost and expense,

with such contractors as may be selected for the installation of all

Infrastructure Improvements for such Tracts, which may include both Public Use

Improvements and Private Use Improvements for such Tracts.

In

addition, the Development Agreement required Appellees to prepare all plans and

designs for the public and private use improvements to be constructed by

Appellees within the Development. It also obligated Appellees to provide

public bidding for any third-party contracts; to “supervise and oversee all

such contracts”; to “exercise due diligence and good faith efforts to insure

compliance by such contractors with all requirements of the City for the

installation and completion of Public Use Improvements”; to “use reasonable

efforts to guard against any defects or deficiencies in the work of the

contractor(s) or subcontractors”; to “reject any work or materials that do not,

in [Appellees’] professional judgment, materially conform to the appropriate

contract documents”; to obtain lien waivers or “bills paid affidavits” from all

contractors under Public Improvement Contracts; to “establish and maintain a

central file for all design, construction, and related contractual documents”;

and to “coordinate with the appropriate contractors the performance and

completion of any unfinished items in respect of the Public Use Improvements.”

Moreover, the Development Agreement required Appellees to “follow the good

faith recommendations of the engineer retained by [Appellees]” to prepare the

plans for sewer system improvements within the Development.

The

City points to the language in the Kirby Lake agreements requiring the

developers to retain third-party contractors to construct the facilities and

argues that the Development Agreement is different because Appellees were

authorized but not required to retain third-party contractors to complete the

construction and installation. Even if this were a legitimate basis to

distinguish Kirby Lake , there is no such distinction in this case. The

Development Agreement, at a minimum, required Appellees to retain an engineer

to prepare plans for water, sewer, and drainage improvements within the

Development because it obligated Appellees to follow the “good faith

recommendations” of “the engineer retained by [Appellees]” with regard to each

of those improvements. Thus, we need not decide whether a contract that merely

authorizes rather than requires a developer to retain third-party contractors

removes the contract from the waiver of immunity in local government code

section 271.152.

Here,

just as in Kirby Lake , Appellees provided various services to the City

pursuant to the Development Agreement, including but not limited to the

retention of third-party contractors. See Kirby Lake , 320 S.W.3d at 839–40; Ben Bolt , 212 S.W.3d at 327–28. Thus, the holdings of Kirby Lake and Ben Bolt are dispositive of the City’s first issue. We

hold that local government code section 271.152 waives the City’s immunity from

suit with regard to the Development Agreement because the Development Agreement

is a contract for the provision of services to the City within the meaning of

that statute. See Tex. Loc. Gov’t Code Ann. §§ 271.151(2), .152; Kirby

Lake , 320 S.W.3d at 839–40; Ben Bolt , 212 S.W.3d 327–28; Friendswood

Dev. Co. , 256 S.W.3d at 751. We overrule the City’s first issue.

V. Limitation

of Damages

In

its second issue, the City contends that even if the Development Agreement

falls within the waiver of immunity in local government code Chapter 271, the

trial courts lack subject matter jurisdiction over Appellees’ breach of

contract claims because Appellees’ alleged damages do not fall within those

available under local government code section 271.153.

Relevant

to this case, section 271.153 provides that breach of contract damages against

the City are limited to “the balance due and owed by the [City] under the

contract” and cannot include any consequential damages not expressly included

within any balance due and owing to Appellees. Tex. Loc. Gov’t Code Ann. §

271.153(a)(1), (b)(1) (Vernon Supp. 2010). The City argues both that there is

no balance due and owing to Appellees and that Appellees’ potential damages are

consequential damages for which sovereign immunity is not waived by Chapter

271. Appellees respond that the City’s damages argument is not jurisdictional

and is premature.

In

Kirby Lake , the supreme court stated that “[t]he purpose of

section 271.153 is to limit the amount due by a governmental agency on a

contract once liability has been established, not to foreclose the

determination of whether liability exists.” 320 S.W.3d at 840 . And in City

of Mesquite v. PKG Contracting, Inc. , our sister court stated that

“statutory limitations on PKG’s recoverable damages do not deprive the trial

court of subject matter jurisdiction to adjudicate PKG’s breach of contract

claims.” 263 S.W.3d 444, 448 (Tex. App.—Dallas 2008, pet. denied).

Appellees

pleaded that there are amounts due and owing under the Development Agreement

and that they seek specific performance of the Development Agreement, [6]

and they argue on appeal that they seek recovery of at least the cost of

constructing 400 parking spaces due to the City’s relocation of the recreation

center. Appellees’ pleadings are sufficient to invoke the trial courts’

subject matter jurisdiction. See Dallas Area Rapid Transit v. Monroe Shop

Partners, Ltd. , 293 S.W.3d 839, 842 (Tex. App.—Dallas 2009, pet. denied); PKG

Contracting, Inc. , 263 S.W.3d at 448 . The City’s argument concerning

Appellees’ damages “takes us far into the merits of the lawsuit and beyond

jurisdictional facts,” Dallas Area Rapid Transit , 293 S.W.3d at 842 , and

we decline to adjudicate Appellees’ damage claims by applying section 271.153 within

the procedural context of the City’s pleas to the jurisdiction. [7]

We agree with the PKG court that the “trial court is in the best

position following further proceedings to determine whether [Appellees may]

recover some, all, or none of the damages and remedies [they] claim[].” [8]

PKG Contracting, Inc. , 263 S.W.3d at 448 ; see Dallas Area Rapid Transit ,

293 S.W.3d at 842 ; see also City of Houston v. S. Elec. Servs., Inc. ,

273 S.W.3d 739, 744 (Tex. App.—Houston [1st Dist.] 2008, pet. denied) (holding

pleadings alleged sufficient facts to establish waiver of immunity from suit

and to defeat plea to jurisdiction and declining to “adjudicate” the

plaintiff’s damage claim through plea to jurisdiction). We overrule the City’s

second issue.

VI.

Requests for Declaratory Relief and Attorney’s Fees

The

City argues in its third issue that the trial courts lack subject matter

jurisdiction over two of Appellees’ requests for declaratory relief because one

request does not ask the trial court to construe or decide the validity of a

municipal ordinance or franchise and because the City is not a proper party in

a suit relating to the second request. The City’s fourth issue asserts that

Appellees cannot recover attorney’s fees under the Declaratory Judgment Act for

the requests for declaratory relief over which the trial courts do not have subject

matter jurisdiction.

A. Relocation

of Recreation Center

1. Applicable

Law

The

Texas Declaratory Judgments Act contains a waiver of immunity from suit. See

Tex. Civ. Prac. & Rem. Code Ann. § 37.006 (b) (Vernon 2008); City of El

Paso v. Heinrich , 284 S.W.3d 366 , 373 n.6 (Tex. 2009). But this waiver is

a limited one, and determining whether a particular request for declaratory

relief falls within this waiver of immunity is often complicated.

Immunity

from suit is waived if a party joins a governmental entity and seeks a declaration

that an ordinance or statute is invalid, based on either constitutional or

nonconstitutional grounds. See Heinrich , 284 S.W.3d at 373 n.6; City

of Elsa v. M.A.L. , 226 S.W.3d 390 , 391–92 (Tex. 2007); Lakey v. Taylor ,

278 S.W.3d 6, 15 (Tex. App.—Austin 2008, no pet.); see also City of Beaumont v. Bouillion , 896 S.W.2d 143 , 148–49 (Tex. 1995). Likewise, immunity from

suit is waived if a party joins a governmental entity and seeks a declaration

construing an ordinance or statute. See Tex. Lottery Comm’n v. First State

Bank of DeQueen , 325 S.W.3d 628 , 633–34 (Tex. 2010) (noting that

governmental entities are to be joined in suits to construe their legislative

pronouncements and that immunity from suit is waived in such suits (citing Heinrich ,

284 S.W.3d at 373 n.6)); Tex. Educ. Agency v. Leeper , 893 S.W.2d 432 ,

445–46 (Tex. 1994) (stating that governmental entities are not immune from

suits seeking a construction of their legislative pronouncements). However, governmental

immunity generally bars suits for retrospective monetary relief, and private

parties cannot circumvent a governmental entity’s immunity from suit by

characterizing a suit for money damages as a declaratory judgment claim. See

Heinrich , 284 S.W.3d at 368–69, 371. Therefore, if a litigant joins a

governmental entity and seeks an otherwise proper declaratory judgment

construing or invalidating a statute, this claim is nonetheless barred by

governmental immunity if the declaration sought would have the effect of

establishing a right to relief against the governmental entity for which

governmental immunity has not been waived. See id. at 372; City of Houston v. Williams , 216 S.W.3d 827 , 828–29 (Tex. 2007); State v. BP Am. Prod. Co. , 290 S.W.3d 345, 360 (Tex. App.—Austin 2009, pet. filed).

2.

Analysis

The

City challenges Appellees’ request for a declaration “that the City violated

the regulating plan, Development Agreement, TIF Plan and plats in relocating

the recreation center site without obtaining [Appellees’] consent.” In this regard,

we note that one of Appellees’ breach of contract allegations is that without

Appellees’ consent, “the City purchased a 10 acre site outside of [the

Development] to construct the recreation center. . . . The City has violated

the Development Agreement, approved [Development] zoning regulation plan and

plats which clearly show the civic location of the recreation center.” A party

may not seek a declaratory judgment “only in an attempt to have the trial court

decide its breach-of-contract claim.” IT-Davy , 74 S.W.3d at 860

(holding that the limited waiver under the Declaratory Judgment Act recognized

in Leeper “does not allow private parties to sue the State for money

damages”); see also City of Corinth v. NuRock Dev. Inc. , 293 S.W.3d 360 ,

368–69 (Tex. App.—Fort Worth 2009, no pet.) (holding that immunity is not

waived for a requested declaration that the plaintiff “did not materially

breach the [contract] or otherwise fail to meet its obligations to the City”).

Appellees’ requested declaration is merely a recasting of their claim for

breach of the Development Agreement. See IT-Davy , 74 S.W.3d at 860 ; NuRock ,

293 S.W.3d at 368–69. Therefore, we hold that the trial courts in both the

Urban Partners suit and the Arcadia suit erred by denying the City’s partial

plea to the jurisdiction as to this request for a judicial declaration, and we

sustain this portion of the City’s third issue.

B.

Denial of SUP Applications

The

City also challenges Appellees’ request in the Urban Partners suit for a

declaration “that the City did not comply with its ordinances and state statute

in denying the SUP applications.” The City argues that this is a request for

the trial court to declare that various city officials did not comply with

state law and city ordinances in denying the SUPs, that the City is not a

proper party in a suit seeking this type of declaration, and that the allegedly

offending, non-party city officials are the proper parties.

In City

of El Paso v. Heinrich , Heinrich sued various governmental entities for

declaratory relief after the entities reduced her monthly pension benefits. See

284 S.W.3d at 369 . Specifically, Heinrich alleged that “the Pension Board and

its individual members acted outside their authority and in violation of the

Texas Constitution when they reduced [her] benefits.” Id. at 377 . The

court interpreted her claim as one challenging the Board’s action under the

applicable statute, not as one challenging the validity of the statute, and

held that her claim could only be brought in an ultra vires suit against

the appropriate officials in their official capacity. Id.

In Texas

Department of Insurance v. Reconveyance Services, Inc. , Reconveyance sought

declaratory relief against the Department concerning the Department’s

interpretation of certain insurance code provisions. See 306 S.W.3d

256 , 257–58 (Tex. 2010). Reconveyance sought a declaration that the Department

had, through its interpretation of the insurance code provisions, acted beyond

its authority by attempting to limit the services Reconveyance could offer

through title agencies. Id. at 258 . Relying on Heinrich , the

supreme court held that Reconveyance’s suit was an ultra vires suit because

it sought to establish that Department employees had acted without statutory

authority. Id. at 258–59. The supreme court dismissed Reconveyance’s

suit for lack of subject matter jurisdiction because Reconveyance had not sued

any of the Department’s officials. Id. at 259.

In

their pleadings, Appellees allege that “City staff continually changed [the]

requirements” for the SUPs, “raising the bar so high it could never be met by

[Appellees]” and that “City staff manufactured three ‘reasons’ for denying the

SUP Application, ‘[but] the actual reasons . . . for the denial was that the

City did not want additional multi-family development.” Appellees’ request for

a declaration “that the City did not comply with its ordinances and state

statute in denying the SUP applications” is, like in Heinrich and Reconveyance ,

an ultra vires claim alleging that City officials acted without legal

authority in denying the SUP applications, and it may only be brought against

the City officials in their official capacities. See Reconveyance , 306

S.W.3d at 259 ; Heinrich , 284 S.W.3d at 377 . Thus, the City’s immunity

from suit has not been waived, and the trial court in the Urban Partners suit

erred by denying the City’s plea to the jurisdiction as to this requested

declaration. See Reconveyance , 306 S.W.3d at 258–59; Heinrich ,

284 S.W.3d at 377 .

Appellees,

citing Sanders v. City of Grapevine , argue that because the City has

conceded that the trial court has jurisdiction over some of their requested

judicial declarations, the trial court has jurisdiction over all of Appellees’

other requests for judicial declarations. See 218 S.W.3d 772 , 779–80

(Tex. App.—Fort Worth 2007, pet. denied). However, we do not read Sanders

to support Appellees’ contention. There, we held that Sanders’s pleading for

declaratory relief did not on its face “seek to impose damages or other

liability on the City” and that the trial court erred by granting the City’s

plea to the jurisdiction as to the request for declaratory relief. Id. Contrary to Appellees’ assertion, nothing in Sanders suggests that if

the City’s immunity from suit has been waived as to one request for declaratory

relief, the City’s immunity has been waived as to all other requests for

declaratory relief. See id. We sustain the remainder of the City’s

third issue.

C.

Attorney’s Fees

In

part of its fourth issue, the City argues that Appellees may not recover

attorney’s fees under the Declaratory Judgments Act for any declarations over

which the City’s immunity from suit has not been waived. We agree and hold

that Appellees may not recover attorney’s fees for prosecuting their requests

for judicial declarations (1) “that the City violated the regulating plan,

Development Agreement, TIF Plan and plats in relocating the recreation center

site without obtaining [Appellees’] consent” and (2) “that the City did not

comply with its ordinances and state statute in denying the SUP applications.”

See NuRock , 293 S.W.3d at 370 (holding that no basis for recovery of

attorney’s fees existed because declaratory judgment claim was dismissed). We

sustain this portion of the City’s fourth issue. [9]

VII.

Standing to Challenge Zoning Amendment

In

the Urban Partners suit, Appellees seek a judicial declaration “that the

multi-family/townhome SUP requirement is void and/or cannot be applied to

[Appellees’] property because notice was not made in accordance with Chapter

211, Tex. Loc. Gov’t Code.” In its fifth issue, the City contends that Urban

Partners lacks standing to challenge the zoning ordinance amendment based on

lack of statutorily required notice because the alleged lack of notice is a

mere procedural irregularity that can only be brought by the State in a quo

warranto proceeding. [10]

In

relevant part, local government code section 211.007(c) states:

Before the 10th day

before the hearing date, written notice of each public hearing before the

zoning commission on a proposed change in a zoning classification shall be sent

to each owner, as indicated by the most recently approved municipal tax roll,

of real property within 200 feet of the property on which the change in

classification is proposed.

Tex.

Loc. Gov’t Code Ann. § 211.007(c) (Vernon 2008). It is undisputed that the

City did not provide the notice required by section 211.007(c), but the City

contends that the lack of notice is merely a procedural irregularity that may

only be challenged by the State in a quo warranto proceeding.

In

Bolton v. Sparks , the supreme court held that a zoning ordinance was

invalid because the Dallas City Council did not comply with statutory notice

and public hearing requirements. 362 S.W.2d 946, 950 (Tex. 1962). In so

holding, the court stated,

The steps directed to

be taken for notice and hearing, when provided for in the law, are intended for

the protection of the property owner, and are his safeguards against the

exercise of arbitrary power. Each act required is essential to the exercise of

jurisdiction by the City Council, and each must be rigidly performed.

Id. ; see

also Truman v. Irwin , 488 S.W.2d 907 , 908–09 (Tex. Civ. App.—Fort

Worth 1972, no writ) (holding that zoning change was “void and ineffective

because of noncompliance” with notice procedures); City of San Antonio v.

Pope , 351 S.W.2d 269, 272 (Tex. Civ. App.—Eastland 1961, no writ) (same); City

of Amarillo v. Wagner , 326 S.W.2d 863, 866 (Tex. Civ. App.—Amarillo 1959,

writ ref’d n.r.e.) (same); Tonroy v. City of Lubbock , 242 S.W.2d 816 ,

818–19 (Tex. Civ. App.—Amarillo 1951, writ ref’d n.r.e.) (same).

In

the context of municipal annexation ordinances, the supreme court has held that

private parties do not have standing to challenge municipal annexations for

procedural irregularities. See Laidlaw Waste Sys. (Dallas), Inc. v. City of

Wilmer , 904 S.W.2d 656, 658 (Tex. 1995) (“Laidlaw has no standing to

challenge the annexation on procedural grounds, such as alleged failures to

meet the notice and signature requirements.”); Alexander Oil Co. v. City of

Seguin , 825 S.W.2d 434, 436, 438 (Tex. 1991) (stating that “[t]he only

proper method for attacking the validity of a city’s annexation of territory is

by quo warranto proceeding, unless the annexation is wholly void” and holding

that landowner’s complaints concerning adequacy of service plan presented to

city council and whether quorum was required to conduct hearing were matters

for attack via quo warranto); see also Walton v. City of Midland , 287

S.W.3d 97, 99 , 102–05 (Tex. App.—Eastland 2009, pet. denied) (applying Alexander

Oil and holding quo warranto required to challenge city council’s approval

of settlement agreement when alleged impropriety by city council would only

render the act voidable, not void).

The

City argues that even though Alexander Oil was an annexation case, it

implicitly overruled each of the zoning cases cited above because it distinguished

void acts—such as an act exceeding statutory authority—from voidable acts—such

as procedural irregularities—and held that procedural irregularities must be

challenged via quo warranto because they render annexation ordinances voidable

rather than void. [11] According to the City, the

failure to provide notice as required by local government code section

211.007(c) is a procedural irregularity that would merely render the zoning

ordinance voidable, and thus, Urban Partners has no standing to challenge the

zoning ordinance because a quo warranto proceeding is required.

However,

the supreme court has not held that procedural irregularities in zoning

cases—such as the lack of notice alleged against the City in this case—can only

be brought by the State in quo warranto proceedings. See Laidlaw Waste Sys.

(Dallas), Inc. , 904 S.W.2d at 658 ; Alexander Oil , 825 S.W.2d at 437–39.

Rather, it is well-settled that the failure to give notice of a proposed zoning

change renders the zoning ordinance void, not voidable. See Bolton , 362

S.W.2d at 950 ; Truman , 488 S.W.2d at 908–09; Pope , 351 S.W.2d at

272 ; Wagner , 326 S.W.2d at 866 ; Tonroy , 242 S.W.2d at 818–19.

Thus, even if quo warranto might be required in zoning cases involving voidable

acts (an issue we need not decide), quo warranto is not required in the present

zoning case because the failure to give notice renders the zoning ordinance

void. See, e.g., Bolton , 362 S.W.2d at 950 . And private parties have

standing to challenge void ordinances. See Alexander Oil , 825 S.W.2d at

436 (“The only proper method for attacking the validity of a city’s annexation

of territory is by quo warranto proceeding, unless the annexation is wholly

void .”) (emphasis added). Therefore, we hold that Urban Partners has standing

to challenge the zoning amendment based on lack of statutorily required notice,

and we overrule the City’s fifth issue.

VIII.

Inverse Condemnation

In

its seventh issue, [12] the City asserts that

the trial courts do not have subject matter jurisdiction over one of Appellees’

inverse condemnation claims because it is merely a restatement of Appellees’

breach of contract claims. [13] Appellees respond that

the City’s breach of the Development Agreement is only one of the factors to

consider in determining the merits of their inverse condemnation claim. In

this regard, Appellees’ second amended petition alleges that the City’s actions

constitute a taking in violation of article 1, section 17 of the Texas

constitution because “the City has deprived [Appellees] of their reasonable

investment backed expectations (depriving [Appellees] of reasonable use and

enjoyment of the Property)” and that Appellees “had a reasonable expectation

that the recreation center and parking spaces would be developed in accordance

with the Development Agreement, regulating plan, preliminary plat and TIF

documents.” [14]

“To

establish a takings claim under Article I, section 17, the claimant must show

that a governmental actor acted intentionally to take or damage property for a

public use.” State v. Holland , 221 S.W.3d 639, 643 (Tex. 2007). “When

the government acts pursuant to colorable contract rights, it lacks the

necessary intent to take under its eminent-domain powers and thus retains its

immunity from suit.” Id. Thus, a plaintiff may not recast a breach of

contract claim against a governmental entity as one for inverse condemnation. See

id. at 643–44. In this case, however, Appellees have not merely recast

their breach of contract claim as one for inverse condemnation.

“[A]

restriction in the permissible uses of property or a diminution in its value,

resulting from regulatory action within the government’s police power, may or

may not be a compensable taking.” Sheffield Dev. Co., Inc. v. City of Glenn

Heights , 140 S.W.3d 660, 670 (Tex. 2004) (citing Taub v. City of Deer

Park , 882 S.W.2d 824, 826 (Tex. 1994)). Although some are, “not every

regulation is a compensable taking.” Id. “[W]hether [a] regulation has

gone ‘too far’ and become too much like a physical taking for which the

constitution requires compensation requires a careful analysis of how the

regulation affects the balance between the public’s interest and that of

private landowners.” Id. at 671–72. To make this determination, courts

consider “(1) ‘the economic impact of the regulation on the claimant’; (2) ‘the

extent to which the regulation has interfered with distinct investment-backed

expectations’; and (3) ‘the character of the governmental action.’” Id. at 672 (quoting Connolly v. Pension Benefits Guar. Corp. , 475 U.S. 211, 225 , 106 S. Ct. 1018, 1026 (1986)).

Appellees

cite City of San Antonio v. El Dorado Amusement Co. to support their

contention that the City’s breach of the Development Agreement is only one

factor in evaluating the merits of their inverse condemnation claim. See

195 S.W.3d 238 , 246–47 (Tex. App.—San Antonio 2006, pet. denied). There, El Dorado offered evidence that it had profitably operated a business for several years

before the city amended the zoning regulation to prohibit the sale of alcohol

on the premises and that the rezoning significantly impaired its ability to

operate its business. Id. The court held that a compensable regulatory

taking resulted from the city’s rezoning because the evidence supported “a

finding that the enactment of the rezoning ordinance had a severe economic

impact on El Dorado’s business and unreasonably interfered with El Dorado’s investment-backed expectations.” Id. at 247 ; see also City of Carrolton v. McPhee , 05-08-01018-CV, 2009 WL 2596145 , at *2 (Tex. App.—Dallas Aug. 25, 2009, no pet.) (mem. op.) (affirming denial of plea to jurisdiction and holding

pleadings sufficiently alleged regulatory taking).

Here,

Appellees allege that the City deprived them of their reasonable

investment-backed expectations, and they contend that they had a reasonable

expectation—based on seventy-percent of the development being constructed in

accordance with the zoning, plats, building permits, Development Agreement, and

TIF financing documents and all of which having been in place for several

years—that the recreation center and parking spaces would be developed in accordance

with those documents. These allegations are sufficient to allege a regulatory

taking that unreasonably interfered with Appellees’ investment-backed

expectations. See El Dorado , 195 S.W.3d at 246–47; McPhee , 2009

WL 2596145 , at *2. While the City’s alleged breach of the Development

Agreement, standing alone, cannot form the basis of an inverse condemnation

claim because it would be nothing more than a recasting of Appellees’ breach of

contract claim, see Holland , 221 S.W.3d at 643–44, Appellees reference

the Development Agreement as only one evidentiary factor to consider in

determining whether the City’s actions as a whole constitute a regulatory

taking. See El Dorado , 195 S.W.3d at 246–47; McPhee , 2009 WL

2596145 , at *2. We therefore overrule the City’s seventh issue.

IX.

Conclusion

Having

overruled the City’s first, second, fifth, and seventh issues, we affirm in

part the trial courts’ denials of the City’s partial pleas to the

jurisdiction. Having sustained the City’s third issue and part of the City’s fourth

issue, we reverse in part the trial courts’ orders denying the City’s pleas to

the jurisdiction. We dismiss for lack of subject matter jurisdiction (1)

Appellees’ request for a declaration in both the Urban Partners suit and the

Arcadia suit “that the City violated the regulating plan, Development

Agreement, TIF Plan and plats in relocating the recreation center site without

obtaining [Appellees’] consent”; (2) Appellees’ request for a declaration in

the Urban Partners suit “that the City did not comply with its ordinances and

state statute in denying the SUP applications”; and (3) Appellees’ requests for

attorney’s fees for prosecuting these requests for judicial declarations.

ANNE GARDNER

JUSTICE

PANEL:

GARDNER,

WALKER, and GABRIEL, JJ.

DELIVERED: April 28, 2011

[1] See Tex. Civ. Prac. & Rem. Code Ann. § 51.014 (a)(8) (Vernon 2008) (permitting interlocutory

appeal from an order granting or denying a plea to the jurisdiction filed by a

governmental unit).

[2] The facts set forth below

are taken from the parties’ contract and the Appellees’ pleadings in the

proceedings below, which we accept as true and construe in Appellees’ favor

pursuant to the appropriate standard of review. See Tex. Dep’t of Parks

& Wildlife v. Miranda , 133 S.W.3d 217 , 226–27 (Tex. 2004).

[3] See , e.g. , Brown

Water Marine Serv., Inc. v. Aransas Cnty. Navigation Dist. No. 1 , No

13-07-00055-CV, 2008 WL 1822727 , at *2 n.1 (Tex. App.—Corpus Christi Apr. 24,

2008, pet. denied) (mem. op.) (lease of property not goods or services); Valley

Mun. Util. Dist. No. 2 v. Rancho Viejo, Inc. , No. 13-07-00545-CV, 2008 WL

384320 , at *4 (Tex. App.—Corpus Christi Feb. 14, 2008, no pet.) (mem. op.)

(easement to district not goods or services); Bexar Metro. Water Dist. v.

Educ. & Econ. Dev. Joint Venture , 220 S.W.3d 25, 32 (Tex. App.—San

Antonio 2006, pet. dism’d w.o.j.) (immunity retained for claim of breach of

contract for sale of real estate).

[4] See Somerset Indep.

Sch. Dist. v. Casias , No. 04-07-00829-CV, 2008 WL 1805533 , at *3 (Tex. App.—Corpus Christi Apr. 23, 2008, pet. denied) (mem. op.) (holding that a contract was one for

the conveyance of land even though the seller was required to perform

environmental cleanup as a condition of closing).

[5] Clear Lake City Water

Auth. v. Friendswood Dev. Co., Ltd. , 256 S.W.3d 735, 748 (Tex. App.—Houston [14th Dist.] 2008, pet. dism’d) (op. on reh’g). The contract language is not set

forth in the Kirby Lake opinion, but it is quoted in the opinion

resolving the Water Authority’s interlocutory appeal of the trial court’s

denial of its plea to the jurisdiction and motion for summary judgment. See

id. at 739–40.

[6] The Development Agreement

provides that the non-breaching party “shall have the right to enforce the

terms of this [Development] Agreement by specific performance.”

[7] We express no opinion as

to whether Appellees may or may not be entitled to specific performance or any

other damages following a full adjudication of their claims.

[8] We are aware of the

supreme court’s holding in Tooke that the Tookes’ only damages were

consequential damages excluded from recovery by section 271.153, but Tooke

was an appeal following a trial on the merits. See 197 S.W.3d at 329,

346 . Similarly, we held in Boyer, Inc. v. Trinity River Authority of Texas

that a fact issue required reversal of a summary judgment for the governmental

entity because the plaintiff presented evidence that its lost profits were

direct, rather than consequential, damages not precluded by section 271.153. See

279 S.W.3d 354, 359 (Tex. App.—Fort Worth 2008, pet. denied). This case,

however, is an interlocutory appeal following the denial of the City’s pleas to

the jurisdiction. As our sister court stated, “We cannot say on this record

that [Appellees’] claim for damages is solely for damages excluded by the

statute.” PKG Contracting, Inc. , 263 S.W.3d at 448 .

[9] The parties represented at

oral argument that they had reached an agreement concerning the remainder of

the City’s fourth issue. Thus, we express no opinion concerning the remainder

of the City’s fourth issue.

[10] Appellees assert other

grounds in their pleadings below to invalidate or limit the zoning amendment,

and the City does not challenge those other grounds on appeal. We express no

opinion as to Appellees’ other challenges.

[11] The City argues on

rehearing that Bolton was implicitly overruled by Alexander Oil .

Specifically, the City contends that Alexander Oil overruled City of

Duncanville v. City of Woodland Hills , 489 S.W.2d 557, 558 (Tex. 1972) (per

curiam), and that City of Duncanville relied on Bolton . See

Alexander Oil , 825 S.W.2d at 438–39; City of Duncanville , 489 S.W.2d

at 558 . We disagree. Alexander Oil overruled City of Duncanville because it “conflicted with the long line of authority that only the state

can challenge annexation for such procedural irregularities because such

irregularities merely result in voidable ordinances.” Alexander Oil ,

825 S.W.2d at 439 (emphasis added). Alexander Oil made no mention of Bolton

or any intent to overrule it. Id. at 438–39.

[12] The City has withdrawn

its sixth issue.

[13] The City concedes that

the trial courts have subject matter jurisdiction over Appellees’ two other

inverse condemnation claims.

[14] We quote from the pleadings

in the Arcadia suit but note that the pleadings in the Urban Partners suit

contain a substantially similar allegation.