dallas/fort Worth International Airport Board v. Vizant Technologies, Llc

IN THE SUPREME COURT OF TEXAS

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No. 18-0059

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DALLAS/FORT WORTH INTERNATIONAL AIRPORT BOARD, PETITIONER,

v.

VIZANT TECHNOLOGIES, LLC RESPONDENT

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ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS

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Argued January 22, 2019

JUSTICE BOYD delivered the opinion of the Court.

The plaintiff in this case claims that a governmental entity breached a contractual promise

to make a good-faith effort to obtain authorization for a higher payment than the parties’ written

contract required the entity to make. We must decide whether governmental immunity applies and,

if so, whether chapter 271 of the Texas Local Government Code waives that immunity. We

conclude that governmental immunity applies and chapter 271 does not waive the entity’s

immunity. We reverse the court of appeals’ judgment in part and render judgment dismissing all

of the plaintiff’s claims.

I.

Background

The Dallas-Fort Worth International Airport Board operates the DFW International

Airport. See TEX. TRANSP. CODE. §§ 22.074(c), (d). In 2012, the Board’s staff retained Vizant

Technologies 1 to analyze the airport’s payment-processing costs (including costs for processing

credit-card payments) and to provide recommendations on how the airport could reduce those

costs. Exercising delegated authority, the Board’s staff negotiated and executed a written

Consulting Agreement providing for a three-year term. The contract required the Board to pay

Vizant a consulting fee to be calculated as (1) fifty percent of any refunds the airport received from

its payment-processing vendors as a result of Vizant’s recommendations, plus (2) a specified

percentage 2 of the amount by which Vizant’s recommendations reduced the Board’s historical

payment-processing costs.

“Notwithstanding” these provisions, the contract stated that Vizant’s “compensation under

this Agreement shall not exceed $50,000,” and Vizant must “stop work once its compensation

reaches” that amount. 3 But it further provided that “[i]n the event” Vizant’s fee exceeds $50,000,

the Board “will make a good faith effort to receive board authorization to increase the

compensation,” and “if approved,” the parties would amend the contract to reflect the higher

amount. Vizant alleges that it agreed to the $50,000 cap only because the Board’s staff assured

Vizant that the Board always approves such increases.

According to Vizant, its services ultimately saved the airport about $820,000, and its fee

under the agreed formula exceeded $300,000. Vizant submitted an invoice for $50,000 and

1

Vizant is actually the successor to the original contractor, P.E. Systems, LLC.

2

The contract specified that the Board would pay Vizant 45% of its cost reductions in the first year of the

contract, 40% in the second year, and 35% in the third year.

3

Apparently, the Board imposed this cap pursuant to a competitive-bidding statute, see TEX. LOC. GOV’T

CODE § 252.021(a) (requiring certain procedures for “an expenditure of more than $50,000 from one or more

municipal funds”), and a Board policy generally authorizing its staff to approve expenditures up to $50,000 without

Board approval.

2

requested that the Board approve an amendment authorizing the higher amount. The Board’s staff

paid the $50,000 and ultimately asked to Board to approve an increase to $330,000, but the Board

denied that request. Vizant sued the Board for breach of contract, fraud, fraudulent inducement,

and promissory estoppel, alleging in part that the Board failed to make the promised good-faith

effort to authorize the increased compensation. 4

The Board filed a plea to the jurisdiction asserting that governmental immunity bars

Vizant’s claims. The trial court denied the plea, holding that governmental immunity does not

apply because the Board’s management of the airport’s payment-processing costs is a proprietary

(rather than governmental) function. See Wasson Interests v. City of Jacksonville, 559 S.W.3d 142,

146 (Tex. 2018) (“Wasson II”) (“The governmental/proprietary dichotomy recognizes that

immunity protects a governmental unit from suits based on its performance of a governmental

function but not a proprietary function.”).

The Board filed an interlocutory appeal from the trial court’s denial of its jurisdictional

plea. 5 The court of appeals reversed in part and affirmed in part. Dall./Fort Worth Int’l Airport Bd.

v. Vizant Techs., LLC, 565 S.W.3d 69, 71 (Tex. App.Dallas 2017). It reversed and rendered

judgment dismissing Vizant’s fraud and estoppel claims, concluding that governmental immunity

applies because the Board was engaged in a governmental function and no statute waives the

Board’s immunity against those claims. Id. at 74–75. But it affirmed the trial court’s denial of the

4

Vizant argues that its evidence established that the Board’s staff improperly tried to avoid having to pay the

increased amount, discussed wrongfully terminating the agreement, and unjustifiably delayed seeking the Board’s

approval, and that the Board summarily rejected the increase without any discussion and “never intended to abide by

the payment term.” The trial court did not reach, and we need not address, whether the Board in fact failed to make a

good-faith effort to authorize the increase.

5

See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8) (authorizing interlocutory appeal from trial court order

granting or denying a governmental unit’s plea to the jurisdiction).

3

Board’s plea against Vizant’s breach-of-contract claim, holding that—although governmental

immunity applies—chapter 271 of the Texas Local Government Code waives the Board’s

immunity against that claim. Id. at 75. 6 The Board filed a petition for review challenging the court

of appeals’ holding on the contract claim, which we granted. 7

II.

Governmental Immunity

We first address whether governmental immunity applies to Vizant’s breach-of-contract

claim. Governmental immunity generally protects local governmental entities against both

lawsuits and legal liabilities. City of Houston v. Hous. Mun. Emps. Pension Sys., 549 S.W.3d 566,

575 (Tex. 2018). Vizant does not dispute that the Board qualifies as a local governmental entity, 8

but argues that immunity does not apply here because the Board was acting in a proprietary

capacity when it entered into the contract. The trial court agreed with Vizant, but the court of

appeals disagreed and held that the Board was acting in a governmental capacity. We agree with

the court of appeals. 9

6

The Board’s jurisdictional plea asserted immunity only against Vizant’s fraud and promissory-estoppel

claims. In response to the breach-of-contract claim, the Board sought summary judgment on the ground that Vizant

could show no contractual right to any payment above $50,000. The trial court never ruled on that motion, but the

Board argued on appeal that immunity bars the contract claim as well as the fraud and estoppel claims. Because

immunity from suit implicates the court’s jurisdiction, the court of appeals permitted the Board to raise that issue for

the first time on appeal. 565 S.W.3d at 72 n.2; see Rusk State Hosp. v. Black, 392 S.W.3d 88, 94–95 (Tex.

2012). Vizant does not complain about that ruling here.

7

Vizant did not file a petition for review and does not challenge the court of appeals’ holding that immunity

bars the fraud and estoppel claims.

8

See TEX. TRANSP. CODE §§ 22.072, .074 (providing for local governments and other public agencies to

jointly own airport property, facilities, and privileges and to act jointly through a joint board having exclusive power

to maintain and operate the airport); see also Dall./Fort Worth Int’l Airport Bd. v. Ass’n of Taxicab Operators, USA,

427 S.W.3d 547, 548 (Tex. App.—Dallas 2014, pet. denied) (describing the Board as “a special purpose governmental

entity separate from each of the cities” that created it).

9

The Board argues that Vizant waived any challenge to the court of appeals’ holding that the Board was

acting in a governmental capacity because Vizant failed to file a cross-petition seeking our review. See TEX. R. APP.

4

Because immunity is inherent in the state’s sovereignty, certain local governmental entities

enjoy its protection only when they act “as a branch” of the state and not when they act “in a

proprietary, non-governmental capacity.” Wasson II, 559 S.W.3d at 146 (quoting Wasson Interests

v. City of Jacksonville, 489 S.W.3d 427, 430 (Tex. 2016) (“Wasson I”)). As we recognized in

Wasson II, deciding whether an entity enters a contract as a governmental or proprietary function

can be quite difficult. Id. at 147. But here, it is not. Pursuant to its constitutional authority, 10 the

legislature has enumerated particular functions as governmental or proprietary for purposes of

determining whether immunity applies to tort claims, see TEX. CIV. PRAC. & REM.

CODE § 101.0215(a), and these designations “aid our inquiry” in cases involving contract claims

as well. Wasson II, 559 S.W.3d at 148 (quoting Wasson I, 489 S.W.3d at 439).

Regarding the Board’s functions, the legislature has unambiguously declared that the

“maintenance, operation, [and] regulation” of an airport and the “exercise of any other power

granted” for that purpose, whether exercised “severally or jointly” by local governments, “are

public and governmental functions, exercised for a public purpose, and matters of public

P. 53.1 (“A party who seeks to alter the court of appeals’ judgment must file a petition for review.”); see also First

Bank v. Brumitt, 519 S.W.3d 95, 112 (Tex. 2017) (discussing rule 53.1). But Vizant does not seek to alter the court of

appeals’ judgment here. The trial court refused to dismiss any of Vizant’s claims because it believed the Board was

acting in a proprietary capacity. The court of appeals disagreed, but its judgment merely reverses the trial court’s

judgment for the Board on the fraud and estoppel claims and otherwise affirms, without declaring that the Board was

acting in a governmental capacity or otherwise addressing that issue. Vizant does not challenge the court of appeals’

judgment on the fraud and estoppel claims, nor (of course) does it seek to alter the judgment affirming the trial court’s

refusal to dismiss its contract claim. Instead, it raises the proprietary-function argument as an alternative basis to

support that judgment. Under such circumstances, rule 53.1 did not require Vizant to file a petition for review. See

Ineos USA, LLC v. Elmgren, 505 S.W.3d 555, 567 n.4 (Tex. 2016) (holding that rule 53.1 did not require plaintiffs to

file a petition for review when they merely raised alternative arguments and did not seek to alter the court of appeals’

judgment reversing the trial court’s summary judgment dismissing their claims).

10

As we explained in Wasson II, the Texas Constitution authorizes the legislature to “define for all purposes

those functions of a municipality that are to be considered governmental and those that are proprietary, including

reclassifying a function’s classification assigned under prior statute or common law.” 559 S.W.3d at 147 (quoting

TEX. CONST. art. XI, § 13).

5

necessity.” TEX. TRANSP. CODE § 22.002(a); see also TEX. CIV. PRAC. & REM. CODE

§ 101.0215(a)(10) (listing “airports” as a governmental function under the Tort Claims Act).

Because the Board entered into the contract with Vizant for the purpose of analyzing and reducing

the airport’s expenses, it was acting in its governmental capacity and governmental immunity

applies.

III.

Waiver of Immunity

We next address whether the legislature has waived the Board’s immunity against Vizant’s

contract claim. A governmental entity waives its immunity from liability by entering into a

contract, voluntarily binding itself like any other party to the agreement. Tooke v. City of Mexia,

197 S.W.3d 325, 332 (Tex. 2006). But only the legislature can waive governmental immunity from

suit, and when it chooses to waive such immunity it must express that intent using “clear and

unambiguous” language. Lubbock Cty. Water Control & Imp. Dist. v. Church & Akin, L.L.C., 442

S.W.3d 297, 301 (Tex. 2014). Unless waived, immunity from suit deprives trial courts of

jurisdiction over suits against the government. State v. Lueck, 290 S.W.3d 876, 880 (Tex. 2009).

A. Chapter 271

Vizant argues, and the court of appeals agreed, that chapter 271 of the Local Government

Code waives the Board’s immunity against Vizant’s contract claim. Chapter 271 provides that 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 § 271.152.

6

A “contract subject to this subchapter” is “a written contract stating the essential terms of

the agreement for providing goods or services to the local governmental entity that is properly

executed on behalf of the local governmental entity.” Id. § 271.151(2)(A). The subchapter’s “terms

and conditions” include section 271.153, which limits “the total amount of money awarded in an

adjudication brought against a local governmental entity for breach of a contract subject to this

subchapter” to

(1) the balance due and owed by the local governmental entity

under the contract as it may have been amended, including

any amount owed as compensation for the increased cost to

perform the work as a direct result of owner-caused delays

or acceleration;

(2) the amount owed for change orders or additional work the

contractor is directed to perform by a local governmental

entity in connection with the contract;

(3) reasonable and necessary attorney's fees that are equitable

and just; and

(4) interest as allowed by law, including interest as calculated

under Chapter 2251, Government Code.

Id. § 271.153(a). 11 Under subsection (b), the damages awarded may not include

(1) consequential damages, except as expressly allowed under

Subsection (a)(1);

(2) exemplary damages; or

11

We recently held that “the balanced due and owed by the local governmental entity under the contract,”

see TEX. LOC. GOV’T CODE § 271.153(a)(1), is “simply the amount of damages for breach of contract payable and

unpaid,” even if the amount is not “stated in,” “expressly provided for in,” or even “ascertainable from” the contract.

Zachry Constr. Corp. v. Port of Hous. Auth. of Harris Cty., 449 S.W.3d 98, 111–12, 114 (Tex. 2014)). In response to

the Board’s argument that the amount Vizant seeks is not due and owed under the contract, the court of appeals held

that whether the amount sought is due and owed under the contract does not affect whether the contract is a “properly

executed contract” for which immunity is waived, but instead is merely “a criterion for determining the amount

awarded after adjudicating a breach of contract claim.” 565 S.W.3d at 74 (emphasis added). We expressly held in

Zachry, however, that section 271.153 and the other “terms and conditions” to which section 271.152 refers “define

the scope of [chapter 271’s] waiver of immunity,” so that the chapter “does not waive immunity from suit on a claim

for damages not recoverable under Section 271.153.” Zachry, 449 S.W.3d at 108, 110. To the extent that the court of

appeals held that section 271.153 limits the damages available but not the scope of the immunity waiver, it erred. But

because we conclude that the contract does not state “the essential terms of the agreement” Vizant seeks to enforce

and is thus not a “contract subject to this subchapter,” we need not address whether the amount Vizant seeks is “due

and owed under the contract.”

7

(3) damages for unabsorbed home office overhead.

Id. § 271.153(b). In summary, the statute waives a local governmental entity’s immunity from suit

only for claims alleging breach of a contract “subject to this subchapter” and seeking relief listed

in section 271.153(a), but not for claims seeking relief listed in section 271.153(b). Zachry, 449

S.W.3d at 111.

B. “A contract subject to this subchapter”

To be “subject to this subchapter,” the contract at issue must (1) be in writing, (2) state the

agreement’s essential terms, (3) require the contractor to provide goods or services to the

governmental entity, and (4) be properly executed on the entity’s behalf. Id. § 271.151(2); see City

of Denton v. Rushing, — S.W.3d —, No. 17-0336, 2019 WL 1212188, at *2 (Tex. Mar. 15, 2019).

We focus here on the second requirement, considering whether this contract contains the “essential

terms” to support Vizant’s claim. An agreement’s essential terms are those that parties would

reasonably regard as “vitally important ingredient[s]” of their bargain. Fischer v. CTMI L.L.C.,

479 S.W.3d 231, 237 (Tex. 2016). Whether particular terms are essential generally depends on the

specific contract at issue. Id. A contract must state its essential terms with “a reasonable degree of

certainty and definiteness,” sufficient to confirm that both parties actually intended to be

contractually bound and to enable a court to understand and enforce the parties’ obligation and

provide an appropriate remedy when breached. Id.

As the remedy for the Board’s alleged breach of contract, Vizant seeks an order requiring

the Board to pay Vizant $330,000, based on the application of the consulting-fee formula to the

amount by which Vizant’s recommendations reduced the airport’s payment-processing costs.

Vizant does not allege, however, that the Board ever agreed to pay that amount. To the contrary,

8

Vizant acknowledges that the contract expressly caps the amount the Board must pay at the

$50,000 the Board has already paid. Vizant alleges, however, that the Board owes Vizant more

than it agreed to pay because the Board breached its promise to “make a good faith effort to receive

board authorization to increase” the agreed amount. So we must decide whether the good-faith-

effort clause states the “essential terms” of the agreement Vizant seeks to enforce. 12

We have previously recognized in other contexts that good-faith conduct commonly “refers

to conduct which is honest in fact [and] free of improper motive or wilful ignorance of the facts at

hand.” Associated Indemnity, 964 S.W.2d at 285 (addressing contractual good-faith standard

governing surety’s settlement of claims); see also R.R. Comm’n of Tex. v. Gulf Energy Expl. Corp.,

482 S.W.3d 559, 567 (Tex. 2016) (addressing statutory defense for acts performed “in a good-faith

effort”); see also TEX. BUS. & COM. CODE § 1.201(20) (defining good faith under the Uniform

Commercial Code to mean “honesty in fact and the observance of reasonable commercial

standards of fair dealing”). But a contractual duty to act in good faith 13 does not create a new

12

We have not previously addressed the multitude of thorny issues surrounding contractual “effort” clauses.

See generally Zachary Miller, Best Efforts?: Differing Judicial Interpretations of a Familiar Term, 48 ARIZ. L. REV.

615, 615 (2006) (“The judicial landscape is littered with conflicting interpretations of efforts clauses.”); see also

Citizens First Nat’l Bank of Tyler v. Cinco Expl. Co., 540 S.W.2d 292, 297 (Tex. 1976) (noting only that the phrase

“best efforts” is “certainly susceptible to a variety of interpretations”). Many courts and commentators have addressed

issues involving a party’s promise to make “best efforts.” See generally Rob Park, Putting the “Best” in Best Efforts,

73 U. CHI. L. REV. 705, 705 (2006) (“Today, the law of best efforts obligations is deeply unsettled, badly in need of

clarity.”); see also Daimler Chrysler Motors Co. v. Manuel, 362 S.W.3d 160, 170−177 (Tex. App.—Fort Worth 2012,

no pet.) (discussing enforceability of, and standards for enforcing, “best efforts” and “good faith” clauses). And some

have recognized a distinction between “best efforts” and a “good-faith effort.” See, e.g., Miller, supra, at 618 (“[T]he

best efforts standard should be more ‘onerous’ and ‘exacting’ than the standard of good faith.”) (internal footnotes

omitted); E. Allan Farnsworth, On Trying to Keep One’s Promises: The Duty of Best Efforts in Contract Law, 46 U.

PITT. L. REV. 1, 8 (1984) (“The two standards are distinct and that of best efforts is the more exacting.”). We are

concerned here only with the Board’s contractual promise to make a “good-faith effort” to obtain the Board’s

authorization of a higher payment amount.

13

Most states impose an implied duty of good faith and fair dealing into every private contract. See

RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981) (“Every contract imposes upon each party a duty of good faith

and fair dealing in its performance and its enforcement.”). Under Texas law, however, contracting parties owe a good-

faith duty only if they expressly agree to act in good faith, a statute imposes the duty, or the parties have a “special

9

obligation or independent cause of action; instead, it merely governs the conduct by which the

party must fulfill the contractual obligation to which it applies. N. Nat. Gas Co. v. Conoco, Inc.,

986 S.W.2d 603, 606–07 (Tex. 1998); see John Wood Grp. USA, Inc. v. ICO, Inc., 26 S.W.3d 12,

22 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) (holding that a contractual good-faith clause

“does not create any new obligations”).

C. “Essential elements” of a legally enforceable agreement

In considering whether the Board’s promise to make a good-faith effort to authorize a

higher payment states the essential terms of an enforceable agreement, we are faced first with the

obvious awkwardness of the contract’s language. Read literally, the Board promised to make a

good-faith effort to obtain its own authorization for the higher payments. 14 As the parties agree,

however, the Board’s staff negotiated and executed the contract on the Board’s behalf, with the

Board’s authority but without the Board’s express approval. Under these circumstances, it might

be more reasonable to construe the clause as a promise by the Board’s staff to make a good-faith

effort to obtain the Board’s authorization for any higher payment. And as both parties agree, the

staff had no authority to contractually obligate the Board to pay anything more than $50,000. To

the extent the staff agreed to make a good-faith effort, that promise is not enforceable against the

relationship” like that between an insurer and insured. Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d

212, 225 (Tex. 2002); Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 280 (Tex. 1998).

14

The Board notes that the contract actually states that the “Client” would make a good-faith effort to obtain

board authorization, and its introductory paragraph identifies the “Client” as “DFW International Airport,” not as the

DFW International Airport Board. The contract’s signature page, however, identifies the “Client” as the “DFW

International Airport Board,” with the word “Board” apparently added to the printed document in a typewriter font,

as if to correct that word’s omission on the signature page. In light of the fact that the Board’s vice-presented executed

the contract on behalf of the “Board” as the “Client,” and because both parties agree that the “Airport” is not a legal

entity, we conclude that the contract sufficiently identifies the Board as the Client.

10

Board—and even if it were, the remedy could never be to require the Board to pay more than it

authorized to staff to negotiate.

But even if we construe the clause as written, to require the Board to make a good-faith

effort to obtain its own authorization, Vizant fares no better. Under that construction, the Board

agreed to make a good-faith effort to authorize or approve or agree to make a higher payment in

the future. Importantly, the Board did not agree to authorize or agree to make a higher payment;

instead, it agreed to make a good-faith effort to agree to a higher payment. The issue is not whether

the Board made an enforceable “agreement to agree,” but whether it made an enforceable

agreement to make a good-faith effort to agree. We thus reject the Board’s argument that the good-

faith-effort clause is nothing more than an unenforceable agreement to agree. 15

Breaking down the clause, the Board merely promised to make an effort to agree to the

higher payment, but to do so in good faith. In this sense, its promise was the equivalent of a promise

to negotiate towards a future bargain in good faith. Some jurisdictions and commentators have

suggested that such a promise can be legally enforceable. See, e.g., Venture Assocs. Corp. v. Zenith

Data Sys. Corp., 96 F.3d 275, 278 (7th Cir. 1996) (Posner, C.J.) (“The notion of a legally

enforceable duty to negotiate in good faith toward the formation of a contract rests on somewhat

shaky foundations, though some contracts do create such a duty.”); Schmidt v. Campanella Sand

15

We would face different issues if the contract had not included the good-faith-effort language and instead

had simply provided that the Board agreed to agree to make a higher payment if Vizant’s recommendations produced

savings that generated fees greater than $50,000. That “agreement to agree” might be enforceable because the contract

provides a clear formula to determine the amount of the higher payment and contains all of the terms necessary for a

court to enforce it by applying that formula. See Fischer, 479 S.W.3d at 241, 244. But because the record establishes

that the Board’s staff was only authorized to bind the Board to contracts providing for payments up to $50,000, we

would then have to decide whether the staff had the authority to bind the Board to an agreement to agree to pay a

higher amount. But we need not resolve either of those issues because this contract did not include an agreement to

agree to make a higher payment; instead, it included an agreement to make a good-faith effort to agree to a higher

payment.

11

& Gravel Co., No. 00 C 6123, 2001 WL 881323, at *3 (N.D. Ill. Aug. 6, 2001) (“Promises to

negotiate in good faith are enforceable, regardless of whether the negotiations would lead to a new

contract.”), aff’d, 49 F. App’x 647 (7th Cir. 2002); E. Allan Farnsworth, Precontractual Liability

and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 COLUM. L. REV. 217, 236

(1987) (“A negotiating party may not with impunity break a promise made during negotiations if

the other party has relied on it.”) [hereinafter Precontractual Liability].

We have held, however, that agreements to negotiate toward a future contract are not

legally enforceable. See Fisher, 479 S.W.3d at 242 (“To be sure, contracting parties’ ‘agreement

to enter into negotiations, and agree upon the terms of a contract, if they can, cannot be made the

basis of a cause of action.’”) (quoting Radford v. McNeny, 104 S.W.2d 472, 474 (Tex. 1937)). And

Texas courts of appeals have held that this is true even if the party agreed to negotiate in good

faith. See, e.g., Barrand, Inc. v. Whataburger, Inc., 214 S.W.3d 122, 139 (Tex. App.—Corpus

Christi–Edinburg 2006, pet. denied) (“Regardless of whether a duty of good faith and fair dealing

arose under the parties’ agreement, Whataburger is not obligated to execute new contracts with

Barrand.”); John Wood Group, 26 S.W.3d at 21 (“By contrast, under Texas law, an agreement to

negotiate in the future is unenforceable, even if the agreement calls for a ‘good faith effort’ in the

negotiations.”); Maranatha Temple, Inc. v. Enter. Prods. Co., 893 S.W.2d 92, 104 (Tex. App.—

Houston [1st Dist.] 1994, writ denied) (“The fact that this particular agreement to negotiate in the

future includes a term calling for the appellees to put forth a ‘good faith effort’ in the negotiations

does not remove the agreement from this rule. The agreement, whatever its specific language, is

still an agreement to enter into future negotiations, and, as such, it is unenforceable.”). Consistent

with our precedent, we hold that the contract here does not state the essential terms of a legally

12

enforceable agreement requiring the Board to make a good-faith effort to authorize a higher

payment to Vizant. As a result, the agreement Vizant seeks to enforce is not a “contract subject to

this subchapter” under section 271.151(2), and chapter 271 does not waive the Board’s immunity.

D. “Consequential damages”

In reaching this result, we acknowledge that “many more jurisdictions have recognized the

enforceability of contracts to negotiate than have repudiated that doctrine [and] the trend line

appears to be moving steadily in favor of recognizing a cause of action for breach of a contract to

negotiate.” Butler v. Balolia, 736 F.3d 609, 614 (1st Cir. 2013) (listing cases). Perhaps a case may

yet come before this Court that convinces us to overrule our precedent and join the trending

majority of jurisdictions. But we need not consider such a drastic step in this case because chapter

271 would not waive the Board’s immunity even if we found the Board’s promise to be legally

enforceable.

Assuming both that the contract states the essential terms of a legally enforceable promise

to make a good-faith effort and that the Board breached that promise as Vizant alleges, we would

still need to determine the proper remedy for that breach. Because the Board would have breached

an “efforts” agreement, and not merely an agreement to agree to make a higher payment, the proper

remedy would not necessarily include an order requiring the Board to pay the $330,000 Vizant

seeks.

In this sense, the distinction between the Board’s promise to make a good-faith effort to

authorize a higher payment and a more general promise to make a good-faith effort to “negotiate”

a future bargain becomes more important. In the agreement-to-negotiate context, courts must not

overlook “the difference between an agreement to negotiate a contract and the contract to be

13

thrashed out in those negotiations. The agreement to negotiate does not contain the terms of the

final agreement. Otherwise it would be the final agreement.” Venture Associates, 96 F.3d at 279

(emphasis in original); see L–7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011)

(“These agreements [to negotiate] do not commit the parties to reach their ultimate contractual

objective; instead, such agreements create an ‘obligation to negotiate the open issues in good faith

in an attempt to reach the . . . objective within the agreed framework.’”) (quoting Adjustrite Sys.,

Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543, 548 (2d Cir. 1998)).

But here, the parties had already negotiated and agreed upon the formula that would

provide the terms of the potential future agreement: if the Board authorized the higher payment, it

would pay Vizant a specific percentage of the amount the airport saved as a result of Vizant’s

recommendations. The only contingency was whether the Board would in fact authorize the higher

payment.

The issue thus becomes whether Vizant could recover damages for the Board’s breach of

its promise to make a good-faith effort and, if so, the proper measure of those damages. Most

courts that have considered this issue have permitted a damages award, but “courts and scholars

have quibbled about the appropriate measure of damages when a contract to negotiate has been

breached.” Butler, 736 F.3d at 615. Some courts and commentators would allow only reliance

damages (the amount the plaintiff expended in reliance on its belief that the defendant was

negotiating in good faith), 16 while others have allowed expectancy damages (the amount the

16

See, e.g., Precontractual Liability at 267 (“[T]he appropriate remedy is not damages for the injured party’s

lost expectation under the prospective ultimate agreement but damages caused by the injured party’s reliance on the

agreement to negotiate.”). Professor Farnsworth explained that the remedy should be limited to reliance damages

because “there is no way of knowing what the terms of the ultimate agreement would have been, or even whether the

parties would have arrived at an ultimate agreement, so there is no possibility of a claim for lost expectation under

such an agreement.” Id. at 263. Thus, no claim for breach of an agreement to negotiate in good faith

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plaintiff expected to receive as a result of the anticipated contract). Butler, 736 F.3d at 616. In an

oft-quoted passage, Chief Judge Posner observed that the appropriate measure must depend on

whether the plaintiff can prove that the parties would have entered into a particular agreement if

the defendant had acted in good faith:

Damages for breach of an agreement to negotiate may be, although they are

unlikely to be, the same as the damages for breach of the final contract that the

parties would have signed had it not been for the defendant’s bad faith. If, quite

apart from any bad faith, the negotiations would have broken down, the party led

on by the other party’s bad faith to persist in futile negotiations can recover only

his reliance damages—the expenses he incurred by being misled, in violation of the

parties’ agreement to negotiate in good faith, into continuing to negotiate futilely.

But if the plaintiff can prove that had it not been for the defendant’s bad faith the

parties would have made a final contract, then the loss of the benefit of the contract

is a consequence of the defendant’s bad faith, and, provided that it is a foreseeable

consequence, the defendant is liable for that loss—liable, that is, for the plaintiff’s

consequential damages.

Venture Associates, 96 F.3d at 278.

We need not join this debate or resolve these issues here, however, because as Chief Judge

Posner noted, either measure of damages constitutes consequential damages incurred as a result of

the defendant’s failure to act in good faith, not as a result of the defendant’s failure to perform

under the anticipated contract. A contractual breach may give rise to either “direct” or

“consequential” damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816

will support recovery measured in the most generous way, by the expectation

interest. An award based on that interest would give the injured party the “benefit

of the bargain” that was not reached. But if no agreement was reached, and—in

contrast to the situation in which an offer has been made—it cannot even be

known what agreement would have been reached, there is no way to measure lost

expectation. Aside from this clear restriction, however, uncertainty prevails.

Id. at 223; see also L–7 Designs, 647 F.3d at 431 (“Although lost profits are not available where no agreement is

reached, . . . out-of-pocket costs incurred in the course of good faith partial performance are appropriate.”) (internal

citations omitted).

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(Tex. 1997). Direct damages are damages a defendant is “conclusively presumed” to have foreseen

as a result of its breach because they “are the necessary and usual result of,” and “flow naturally

and necessarily from,” that wrongful act. Id. (emphases added). By contrast, consequential

damages “result naturally, but not necessarily,” from the defendant’s breach, and are not “the usual

result of the wrong.” Id.

Here, Vizant seeks to recover damages totaling $330,000, representing the amount it

contends the Board would have agreed to pay had it made a good-faith effort to authorize a higher

payment. But the Board’s failure to pay any or all of that amount is not a “necessary” or “usual”

result of its alleged failure to make a good-faith effort. Even if the Board had made a good-faith

effort to authorize a higher payment, it could have refused to approve the higher amount for any

number of reasons, and Vizant would have had no contractual right to demand any additional

payment at all. We thus agree with Chief Judge Posner that, even if Vizant could recover

expectancy damages, those damages would be consequential damages incurred as a result of the

Board’s failure to make a good-faith effort, not direct damages incurred as a result of its failure to

pay an amount it had agreed to agree to pay.

As we have noted, subsection (b) of section 271.153 expressly provides that the damages

awardable on a contract claim for which chapter 271 waives governmental immunity cannot

include “consequential damages, except as expressly allowed under Subsection (a)(1).” TEX. LOC.

GOV’T CODE § 271.153. Subsection (a)(1) expressly includes certain consequential damages

within its reference to the balance due and owed: “any amount owed as compensation for the

increased cost to perform the work as a direct result of owner-caused delays or acceleration.” Id.

§ 271.153(a)(1). As we explained in Zachry, “Read together, Subsections (a)(1) and (b) allow

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recovery of contract damages, including delay damages, but excluding other consequential

damages.” Zachry, 449 S.W.3d at 112. So even if the contract here stated the essential terms of a

legally enforceable promise to make a good-faith effort, chapter 271 does not “clearly and

unambiguously” waive the Board’s immunity because any amounts Vizant could possibly recover

for breach of that promise constitute consequential damages other than delay damages.

IV.

Conclusion

Because Vizant does not challenge the court of appeals’ dismissal of its fraud and

promissory-estoppel claims, we affirm that part of the court of appeals’ judgment. We reverse the

part of the court of appeals’ judgment affirming the trial court’s denial of the Board’s jurisdictional

plea against Vizant’s breach-of-contract claim. Because governmental immunity bars all of

Vizant’s claims against the Board and chapter 271 does not waive that immunity, we render

judgment dismissing all claims.

_____________________

Jeffrey S. Boyd

Justice

Opinion delivered: May 17, 2019

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