City of League City, Texas v. Jimmy Changas, Inc.

Supreme Court of Texas

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No. 21-0307

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City of League City, Texas,

Petitioner,

v.

Jimmy Changas, Inc.,

Respondent

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On Petition for Review from the

Court of Appeals for the Fourteenth District of Texas

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Argued October 4, 2022

JUSTICE BOYD delivered the opinion of the Court, in which Chief

Justice Hecht, Justice Lehrmann, Justice Devine, Justice Busby, Justice

Huddle, and Justice Young joined.

JUSTICE YOUNG filed a concurring opinion.

JUSTICE BLACKLOCK filed a dissenting opinion, in which Justice

Bland joined as to Part III.

This interlocutory appeal involves the thorny

governmental/proprietary dichotomy in a breach-of-contract context.

The court of appeals held that governmental immunity does not protect

a city against a breach-of-contract claim because the city was acting in

its proprietary capacity when it entered into the contract. We agree and

affirm.

I.

Background

The Texas Local Government Code authorizes cities to grant and

loan public funds for various beneficial purposes. Chapter 373, for

example, permits municipal expenditures for “community development”

purposes, including the “elimination of slums and areas affected by

blight” and the “prevention of blighting influences and of the

deterioration of property and neighborhood and community facilities

important to the welfare of the community.” TEX. LOC. GOV’T CODE

§ 373.002(b). Similarly, chapter 374 authorizes cities to fund “urban

renewal” programs “to encourage urban rehabilitation” and “to provide

for the redevelopment of slum and blighted areas.” Id. § 374.013(a).

This dispute involves an “Economic Development Incentives

Grant Agreement” under chapter 380, which permits cities to provide

“economic development” incentives “to promote state or local economic

development and to stimulate business and commercial activity in the

municipality.” Id. § 380.001(a). The Agreement describes plans by

Jimmy Changas, Inc. to invest $5 million to construct a 10,000-square-

foot restaurant facility on a particular tract within the City of League

City’s entertainment district. Jimmy Changas projected the facility

would be at least equal in quality to an existing Jimmy Changas

restaurant in Pasadena, Texas, and would create at least eighty full-

time and forty part-time jobs. League City agreed that, if Jimmy

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Changas completed the facility as projected, 1 the City would reimburse

all of Jimmy Changas’s capital-recovery fees for water and wastewater

services, all fees Jimmy Changas would pay to obtain plat approvals and

building permits, and a percentage of Jimmy Changas’s local-sales-tax

payments based on the restaurant’s total annual sales.

Consistent with chapter 380’s authorization, the Agreement

recited that its purposes were “to promote state or local economic

development and to stimulate business and commercial activity in the

City,” to “contribute to the economic development of the City by

generating employment and other economic benefits to the City,” and to

encourage Jimmy Changas to develop the property “in a manner that

establishes the area as a regional destination.”

After Jimmy Changas completed the project, League City refused

to provide the reimbursements, contending that Jimmy Changas failed

to timely submit documentation establishing it had invested at least

$5 million and created at least eighty full-time jobs. Jimmy Changas

contends it submitted all the required documentation and that the City

waived any complaint about the timeliness of its submission by

continuously requesting additional documents beyond those Jimmy

Changas initially submitted.

Jimmy Changas filed this suit asserting that League City

breached the Agreement by refusing to pay the promised

reimbursements. The City filed a plea to the jurisdiction, arguing that

1 The Agreement did not require Jimmy Changas to build and operate

the restaurant as projected, but it conditioned the City’s incentive payments

on its doing so.

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governmental immunity bars the claim and that no statute waives that

immunity. The trial court denied the plea, and the City filed an

interlocutory appeal. 2 The court of appeals affirmed, holding that

governmental immunity does not apply to Jimmy Changas’s claim

because League City was acting in its proprietary capacity—as opposed

to its governmental capacity—when it entered into the Agreement. 619

S.W.3d 819, 828 (Tex. App.—Houston [14th Dist.] 2021). We granted the

City’s petition for review and now affirm.

II.

Governmental and Proprietary Functions

To “shield the public from the costs and consequences of

improvident actions of their governments,” sovereign immunity

generally bars claims against the State and its agencies. Tooke v. City of

Mexia, 197 S.W.3d 325, 332 (Tex. 2006). Municipal corporations often

function in a governmental capacity on the State’s behalf but at other

times function as “a private corporation,” City of Tyler v. Ingram, 164

S.W.2d 516, 519 (Tex. 1942), “for the private advantage and benefit of

the locality and its inhabitants.” Wasson Ints., Ltd. v. City of

Jacksonville (Wasson I), 489 S.W.3d 427, 433 (Tex. 2016). Because

“sovereign immunity is inherent in the State’s sovereignty,”

municipalities “share that protection when they act ‘as a branch’ of the

2 See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8) (permitting

interlocutory appeal from an order that “grants or denies a plea to the

jurisdiction by a governmental unit”). The City also filed a summary-judgment

motion and a counterclaim to recover its attorney’s fees and expenses. The trial

court denied summary judgment, but we do not address that ruling in this

interlocutory appeal.

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State but not when they act ‘in a proprietary, non-governmental

capacity.’” Wasson Ints., Ltd. v. City of Jacksonville (Wasson II), 559

S.W.3d 142, 146 (Tex. 2018) (quoting Wasson I, 489 S.W.3d at 430).

The common law has long recognized this dichotomy when cities

are sued in tort, and we held in Wasson I that it also applies when cities

are sued for breach of contract. See Wasson I, 489 S.W.3d at 439. To

determine whether a municipality engaged in a governmental or

proprietary function when it entered into a particular contract, we look

to both the common law and to Texas statutes.

A. Common-law definitions

Under the common law, proprietary functions are those that a city

performs “in its discretion,” “primarily for the benefit of those within the

corporate limits of the municipality,” and not as “an arm of the

government” or “a branch of the state” or “under the authority, or for the

benefit, of the sovereign.” Wasson II, 559 S.W.3d at 147 (quoting Wasson

I, 489 S.W.3d at 427; Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex.

1986); Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949)).

Proprietary functions “can be, and often are, provided by private

persons.” Id. (quoting Joe R. Greenhill & Thomas V. Murto III,

Governmental Immunity, 49 TEX. L. REV. 462, 463 (1971)).

Governmental functions under the common law are those that

involve “the performance of purely governmental matters solely for the

public benefit,” are “normally performed by governmental units,” and

are performed “as a branch of the state—such as when a city ‘exercise[s]

powers conferred on [it] for purposes essentially public . . . pertaining to

the administration of general laws made to enforce the general policy of

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the state.’” Id. (quoting Wasson I, 489 S.W.3d at 433 (in turn quoting

City of Galveston v. Posnainsky, 62 Tex. 118, 127 (1884)); Tooke v. City

of Mexia, 197 S.W.3d 325, 343 (Tex. 2006) (in turn quoting Dilley, 222

S.W.2d at 993); Greenhill & Murto, 49 TEX. L. REV. at 463).

B. Statutory definitions

The Texas Constitution specifically authorizes the legislature to

define governmental and proprietary functions “for all purposes.” TEX.

CONST. art. XI, § 13. Exercising this authority, the legislature has

addressed the dichotomy for purposes of tort claims but not for claims

for breach of contract. Generally consistent with the common-law

descriptions, the Tort Claims Act defines proprietary functions as “those

functions that a municipality may, in its discretion, perform in the

interest of the inhabitants of the municipality.” TEX. CIV. PRAC. & REM.

CODE § 101.0215(b). Statutorily, proprietary functions include, but are

not limited to, “the operation and maintenance of a public utility,”

“amusements owned and operated by the municipality,” and “any

activity that is abnormally dangerous or ultrahazardous.” Id.

By contrast, the Act defines governmental functions as “those

functions that are enjoined on a municipality by law and are given it by

the state as part of the state’s sovereignty, to be exercised by the

municipality in the interest of the general public.” Id. § 101.0215(a). In

addition to this general definition, the Act includes a non-exclusive list

designating thirty-six specific activities as governmental functions,

ranging from “police and fire protection and control” to “animal control.”

Id. § 101.0215(a)(1), (33).

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C. Application to contract claims

“Although these statutory definitions and designations apply

expressly to tort claims, we explained in Wasson I that they can also ‘aid

our inquiry’ when applying the dichotomy in the contract-claims

context.” Wasson II, 559 S.W.3d at 147–48 (quoting Wasson I, 489

S.W.3d at 439). “We thus consider” in contract cases “both the statutory

provisions and the common law in determining whether a city’s

contractual conduct is governmental or proprietary.” Id. at 148.

If a particular activity is not included in the statutory list of

governmental functions, we look to the general definitions under both

the common law and the statute. Id. at 150. Based on those definitions,

we consider the following four factors: (1) whether the city’s act of

entering into the contract was mandatory or discretionary, (2) whether

the contract was intended to benefit the general public or the city’s

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

behalf when it entered the contract, and (4) whether the city’s act of

entering into the contract was sufficiently related to a governmental

function to render the act governmental even if it would otherwise have

been proprietary. Id. 3

3 Our dissenting and concurring colleagues do not dispute that we have

recognized the governmental/proprietary distinction as fundamental to the

inherent nature of a municipal corporation for nearly as long as this Court has

existed. See, e.g., Keller v. City of Corpus Christi, 50 Tex. 614, 622 (1879)

(explaining that “municipal corporations possess a double character,—the one,

governmental, legislative, or public; the other, proprietary or private,—and

that for the acts of their agents in their public capacity no action lies unless it

be given by statute; while for other acts done in their private capacity there is

an implied or common-law liability”); Peck v. City of Austin, 22 Tex. 261, 264

(1858) (explaining that a municipal corporation, “though a municipal

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III.

League City’s Agreement

“The distinction between a municipality’s governmental and

proprietary functions ‘seems plain enough, but the rub comes when it is

sought to apply the test to a given state of facts.’” Id. at 146–47 (quoting

City of Houston v. Wolverton, 277 S.W.2d 101, 103 (Tex. 1955)). Under

these facts, League City argues that it engaged in a governmental

function when it entered into the agreement at issue because (1) its

action falls within the statutory list of governmental functions and,

(2) even if it doesn’t, it falls within the statute’s and the common law’s

general definitions. We disagree with both arguments.

A. Statutory list

Among the thirty-six statutorily designated governmental

functions, the Tort Claims Act includes “community development or

urban renewal activities undertaken by municipalities and authorized

under Chapters 373 and 374, Local Government Code.” TEX. CIV. PRAC.

& REM. CODE § 101.0215(a)(34). League City concedes that it entered

government, and therefore public, may also occupy towards individuals the

position of a private corporation, and be liable upon its contracts, or for the

wrongful acts of its officers, done under its authority, and in pursuance of its

will, expressed or implied”); see also Wasson II, 559 S.W.3d at 146–47 (citing

cases); Wasson I, 489 S.W.3d at 433–34 (citing cases). Instead, they question

whether the Wasson factors provide a proper framework for drawing that

distinction. See post at __ (YOUNG, J., concurring), __ (BLACKLOCK, J.,

dissenting). But we did not create the factors out of whole cloth in Wasson II.

Instead, we derived them directly from a long line of this Court’s common-law

decisions and the Tort Claims Act’s express statutory definitions. See Wasson

II, 559 S.W.3d at 147–48, 150. No party in this case urges us to reconsider the

governmental/proprietary distinction or the considerations we have long relied

upon to draw that distinction.

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into the Agreement with Jimmy Changas as an economic-development

activity under chapter 380 of the Local Government Code and not as a

community-development or urban-renewal activity under chapters 373

or 374. Nevertheless, the City contends that subsection (a)(34)

encompasses a broad category of “community development” activities

and that its Agreement with Jimmy Changas “falls within” that

category. In support of this contention, the City relies on the San

Antonio Court of Appeals’ opinion in CHW-Lattas Creek, L.P. v. City of

Alice, 565 S.W.3d 779, 786 (Tex. App.—San Antonio 2018, pet. denied),

and on a footnote in our opinion in Hays Street Bridge Restoration Group

v. City of San Antonio, 570 S.W.3d 697, 705 n.46 (Tex. 2019).

As here, CHW-Lattas Creek involved an economic-development

agreement under chapter 380 between the City of Alice and a developer,

CHW. In that agreement, CHW agreed to convey undeveloped land to

Alice in exchange for Alice’s agreement to develop the property by

constructing, among other things, an aquatics center, amphitheater,

conference center, and hotel. 565 S.W.3d at 782–83. Relying primarily

on legislative history rather than on subsection (a)(34)’s plain language,

the court concluded that subsection (a)(34) specifies activities under

chapters 373 and 374 only “because the two cases in which courts had

found community development activities to be proprietary involved

community development activities undertaken under those two

chapters.” Id. at 786 (citing City of Houston v. Sw. Concrete Constr., Inc.,

835 S.W.2d 728 (Tex. App.—Houston [14th Dist.] 1992, writ denied);

Josephine E. Abercrombie Ints., Inc. v. City of Houston, 830 S.W.2d 305

(Tex. App.—Corpus Christi–Edinburgh 1992, writ denied)). The court

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held that Alice was engaged in a governmental function when it entered

into the economic-development contract under chapter 380 because

subsection (a)(34) includes “all community development activities

regardless of which chapter of the Local Government Code applies.” Id.

We disagree with the CHW-Lattas Creek court’s construction of

subsection (a)(34). “A statute’s unambiguous language ‘is the surest

guide to the Legislature’s intent,’ because ‘the Legislature expresses its

intent by the words it enacts and declares to be the law.’” Tex. Health

Presbyterian Hosp. of Denton v. D.A., 569 S.W.3d 126, 135–36 (Tex.

2018) (first quoting Sullivan v. Abraham, 488 S.W.3d 294, 297 (Tex.

2016), then quoting Molinet v. Kimbrell, 356 S.W.3d 407, 414 (Tex.

2011)). Subsection (a)(34) expressly includes only community-

development activities under chapter 373 and urban-renewal activities

under chapter 374, and we cannot rewrite the statute by judicially

incorporating other types of activities. Although the legislature has

specified that local community-development and urban-renewal

activities intended to remove “slums” and “blight” qualify as

governmental functions, it has never suggested that local economic-

development activities intended to promote a local business

environment do as well.

Moreover, even if we consider the history of the bill that resulted

in subsection (a)(34), we note that the CHW-Lattas Creek court

overlooked the fact that the bill as introduced would have included

“community development activity” without identifying any particular

chapter of the Local Government Code. See Tex. S.B. 1697, 75th Leg.,

R.S. 1997 (as introduced). The bill was amended, however, to specify

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only “community development activities undertaken . . . under Chapter

373,” and later amended to also specify urban-renewal activities under

chapter 374. Tex. S.B. 1697, 75th Leg., R.S. (1997) (as amended). That

the bill began with a broad reference to community-development

activities and then narrowed to include only community-development

and urban-renewal activities “authorized under” chapters 373 and 374

undercuts the CHW-Lattas Creek court’s conclusion that the legislature

intended a broad definition. See id.; CHW-Lattas Creek, 565 S.W.3d at

786. We thus disapprove of the CHW-Lattas Creek court’s construction

of subsection (a)(34). 4

League City contends, however, that our opinion in Hays Street

Bridge confirms the correctness of the San Antonio court’s holding in

CHW-Lattas Creek. Hays Street Bridge involved an agreement in which

the City of San Antonio contracted with a group of concerned residents

to restore a deteriorated bridge that served as a “historic cultural

landmark.” 570 S.W.3d at 699. We agreed that the city’s actions in

entering into the contract fell within the description of community-

development and urban-renewal activities in subsection (a)(34), as well

as the description of “bridge construction and maintenance” in

4 We do not pass judgment, however, on the CHW-Lattas Creek court’s

ultimate conclusion that the City of Alice was engaged in a governmental

function when it entered into the contract at issue in that case. See 565 S.W.3d

at 787. Even if that contract did not fall within subsection (a)(34)’s description,

it concerned many different municipal functions that may otherwise be

considered governmental, including “street construction and design,” “sanitary

and storm sewers,” “waterworks,” “parks and zoos,” “civic, convention centers,

or coliseums,” and “recreational facilities, including but not limited to

swimming pools, beaches, and marinas.” TEX. CIV. PRAC. & REM. CODE

§ 101.0215(a)(1), (9), (11), (13), (16), (23).

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subsection (a)(4). Id. at 705. In doing so, we disagreed with the residents’

argument that subsection (a)(34)’s reference to chapters 373 and 374

rendered that subsection inapplicable. Id. at 705 n.46.

We did so, however, not because we thought subsection (a)(34)

means something different than it says but because the Tort Claims

Act’s classifications merely serve as “guidance in the contract-claims

context—rather than binding lists to be interpreted narrowly.” Id. We

did not hold in Hays Street Bridge that any agreement that touches on

“community development” falls within subsection (a)(34) such that

courts must conclude that a city engaged in a governmental function by

entering into such an agreement. Instead, we focused on whether the

contract fell under the broader common-law and statutory definitions of

a governmental function by considering the Wasson factors. Id. at

705–06. 5

Nor can we conclude that economic-development activities under

chapter 380 are so similar to community-development and urban-

renewal activities under chapters 373 and 374 as to extend subsection

(a)(34) by implication. As mentioned, chapter 373 allows municipalities

5 The City also relies on another San Antonio Court of Appeals opinion,

which broadly construed subsection (a)(34)’s reference to “community

development or urban renewal activities” as “activities which a municipality

funds or incentivizes through tax abatements or grants to encourage

development . . . .” City of Helotes v. Page, No. 04-19-00437-CV, 2019 WL

6887719, at *3 n.3 (Tex. App.—San Antonio Dec. 18, 2019, pet. denied). We

need not agree or disagree with this definition but need only note that it does

not transform a contract under chapter 380 into a contract under chapter 373

or 374. Indeed, the Page court did not hold that it did, but instead relied on the

general definitions and applied the Wasson factors to conclude that the City of

Helotes engaged in a “vendor’s fair” as a proprietary function. See id. at *3–4.

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to create “community development program[s]” designed to “improve the

living and economic conditions of persons of low and moderate income”

and “aid in the prevention or elimination of slums and blighted areas,”

among other things. TEX. LOC. GOV’T CODE § 373.004 (emphasis added).

Similarly, chapter 374 enables municipalities to prevent and eliminate

slums and blight through “the rehabilitation, the conservation, or the

slum clearance and redevelopment of the area.” Id. § 374.011(a)(1)

(emphasis added). Chapter 380, on the other hand, permits

municipalities to engage in activities “to promote state or local economic

development and to stimulate business and commercial activity in the

municipality.” Id. § 380.001(a). Chapter 380 says nothing of slums,

blight, or lower-economic living conditions, and League City does not

assert that the Agreement was intended to address those concerns. 6

The stated purpose of the Agreement was “to stimulate business

and commercial activity,” not to undertake “urban renewal activities,”

see id. § 374.003(25) (“‘Urban renewal activities’ includes slum

clearance, redevelopment, rehabilitation, and conservation activities to

prevent further deterioration of an area that is tending to become a

blighted or slum area.”), or improve conditions of lower-income

communities, see id. § 373.002(b) (stating that activities taken under

this chapter should be “directed toward” “elimination of slums and areas

6 The Comprehensive Annual Financial Report for the City makes no

mention of blight or slum neighborhoods. It speaks of the City’s low

employment rate and its “outstanding neighborhoods, superior schools, parks,

trails and waterfront.” The City’s Economic Development Profile notes the City

“continuously ranks among the best communities in the state . . . with the

average annual household income of more than $100,000, strong school

districts, high community public safety ratings, and abundant recreational

activities.”

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affected by blight,” “elimination of conditions detrimental to the public

health, safety, and welfare,” and “alleviation of physical and economic

distress through the stimulation of private investment and community

revitalization in slum or blighted areas”). As the City itself concedes, the

Agreement’s main purposes were “creating local jobs and increasing

state sales tax revenue.” In short, the purpose of the Agreement under

chapter 380 was not so similar to the purposes of chapter 373 and 374

activities so as to consider this an agreement for “community

development or urban renewal” under subsection (a)(34).

B. General definitions

When a particular municipal activity is not included in the

statutory list of governmental functions, we look to the general

definitions to determine whether the activity is “governmental” or

“proprietary.” Wasson II, 559 S.W.3d at 150. Particularly in breach-of-

contract cases, we consider “both the statutory provisions and the

common law in determining whether a city’s contractual conduct is

governmental or proprietary.” Id. at 148. League City argues that, even

if its conduct in entering into the Agreement does not fall within

subsection (a)(34), it was nevertheless engaged in a governmental

function under the general definitions.

As explained, we have identified four factors that summarize both

the common-law and the statutory definitions. Id. at 150. League City

argues that these factors establish it was engaged in a governmental

function when it entered into the Agreement with Jimmy Changas. We

disagree.

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1. Discretionary activity

Under the first factor, we consider whether the City’s act of

entering into the contract was mandatory or discretionary. Id. Like the

common law, the statutory definitions provide that governmental

functions are those that “are enjoined on a municipality by law,” while

proprietary functions are those that “a municipality may, in its

discretion, perform.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).

League City does not dispute that its decision to enter into the

Agreement was a discretionary act. Chapter 380 states that

municipalities “may establish and provide for the administration of one

or more programs . . . to promote state or local economic development

and to stimulate business and commercial activity in the municipality.”

TEX. LOC. GOV’T CODE § 380.001(a) (emphasis added). Neither chapter

380 nor any other statute required the City to use public funds to

promote economic development or to stimulate local business. This

factor clearly weighs in favor of concluding that the City engaged in a

proprietary function by entering into the Agreement.

2. Primarily for the benefit of City residents

Under the second factor, we consider whether the municipality

entered into the contract to benefit the general public or the City’s

residents. Wasson II, 559 S.W.3d at 150. Under the common law, this

factor distinguishes a municipal corporation’s local purpose to serve its

residents from those it may perform “as the agent of the state in

furtherance of general law for the interest of the public at large.” City of

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Houston v. Shilling, 240 S.W.2d 1010, 1011–12 (Tex. 1951). 7 In the same

way, the statute distinguishes between proprietary functions a city

performs “in the interest of the inhabitants of the municipality” and

governmental functions performed “in the interest of the general

public.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).

The Agreement between League City and Jimmy Changas

expressly and repeatedly states that its purposes were to “stimulate

business and commercial activity in the City,” to “contribute to the

economic development of the City by generating employment and other

economic benefits to the City,” “to encourage [Jimmy Changas] to

develop the [restaurant] in a manner that establishes the area as a

regional destination,” to “promote local economic development,” and to

“raise funds for the city budget.” [Emphases added.]

Nevertheless, League City contends that it intended the

Agreement to benefit the State and all of its citizens because the State

would receive most of (and thus be the primary beneficiary of) Jimmy

Changas’s sales-tax payments, the Agreement did not require Jimmy

Changas to hire only League City residents, and the establishment of

the entertainment district as a “regional destination” would benefit

visitors as well as the City’s residents. Although we do not doubt that

Texas citizens other than League City residents could receive some

benefit from a new Jimmy Changas restaurant within the City’s

7 See also City of Houston v. Quinones, 177 S.W.2d 259, 261 (Tex. 1944)

(distinguishing an act that is “public in its nature and performed as the agent

of the State in furtherance of general law for the interest of the public at large”

from those “performed primarily for the benefit of those within the corporate

limits of the municipality”).

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entertainment district, the Agreement itself confirms that the City

entered into it “primarily for the benefit of those within the corporate

limits of the municipality.” Wasson II, 559 S.W.3d at 151 (emphasis

added) (quoting Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex. 1986)).

This factor weighs in favor of a proprietary function.

3. Acting on the City’s own behalf

Under the third factor, we consider whether the City was acting

on the State’s behalf or on its own behalf by entering into the Agreement.

Wasson II, 559 S.W.3d at 150. This factor further distinguishes between

acts a city chooses to perform “in its private capacity” to benefit its

residents from those “sovereign” acts it is required to perform as an “arm

or agent of the state in the exercise of a strictly governmental function

solely for the public benefit.” Shilling, 240 S.W.2d at 1011–12; Dilley,

222 S.W.2d at 993. The statute similarly defines governmental functions

as those “given it by the state as part of the state’s sovereignty.” TEX.

CIV. PRAC. & REM. CODE § 101.0215(a).

We have recognized that when the first and second factors both

indicate that a city entered into a contract as a proprietary function—

that is, it entered into the contract as a matter of its own discretion and

did so primarily to benefit its own residents—then the city was likely

acting on its own behalf, at least absent some clear indication to the

contrary. See Wasson II, 559 S.W.3d at 152. Nevertheless, even when a

city exercises its own discretion to enter a contract, it may be acting on

the State’s behalf when, for example, the State provides funding or other

support for the city’s efforts. See, e.g., Hays Street Bridge, 570 S.W.3d at

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706 (holding that the third factor weighed towards governmental

function because the State provided most of the necessary funding).

League City contends that it entered into the Agreement on the

State’s behalf because its purpose was to “create new jobs in the state

and increase tax revenue for the state, both of which develop the

economy of the state.” Again, while we do not doubt that local economic-

development activities can improve the State’s overall economy, the

terms and requirements of this Agreement do not indicate in any way

that the City entered into it on the State’s behalf. This factor weighs

towards a proprietary function.

4. Relation to a governmental function

The final factor considers “whether the city’s act of entering into

the [contract] was sufficiently related to a governmental function to

render the act governmental even if it would otherwise have been

proprietary.” Wasson II, 559 S.W.3d at 150. “We have long held that not

all activities ‘associated’ with a governmental function are

‘governmental,’” and “[t]he fact that a city’s proprietary action ‘touches

upon’ a governmental function is insufficient to render the proprietary

action governmental.” Id. at 152–53. “Instead, a city’s proprietary action

may be treated as governmental only if it is essential to the city’s

governmental actions.” Id. at 153.

League City contends that it engaged in a governmental function

when it entered into the Agreement because that action was “sufficiently

related” to the governmental function of “sustain[ing] and promot[ing]

the economy, employment, and economic opportunities of the people of

Texas.” See TEX. GOV’T CODE § 315.003. The City notes that in chapter

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501 of the Local Government Code—the Development Corporation Act—

the legislature has recognized a “public purpose of this state in

promoting the welfare of residents of this state economically by securing

and retaining business enterprises and as a result maintaining a higher

level of employment, economic activity, and stability,” and has

specifically authorized municipalities to create nonprofit corporations to

promote that purpose. See TEX. LOC. GOV’T CODE §§ 501.004(a)(4), .051.

Relying on City of Leon Valley Economic Development Corp. v. Little, 522

S.W.3d 6, 10 (Tex. App.—San Antonio 2017, pet. denied), the City

contends that such actions constitute governmental functions.

We rejected that very conclusion, however, in Rosenberg

Development Corp. v. Imperial Performing Arts, Inc., 571 S.W.3d 738

(Tex. 2019). As we explained there, the Development Corporation Act

describes economic-development corporations “as private, nonprofit

corporations” and expressly denies them “significant governmental

characteristics—political-subdivision status and attributes of

sovereignty” and “thus evinces clear legislative intent that an economic

development corporation is not an arm of state government.” Id. at

749–50. Local economic development and job creation are undoubtedly

“public purposes,” and projects to promote such purposes “have a

governmental flair, but not so uniquely or so definitively that only a

governmental entity would engage in those activities.” Id. at 750. In

short, entities engaged in economic-development programs do not

provide services that are “essential” to the functions of the government.

Id. at 750–51.

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The City also argues that chapter 381 of the Local Government

Code authorizes counties to develop programs “for state or local

economic development” and “to stimulate, encourage, and develop

business location and commercial activity in the county.” TEX. LOC.

GOV’T CODE § 381.004(b)(1),(3). And, the City points out, these are

governmental functions when performed by a county because “all of

their functions are ‘governmental’ in nature.” Nueces County v. San

Patricio County, 246 S.W.3d 651, 652 (Tex. 2008). If a county’s local

economic-development activities are governmental functions, the City

argues, then a city’s local economic-development activities must be too.

This argument, however, confuses the nature of an entity with the

nature of its functions. As we explained in Nueces County, all of a

county’s functions are governmental because counties are “‘involuntary

agents of the state’ without the power to serve the local interests of their

residents” and as such “have no ‘proprietary’ functions.” Id. (citing TEX.

CONST. art. XI, § 1 interp. commentary; Posnainsky, 62 Tex. at 128).

Unlike counties, municipal corporations are established to serve their

local residents by engaging in both proprietary and governmental

functions. Because of the nature of a municipality, the nature of its

functions matters.

We do not hold, however, that governmental economic-

development activities can never constitute a governmental function.

Ultimately, all economic-development activities are “local,” and

circumstances could conceivably exist in which the State requires a

municipality to engage in such activities as an arm of the State for the

greater benefit of the general public. But that is not what happened

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here. Here, the State merely authorized cities to enter into contracts to

promote their local economy, and League City made the discretionary

decision to enter into such a contract with Jimmy Changas. But the

contract itself confirms that it did so by choice and primarily to benefit

the City and its residents. That discretionary decision was not essential

to any governmental function. This factor, as the others, weighs in favor

of holding that the City engaged in a proprietary function.

IV.

Conclusion

The court of appeals correctly determined that League City

engaged in a proprietary function when it entered into the Agreement

with Jimmy Changas. As a result, governmental immunity does not

apply to protect the City against Jimmy Changas’s claim for breach of

that Agreement. We do not address the merits of that claim or any other

defenses the City may raise. We affirm the court of appeals’ judgment

and remand the case to the trial court for further proceedings.

Jeffrey S. Boyd

Justice

OPINION DELIVERED: June 9, 2023

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