Texas Supreme Court immunity case holds that specific performance is now an available remedy in certain breach of contract cases against governmental entities

Today, March 15, 2019, in its potentially sweeping decision in Hays Street Bridge Restoration Group v. City of San Antonio, the Texas Supreme Court held that the Local Government Contract Claims Act (“the Act”) waives governmental immunity for the remedy of specific performance on breach of contract claims for providing goods and services to governmental entities.

Broadly, the Act waives governmental immunity to suits for breach of a contract for providing goods or services to a governmental entity. It allows vendors to recover the “balance due and owed” on such a contract. So in the typical contract in which a governmental entity contracts with a vendor to purchase goods or services in exchange for the payment of money, the Act provides an avenue for vendors to recover the money owed to them in the event of nonpayment.

But not all such contracts are that simple. In some contracts, goods are exchanged for governmental services (or services are exchanged for governmental goods). In those contracts, monetizing the “balance due and owed” can be difficult (and potentially impossible). And for that reason, some innovative plaintiffs have tried to obtain the remedy of specific performance under the Act—i.e., a court order compelling the governmental entity to perform its contractual obligations.

Prior to today’s decision, the Act had been interpreted as allowing money damages only (with the exception of contracts for large-volume sales of reclaimed water for industrial purposes, for which the remedy of specific performance was expressly allowed). The court today, in a short opinion, rejected that interpretation.

Reasoning that specific performance is an equitable remedy, the court held that the Act “limits damages, not remedies.” And because the Act does not “mention[] any equitable remedy…to read former Section 271.153 as impliedly prohibiting every suit seeking an equitable remedy against a local governmental entity would too greatly restrict the general waiver of immunity in Section 271.152.”

Today’s decision fundamentally alters the previously-understood scope of the Act’s waiver of governmental immunity and expands what remedies parties contracting with governmental entities may seek when filing suit for breach of contract. Contracting parties are no longer limited to claims for monetary damages. Particularly in cases where monetary compensation for a breach of contract claim may be difficult, for whatever reason, parties may now claim relief in the form of specific performance or any other “equitable remedy”.

For governmental entities, Hays Street Bridge makes the decisions made during contract negotiation and drafting all the more critical. Careful drafters may be able to structure transactions to retain immunity to the greatest extent possible, and to limit remedies available insofar as immunity is waived.

As always, if you have any questions about this decision or other concerns about the current trends in governmental-immunity law, we are always available to help. In particular, you can talk to Jose de la Fuente at jdelafuente@lglawfirm.com or 512.322.5849 or James Parker at jparker@lglawfirm.com or 512.322.5878 to discuss these issues and develop options for structuring your contracts.

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