SCOTX Grants Petition For Review Over Local Government Arbitration Question

On Friday, the Supreme Court of Texas agreed to consider whether the San Antonio River Authority must arbitrate a dispute related to the costs associated with a $10 million dam project.  In San Antonio River Authority v. Austin Bridge & Road, L.P. and Hayward Baker Inc., No. 17-0905, the San Antonio River Authority (“River Authority”) entered into a construction contract to repair and stabilize the Medina Lake Dam with Austin Bridge & Road, L.P. (“Austin Bridge”) on behalf of itself and several other local governmental entities.  The parties’ contract contained a binding arbitration clause.

Later, Austin Bridge subcontracted portions of the Medina Lake Dam project to Hayward Baker Inc. (“Hayward”).  While performing its obligations under the company’s contract with Austin Bridge, Hayward incurred higher-than-expected cement costs, which the River Authority refused to reimburse the company for.  In response, Hayward initiated arbitral proceedings against Austin Bridge seeking payment for the additional materials.  Austin Bridge then sought to initiate arbitration against the River Authority over its purported breach of contract.

Next, the River Authority sought to dismiss arbitration based on a governmental immunity defense.  An arbitrator denied the River Authority’s motion and the River Authority filed a lawsuit seeking both declaratory and injunctive relief.

In its suit, the River Authority sought a declaration that appellees’ breach of contract claim was barred by governmental immunity. The River Authority argued section 271.152 of the Texas Local Government Code does not waive its immunity from suit because: (1) the Agreement does not constitute a contract within the requirements of the section, and (2) appellees did not claim damages within limitations of the section. See TEX. LOC. GOV’T CODE ANN. § 271.152 (West 2016) (providing for a limited waiver of governmental immunity in breach of contract claims). The River Authority also sought a temporary restraining order to enjoin appellees from participating any further in the pending arbitration proceeding until a final adjudication of its declaratory judgment claim by the trial court.

In reply, Austin Bridge and Hayward jointly filed a motion for summary judgment and argued the question of whether the River Authority enjoyed governmental immunity in the case was for the arbitrator to decide.  Additionally, the two companies argued “even if waiver of governmental immunity is a matter for the trial court to decide, section 271.152 of the Texas Local Government Code waives the River Authority’s immunity from suit as a matter of law because the Agreement constitutes a contract under section 271.152 and the damages claimed are recoverable under the section’s limitations.”

The River Authority then filed a cross-motion for summary judgment as well as a motion to stay arbitral proceedings.  The River Authority also argued the issue of governmental immunity should be decided by the court.  The trial court granted the motion for summary judgment that was filed by Austin Bridge and Hayward and dismissed the case.  After that, the River Authority filed an appeal with Texas’s Fourth Court of Appeals in San Antonio.

In a memorandum opinion, the San Antonio Court of Appeals ruled “the issue of whether section 271.152 of the Texas Local Government Code waives the River Authority’s immunity from suit is a matter for the court to determine” and reversed that “portion of the trial court’s order denying the River Authority’s motion to stay arbitration and render judgment declaring the matter of immunity should be determined by the trial court.”  In addition, the appellate court held “the trial court did not err in granting appellees’ motion for summary judgment and denying the River Authority’s motion for summary judgment” and affirmed “the portion of the trial court’s order granting appellees’ motion for summary judgment and denying the River Authority’s motion for summary judgment.”  Finally, the Court of Appeals remanded the case back to the trial court “with instructions to enter an order compelling arbitration and staying all other proceedings pending the outcome of the arbitration.”

The River Authority next filed a Petition for Review with the Supreme Court of Texas.  According to the River Authority’s petition, the Issues Presented in the case are:

1. Has the Legislature authorized local governments to engage in binding arbitration as a method of alternative dispute resolution of written contract disputes?

2. Did the court of appeals err when it held that Tex. Gov’t Code § 2009.005(c) which states “[n]othing in this chapter authorizes binding arbitration as a method of alternative dispute resolution” should be interpreted to mean that this section does not prohibit a local government from engaging in binding arbitration?

Additionally, the River Authority asserted that Unbriefed Issues include:

1. Did the court of appeals err in holding that the construction contract provided real and direct services to SARA under this Court’s holding in Byrdson Servs., LLC v. S. E. Texas Reg’l Planning Comm’n, 516 S.W.3d 483 (Tex. 2016) by relieving SARA of the obligations it had under a proposed House Bill which was never enacted into law?

2. Did the court of appeals err in holding that the construction contract provided real and direct services to SARA under this Court’s holding in Byrdson Servs., LLC v. S. E. Texas Reg’l Planning Comm’n, 516 S.W.3d 483 (Tex. 2016) by relieving SARA of the obligations it had under a cooperative agreement between five local governments when the cooperative agreement clearly states the project would be constructed by a third-party contractor and not SARA?

3. May a contractor who is a party to a unit price construction contract with a local government recover both (i) the amount of the unit prices performed by the contractor and (ii) the contractor’s actual costs and expenses incurred in the performance of the contract as allowable damages pursuant to Tex. Loc. Gov’t Code § 271.153 when the contract documents expressly provide that any claim by the contractor for additional compensation is to be addressed by an adjustment of the unit prices?

On June 28^th, the Texas Supreme Court granted River Authority’s petition. Oral argument in the case is currently scheduled for September 18, 2019.

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