San Jacinto River Authority v. City of Conroe: Contract Claims Survive Immunity Plea

The San Jacinto River Authority entered into long-term water supply contracts with the City of Conroe and the City of Magnolia as part of a regional groundwater reduction effort in Montgomery County, Texas. The contracts were tied to a groundwater reduction plan that relied on surface water drawn from Lake Conroe. Under the agreements, the cities committed to purchasing surface water and paying associated rates and pumpage fees set by the Authority.

The contracts distinguished between two types of defaults. A payment default occurred when a party failed to timely pay required fees or rates. A performance default occurred when a party failed to perform other contractual obligations. The contracts required pre-suit mediation for performance defaults but did not require mediation for payment defaults.

Beginning in 2015, the Authority supplied water under the contracts. Conroe took delivery of surface water and paid for it, while Magnolia did not take surface water but paid pumpage fees. In 2017, the Authority increased both water rates and pumpage fees. The cities objected to the increases and began paying less than the amounts invoiced.

Prior Litigation and Jurisdictional Disputes

After the cities reduced their payments, the Authority initiated litigation seeking declarations related to the contracts. That earlier litigation reached the Supreme Court of Texas in 2020, which limited the scope of declaratory relief available but did not resolve compliance with the contracts.

While that case was pending, additional litigation arose involving the regional groundwater regulatory plan. Separately, private utilities sued the Authority for alleged breaches of similar contracts. The Authority asserted third-party claims against Conroe and Magnolia, alleging that the cities breached their contracts by failing to pay the full rates and fees required.

Conroe and Magnolia responded by filing pleas to the jurisdiction. They asserted that their governmental immunity had not been waived under the Local Government Contract Claims Act. They raised two primary grounds. First, they contended that the Authority failed to comply with contractual pre-suit mediation requirements. Second, they contended that the contracts failed to state their essential terms, which would prevent a waiver of immunity.

The trial court granted the pleas to the jurisdiction and dismissed the Authority’s claims. The court of appeals affirmed, concluding that immunity was not waived because the Authority did not engage in pre-suit mediation.

Scope of the Statutory Waiver of Immunity

The Supreme Court of Texas reviewed whether contractual dispute-resolution procedures limited the statutory waiver of immunity for breach-of-contract claims against local governmental entities. The court examined the structure of the Local Government Contract Claims Act, including provisions allowing waiver of immunity for certain written contracts and provisions recognizing enforceability of agreed adjudication procedures.

The court determined that the statutory waiver of immunity applied when a qualifying contract existed. Contractual procedures for dispute resolution, including mediation clauses, were enforceable once immunity was waived. Those procedures did not operate as jurisdictional prerequisites that defeated the waiver itself. Instead, courts retained authority to enforce agreed procedures through orders compelling compliance rather than dismissal.

The court also rejected the argument that contractual mediation requirements constituted statutory prerequisites to suit. The mediation obligations arose from contract terms rather than statute, and their enforcement necessarily occurred after suit was filed.

Application of the Mediation Provisions

The court next examined whether the Authority’s claims were subject to the mediation requirement in the contracts. The analysis focused on the nature of the claims asserted.

The Authority alleged that the cities breached the contracts by refusing to pay adopted rates and fees. These allegations fell within the contracts’ definition of payment defaults. Because the mediation requirement applied only to performance defaults, the court determined that the contracts did not require mediation before filing suit on the Authority’s payment claims.

The court rejected reliance on broader disputes between the parties to characterize the claims as performance defaults. Jurisdiction was evaluated on a claim-by-claim basis, and the Authority’s claims sought recovery solely for unpaid amounts due under the contracts.

Essential Terms of the Contracts

The court then addressed whether the contracts stated their essential terms. It applied common-law principles governing contract formation and enforceability, which require that essential terms be stated with reasonable certainty.

The cities argued that the price and quantity terms were too indefinite. The court rejected both arguments. The contracts imposed detailed procedural and substantive limits on how rates could be set, providing standards sufficient for judicial review. With respect to quantity, the contracts and related supplemental agreements established minimum and maximum thresholds tied to historical groundwater usage and other defined benchmarks.

The court concluded that these provisions provided enough certainty to permit enforcement and that the contracts satisfied the statutory requirement that essential terms be stated at the time of formation.

The Court’s Decision

The Supreme Court of Texas held that the Local Government Contract Claims Act waived the cities’ immunity when they entered into the water supply contracts. Contractual mediation provisions did not limit that waiver, the Authority’s claims were not subject to pre-suit mediation, and the contracts stated their essential terms. The court reversed the judgment of the court of appeals and remanded the case to the trial court for further proceedings on the merits.

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