Last month, the Texas Court of Appeals of Amarillo dismissed a developer’s claims against a city for breaching their Development Agreement, having determined that the city had not waived sovereign immunity from suit. Although the Texas Local Government Code provides that governmental entities waive sovereign immunity for breach of contract claims, the court held that immunity is waived only as to contracts properly entered into pursuant to that subchapter. Even though the city had approved and signed the parties’ development agreement, the agreement had not been “properly entered into” because the developer had failed to timely execute and submit to the city the state-mandated 1295 disclosure form. Form 1295 is intended to provide transparency in government contracts by requiring non-governmental parties to disclose business entities and individuals who have an interest in, or some control over, the contracting business entity. The court found:
The statute requires that the contracting business entity submit the disclosure "at the time the business entity submits the signed contract to the governmental entity . . . ." Id. Unless the governmental entity receives the disclosure, it "may not enter into" the contract. Id. (emphasis added). Because the City is statutorily prohibited from entering the contract in the absence of the disclosure form, the contract cannot be "properly executed" unless Legacy complied with section 2252.908 at its execution.
City of Hutto v. Legacy Hutto, LLC, No. 07-21-00089-CV, 2022 Tex. App. LEXIS 4907, at *9-10, *12-13 (Tex. App. – Amarillo, July 18, 2022). As a result, the court refused to reverse the trial court’s grant of the city's plea to the jurisdiction, and the developer was unable to obtain their requested relief.
Whether this will remain the law of the land is uncertain, but for now, if you have a client entering into any kind of contract with a city (or any other governmental entity in Texas), it is critical to obtain and provide to the governmental entity a completed Disclosure of Interested Parties (Form 1295) prior to or simultaneously with submission of the signed contract to the governmental entity or state agency. It is also important to obtain from the governmental entity confirmation of their receipt of the 1295 form. Without taking these steps, there is a risk the governmental entity could successfully claim sovereign immunity in response to a future breach of contract claim.
Angela Hunt is a member of the Real Estate section and she spearheads Munsch Hardt’s Zoning and Land Use practice. Angela regularly advises her clients on a wide range of governmental issues, including complex zoning matters, economic development programs, tax increment financing grants, public-private partnerships, affordable housing tax credits and intergovernmental relations.