April 30, 2004, 10:57PM

Texas ruling waives Houston immunity from law suits

United Water  cannot be denied payment in contract dispute

By KRISTEN MACK
Copyright 2004 Houston Chronicle

The city of Houston is not immune from being sued, a state appeals court has ruled in a decision that threatens a protection the city has used often to avoid costly lawsuits.

The First Court of Appeals, reversing a lower court ruling, issued its decision Thursday in favor of United Water Services Inc., which sued after the city refused payment on a contract.

"It is a significant ruling for the city of Houston and other major cities," said Kent Rutter of the Houston firm Haynes and Boone, who has handled numerous appellate cases. "This would be a blanket waiver of the city's governmental immunity."

While the ruling will allow lawsuits that could not have gone forward before, Rutter said, it will not open the floodgates to a wave of new lawsuits. He said the types of cases it most likely will open the city to are contract lawsuits for money damages -- an issue that "hits the city in the pocketbooks."

City Attorney Arturo Michel downplayed the ruling's impact.

"In the bigger picture, it is probably not that significant," he said.

Michel maintains that the Texas Supreme Court ultimately will decide on the relatively new law concerning governmental immunity, since lower courts throughout the state have issued conflicting decisions.

"It's already in play at the Supreme Court, and (this case) may be appealed to preserve the issue," he said, noting that the ruling has nothing to do with the underlying merits of the claim.

The city hired United Water to operate and maintain a water purification plant. After the contract expired, however, the city claimed the company had breached the contract and refused to pay.

United Water sued, seeking more than $900,000 in damages, but the city asserted that it was immune from the lawsuit.

The First Court of Appeals considered the question of whether the city charter "expressly and unambiguously waives the city's immunity from suit." It cited the charter and a state law, which both contain language saying the city can "sue and be sued."

Municipalities have used the immunity defense to their advantage, experts say, and the city invokes it frequently.

"If we have a defense, we are bound to assert it if we can do it in good faith," said Randy Pourteau, a senior assistant city attorney. "There are good reasons for not letting people sue the city for everything."

By state law, municipalities also are immune from liability under most circumstances. So even if the city is sued, it can't necessarily be held liable for damages.

"The city has limited funds, and it is responsible for guarding the taxpayers' money," Pourteau said. "Until the Legislature says that a governmental entity ought to be responsible for paying particular kinds of claims, it's not."

Jeff Joyce, an attorney with the firm Winstead Sechrest & Minick, which represented United Water, said he assumes the city invokes immunity "quite a bit."

"It looks like it is a standard way of doing business in the city of Houston," he said.

Joyce said he was pleased with Thursday's decision, noting that prior rulings have made it harder to sue City Hall.

"People contracting with the city don't have the right to go to the courthouse, absent of getting the city to say it's OK to do so," he said. "It's sort of like owning your own courts, and that's not fair."

Susan Taylor, a senior assistant city attorney, said city officials are disappointed with Thursday's ruling and have not decided how to proceed.

"It is a fluid area of the law that we expect the Texas Supreme Court will ultimately rule on," she said. "But it's important to cities that we maintain our immunity from suit."