EAST LAKE HOUSTON MANAGEMENT DISTRICT v. AUC GROUP LLC (2026)

OPINION

AUC Group, LLC sued East Lake Houston Management District for breach of contract and negligent misrepresentation related to AUC's leasing of several water and wastewater treatment plants to the District. The District filed a plea to the jurisdiction claiming governmental immunity and that AUC failed to plead a waiver of immunity. The trial court denied the plea, and the District appeals.

In three issues, the District contends that (1) it retains immunity for the contract claim because the claim is not based on a contract that is the subject of Chapter 271's waiver of immunity; (2) it retains immunity for the tort claim based on the District's performance of its governmental functions; and (3) AUC is not entitled to an opportunity to replead.

We hold that AUC pleaded facts demonstrating a waiver of immunity for its contract claim. Thus, we overrule the District's first issue and affirm the trial court's denial of the plea for the contract claim. But, AUC failed to plead any facts demonstrating a waiver of immunity for its tort claim, and AUC has not suggested how it might be able to replead and cure this deficiency. Thus, we sustain the District's second and third issues, reverse the trial court's order in part, and render a judgment dismissing the negligent misrepresentation claim.

I. Standard of Review

Governmental immunity from suit implicates a trial court's subject matter jurisdiction and is properly asserted in a plea to the jurisdiction. Engelman Irrigation Dist. v. Shields Bros., Inc., 514 S.W.3d 746, 751 (Tex. 2017). We review the denial of a plea to the jurisdiction de novo. City of Houston v. Gomez, 716 S.W.3d 161, 164 (Tex. 2025).

When a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demonstrate jurisdiction. Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). A plaintiff must plead facts to show that immunity either doesn't apply or has been waived. Matzen v. McLane, 659 S.W.3d 381, 388 (Tex. 2021). We construe the pleadings liberally in favor of plaintiffs and look to their intent. Miranda, 133 S.W.3d at 226.

When a plea to the jurisdiction challenges the existence of jurisdictional facts, we consider relevant evidence submitted by the parties when necessary to resolve the jurisdictional issue raised. Id. at 227. We take as true all evidence favorable to the plaintiff and indulge reasonable inferences in their favor. Id. at 228. If the challenge implicates the merits of the plaintiff's claim and creates a fact issue, then a court may not grant the plea. See id. at 227–28.

When, as here, a plea to the jurisdiction challenges multiple claims asserted in the petition, we review jurisdiction on a claim-by-claim basis. McClelland v. Katy Indep. Sch. Dist., 702 S.W.3d 807, 810 (Tex. App.—Houston [14th Dist.] 2024, pet. denied); see also Thomas v. Long, 207 S.W.3d 334, 338 (Tex. 2006).

II. Background

AUC alleged in its petition that it specializes in building water and wastewater treatment plants, systems, and related infrastructure for municipal utility districts throughout Texas. AUC alleged that the District is a municipal utility district that functions as an independent, limited government entity within Harris County.

AUC and the District executed two “equipment lease” agreements—one for each of two subdivisions expected to be developed in Harris County. AUC attached these leases to its petition and to its response to the District's plea to the jurisdiction. AUC described the substance of the leases related to its claims:

Under the Leases, AUC agreed to build and lease to East Lake water plants, wastewater treatment facilities, water-distribution systems, and related infrastructure for the Projects, and also to advance the amounts needed for engineering permits and related items so that AUC could build these structures and systems. The amounts AUC expended for these systems, as well as for the upfront costs, were incorporated into the Lease payment schedules.

The leases show that AUC agreed to lease to the District equipment listed in an attached “Exhibit A.” The leases required AUC to deliver the equipment to the District at its job site and provided that AUC “shall be responsible for the installation of the Leased Property as set forth on Exhibit B.”

Exhibit A included an eight-page list of cost estimates for equipment associated with the “leased property”: (1) sanitary sewer distribution/collection system; (2) water distribution system; (3) wastewater items; (4) water plant/wells and related infrastructure; (5) wastewater treatment facility; and (6) other site-related and design services. Exhibit B included a five-page description of the scope of work for installation, separately listing the “scope of services” for a wastewater treatment plant and a water treatment plant to be provided by AUC directly, through its subsidiary, or by hiring other companies.¹

Section 4 of the leases, titled “lease payments and purchase option,” provided that the District agreed to pay AUC amounts “detailed on Exhibit C.” Exhibit C identified different monthly payment amounts and different “purchase option” costs based on the duration of the lease.²

Section 5 provided that the leased property would remain “the sole and exclusive property” of AUC while the District had “only the right to use the Leased Property.” The parties “expressly agreed that the Leased Property shall be considered and remain personal property even though it may be attached or affixed to real estate.” Upon termination of the leases, AUC “shall, at its expense, remove certain Leased Property from the site.” Section 9 provided that, except for a twelve-month warranty period, the District was responsible for maintaining the leased property, and AUC had no responsibility for maintaining it.

AUC alleged in its petition that it had paid over $1 million to vendors “for engineering and permit costs related to the Leases.” Regarding its claim for breach of contract, AUC alleged that it fulfilled its obligations by “paying the agreed costs on behalf of East Lake toward engineering permits and related items needed for AUC to begin construction of the wastewater and water-related infrastructure set forth in the Leases.” AUC alleged that the District “breached the Leases by failing to move the Projects forward in a commercially reasonable manner and by failing to provide AUC proof of financing for the Projects as required by the Leases and requested by AUC.”

Regarding its claim for negligent misrepresentation, AUC alleged that the District's agent falsely represented that the District had obtained financing for the projects before the parties executed the leases and that the money AUC paid towards the projects was needed for AUC to begin construction of the infrastructure under the leases.

The District filed a plea to the jurisdiction. The District argued that AUC had failed to plead grounds demonstrating (1) the application of Chapter 271 or another valid waiver of immunity or consent to suit for AUC's contract claim; or (2) the application of the Texas Tort Claims Act (TTCA)³ or other valid waiver of immunity or consent to suit for AUC's tort claim. AUC responded, arguing that the District did not have immunity because it was engaged in a proprietary function and that the District waived immunity by entering into a contract under Chapter 271 of the Local Government Code. The trial court denied the plea.

III. Governmental Immunity

The parties do not dispute that the District is a governmental entity and political subdivision of the state, generally entitled to governmental immunity. Thus, AUC was required to plead facts to show that immunity either doesn't apply or has been waived. See Matzen v. McLane, 659 S.W.3d 381, 388 (Tex. 2021).

On appeal, the District contends that (1) the leases do not provide a basis for a waiver of immunity under Chapter 271 of the Local Government Code; and (2) the District was engaged in governmental rather than proprietary function, and the TTCA does not waive immunity for AUC's tort claim.

A. Governmental Function: Immunity Applies

The parties join issue on whether the District was engaged in a governmental function or proprietary function in its conduct with AUC. In short, a municipality is not immune from suit for its conduct in the performance of its proprietary functions. See Wasson Ints., Ltd. v. City of Jacksonville, 489 S.W.3d 427, 430 (Tex. 2016). But the “proprietary/governmental” dichotomy only applies to municipalities. Id. at 430 n.3. It does not apply to other political subdivisions such as counties or school districts. Id.

The District is not a municipality. It is a special district created under Article XVI, Section 59, of the Texas Constitution. Tex. Spec. Dist. Code § 3936.002; see also Tex. Const. art. XVI, § 59 (providing for the creation of conservation and reclamation districts). Generally, Chapter 375 of the Local Government Code applies to the District. Tex. Spec. Dist. Code § 3936.007. Under Chapter 375, the District's operations “are considered to be essential governmental functions and not proprietary functions for all purposes, including the application of the Texas Tort Claims Act.” Tex. Loc. Gov't Code § 375.004(b); see also Willacy Cnty. Water Control & Improve. Dist. No. 1 v. Abendroth, 142 Tex. 320, 323 (1944) (“Irrigation districts, navigation districts, levee and improvement districts, and like political subdivisions created under Section 59a of Article XVI of the Constitution, and statutes enacted thereunder carrying out the purposes of such constitutional provision, are not classed with municipal corporations, but are held to be political subdivisions of the State, performing governmental functions, and standing upon the same footing as counties and other political subdivisions established by law.”).

Accordingly, the proprietary-function exception does not apply to the District, and AUC was required to plead facts demonstrating a waiver of jurisdiction for each of its claims. See Matzen, 659 S.W.3d at 388.

B. No Waiver by Agreement

Initially, AUC contends that this court should “summarily deny” the District's plea because the leases contained an express waiver of immunity.⁴ Although this provision waived the District's immunity “from liability,” it did not waive immunity from suit. See Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006) (distinguishing between immunity from liability and immunity from suit; reasoning that a governmental entity waives immunity from liability by entering into a contract, but it does not waive immunity from suit). Our supreme court has “consistently deferred to the Legislature to waive sovereign immunity from suit.” Id. (quoting Tex. Nat. Res. Conservation Comm'n v. IT-Davy, 74 S.W.3d 849, 854 (Tex. 2002) (plurality op.)). An agent for a governmental entity—even an agent who has authority to contract on the government's behalf—cannot waive the entity's immunity from suit. See IT-Davy, 74 S.W.3d at 858; see also Rattray v. City of Brownsville, 662 S.W.3d 860, 867 (Tex. 2023) (“Even if a governmental unit would be happy to waive ‘its’ immunity, it is not the governmental unit's immunity to waive.”).

The District did not, and could not, waive immunity from suit in this contractual provision.

C. Waiver for Contract Claim Under Chapter 271

A local governmental entity such as the District ⁵ waives immunity from suit by entering into a “written contract stating the essential terms of the agreement for providing goods or services to the local governmental entity that is properly executed on behalf of the local governmental entity.” Campbellton Rd., Ltd. v. City of San Antonio ex rel. San Antonio Water Sys., 688 S.W.3d 105, 114 (Tex. 2024) (quoting Tex. Loc. Gov't Code § 271.151(2)(A)); see also Tex. Loc. Gov't Code § 271.152.

On appeal, the District appears to challenge whether AUC's contract claim is based on (1) a “written contract” (2) for “providing goods or services.”

1. Written Contract

The District argues that AUC's claim is “not actually based upon any right or obligation found in the Leases,” contending that AUC “appears to have made all the alleged payments without any written agreement requiring it to do so, and correspondingly, without any written agreement that the District reimburse such costs.” The District suggests that AUC's claim is “not a claim for breach of the Leases” but rather is a “claim for breach of some side agreement between AUC” and an alleged agent of the District.

But this argument belies AUC's petition. AUC alleged that, “Under the Leases, AUC agreed ․ to advance the amounts needed for engineering permits and related items so that AUC could build these structures and systems.” AUC alleged that the “amounts AUC expended for these systems, as well as for the upfront costs, were incorporated into the Lease payment schedules.” AUC alleged that the District “breached the Leases by failing to move the Projects forward in a commercially reasonable manner and by failing to provide AUC proof of financing for the Projects as required by the Leases and requested by AUC.” AUC attached the written leases to its petition and its response to the District's plea.

The District “broaches the merits in this appeal” by arguing that it is not liable for the funds AUC expended in preparation for the construction, installation, and delivery of the water and wastewater treatment plants. See Campbellton Rd., 688 S.W.3d at 123. But waiver of immunity under Chapter 271 “does not depend on the outcome” of the claim or “ultimate liability.” Zachry Const. Corp. v. Port of Hous. Auth. of Harris Cnty., 449 S.W.3d 98, 109 (Tex. 2014). This jurisdictional hurdle does not require proof of enforceability of the contract; “rather, it is sufficient for a plaintiff to raise a fact issue on the formation of the written contract.” Campbellton Rd., 688 S.W.3d at 117.

AUC has met its burden to plead that its breach of contract claim is based on written contracts—the equipment leases.

2. Providing Goods or Services

The District contends that the leases do not include an “agreement for providing goods or services” to the District because there must be “some affirmative act beyond conveying leasehold property interests.” The District argues that the leases “simply provide the District with the right to use the Leased Property—they are not agreements for the purchase of goods (as AUC expressly retains ownership of the Leased Property) and they are not agreements for services as AUC expressly does not have any obligation to maintain the Leased Property or provide any other services with respect to the Leased Property.”

“In determining the scope of a statutory waiver of immunity, we apply traditional principles of statutory interpretation to ascertain and effectuate legislative intent as manifested in the enacted language.” Id. at 113. “To the extent the analysis also requires interpreting the parties' contract, our primary objective is similarly to ascertain and give effect to their true intentions as expressed in the language they chose.” Id. (quotation omitted).

The terms “providing,” “goods,” and “services” are not defined by the statute. See Tex. Loc. Gov't Code § 271.151. Our supreme court frequently has addressed what can amount to “services” under the statute: “We have taken a broad view of what ‘services’ encompasses, holding that it includes generally any act performed for the benefit of another. The only limitation our case law imposes is that the services must provide more than a mere indirect, attenuated benefit.” Id. at 122 (citations and quotations omitted). To satisfy Chapter 271, the “services” provided “need not be the primary purpose of the agreement.” Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 839 (Tex. 2010).

We consult a dictionary to apply the plain meaning of “providing” and “goods.” See, e.g., Walgreens v. McKenzie, 713 S.W.3d 394, 400 (Tex. 2025) (dictionary definitions are “useful in discerning a statutorily undefined term's ordinary meaning”). To “provide” means to “supply for use.” See Provide, Webster's Third New International Dictionary 1827 (3d. ed. 2002) (noting that “provide,” “supply,” and “furnish” are “often interchangeable” synonyms). “Goods” means “tangible movable personal property having intrinsic value usu. excluding money and other choses of action but sometimes including all personal property and occas. including vessels and even industrial crops or emblements, buildings, or other things affixed to real estate but agreed to be severed.” Good, Webster's Third New International Dictionary 978 (3d. ed. 2002) (definition of the plural noun). This court has considered the definitions of “goods” from the Uniform Commercial Code and Black's Law Dictionary when applying the waiver of immunity in Chapter 271, respectively: (1) “all things ․ moveable ․ at the time of identification to the contract”; and (2) “tangible or movable personal property other than money; esp., articles of trade or items of merchandise.” Clear Lake City Water Auth. v. Friendswood Dev. Co., 256 S.W.3d 735, 750 (Tex. App.—Houston [14th Dist.] 2008, pet. dism'd) (omission in original) (quoting Tex. Bus. & Com. Code § 2.105(a) and Goods, Black's Law Dictionary 714 (8th ed. 2004)).

The District suggests that Chapter 271 requires a contract for the “purchase” of goods. Regardless of the “purchase option” referenced in these leases, the statute requires only “providing” goods. These leases required AUC to deliver and install equipment at the District's job site where the District would have the right to use the equipment. The parties agreed in the leases that the equipment would remain personal property even though affixed to real estate, and AUC was required to remove the equipment upon termination of the leases. The leases, therefore, were agreements to supply the District with tangible movable personal property, including things that would be affixed to real estate but agreed to be severed. Under the plain meaning of the statute, the leases were agreements for “providing goods” to the District.⁶

The District suggests that leasing goods to a governmental entity cannot amount to “providing goods” as a matter of law. But the District cites only cases concerning leaseholds or conveyances of other real property interests—not leases of tangible movable personal property.⁷ These cases are inapposite because the leases here are for goods, not real property.

Moreover, the leases expressly required AUC to provide services to the District—the installation of water and wastewater treatment plants, which included the design and construction of these plants and the myriad of services listed in Exhibit B of the leases. See Campbellton Rd., 688 S.W.3d at 108–09, 122–23 (waiver for a contract that included “an option for the developer to participate in and fund the construction of off-site oversized infrastructure,” even though this service was “not the central purpose” of the contract); Kirby Lake Dev., 320 S.W.3d at 832–33, 839 (waiver for a contract to construct, develop, lease, and ultimately sell water and sewer facilities); El Paso Educ. Initiative, Inc. v. Amex Props., LLC, 385 S.W.3d 701, 707 (Tex. App.—El Paso 2012, pet. denied) (waiver for a lease of real property requiring the landlord to “construct buildings thereon for the charter school's use,” which was a contract to “provide goods and services” to a governmental entity); Hoppensetin Props., Inc. v. McLennan Cnty. Appraisal Dist., 341 S.W.3d 16, 20 (Tex. App.—Waco 2010, pet. denied) (waiver for a commercial lease that incorporated a “construction addendum” that required the lessor to renovate the premises); see also Hous. Cmty. Coll. Sys. v. HV BTW, LP, 589 S.W.3d 204, 211 (Tex. App.—Houston [14th Dist.] 2019, no pet.) (“Courts have frequently held that the construction of facilities to benefit a governmental entity is a service for purposes of chapter 271.”).

AUC has met its burden to plead facts demonstrating that its contracts were for the provision of goods or services. The trial court properly denied the District's plea to the jurisdiction for AUC's breach of contract claim. The District's first issue is overruled.

D. No Waiver for Negligent Misrepresentation Claim

The TTCA contains a limited waiver of immunity for non-intentional tort claims (1) for property damage, personal injury, or death arising from the use of a motor-driven vehicle or equipment; or (2) for personal injury or death caused by a condition or use of tangible personal property or real property. See Tex. Civ. Prac. & Rem. Code §§ 101.021, 101.057; see also Miranda, 133 S.W.3d at 224–25.

AUC has not argued that this statutory waiver applies, and nothing in AUC's pleadings indicates that there could be a waiver of immunity for this claim. See Ethio Exp. Shuttle Serv., Inc. v. City of Houston, 164 S.W.3d 751, 753, 757–58 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (no waiver of immunity based on the City's negligent misrepresentation that the plaintiff would be disallowed from providing a private shuttle service to airports—which caused the plaintiff to expend a considerable amount of money redesigning its routes—because even if the governmental employee made misrepresentations while operating a motor vehicle, any damages would not have arisen from the vehicle's operation but instead would have arisen from the statements themselves).

AUC's only argument—to the trial court and this court—concerning its negligent misrepresentation claim is that the District was performing a proprietary function. But as noted above, the proprietary-function exception does not apply to the District. See Tex. Loc. Gov't Code § 375.004(b); Wasson Ints., Ltd. v. City of Jacksonville, 489 S.W.3d 427, 430 n.3 (Tex. 2016).

Because AUC failed to plead any facts demonstrating jurisdiction for its negligent misrepresentation claim, the trial court erred by denying the District's plea for this claim. The District's second issue is sustained.

E. No Repleading for Negligent Misrepresentation Claim

AUC makes no suggestion for how to cure this pleading deficiency, so we decline to remand this claim to the trial court for AUC to replead it. See Tex. A & M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 840 (Tex. 2007) (remand not required when the failure to plead jurisdictional facts can't be cured and the plaintiff makes “no suggestion as to how to cure the jurisdictional defect”); Bansal v. Univ. of Tex. M.D. Anderson Cancer Ctr., 502 S.W.3d 347, 358 (Tex. App.—Houston [14th Dist.] 2016, pet. denied) (denying request to remand for repleading when amendment would be futile as it would not bring the claims within the scope of the TTCA's waiver of immunity).

The District's third issue is sustained in part for AUC's negligent misrepresentation claim.

IV. Conclusion

We overrule the District's first issue challenging jurisdiction for AUC's contract claim. We sustain the District's second and third issues concerning AUC's negligent misrepresentation claim.

Thus, we affirm the part of the trial court's order denying the District's plea to the jurisdiction for AUC's contract claim. We reverse the trial court's denial of the plea for AUC's negligent misrepresentation claim, and we render a judgment dismissing that claim with prejudice.

FOOTNOTES

1.   These services included (1) providing construction staking control; (2) preparing survey documents for easements; (3) preparing construction plans and technical specifications in accordance with the Texas Commission on Environmental Quality's (TCEQ) permit for storm water discharges; (4) coordinating with geotechnical, electrical, structural, and mechanical engineering subconsultants; (5) submitting plans to the TCEQ, the City of Houston, and Harris County, and revising designs to comply with agency comments; (6) coordinating and meeting with the City and County to obtain utility commitments and plan approvals; (7) submitting necessary documentation to Harris Galveston Subsidence District to obtain a water well permit; (7) providing construction contract administration services to include preconstruction meeting, coordination of construction observation, review of contractor's materials and shop drawings, review of contractor pay estimates, coordination of required laboratory testing, preparation of change orders, coordination of agency inspections, and communications; (8) providing the services of a geotechnical engineering company to prepare an analysis of soil conditions and a map of boring locations with natural ground elevations; and (9) providing the services of a field construction observer for on-site observation of the construction projects for an estimated thirty-six weeks.

2.   The leases provided further that they were “based on the budget to deliver the items in Exhibit A, plus six (6) months of capitalized payments over thirty (30) years with a Wall Street Journal (‘WSJ’) Prime rate plus 4.5 points, with a floor of eight (8%) percent amortization rate with the monthly payments beginning on the first day of the seventh month of the lease.”

3.   Tex. Civ. Prac. & Rem. Code ch. 101.

4.   The leases provided that the District “hereby waives and relinquishes any claim that it is immune from liability under this Lease Agreement under the doctrine of governmental and/or sovereign immunity or any other similar doctrine or argument.”

5.   See Tex. Loc. Gov't Code § 271.151(3) (defining “local governmental entity” to mean a political subdivision of the state, other than a county or unit of state government, and specifically including a “special-purpose district or authority, including any ․ conservation and reclamation district”).

6.   Because these leases expressly designated the equipment as movable personal property, they are distinguished from the one in Clear Lake City Water Authority v. Friendswood Development Co., 256 S.W.3d 735 (Tex. App.—Houston [14th Dist.] 2008, pet. dism'd), which involved a contract for the lease and eventual sale of water distribution lines, sanitary sewers, and drainage facilities that became affixed to the land and part of the real property. See id. at 747–48, 750–51 (provision of services only, not goods).

7.   See Big Blue Props. WF, LLC v. Workforce Res., Inc., No. 02-21-00135-CV, 2022 WL 1793516, at *4 (Tex. App.—Fort Worth June 2, 2022, pet. denied) (mem. op.) (contract for lease of real property was not a contract for “services” because the leases did not require the plaintiff “to provide construction services, and the leases could have been fulfilled without any such construction”); Triple BB, LLC v. Village of Briarcliff, 566 S.W.3d 385, 394–95 (Tex. App.—Austin 2018, pet. denied) (contract to provide an easement was not a contract for “services” because the plaintiff “made no promise to perform an act”); City of San Antonio v. Reed S. Lehman Grain, Ltd., No. 04-04-00930-CV, 2007 WL 752197, at *2 n.2 (Tex. App.—San Antonio Mar. 14, 2007, pet. denied) (mem. op.) (contract for an easement “conveyed only an interest in real property to the City and is not an agreement for providing goods and services”).

Ken Wise, Justice