On April 1, 2016, the Texas Supreme Court, in Houston Belt & Terminal Railroad Co., et al.. v. City of Houston, et al., reviewed the implementation of the City of Houston’s 2011 drainage fee ordinance. The petitioner railroad companies were assessed substantial new annual city drainage fees of $3 million by the City’s Director of Public Works. The Director determined that all of the railroads’ properties within the City of Houston “benefitted” – a term in the city ordinance—from the City’s drainage system, and that 93 million square feet of railroad property was “impervious,” allowing storm water to runoff into the drainage system which collected and otherwise managed this runoff. The Director made his determination of assessable property on the basis of aerial images and not digital map data, as required by the ordinance. For this reason, the railroads protested this new assessment and filed a lawsuit to challenge it. The City moved to dismiss the lawsuit on the basis of governmental immunity, but the Texas Supreme Court noted that the defense “does not bar a suit against a government officer for acting outside his authority—i.e., an ultra vires suit,” citing Tex. Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 393 (Tex. 2011). It recognized that “[t]o fall within this ultra vires exception,” however, “a suit must not complain of a government officer’s exercise of discretion, but rather must allege, and ultimately prove, that the officer acted without legal authority or failed to perform a purely ministerial act,” citing City of El Paso v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009) and Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, 404 (Tex. 1997). Reviewing its case law and the pleadings, the Court held that the railroads’ pleadings were sufficient to confer the trial court with jurisdiction over their claims that the Director acted in an ultra vires capacity when he determined the extent of the impervious surface area of their properties.

The parties disputed, in part, the meaning of “exercise of discretion” and “without legal authority” as used in Heinrich. The City contended that under Heinrich, the Director’s “determinations cannot be ultra vires if he had some discretion to make them under the ordinance. To the city, ‘exercise of discretion’ means any decision made in which the officer has the authority to use his personal judgment, and ‘a mistake in exercising his judgment is not an ultra vires act.'” The railroads urge a different interpretation of Heinrich. They argued that “[t]he type of discretion that immunity protects… is absolute discretion — discretion where no specific, substantive, or objective standards govern the exercise of judgment. Therefore, regardless of whether [the Director] had some authority or discretion, his determinations are still ultra vires because he acted beyond his granted discretion in making them.” Ultimately, the Court concluded that its “caselaw, along with the purposes underlying governmental immunity and the ultra vires exception, favor[ed] the railroads’ interpretation.” Citing Klumb v. Houston Mun. Emps. Pension Syst., 458 S.W.3d 1, 11 (Tex. 2015), the Court noted that, even when a state agency has “unquestionably broad authority” under a statute, it cannot “violate the statute.” “These cases affirm that while the protections of governmental immunity remain robust, they are not absolute.”

This is important case for Texas lawyers and others to ponder.