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GTECH Corp. v. Steele

Court of Appeals of Texas, Third District, Austin

January 11, 2018

GTECH Corporation, Appellant
James Steele, et al., Appellees


          Before Justices Puryear, Pemberton, and Field


          Bob Pemberton, Justice

         This appeal requires us to ascertain the nature and parameters of "derivative" sovereign immunity for government contractors as recognized under current Texas law-a matter going to the trial court's jurisdiction to adjudicate a lawsuit and not necessarily the merits of the lawsuit itself. Our conclusions and their application to the record in this case require us to affirm in part and reverse in part.


         In September 2014, the Texas Lottery launched retail sales of a "scratch-off" or "instant" ticket product known as "Fun 5's." As the name alludes, Fun 5's combined five different instant games onto a single ticket and was sold for a retail price of $5 each. A reduced-size image of the Fun 5's ticket sold at retail is provided below[1]:

         (Image Omitted)

         Our focus is the game situated in the lower right-hand corner of the Fun 5's ticket and featured in the inset, labeled as "Game 5." In Game 5, a contestant won a prize if three "5" symbols appeared in any one row of the tic-tac-toe grid when the latex coating was removed. The amount of that prize was revealed in the "PRIZE" box below the grid, and ranged between $5 to $100, 000. However, if a "moneybag" icon appeared in the "5x BOX" below the grid, the prize amount would be increased fivefold, elevating the range to between $25 and $500, 000.

         Although the moneybag icon was a prize multiplier having effect only on tickets that won in tic-tac-toe, Game 5 was configured so that the moneybag multiplier would appear not only on a subset of the winning tickets, but also on roughly 25 percent of non-winning tickets, a security measure deemed advisable by the Texas Lottery Commission (TLC) to prevent advance discovery of winning tickets merely by "microscratching" the 5x BOX to find moneybag icons. But after Fun 5's sales began, a number of purchasers who had uncovered moneybag icons on non-winning tickets in Game 5 asserted that the game instructions printed on the ticket-

Reveal three "5" symbols in any one row, column, or diagonal, win PRIZE in PRIZE box. Reveal a Money Bag "[icon]" symbol in the 5X BOX, win 5 times that PRIZE.

-meant or appeared to mean that the moneybag icon alone entitled them to a prize equaling five times the amount shown in the PRIZE box. In other words, these purchasers claimed to understand that the second sentence of the instructions, referencing the moneybag icon, promised an independent, alternative means of winning in Game 5 in addition to the tic-tac-toe game referenced in the first sentence, as opposed to describing what was actually a multiplier contingent upon a single method of winning a prize through tic-tac-toe. In some instances, including some that were reported in the media, this asserted discrepancy between Game 5's instructions versus actual parameters purportedly misled some Fun 5's purchasers to perceive themselves winners of large prizes when uncovering moneybag icons on their tickets, only to have their elation crushed when they attempted to collect. The TLC ultimately ended sales of Fun 5's earlier than it had planned, citing "feedback from some players expressing confusion regarding certain aspects of this popular game, " and adding that "a few opportunistic individuals appear to be exploiting the situation."

         Ensuing lawsuits grew to include over 1, 200 original or intervening plaintiffs who had allegedly purchased Fun 5's tickets and incurred injury from the asserted discrepancy between Game 5's instructions and actual parameters. While a single plaintiff (Nettles) filed suit in Dallas County, the others (the Steele Plaintiffs) joined in the cause giving rise to this appeal, filed in Travis County district court. Both suits targeted GTECH Corporation (GTECH), which participated, under contract with the TLC, in the development, printing, and distribution of the Fun 5's product and programming of the computer system used to verify winners.[2] The merits of these claims or of their underlying reading of the Game 5 instructions are not yet before us. Our present concern, rather, relates to the sovereign immunity that would unquestionably be implicated were the claims asserted instead against TLC, a state agency, [3] and whether GTECH can "derivatively" benefit from that immunity here.[4]

         GTECH filed a plea to the jurisdiction asserting that the Steele Plaintiffs' claims were barred by sovereign immunity derived from TLC's immunity, thereby depriving the Travis County district court of subject-matter jurisdiction to adjudicate the claims. GTECH had also asserted a similar plea in the Nettles suit. The Dallas district court granted that plea, and this ruling was recently upheld in a memorandum opinion of the Fifth Court of Appeals.[5] But the Travis County district court denied GTECH's plea as to the Steele Plaintiffs' claims. In this cause, GTECH has appealed that order to this Court, urging that the district court erred in failing to grant the plea based on derivative sovereign immunity.[6]


         Because subject-matter jurisdiction is a question of law, we review de novo a trial court's ultimate ruling on a plea to the jurisdiction.[7] The Steele Plaintiffs had the burden in the first instance to plead or present evidence of facts that would affirmatively demonstrate the district court's jurisdiction to decide their claims.[8] We construe their pleadings liberally in favor of jurisdiction, taking their factual allegations as true except to the extent negated by evidence.[9] Both the Steele Plaintiffs and GTECH presented evidence each deemed material to the jurisdictional issue. In practical terms, this proof could negate jurisdictional facts alleged by the Steele Plaintiffs only to the extent it is conclusively in GTECH's favor.[10] We view the evidence in the light favorable to the Steele Plaintiffs.[11]

         Sovereign immunity-the age-old common-law doctrine holding that "'no state can be sued in her own courts without her consent, and then only in the manner indicated by that consent'"[12]-encompasses an immunity from suit that implicates a trial court's jurisdiction to decide pending claims, [13] and to this extent can properly be asserted through a plea to the jurisdiction.[14] But sovereign immunity would come into play here only if GTECH has met an initial burden of establishing that the Steele Plaintiffs' claims against it actually implicate that immunity.[15] While the parties agree that it is theoretically possible for claims against a private government contractor like GTECH to implicate the government's sovereign immunity, they differ regarding the conditions under which this is so and, in turn, the showing that GTECH must make.


         GTECH argues that it is derivatively shielded by the TLC's sovereign immunity if it can show that it is being sued merely for complying with the TLC's decisions or directives-i.e., for what were ultimately actions of or attributable to TLC that GTECH merely carried out-on which GTECH exercised no "independent discretion." While agreeing with GTECH to the extent that the contractor must have "exercised no discretion in activities giving rise to [their] claims, " the Steele Plaintiffs urge that GTECH was also required to make an additional, independent showing that "extending" TLC's immunity to GTECH under the particular circumstances of this case would actually advance the fiscal and policy rationales that underlie sovereign-immunity doctrine. The respective arguments are grounded in competing views of Brown & Gay Engineering, Incorporated v. Olivares, [16] the first case in which the Texas Supreme Court professed to "directly address[] the extension of immunity to private government contractors."[17]

         Brown & Gay arose from a fatal automobile accident that occurred on a tollway under the purview of the Fort Bend County Toll Road Authority, a local-government corporation possessing delegated power to design, build, and operate the tollway.[18] Through a statutorily authorized contract, the Authority had delegated to Brown & Gay Engineering, an independent contractor, the responsibility of designing road signs and traffic layouts on the tollway, subject to the approval of the Authority's governing board.[19] The fatality occurred when, following construction, an intoxicated motorist drove onto the tollway through an exit ramp and continued for several miles in the wrong direction before colliding with a car driven by Pedro Olivares, killing both drivers.[20]Olivares' estate and his parents sued defendants that included Brown & Gay, alleging that the firm's negligent failure to design and install proper signs, warning flashers, and other traffic-control devices had proximately caused Olivares' death.[21]

         Brown & Gay interposed a plea to the jurisdiction predicated on the same governmental immunity enjoyed by the Authority (whose immunity was ultimately uncontested).[22]Brown & Gay prevailed in the trial court, lost in the court of appeals, and sought review in the Texas Supreme Court.[23] As Brown & Gay's jurisdictional theories had evolved by that juncture, its material arguments were that its status as an independent contractor of the Authority (as opposed to an Authority employee acting in official capacity) did not singularly foreclose its reliance on the Authority's immunity; that courts in Texas and elsewhere had previously recognized that independent government contractors could be shielded by the immunity of the governmental party to the contract; and that the underlying purposes of sovereign immunity are served by extending it to private entities performing authorized governmental functions for which the government itself would be immune, in a manner similar to the governmental immunity enjoyed by Texas's political subdivisions.[24]

         In the context of the Olivareses' claims and Brown & Gay's arguments, the Texas Supreme Court identified the question presented as whether "a private company that performed allegedly negligent acts in carrying out a contract with a governmental unit [can] invoke the same immunity that the government itself enjoys, "[25] and more specifically, "whether, as a matter of common law, the boundaries of sovereign immunity encompass private government contractors exercising their independent discretion in performing government functions."[26] This framing of the issue, as further highlighted and confirmed by numerous similar subsequent references to Brown & Gay's "independent discretion, " "independent negligence, " "own negligence, " and the like throughout the remainder of the opinion, [27] served to emphasize that the Olivareses were suing Brown & Gay for alleged conduct that neither party had attempted to attribute to the actions or directives of the Authority. That posture proves significant in understanding the analysis that followed.

         To resolve the question it had identified, the Brown & Gay court looked to two sets of considerations that are material to the present case. First, in a section of the opinion titled, "Extending Sovereign Immunity to Brown & Gay Does Not Further the Doctrine's Rationale and Purpose, " the supreme court considered whether "extend[ing] sovereign immunity to private contractors like Brown & Gay . . . comports with and furthers the legitimate purposes that justify this otherwise harsh doctrine."[28] This analysis responded to arguments advanced by Brown & Gay and an amicus, who, in an attempt to evoke the fiscal justifications underlying contemporary sovereign-immunity doctrine, had urged that immunizing contractors in the circumstances presented would ultimately reduce costs to government, at least over the long term, because contractors would otherwise pass on the costs associated with litigation exposure through higher contract prices.[29] The supreme court disagreed that this asserted concern justified extending sovereign immunity to Brown & Gay.

         The supreme court first questioned the premise that the contractors' litigation costs would necessarily be passed on to the government, noting the "highly competitive world of government contract-bidding" and "the fact that private companies can and do manage their risk exposure by obtaining insurance."[30] "But even assuming that holding private entities liable for their own negligence in fact makes contracting with those entities more expensive for the government, " the court maintained, sovereign immunity was not "strictly a cost-saving measure" and "has never been defended as a mechanism to avoid any and all increases in public expenditures."[31] Rather, the court explained, sovereign immunity was more precisely "designed to guard against the 'unforeseen expenditures' associated with the government's defending lawsuits and paying judgments 'that could hamper government functions' by diverting funds from their allocated purposes."[32] "Even if holding a private party liable for its own improvident actions in performing a government contract indirectly leads to higher overall costs to government entities in engaging private contractors, " the court reasoned, "those costs will be reflected in the negotiated contract price, " thus enabling "the government to plan spending on the project with reasonable accuracy."[33] "Accordingly, " the supreme court concluded, "the rationale underlying the doctrine of sovereign immunity does not support extending that immunity to Brown & Gay."[34]

         In the Brown & Gay court's second set of considerations, preceded by the heading "Sovereign Immunity Does Not Extend to Private Contractors Exercising Independent Discretion, " it sought to identity material features of the claims addressed in prior cases from other courts in which independent government contractors had been held immune.[35] In part, the court emphasized the line of federal cases that had emanated from the United States Supreme Court's decision in Yearsley v. W.A. Ross Construction Company.[36] In Yearsley, a private contractor had constructed dikes under a contract with the federal government and was later sued by a landowner who alleged that the dikes had caused erosion and loss of land.[37] It was undisputed that the contractor's work "was all authorized and directed by the Government of the United States, " and that the government's actions were authorized by congressional act.[38] The Yearsley court held that where the government's "authority to carry out the project was validly conferred, that is, if what was done was within the constitutional power of Congress, " there is "no liability on the part of the contractor" merely for performing as the government had directed.[39] That court contrasted this situation with cases in which liability had been imposed on government contractors, which it characterized as having turned on acts exceeding the contractor's authority or authority that had not been validly conferred.[40]

         Although the United States Supreme Court did not explicitly couch Yearsley's analysis in terms of sovereign immunity, and that court would later indicate in the Campbell-Ewald case that the protection would instead be a type of common-law "immunity" that is not "the Government's embracive immunity, "[41] a number of lower federal courts had deduced in the meantime that Yearsley recognized a form of immunity for government contractors, deriving from the government's sovereign immunity, arising when a contractor is sued for alleged acts or decisions that are substantively the government's alone. But Brown & Gay predated Campbell-Ewald, and the Texas Supreme Court cited the earlier federal lower-court cases as material to the parameters of derivative sovereign immunity under Texas common law.[42] The Brown & Gay court further quoted the following excerpt as "aptly summarizing the framework governing the extension of derivative immunity to federal contractors" in those cases:

Where the government hires a contractor to perform a given task, and specifies the manner in which the task is to be performed, and the contractor is later haled into court to answer for a harm that was caused by the contractor's compliance with the government's specifications, the contractor is entitled to the same immunity the government would enjoy, because the contractor is, under those circumstances, effectively acting as an organ of government, without independent discretion. Where, however, the contractor is hired to perform the same task, but is allowed to exercise discretion in determining how the task should be accomplished, if the manner of performing the task ultimately causes actionable harm to a third party the contractor is not entitled to derivative sovereign immunity, because the harm can be traced, not to the government's actions or decisions, but to the contractor's independent decision to perform the task in an unsafe manner. Similarly, where the contractor is hired to perform the task according to precise specifications but fails to comply with those specifications, and the contractor's deviation from the government specifications actionably harms a third party, the contractor is not entitled to immunity because, again, the harm was not caused by the government's insistence on a specified manner of performance but rather by the contractor's failure to act in accordance with the government's directives.[43]

         While acknowledging that it had not previously "directly addressed" whether these principles would apply to Texas government and its private contractors, [44] the Brown & Gay court observed that it had cited Yearsley favorably in an earlier case addressing the liability exposure of a government contractor for harm it inflicted due to a mistake by the government.[45] In that case, Glade v. Dietert, a city had contracted with Glade to construct a sewer line according to city-prepared plans and specifications.[46] The city was to furnish the right of way, and staked the area where Glade was to construct the line.[47] Part of the planned route traversed Dietert's property, but the city, apparently by inadvertence, had acquired only a portion of the easement needed there.[48]This resulted in Glade bulldozing an area of Dietert's property that the city had staked but that lay beyond the easement the city had secured.[49] Once the error was discovered, the city promptly commenced eminent domain proceedings and acquired the omitted right of way, but Dieter sued Glade seeking damages for the trespass that had occurred in the meantime.[50]

         Dieter prevailed in the lower courts, and Glade urged the supreme court that a contractor like him could not, "in the absence of any negligence or wanton or wilful conduct . . . be held liable for damages to the real property or the owner" for "perform[ing] his contract under the directions of the municipality and in strict compliance with plans and specifications furnished to him."[51] Dietert countered by emphasizing the "general rule" that a servant could not avoid personal liability for torts he committed while obeying his master's command by attributing the act to his master.[52] The supreme court agreed with Glade. It distinguished Dietert's cases as "involv[ing] suits against private corporations and their agents" and held that the controlling rule was instead that a public-works contractor "is liable to third parties only for negligence in the performance of the work and not for the result of the work performed according to the contract."[53] The Glade court cited Yearsley in support of that conclusion.[54]

         Glade did not, strictly speaking, address immunity or jurisdiction-as the Brown & Gay court later observed, the city's actions had effected a taking, giving rise to a claim for compensation for which the Texas Constitution would have waived immunity.[55] Yet the Brown & Gay court noted the following common thread running through Glade and the federal contractor-immunity cases:

In each of these cases, the complained-of conduct for which the contractor was immune was effectively attributed to the government. That is, the alleged cause of the injury was not the independent action of the contractor, but the action taken by the government through the contractor.[56]

         The Brown & Gay court also deemed "instructive" its more recent decision in K.D.F. v. Rex.[57] The issue in K.D.F. was whether two private entities that had contracted with the Kansas Public Employees' Retirement System, a Kansas governmental entity, could benefit from the System's sovereign immunity and take advantage of a Kansas statute requiring all "actions 'directly or indirectly' against [the System]" to be brought in a particular Kansas county.[58] In answering that question, the supreme court had looked to features of the tort claims acts in both Texas and Kansas and determined that the controlling consideration was ultimately whether each company was performing ministerial functions under the control and direction of the System.[59] The court held that one of the entities, K.D.F., which held securities on the System's behalf, met this standard because it "operates solely upon the direction of [the System] and exercises no discretion in its activities, " such that K.D.F. and the System were "not distinguishable from one another; a lawsuit against one is a lawsuit against the other."[60] But the court held that the other company, Pacholder, an independent investment advisor to the System, did not meet that standard because "[i]ts activities necessarily involve considerable discretion . . . its role is more in the nature of advising [the System] how to proceed, rather than being subject to the direction and control of [the System]."[61] "This reasoning, " the Brown & Gay court maintained, "implies that private parties exercising independent discretion are not entitled to sovereign immunity, " adding that the proposition was "consistent with the reasoning federal courts have utilized in extending derivative immunity to federal contractors only in limited circumstances."[62]

         The Brown & Gay court contrasted the Olivareses' claims, observing that:

the Olivareses do not complain of harm caused by Brown & Gay's implementing the Authority's specifications or following any specific government directions or orders. Under the contract at issue, Brown & Gay was responsible for preparing all "drawings, specifications, and details for all signs." Further, the Olivareses do not complain about the decision to build the Tollway or the mere fact of its existence, but that Brown & Gay was independently negligent in designing the signs and traffic layouts for the Tollway. Brown & Gay's decisions in designing the Tollway's safeguards are its own.[63]

         The court similarly distinguished various Texas lower court cases on which Brown & Gay had relied to support application of the government's immunity to private contractors.[64] The gravamen of these decisions, the supreme court suggested, was that the claimants were deemed in the circumstances of those cases to have sought relief against the government rather than the contractor individually.[65]

* * *

         The parties' disagreement regarding GTECH's required showing distills ultimately to whether Brown & Gay's analyses regarding sovereign immunity's "Rationale and Purpose" and "Private Contractors Exercising Independent Discretion" imply a two-element test, both of which must be proven in order for a government contractor to enjoy the government's immunity (the Steele Plaintiffs' position), or reflect two alternative analyses, either of which could support derivation or extension of the government's immunity to the contractor (GTECH's position). We ultimately conclude that GTECH is closer to the mark-to the extent GTECH can demonstrate that the Steele Plaintiffs complain substantively of actions, decisions, or directives attributable to TLC and not of GTECH's own independent exercise of discretion, (i.e., that would satisfy the considerations in Brown & Gay's "Sovereign Immunity Does Not Extend to Private Companies Exercising Independent Discretion" discussion), the claims would implicate TLC's sovereign immunity, and GTECH would not be required to make any separate or further showing to satisfy the fiscal considerations addressed in the opinion's "Rationale and Purposes" discussion.[66]

         It is true that, as the Steele Plaintiffs emphasize, the Brown & Gay court repeatedly alluded to both analyses, seemingly conjunctively, in support of its holding that immunity did not extend to the contractor there.[67] But these references must read alongside the supreme court's repeated emphases that the Olivareses' claims implicated only Brown & Gay's independent discretion rather than underlying governmental acts and decisions.[68] That is to say, the Brown & Gay court's analysis of "whether to extend sovereign immunity to private contractors like Brown & Gay" in light of "whether doing so comports with and furthers the [doctrine's] legitimate purposes" was speaking only to claims that also would not implicate the government's immunity under the rationale of the Yearsley line and other cases it cited in the "Private Contractors Exercising Independent Discretion" portion of the opinion. And claims within that category-those that substantively attack underlying governmental decisions and directives effected through a contractor rather than a contractor's own independent discretionary actions-would inherently implicate the underlying fiscal policies of sovereign immunity that are addressed in the "Rationale and Purpose" section. Although this relationship is admittedly not stated explicitly in Brown & Gay, it is evident from the broader body of Texas sovereign-immunity jurisprudence.

         As reflected in the doctrine's name, sovereign immunity is considered to be "inherent in the nature of sovereignty, "[69] which in the State of Texas is vested in its People.[70] The state government is said to embody the People's sovereignty because it exists and functions legitimately by virtue of powers delegated through and under their Constitution and laws.[71] Accordingly, the State of Texas and its government's departments and agencies, such as the TLC, inherently possess sovereign immunity in the first instance, [72] subject to waiver by the sovereign People through their Constitution or acts of their Legislature.[73]

         Although rooted historically in a perceived conceptual incompatibility of allowing the sovereign-originally embodied in the English monarch-to be sued in its own courts without its consent, [74] the modern justifications for the sovereign-immunity doctrine in Texas have centered, as the Brown & Gay court recognized, on shielding our state government (and, ultimately, the sovereign People who delegate it power and fund it through taxes) from the fiscal and policy disruptions that lawsuits and court judgments would otherwise cause to governmental functions.[75]Relatedly, sovereign immunity is said today to "preserve[] separation-of-powers principles by preventing the judiciary from interfering with the Legislature's prerogative to allocate tax dollars" and "leav[ing] to the Legislature the determination of when to allow tax resources to be shifted away from their intended purposes toward defending lawsuits and paying judgments."[76]

         These concerns with protecting the state governmental functions deriving from the sovereign's will have informed the Texas Supreme Court's longstanding recognition that the sovereign's immunity may be implicated by lawsuits that do not explicitly name the State or the State government as a defendant. Although Texas's political subdivisions (e.g., counties, municipalities, or school districts) possess no inherent sovereignty of their own, they are said to "derive governmental immunity from the state's sovereign immunity" when performing "governmental" functions as a "branch" of the State.[77] But more critically here, the supreme court has long recognized that sovereign immunity can be implicated even by claims against defendants that are not themselves governmental entities. A suit against a governmental official, employee, or other agent in his or her official capacity (i.e., seeking relief that would lie against the governmental principal rather than the agent personally, such as compelling payment of funds from the public treasury[78]) is said to be "merely 'another way of pleading an action against the entity of which [the official] is an agent, '" as the governmental principal is the real party in interest.[79] It follows that official-capacity suits generally implicate the same sovereign immunity that would shield the governmental principal, [80] and to this extent the agent is said to enjoy the sovereign's immunity "derivatively."[81]

         The exception to this general rule that an official-capacity claim implicates the governmental principal's immunity, the ultra vires claim, is itself shaped by the underlying relationship to sovereign will in a manner that is instructive here. In concept, a proper ultra vires claim-i.e., a suit to require state government to comply with its underlying delegation of power from the sovereign[82]-does not implicate the sovereign's immunity because it attacks governmental actions lacking a nexus to the sovereign's will.[83] But consistent with this notion that ultra vires acts are not acts "of the State, " an ultra vires claim must formally be asserted against an appropriate governmental official, as opposed to the governmental principal, even though it lies against the official in his or her official capacity, because the objective is to restrain the governmental principal.[84] However, a proper ultra vires claim "must allege, and ultimately prove, that the officer acted without legal authority or failed to perform a purely ministerial act."[85] And if an ostensible ultra vires claim turns out not to meet this standard, it follows that the claim is actually seeking to judicially override the sovereign will embodied in the governmental acts and decisions made within delegated authority-to "control state action"-and thereby implicates the sovereign's immunity.[86]Further, an otherwise-proper ultra vires claim also independently implicates the sovereign's immunity to the extent it seeks relief that either overtly or in effect goes beyond prospective injunctive or declaratory relief restraining the government's ultra vires conduct, such as through claims that would establish a right to retrospective monetary relief from the governmental principal, impose liability upon or interfere with the government's rights under a contract, or otherwise control state action.[87]

         Importantly, although the form of the pleadings may be relevant in determining whether a particular suit implicates the sovereign's immunity, such as whether a suit is alleged explicitly against a government official in his "official capacity, " it is the substance of the claims and relief sought that ultimately determine whether the sovereign is a real party in interest and its immunity thereby implicated.[88] In fact, as recognized in a recent decision from this Court, the sovereign may be the real party in interest, and its immunity correspondingly implicated, even in a suit that purports to name no defendant, governmental or otherwise, yet seeks relief that would control state action.[89]

         It follows from the same basic principles that the sovereign, as embodied in state governmental organs, may be the real party in interest, and its immunity implicated, by claims asserted against a private government contractor where those claims substantively attack underlying governmental decisions and directives made within delegated powers rather than the contractor's own independent discretionary acts-i.e., the sorts of claims that would implicate immunity under the "Private Contractors Exercising Independent Discretion" portion of Brown & Gay. This is so because the claims and any relief obtained would, through their effects on the contractor, impinge upon the government's exercise of its contract rights and underlying delegated authority. In these respects, such claims would be analogous to the ostensible ultra vires claims that would actually control state action by overriding government contracts[90] and sovereign will.[91] And while the immunity belongs to the government rather than the contractor, per se, that is no barrier to the contractor raising the issue. Because such immunity would implicate the trial court's subject-matter jurisdiction, the trial court would be required to address that issue regardless of how or by whom it is raised.[92]

         In turn, claims against contractors that would substantively override underlying governmental decisions and directives in this way would inherently cause the unanticipated diversion of appropriated funds from their intended purposes-which brings us to the basic policy concern addressed in Brown and Gay's "Rationale and Purpose" discussion. This is so because the underlying governmental decisions and directives made within delegated authority are fueled by appropriations made (and, ultimately, taxes collected) for that purpose.[93] And such disruptions of governmental functions and finances are not merely the indirect or long-term economic effects on government from lawsuits against private government contractors for their own independent discretionary acts.[94] When government contractors are sued for their own independent discretionary acts, their position is analogous to that of government employees or agents who breach personal tort duties owed to third parties independently from duties owed by their governmental principals.[95] In such instances, the employees or agents "have always been individually liable for their own torts, even when committed in the course of employment, " and are not shielded by sovereign immunity against suit in their individual capacities.[96] Suits whose substance would control the government's actions within delegated powers, in contrast, implicate the government's immunity and that immunity's underlying fiscal justifications.[97]

         Accordingly, to the extent GTECH can show that the Steele Plaintiffs are substantively attacking actions and underlying decisions or directives of TLC and not GTECH's independent discretionary actions, the claims would implicate TLC's immunity, and no additional showing regarding immunity's underlying fiscal rationales is required. We note that the Nettles court reached the same ultimate conclusion, albeit while relying on somewhat different reasoning.[98] Other sister courts, while not directly addressing the issue, also appear to have read Brown & Gay the same way.[99]

         As a final observation, determining whether claims against government contractors implicate the government's immunity necessarily entails examination of the specific contracts that delineate the contractors' authority vis a vis the government. Such questions of contractual authority, relevant to immunity, may also have implications for, and thereby overlap or parallel, the merits-related analysis of whether the contractor owes tort duties to third parties with respect to alleged injuries arising during its performance of the contract. Consequently, precedents that analyze such questions of contractual authority as they bear upon duty may also be instructive regarding derivative immunity. Examples include, in addition to Glade, two pre-Brown & Gay decisions from the Texas Supreme Court that addressed the tort exposure of government contractors while performing their contracts.

         The first of these cases, issued a few years after Glade, was Strakos v. Gehring.[100]Gehring had contracted with Harris County to relocate fences incident to a road-improvement project. After the county accepted this work as complete, Strakos fell into an uncovered and unmarked post hole that Gehring had left behind, causing injury.[101] Strakos sued Gehring in negligence, and a jury awarded Strakos damages.[102] The Court of Civil Appeals had reversed the trial-level judgment for Strakos, relying on the "accepted-work" doctrine, a privity-rooted concept that had relieved an independent contractor of any duty of care to the public with respect to dangerous conditions it creates on the sole basis that the work had been completed and accepted by the party hiring it.[103] On writ of error, the Texas Supreme Court rejected the accepted-work doctrine, which had the effect, as the court observed, of bringing contractors "within the general rules of tort litigation."[104] "Our rejection of the 'accepted work' doctrine is not an imposition of absolute liability on contractors, " the Gehring court elaborated, but "simply reject[s] the notion that although a contractor is found to have performed negligent work or left premises in an unsafe condition and such action or negligence is found to be a proximate cause of injury, he must nevertheless be held immune from liability solely because his work has been completed and accepted in an unsafe condition."[105]

         But an additional feature of Gehring is more critical here. The supreme court rejected an attempt by Gehring to claim as a defense that his contract with Harris County had imposed no affirmative requirement that he fill the holes in question.[106] While agreeing that Gehring's contract was "silent as to this matter, " the court reasoned that the mere absence of any contractual requirement that he fill the holes did not obviate any duty he owed in tort.[107] However, the Gehring court contrasted this contractual structure, which left Gehring discretion to comply (or not) with a tort duty to remedy the condition, with a contract that afforded no such discretion:

[T]he contractual provisions . . . are not couched in directory wording of that certainty which would require a conclusion that the act of leaving the hole was at the time of its origin and thereafter the act of Harris County and not that of the contractor, as is sometimes the case where a builder merely follows plans and specifications which have been handed to him by the other contracting party with instructions that the same be literally followed.[108]

         More recently, the Texas Supreme Court had occasion to distinguish both Glade and Gehring in Allen Keller Company v. Foreman.[109] Keller, a road-construction contractor, was hired by Gillespie County to work on projects that included excavating a drainage channel through an embankment near a bridge over the Pedernales River.[110] The project served to widen a preexisting gap between the end of a bridge guardrail and the embankment, creating a physical effect that one local resident compared to a boat ramp.[111] Several months after the work was completed by Keller and accepted by the county, an out-of-control automobile went off the roadway through the gap and into the river below, where a passenger drowned.[112] Keller was subsequently named as a defendant in a wrongful-death action, with the plaintiffs relying on a premises-defect theory predicated on the gap being an unreasonably dangerous condition.[113] Keller moved for summary judgment on grounds that included the asserted absence of any duty owing to the victim even if one assumed that its work had created an unreasonably dangerous condition.[114]

         Keller urged that it owed no such duty because its contract with Gillespie County had required it to construct the project precisely as it had.[115] Keller's contract with the county, as the supreme court later noted, required Keller to adhere to specifications provided by O'Malley Engineers, which had designed and engineered the project, and imposed an "absolute" obligation on Keller to perform and complete the work in accordance with the contract documents.[116] These specifications provided for excavation of the channel in the manner described, widening the gap between the guardrail and the embankment, and did not include extending the guardrail to cover the gap.[117] The contract further provided that any changes to the contract would be made by the county or O'Malley, not Keller; that the county (either directly or through O'Malley as its agent) would visit the work site to verify progress and adherence to the design; and that upon completion O'Malley would inspect the site and certify that Keller had completed the work according to specifications.[118]

         Although the trial court granted Keller's motion, the court of appeals reversed, holding that the summary-judgment evidence raised a fact issue as to whether Keller's work had created a dangerous condition, thereby implicitly assuming that Keller would owe a duty in that event.[119] The court of appeals had derived this premise from its reading of Gehring.[120] The Texas Supreme Court held that this was error, explaining that the point of Gehring was merely to "reject[] the owners' acceptance of completed work as an affirmative defense, " leaving contractors subject to "general negligence principles."[121] Gehring, the Keller court stressed, did not hold that a contractor would owe a duty of care "in all circumstances."[122]

         On the other hand, the supreme court also rejected the view of Keller that Glade was controlling and compelled a holding that Keller owed no duty because its work had merely complied with its contract.[123] "While Glade is not inconsistent with our decision today, " the court reasoned, "its facts differ significantly and it is not determinative."[124] Instead, the supreme court maintained, it was necessary to address whether Keller owed such a duty in light of its particular circumstances. As pertinent to the present case, the court considered whether Keller owed a duty to rectify what was assumed to be the unreasonably dangerous condition of the open gap between the bridge guardrail and the embankment by physically altering that feature, such as by extending the guardrail.[125]

         The Texas Supreme Court held that Keller owed no such duty because Keller's contract afforded it no discretion to rectify the condition.[126] The court observed that "Keller's contract with the County required absolute compliance with the contract specifications, " such that "any decision that Keller would have made to rectify the dangerous condition would have had the effect of altering the terms of the contract."[127] These features of Keller's contract, the court added, distinguished it from the contract addressed in Gehring, which by "neither requir[ing] nor forb[idding] the contractor from filling in or marking holes that comprised the dangerous condition, . . . [had] left the choice to the contractor's discretion, " leaving room for the application of the tort duty.[128] Keller's contract, the court further suggested, was instead like the contrasting example cited by the Gehring court, having "directory wording of that certainty which would require a conclusion that the [dangerous condition] was . . . the act of [the government] and not that of the contractor."[129]

         Keller and Gehring were each addressed to the government contractor's duty of care rather than the government's immunity, per se, and the same is true of Glade. Yet the underlying distinctions between cases like Keller and Glade versus Gehring also inform the immunity inquiry, as the Brown & Gay concurrence, authored by Chief Justice Hecht, observed:

We recognized in [Keller] that a government contractor owes no duty of care to design a highway project safely where the contractor acts in strict compliance with the governmental entity's specifications. We distinguished between "the duties that may be imposed upon a contractor that has some discretion in performing the contract and a contractor that is left none." [Citing portion of Keller that distinguished Gehring]. That such a contractor acts as the government and may therefore be entitled to its immunity follows from the same principle.[130]

         By the same logic, a contractor in the posture of Gehring would not be "acting as the government, " nor entitled to the government's immunity. And the distinction is the same as that identified by the Brown & Gay majority in the "Private Contractors Exercising Independent Discretion" portion of its opinion.

         With the foregoing understanding of Brown & Gay and other relevant Texas Supreme Court precedents in mind, we now turn to the record in this case.


         In their live petition, the Steele Plaintiffs seek to recover from GTECH, as "benefit-of-the-bargain" damages, the prize amounts corresponding to their reading of the Game 5 instructions as promising each, based on his or her discovery of a moneybag icon in the 5X BOX, but without need also to win in tic-tac-toe, five times the amount shown in the PRIZE box of the tickets-sums exceeding $500 million in the aggregate-plus exemplary damages. The Steele Plaintiffs expressly "do not contend that their tickets are 'winning tickets, '" and on the contrary concede "that their tickets are 'non-winning' tickets." Instead, they rely on the following causes of action:

Fraud by misrepresentation and nondisclosure. These causes of action rest upon the contention that GTECH is factually responsible, at least in part, for the wording of the Game 5 instructions. These actions by GTECH, in turn, are alleged to amount to fraud upon the Steele Plaintiffs, either affirmatively or through its silence.
Aiding and abetting TLC's fraud. This cause of action assumes that TLC is responsible for the Game 5 instructions and committed the asserted fraud through those instructions. The wrong alleged of GTECH is intentionally "assisting" TLC by printing and distributing the Fun 5's tickets, activating the tickets to make them available for sale, and operating the Texas Lottery computer system in a manner that declined to validate the Steele Plaintiffs' tickets as winners.
Tortious interference with existing contracts. The premise of this cause of action is that a contract was formed between TLC and each of the Steele Plaintiffs when the latter "exchanged $5 of their hard-earned cash for each of their Fun 5's tickets in return for the promise that they would be entitled to receive five times the amount in the Prize Box if their ticket revealed a Money Bag." GTECH "willfully and intentionally interfered" with these contracts, the Steele Plaintiffs maintain, "by using and continuing to use a non-conforming computer program" that omitted their tickets from the list of winning tickets.
Conspiracy. This cause of action asserts that GTECH and TLC had a "meeting of the minds" to "print misleading and deceptive instructions on Fun 5's tickets, to distribute the misleading and deceptive tickets for sale to lottery players in Texas, and to use GTECH's computer system to validate tickets as non-winners when the clear language of the tickets represented that they should be validated as winning tickets."

         The latter three causes of action are founded on alleged acts by GTECH that would merely comply with TLC requirements and directives, and regarding which the relevant contracts left GTECH no discretion to do otherwise.

         TLC possesses delegated power to design and sell Texas Lottery tickets and decide winners

         As sovereign immunity must ultimately be rooted in the sovereign will, we first note that the design, sale, and distribution of the Fun 5's ticket was within the TLC's delegated powers, as was the determination of winning versus losing tickets. Through a 1991 constitutional amendment, the People of Texas empowered the "Legislature by general law [to] authorize the State to operate lotteries, "[131] and to that end their Legislature enacted the State Lottery Act, currently codified as Chapter 466 of the Government Code.[132] The Lottery Act vests in the TLC and its executive director "broad authority" and the duty to "exercise strict control and close supervision over all lottery games conducted in this state to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the lottery."[133] The TLC is further required to "adopt all rules necessary to administer [the Lottery Act]" and it "may adopt rules governing the establishment and operation of the lottery, " including the type of games to be conducted, the price of each ticket, the number of winning tickets, and "any other matter necessary or desirable as determined by the commission, to promote and ensure . . . the integrity, security, honesty, and fairness or the operation and administration of the lottery."[134] The Act also specifically charges the executive director with "prescrib[ing] the form of tickets."[135]

         The TLC has promulgated rules creating and governing each of several different categories of "Texas Lottery" games. Among these are "instant" or "scratch-off" games, like Fun 5's, which are distinguished by play entailing removal of a thin latex coating that conceals data used to determine eligibility for a prize.[136] The detailed procedures for each Texas Lottery instant game are published in the Texas Register and made available by request to the public.[137] However, the TLC's rules provide globally that a player's eligibility to win a prize in a given game is subject to ticket-validation requirements that include having a "validation number" on the ticket corresponding to the TLC's "official list of validation numbers of winning tickets" for that game.[138]

         TLC's delegated power to determine winning versus losing tickets is further enhanced by Lottery Act provisions that deem a player's purchase of a ticket in a particular lottery game to be the player's agreement "to abide by and be bound by the commission's rules, including the rules applicable to the particular lottery game involved."[139] The ticket purchase is similarly deemed to be the player's agreement "that the determination of whether the player is a valid winner is subject to: (1) the [TLC's] rules and claims procedures, including those developed for the particular lottery game involved; and (2) any validation tests established by the [TLC] for the particular lottery game involved."[140] Similarly, the TLC's instant-game rules specify that by ticket purchase, "the lottery player agrees to comply with and abide by Texas law, all rules, procedures, and final decisions of the [TLC], and all procedures and instructions established by the executive director for the conduct of the instant game."[141] Ultimately, an aggrieved instant-game player's recourse against the TLC is confined to the following rule: "If a dispute arises between the [TLC] and a ticket claimant concerning whether the ticket is a winning ticket and if the ticket prize has not been paid, the executive director may, exclusively at his/her determination, reimburse the claimant for the cost of the disputed ticket."[142] "This shall be the claimant's exclusive remedy, " the rule emphasizes.[143]

         TLC was authorized to contract, and has contracted, with GTECH to assist with these delegated functions

         The same constitutional amendment that allowed for State of Texas-run lottery games also empowered the Legislature to "authorize the State to enter into a contract with one or more legal entities that will operate lotteries on behalf of the State."[144] Through the Lottery Act, the Legislature has authorized the TLC's's executive director, subject to certain limitations not material here, to "contract with or employ a person to perform a function, activity, or service in connection with the operation of the lottery as prescribed by the executive director."[145] Two such contracts have governed

         TLC's relationship with GTECH at relevant times: (1) a "Contract for Lottery Operations and Services, " dated December 2010, under which GTECH is made the exclusive vendor of what can be summarized as infrastructure and services for the overall operations of Texas Lottery games, including warehousing and distributing games and providing the computer system used to verify winners (the Operations Contract); and (2) a "Contract for Instant Ticket Manufacturing, " dated August 7, 2012, under which GTECH, alongside two other vendors that executed similar contracts, is to provide certain goods and services related to development and production of instant games (the Instant-Ticket Contract).[146] The Instant-Ticket contract is ultimately of greater significance to this case.

         Under the Instant-Ticket Contract, GTECH is required to provide the TLC "game planning services support" that entails "work[ing] closely with the [TLC] to identify instant ticket games" for potential inclusion in the TLC's "plan" or "plans" of new instant games to be developed and sold. To that end, GTECH "shall provide suggested game designs for inclusion in the plan, " including, "at a minimum, " (1) "[r]ecommendations for each price point and theme, including the game design and play style, together with an album of representative tickets, " and (2) "Game Development Services to include but not be limited to graphic design, game design, artwork, prize structures, and play style." But the TLC "shall make all final decisions regarding the selection and inclusion of instant ticket games in the plan."

         Assuming the TLC opts to include a GTECH-proposed game design in the plan, GTECH is to prepare "draft artwork and prize structures" for TLC approval in advance of the game's scheduled launch date, and "shall" provide such materials within five working days upon the TLC's request. If the draft artwork and prize structure are approved by the TLC, GTECH then has five business days in which it "must provide draft working papers to the [TLC]"-essentially a detailed version of the game's parameters and specifications-as well as color proofs of the ticket image, for TLC approval. "Upon review of the draft working papers, the [TLC] will provide requested changes to [GTECH], " following which GTECH "must provide final working papers to the [TLC] within two (2) business days of receipt of the requested changes." "Production of any instant game will not proceed until the [TLC] Executive Director or designee gives written authorization." The "[e]xecuted working papers must be complete and free of any errors." "Any changes made after the execution of working papers must be approved through the execution of a post executed change and signed by the [TLC] Executive Director or designee."

         The Instant-Ticket Contract, as well as the Operations Contract, specify that GTECH is providing its services "as an independent contractor and not as an employee or agent of the [TLC]" and further disclaim the creation or implication of any "joint venture, partnership, employer/employee relationship, principal/agent relationship, or any other relationship between the parties." Each contract also requires that GTECH indemnify and hold the TLC harmless against claims or losses arising for or on account of the "works, " goods, or services provided as a result of the contract, the former term being defined to include, inter alia, "lottery games, game names, game designs, ticket format and layout, manuals, instructions [and] printed material." Yet both contracts also emphasize that the TLC wields supervisory power over GTECH's work and ultimate control over lottery games and operations. In addition to the TLC's previously-described authority in the development of instant games, both contracts contain a provision stating that:

         The Texas Lottery Commission is a part of the Executive Branch of Texas State

Government. The [TLC] will not relinquish control over lottery operations. [GTECH] shall function under the supervision of the [TLC]. Its operations will be subject to the same scrutiny and oversight that would apply if all operations were performed by [TLC] employees.

         The Instant-Game Contract further provides that "[f]inal decisions regarding the direction or control of the Lottery are always the prerogative of the [TLC] in its sole discretion as an agency of the State of Texas"; that "[a]lthough GTECH comes from the private sector, its operations will be subject to the same scrutiny and oversight that would exist if all operations were performed by [TLC] employees"; and that:

The [TLC] may rely upon the guidance of [GTECH] in all matters related to instant game development and manufacturing services, but reserves the sole right to reject that guidance for any reason. [GTECH], conversely, must accept and support the decision of the [TLC].

SGTECH further "warrants and agrees" under the Instant-Ticket Contract "that its tickets, games, goods and services shall in all respects conform to, and function in accordance with, [TLC]-approved specifications and designs."

         Most of the causes of actions complain substantively of underlying TLC decisions and directives and not GTECH's exercise of independent discretion

         As previously noted, the Steele Plaintiffs' causes of action for aiding and abetting fraud and conspiracy presume that TLC deliberately chose the allegedly misleading Game 5 instructions so as to mislead and harm them. If so, GTECH had no power under the Instant-Game Contract to countermand TLC's decision-rather, the contract expressly reserved to TLC "the sole right to reject [GTECH's] guidance for any reason" and obligated GTECH to "accept and support" TLC's decision. More critically, the gravamen of the alleged "aiding and abetting fraud" and participation in "conspiracy" by GTECH is that GTECH performed its contractual obligations to print and distribute Fun 5's and program game parameters into the Texas Lottery computer system once TLC had determined or approved the game design. GTECH had no discretion to do otherwise-instead, it was obligated to conform "its tickets, games, goods, and services" in accordance with TLC's specifications and designs. The same is true of the GTECH conduct made the basis of the Steele Plaintiffs' tortious-interference cause of action-GTECH's programming of the computer system in accordance with the game parameters, as GTECH was required to do under its contracts with TLC.

         As such, the Steele Plaintiffs' causes of action for aiding and abetting fraud, tortious interference, and conspiracy each complain substantively of underlying decisions or directives of TLC, not any actions by GTECH within its independent discretion, thereby implicating sovereign immunity. But the analysis is more complicated with respect to the Steele Plaintiffs' remaining causes of action for fraud by misrepresentation or silence.

         But the "fraud" causes of action complain, in part, of alleged GTECH acts within ...

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