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Taylor Housing Authority v. Shorts

Court of Appeals of Texas, Third District, Austin

April 26, 2018

Taylor Housing Authority, A Municipal Housing Authority, Appellant
v.
Steve A. Shorts, Mallard Run Housing Development, and Taylor Sunset Housing Development, Appellees

          FROM THE DISTRICT COURT OF WILLIAMSON COUNTY, 277TH JUDICIAL DISTRICT NO. 15-0021-C277, HONORABLE BETSY F. LAMBETH, JUDGE PRESIDING

          Before Justices Puryear, Pemberton, and Field

          OPINION

          BOB PEMBERTON, JUSTICE

         In these two causes, the Taylor Housing Authority (THA) appeals a temporary injunction and a second order denying a plea to the jurisdiction THA had asserted as to counterclaims seeking additional relief against it. We will affirm the temporary injunction. However, because governmental immunity bars a portion of the relief sought through the counterclaims at issue, we must affirm the jurisdictional order in part and reverse and dismiss in part.

         BACKGROUND

         THA is a "municipal housing authority" created by the City of Taylor under Chapter 392 of the Local Government Code, [1] but is a separate governmental entity that has its own five- commissioner governing body.[2] THA commenced the underlying litigation in January 2015-at the behest of federal housing authorities, it claims-to remedy perceived deficiencies in the ownership and operation of three public-housing projects: the Sunset Apartments, a 64-unit complex that THA had constructed in 1977; the Mallard Run Apartments, a 40-unit complex that THA had acquired in 1993; and the Market Apartments, a seven-unit complex that THA had acquired in 2003.

         While the parties vigorously dispute many of the underlying facts and their legal significance, there appears to be general agreement regarding certain events that gave rise to the controversy and ensuing litigation. Although THA had once owned all three of the housing projects, it had since formed two nonprofit, 501(c)(3) corporations-appellee Taylor Sunset Housing Development (TSHD) and appellee Mallard Run Housing Development (MRHD)-conveyed record title to the Sunset project to TSHD in 1988, and similarly deeded the Mallard Run project to MRHD in 2001. Despite the ownership change, the projects had initially remained under the control of the THA commissioners because the governing boards of both TSHD and MRHD were then composed of those same five commissioners. The three entities likewise shared a common executive director, who during relevant times was appellee Steve A. Shorts. But through a series of now-disputed measures that THA attributes chiefly to Shorts, the corporate articles for both TSHD and MRHD were amended in 2008 to provide for independent governing boards. Around the same time, TSHD and MRHD also assumed from THA, at least in name, [3] operational control over their respective projects, including collection of rental revenues, property maintenance, and other functions typical of a landlord. MRHD also assumed similar control over the Market Apartments, although it is undisputed that record title for this property remained with THA.

         Apparently the three projects were operated in this manner for several years without incident. The controversy arose, according to THA, after its commissioners discovered through an independent auditor's report in 2012 or 2013 that the mortgage on the Market Apartments (the project to which THA still held title) had been paid off by or through MRHD in anticipation that THA (or more precisely Shorts on THA's purported behalf, as THA now portrays the situation) would convey title to the property to MRHD. The ensuing fallout included Shorts's resignation as THA's executive director (although he remained in that role with MRHD for a period thereafter), THA's refusal to convey title of the Market Apartments to MRHD, and the present litigation.

         The general focus of THA's litigation efforts has been to clarify or seize (with the distinction depending on the parties' perspectives and the property at issue) legal and fiscal control over MRHD, TSHD, and the three housing projects. THA's strategic focus has evolved over time, however, and the issues in the two appeals each derive from what can be considered different phases of the litigation.

         Initially, THA sued Shorts, TSHD, and MRHD, emphasizing allegations to the effect that the 2001 conveyance of the Mallard Run project to MRHD, the 2008 restructurings of the MRHD and TSHD corporate boards, any relinquishment of THA's operational control over the three projects, and the abortive conveyance of title to the Market Apartments had furthered an unauthorized and fraudulent scheme orchestrated by Shorts to divert assets and rental revenues properly belonging to THA instead to the benefit of TSHD, MRHD, or Shorts and members of his family. Based on these allegations, THA sought monetary recovery from Shorts under tort theories and, more critically here, what were styled as claims for declaratory and equitable relief against TSHD and MRHD, accompanied by a claim for the attorney's fees that would be recoverable under the Uniform Declaratory Judgments Act (UDJA).[4] The thrust of the claims against TSHD and MRHD was to seek to establish THA's ownership of the Market Apartments, invalidate the 2001 deed conveying the Mallard Run project to MRHD and the 2008 restructuring of the MRHD and TSHD corporate boards, restore THA's operational and fiscal control over the three housing projects, and recover assets allegedly diverted wrongfully from THA.

         After filing suit, THA undertook additional efforts to take operational control of the Market Apartments away from MRHD, including sending letters to project residents advising of a "management change" and instructing them to send their lease payments to THA. MRHD responded to these efforts by seeking a temporary restraining order and later temporary injunction to bar these or other actions by THA that would interfere with its management of the Market Apartments or the Mallard Run project, or with TSHD's management of the Sunset project. The parties ultimately resolved this facet of the controversy, at least temporarily, by entering into a Rule 11 agreement to govern the relationship of THA, MRHD, and TSHD with respect to the three housing projects "until determination of management and ownership of the [projects] is made, upon final hearing or otherwise." The gravamen of this Rule 11 agreement was that THA would operate the Market Apartments during the litigation (including "performing all responsibilities and duties required of the landlord/owner/manager of the Market Apartments required under any agreement or applicable laws, [such as] performing all ongoing maintenance and repairs to the properties, paying for insurance and property taxes, performing lawn maintenance and . . . extermination services"), [5] while MRHD and TSHD would similarly continue their respective operation of the Mallard Run and Sunset projects.[6] Of particular relevance, the agreement specified the following in regard to THA's duties:

THA agrees to the current status quo with regard to the remaining two properties (Sunset/Heritage Apartments and Mallard Run Apartments) while this litigation is pending. That is[, ] THA shall refrain from taking any action with regard to those properties similar to that taken by THA with regard to the Market [A]partments including, but not limited to[, ] unauthorized assumption of management and/or contract with residents.

         MRHD also asserted, in the same pleading containing its request for a TRO, counterclaims against THA seeking two categories of relief relating to the Market Apartments. First, MRHD sought remedy for THA's refusal to convey MRHD title to the Market Apartments. MRHD alleged-and attached what purported to be THA records confirming-that the THA commissioners had approved resolutions in 2008 to resign their positions on the governing boards of MRHD and TSHD, to be replaced with new board members, and thereafter to "release all control" of the three housing projects to the now-independent entities.[7] In MRHD's view, these actions, in addition to establishing that the 2008 changes had been properly authorized by the THA commissioners, also amounted to an agreement or promise by THA to convey MRHD title to the Market Apartments.[8]THA's eventual refusal to make the conveyance, MRHD claimed, thereby gave rise to liability for breach of contract, for which MRHD prayed for both damages and specific performance of the alleged agreement to convey title, along with the attorney's fees that would be permitted under Chapter 38 of the Civil Practice and Remedies Code.[9] Alternatively, emphasizing that it had operated the Market Apartments for approximately seven intervening years and had paid off the property's mortgage, MRHD urged that such "detrimental reliance" warranted enforcement of THA's alleged promise to convey title under promissory estoppel, or at least equitable disgorgement of the sums MRHD had paid on the mortgage.

         The second category of relief requested through MRHD's counterclaims was predicated on its claimed rights to own or at least operate the Market Apartments, and complained of THA's takeover of that project. MRHD sought recovery of damages, in the form of lost rental income, under a theory of tortious interference with MRHD's rental contracts with residents.

         The litigation continued down this general path until early 2016, when THA posted a 72-hour public notice for a commissioner meeting whose agenda items included:

Review, discuss, consider, and take action on a resolution to remove certain members of the Board of Directors of [MRHD] and appoint new members of the Board of Directors of [MRHD] . . . .

         The notice also included a parallel agenda item referring to the THA commissioners' removal and replacement of board members of the second housing nonprofit, TSHD. Each of these agenda items also elaborated that "such action is taken pursuant [to] the Public Facilities Corporation Act." The significance of this reference to the Public Facilities Corporation Act (PFCA), [10] as illuminated by subsequent events in the litigation, was that THA was now maintaining that this statute had given it legal control over MRHD and TSHD all along. Although THA had undisputedly formed those two entities under the Texas Non-Profit Corporation Act rather than the PFCA (and indeed, the original formation had preceded the PFCA's 1995 enactment), THA insisted that the two were nonetheless made "public facilities corporations, " and THA their controlling "sponsor, " by virtue of a PFCA provision stating that a nonprofit corporation created by a housing authority "is considered a corporation under this chapter and has the rights and powers necessary or convenient to accomplish a corporation's purposes under this chapter."[11] The implications, in THA's view, included giving its commissioners the heretofore unexercised (and, appellees suggest, also heretofore unperceived) powers to appoint or remove the entities' board members.[12]

         Upon their discovery of the meeting notice-by happenstance, they claim-MRHD and TSHD commenced efforts to obtain additional injunctive relief to restrain THA's efforts to assume control over their respective boards under color of the PFCA. They urged, among other complaints, that THA's newfound PFCA theory was a meritless contrivance to circumvent the district court's jurisdiction over the pending claims and also violated the parties' Rule 11 agreement. In reply to these efforts, THA ultimately agreed to postpone the scheduled commissioners' meeting pending a hearing on a temporary restraining order. The district court ultimately granted this TRO, preventing the meeting from going forward.

         Meanwhile, THA had also made additional legal filings predicated on its new PFCA theory. THA filed a separate lawsuit naming each member of the MRHD and TSHD boards as defendants in that capacity, and seeking to compel their compliance with THA's directives through what was couched as mandamus relief to enforce the powers THA now claimed under the PFCA. Contemporaneously, THA also filed an amended petition that nonsuited its affirmative claims against MRHD and TSHD (which had arguably been inconsistent with or at least redundant of its new PFCA theory). And on the same day, THA also filed a motion to show authority, disputing-under THA's view of the PFCA-that MRHD and TSHD had power to retain their counsel or expend litigation funds without authorization from their "sponsor, " THA. These filings were followed a few days later by a plea to the jurisdiction, predicated on governmental immunity claimed by THA, seeking dismissal of the counterclaims MRHD had previously asserted in response to THA's now-dismissed affirmative claims.[13]

         Thereafter, following an evidentiary hearing, the district court signed orders denying THA's plea to the jurisdiction and granting a temporary injunction that ordered THA "and any of its agents, employees, or persons acting in concert with it" to:

a. Refrain from taking any action in any way relating to the removal, replacement, change or otherwise affecting of the board of directors, officers, directors employees, representatives or residents of Mallard Run Housing Development Corporation (MRHD), Taylor Sunset Housing Development Corporation ([TSHD]), the Mallard Run Apartments or the Sunset/Heritage Apartments;
b. Refrain from taking any action or in any way interfering with the corporate governance, management, operations or other actions of MRHD, [TSHD], the Mallard Run Apartments or the Sunset/Heritage Apartments;
c. Refrain from violating the Rule 11 Agreement dated April 22, 2015, including in any way disrupting the status quo of MRHD, [TSHD], the Sunset/Heritage Apartments, or the Mallard Run Apartments;
d. Refrain from contacting, threatening or harassing any board member, officer, director, employee or other representatives of MRHD or [TSHD] in any way relating to any pending lawsuit or its claims or relating to the corporate governance, management, operations or use of MRHD, [TSHD], the Mallard Run Apartments, the Sunset/Heritage Apartments or the Market Apartments.[14]

         THA perfected an appeal from each order, [15] which we have consolidated for purposes of argument and this opinion.

         PLEA TO THE JURISDICTION

         THA's jurisdictional challenge to the counterclaims at issue, both below and on appeal, has been founded solely on governmental immunity as a bar to suit. MRHD has not disputed that THA is a type of entity that would generally enjoy governmental immunity with respect to its acts and functions, [16] nor purported to establish any applicable statutory or constitutional waiver of such immunity as to these counterclaims. The point of contention, rather, has been whether THA's previous assertion of affirmative claims against MRHD has effectively abrogated any immunity THA would otherwise possess against MRHD's counterclaims, under the principle recognized by the Texas Supreme Court in Reata Construction Corp. v. City of Dallas.[17] This principle from Reata was summarized succinctly by the Texas Supreme Court in its very recent Borunda decision:

We held in Reata that when a governmental entity asserts claims for monetary relief, immunity does not protect the entity against the defendant's counterclaims for monetary relief that are "germane to, connected with, and properly defensive to" the government's claims. This is not because the governmental entity "waives" its immunity by filing a claim for affirmative relief. Instead, the scope of governmental immunity simply does not reach the defensive counterclaims to the extent that any recovery on the counterclaims serves as an "offset" against the government's recovery on its affirmative claims.[18]

         This qualification or limitation on immunity squares with the doctrine's underlying fiscal policies, the supreme court further observed, because "'when the [government] sues a private party, the general public stands to lose nothing'" from an offsetting counterclaim, as "any outcome in favor of a counterclaiming defendant would not be paid with taxpayer dollars" but from the government's recovery, and because the government has already made the decision to incur the associated litigation costs when it filed its affirmative claim.[19] A further justification emphasized by the high court is that "it would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it."[20] And a corollary to the Reata principle, also reiterated in Borunda, is that the government's subsequent nonsuit of its affirmative claims, as occurred with THA, does not "reinstate" (or more precisely "create") immunity that does not exist by virtue of the affirmative claims.[21] Such a nonsuit would instead bear upon the counterclaimant's right of recovery on the merits, to the extent it would impact the existence of any governmental recovery against which the counterclaimant could obtain an offsetting recovery.[22]

         THA's core challenge to the district court's jurisdictional ruling is that the Reata principle cannot aid MRHD because THA asserted no affirmative claim for monetary relief against MRHD. THA's sole claims for monetary relief, it insists, were against Shorts. THA's characterization of its affirmative claims is belied by its pleadings, especially when viewed in the light favorable to MRHD, as we must.[23]

         In what was styled as one of its claims under the UDJA, THA sought a declaration that "all real and personal property transferred or taken from THA [and] placed under the management, operation or control of MRHD and TSHD resulting from Shorts' improper actions . . . be restored to THA with all benefits and income derived from such property from the date of transfer."[24] Similarly, THA prayed for the imposition of a constructive trust upon "the real and personal property improperly conveyed by and held by Defendants [i.e., including MRHD], as well as all income and benefits derived from the property."[25] Read in context with THA's underlying factual allegations at the time, the emphasized claims would encompass recovery of monetary relief from MRHD, including rental revenues and other financial benefits MRHD had allegedly obtained wrongfully from the housing projects at issue since at least 2008-including revenues and funds from MRHD's operation of the Market Apartments, the subject matter of MRHD's counterclaims.

         In urging otherwise, THA emphasizes conceptual distinctions between claims for "money damages, " per se, versus declaratory or equitable relief. THA's argument is the analog of the now-rejected notion that a claimant can "circumvent the State's sovereign immunity from suit by characterizing a suit for money damages, such as a contract dispute, as a declaratory-judgment claim."[26] Just as a private litigant cannot avoid immunity merely by couching an immunity-implicating substantive claim in UDJA form, THA cannot use the UDJA or an equitable theory to disguise the absence of immunity under Reata due to its assertion of what are substantively claims for monetary recovery against MRHD. Similarly unavailing is a distinction THA would draw on the basis that its claims did not seek "monetary relief" from MRHD, but only to assert control over "property that, according to HUD, was rightfully THA's property." We cannot agree that application of Reata depends in this way upon the merits of the parties' competing claims to the money. Rather, it is enough that THA asserted affirmative claims for monetary relief against MRHD, creating the first condition under which the Reata limitation would apply.[27]

         The remaining Reata condition is also satisfied. MRHD's counterclaims are "germane to, connected with, and properly defensive to" THA's claims for monetary relief. THA sought to recover funds it alleges MRHD wrongfully diverted from the Market Apartments, and MRHD's counterclaims seek remedies predicated on its converse position that it is the proper owner and operator of those apartments. Indeed, THA does not dispute MRHD's satisfaction of this condition, aside from THA's mistaken premise that it sought monetary recovery only from Shorts.

         The import of these holdings under Reata and its progeny is that THA does not enjoy immunity against MRHD's counterclaims to the extent that MRHD can obtain a monetary recovery as an offset to any monetary recovery THA would obtain on its affirmative claims against MRHD.[28]While THA's intervening nonsuit is relevant to whether there will ultimately be any recovery by THA against which MRHD can obtain an offsetting recovery, it remains that MRHD's claims to that offset are not ...


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