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First Court of Appeals: Sovereign Immunity Does Not Bar a Suit for Breach of a Severance Agreement with a Government Unit

Guy Rankin was the CEO of the Harris County Housing Authority.  He had a written employment contract with the Authority.  In 2012, the Authority agreed to buy out his contract.  Rankin and the Authority entered into a new contract providing for a one-time severance payment.  The Authority did not make the severance payment, and Rankin sued under the severance/buy-out agreement.  The Authority moved to dismiss for lack of jurisdiction, claiming that the suit was barred by sovereign immunity.  When the trial court denied the motion, the Authority took an interlocutory appeal.

The Texas Government Code provides a waiver of sovereign immunity with respect to certain types of contracts entered into by local government units, such as the Authority.  This includes contracts for services, such as employment contracts.  The Authority conceded that sovereign immunity would not bar a suit for breach of contract based on the original employment contract.

However, the Authority noted that Rankin was not suing under the original employment contract.  Instead, he was suing under the severance/buy-out agreement, which was a separate contract,  The Authority argued that the severance/buy-out agreement was not a contract for services, so that the waiver of sovereign immunity did not apply.

The First Court of Appeals appeared to agree that the severance/buy-out agreement was not a contract for services.  Nonetheless, the court held that the waiver of sovereign immunity for the employment contract extended to the severance/buy-out agreement.  Harris County Housing Authority v. Rankin, No. 01-12-00870-CV (Tex. App. -- Houston [1st Dist.] Jan. 31, 2013).

The First Court of Appeals relied on a plurality opinion from the Texas Supreme Court in Tex. A&M Univ.—Kingsville v. Lawson, 87 S.W.3d 518 (Tex. 2002).  In that case, the plaintiff had a claim under the Texas Whistleblower Act, for which sovereign immunity is waived.  The plaintiff entered into a settlement agreement, and then later sued to enforce the agreement.  When the University argued that the lawsuit under the settlement agreement was barred by sovereign immunity, the Supreme Court rejected that argument.  The plurality opinion, which has been followed by several lower courts, held that "when a governmental entity is exposed to suit because of a waiver of immunity, it cannot nullify that waiver by settling the claim with an agreement on which it cannot be sued."

While the facts of Lawson were distinguishable (the Authority was not settling a lawsuit), the First Court of Appeals ultimately followed the reasoning of the Lawson plurality:

In other words, like a settlement agreement, one function of the buy-out agreement was to secure a release of all claims Rankin may have had for which the Housing Authority’s immunity from suit had already been waived, in exchange for a payment of cash. Rankin now alleges that he had a potential claim against the Housing Authority which was released by the buy-out agreement, and that the Housing Authority breached the buy-out agreement by refusing to pay the cash consideration for Rankin’s resignation and release of claims. Like the situation in Lawson, the Housing Authority, having waived immunity from suit by contracting for services with Rankin, may not now claim immunity from suit brought to enforce an agreement that settled claims arising under that contract for services.

Accordingly, the First Court of Appeals affirmed the denial of the Authority's motion to dismiss, except with respect to a fraud claim that Rankin conceded to be barred/

David C. Holmes is a Houston employment lawyer with The Law Offices of David C. Holmes