City Contracts and Arbitration

It is recommended that cities do not agree to arbitration, either voluntarily or by contract.  First, this may result in protections provided by state law from being applied on behalf of the city. Second, an arbitrator may not have experience in municipal law, and may apply equitable principles that would not apply in a court of law.

For instance, state law will often provide cities extra protection against damages and lawsuits, such as immunity from liability, which protects a city from judgment even if the legislature has agreed to allow it to be sued; alternatively, there may be immunity from suit which means a city cannot be sued unless it consents to be sued. Tex. Dep’t of  Transp. v. Jones, 8 S.W.3d 636, 638 (Tex.1999).  This is a general statement and many times an actual determination of privileges is fact-intensive.

However, in Texas, whenever a city contracts with a person or entity, then its immunity from suit is waived. See Texas Local Government Code Chapter 271.152. But damages are limited to factors such as the balance owed for services provided, possible increases for costs to perform as a result of city-caused delays; amounts for change orders authorized by the city, reasonable or necessary attorney fees and interest.  Consequential damages are often limited and exemplary damages are not allowed.  An arbitrator may not follow these limitations, whereas a court by law has to apply these limitations.

As always it is recommended that both a city or private party contracting with a city consult with an attorney regarding contracts and the provisions therein. For more information, please contact Leonard Schneider in our Houston office.

Hotel Occupancy Tax Funds – Management and Duty – Part III of III

(March 30, 2011): In Part I, the Hotel Occupancy Tax (“HOT”) was defined and examples of how it can be used were given. Part II examined the two-part test to determine if a proposed expenditure of HOT funds meets the purpose of the HOT tax.

Many cities will hire a third party firm or organization to manage and use HOT funds.  Texas law allows this. See Texas Tax Code at § 351.101(c). When approving a contract and funding to a third party the City Council determines if the proposed uses by the third party is a permissible use and will “directly enhance and promote” tourism and the hotel and convention industry. See Tex.Atty.Gen.Op. No GA-0124 (2003); Texas Tax Code at § 351.101(b).

A contract with a third party should reference the statute authorizing the Hotel Tax and duties regarding the expenditures of the Tax. This is because the funds are given to the third party.  The Contract should also specify that any HOT funds given to a third party should be kept in a separate account by the third party and the funds cannot be commingled with any other money. Texas Tax Code at § 351.101(c)

Since HOT funds are taxes paid by the public, a fiduciary duty is imposed on the third party regarding the management of the HOT funds. Id. At the most basic level, fiduciary duty means the third party would put the City’s interest above its own in the management and expenditure of HOT funds entrusted to it. Additionally, whether by case law or statute, fiduciary duty also means the third party needs to maintain complete and accurate financial records of each expenditure of HOT funds and upon request the records should be made available to the City. See Texas Tax Code at § 351.101(d). The level of financial records kept should be such that an independent party could examine the records and determine if the money was spent appropriately.

HOT funds are a public tax. A City that wishes to contract with a third party to manage HOT funds should have an independent audit conducted every year or two to determine if the monies are being spent appropriately and accurate records are being kept.

A third party that wishes to manage HOT funds for a city should put in procedures to make sure the HOT funds are maintained in a separate account and that financial records are kept that will show how, when and on what the HOT funds were spent.  Notably, an officer of a corporation is liable for any tort committed through him or her, regardless of whether the officer personally benefits from the tort committed. McCollum v. Dollar, 213 S.W. 259, 261 (Tex.Com.App.1919); Gardner Machinery Corp. v. U.C. Leas., 561 S.W.2d 897, 899 (Tex.Civ.App.1978, writ dism’d) This includes being individually liable for breaching a fiduciary duty owed by the corporation (third party) to the City. Gardner, 561 S.W.2d at 900; Searle-Taylor Mach. Co., Inc. v. Brown Oil Tools, Inc., 512 S.W.2d 335, 338 (Tex.Civ.App.1974, writ ref’d n.r.e.)

Always, in the handling of HOT funds, whether a City or a third party, an attorney should be consulted.

Liles Parker attorneys and staff have extensive experience representing Texas cities and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact us at: 1 (800) 475-1906.         

 

Hotel Occupancy Tax Funds and Proper Use – Part II of III

(March 22, 2011): In Part I the Hotel Occupancy Tax (“HOT”) was defined and examples of how it can be used were given.

HOT tax funds (in Texas) are to be spent on authorized uses if the HOT funds are spent in a manner directly enhancing and promoting tourism and the convention and hotel industry.

A two-part test in Texas that is commonly recognized by administrative agencies and cities is: (i) will the spending of the HOT funds put “heads in beds”, in other words, will the funded project using HOT funds likely attract overnight tourists to the city hotels and motels thereby promoting the city’s hotel industry; and (ii) does the expenditure of HOT funds fit into the uses authorized by the state law? See Bennett Sandlin, General Counsel Texas Municipal League “The Hotel Tax Two-Step”, Texas Town & City pp. 45-46 (April 2005).

This two-part test should be applied to every proposed used of HOT funds for a particular project.  For example, will the donation of HOT funds to a shelter meet the test? While funding a shelter is a worthy cause, it is unlikely that the promotion of a shelter will directly enhance and promote the attraction of tourists to the city.   Nor does the shelter likely fit into any authorized uses.

What about the donation of $1000.00 of HOT funds to a Chamber of Commerce for its annual fund raiser dinner?  While the Chamber annual fund raiser may attract political figures from out of town, will that directly enhance and promote tourism? The political figures may tell others outside of the city about the Chamber and extol the city, but will that likely cause future tourists to come to town?  Objectively, the expenditure of the $1000.00 of HOT funds to a Chamber fund raiser, at the most, will indirectly enhance and promote tourism and therefore does not meet the first part of the test.  Further, the promotion of a Chamber normally will not fit into an authorized use or category which is the second part of the test. Id.

What about donating HOT funds to advertise a weekend long folk music festival in the city that attracts out of town artists and folk music lovers?  This likely meets the first part of the test in that promotion of the two and ½ day music festival will directly enhance and promote tourism that will result in overnight stays in the hotels and motels of the city.  This also fits the second part of the test in that many HOT tax statutes allow the funding of art events that include the presentation and performance of music.

What about the advertising of various city weekend long events or conventions in a city in a State-wide or State sponsored travel magazine?  This is similar to promoting the music festival above.  The purchase of the advertising is likely to directly enhance tourism to the city by letting readers of these magazines know of events that they may wish to attend, such as a music festival, a week-long sporting event, or a three day convention for school administrators. This would also meet the second part of the test because a permissible category to spend HOT Funds is to advertise and promote programs to attract tourists and convention delegates.

Every proposed HOT fund expenditure should be subjected to the Two Part test because there may be different facts that may allow or disallow the expenditure.

Part III will address the management of HOT funds and fiduciary duty in the managing of HOT funds.

Liles Parker attorneys and staff have extensive experience representing Texas cities and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact us at: 1 (800) 475-1906.    

Hotel Occupancy Tax Funds: What are They? Part I of III.

(March 21, 2011): Many states have passed laws that allow a city to authorize a Hotel Occupancy Tax (“HOT”).

This is a tax that is charged to individuals who stay at hotels within a city or its extra-territorial jurisdiction.  Cities are normally allowed to institute this tax pursuant to a state statute.  For most cities in Texas, this tax is capped at 7.0%  of the price paid for a room in a hotel. The price paid for a room does not include the cost of food served by the hotel and the cost of personal services performed by the hotel for the person except for those services related to cleaning and readying the room for use or possession.

Certain persons do not have to pay the HOT tax when renting a room.  Some common exemptions are: (i) a permanent resident of the city where the hotel is located; (ii) certain members of charitable organizations; or (iii) state or government employees traveling as a part of their job duties.

HOT taxes collected by a hotel are paid to the City.  However, a city may use these HOT funds only as authorized by state statute.  In Texas, HOT funds are to be used only to promote tourism and the convention and hotel industry in the city that authorized the HOT tax.  The prerequisites for the expenditure of the HOT tax funds on authorized uses are that the funds shall be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry.

Common authorized purposes on which cities may spend HOT funds include: (i) acquiring sites for and/or construct, enlarge, and maintain convention centers and/or visitor information centers; (ii) providing the facilities, personnel and materials to register convention delegates or registrants: (iii) advertising and conduction solicitations and promotional programs to attract tourists and convention delegates and registrants: (iv) generally promoting and supporting the arts, dance, drama, folk art, radio, etc  that are related to the presentation, performance and exhibition of the art forms authorized; (v) restorating, preserving and promoting of historic sites or museums that is near the convention center or located where frequented by tourists and convention delegates; or (vi) sporting events that will draw tourists.

In part II, tourism will be defined, a common test will be examined to determine if spending of HOT funds will directly enhance and promote tourism, and the fiduciary duty in relation to managing these HOT funds will be discussed.

Leonard Schneider represents a number of Texas cities and municipalities, serving as City Attorney.  Should you have questions regarding these issues, call us for a complimentary consultation.  We can be reached at: 1 (800) 475-1906.

 

Leonard Schneider Wins Pivotal Lawsuit on Behalf of the City of Huntsville Against the Huntsville-Walker Chamber of Commerce.

(August 29, 2010): Attorney Leonard Schneider of Liles Parker was successful in obtaining jury verdict on October 22, 2010 against Huntsville-Walker Chamber of Commerce for breach of fiduciary duty and breach of contract in the administration and management of Hotel Occupancy Tax Funds.  After a two week trial, a Leon County jury returned a verdict against the Chamber and former President of the Chamber in the amount of $324,578.00 for breach of fiduciary duty and the same amount against the Chamber individually for breach of contract along with $125,000.00 in attorney fees.  The City of Huntsville, Texas asserted the Chamber and its leadership failed to adequately account for expenditures of HOT Funds, improperly used HOT funds, and failed to notify the City of HOT funds that were left over after each budget year.   Schneider was assisted by local counsel,  Bennie Rush of Walker County and of Counsel to Liles Parker,  Anastasia Cunningham-Thomas.

Liles Parker attorneys represent individuals, corporations and municipalities around the county in both transactional projects and matters involving litigation.  Mr. Schneider is an excellent litigator and can be contacted for a complimentary consultation.  He can be reached at: 1 (800) 475-1906.

What Can Cities Do About Dangerous Buildings?

(June 25, 2010): Cities have the authority, usually provided by State statute, to regulate dangerous and substandard buildings and structures.   In Texas, a City has to pass an ordinance to activate its ability to regulate dangerous buildings and structures.  See TEX. LOC. GVT CODE § 214 Subchapter A.

Before taking action against a dangerous building, City officials should check their code of ordinances to make sure they have the ability and authority to regulate dangerous structures.   This authority will include the ability to require the repair, removal, or demolition of the building and to require occupants of a dangerous building to either vacate the premises or relocate.  Common criteria to cause the vacating of a premise include whether or not the building is “dilapidated, substandard, or unfit for human habitation”.

Unoccupied buildings that may pose a danger to the public or be an attractive nuisance to children and/or vagrants are also subject to the regulatory authority of a City.  It does not matter if the building or structure is secured or unsecured.  This broad regulatory authority is given to a City under the umbrella of providing for the “health, safety and welfare” of its citizens.

The City must follow due process and give proper notification to a property owner before taking action against a building. Consequently, property owners, landlords, or investors who purchase property within a city limit should contact the City and determine what city ordinances are applicable to the property.  The same applies to a person who may inherit a building or home, or the business that purchases a property.  This also allows the owner to determine if the City is following proper procedure in giving notice and in its determination that a building is unsafe or dangerous.

Cities should always consult legal counsel to ensure proper procedure is being followed when adverse action taken against a building.  Concurrently, owners of a building within city limits should consult their attorney if they get a notice that their building is considered a nuisance.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Contracts and Cities 101

(May 10, 2010): Inevitably a service provider, such as an IT professional or a vendor supplying coffee or coke machines, will sign a yea- to-year or a 3-5 year contract with a City.

And the contract may be signed by a City Officer such as the City Manager, City Administrator, or even a Mayor.  The service provider believes all is well and is happy to have a contract with a client who always pays.  The City personnel are happy to have the service.

It is all fine if the person who signed on behalf of the City had been given authority by the City Council to enter into the contract.  If that person had not been given authority by City Council, then the contract may be voidable.

How can that be?  Surely a service provider can rely upon the authority of a Mayor or City Manager as an agent of the City to enter into a contract.  That is not always the case.

For example, pursuant to Texas law, a City cannot be bound by a contract that the City Council did not authorize an officer or city employee to enter into.  See Stirman v City of Tyler, 443 S.W.2d 354, 358 (Tex.Civ.App.-Tyler 1969, writ ref’d n.r.e.); Alamo Carriage v. City of San Antonio, 768 S.W.2d 937, 941-942 (Tex.App.—San Antonio, no writ).  While the City in all likelihood will have to pay for service rendered up till the time of any termination of the contract, the City will also have the ability to adopt a position there is no contract or the contract is voidable because the City officer or City employee was not given authority to sign the contract.

The City officer or employee should always check to make sure he or she has been given authority to sign a contract, either by City Council vote or by City Council approved budgetary guidelines.  And the service provider should always request that the City officer or employee verify their authority to sign the contract.  For example, you can imagine the stakes are considerably higher for city construction contracts.

This due diligence should be done for all contracts by both City and the service provider and always each party should consult their attorney.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Mechanic Liens against Public Property

(May 10, 2010): Whenever a company contracts to provide construction work for a city on public property, the company should always check the state law that governs the city in regards to liens against the land where the public property is located.  And the city should always make sure of what rights it has as a governmental unit in regards to liens against land.

In Texas, section 43.002 of the Texas Property Code protects public lands from attachment, execution, and forced sale.  Whenever a city authorizes construction work on public property, the contractor, subcontractors, and material suppliers cannot impose a lien on that land.

What if there is a lien that existed against land before purchase by a city?  Again state law should be checked to determine whether or not liens that are filed against private land later purchased by a city become invalid or remain enforceable.  In Texas, the general rule is that liens that existed on private land later purchased by a city are invalid.

Both companies and cities should always have their attorney review lien rights whenever there is proposed construction on public property or when there is a proposed purchase of private land by a city.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Limitations and City Claims

(May 10, 2010): Normally there is statute of limitations that will apply to most civil lawsuits.  This means that a claim must be filed in Court within a certain time after the action complained about occurred.  For instance, in Texas, if you are involved in a motor vehicle accident and suffer an injury you must file a lawsuit within 2 years of the date of the accident.  Failure to do so will prevent you from being able to file a lawsuit after the 2 years expires.

A common statute of limitations for a party to bring a lawsuit for breach of contract is four years from the date of the breach.  However, in many states, the statute of limitations does not apply or is greatly expanded for a City or other governmental unit if the cause of action is for a public purpose, such as collecting taxes or recovering money or damages for a breach of contract for public construction.  In Texas, Section 16.061 of Texas Civil Practice and Remedies Code Section provides that the statue of limitations does not apply and does not bar many causes of actions that a city may have against an individual or a private entity.

Courts in various other states have also provided that limitations do not bar a City in certain civil  actions.  The cases and summaries are provided by the treatise“McQuillin The Law of Municipal Corporations” 17 McQuillin Mun. Corp. § 49:6 (3rd ed.).

In conclusion, Cities should always consult legal counsel on their ability to pursue monies owed or damages to Cities, no matter how long ago the breach or damage occurred.  Concurrently, individual and entities that contract with a City should also consult their attorney in regards to limitations and what measures they can take to alleviate or protect from lawsuits for incidents that occur many years in the past.

Arizona

Statute of limitations did not run against city in action against county for taxes collected. City of Bisbee v. Cochise County, 52 Ariz. 1, 78 P.2d 982 (1938)

Colorado

Statute of limitations was inapplicable to statutory action of county to recover expense of relief to paupers. Cherrington v. Board of Com’rs of Otero County, 89 Colo. 116, 299 P. 711 (1931)

Shootman v. Department of Transp., 926 P.2d 1200 (Colo. 1996)

Board of Educ. of City of Chicago v. A, C and S, Inc., 131 Ill. 2d 428, 137 Ill. Dec. 635, 546 N.E.2d 580, 57 Ed. Law Rep. 206, Prod. Liab. Rep. (CCH) ¶ 12285, 10 U.C.C. Rep. Serv. 2d 90 (1989) (school seeking compensation for removal of asbestos as public purpose); City of Shelbyville v. Shelbyville Restorium, Inc., 96 Ill. 2d 457, 71 Ill. Dec. 720, 451 N.E.2d 874 (1983) (street and sidewalk construction as public purpose); Brown v. Trustees of Schools, 224 Ill. 184, 79 N.E. 579 (1906); Greenwood v. Town of La Salle, 137 Ill. 225, 26 N.E. 1089 (1891); People ex rel. v. Town of Oran, 121 Ill. 650, 13 N.E. 726 (1887)

Iowa

Chicago & N.W. Ry. Co. v. City of Osage, 176 N.W.2d 788 (Iowa 1970); State ex rel. Schlagel v. Munn, 216 Iowa 1232, 250 N.W. 471 (1933)

Suit by public to oust owner of electric lighting system in operation over 10 years was not barred by limitation statute. State ex rel. Schlagel v. Munn, 216 Iowa 1232, 250 N.W. 471 (1933)

Illinois

Savoie v. Town of Bourbonnais, 339 Ill. App. 551, 90 N.E.2d 645 (2d Dist. 1950) (matters involving public rights)

Oregon

City of Pendleton v. Holman, 177 Or. 532, 164 P.2d 434, 162 A.L.R. 249 (1945)

The common-law rule is that statutes of limitations do not apply against government bodies unless they are included expressly or by necessary implication. City of Medford By and Through Medford Water Com’n v. Budge-McHugh Supply Co., 91 Or. App. 213, 754 P.2d 607, Prod. Liab. Rep. (CCH) ¶ 11831 (1988) (negligence in product liability actions)

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Cities and Trade Secrets

(May 3, 2010): Is your company information confidential when given in an electronic or written format to a City officer or employee?  Alternatively, is your pricing information and technological information provided in conjunction with a contract with a City confidential?

The answer to both questions is “maybe”.  The public information laws of the state where the City is located should always be reviewed, by both the City and the Company.

For example, most state public information laws start with the proposition that all documents given to a City are public information.  There are exceptions to this rule, such as social security numbers,  attorney/client communications and trade secrets.   The burden is normally on the City to show that an exception applies to the information requested thereby making it confidential and not “public”.  And a City usually has a specific time frame in which to respond or to assert the reasons why the information is not public and is confidential.  Failure to do so usually will result in the requirement the documents be released without any type of redress other than filing a protective action in Court.

Normally the facts are that a public information request is made to the City for any and all documents given to the City by Company “A”.  The City determines if there is an exception that applies to the documents.   The City may either argue the exception to the appropriate authority (usually the state attorney general (AG)) or notify the AG that the City believes the information is confidential and will rely on the Company to make the arguments the information is confidential.   Of course the City is usually required to timely notify the Company of the action taken and the Company has a specific time frame to assert the reasons why the information is confidential.

Confidentiality provisions in a contract between the City and a Company should always be reviewed.  The City should review to make sure that there is language such as “to the extent provided by law” the City agrees to keep certain information confidential.  The Company should make sure that there is a provision stating that the City will timely notify the Company of any requests for its information and to take the appropriate actions to allow the Company to protect any information the Company believes is confidential.

As always, both the City and the Company should have their respective attorneys review the contracts and confidentiality provisions.

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Leonard Schneider or one of our other attorneys at 1 (800) 475-1906.