The Texas Supreme Court reversed a Court of Appeals ruling and ordered jurisdictional discovery in a municipal contracting dispute involving Houston's Hobby Airport concessions, highlighting the complexities of state procurement law enforcement.
The case stems from a long-running business relationship between Pappas Restaurants and the City of Houston. For more than 20 years, Pappas oversaw concessions at Houston's Hobby Airport under contract with the city. However, this relationship came to an end in 2023 when the city awarded a new 10-year concessions contract to Areas HOU JV, LLC.
The contracting process began in September 2019 when Houston started soliciting bids for new airport concessions. After an extended procurement process spanning three years and involving three rounds of requests for proposals, the city awarded the contract to Areas by what the court described as "a slim margin" over Pappas. On March 9, 2023, the city and Areas executed the Food and Beverage Concession Agreement, formally ending Pappas' two-decade tenure at the airport.
Pappas responded by filing suit against the City of Houston, alleging that the Areas Agreement violated Chapter 252 of the Texas Local Government Code. Specifically, Pappas claimed the city failed to follow required procedures under Section 252.021(a), which governs municipal contracts requiring expenditures of more than $50,000.
The statute in question requires municipalities to follow specific procedures before entering contracts exceeding the $50,000 threshold. According to the applicable version of Section 252.021(a), municipalities must "comply with the procedure prescribed by this subchapter and Subchapter C for competitive sealed bidding or competitive sealed proposals" before executing such contracts.
The procedural history of the case reveals the complexity of jurisdictional questions in municipal contract disputes. The City of Houston filed a plea to the jurisdiction, arguing that the contract fell outside the scope of the statute. The trial court initially denied this plea without allowing jurisdictional discovery.
The Court of Appeals for the First District of Texas took a different approach, reversing the trial court's decision in part and dismissing the Chapter 252 claims entirely. This appellate ruling effectively ended Pappas' challenge to the contract award at the intermediate court level.
However, the Texas Supreme Court disagreed with the appellate court's analysis. In a per curiam opinion, the state's highest court concluded that jurisdictional discovery was warranted before determining whether the Chapter 252 claims should be dismissed.
Jurisdictional discovery allows parties to gather evidence specifically related to whether a court has the authority to hear a case. In this context, such discovery would likely focus on the nature and scope of the Areas Agreement and whether it falls within the statutory requirements that trigger Chapter 252 compliance.
The Supreme Court's decision to reverse and remand the case to the trial court represents a procedural victory for the restaurant operators. Rather than having their claims dismissed outright, they will now have the opportunity to conduct discovery to support their jurisdictional arguments.
This ruling has implications beyond the immediate parties involved. Municipal contracting disputes frequently involve questions about which procurement statutes apply and when specific procedural requirements must be followed. The Supreme Court's emphasis on allowing jurisdictional discovery before dismissing such claims suggests courts should thoroughly examine the factual basis for statutory coverage before ruling on jurisdictional challenges.
The case also highlights the high stakes involved in municipal contracting, particularly for long-term service agreements like airport concessions. For Pappas, losing the Hobby Airport contract after more than two decades represents a significant business loss that motivated extensive litigation efforts.
The extended procurement process described in the case—three rounds of proposals over three years—demonstrates the complexity of modern municipal contracting. While such thorough processes may be intended to ensure fair competition and compliance with procurement laws, they can also create additional opportunities for disputes over whether proper procedures were followed.
The remand to the trial court means the case will continue in the lower courts, where jurisdictional discovery will determine whether Pappas can proceed with its Chapter 252 claims. If the trial court ultimately finds jurisdiction exists, the case would then proceed to the merits of whether Houston actually violated the procurement statute in awarding the contract to Areas.
The outcome of this jurisdictional discovery could establish important precedent for how Texas courts evaluate municipal contract disputes and determine when Chapter 252 requirements apply to specific agreements. For municipalities throughout Texas, the case serves as a reminder of the importance of carefully following procurement statutes when entering into contracts exceeding statutory thresholds.