Apartment Owners Sue City of Pasadena, Texas for Exclusive Trash-Collection Contract with WM

Nothing can be said to be certain, according to Ben Franklin, except two things: death and taxes.  To his list, some would – today and maybe even back then – add trash.  Here’s an illustration of how trash and taxes, together, stirred up a fuss.

APTVV, LLC owns the Victoria Village Apartments, a 612-unit apartment complex in Pasadena, Texas, which is in the Houston metropolitan area. APTPCY, LLC owns the Courtyard Apartments, a 195-unit apartment complex also in Pasadena.  These entities are collectively referred to as the Owners.

 The Owners sued the city of Pasadena and two city officials in Harris County District Court seeking the return of money paid to the city through utility and trash-collection billing. They alleged that the city contrived a waste-removal operation, granting an exclusive contract to Waste Management (WM) for non-residential collection services throughout the city and requiring all non-residential generators to use WM and pay whatever amount the city specified. (The “nonresidential” category includes large multi-family dwellings.) Besides the allegations against the city, the Owners suit included a breach-of-contract claim against WM seeking monetary damages. 

 Through a 2018 ordinance, the city set a maximum base rate for WM's services to non-residential customers. The rate varied depending on the quantity and frequency of services.  In addition, the city imposed a 25% City Fee on trash-removal bills, meaning that WM would remit to the city 25% of what it received for its services to non-residential customers.  The City Fee was included in the base rate.

 One of the disputed bills charged for the removal of trash from front-end-load, eight-yard containers four times per week.  For such service the City's fee schedule set a monthly base rate of $507.58, which included the City Fee. The court record contains bills sent from before and after the 2018 ordinance and fee schedule took effect. The pre-2018-ordinance bills include a single line item for trash service without specifically noting a 10% City Fee plus other line items for city taxes.  (The then-applicable 10% City Fee was included in the base rate figure.) The post-2018-ordinance bills are structured differently. They have a line item for the base rate, a second line item for the City Fee, and other line items for city taxes.

The lawsuit alleged that the City Fee, which the Owners characterized as a “kickback,” is an impermissible tax by the city on customers who must accept trash-removal services from WM under the city-created monopoly and must pay an excessive and unconstitutional 25% tax on the mandated services.  The Owners asserted that they paid the illegal fee under duress.  According to the Owners, if they refused to accept single-source trash-removal services or to pay the 25% kickback to the city, the city could suspend waste collection at their properties and pursue both civil remedies for uncollected solid waste deemed a nuisance and criminal sanctions for non-compliance.

In the same lawsuit, APTVV challenged a "customer service inspection certification charge" in the amount of $12,240.00 that appeared on its August 2016 utility bill.  APTVV alleged it paid the fee to the city under the same duress and demanded its refund. The city explained that the fee represented a $20-per-unit inspection charge for the 612-unit apartment complex.   APTVV disputed that any city official inspected all 612 units at its complex and argued that, aside from the charge having no factual basis, it is unconstitutionally excessive.

The city moved to dismiss the claims against it and its officials on the grounds that the city enjoys governmental immunity from lawsuits and all claims against the officials are claims against the city.  The trial judge denied the city’s motion, opening the way for the plaintiffs’ case to proceed.  

On appeal, the city contended that the Owners did not overcome the presumption of governmental immunity and that there is no statutory waiver of immunity for the Owners' claims arising from the City Fee and APTVV's claim for the overpayment of inspection fees. Thus, the City argued, the trial court wrongfully denied the dismissal of the claims.

Sovereign immunity is a legal doctrine that protects the state from suit or liability. Its origin is British common law and the notion that the King could do no wrong.  In Texas, governmental immunity operates like sovereign immunity to afford similar protection to political subdivisions, including counties, cities, and school districts.  The state legislature may waive sovereign immunity, but it is the responsibility of the courts to determine under what circumstances sovereign immunity exists in the first instance. 

Rejecting the city’s contention, a three-judge appellate panel cited a decision by the state supreme court that recognized an exception to immunity when a plaintiff seeks reimbursement of an allegedly unlawful tax, fee or penalty that was paid involuntarily and under duress. “[M]oney collected from an illegal tax, fee, or penalty cannot be treated as the municipality's property and subject to immunity; instead, the illegally collected tax, fee, or penalty should be refunded if paid because of fraud, mutual mistake of fact, or duress, without respect to waiver of sovereign immunity,” the panel explained.

The city's other arguments were similarly ineffective. The city asserted that it enjoys immunity for the claims arising from the City Fee because undisputed evidence shows that WM pays the fee, not the Owners.  Referring to its contract with WM, the city noted that the company must "pay monthly . . . to [the] City twenty-five percent (25%) of the compensation for services that [it] received from Customers."  For good measure, the city also offered affidavit testimony from a WM representative asserting that the company "pays the City . . . a fee of 25% of the revenues" under the agreement. City of Pasadena v. APTVV, LLC, et al., No. 01-20-00287-VC, Tex. App., Dec. 21, 202

Brushing aside that argument, the appeals court referred to the invoices paid by the Owners.  These billings contained a line item for the City Fee, which supported an allegation by the Owners that WM “merely acted as a middleman charged with collecting the City Fee from its customers and forwarding the collected fees on to the City." Moreover, according to other testimony from that same WM representative, a line item on an invoice typically distinguishes the company’s service rates from other fees or taxes charged to the customer.

The city also insisted that it retained governmental immunity because the City Fee is lawful based on its statutory authority to grant an exclusive franchise for waste collection and the validity of the ordinance adopting the city's contract with WM.  “But the Apartment Owners do not contest the City's authority to require them to use and pay for specified garbage collection services,” the panel responded.  “Rather, the gist of their complaint is that the amount charged is excessive, has no reasonable relationship to any costs the City incurred, and is thus a general means of raising revenue and an unconstitutional tax. Neither the City's arguments on appeal nor its plea filed in the trial court address this complaint.”

Attempting to fend off APTVV's claim for a refund of overpaid inspection fees, the city argued that governmental immunity extends to its conducting inspections and levying a charge to offset the costs of those inspections.  “[A]gain, the City's general authority to inspect and charge a fee is not in dispute,” noted the appellate justices.  “APTVV complains that the City failed to make a full inspection of all 612 units but charged APTVV as if it had made a full inspection. The City has pointed to no evidence in the record challenging this claim.”

 Faced with this adverse result, the city could simply shrug off and walk away from the plaintiffs’ allegations under the pretense of governmental immunity.  It is not absolved from potential accountability. The case will go back to the trial court where the Owners will get a chance to present their case and the city will defend its actions.