Supreme Court of Texas Holds Pappas Is Entitled to Jurisdictional Discovery Before Dismissal of Chapter 252 Claims Against City of Houston

The decision

On January 9, 2026, the Supreme Court of Texas granted the petition for review of 4 Families of Hobby, LLC, 4 Families of Houston, LLC, and Pappas Restaurants, Inc. (referred to collectively in the opinion as “Pappas”) and reversed the part of a First Court of Appeals judgment that had dismissed Pappas’s claims against the City of Houston under Chapter 252 of the Texas Local Government Code. In a per curiam opinion issued without oral argument, the court held that two articles of the City’s Hobby Airport concessions contract with Areas HOU JV, LLC “can reasonably be read to require city expenditures of more than $50,000,” and that Pappas was therefore entitled to jurisdictional discovery before those claims could be dismissed. The claims were remanded to the trial court for that discovery.

The opinion does not decide whether the contract in fact requires such expenditures, whether the City violated Chapter 252, or whether the contract is void.

Background

According to the opinion, Pappas oversaw concessions at Houston’s Hobby Airport for over twenty years under a contract with the City. After three rounds of requests for proposals beginning in September 2019, the City awarded a new concessions contract to Areas HOU JV, LLC “by a slim margin over Pappas.” On March 9, 2023, the City and Areas executed a Food and Beverage Concession Agreement (the Areas Agreement) making Areas the concessionaire at Hobby for ten years.

Pappas sued the City, alleging the Areas Agreement was void because the City had not complied with Chapter 252. The version of Section 252.021(a) applicable to the case required a municipality, before entering a contract “that requires an expenditure of more than $50,000 from one or more municipal funds,” to use competitive sealed bidding or proposals, a reverse auction procedure, or a method described in Chapter 2269 of the Government Code. The court described Section 252.061 as a waiver of governmental immunity: a contract made without compliance is void, and its performance may be enjoined by any property-tax-paying resident of the municipality. Pappas sought a declaration that the agreement is void and temporary and permanent injunctions suspending it.

The parties agreed to limited expedited discovery for a temporary-injunction hearing. Two days before that hearing, after both sides had produced the requested documents, the City filed a plea to the jurisdiction arguing that Chapter 252 applies only to expenditure contracts, not to revenue contracts such as the Areas Agreement. At a later hearing, the trial court denied the plea, and the City filed an interlocutory appeal.

The court of appeals reversed in part and rendered judgment dismissing the Chapter 252 claims. It held that the Areas Agreement “is a revenue generating contract,” relied on the agreement’s “No City Expenditure” clause, and concluded that Articles 8.1.1 and 8.2.1, which require the City to provide and maintain utilities and to maintain public areas and facilities, do not on their face require expenditures over $50,000. It dismissed the claims rather than remanding for discovery.

The court’s reasoning

Jurisdictional facts and jurisdictional discovery

The court began with the principle that Texas courts consider evidence when a plea to the jurisdiction challenges the existence of jurisdictional facts, citing City of Austin v. Powell, Texas Department of Parks & Wildlife v. Miranda and Bland Independent School District v. Blue. It quoted Justice Young’s concurrence in the denial of petitions in Texas Southern University v. Young: “If the waiver of immunity is tethered to specific factual prerequisites, the only way to know if immunity has been waived is to determine if the necessary facts exist.”

Here, the court said, the City’s plea challenged a jurisdictional fact: whether the Areas Agreement “requires an expenditure of more than $50,000” by the City. Citing Alamo Heights Independent School District v. Clark, it noted that when the Legislature conditions an immunity waiver on a statutory violation, the elements of the violation are jurisdictional facts. The court then stated the test it applied: “If there is a reasonable reading of the contract that could result in required expenditures by the City of more than $50,000 depending on the facts, Pappas is entitled to jurisdictional discovery.”

Applying that test, the court concluded that two articles of the agreement could reasonably be read to require such expenditures. Article 8.1.1 provides that the “City shall provide and maintain all utilities,” and Article 8.2.1 provides that the “City shall throughout the Term hereof, maintain all public areas and facilities.” These provisions, the court wrote, “could reasonably require an expenditure by the City,” and Pappas was entitled to discovery on whether they will in fact require expenditures over $50,000 over the life of the contract.

Three errors identified in the court of appeals’ analysis

The court described three errors in the lower court’s contrary conclusion.

First, it held that “Chapter 252 makes no distinction between revenue contracts and expenditure contracts,” and that “net expenditures are not required.” The fact that the agreement will generate revenue for the City was therefore irrelevant, as was evidence that the City would make the expenditure regardless of the contract. The only question under the statute is whether the agreement “requires an expenditure of more than $50,000.”

Second, the court rejected the court of appeals’ reading of Article 8.1.1. The provision that Areas “shall be responsible for the cost of the use of all such [utility] services,” the court said, does not mean the City has no expenditures. The two parts of the article can reasonably be read as operating in tandem: the City provides and maintains the utilities, which may involve costs of making them available, and Areas pays for their use.

Third, the court held that the No City Expenditure clause does not resolve the issue. It wrote: “A municipality cannot circumvent Chapter 252’s requirements by adding a disclaimer clause to a contract that in fact does require expenditures of over $50,000.” The court added: “This is not to say that a disclaimer clause can never end the analysis.” A strongly worded clause indicating that it overrides other provisions potentially requiring city expenditures would, in the court’s view, be sufficient to resolve the question without discovery. But this clause, which states that nothing in the agreement “shall be construed to require” a City expenditure, appeared to the court to be an aid in resolving ambiguities. Ambiguities should be resolved with that provision in mind, the court said, but if Pappas shows that unambiguous provisions require expenditures totaling more than $50,000, the clause does not excuse compliance with Chapter 252.

Preservation and the opportunity for discovery

The court found that Pappas “has preserved its request to discover such evidence at every step”: two days after the plea was filed, by emergency motion before the plea hearing, at the hearing itself, by asking the court of appeals to lift the stay of trial-court proceedings, and by asking the Supreme Court “for an opportunity to conduct jurisdictional discovery before its claims are dismissed.” In a footnote, the court rejected the City’s contention that Pappas had been denied discovery and failed to seek appellate review.

Because the earlier expedited discovery was limited to the temporary injunction and was completed before the City raised the jurisdictional issue, and because Pappas had received no responsive information from the City, the court concluded that the court of appeals had dismissed the claims “based solely on evidence Pappas was able to obtain from public records.” The remand, the court wrote, is to give Pappas “a fair opportunity to meet its burden of establishing a genuine issue of material fact regarding whether the Areas Agreement requires an expenditure of more than $50,000.”

Separate opinions

None.

Status

Under Texas Rule of Appellate Procedure 59.1, without oral argument, the court granted the petition for review, reversed the portion of the court of appeals’ judgment dismissing the Chapter 252 claims, and remanded those claims to the trial court for jurisdictional discovery. The decision was reported the day it issued by Houston Public Media, the Houston Chronicle and The Texan, among other outlets.