City of Round Rock, Texas Navigates Collection Contract Dispute

Not quite a half-hour drive up I-35 from downtown Austin, Texas, is the city of Round Rock.  Named among the most livable of U.S. small cities, it is probably best known as the international headquarters of tech giant Dell.

Over the years, Texas Disposal System (TDS) had a series of non-exclusive franchise agreements with the city to provide garbage and recycling collection for commercial businesses. Other haulers, including FF CTR Holdings, Inc. d/b/a Central Texas Refuse (CTR), had similar agreements.  The most recent agreement between the city and TDS expired on September 30, 2022.  Among its provisions was the city’s right, in its sole discretion, to terminate TDS on or after December 1, 2021, with 30 days' written notice.

The city council held a retreat in July 2021.  The published agenda noted that the council would consider “possible action regarding the collection and disposal of commercial refuse."  Indeed, during the retreat, council members discussed several alternatives before voting to authorize the city manager to negotiate a sole source contract with CTR.  At that time, CTR was the only provider of residential waste and recycling collection and the largest provider of non-residential services in the city.

The published agenda for the council meeting on November 4, 2021, provided notice that the council would be considering resolutions (i) authorizing the mayor to execute an "Amended and Restated Refuse Collection Contract,” making CTR “the single vendor for all solid waste collection services in the City" and (ii) authorizing the city manager to provide written notice to TDS and other companies that their existing franchise agreements for non-residential services would terminate on April 30, 2022.

Before regularly scheduled meetings, council members hold an open public session where they discuss items on the upcoming agenda.  During that gathering before the November meeting and again during the meeting itself, representatives from TDS and other haulers spoke against the resolutions.  Nonetheless, the council voted to approve them.

Following the November meeting, the city and CTR signed the Collection Contract, which covered residential and non-residential services, and on March 23, 2022, the city notified TDS in writing that it had approved the Collection Contract and that it would be terminating its franchise agreement as of April 30.

Several weeks later, TDS filed suit against the city and the city manager in her official capacity in Williamson County District Court seeking a temporary injunction.  The company also requested a ruling that the city’s “adoption of a sole-source exclusive franchise” for non-residential services was void "because it conflicts irreconcilably with the City Charter, which expressly provides that '[n]o exclusive franchise [of a public utility] shall ever be granted,'" and that the city violated the state open-meetings law at its July 2021 retreat.  TDS's other claims included that the exclusive franchise and the requirement in the Collection Contract to utilize a particular recycling facility violated aspects of the United States and Texas constitutions.   CTR intervened in the suit, and following a hearing, District Judge Ryan D. Larson denied the injunction. 

Undaunted, TDS gave it another shot with a slightly altered approach.  It filed an amended petition claiming that the city manager acted without legal authority "to effectuate an exclusive franchise for CTR."  The company sought a ruling barring her from taking any future steps to enforce "the alleged exclusive franchise or to enforce the wrongful cancellation of Texas Disposal's non-exclusive franchise." 

 In addition, TDS requested an injunction to prohibit the city and the city manager "from taking any steps to enforce a sole-source exclusive franchise and contract for the collection of commercial waste and recyclable materials within the City"; from taking any steps to enforce the “sole-source contract's requirement for exclusive use” of a particular recycling facility; and "from enforcing any revocation of the non-exclusive franchise to collect and haul non-residential waste within the City held by [TDS] before the commencement of the present controversy."

Judge Larson acted quickly, holding a hearing the day after TDS filed its amended petition. At the outset, counsel for TDS told the judge that its request for a temporary injunction was limited to its claims that the city had acted in violation of its own charter and the open- meetings law.  The TDS witnesses at the hearing were its sales director, principal owner, and municipal sales manager.  On the other side, the judge heard from the city's director of utilities and environmental services and its assistant city manager as well as CTR's director of public-sector services and community relations.

As the hearing unfolded, the evidence showed that CTR had spent over $7 million, beginning in November 2021, to transition and be ready by May 1 to service the non-residential customers who were being serviced by other providers and, by the time of the hearing, it was providing 98% of the non-residential services in the city. CTR's sales director testified about the company's efforts to comply with the Collection Contract, including contacting TDS in November 2021 to discuss and plan for the transition.

Testimony conflicted about the number of non-residential customers that TDS was servicing at the time of the hearing.  On the one hand, TDS’s principal owner claimed that it was handling about half of the roughly 200 non-residential customers that it had in November 2021.  On the other, CTR's director testified that CTR was servicing all but 22 to 24 of TDS's former customers. The exhibits included relevant published agenda items from council meetings, copies of the city's agreements with CTR and TDS, the city's March 2022 termination notice to TDS, and CTR's timeline detailing its actions during the transition from November 2021 to a few days before the hearing. The attorneys also filed supplemental legal arguments after the hearing.

By order dated July 6, 2022, Judge Larson denied TDS's application for a temporary injunction, finding that the company had come up short on evidence to justify the relief it sought.

On appeal, TDS raised two issues.  First, it argued that the trial court wrongfully denied its application for a temporary injunction because the evidence established that (a) the city violated its charter by granting rights to CTR that constituted an "exclusive utility franchise" and (b) TDS would suffer irreparable harm without the injunction. Second, TDS claimed that an injunction was appropriate based on the open-meetings law violation – that is, the agenda notice for the July 2021 retreat was not sufficiently specific regarding the city council’s contemplated negotiation of an exclusive franchise.

A temporary injunction is an extraordinary legal remedy where the only question before the court is the right of the applicant to preserve the status quo of the subject matter pending a full trial. The "status quo" is generally defined as whatever non-contested situation existed preceding the filing of the lawsuit.

To obtain a temporary injunction, a plaintiff must allege and prove the likelihood of ultimately prevailing on the merits of their claim as well as an imminent and irreparable injury in the interim if the injunction were not issued.  An injury is considered “irreparable” if the purportedly injured party cannot be adequately compensated in damages or if the damages cannot be reasonably measured or calculated.

 A trial court has broad discretion in deciding whether to grant or deny a temporary injunction, and its ruling will be upheld unless it is wildly off base.  Although Judge Larson found that TDS’s evidence did not meet all of the requirements for a temporary injunction, the appeals court limited its review to “irreparable injury.”

TDS had sought a temporary injunction prohibiting the city and its city manager from taking any steps to enforce the Collection Contract or from terminating TDS's agreement with the city.  On appeal, TDS pulled back: the requested injunction would not terminate CTR's contracts with customers or force any CTR customers to terminate their contracts with CTR.  It would only preserve "the pre-lawsuit open market conditions for commercial waste in the city” until trial on the merits, and it would be directed against only the “exclusive” nature of the Collection Contract, but not bar it entirely.

To support its request, TDS pointed to evidence that it had lost approximately half of its customers and "sustained damage to its goodwill and investment in infrastructure that cannot be measured in dollar terms," that without the injunction it would likely suffer further similar damages, and that it would most likely be unable to recover monetary damages from the city due to governmental immunity.

As the appeals court saw it, the major problem with TDS’s arguments was that at the time of the temporary-injunction hearing, the agreement between the city and TDS was no longer in effect.  

“[P]rior to Texas Disposal filing suit, the City provided the required thirty-day written notice to Texas Disposal that their agreement would be terminated effective April 30, 2022, and Texas Disposal does not dispute that the City's notice complied with the procedure set out in the agreement between them,” the appellate justices wrote.  

“Texas Disposal has not cited, and we have not found, authority that would support requiring the City to reinstate an agreement that the City had the ‘sole discretion’ to terminate or obligating the City to allow Texas Disposal to provide non-residential services within the City going forward.  For this reason, we conclude that there is some evidence to support the trial court's finding that Texas Disposal failed to establish probable, imminent, and irreparable injury in the interim that its requested injunctive relief would have prevented.”

As for the alleged meeting law violation, the appeals court quickly disposed of it.

“Pleading a [meetings law] claim did not relieve Texas Disposal of its burden to plead and prove the . . . elements for a temporary injunction," the court said.  The evidence "did not support its requested temporary injunctive relief."

Now and then, both trial judges and appellate judges will interject comments, observations or pronouncements into their opinions that are not necessary to resolve the cases.  Here, the three-judge panel could not resist a gratuitous swipe at TDS for seemingly dawdling in bringing its claims to court.

“We also observe that the trial court reasonably could have considered Texas Disposal's delay in seeking equitable relief and balanced the equities and resulting hardships in favor of denying Texas Disposal's requested temporary injunction,” the opinion added.

 “The evidence showed that Texas Disposal was aware in November 2021 that the city council had authorized the Refuse Collection Contract and the termination of Texas Disposal's agreement, but Texas Disposal delayed filing suit and seeking temporary injunctive relief until shortly before May 1, when the Refuse Collection Contract was effective. During this time period, CTR incurred costs to comply with its contract with the City that exceeded over $7,000,000, and by the time of the temporary-injunction hearing, it was providing 98% of the non-residential services in the City.”

Texas Disposal System, Inc. v. City of Round Rock, Texas, et al., No. 03-22-00450-CV, Tex. Ct. App., Third Dist., May 31, 2023.