Nightclub developer wins suit against city

City Council will consider on Thursday whether to pay $126,400 to the developer of an east side nightclub whose fiscal surety was released to the wrong person. The case made its way through the courts, the nightclub owner won, and it seems unlikely that Council will decline to pay.

In 2005, Edilberto Portillo submitted a site plan and deposited $91,897 in escrow to ensure that he would install erosion and sedimentation controls during development of the Tequila Nightclub at 9111 FM 812. Portillo is president of Canario’s Inc.

Such funds are placed in escrow to ensure that the developer completes the project as promised. Once the project is done, the Development Services Department or the Watershed Protection Department reviews the project and tells another city department to release the funds.

In April 2012, the city received a letter from someone purporting to be Portillo directing that the city refund the money not to Portillo but to Maria Rosario Flores or her husband. The letter stated that Flores and her husband were Portillo’s local partners, which was not the case.

The city turned the money over to Flores. By that time, the city owed interest, and so erroneously paid Flores $108,687.

It took a while, but in May 2013, a representative of Canario’s Inc. notified the city that it should not have released the money to Flores. The representative asked for a refund, and when the city refused to pay the company, Portillo filed suit.

According to court pleadings, the city has changed its procedures in order to ensure that there are no further payments to unauthorized people. A city spokesman said Monday that the city is still actively pursuing the money paid to Flores.

It has been a long road for Portillo and his lawyer, Adam Pugh, with the city arguing, among other things, that it should not have to pay Portillo because the city has sovereign immunity against such claims. Judge Stephen Yelenosky originally agreed with the city and granted its request to reject the lawsuit.

The 3rd Court of Appeals disagreed. In its analysis, the court noted that “a municipality is protected by governmental immunity when it performs a governmental function, effectively acting on behalf of the state … for the interest of the public at large.” However, when the city is performing a proprietary function that is primarily for the benefit of those who live within the corporate city limits, it does not have governmental immunity.

Since the city did not have immunity, it could be sued for breach of contract, the court said, and it returned the case to the trial court for further proceedings.

The city then tried to appeal to the Texas Supreme Court, which declined to take the case.

Back in Yelenosky’s court, the city successfully argued against attorneys fees for the plaintiff but could not win the breach-of-contract argument.

Upon rehearing, Yelenosky found in favor of the plaintiff and ordered the city to pay $109,023.81 for its breach of contract, plus interest and court costs.

Photo by M.Fitzsimmons (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons.

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.