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Texas Legislature Offers Relief to Certain Businesses Facing Obstruction by Local Governments; Cities Fight Back

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Over the years, the State of Texas and Texas businesses have clashed with counties, home-rule cities, and other municipalities over local regulations aimed at a broad range of business activities, including bans on hydraulic fracking, pipeline construction, single-use plastic grocery bags, and the location of wind generation and transmission facilities.  In response, the Legislature has previously preempted such local regulations in a targeted manner. For example, in 2015, after the City of Denton banned hydraulic fracking, the Legislature conferred upon the State “exclusive jurisdiction” over “oil and gas operations” in Section 81.0523 of the Natural Resources Code.

Legislature Passes The Texas Regulatory Consistency Act

In May 2023, the Legislature passed H.B. 2127—the Texas Regulatory Consistency Act (the “Act”)—a more broadly-based attempt to preempt local regulation of Texas businesses.  The express “purpose” of the Act “is to provide statewide consistency by returning sovereign regulatory powers to the state where those powers belong in accordance with Section 5, Article XI, Texas Constitution.”  In the Act, the Legislature made the following findings:

  1. the state has historically been the exclusive regulator of many aspects of commerce and trade in this state;

  2. in recent years, several local jurisdictions have sought to establish their own regulations of commerce that are different than the state’s regulations; and

  3. the local regulations have led to a patchwork of regulations that apply inconsistently across this state.

To achieve “statewide consistency,” the Act adds broad preemption language to multiple, but not all, statutory codes.  Under the Act, the preemption language below is added to the Agriculture, Business and Commerce, Finance, Insurance, Labor, Natural Resources, Occupations, and Property Codes.

PREEMPTION.  Unless expressly authorized by another statute, a municipality or county may not adopt, enforce, or maintain an ordinance, order, or rule regulating conduct in a field of regulation that is occupied by a provision of this code.  An ordinance, order, or rule that violates this section is void, unenforceable, and inconsistent with this code.

For enforcement purposes, the Act codifies a private cause of action for “[a]ny person who has sustained an injury in fact, actual or threatened, from a municipal or county ordinance, order, or rule adopted or enforced by a municipality or county in violation of” the Act “or a trade association representing the person has standing to bring and may bring an action against the municipality or county.”  The Act waives governmental immunity for such a claim, and a party asserting such a claim may (i) obtain declaratory and injunctive relief and (ii) recover its attorneys’ fees and costs.  However, a municipality or county may recover its attorneys’ fees and costs if the claim is frivolous.

Although the Act does not add the broad preemption language above to all Codes—omitting, for example, the Transportation, Utilities, and Water Codes—the Act does add to the Local Government Code a new Section 51.002 entitled “Ordinance or Rules Inconsistent with State Law Prohibited.” This new provision allows a municipality to “adopt, enforce, or maintain an ordinance or rule only if the ordinance or rule is consistent with the laws of this state.”  While it references “a municipality,” the new provision is silent as to counties, and it is located in a part of the code applicable to municipalities, not counties.  The Act does not add a similar provision addressing counties, which is notable, because the preemption provisions added to each of the specific codes apply to both municipalities and counties. Time will tell whether this was an oversight that the Legislature may eventually correct or an intentional decision not to add a similar provision to the portion of the code applicable to counties.

In the bill analysis, supporters of the Act stated that the new preemption law will “provide regulatory consistency and promote prosperity in Texas by preempting local government regulation in areas already regulated by the state.” Supporters further stated that the current “lack of consistency is especially burdensome for businesses that operate in multiple jurisdictions and must navigate compliance with potentially contradictory regulatory schemes.”

Critics of the Act contend that the Act undermines a “long-standing tradition of local control and home-rule in Texas,” which allows local governments to enact regulations tailored to their specific and diverse local needs. Critics argue that the Act is unconstitutionally vague and will generate confusion and costly litigation. Instead of clarity for Texas businesses, critics further argue that local governments and Texas businesses cannot know what local regulations are preempted by the Act because it is too broad.  

Major Texas Cities Challenge The Constitutionality Of The Act

On June 14, 2023, Governor Greg Abbott signed the Act into law, and it became effective on the first day of this month, September 1, 2023.  Before the Act became effective, the City of Houston sued the State of Texas in Travis County, seeking a declaratory judgment that the Act is unconstitutional, void, and unenforceable for various reasons. The Cities of San Antonio and El Paso intervened, seeking similar declaratory judgments challenging the constitutionality of the Act.

The cities argue that the Act is at odds with Texas caselaw, which generally provides that the Legislature may preempt local laws by statute only where the “intent to impose the limitation” appears with “unmistakable clarity.” City of Laredo v. Laredo Merchants Ass’n, 550 S.W.3d 586, 593 (Tex. 2018). The cities emphasize that the “mere entry of the state into a field of legislation . . . does not automatically preempt that field from city regulation.”  Id. (quoting City of Brookside Village v. Comeau, 633 S.W.2d 790, 796 (Tex. 1982)).  According to the cities, the Act upends well-settled caselaw by attempting to broadly preempt various fields, and, in effect, inhibits their ability to meet the needs of their specific communities.  In addition, because of the new private cause of action noted above, the City of Houston alleged that it “will have to defend against a likely barrage of lawsuits brought by trade associations or individuals essentially to deregulate their industries or businesses at the local level.”

On August 30, 2023, Travis County District Judge Maya Guerra Gamble signed an order declaring the Act “in its entirety is unconstitutional.” The State of Texas filed a notice of appeal the same day, and the appeal will be taken to the Third Court of Appeals in Austin, Texas.  Notably, the cities did not request—and the trial court did not grant—any injunctive relief. Accordingly, the Act will remain in effect pending the appeal. And, as a result, municipalities and counties will have to comply with the statute while the constitutional challenge works its way through the courts, and Texas businesses can sue them if they do not comply with it.

Baker Botts will continue to monitor this litigation and other related developments as the State of Texas, local governments, and Texas businesses explore the scope and effect of this new preemption law.  If you have questions about the Act or any other preemption issues, please contact us.

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