## Facts

- The City of Alton built a potable water distribution system and later conveyed it to Sharyland Water Supply Corporation under a water-supply agreement.
- The agreement required Sharyland to operate, maintain, and repair the system in conformity with applicable state agency rules and regulations and granted Sharyland an easement.
- Years later, Alton undertook installation of a sanitary sewer system and hired engineering and construction firms to design and build it.
- The sewer project included hundreds of sewer “stub-outs” for future private connections; many were installed crossing or closely paralleling Sharyland’s water lines, sometimes within inches.
- Sharyland alleged the stub-outs violated state separation regulations and industry standards intended to prevent contamination of potable water.
- Although no contamination was shown to have occurred, Sharyland presented evidence that its water lines suffered roughly 100–150 leaks annually and that leaks near improperly placed sewer lines created a contamination risk.
- Sharyland sought remediation costs to protect the system, including relocating or encasing water lines at roughly 340 locations.

## Issues

1. Whether Alton’s sewer-system planning and construction breached the water-supply agreement so as to make the City liable for Sharyland’s remediation costs.
2. Whether Sharyland could recover attorney’s fees from the City under the Texas Declaratory Judgments Act when the requested declarations duplicated its contract dispute.
3. Whether the economic loss rule barred Sharyland’s negligence claims against the sewer project contractors when damages sought were remediation costs to prevent future harm, without proven present contamination or personal injury.

## Decision

- The Texas Supreme Court held Sharyland could not recover remediation damages from the City on the contract theory presented and affirmed the take-nothing disposition as to the City’s liability.
- The Court reversed the award of attorney’s fees against the City, holding the Declaratory Judgments Act did not support fees when used only to repackage a contract dispute.
- The Court held the economic loss rule did not preclude Sharyland’s negligence claims against the contractors because the alleged conduct implicated independent tort duties tied to public-safety regulations and an unreasonable risk of harm.
- The Court remanded for further proceedings on the contractor-negligence claims and remaining issues not reached by the court of appeals.

## Legal Principles

- A declaratory-judgment claim cannot be used solely to obtain attorney’s fees when it adds no independent basis for relief beyond a parallel contract dispute.
- The economic loss rule generally limits negligence recovery for purely economic loss, but it is context-dependent and not a categorical bar for claims between non-contracting parties.
- When defendants’ conduct allegedly violates public-safety statutes or regulations and creates an unreasonable risk of physical harm, tort law may impose an independent duty supporting negligence claims even if the plaintiff’s damages are remediation costs and no physical injury has yet occurred.

## Conclusion

The court denied Sharyland contract-based recovery and declaratory-judgment attorney’s fees against the City, but allowed negligence claims against the contractors to proceed because the alleged regulatory violations created an unreasonable risk to public health and supported an independent tort duty notwithstanding the economic loss rule.


Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407 (Tex. 2011)