Andrew Schneider/Houston Public Media
Pappasito’s Restaurant operated at Hobby Airport in Houston until April of 2023.
The Texas Supreme Court on Friday ruled that a 2023 lawsuit filed by Pappas Restaurants against the City of Houston, alleging the city wrongfully awarded a lucrative Hobby Airport concessions contract to another restaurant operator, must continue.
Houston-based Pappas Restaurants, which operates several Texas eateries like Pappasito’s Cantina, Pappas Bar-B-Q and Pappadeaux Seafood Kitchen, had initially sued the city in 2023 for allegedly violating state procurement law in how it awarded a 10-year, $470 million contract to a subsidiary of Spain-based Areas, a travel hospitality group.
Representatives for each of the groups — Pappas, Areas and the City of Houston — did not immediately respond to requests for comment.
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In its ruling on Friday, the state’s highest civil court did not rule directly on the substance of the case but rather ordered it to continue at the trial court level, after an appeals court had ruled against Pappas in some key matters.
Pappas alleges the city violated a provision of the Texas Local Government Code that pertains to a contract “that requires an expenditure of more than $50,000 from one or more municipal funds.” The city successfully argued to a trial court that the provision did not apply in this case, because it was a revenue contract and not an expenditure contract.
One of the questions before the state supreme court was whether Houston in fact exceeds that $50,000 expenditure threshold as part of its contract with the Areas subsidiary, even if the agreement results in a net profit for the city.
The court ruled Pappas had not been provided with an opportunity to find evidence that the city’s expenditures exceed $50,000 as part of the contract with Areas. As such, the state supreme court ordered the case to be sent back to a trial court, where Pappas can reassert its request for discovery.
The Texas Supreme Court wrote in its ruling that “two articles of the Areas Agreement can reasonably be read to require city expenditures of more than $50,000,” adding that state law “makes no distinction between revenue contracts and expenditure contracts. Any city expenditure of $50,000 or more will qualify; net expenditures are not required.”
Houston-based Pappas leads a concessions management group called 4 Families of Hobby, which started operating at the south Houston airport in 2003. In finished a close second in 2023 to Areas’ bid, which won the contract with the city.
In awarding the contract to the Areas-led group, city officials at the time cited a greater financial return for the city as being a key factor, since Areas pledged to provide the city with 22.2% of the revenue from concession sales compared to 15.5% by the Pappas-led group. Pappas claimed in its initial lawsuit that it outperformed sales projections at Hobby by $160 million from 2010-19, resulting in an additional $25 million for the city’s Airport Enterprise Fund.