Clear Creek Independent School District v. Cotton Commerical USA, Inc. F/K/A Cottonwood Debris Company, LLC

529 S.W.3d 569
Court of Appeals of Texas·Decided August 1, 2017·No. NO. 14-16-00466-CV·Published·Cited by 15 cases

Opinion

OPINION

Kevin Jewell, Justice

Today we decide whether a trial court possessed jurisdiction to confirm an arbitration award on a breach of contract claim against a school district notwithstanding the district’s assertion of governmental immunity from suit. In the aftermath of Hurricane Ike, the school district contracted with a “national disaster recovery services” company to provide “restoration services” regarding the district’s facilities. After the work was complete but before the company received full payment, the district accused the contractor of (1) fabricating invoices to substantiate its charges, (2) failing to perform services for which it had submitted invoices, and (3) price gouging by charging an inflated rate for work performed under the contract. The district sued the contractor for fraud and for money had and received. Citing an arbitration provision in the contract, the company sought arbitration, which we compelled in a prior appeal. Cotton Commercial USA, Inc. v. Clear Creek Indep. Sch. Dist., 387 S.W.3d 99, 108 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (“Cotton /”). During the arbitration, the contractor asserted its own claim for breach of contract because the district allegedly faded to pay the full balance owed. The arbitrator (1) found the contractor knowingly made false representations and billed for work not performed, but awarded no damages to the district; and (2) found the district materially breached the contract and awarded the contractor damages for the amount due and owing.

When the contractor moved to confirm the award, the district asserted governmental immunity in a plea to the jurisdiction. The trial court denied the plea and confirmed the arbitration award.

The district appeals, asserting that the trial court erred in exercising its subject-matter jurisdiction to confirm the award. The trial court lacked jurisdiction, the district argues, because the parties’ agreement did not fall within Texas Local Government Code section 271.152’s waiver of immunity for breach of contract claims against local governmental entities.

We conclude that the agreement qualifies as a “contract subject to [chapter 271]” 1 and that the district’s immunity from suit is waived to adjudicate a claim for the agreement’s breach. Accordingly, we hold that the trial court had subject-matter jurisdiction to confirm the arbitration award, and we affirm the trial court’s judgment.

Background

In September 2008, Hurricane Ike damaged a number of campuses within the Clear Creek Independent School District (“CCISD”). 2 To reopen its campuses, CCISD entered into a Restoration Service Agreement (“Restoration Agreement”) with Cotton USA (“Cotton”), an independent general contractor. The Restoration Agreement called for Cotton to provide “restoration services,” which, according to CCISD’s amended petition, obligated Cotton “to remove debris from its premises and perform remediation and restoration services following clean up.” The Restoration Agreement was presented to CCISD as a time and materials contract with an *573 attached rate sheet. While the agreement stated that Cotton would provide a “scope of services” in a written estimate, it is undisputed that Cotton never provided CCISD with a scope of services or a written estimate.

The Restoration Agreement specifically authorized the use of subcontractors Cotton deemed necessary for completion of the work and provided for payment in accordance with a rate schedule. The Restoration Agreement also authorized the use of “a particular trade or service” on a “cost plus 10% overhead and 10% profit” basis if there was a “specific need” for a service that Cotton did not provide.

Cotton subcontracted with Cottonwood Debris Company, LLC (“Cottonwood”), a company owned by Cotton’s principals, to provide debris-removal services. Cotton’s Chief Executive Officer arranged the subcontract relationship and set the prices that CCISD would be charged. Different from CCISD’s time and materials agreement with Cotton, Cottonwood’s charges were to be made on a per crew basis. CCISD was not informed orally or in writing of the rates that Cottonwood would charge, or the fact that debris removal would not be performed on a time and materials basis.

The debris removal occurred from approximately September 18, 2008, through September 29, 2008. Remediation occurred through the end of October 2008. Cottonwood never actually had an employee on the CCISD job, nor did Cottonwood actually perform any work on the CCISD job. Instead, Cotton’s CEO arranged for a number of subcontractors to remove debris from CCISD’s facilities. Cottonwood then added its profit to the subcontractors’ charges and invoiced Cotton. Cotton, in turn, added a twenty percent markup to Cottonwood’s charges and invoiced CCISD.

A disagreement over payment for debris-removal services is the source of the present dispute. In reviewing Cotton’s billing, including $1.4 million in charges related to Cottonwood’s debris-removal work, CCISD discovered that Cottonwood had billed for certain services that the District knew with certainty Cottonwood had not performed. The total billed for those discrete services was $36,000. To substantiate Cottonwood’s charges, CCISD requested documentation supporting the work Cottonwood claimed it performed. Further, at CCISD’s request, CCISD and Cottonwood dealt directly with each other in an attempt to resolve the issues surrounding Cottonwood’s charges.

Cottonwood had not maintained detailed backup documentation of the work it performed, and the Restoration Agreement did not require documentation of subcontractor charges. After the work was completed, CCISD asserted that payment of the invoices required backup documentation. Cottonwood did not disclose to CCISD that it did not have all backup information, but Cottonwood’s Vice President directed Cotton’s Executive Director to provide CCISD with backup documents. Although CCISD knew that some of the documentation would have to be created, neither Cotton nor Cottonwood informed CCISD that all documents were estimates and some were false. Cotton advised Cottonwood that it did not have the type of documentation requested by CCISD. Because Cottonwood did not have the documentation, Cotton’s Executive Director and one of his subcontractors created crew sheets to provide to CCISD. Cottonwood provided the crew sheets to CCISD in January 2009. Cottonwood did not disclose that the crew sheets were falsified.

CCISD subsequently paid Cottonwood approximately $700,000—half of Cotton *574 wood’s ■ $1.4 ■ million in debris-removal charges.

Separately from debris removal, CCISD also discovered that Cottonwood had fabricated documents relating to fuel charges. In February 2009, CCISD requested that Cottonwood provide substantiation for the fuel Cottonwood claimed to have used on the job. Cottonwood estimated and created purported third-party fuel tickets and submitted them to CCISD as genuine invoices from the fuel provider. CCISD, however, confirmed with the fuel provider that the invoices were not genuine.

Based on Cottonwood’s fabricated documentation, CCISD decided to make no fur-' ther payments to Cottonwood.

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Clear Creek Independent School District v. Cotton Commerical USA, Inc. F/K/A Cottonwood Debris Company, LLC, 529 S.W.3d 569 (Tex. Ct. App. 2017).

529 S.W.3d 569 (Clear Creek Independent School District v. Cotton Commerical USA, Inc. F/K/A Cottonwood Debris Company, LLC) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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