Star Operations, Inc. and Great American Insurance Company of New York v. Dig Tech, Inc.

Court of Appeals of Texas·Decided November 24, 2015·No. 03-15-00423-CV·Published

Opinion

ACCEPTED 03-15-00423-CV 7966631 THIRD COURT OF APPEALS AUSTIN, TEXAS 11/24/2015 10:53:22 AM JEFFREY D. KYLE CLERK IN THE THIRD COURT OF APPEALS

FILED IN 3rd COURT OF APPEALS NO. 03-15-00423-CV AUSTIN, TEXAS 11/24/2015 10:53:22 AM STAR OPERATIONS, INC. JEFFREY D. KYLE Clerk and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK Appellants VS. DIG TECH, INC. Appellee

Appealed from the 22nd Judicial District Court Caldwell County, Texas

BRIEF OF APPELLANTS STAR OPERATIONS, INC. AND GREAT AMERICAN INSURANCE COMPANY OF NEW YORK

James H. Robichaux SBN 17083000 jrobichaux@branscombpc.com Clinton W. Twaddell, III SBN 24071537 ctwaddell@branscombpc.com BRANSCOMB PC 802 N. Carancahua, Suite 1900 Corpus Christi, TX 78401-0036 Telephone: 361/886-3800 Telecopier: 361/886-3805

ORAL ARGUMENT REQUESTED

{C1208515.DOCX:} IDENTITY OF PARTIES AND COUNSEL

Appellant: Star Operations, Inc.

Lead Counsel at Trial & on Appeal: James H. Robichaux BRANSCOMB PC 802 N. Carancahua, Suite 1900 Corpus Christi, TX 78401-0036 Telephone: 361/886-3800 Telecopier: 361/886-3805

Appellant: Great American Insurance Company of New York

Lead Counsel on Appeal 1: Clinton W. Twaddell, III BRANSCOMB PC 802 N. Carancahua, Suite 1900 Corpus Christi, TX 78401-0036 Telephone: 361/886-3800 Telecopier: 361/886-3805

Appellee: Dig Tech, Inc.

Lead Counsel at Trial & on Appeal: Brian Melton Chanler A. Langham SUSMAN GODFREY, LLP 1000 Louisiana Street, Suite 5100 Houston, TX 77002 Telephone: 713/651-9366 Telecopier: 713/651-6666

1 James H. Robichaux was lead trial counsel for Great American Insurance Company of New York.

{C1208515.DOCX:} i RECORD LEGEND

References to the one-volume Clerk’s Record are denoted “CR __.”

References to live testimony in the Reporter’s Record are denoted “RR Vol. __ at

[page]: [line]–[line].” Reporter’s Record Volumes 23-34 containing the trial

exhibits are not internally paginated. Accordingly, references to trial exhibits are

denoted “RR Vol. __: PX/DX __, at__,” with Plaintiff’s exhibits denoted “PX” and

Defendants’ exhibits denoted “DX.”

STATEMENT OF THE CASE

Dig Tech, Inc. (“Dig Tech”) brought this lawsuit against Star Operations,

Inc. (“Star Operations” or “Star”) alleging breach of an oral contract. Dig Tech

claimed to be Star’s subcontractor on a federally funded highway project (the

“Project”). The Project’s purpose was to construct sections of the SH130 toll road

southeast of Austin, Texas. Great American Insurance Company (“GAIC”) was the

payment bond surety for Star on the Project.

Star denied the existence of any enforceable contract between itself and Dig

Tech. Star also asserted that Dig Tech had failed to comply with federally

mandated and applicable statutes, rules, and regulations that were conditions

precedent to (1) the formation and/or enforcement of any purported contract

between Star and Dig Tech; and (2) any obligation of Star to pay Dig Tech on any

purported contract.

{C1208515.DOCX:} x condition precedent to any payment obligation arising against Star in favor of Dig Tech on any purported contract between Star and Dig Tech ...................................................................................................23

C. Issues 5-7: The trial court erred in awarding Dig Tech contract damages because it was undisputed that Dig Tech failed to: (1) obtain a written contract with Star; (2) obtain TxDOT approval to its purported verbal contract with Star; or (3) provide statutorily compliant “certified payroll” to Star ........................................................25

II. Issues 8-11: The trial court erred in applying the law to Dig Tech’s claim(s) against the GAIC payment bonds ....................................................26

A. Issue 8: The trial court erred in refusing to dismiss Dig Tech’s claim(s) against the GAIC payment bonds for lack of jurisdiction because the federal Miller Act applied to the claim(s).............................26

B. Issue 9: If the Texas McGregor Act applied to Dig Tech’s payment bond claim(s), the trial court erred in ruling as a matter of law that Dig Tech perfected any claim against the bonds......................................27

C. Issue 10: If the McGregor Act applied to Dig Tech’s payment bond claim(s), the trial court erred in denying GAIC’s Motion for Instructed Verdict and its Motion for Judgment Notwithstanding the Verdict because Dig Tech failed as a matter of law to perfect any payment bond claim under the McGregor Act ..................................32

D. Issue 11: Alternatively, if the McGregor Act applied to Dig Tech’s payment bond claim(s) and a fact issue existed as to whether Dig Tech perfected any claim against the bonds, the trial court erred in refusing to submit GAIC’s proposed jury questions on whether Dig Tech substantially complied with the McGregor Act’s notice requirements .............................................................................................32

{C1208515.DOCX:} iii III. Issue 12: The trial court erred in awarding damages to Dig Tech without any evidence of Dig Tech’s actual damages as net loss after reduction of income tax payments or unpaid income tax liability as required by TEX. CIV. PRAC. & REM. CODE § 18.091 ............. 33

IV. Issue 13: The trial court erred in awarding attorney’s fees to Dig Tech because Dig Tech failed to segregate recoverable attorney’s fees from unrecoverable attorney’s fees ...................................................35

V. Issue 14: The trial court erred in awarding Dig Tech costs of deposition transcripts as “taxable costs” when Dig Tech did not notice or initiate the depositions ...............................................................37

Conclusion ...................................................................................................................39

Prayer ...........................................................................................................................40

Certificate of Compliance ............................................................................................41

Certificate of Service ...................................................................................................41

Index to Appendix ........................................................................................................42

{C1208515.DOCX:} iv INDEX OF AUTHORITIES

FEDERAL AUTHORITIES

U.S. Supreme Court:

American Tel. and Tel. Co. v. Central Office Telephone, Inc., 524 U.S. 214 (1998) .................................................................................................16

Federal Crop Ins. Corp. v. Merrill, 332 US 380 (1947) ...................................................................................................22

U.S. Courts of Appeal:

Century Marine, Inc. v. U.S., 153 F.3d 225 (5th Cir. 1998).....................................................................................22

Clem Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186 (5th Cir. 1984) ...................................................................................14

Continental Cas. Co. v. C.O. Brand, Inc., 355 F.2d 969 (5th Cir. 1966).....................................................................................26

Gen. Eng’g & Mach. Works v.

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ACCEPTED 03-15-00423-CV 7966631 THIRD COURT OF APPEALS AUSTIN, TEXAS 11/24/2015 10:53:22 AM JEFFREY D. KYLE CLERK IN THE THIRD COURT OF APPEALS

Appealed from the 22nd Judicial District Court Caldwell County, Texas

BRIEF OF APPELLANTS STAR OPERATIONS, INC. AND GREAT AMERICAN INSURANCE COMPANY OF NEW YORK

ORAL ARGUMENT REQUESTED

{C1208515.DOCX:} IDENTITY OF PARTIES AND COUNSEL

Appellant: Star Operations, Inc.

Lead Counsel at Trial & on Appeal: James H. Robichaux BRANSCOMB PC 802 N. Carancahua, Suite 1900 Corpus Christi, TX 78401-0036 Telephone: 361/886-3800 Telecopier: 361/886-3805

Appellant: Great American Insurance Company of New York

Lead Counsel on Appeal 1: Clinton W. Twaddell, III BRANSCOMB PC 802 N. Carancahua, Suite 1900 Corpus Christi, TX 78401-0036 Telephone: 361/886-3800 Telecopier: 361/886-3805

Appellee: Dig Tech, Inc.

Lead Counsel at Trial & on Appeal: Brian Melton Chanler A. Langham SUSMAN GODFREY, LLP 1000 Louisiana Street, Suite 5100 Houston, TX 77002 Telephone: 713/651-9366 Telecopier: 713/651-6666

1 James H. Robichaux was lead trial counsel for Great American Insurance Company of New York.

{C1208515.DOCX:} i RECORD LEGEND

References to the one-volume Clerk’s Record are denoted “CR __.”

References to live testimony in the Reporter’s Record are denoted “RR Vol. __ at

[page]: [line]–[line].” Reporter’s Record Volumes 23-34 containing the trial

exhibits are not internally paginated. Accordingly, references to trial exhibits are

denoted “RR Vol. __: PX/DX __, at__,” with Plaintiff’s exhibits denoted “PX” and

Defendants’ exhibits denoted “DX.”

STATEMENT OF THE CASE

Dig Tech, Inc. (“Dig Tech”) brought this lawsuit against Star Operations,

Inc. (“Star Operations” or “Star”) alleging breach of an oral contract. Dig Tech

claimed to be Star’s subcontractor on a federally funded highway project (the

“Project”). The Project’s purpose was to construct sections of the SH130 toll road

southeast of Austin, Texas. Great American Insurance Company (“GAIC”) was the

payment bond surety for Star on the Project.

Star denied the existence of any enforceable contract between itself and Dig

Tech. Star also asserted that Dig Tech had failed to comply with federally

mandated and applicable statutes, rules, and regulations that were conditions

precedent to (1) the formation and/or enforcement of any purported contract

between Star and Dig Tech; and (2) any obligation of Star to pay Dig Tech on any

purported contract.

II. Issues 8-11: The trial court erred in applying the law to Dig Tech’s claim(s) against the GAIC payment bonds ....................................................26

Conclusion ...................................................................................................................39

Prayer ...........................................................................................................................40

Certificate of Compliance ............................................................................................41

Certificate of Service ...................................................................................................41

Index to Appendix ........................................................................................................42

{C1208515.DOCX:} iv INDEX OF AUTHORITIES

FEDERAL AUTHORITIES

U.S. Supreme Court:

American Tel. and Tel. Co. v. Central Office Telephone, Inc., 524 U.S. 214 (1998) .................................................................................................16

Federal Crop Ins. Corp. v. Merrill, 332 US 380 (1947) ...................................................................................................22

U.S. Courts of Appeal:

Century Marine, Inc. v. U.S., 153 F.3d 225 (5th Cir. 1998).....................................................................................22

Clem Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186 (5th Cir. 1984) ...................................................................................14

Continental Cas. Co. v. C.O. Brand, Inc., 355 F.2d 969 (5th Cir. 1966).....................................................................................26

Gen. Eng’g & Mach. Works v. O’Keefe, 991 F.2d 775 (Fed. Cir. 1993)............................................................................15, 22

U.S. v. New Orleans Pub. Surv., Inc., 553 F.2d 459 (5th Cir. 1977) (vacated on other grounds, New Orleans Public Service, Inc. v. U.S., 436 U.S. 942 (1978)) ............................14

Worthen v. Fidelity Nat. Prop. & Cas. Ins. Co., 463 Fed. Appx. 422 (5th Cir. 2012) ..........................................................................22

U.S. District Courts:

Dingle v. Halliburton Co., Civil Action No. H-05-3719, 2006 WL 2729286 (S.D. Tex. Sept. 25, 2006) (not reported) .................................15

Ex rel. United Rentals, Inc. v. Hartford Fire Ins. Co., 339 F. Supp.2d 799, 801-02 (W.D. Tex. 2004) .......................................................27

{C1208515.DOCX:} v UPMC Braddock v. Harris, 934 F. Supp. 2d 238 (D.D.C., 2013) vacated on other grounds as moot 584 Fed.Appx.1 (D.C. Cir. 2014) ..............15, 22

U.S. Court of Claims:

G.L. Christian and Assocs. v. U.S., 312 F.2d 418 (Ct. Cl. 1963) ...............................................................................14, 19

U.S.C.:

40 U.S.C. § 3131 ......................................................................................................26

C.F.R.:

23 CFR § 635.102 ....................................................................................................20

23 CFR § 635.103 ....................................................................................................14

23 CFR § 635.116(b) ...............................................................................................20

TEXAS AUTHORITIES

Texas Supreme Court:

Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276 (Tex. 1998)........................................................................21, 24, 33

Centex Corp. v. Dalton, 840 S.W.2d 952 (Tex. 1992)....................................................................................21

Christus Health Gulf Coast v. Aetna, Inc., 397 S.W.3d 651 (Tex. 2013)....................................................................................34

Clayton W. Williams, Jr., Inc. v. Olivo, 952 S.W.2nd 523, 529 (Tex. 1997) .........................................................23, 24, 25, 33

Combs v. Healthcare Services, Corp., 401 S.W.3d 623 (Tex. 2013)....................................................................................34

{C1208515.DOCX:} vi Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1 (Tex. 1976) ........................................................................................21

In re Bank One, N.A., 216 S.W.3d 825 (Tex. 2007) ...................................................................................19

In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010)....................................................................................19

Jones v. Liberty Mutual Ins. Co., 745 S.W.2d 901 (Tex. 1988)....................................................................................34

McKinley v. Stripling, 763 S.W.2d 407, 410 (Tex. 1989)..........................................................23, 24, 25, 33

NAFTA Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) ......................................................................................16

Nat’l Prop. Holdings, LP v. Westergren, 453 S.W.3d 419 (Tex. 2015) (per curiam) ..............................................................22

Tex. Dep’t. of Parks & Wildlife v. Miranda, 133 S.W.3d 173 (Tex. 2004)....................................................................................27

Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006)....................................................................................35

Wallace v. Briggs, 348 S.W.2d 523, 527 (Tex. 1961)............................................................................38

Texas Courts of Appeal:

Big Bird Tree Service v. Gallegos, 365 S.W.3d 173 (Tex. App. – Dallas 2012, pet. denied.) ........................................34

Bundren v. Holly Oaks Townhomes Ass’n, Inc., 347 S.W.3d 421 (Tex. App.—Dallas 2011, pet. denied) ...................................37, 38

Capital Indemn. Corp. v. Kirby Restaurant Equipment

{C1208515.DOCX:} vii Dist.] 2007, no pet.); Big Bird Tree Service v. Gallegos, 365 S.W.3d 173, 179

(Tex. App. – Dallas 2012, pet denied).

A court may not judicially amend a statute and add words that are not

explicitly contained in the language of the statute. Jones v. Liberty Mutual Ins.

Co., 745 S.W.2d 901, 902 (Tex. 1988). As the Supreme Court stated recently, “the

bar for reworking the words of our Legislature passed into law is high and should

be.” Combs v. Healthcare Services, Corp., 401 S.W.3d 623, 630 (Tex. 2013).

Stated differently, the Supreme Court has said that in matters of statutory

construction, the Court takes the Legislature “at its word.” Christus Health Gulf

Coast v. Aetna, Inc., 397 S.W.3d 651, 654 (Tex. 2013). The Court’s analysis

begins (and often ends) with the Legislature’s chosen language. Id. at 653. This

voted-on language is what constitutes the law; “the Judge’s inquiry is at an end.”

Id. at 653-654.

The language of the statute is clear. As a precondition to recovery of its

damages, Dig Tech was required to present evidence of such lost earnings after

reduction for any income tax payments made or unpaid tax liability that would

have accrued as a result of such recovery. Since the invoices would be ordinary

revenue, they would constitute “earnings” within the meaning of the Internal

Revenue Code and federal income tax would be due and owing. Dig Tech’s failure

to present evidence net of the unpaid tax liability precludes Dig Tech’s recovery.

{C1208515.DOCX:} 34 Appellants objected to the failure of the charge – specifically Jury Questions Nos.

4 and 8 – on the grounds that they failed to comply with § 18.091. (RR Vol. 9 at

144:25–145:15). Accordingly, Appellants are entitled to reversal and rendition of a

take nothing judgment in their favor as to actual damages in light of Dig Tech’s

failure to present the evidence in the statutorily required manner and its failure to

secure a jury finding of damages in compliance with § 18.091.

IV. Issue 13: The trial court erred in awarding attorney’s fees to Dig Tech because Dig Tech failed to segregate recoverable attorney’s fees from unrecoverable attorney’s fees

Dig Tech readily admitted that in order to recovery attorney’s fees, it was

required to segregate incurred attorney’s fees relating solely to a claim for which

attorney’s fees are unrecoverable pursuant to the Supreme Court decision of Tony

Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 313-14 (Tex. 2006). (RR Vol. 5

at 191:21–192:2 (Dig Tech attorney David Pfeuffer)). Simply because the facts are

“intertwined” does not make fees incurred on an unrecoverable claim – such as

Star’s tort counterclaim – recoverable. Failure to segregate such fees precludes

recovery.

In cross-examination Dig Tech’s sole witness on the issue of attorney’s fees

– David Pfeuffer – freely admitted that he made no attempt to look at the discovery

submitted by Star to Dig Tech on its counterclaims. Instead he concluded that the

unrecoverable attorney’s fees Dig Tech incurred in drafting and responding to

{C1208515.DOCX:} 35 RECORD LEGEND

References to the one-volume Clerk’s Record are denoted “CR __.”

References to live testimony in the Reporter’s Record are denoted “RR Vol. __ at

[page]: [line]–[line].” Reporter’s Record Volumes 23-34 containing the trial

exhibits are not internally paginated. Accordingly, references to trial exhibits are

denoted “RR Vol. __: PX/DX __, at__,” with Plaintiff’s exhibits denoted “PX” and

Defendants’ exhibits denoted “DX.”

STATEMENT OF THE CASE

Dig Tech, Inc. (“Dig Tech”) brought this lawsuit against Star Operations,

Inc. (“Star Operations” or “Star”) alleging breach of an oral contract. Dig Tech

claimed to be Star’s subcontractor on a federally funded highway project (the

“Project”). The Project’s purpose was to construct sections of the SH130 toll road

southeast of Austin, Texas. Great American Insurance Company (“GAIC”) was the

payment bond surety for Star on the Project.

Star denied the existence of any enforceable contract between itself and Dig

Tech. Star also asserted that Dig Tech had failed to comply with federally

mandated and applicable statutes, rules, and regulations that were conditions

precedent to (1) the formation and/or enforcement of any purported contract

between Star and Dig Tech; and (2) any obligation of Star to pay Dig Tech on any

purported contract.

{C1208515.DOCX:} x INDEX TO APPENDIX

• Item 1 .................................................................................................. Final Judgment • Item 2 ................................................................................... Jury Charge and Verdict • Item 3 ............................................................................................TEX. R. CIV. P. 140 • Item 4 ............................................................................................TEX. R. CIV. P. 141 • Item 5 .......................................................................................... 23 C.F.R. § 635.102 • Item 6 .......................................................................................... 23 C.F.R. § 635.103 • Item 7 ........................................................................................... 23C.F.R. § 635.116 • Item 8A........................................................ TEX. CIV. PRAC. & REM. CODE § 18.091 • Item 8B ........................................................ TEX. CIV. PRAC. & REM. CODE § 31.007 • Item 9 ............................................................................................... 40 U.S.C. § 3131 • Item 10 ........................................................................ TEX. GOV’T CODE § 2253.001 • Item 11 ........................................................................ TEX. GOV’T CODE § 2253.041 • Item 12 ........................................................................ TEX. GOV’T CODE § 2253.047 • Item 13 ........................................................................ TEX. GOV’T CODE § 2253.048 • Item 14 ............................ DX1: Star/Central Texas Subcontract CSUB116 Excerpts • Item 15 ................... DX2: Dig Tech/Central Texas Subcontract CSUB122 Excerpts • Item 16 ............................ DX3: Star/Central Texas Subcontract CSUB140 Excerpts • Item 17 ........................ DX119: Facility Concession Agreement Excerpt (page 175) • Item 18A........................ DX119: Facility Concession Agreement Excerpt (page 69) • Item 18B ........................................... Rule 11 Regarding Supplementation of Record • Item 19 .....................................................DX9: Dig Tech Certified Payroll Excerpts • Item 20 ...... PX63: Mike Kiehnau Email Regarding Communication from Dig Tech • Item 21 ...................................................................PX183: Dig Tech Letter to GAIC

{C1208515.DOCX:} 42 mandated condition precedent to formation and/or enforcement of any purported

contract between Star and Dig Tech.

Issue No. 3

The trial court erred in refusing to submit proposed jury question(s) on Dig

Tech’s failure to obtain TxDOT’s approval to its purported contract with Star,

which was a federally mandated condition precedent to formation and/or

enforcement of any purported contract between Star and Dig Tech.

Issue No. 4

The trial court erred in refusing to submit proposed jury question(s) on Dig

Tech’s failure to provide statutorily compliant “certified payroll” to Star, which

was a federally mandated condition precedent to any payment obligation arising

against Star on any purported contract between Star and Dig Tech.

Issue No. 5

The trial court erred in awarding Dig Tech contract damages because a

writing was a federally mandated condition precedent to contract formation and

enforceability, and it was undisputed that Dig Tech failed to comply with such

condition.

Issue No. 6

The trial court erred in awarding Dig Tech contract damages because

TxDOT approval to any purported contract with Star was a federally mandated

{C1208515.DOCX:} xii - - - - - - - - - - - - · - · - - - ---·

CAUSE 12·0•337

§ § IN THE DISTRICT COURT Plaintiff, § § § § 22I'Il> JUDICIAL DISTRieT ST!\.R OPERATIONS, INC. § GREAT AMERICAN INSURANCE § 'COI\I(P.AN¥ OF NEW YORK § § Cb.LDWJ!)J.,;L C"OlJ'NT'i'; § TEXAS Defendants. § FJ~M.. ln'JD:GMENT

On 'February 2:0, :20T5, the Court entered a traditional summary judgment against

DefehdantStat Operations, Inc.'s (''Star Opet;ations") counterclaim for fraud.

On February 23, 201.5, the Court <:ailed fuis l)ase for -tri'al, The Plaintiff Dig Tech, Inc.

("Dig Tech") appeared in person and through its attorneys and. annqJmg~d read.y {or t!ial, The

Defendants Stat Operations, Inc. ("Star Operations") and Great Americanlnsurance Company of

New York ("G.t\!C") appeared in person and through their attorneys and announced ready for trial. The Court then empanelled and swore in a jury consisting of twelve jurors, and the case

proceeded to trial.

On February 26 and March 4, the Court ruled that Djg Tech sUbstantially complied with

the notice provisions of the McGregor Act and that the Miller Act does not apply to Dig Tech's

claims.

On March 4, 2015, the Court submitted questions, definitions, and instructions to the juryi ·

On March 5, 2015, the jury returned a unanimous Verdict. The jury's unanimous Verdict was

received, filed, and entered of record.

-· .. Item 1 ---· - - - - - - - - - - - - - - - - - ~ Tech failed as a matter of law to perfect any payment bond claim under the

McGregor Act.

Issue 11

If the McGregor Act applied to Dig Tech’s payment bond claim(s) and a fact

issue existed as to whether Dig Tech perfected any claim against the bonds, the

trial court erred in refusing to submit GAIC’s proposed jury questions on whether

Dig Tech substantially complied with the McGregor Act’s notice requirements.

Issue No. 12

The trial court erred in awarding damages to Dig Tech without any evidence

of Dig Tech’s actual damages as net loss after reduction of income tax payments or

unpaid income tax liability as required by TEX. CIV. PRAC. & REM. CODE § 18.091.

Issue No. 13

The trial court erred in awarding attorney’s fees to Dig Tech because Dig

Tech failed to segregate recoverable attorney’s fees from unrecoverable attorney’s

fees.

Issue No. 14

The trial court erred in awarding costs for copies of deposition transcripts to

Dig Tech as “taxable costs” when Dig Tech did not notice or initiate the

depositions.

{C1208515.DOCX:} xiv STATEMENT OF FACTS

Background. This case arises out of construction on a federally funded

highway project, specifically construction of SH130 toll road sections southeast of

Austin, Texas. Appellant Star was a subcontractor hired by the design/build

contractor Central Texas Highway Constructors (“Central Texas”) to construct

infrastructure for the illumination, signal, intelligent transportation, and toll

collection systems. Appellee Dig Tech claims it had a verbal agreement with Star

to provide boring (horizontal hole-drilling) work for the installation of electrical

conduit. Dig Tech also had its own written contract with Central Texas which was

not the primary subject of this litigation, but whose terms will be relevant to this

appeal as explained below. The following diagram illustrates the pertinent

contractual relationships (both disputed and agreed):

{C1208515.DOCX:} 1 Dig Tech never formed an enforceable contract with Star. It was

undisputed and uncontroverted that the Project involved the use of federal funds.

(Appx Item 14, RR Vol. 16: DX1at p. 69 (Star Subcontract CSUB116 with Central

Texas); Appx Item 15, RR Vol. 18: DX2 at p. 117 (Dig Tech Subcontract

CSUB122 with Central Texas); Appx Item 16, RR Vol. 19: DX3 at p. 69 (Star

Subcontract CSUB140 with Central Texas); Appx Item 17, RR Vol. 34: DX119 at

p. 175 (Facility Concession Agreement)). Because the Project was federally

funded, both federal law and the prime contract required that any lower-tier

subcontracts be in writing and approved by TxDOT. Further, as a condition of

payment on any lower-tier subcontract, any subcontractor (in this case Dig Tech)

was required to submit statutorily compliant “certified payroll” to the upstream

contractor (in this case, Star), attesting under oath that it had properly categorized

and paid its workers according to federally recognized worker classifications and

federally promulgated prevailing wage rates for the workers’ respective crafts.2

(Appx Item 19, RR Vol. 22: DX9; Appx Item 14, RR Vol. 15: DX1 at pp. 11-12

(art. 9.4 and 9.6.1(a)), and at p. 15 (art. 10; 10.3(d)); RR Vol. 16: DX1 at p. 90 (art.

VII(1)(e)); Appx Item 15, RR Vol. 17: DX2 at pp. 11-12 (art. 9.4 and 9.6.1(a)), and

at p. 15 (art. 10; 10.3(d)); RR Vol. 18: DX2 at p. 139 (Art. VII(1)(e)); Appx Item

2 The specifics of what constitutes “compliant certified payroll” are discussed in detail below.

{C1208515.DOCX:} 2 16, RR Vol. 19: DX3 at 68, 69, 84-88, 94, 95, 98-100; Appx Item 17, RR Vol. 34:

DX119 at p. 175 (art. 23.1); Appx Item 18A (art. 10.2.3)). 3 4

Dig Tech was fully aware of these requirements at all relevant times. As

shown in the diagram above, prior to Dig Tech discussing any alleged oral

agreement with any employee of Star, Dig Tech had its own written subcontract

with Central Texas. (Appx Item 15, RR Vol. 17: DX 2). This written subcontract

with Central Texas contained various provisions—identical to those in the

Star/Central Texas subcontracts—which specifically placed Dig Tech on actual

notice that any agreement it might enter into on the Project: (1) had to be in

writing; (2) had to be approved by Central Texas and TxDOT; and (3) required Dig

Tech to provide statutorily compliant certified payroll as a condition of payment.

(Appx Item 15, RR Vol. 17: DX2 at pp. 11-12 (art. 9.6.1), p. 15 (art. 10.3(d)); RR

Vol. 18: DX2 at pp. 116-117, pp. 135-138 (art. V(1)(d)(iii))).

Dig Tech claims it performed work for Star Operations as a lower-tier

subcontractor on the Project between October, 2011 and April, 2012. (RR Vol. 14:

PX89 (Dig Tech invoices)). However, it is undisputed and uncontroverted that Dig

3 Pages 68 and 69 of DX119 were omitted from RR Vol. 33 by the court reporter. The missing page 69 is included in the Appendix as Item 18A. Appellee does not oppose this supplementation, as noted in the Rule 11 Agreement included in the Appendix as Item 18B. 4 For the convenience of the Court excerpts from the three subcontracts and the Facility Concession Agreement between TxDOT and SH 130 Concession Company are collectively gathered and attached in the Appendix. The pertinent contract provisions in each of the three subcontracts are identical; they sometimes simply appear on different pages of the respective contracts.

{C1208515.DOCX:} 3 Tech had no written agreement with Star Operations for the work Dig Tech claims

it performed for Star. (RR Vol. 4 at 62: 9-14; 64: 8-11, 20-24; 67:10-24; 68: 22-

70:8; 70:19-24; 71:16-22 (Dig Tech corporate representative Bodie Leslie); RR

Vol. 5 at 124:7–125:11; 125: 20-126:3 (Dig Tech owner Mike Furry); RR Vol. 13:

PX71 (Letter from Star’s counsel to Dig Tech’s counsel)). The uncontroverted

testimony established that Dig Tech’s alleged verbal subcontract with Star

Operations was never approved by Central Texas or TxDOT. (RR Vol. 7 at 173:8–

174:7; 189:17-25; 197:8-12; 211:19 –213:9; RR Vol. 8 at 66:9-16 (Central Texas

representative Michael Kiehnau)).

Further, Dig Tech’s own representatives acknowledged that its certified

payroll was noncompliant and that some of its laborers were both misclassified and

paid below the statutorily mandated minimum hourly wage rates. (RR Vol. 6 at

10:19–11:25; 13:13-20; 14:19 –15:19; 16:23–18:5; 18:16 –19:6; 20:1-8; 20:21–

22:4; 23:16–24:4; 24:8–33:16 (Dig Tech office manager Tracy Lambert); RR Vol.

5 at 126:16–127:7 (Dig Tech owner Mike Furry)). This was confirmed by

testimony of Central Texas, Star’s owner, and an unchallenged government

contracts expert witness. (RR Vol. 8 at 20:4–30:12 (Central Texas representative

Mike Kiehnau); RR Vol. 8 at 126:17-20; 136:8– 137:11; 165: 10-21 (Star

{C1208515.DOCX:} 4 Operations’ owner Lana Lewis); RR Vol. 8 at 95:8–108:1; 119:17–122:2

(Government contracts expert, John Dulske)). 5

Dig Tech claims the purported verbal contract with Star was formed between

former Dig Tech employee Bodie Leslie and former Star employees Maury

Milliorn and Anthony Lopez. Dig Tech argues that each of these individuals had

legal authority to contract for their respective employers. However, Mr. Leslie

confirmed that Milliorn and Lopez both had advised him that they lacked authority

to bind Star Operations or enter into any subcontract on behalf of Star Operations.

(RR Vol. 4 at 67:10–68:25; 69:24–71:5; 71:16–72:10; 92:2-24; 115:15-22 (Dig

Tech representative Bodie Leslie); RR Vol. 4 at 210:16-19 (former Star employee

Maury Milliorn)). Dig Tech’s owner (Mike Furry) and its designated corporate

representative (Bodie Leslie) confirmed that Dig Tech made no attempt to contact

Star’s owner Lana Lewis to determine the scope of Lopez’s or Milliorn’s authority,

who had previously advised Dig Tech they lacked authority to contract on behalf

of Star. (RR Vol. 4 at 72:2-24; 115:15-22 (Dig Tech representative Bodie Leslie);

RR Vol. 5 at 110:10-15 (Dig Tech owner Mike Furry)).

Dig Tech sued both Star Operations and its payment bond surety GAIC. (CR

53-57). In their live pleadings, Star Operations and GAIC repeatedly raised the 5 For the convenience of the Court, an exemplary copy of one of Dig Tech’s certified payrolls is attached in the Appendix as Item 19 (RR Vol. 22: DX9). The four misclassified employees are highlighted. The two employees who were never paid at least the minimum statutorily mandated wage rates were Sintico Chaparro and Josue Chaparro. The testimony confirms the misclassification and underpayment was consistent on all twenty-six certified payrolls.

{C1208515.DOCX:} 5 failure of the condition(s) precedent, specifically that: (1) any agreement between

Star Operations and Dig Tech was required by federal law to be in writing and

approved by TxDOT to be enforceable; and (2) Dig Tech’s failure to provide

compliant certified payroll was a condition precedent to any payment obligation.

(CR 1346-1358 at Pars. 4, 6(e), and 7). Each of the three written subcontracts with

Central Texas (Star’s subcontracts CSUB116 and CSUB140, and Dig Tech’s

subcontract CSUB122) contained an identical Art. 10 which provided:

Payment is subject to complying with items 10.1-10.11 below:

*****

10.3 INVOICE REQUIREMENTS:

(d) Certified payrolls, for the invoice period, if required by the Agreement Documents.

(Appx Item 14, RR Vol. 15: DX1 at p. 15 (Art. 10); Appx Item 15, RR Vol. 17:

DX2 at p. 15 (Art. 10); Appx Item 16, RR Vol. 18: DX3 at p. 15 (Art. 10)).

This contract provision prohibited Star Operations from seeking or receiving

any payment from Central Texas for work Dig Tech allegedly performed in light of

its admittedly non-compliant certified payroll in violation of both the contract

provisions and federal law. As a condition precedent for Star being paid for work

allegedly performed for Star by Dig Tech, Star had to submit Dig Tech’s certified

{C1208515.DOCX:} 6 If you answered Question 10 "Yes", then answer the following question. Otherwise, do not answer the following question.

Question 11

Did Dig Tech, Inc. interfere because it had a good-faith belief that it had aright to threaten garnislunent for the work it performed?

Answer: "Yes" or "No".

Answer:

15 on the federally funded project must be in writing to be enforceable; and/or (2)

mandating accurate certified payroll as a condition precedent of payment.

Dig Tech’s failure to perfect claims against the GAIC payment bonds.

Star and GAIC also alleged that Dig Tech failed to comply with conditions

precedent to perfecting its claims upon the surety GAIC. (CR1350-1352 at Pars. 8-

9). Dig Tech also failed to prove that it complied with these conditions precedent.

This was a “public works” contract on State Highway 130, governed by

either the federal Miller Act or TEX. GOV’T. CODE CH. 2253 (the McGregor Act). If

the Miller Act applied, exclusive jurisdiction was in federal court. If the McGregor

Act applied, in order to perfect any claim against the bonds, Dig Tech was required

to provide multiple specific, statutorily-mandated notices to the “prime” 7 and the

surety. Dig Tech failed to offer evidence of compliance with any of the statutory

notice provisions.

At the close of Dig Tech’s case GAIC moved for a directed verdict on Dig

Tech’s claims for failure to prove compliance with TEX. GOV’T. CODE CH. 2253 as

a condition precedent to GAIC’s liability, which the trial court denied. (RR Vol. 5

at 223:23–227:19; 229:14–230:3; 232:9-15). GAIC submitted proposed jury

questions relating to Dig Tech’s (non)compliance with the McGregor Act. Instead,

7 As discussed below, the “prime” is statutorily defined to be the entity with the direct contract with the State (i.e., TXDOT). It is undisputed that the only entity with a direct contract with TxDOT was SH 130 Concession Company, LLC as reflected in the Facility Concession Agreement (Appx Item 17, RR Vol. 32: DX119).

{C1208515.DOCX:} 8 the trial court ruled as a matter of law that the federal Miller Act did not apply, and

that Dig Tech had “substantially complied” with the McGregor Act, thus

perfecting its bond claim(s). The trial court denied GAIC’s request to submit the

issue of Dig Tech’s compliance with the McGregor Act’s notice requirements to

the jury. (RR Vol. 9 at 136:18–137:7; 141:1–142:18).

Dig Tech failed to submit evidence of damages in compliance with Texas

Civil Practice and Remedies Code § 18.091. TEX. CIV. PRAC. & REM. CODE §

18.091 requires that a claimant present evidence of damages “in the form of a net

loss after reduction for income tax payments or unpaid tax liability pursuant to any

federal income tax law.” When Dig Tech’s representative Mike Furry was

questioned as to whether Dig Tech’s requested damages conformed to this

requirement, Dig Tech objected and the trial court sustained its objection. (RR Vol.

5 at 101:14-103:19 (Dig Tech owner Mike Furry)). By Offer of Proof pursuant to

TEX. R. EVID. 103, Appellants established that Dig Tech did not comply with the

mandatory provisions of § 18.091 which are a precondition to such recovery. (RR

Vol. 5 at 111:19–113:10 (Dig Tech owner Mike Furry)).

Dig Tech failed to segregate recoverable from unrecoverable attorney’s

fees. In addition to the contract and bond claims made the subject of this appeal,

the trial court litigation also involved certain counterclaims by Star against Dig

Tech. Dig Tech’s attorney’s fees incurred in defending these counterclaims were

{C1208515.DOCX:} 9 ------······ -···· ·--··

VERDICT CERTIFICATE

Check one:

_X_ Our verdict is unanimous. All twelve of us have agreed to each and every answer. The presiding juror has signed the certificate for all twelve of us.

Printed arne of Prestdmg Juror

Our verdict is not unanimous. Eleven of us have agreed to each and every answer and have signed the certificate below.

__ Our verdict is not unanimous. Ten of us have agreed to each and every answer and have signed the certificate below.

SIGNATURE NAME PRINTED

6. 7.

10.

11.

• 1703 Star Operations and GAIC timely filed a Motion for New Trial on May 11, 2015.

(CR 1862-1868). The Motion for New Trial was overruled by operation of law.

Appellants filed their Notice of Appeal with the trial court on July 9, 2015,

perfecting their appeal to this Court. (CR 1910-1912).

SUMMARY OF ARGUMENT

Because the Project was a federally funded highway project, all contracts on

the Project were governed by federal law. Federal law required as a condition

precedent to forming an enforceable contract that – among other things – any

lower-tier subcontract be in writing and approved by TxDOT. In addition, pursuant

to provisions of the Davis Bacon Act and related applicable federal regulations, as

a condition to the receipt of payment all contractors, subcontractors, and

downstream (lower-tier) subcontractors had to provide statutorily compliant

certified payroll with respect to its hourly employees to their upstream contractor.

The failure of any of these conditions precedent is fatal to the rights of any

subcontractor to seek payment. It is uncontroverted that Dig Tech’s alleged oral

contract with Star Operations and its certified payroll did not comply with these

requirements. As such, no enforceable contract was formed and even if it was, Dig

Tech had no right to payment from Star. The trial court refused to apply federal

law and refused to charge the jury on the existence and/or compliance with these

federally mandated conditions precedent.

{C1208515.DOCX:} 11 Separately, the surety bonds provided by Appellant GAIC were governed by

either the federal Miller Act, in which case the trial court lacked subject matter

jurisdiction, or by provisions of the Texas Government Code Chapter 2253 (the

McGregor Act). The McGregor Act provides strict notice requirements in order to

perfect any bond claim. While it is undisputed that Dig Tech did not comply with

these notice requirements, the trial court nonetheless granted an instructed verdict

in favor of Dig Tech that it had perfected claims against both GAIC bonds, refused

to grant an instructed verdict for GAIC, and refused to submit GAIC’s requested

jury questions regarding compliance with the notice provisions of the Act.

Further, in presenting its evidence to recover attorney’s fees, Dig Tech failed

to segregate attorney’s fees incurred in pursuing those claims for which attorney’s

fees are potentially recoverable from attorney’s fees incurred in defending Star’s

counterclaims, for which recovery is not allowed. Similarly, it failed to present its

damages in compliance with TEX. CIV. PRAC. & REM. CODE § 18.091 - being the

“net loss after reduction of income tax payments or unpaid income tax liability[.]”

Finally, the trial court improperly awarded Dig Tech costs for deposition

transcript photocopies even though Dig Tech neither noticed nor initiated the

depositions. For each of these reasons the judgment entered by the trial court is

flawed. The trial court committed reversible error, requiring reversal and rendition

of a take nothing judgment in favor of Appellants.

{C1208515.DOCX:} 12 ARGUMENT

I. Issue 1: The trial court erred in failing to apply federal law to Dig Tech’s contract claim because the project was undisputedly a federally funded highway project, which automatically invoked federal law

The uncontroverted evidence in the case was that the Project was a federally

funded highway project. Dig Tech’s own witnesses confirmed in cross-

examination that they knew or assumed the Project was federally funded. (RR Vol.

4 at 90:23–91:2 (Dig Tech representative Bodie Leslie); RR Vol. 6 at 20:1-8 (Dig

Tech office manager Tracy Lambert)). Dig Tech’s subcontract with Central Texas

was admitted without objection, as were Star’s two subcontracts with Central

Texas. (DX1-3). The three subcontracts contained identical pertinent terms and

conditions, including Attachment 1 to Exhibit 8 (FEDERAL REQUIREMENTS

FOR FEDERAL-AID HIGHWAY PROJECTS), which states:

GENERAL – The work herein proposed will be financed in whole or in part with Federal funds, and therefore all of the statutes, rules and regulations promulgated by the Federal Government and applicable to work financed in whole or in part with Federal funds will apply to such work.8

8 Appx Item 14, RR Vol. 16: DX1 at p. 69 (Star Subcontract CSUB116 with Central Texas); Appx Item 15, RR Vol. 18: DX2 at p. 117 (Dig Tech Subcontract CSUB122 with Central Texas); Appx Item 16, RR Vol. 19: DX3 at p. 69 (Star Subcontract CSUB140 with Central Texas)

{C1208515.DOCX:} 13 Further, because this project was federally funded, federal contract

regulations applied as a matter of law, irrespective of whether they were expressly

incorporated into the text of the contracts. Specifically, 23 CFR § 635.103 states:

The policies, requirements, and procedures prescribed in this subpart [entitled “Contract Procedures” and embracing §§ 635.101-127] shall apply to all Federal aid highway projects.

(See Appx Item 6). In G.L. Christian and Assocs. v. U.S., 312 F.2d 418 (Ct. Cl.

1963), the United States Supreme Court held that when the subject matter of a

contract is governed by valid federal regulations, the regulations are incorporated

into the contract as a matter of law, regardless of whether the parties agree to be

bound by them. The Fifth Circuit has applied Christian to hold:

Government contracts are different from contracts between ordinary parties. The Government has the unrestricted power to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases. Agreement to such conditions is unnecessary: where regulations apply and require the inclusion of a contract clause in every contract, the clause is incorporated into the contract, even if it has not been expressly included in a written contract or agreed to by the parties…[W]e would reach [this conclusion] even in the absence of any oral or written agreements to particular terms[.]

U.S. v. New Orleans Pub. Surv., Inc., 553 F.2d 459, 469 (5th Cir. 1977)

(emphasis added) (vacated on other grounds, New Orleans Public Service, Inc. v.

U.S., 436 U.S. 942 (1978)); see also Clem Perrin Marine Towing, Inc. v. Panama

Canal Co., 730 F.2d 186, 188 (5th Cir. 1984) (federal form was “part of the

{C1208515.DOCX:} 14 § 18.091. Proof of Certain Losses; Jury Instruction, TX CIV PRAC & REM§ 18.091

Vernon's Texas Statutes and Codes Annotated Civil Practice and Remedies Code (Refs & Annas) Title 2. Trial, Judgment, and Appeal Subtitle B. Trial Matters Chapter 18. Evidence Subchapter D. Certain Losses

V.T.C.A., Ch~l Practice & Remedies Code§ 18.091

§ 18.091. Proof of Certain Losses; Jmy Instruction

Effective: September 1, 2003 Currentness

(a) Notwithstanding any other law, if any claimant seeks recovery for loss of earnings, loss of earning capacity, loss of contributions of a pecuniary value, or loss of inheritance, evidence to prove the loss must be presented in the form of a net loss after reduction for income tax payments or unpaid tax liability pursuant to any federal income tax law.

(b) If any claimant seeks recovery for loss of earnings, loss of earning capacity, loss of contributions of a pecuniary value, or loss of inheritance, the court shall instruct the jury as to whether any recovery for compensatory damages sought by the claimant is subject to federal or state income taxes.

Credits Added by Acts 2003, 78th Leg., ch. 204, § 13.09, eff. Sept. 1, 2003.

Notes of Decisions (3)

V. T. C. A., Civil Practice & Remedies Code§ 18.091, TX CIV PRAC & REM§ 18.091 Cunent through the end of the 2015 Regular Session of the 84th Legislature

End of Document i'J 20 1511wmson Reuters. No claim to original U.S. Government Works.

Appendix Item 8A Pursuant to the Supremacy Clause of the United States Constitution, federal

law applicable to the Project governs. NAFTA Traders, Inc. v. Quinn, 339 S.W.3d

84, 97-98 (Tex. 2011). State courts “must follow” applicable federal law. NAFTA

Traders, Inc. v. Quinn, 339 S.W.3d 84, 91 (Tex. 2011). The United States Supreme

Court has made clear that even in state-law breach of contract claims, if federal law

is involved, the federal law requirements are incorporated into the state-law based

breach of contract cause of action. American Tel. and Tel. Co. v. Central Office

Telephone, Inc., 524 U.S. 214, 222 (1998). If the state-law based breach of contract

action cannot be sustained in the event federal law is properly applied, then the

state-law breach of contract claim fails as a matter of law. Id.

In American Tel. and Tel. Co., the plaintiff brought a state-law breach of

contract claim. Defendants argued that because federal law applied, the breach of

contract claim failed. The United States Supreme Court ruled that by applying the

applicable federal law, the state-law breach of contract claim could not be

sustained, since it depended upon facts and circumstances that were precluded by

the applicable federal law. The Supreme Court reached this decision despite the

plaintiff’s contention that it was pursuing claims solely based upon a state-law

breach of contract theory. Just as in American Tel. & Tel. Co., Star Operations

consistently argued that the SH130 Project involved the use of federal funds and

{C1208515.DOCX:} 16 therefore a written subcontract was required by applicable federal law. (CR 1346-

1358 at Pars. 4, 7).

Moreover, in addition to federal requirements being included in the contracts

by operation of law pursuant to the Christian Doctrine, the federal contract

requirements were also expressly incorporated into any and all contracts on the

Project, including any purported subcontract between Dig Tech and Star.

Specifically, the Facility Concession Agreement (“FCA”) between TxDOT and SH

130 Concession Company provides:

Developer shall comply and require its Contractors to comply with all federal requirements applicable to transportation projects that receive federal credit or funds, including those set forth in Exhibit 8.

(Appx Item 17, RR Vol. 34: DX119 at p.175) (emphasis added). The FCA also

provides:

[E]ach Contract shall include terms and conditions sufficient to ensure compliance by that Contractor with the requirements of the FCA Documents, and shall include those terms that are specifically required by the FCA Documents to be included therein including, to the extent applicable, those set forth in Exhibit 8.

(Appx Item 18A: DX119 at p. 69 (Art. 10.2.3); Appx Item 18B, Rule 11

Agreement). Exhibit 8, entitled “FEDERAL REQUIREMENTS FOR FEDERAL-

AID CONSTRUCTION PROJECTS,” was included in each subcontract pursuant

to the “flow-down” provisions of the FCA, discussed infra. (Appx Item 14, RR

Vol. 16: DX1 at pp. 69, 73, 86, 88-90, 98-99, 102-103; Appx Item 15, RR Vol. 18:

{C1208515.DOCX:} 17 § 2253.001. Definitions, TX GOVT § 2253.001

(C) reasonable rental and actual running repair costs for construction equipment used, or reasonably required and delivered for use, directly to carry out work at the project site; or

(D) power, water, fuel, and lubricants used, or ordered and delivered for use, directly to cany out a public work.

(7) "Retainage" means the part of the payments under a public work contract that are not required to be paid within the month after the month in which the public work labor is performed or public work material is delivered under the contract.

(8) "Specially fabricated material" means material ordered by a prime contractor or subcontractor that is:

(A) specially fabricated for use in a public work; and

(B) reasonably unsuitable for another use.

(9) "Subcontractor" means a person, firm, or corporation that provides public work labor or material to fulfill an obligation to a prime contractor or to a subcontractor for the performance and installation of any of the work required by a public work contract.

Credits Added by Acts 1993, 73rd Leg., ch. 268, § I, eff. Sept. I, 1993. Amended by Acts 1999, 76th Leg., ch. 62, § 8.20, eff. Sept. 1, 1999.

Editors' Notes

REVISOR'S NOTE

2008 Main Volume

(1) The definitions of"governmental entity," "payment bond beneficiary," "public work contract," and "specially fabricated material" are added to the revised law for drafting convenience and to eliminate frequent, unnecessary repetitions of the substance of the definitions.

(2) In the definitions of"public work contract," "public work labor," and "public work material," the revised law substitutes the phrases "carrying out" and "to cany out" for the source law term "prosecution" because the terms are synonymous and the former is more commonly used.

(3) In the definition of"prime contractor," the revised law substitutes the term "public work contract" for the source law term "formal contract" because this section defines "public work contract" to mean "a contract for constructing, altering, or repairing a public building or carrying out or completing any public work" and it is clear from the context ofthe source law that "formal contract" is intended to refer to a "public work contract."

(4) In the definition of"prime contractor," the revised law substitutes the term ''governmental entity" for the source law list of governmental entities with whom the prime contractor may contract because the revised law defines "governmental entity" to mean those entities.

Tech’s own written contract with Central Texas (Appx Item 15, RR Vol. 17: DX2

at p. 11), which imputed actual knowledge to Dig Tech of their applicability. In re

Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007, orig. proceeding) (holding

arbitration clause in a contract incorporated by reference into a signature card

signed by account holder was binding on account holder). Therefore, Dig Tech is

conclusively presumed to have knowledge that any enforceable contract on a

federally funded highway project must be in writing, as a mandatory provision of

any procurement of Dig Tech’s services. Id.

Pursuant to Christian and its progeny, and in light of the express provisions

of the written contracts applicable to the Project, all actual and potential contracts

for work on the Project incorporated all applicable federal laws, statutes, rules, and

regulations. Therefore, they became part of any purported contract between Star

Operations and Dig Tech on the SH 130 Project. G.L. Christian and Assocs. v.

U.S., 312 F.2d 418, 427 (Ct. Cl. 1963); In re Bank One, N.A., 216 S.W.3d 825, 826

(Tex. 2007); In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010).

Having established that federal contract requirements applied to this Project,

the next inquiry is determining what those requirements were and whether they

were met.

A. Issues 2 and 3: The trial court erred in refusing to submit proposed jury question(s) on: (1) Dig Tech’s failure to procure a written contract with Star;

{C1208515.DOCX:} 19 § 2253.001. Definitions, TX GOVT § 2253.001

Notes of Decisions (42)

V. T. C. A., Government Code§ 2253.001, TX GOVT § 2253.001 Current through the end of the 2015 Regular Session of the 84th Legislature

End of Document (!J 20 J 5 Thomson Reuters. No claim to original U.S. Government Works

pleading Appellants specifically denied the performance of all conditions

precedent and specifically raised the applicability of federal law to the Project and

any contract claims of Dig Tech. (CR 1346-1358). Specific denials included the

failure of Dig Tech to comply with the condition precedent of a written contract as

required by applicable federal law. As such, Dig Tech bore, but could not meet, the

burden of proving that it had an enforceable agreement, since its alleged agreement

was admittedly verbal and in violation of applicable federal law.

“A party seeking to recover under a contract bears the burden of proving that

all conditions precedent have been satisfied.” Associated Indem. Corp. v. CAT

Contracting, Inc., 964 S.W.2d 276, 283 (Tex. 1998). A condition precedent may

either be a condition to the formation of a contract or to an obligation to perform

an existing agreement. Hohenberg Bros. Co. v. George E. Gibbons & Co., 537

S.W.2d 1, 3 (Tex. 1976); Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex.

1992); Fitzgibbons v. Hughes, Id. A condition precedent will be implied when

there is “obvious necessity” or—as here—there are “public policy reasons” for it.

Snyder v. Eanes ISD, 860 S.W.2d 692, 696 (Tex. App. – Austin 1993, writ

denied.).

Dig Tech will no doubt urge that it was unfamiliar with or unaware of these

legal requirements. This argument fails factually and legally. Dig Tech’s own

{C1208515.DOCX:} 21 written subcontract with Central Texas (Appx Item 15, RR Vol. 17: DX2)

contained these requirements, imputing actual and constructive knowledge of their

applicability. “As a matter of law, it is conclusively presumed parties know the

law and contracted with reference to it.” Snyder, 860 S.W.2d at 697. A party who

signs a contract is charged by law with knowledge of its contents. Nat’l Prop.

Holdings, LP v. Westergren, 453 S.W.3d 419, 425 (Tex. 2015) (per curiam)

(holding that “the law presumes that a party knows and accepts the terms of a

contract the party signs, and it is not the Court’s role to protect the parties from

their own agreements.”). This is particularly true with respect to federal rules,

regulations, and contract requirements. General Engineering & Machine Works v.

O’Keefe, 991 F.2d 775, 780 (Fed. Cir. 1993); Century Marine, Inc. v. United

States, 153 F.3d 225, 228 (5th Cir. 1998); Worthen v. Fidelity Nat. Prop. & Cas.

Ins. Co., 463 Fed.Appx.422 (5th Cir. 2012); UPMC Braddock v. Harris, 934 F.

Supp. 2d 238, 259 (USDC 2013) ) vacated on other grounds as moot 584

Fed.Appx.1 (D.C. Cir. 2014); Federal Crop Ins. Corp. v. Merrill, 332 US 380

(1947).

The trial court must render judgment against the party who had the burden

of proof on a missing element when (1) the opposing party objected to the missing

element, (2) an affirmative finding on the missing element is essential to the claim

or defense, and (3) the missing element is not established as a matter of law in

{C1208515.DOCX:} 22 favor of the party with the burden of proof. McKinley v. Stripling, 763 S.W.2d 407,

410 (Tex. 1989) (rendition by Court of Appeals affirmed where trial court failed to

submit jury issue on proximate cause and defendant objected to absence of such

issue); Physicians & Surgeons Gen. Hosp. v. Koblizek, 752 S.W.2d 657, 660 (Tex.

App.—Corpus Christi 1988, writ denied) (rendition against plaintiff where trial

court improperly failed to submit questions on essential elements of premises

liability claim and defendant objected and submitted questions on issue). When the

opposing party objects to a missing element, a court cannot deem the missing

element in favor of the party with the burden of proof on that element. See

Physicians & Surgeons, 752 S.W.2d at 660. In such a case, the party with the

burden of proof did not secure a finding on the omitted element, which forecloses

that claim or defense. Clayton W. Williams, Jr., Inc. v. Olivo, 952 S.W.2d 523, 529

(Tex. 1997); Dallas Cty. Med. Coc’y v. Ubinas-Brache, 68 S.W.3d 31, 40 (Tex.

App.—Dallas 2001, pet. denied).

Appellants properly preserved error by objecting to the court’s refusal to

submit jury questions on failure of contract formation for lack of compliance with

federal requirements and failure of conditions precedent. The trial court improperly

denied submission of these various jury questions. (RR Vol. 9 at 136:10-17;

142:19–144:24).

B. Issue 4: The trial court erred in refusing to submit proposed jury question(s) on Dig Tech’s failure to provide statutorily compliant “certified payroll” to

{C1208515.DOCX:} 23 § 2253.048. Mailing Notice, TX GOVT § 2253.048

Vernon's Texas Statutes and Codes Annotated Government Code (Refs & Annas) Title 10. General Government (Refs &Annas) Subtitle F. State and Local Contracts and Fund Management Chapter 2253. Public Work Perfmmance and Payment Bonds (Refs &Annas) Subchapter C. Notice Requirements

V.T.C.A., Government Code§ 2253.048

§ 2253.048. Mailing Notice

Effective: September 1, 2001 Currentness

(a) A notice required by this subchapter to be mailed must be sent by certified or registered mail.

(b) A notice required by this subchapter to be mailed to a prime contractor must be addressed to the prime contractor at the contractor's residence or last known business address.

(c) A person satisfies the requirements of this subchapter relating to providing notice to the surety if the person mails the notice by certified or registered mail to the surety:

(1) at the address stated on the bond or on an attachment to the bond;

(2) at the address on file with the Texas Deparhnent oflnsurance; or

(3) at any other address allowed by law.

Credits Added by Acts 1993, 73rdLeg., ch. 268, § l, eff. Sept. 1, 1993. Amended by Acts2001, 77th Leg., ch. 380, § 4, eff. Sept. 1,2001.

V. T. C. A., Government Code§ 2253.048, TX GOVT § 2253.048 Current through the end of the 2015 Regular Session ofthe 84th Legislature

Eud of Document (["'l 20 IS Thomson Reuters_ No claim to original U.S_ Government Works.

W?''li·?;wNext © 20'15 Thomson Reuters. ~lo claim to original U.S. Government Works. Appendix Item 13 Koblizek,752 S.W.2d 657, 660 (Tex. App. – Corpus Christi 1988, writ denied);

Dallas Cty. Med. Co’y v. Ubinas-Brache, 68 S.W.3d 31, 40 (Tex. App. – Dallas

2001, pet. denied).

Since applicable federal law renders the oral agreement Dig Tech sued upon

unenforceable as a matter of law, Appellants are entitled to reversal and rendition

of a take nothing judgment in their favor. McKinley v. Stripling, 763 S.W.2d 407,

410 (Tex. 1989); Physicians & Surgeons Gen. Hosp. v. Koblizek, 752 S.W.2d 657,

660 (Tex. App. – Corpus Christi 1988, writ denied); Clayton W. Williams, Jr., Inc.

v. Olivo, 952 S.W.2nd 523, 529 (Tex. 1997); Dallas Cty. Med. Co’y v. Ubinas-

Brache, 68 S.W.3d 31, 40 (Tex. App. – Dallas 2001, pet. denied).

The uncontroverted evidence at trial showed that Dig Tech’s purported

contract with Star was verbal and unapproved by TxDOT. The uncontroverted

evidence also showed Dig Tech failed to provide Star statutorily compliant

“certified payroll.” As set out above, as a matter of law, these facts prevented

formation of an enforceable contract upon which Dig Tech could recover payment.

Star raised these issues repeatedly at trial and in its Motion for Judgment

Notwithstanding the Verdict. The trial court erred in overruling such motion and in

{C1208515.DOCX:} 25 ultimately awarding Dig Tech contract damages because the uncontroverted

evidence conclusively negated Dig Tech’s contract cause of action.

II. Issues 8-11: The trial court erred in applying the law to Dig Tech’s claim(s) against the GAIC payment bonds

Star and GAIC asserted at trial and continue to contend that the federal

Miller Act applies to this federally funded public works project, which places

exclusive subject matter jurisdiction over the bond dispute in federal court.

However, if the Texas McGregor Act applies, the uncontroverted evidence at trial

showed that Dig Tech failed to comply with its notice requirements and therefore

failed to perfect any bond claims as a matter of law.

A. Issue 8: The trial court erred in refusing to dismiss Dig Tech’s claim(s) against the GAIC payment bonds for lack of jurisdiction because the federal Miller Act applied to the claim(s)

The federal Miller Act requires contractors on “public work” projects to

provide performance and payment bonds. 40 U.S.C. § 3131. “[A] public work

within the Miller Act is any work in which the United States is interested and

which is done for the public and for which the United States is authorized to

expend funds.” Continental Cas. Co. v. C.O. Brand, Inc., 355 F.2d 969, 974 (5th

Cir. 1966). The Project is admittedly a federally funded project for the purpose of

creating a roadway for public use, triggering the Miller Act analysis.

{C1208515.DOCX:} 26 When the Miller Act applies, the McGregor Act does not. TEX. GOV’T. CODE

§ 2253.001, et seq.; see Ex rel. United Rentals, Inc. v. Hartford Fire Ins. Co., 339

F. Supp.2d 799, 801-02 (W.D. Tex. 2004). Dig Tech had the burden of pleading

facts showing the trial court had subject-matter jurisdiction. Appellants properly

preserved this issue by asserting in their live pleading a Plea to the Jurisdiction

(CR 1352-1353 at Par. 10). See Tex. Dep’t. of Parks & Wildlife v. Miranda, 133

S.W.3d 174, 176 (Tex. 2004).

Exclusive jurisdiction of the Miller Act claims lies in federal court. See Ex

rel. United Rentals, 339 F. Supp. 2d at 803. Accordingly, if the Miller Act applied,

Dig Tech could not meet its burden to properly establish the trial court’s subject-

matter jurisdiction over the bond claims against GAIC.

B. Issue 9: If the Texas McGregor Act applied to Dig Tech’s payment bond claim(s), the trial court erred in ruling as a matter of law that Dig Tech perfected any claim against the bonds

Assuming the Miller Act did not apply, as the trial court ruled (RR Vol. 5 at

223:23–227:19; 229:14–230:3; 232: 9-15), the McGregor Act would apply.

Because the evidence showed that Dig Tech failed to perfect any bond claim

against GAIC under the McGregor Act, the trial court erred in holding Dig Tech

perfected any claim.

It is undisputed that there were two separate subcontracts between Star and

Central Texas with two separate surety bonds. Dig Tech claimed it performed work

{C1208515.DOCX:} 27 under each subcontract. In order to perfect a bond claim on each of the bonds (or

either of them) under the McGregor Act, Dig Tech was required to comply with

the terms of the McGregor Act. This included a requirement that Dig Tech:

…mail to the prime contractor written notice of a claim for any unpaid public work, labor performed, or public work material delivered … on or before the 15th day of the second month after each month in which the labor was performed or the material was delivered.

TEX. GOV’T. CODE § 2253.047(c). Dig Tech was also required to mail to both the

surety (GAIC) and the prime contractor:

…written notice of the claim…on or before the 15th day of the third month after each month in which any such claimed labor was performed or any of the claimed material was delivered [and a] sworn statement of account that states in substance: (1) the amount claimed is just and correct; [and] (2) all just and lawful offsets, payments, and credits known to the affiant have been allowed.

TEX. GOV’T. CODE § 2253.041 (emphasis added). All notices to the prime

contractor and the surety were required to be sent by Registered or Certified Mail.

TEX. GOV’T CODE § 2253.048(a). Because Dig Tech claims work under each of

Star’s subcontracts, it was required to provide notice on each bond and produce

evidence on the value of work claimed on each Star subcontract (and GAIC bond).

For purposes of compliance with the McGregor Act, the “prime contractor”

is the “person, firm, or corporation that makes a public work contract with a

government entity.” TEX. GOV’T. CODE § 2253.001(3). As reflected in the FCA

admitted into evidence (Appx Item 17, RR Vol. 32: DX119), SH130 Concession

{C1208515.DOCX:} 28 Company, LLC was the sole entity with a direct contract with TxDOT. Neither

Central Texas, nor Star, nor Dig Tech had a contract with any government entity.

Thus, only SH130 Concession Company qualifies as the “prime contractor” for

purpose of complying with the McGregor Act.

The uncontroverted and undisputed evidence established that Dig Tech

provided no notice to SH130 Concession Company (the prime contractor) at any

time, in any format, on either bond. The evidence also conclusively shows Dig

Tech provided no sworn statement of account to GAIC complying with the

mandatory provisions of TEX. GOV’T. CODE § 2253.041. Instead Dig Tech argued

that it “substantially complied” by sending an email to Central Texas—not the

“prime contractor”—dated March 16, 2012 (Appx Item 20, RR Vol. 12: PX63) and

a single letter to GAIC dated May 1, 2012 that did not contain the statutorily-

mandated sworn statement of account (Appx Item 21, RR Vol. 15: PX 183). As to

the latter notice, it only referenced CSUB-140 (Appx Item 16, RR Vol. 18: DX3).

It did not reference CSUB-116 (Appx Item 14, RR Vol. 15: DX1). It did not meet

the sworn statement requirement. Clearly, Dig Tech did not provide the statutorily-

mandated notices required to perfect a claim for any work in October, 2011

through April, 2012. Accordingly, Dig Tech failed to prove that it perfected its

claims on the GAIC bonds.

{C1208515.DOCX:} 29 At trial, Dig Tech claimed that even though it did not provide timely and

compliant notices properly accompanied by sworn statements of account, it

nevertheless “substantially complied” with the McGregor Act’s notice

requirements. It is true that a claimant may maintain a McGregor Act bond claim

despite semantic variances from the statutory notice language under the doctrine of

“substantial compliance.” See, e.g. Featherlite Bldg. Products Corp. v.

Constructors Unlimited, Inc., 714 S.W.2d 68, 69 (Tex. App.—Houston [14th Dist.]

1986, writ ref’d n.r.e.) (substantial compliance held where sworn statement of

account stated amounts were “due and unpaid” instead of “just and correct.”);

Capitol Indemn. Corp. v. Kirby Restaurant Equipment and Chemical Supply Co.,

Inc., 170 SW.3d 144, 148 (Tex. App.—San Antonio 2005, pet. denied) (substantial

compliance held where sworn statement of account stated the claim was “currently

unpaid and owing,” “now due,” and represented the “current payment due,” instead

of “just and correct.”).

However, Texas courts require strict—not merely “substantial” compliance

with the Act’s notice deadlines. Suretec Ins. Co. v. Myrex Industries, 232 S.W.3d

811, 816 (Tex. App.—Beaumont 2007, pet. denied) (distinguishing failure to

provide timely notice from “substantial compliance” cases involving semantic

variances from statutory language; holding “substantial compliance” will not

satisfy requirement that bond notices be made timely; concluding that untimely

{C1208515.DOCX:} 30 notice barred claim even though it was only one day late and the deadline fell on a

Sunday.); see also Laboratory Design & Equipment, Inc. v. Brooks Development

Authority, No. 04-07-00284-CV, 2008 WL 36614 at *3 (Tex. App.—San Antonio

Jan. 2, 2008, no pet.) (Claimant failed to perfect bond claim under McGregor Act

where notices were untimely). Moreover, when the claimant fails to provide the

required sworn statement of account, the claimant does not substantially comply

with the Act and fails to perfect its bond claim. See Laboratory Design &

Equipment, Inc., 2008 WL at *3 (Claimant failed to perfect bond claim where it

failed to provide any sworn statement of account as required; specifically rejecting

argument that notice efforts constituted “substantial compliance.”).

Dig Tech’s lone notice to GAIC was unaccompanied by any sworn

statement of account, and therefore did not substantially comply with the Act. Id.;

TEX. GOV’T. CODE § 2253.041. Dig Tech offered no evidence that it ever provided

any notice at all to the prime contractor (SH130 Concession Company) as required

by TEX. GOV’T. CODE §§ 2253.001, 2253.041, and 2253.047. Accordingly, Dig

Tech failed to prove it perfected its bond claims.

Despite failing to prove claim perfection and instead of submitting jury

questions on compliance, Dig Tech requested that the Court rule as a matter of law

that it had “substantially complied with the notice provisions such that GAIC has

{C1208515.DOCX:} 31 Agreement #CS UB116 I I

SH130 Segments 5 and 6 Illumination and Signal Iii that each laborer or mechanic has been paid not iess that the applicable wage rate and fringe benefits or r;ash equivalent for the classifica tion of wo1ked performed, as specified In the applicable wage determination Incorporated into the contract.

e. The weekly submission of a properly executed certification set forth on the reverse side of Optional Form WH~347 shall satisfy the requirement for submission of the 11Statement of Compllance 0 required by paragraph 2d ofthis Section V.

f. The falsification of any of tho above certfficatlons may subject t11e contractor to clvil or criminal prosecution under 18 U.S.C. 1001 and 31 u.s.c. 231. g. The contractor or subcontrdctor sl1all make the records required under paragraph 2b of this Sectlor\ V available for inspection, copying, or transcription by autllorized representatives of the SHA, the FHWA, or the DOL, and shall petmlt such representatives to interview employees during working hours on the job. If the contractor or subcontractor fails to submit the required records or to mal

VI. RECORD OF MATERIALS, SUPPLIES) AND LABOR

1. On all Fedeml~aid contracts on the National Highway System, except those which provide soiely for the installation of protective devices at railroad grade crossings, those which are constructed on a force accoutit or direct labor basis, highway beautification contracts, and contracts for which the total final construction cost fot· roadway and bridge ls less than $1,000,000 (2:3 CFR 635) the contractor shall:

a. Become famHiar with the list of specific materials and supplies contained in Form FHWA-47, "Statement of Materials and Labor Used by Developer of Highway Construction Involving Federal Funds," prior to the commGncement of work under this contract.

b. Maintain a record of the total cost of all materials and supplfes purchased for and incorporated in the work, and also of the quantities of those speci'fic materials and supplies listed on Form FHWA~47, and in the units shown on Form FHWA-47.

Excerpt from Pac!llly Conc<~sslon Agre•Jmanl requirements and by requesting jury questions on this issue. (RR Vol. 9 at 136:18–

137:7; 141:1–142:18). To the extent the evidence did not conclusively prove Dig

Tech failed to provide the required notices, these questions were required to go to

the jury and the court erred in refusing to include them in the charge.

In light of the fact that Dig Tech failed to obtain jury findings of compliance

with its condition precedent to perfect its claim(s) on the bonds, GAIC is entitled to

a reversal and the rendition of a take nothing judgment in its favor. Associated

Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 283 (Tex. 1998);

McKinley v. Stripling, 763 S.W.2d 407, 410 (Tex. 1989); Clayton W. Williams, Jr.,

Inc. v. Olivo, 952 S.W.2nd 523, 529 (Tex. 1997).

III. Issue 12: The trial court erred in awarding damages to Dig Tech without any evidence of Dig Tech’s actual damages as net loss after reduction of income tax payments or unpaid income tax liability as required by TEX. CIV. PRAC. & REM. CODE § 18.091

As a precondition to recovering its damages, Dig Tech was required to

present evidence of such damages in the form of “net loss after reduction of

income tax payments or unpaid income tax liability pursuant to any federal income

tax law.” TEX. CIV. PRAC. & REM. CODE § 18.091. The case law is clear. Contrary

to Dig Tech’s arguments at trial, this statute does not apply “only to personal injury

claims.” See Interconex, Inc. v. Ugarov, 224 S.W.3d 523 (Tex. App.—Houston [1st

{C1208515.DOCX:} 33 Dist.] 2007, no pet.); Big Bird Tree Service v. Gallegos, 365 S.W.3d 173, 179