the Port of Houston Authority of Harris County, Texas v. Zachry Construction Corporation
Opinion
ACCEPTED 14-10-00708-CV FOURTEENTH COURT OF APPEALS HOUSTON, TEXAS 7/13/2015 11:06:10 AM CHRISTOPHER PRINE CLERK
___________________ FILED IN 14th COURT OF APPEALS HOUSTON, TEXAS 7/13/2015 11:06:10 AM CHRISTOPHER A. PRINE Clerk
___________________ Port of Houston Authority of Harris County, Texas, Appellant, v. Zachry Construction Corporation, Appellee. On appeal from the 151st District Court of Harris County, Texas Trial Court Cause No. 2006-72970
Post-Remand Supplemental Reply Brief of Appellant _________________________________________________ David E. Keltner Marie R. Yeates State Bar No. 11249500 State Bar No. 22150700 KELLY HART & HALLMAN LLP Catherine B. Smith 201 Main Street, Suite 2500 State Bar No. 03319970 Fort Worth, Texas 76102 Michael A. Heidler Phone: 817.878.3560 State Bar No. 24059921 Fax: 817.878.9760 VINSON & ELKINS L.L.P. david.keltner@kellyhart.com 1001 Fannin, Suite 2500 Houston, Texas 77002 David H. Brown Phone: 713.758.4576 State Bar No. 03109200 Fax: 713.615.5544 BROWN & KORNEGAY LLP myeates@velaw.com 2777 Allen Parkway, Suite 977 Houston, Texas 77019 Karen L.T. White Phone: 713.528.3703 State Bar No. 20274500 Fax: 713.528.3701 KAREN L.T. WHITE, P.C. dbrown@bkllp.com 1415 S. Voss, Suite 110-539 Houston, Texas 77057 Phone: 832.646.4667 karen@kltwpc.com Attorneys for Appellant the Port of Houston Authority of Harris County, Texas TABLE OF CONTENTS
TABLE OF AUTHORITIES...................................................................................... v
RECORD REFERENCES....................................................................................... viii
INTRODUCTION ...................................................................................................... 1
ARGUMENT ............................................................................................................. 2
I. Liability Findings Fail as a Matter of Law..................................................... 2
A. PHA did not breach §5.10.................................................................... 2
1. Contract’s plain language authorized the R&R response. ......... 2
2. No Contract provision Zachry cites supports Zachry’s argument that the R&R response breached §5.10...................... 3
a. §5.10’s plain language defeats Zachry’s argument. ........ 3
b. §5.22’s plain language defeats Zachry’s argument. ........ 4
c. Tech.Spec.02161’s plain language defeats Zachry’s argument........................................................... 5
d. §4.07’s plain language defeats Zachry’s argument. ........ 6
B. The finding that PHA breached CO4 also fails as a matter of law........................................................................................................ 6
C. Zachry has no answer to the charge error. ........................................... 8
II. The Damages Finding Fails as a Matter of Law. ........................................... 9
A. Draper assumed no time to remove 1,000 freeze pipes. ...................... 9
B. Draper assumed no cost to remove freeze pipes. ............................... 11
C. Draper assumed that Zachry could install sheet pile on October 7, 2005, but Zachry was not ready to begin sheet pile installation until November 15—40 days later than Draper assumed.............................................................................................. 11
ii D. Draper’s assumptions—contrary to undisputed facts—make his testimony no evidence........................................................................ 12
III. “But-for” Causation Fails as a Matter of Law for Lack of Expert Testimony..................................................................................................... 12
IV. As a Matter of Law, Zachry Failed to Satisfy §5.42’s Condition Precedent of Giving PHA’s Chief Engineer Written Notice of Zachry’s Contention That the R&R Response Was Contrary to the Contract. ....................................................................................................... 15
A. As Zachry does not deny, §5.42 is a condition precedent.................. 15
B. Unambiguously, §5.42 applies to Zachry’s contention that the R&R response breached the Contract. ............................................... 16
C. Zachry is erroneously trying to invalidate §5.42 notice by relying on §5.41’s change order requirement and Shintech............... 17
D. Zachry erroneously says it proved substantial compliance with §5.42’s notice requirement................................................................. 21
E. The parties tried the issue whether Zachry gave §5.42 notice. .......... 22
V. PHA is Entitled to Segregated Attorneys’ Fees the Jury Found for Zachry’s R&R Claim. .................................................................................. 23
VI. Invalid “Pass-Through” Claim: Zachry Recovered $8.578 Million in Costs Incurred Not by Zachry, but by Another Entity (Question 5). ........... 24
A. A pass-through claim requires that the owner’s breach caused the general contractor to breach. ........................................................ 25
B. Zachry misreads Interstate concerning when the burden of proof shifts. ........................................................................................ 27
C. Zachry misreads the Master Services Agreement (“MSA”). ............. 27
VII. Erroneous Exclusion of PHA’s $8+ Million in Harms/Losses. ................... 28
A. PHA’s interrogatory response was timely. ........................................ 28
B. Zachry’s interrogatory and PHA’s response were not limited to disclosing PHA’s harms/losses for proportionality of LDs. .............. 29
iii C. Excluding PHA’s $8+ million in harms/losses was harmful. ............ 29
VIII. Zachry Opened the Door to PHA’s Harms/Losses. ..................................... 30
A. Zachry misunderstands Horizon/CMS Healthcare v. Auld, 34 S.W.3d 887, 905-07 (Tex.2000) and misrelies on Hayden v. State, 296 S.W.3d 549, 554 (Tex.Crim.App. 2009)........................... 31
B. The court’s erroneous exclusion of the open-the-door evidence was harmful........................................................................................ 32
IX. Charge Error Skewed the Trial on the NDFD Exception for Fraud............. 32
X. The Erroneous Apparent Authority Instruction Skewed the Trial. .............. 33
A. The Contract Negated Apparent Authority. ....................................... 33
B. Additionally, Zachry did not plead apparent authority. ..................... 34
CERTIFICATE OF COMPLIANCE........................................................................ 37
CERTIFICATE OF SERVICE................................................................................. 38
iv TABLE OF AUTHORITIES
CASES
4901 Main v. TAS Auto., 187 S.W.3d 627 (Tex.App.-Hous.[14th Dist.] 2006, no pet.)............................. 24
Abraham v. Union Pac. R.R., 233 S.W.3d 13 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied) ........................ 12
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ACCEPTED 14-10-00708-CV FOURTEENTH COURT OF APPEALS HOUSTON, TEXAS 7/13/2015 11:06:10 AM CHRISTOPHER PRINE CLERK
___________________ FILED IN 14th COURT OF APPEALS HOUSTON, TEXAS 7/13/2015 11:06:10 AM CHRISTOPHER A. PRINE Clerk
___________________ Port of Houston Authority of Harris County, Texas, Appellant, v. Zachry Construction Corporation, Appellee. On appeal from the 151st District Court of Harris County, Texas Trial Court Cause No. 2006-72970
Post-Remand Supplemental Reply Brief of Appellant _________________________________________________ David E. Keltner Marie R. Yeates State Bar No. 11249500 State Bar No. 22150700 KELLY HART & HALLMAN LLP Catherine B. Smith 201 Main Street, Suite 2500 State Bar No. 03319970 Fort Worth, Texas 76102 Michael A. Heidler Phone: 817.878.3560 State Bar No. 24059921 Fax: 817.878.9760 VINSON & ELKINS L.L.P. david.keltner@kellyhart.com 1001 Fannin, Suite 2500 Houston, Texas 77002 David H. Brown Phone: 713.758.4576 State Bar No. 03109200 Fax: 713.615.5544 BROWN & KORNEGAY LLP myeates@velaw.com 2777 Allen Parkway, Suite 977 Houston, Texas 77019 Karen L.T. White Phone: 713.528.3703 State Bar No. 20274500 Fax: 713.528.3701 KAREN L.T. WHITE, P.C. dbrown@bkllp.com 1415 S. Voss, Suite 110-539 Houston, Texas 77057 Phone: 832.646.4667 karen@kltwpc.com Attorneys for Appellant the Port of Houston Authority of Harris County, Texas TABLE OF CONTENTS
TABLE OF AUTHORITIES...................................................................................... v
RECORD REFERENCES....................................................................................... viii
INTRODUCTION ...................................................................................................... 1
ARGUMENT ............................................................................................................. 2
I. Liability Findings Fail as a Matter of Law..................................................... 2
A. PHA did not breach §5.10.................................................................... 2
1. Contract’s plain language authorized the R&R response. ......... 2
2. No Contract provision Zachry cites supports Zachry’s argument that the R&R response breached §5.10...................... 3
a. §5.10’s plain language defeats Zachry’s argument. ........ 3
b. §5.22’s plain language defeats Zachry’s argument. ........ 4
c. Tech.Spec.02161’s plain language defeats Zachry’s argument........................................................... 5
d. §4.07’s plain language defeats Zachry’s argument. ........ 6
B. The finding that PHA breached CO4 also fails as a matter of law........................................................................................................ 6
C. Zachry has no answer to the charge error. ........................................... 8
II. The Damages Finding Fails as a Matter of Law. ........................................... 9
A. Draper assumed no time to remove 1,000 freeze pipes. ...................... 9
B. Draper assumed no cost to remove freeze pipes. ............................... 11
C. Draper assumed that Zachry could install sheet pile on October 7, 2005, but Zachry was not ready to begin sheet pile installation until November 15—40 days later than Draper assumed.............................................................................................. 11
ii D. Draper’s assumptions—contrary to undisputed facts—make his testimony no evidence........................................................................ 12
III. “But-for” Causation Fails as a Matter of Law for Lack of Expert Testimony..................................................................................................... 12
IV. As a Matter of Law, Zachry Failed to Satisfy §5.42’s Condition Precedent of Giving PHA’s Chief Engineer Written Notice of Zachry’s Contention That the R&R Response Was Contrary to the Contract. ....................................................................................................... 15
A. As Zachry does not deny, §5.42 is a condition precedent.................. 15
B. Unambiguously, §5.42 applies to Zachry’s contention that the R&R response breached the Contract. ............................................... 16
C. Zachry is erroneously trying to invalidate §5.42 notice by relying on §5.41’s change order requirement and Shintech............... 17
D. Zachry erroneously says it proved substantial compliance with §5.42’s notice requirement................................................................. 21
E. The parties tried the issue whether Zachry gave §5.42 notice. .......... 22
V. PHA is Entitled to Segregated Attorneys’ Fees the Jury Found for Zachry’s R&R Claim. .................................................................................. 23
VI. Invalid “Pass-Through” Claim: Zachry Recovered $8.578 Million in Costs Incurred Not by Zachry, but by Another Entity (Question 5). ........... 24
A. A pass-through claim requires that the owner’s breach caused the general contractor to breach. ........................................................ 25
B. Zachry misreads Interstate concerning when the burden of proof shifts. ........................................................................................ 27
C. Zachry misreads the Master Services Agreement (“MSA”). ............. 27
VII. Erroneous Exclusion of PHA’s $8+ Million in Harms/Losses. ................... 28
A. PHA’s interrogatory response was timely. ........................................ 28
B. Zachry’s interrogatory and PHA’s response were not limited to disclosing PHA’s harms/losses for proportionality of LDs. .............. 29
iii C. Excluding PHA’s $8+ million in harms/losses was harmful. ............ 29
VIII. Zachry Opened the Door to PHA’s Harms/Losses. ..................................... 30
A. Zachry misunderstands Horizon/CMS Healthcare v. Auld, 34 S.W.3d 887, 905-07 (Tex.2000) and misrelies on Hayden v. State, 296 S.W.3d 549, 554 (Tex.Crim.App. 2009)........................... 31
B. The court’s erroneous exclusion of the open-the-door evidence was harmful........................................................................................ 32
IX. Charge Error Skewed the Trial on the NDFD Exception for Fraud............. 32
X. The Erroneous Apparent Authority Instruction Skewed the Trial. .............. 33
A. The Contract Negated Apparent Authority. ....................................... 33
B. Additionally, Zachry did not plead apparent authority. ..................... 34
CERTIFICATE OF COMPLIANCE........................................................................ 37
CERTIFICATE OF SERVICE................................................................................. 38
iv TABLE OF AUTHORITIES
CASES
4901 Main v. TAS Auto., 187 S.W.3d 627 (Tex.App.-Hous.[14th Dist.] 2006, no pet.)............................. 24
Abraham v. Union Pac. R.R., 233 S.W.3d 13 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied) ........................ 12
American Airlines Employees Federal Credit Union v. Martin, 29 S.W.3d 86 (Tex.2000).................................................................................... 17
Arbor Windsor Court v. Weekley Homes, 2015 WL 1245548 (Tex.App.-Hous.[14th Dist.] 2015, no pet. h.)..................... 16
Argee v. Solis, 932 S.W.2d 39 (Tex.App.-Beaumont 1995) ....................................................... 19
Board of Regents v. S.&G Constr., 529 S.W.2d 90 (Tex.Civ.App.-Austin 1975, writ ref’d n.r.e.)............................ 18
Burroughs Wellcome v. Crye, 907 S.W.2d 497 (Tex.1995)................................................................................ 12
Cajun Constructors v. Velasco Drainage Dist., 380 S.W.3d 819 (Tex.App.-Hous.[14th Dist.] 2012, pet. denied) ...................... 16
Chevron Phillips Chem. v. Kingwood Crossroads, 346 S.W.3d 37 (Tex.App.-Hous.[14th Dist.] 2011, pet. denied) ........................ 24
Coastal Ref. & Mktg. v. U.S. Fid. & Guar., 218 S.W.3d 279 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied) ...................... 23
Cont’l Oil v. Baxter, 59 S.W.2d 463 (Tex.Civ.App.-Eastland 1933, no writ)...................................... 35
Crown Life Ins. v. Casteel, 22 S.W.3d 378 (Tex.2000)............................................................................ 32, 33
Douglass v. Panama, Inc., 504 S.W.2d 776 (Tex.1974)................................................................................ 33
v Equitable Life v. Ellis, 147 S.W. 1152 (Tex.1912).................................................................................. 33
Green v. Solis, 951 S.W.2d 384 (Tex.1997)................................................................................ 19
Hanks v. GAB Bus. Servs., 644 S.W.2d 707 (Tex.1982).......................................................................... 19, 20
Hayden v. State, 296 S.W.3d 549 (Tex.Crim.App. 2009).............................................................. 31
Horizon/CMS Healthcare v. Auld, 34 S.W.3d 887, (Tex.2000)................................................................................. 31
Houston Exploration v. Wellington, 352 S.W.3d 462 (Tex.2011).................................................................................. 4
Humble Nat. Bank v. DCV, Inc., 933 S.W.2d 224 (Tex.App.-Hous. [14th Dist.] 1996, writ denied)..................... 33
Interstate Contracting v. City of Dallas, 135 S.W.3d 605 (Tex.2004).................................................................... 25, 26, 27
North Harris County Junior College Dist. v. Fleetwood Construction, 604 S.W.2d 247 (Tex.Civ.App.-Hous.[14th Dist.] 1980, writ ref’d n.r.e.)......... 18
Paramount National Life v. Williams, 772 S.W.2d 255 (Tex. App.—Hous.[14th Dist.] 1989, writ denied) .................. 34
Shintech, Inc. v. Group Constructors, 688 S.W.2d 144 (Tex.App.-Hous[14th Dist.] 1985, no writ) ................. 18, 19, 20
Tennessee Gas Pipeline v. Technip USA, 2008 WL 3876141 (Tex.App.-Hous.[1st Dist.] 2008, pet. denied)..................... 20
Texas Dep’t of Transp. v. Jones Bros., 92 S.W.3d 477 (Tex.2002).................................................................................. 17
West v. Triple B. Services, 264 S.W.3d 440 (Tex.App.-Hous.[14th Dist.] 2008, no writ............................. 18
vi Wolf Hollow I v. El Paso Mktg., 409 S.W.3d 879 (Tex.App.-Hous.[14th Dist.] 2013), rev’d on other grounds, 450 S.W.3d 121 (Tex.2014)................................................................... 4
STATUTES
Civil Practice & Remedies Code §16.071 .............................................................. 17
Civil Practice & Remedies Code §16.071(a).......................................................... 16
RULES
Fed. R. Evid. 403.................................................................................................... 31
vii RECORD REFERENCES Clerk’s Record: Clerk’s Record (Volumes 1-64) CR[volume]:[page] Supp. Clerk’s Record (Volumes 1-6) SCR[volume]:[page] Reporter’s Record: Trial and post-trial hearings (Volumes 1-77) [volume]:[page] E.g., Volume 16 at page 20 will be cited as “16:20” Pre-trial hearings [(hearing date)]:[page] E.g., the 9/18/09 hearing at page 20 will be cited as “(9/18/09):20” Status Conference on 9/11/09 [volume][(hearing date)]:[page] (only pre-trial hearing with more than one volume) Plaintiff’s Exhibits (Volumes 78-99) PX[number] Defendant’s Exhibits (Volumes 100-116) DX[number] Court Only Exhibits (Volume 117) DX(Court Only):[number] The Contract: Contract §[General Condition number] The Contract will be cited by General Condition number, not by exhibit number. The General Conditions are in the Appendix. Appendices: PHA’s Appendix (Tabs 1-18) A[Tab] The Appendix Index contains the record location for each document. Zachry’s Appendix (Tabs 1-43) ZA[Tab] Briefs: Brief of Appellant Br.App’t Brief of Appellee Br.App’e PHA’s Post-Remand Supplemental Brief of Appellant P.S.Br. Zachry’s Supplemental Brief of Appellee Z.S.Br.
viii Oral Argument Transcript: The transcript of the oral argument before the Court of Appeals in this case is attached to PHA’s Post-Remand Supplemental Brief of Appellant and cited in the format: OA:[page]:[line]
* Emphasis Is Added Throughout Brief Unless Otherwise Noted.
ix INTRODUCTION Zachry (“Z.S.Br.”) discusses only Zachry’s R&R claim.1 Four
separate/independent grounds—not addressed by the Supreme Court—require
render against Zachry on its R&R claim.
First, the Contract’s face negates the jury’s liability findings that the R&R
response breached Contract §5.10 and Change Order 4 (“CO4”).
Second, Draper, Zachry’s sole damages expert, was unreliable—and his
testimony no evidence—because Draper assumed facts contrary to undisputed
facts.
Third, Zachry has no expert testimony on “but-for” causation—i.e., no
expert testified that, absent use of Zachry’s frozen-COW design or Mageau’s
alternative frozen-COW design, there was no way for Zachry to divide the project
so as to allow Zachry to continue working “in the dry.”
Fourth, Zachry failed to comply with §5.42’s conditions precedent that
Zachry give written notice, within five days, to PHA’s Chief Engineer of Zachry’s
contention that the R&R response, issued by CH2M’s Thiess, contravenes the
Contract.
Zachry’s R&R claim should be rendered on no liability, no damages, no
causation, and no compliance with conditions precedent. And Zachry’s R&R 1 Zachry does not mention its claim (which Zachry lost to the jury) for $600,000 payment for dredging; nor does Zachry mention its claim for withheld LDs. P.S.Br.69-70; infra p.29-30.
1 claim is, in any event, subject to a partial render because $8.578 million of the
R&R damages represent costs sustained not by Zachry but by a different entity.
The Supreme Court did not address any of these render arguments or PHA’s
multiple grounds for new trial. The R&R claim should be rendered against Zachry,
and PHA should be awarded the segregated attorneys’ fees for the R&R claim
found by the jury.
Zachry relies on the Supreme Court’s recitation of facts, but that Court was
not interpreting the Contract’s face or addressing PHA’s legal arguments on
remand. The Supreme Court remanded to this Court for that purpose.
ARGUMENT I. Liability Findings Fail as a Matter of Law.
A. PHA did not breach §5.10.
1. Contract’s plain language authorized the R&R response.
Contract Tech.Spec.02161 required Zachry to provide a Submittal,
including Zachry’s “means [and] methods,” for the frozen COW
because the frozen COW modified the main freeze wall, a shoring
wall;
Contract §5.22 authorized PHA to require Zachry to revise and
resubmit Zachry’s frozen-COW design/Submittal based on PHA’s
concern that Zachry’s means/methods would not comply with the
Contract;
2 Contract Tech.Spec.01500 required Zachry to “protect the Work,”
including the Wharf; and,
§5.22 authorized the R&R response based on PHA’s concern that
Zachry’s frozen-COW design could endanger the Wharf’s structural
integrity.
PHA’s Post-Remand Supplemental Brief of Appellant (“P.S.Br.”) p.22-28.
Zachry argues that, in response to a Submittal required by Tech.Spec.02161,
PHA may require Zachry to revise and resubmit based only on whether the
Submittal complies with OSHA. Z.S.Br.28-29. But Zachry’s Contract
interpretation is unreasonable/absurd because it would require PHA to stand silent
when a Submittal, if implemented, could cause the Wharf to collapse. Zachry’s
expert Lacy agreed that PHA’s concern underlying the R&R response was
reasonable. 42:125; 43:18, 159-60.
2. No Contract provision Zachry cites supports Zachry’s argument that the R&R response breached §5.10.
a. §5.10’s plain language defeats Zachry’s argument.
Zachry quotes §5.10 as stating that Zachry shall “prosecute the Work…in
such manner, using such methods as [Zachry] shall choose.” Z.S.Br.4. But
Zachry’s quotation leaves out §5.10’s proviso—appearing immediately after the
language Zachry quotes—stating:
3 “provided, however, that the Work shall be completed…in accordance with the Contract Documents [the Contract].”
A15:§5.10. A “proviso must be construed as a limitation or restraint upon the
authority defined in the clause immediately preceding it.” Wolf Hollow I v. El
Paso Mktg., 409 S.W.3d 879, 888 (Tex.App.-Hous.[14th Dist.] 2013), rev’d on
other grounds, 450 S.W.3d 121 (Tex.2014). Zachry’s right to choose its
mean/methods is limited/restrained by §5.10’s proviso that Zachry must comply
with the Contract, including §5.22 authorizing the R&R response.
Zachry says §5.10 is “specific” and controls over §5.22, which Zachry
claims is “general.” Z.S.Br.27-28. Actually, §5.10 states that Zachry’s general
right to choose means/methods is subject to §5.10’s specific proviso that Zachry
must comply with the Contract.
b. §5.22’s plain language defeats Zachry’s argument.
Zachry says §5.22 “did not authorize PHA to control Zachry’s means and
methods.” Z.S.Br.29. But, as Justice Christopher’s pointed out, §5.22 authorized
the R&R response. OA:26:8-10. Because §5.22 is unambiguous, Zachry is wrong
to rely on parol evidence of Zachry’s witnesses’ belief that §5.22 would preclude
PHA from reviewing Zachry’s means/methods. Z.S.Br.30-31; Houston Exploration
v. Wellington, 352 S.W.3d 462, 469 n.25 (Tex.2011).
4 Zachry says §5.22 does not apply to means/methods because §5.22 calls for
submittals to include “all…details of Work to be incorporated into the Project,”
and, according to Zachry, the Contract’s definition of “Work” excludes “Zachry’s
chosen means and methods.” Z.S.Br.30, 46. But the “Work” includes
means/methods because §1.42 defines “Work” to include “all labor, Materials,
Equipment and services…provided by [Zachry] to fulfill [Zachry’s] obligations
pursuant to the Contract.” A15:§1.42. And §1.30 defines “Project” to include the
Work. A15:§1.30.
The question is whether §5.22 authorized the R&R response, not whether
PHA was negligent/arbitrary as to issuance of the R&R response or not taking it
back (Z.S.Br.11). The Supreme Court cited facts relevant to the
arbitrary/capricious exception to the no-damages-for-delay (“NDFD”) provision,
but that Court did not address breach.
c. Tech.Spec.02161’s plain language defeats Zachry’s argument.
Zachry argues that Tech.Spec.02161 “did not authorize PHA” to comment
on Zachry’s means/methods. Z.S.Br.28. But, as Zachry admits, Tech.Spec.02161
requires Zachry to submit its means/methods to PHA. Id. And §5.22 authorizes an
R&R response to that Submittal. Zachry says that Tech.Spec.02161 is “[s]ubject to
the General and Special Conditions” (id.), but the General and Special Conditions
include §5.22 (A15§5.22).
5 Zachry says that PHA’s review of a Tech.Spec.02161 submittal was only “to
ensure the shoring plan satisfied OSHA safety rules.” Z.S.Br.29. But, as
explained above, Zachry’s interpretation would absurdly mean that PHA could not
respond to such a submittal based on PHA’s concern that Zachry’s frozen-COW
design threatened the Wharf’s structural integrity. Zachry cites parol evidence of
what witnesses thought §5.22 authorized. Z.S.Br.29. But parol evidence is not
relevant because §5.22 and Tech.Spec.02161 unambiguously authorize the R&R
response.
d. §4.07’s plain language defeats Zachry’s argument.
Zachry argues that §4.07 “forbids PHA control over Zachry’s health-and-
safety plans,” so Zachry says §4.07 precluded the R&R response. Z.S.Br.28. But,
while §4.07 says Zachry is responsible for health/safety of people on site, nothing
in §4.07 precluded the R&R response (authorized by §5.22) to the frozen-COW
Submittal (required by Tech Spec.02161) based on PHA’s concern for the Wharf’s
structural integrity. A15§4.07.
B. The finding that PHA breached CO4 also fails as a matter of law.
Nothing on the face of CO4, a three-page document (A21)—or the one-page
April 13, 2005 price proposal (A20)—supports Anderson’s interpretation of CO4.
Anderson—the only witness to testify about what Zachry intended CO4 to mean—
testified:
6 use of the frozen COW was not a term of CO4, such that CO4 did not
obligate Zachry to use the frozen COW;
under CO4, Zachry continued to have the right, option, or election
under §5.10 to choose whether to use, or not use, the frozen COW as
means/methods; and
if Zachry elected to use the frozen COW, then, according to
Anderson, CO4 provided that PHA would no longer have §5.22 rights
to require Zachry to revise and resubmit Zachry’s frozen-COW
design.
15:61-62. But Zachry never explains what language in CO4 (or the April 13 price
proposal) supports Anderson’s notion that, in CO4, PHA gave up its §5.22 rights to
require Zachry to revise and resubmit if Zachry elected to use the frozen COW as
means/methods. The reference in the April 13 price proposal to a frozen COW
cannot reasonably be read to carry Anderson’s interpretation. Neither CO4 nor the
April 13 price proposal mentions §5.22, and CO4 states that all provisions of the
Contract not modified herein (such as §5.22) remain in effect. A20, A21.
Even if, due to the April 13 price proposal, CO4 was based on Zachry’s use
of a frozen COW, that would be no different from Zachry’s original proposal to
enter into the Contract being based on Zachry’s use of the main freeze wall. And,
7 PHA exercised its §5.22 right to require Zachry to revise and resubmit its design
for the main freeze wall to which Zachry complied. PX313, 922-23.
Zachry appears now to be reverting back to its pre-trial interpretation in
which Zachry claimed (1) use of the frozen COW was unambiguously a term of
CO4, such that (2) as a matter of law, Zachry was obligated to use the frozen COW
and PHA was obligated to let Zachry use the frozen COW. Z.S.Br.33-35;
P.S.Br.6. Zachry cannot now prevail on its pre-trial as-a-matter-of-law
interpretation because (1) as the trial court held, CO4 does not unambiguously
make use of the frozen COW a term binding on both parties (A6:13296)2, and
(2) Anderson testified that use of the frozen COW was not a term of CO4, and
Anderson said that, under CO4, Zachry was not obligated to use the frozen COW
(15:61-62).
C. Zachry has no answer to the charge error.
Over PHA’s objections, the court erroneously instructed the jury: “[i]n
answering [Question 1] you are not being asked to decide whether [PHA] failed to
comply with §5.10.” A27:24; A2:17390. CO4 incorporates the rest of the
Contract (including §5.10), so the jury could not decide whether PHA breached
CO4 without considering §5.10—especially given Anderson’s interpretation of
2 CO4 says Zachry will “perform [] in accordance with [Zachry’s price] proposal dated July 11, 2005.” A21 at DX0052.004. The July 11 price proposal does not mention a frozen COW.
8 CO4 that turns on §5.10. Zachry says this charge error is harmless because the
jury found that PHA failed to comply with §5.10. Z.S.Br.35. But the jury’s note
shows the instruction confused the jury. CR59:17445.
II. The Damages Finding Fails as a Matter of Law.
Expert Draper provided the only evidence on damages, calculating costs for
his hypothetical “in the dry” schedule for completing the project and then
subtracting those costs from Zachry’s actual costs to complete the project “in the
wet.” But Draper’s hypothetical schedule and costs are unreliable and no
evidence. P.S.Br.28-32.
A. Draper assumed no time to remove 1,000 freeze pipes.
Draper admitted he scheduled no time for removing 1,000 freeze pipes
buried, sometimes at angles, 100 feet into the earthen berm. 53:30-32.
Question: In your schedule, you don’t include any time for removing the pipe, correct?
Draper: We have some float time in that schedule, so it would allow for that, yes. We didn’t explicitly schedule the pipe removal.
Question: It doesn’t appear anywhere in your schedule?
Draper: No…There wasn’t time to account for that.
Question: Thank you. And I know you have explanation and float and all that. And you don’t include any costs for removing that pipe either, do you?
Draper: No.
53:30.
9 Zachry says Draper’s schedule had “float” time to cover removing freeze
pipes. Z.S.Br.38. But freeze-wall expert Mageau said it would take two to four
weeks to remove the freeze pipes. DX276.015.3 Draper never testified that (1) he
had two to four weeks of float for freeze-pipe removal, or (2) how much float was
in his schedule. Draper acknowledged that his schedule was extremely tight.
53:33. Draper’s reliance on float does not make his methodology reliable.
Left with no answer to Draper’s unreliable hypothetical schedule, Zachry
makes up evidence when Zachry says:
“[T]he day after pipe-removal started, Zachry would begin the more time-consuming critical-path activity of berm removal where the pipes had been removed. After the first day, pipe and berm removal would proceed simultaneously.”
Z.S.Br.38 (citing 53:29-30). Thus, Zachry tells this Court that Draper testified
that, on day one, Zachry would remove pipe at a first location on the berm, and
then on day two, Zachry would remove pipe at a second location on the berm while
(on day two) Zachry concurrently dredged the berm at the first location—with the
process proceeding seriatim for day three and forward. But Draper did not say
anything like this, either on pages Zachry cites (53:29-30) or anywhere else.
Draper did say that if Zachry had to remove the freeze pipes, then Zachry would
3 Mageau’s schedule cannot make Draper’s schedule reliable (Z.S.Br.18) because, according to Mageau, Mageau’s schedule did not account for several known problems Zachry was facing. (30:106-08, 116-17).
10 “lose a day.” Id. But Draper did not testify to the “day one, day two” seriatim
procedure for pipe removal that Zachry’s brief describes.
B. Draper assumed no cost to remove freeze pipes.
Draper conceded he did not “include any costs for removing [the freeze]
pipe.” 53:30, 32. Even under Zachry’s conjured-up “evidence” of the “day one,
day two” seriatim procedure for pipe removal, Zachry would need to pay for
workers and equipment to remove 1,000 deeply-buried freeze pipes.
C. Draper assumed that Zachry could install sheet pile on October 7, 2005, but Zachry was not ready to begin sheet pile installation until November 15—40 days later than Draper assumed.
Zachry claims Anderson’s sheet pile testimony had to do with Mageau’s
alternative frozen COW (Z.S.Br.39), but regardless of which COW design was
used, Zachry would still need to install sheet pile (P.S.Br.31). Zachry disputes
PHA’s claim that, as of November 15, 2005, Zachry still was not ready to install
sheet pile. Z.S.Br.39. But Anderson, referring to “the status…on November 15,”
testified about “[e]verything else [that] has to be done for the cutoff wall,”
including “the sheet pile” that Zachry’s people still “weren’t ready for.” 14:101-
02. Zachry quotes Anderson’s testimony that sheet-pile installation would take “a
couple of days at best,” but Anderson was referring to “a couple of days” after
November 15. 14:102-03.
11 Zachry says Draper had float to allow “sheet-pile installation to be delayed
until November 15 or later.” Z.S.Br.39-40. But Zachry’s cites do not support that.
Draper never said his schedule had 40 days of float.4
D. Draper’s assumptions—contrary to undisputed facts—make his testimony no evidence.
The nature of construction scheduling makes it impossible to know how
Draper’s erroneous assumptions affected his “what-if” schedule and costs. Where,
as here, an expert’s assumptions are contrary to the undisputed facts, his opinion is
unreliable and no evidence. Burroughs Wellcome v. Crye, 907 S.W.2d 497, 499
(Tex.1995); Abraham v. Union Pac. R.R., 233 S.W.3d 13, 16–17 (Tex.App.-
Hous.[14th Dist.] 2007, pet. denied).
III. “But-for” Causation Fails as a Matter of Law for Lack of Expert Testimony.
To prove “but-for” causation, Zachry needed expert testimony that, given
the R&R response, there was no way for Zachry to continue working “in the
dry”—i.e., there was no other cutoff wall that could have been used to divide the
project and thus allow Zachry to continue working “in the dry.” Zachry’s evidence
shows (1) the R&R response precluded Zachry from using Zachry’s frozen-COW
4 On July 11, 2015, Zachry filed with this Court a pleading styled NOTICE OF INCORRECT CITATION, in which Zachry notes that its Supplemental Brief of Appellee erroneously cited to PX580, which was not admitted in evidence and is not in the record. 1:422; 3:420. Instead, Zachry now cites CR37:10572 and CR44:12675, but neither shows Draper having 40 days of float for sheet-pile installation.
12 design, and (2) Mageau’s alternative design would not work. However, there is no
expert testimony that, excluding Zachry’s frozen-COW design and Mageau’s
alternative, no other cutoff wall could have been used. Zachry argues that the R&R
response “demanded a non-frozen alternative” COW (Z.S.Br.16), but Zachry
adduced no expert evidence that a non-frozen alternative could not have been used.
Recognizing that it needed expert testimony (i.e., that no alternative cutoff
wall could have been used), Zachry misstates the testimony of its engineering
expert Lacy. Apparently Zachry hopes this Court will not read the 45 pages of
Lacy’s testimony that Zachry cites. Z.S.Br.40-41 (citing 42:59-104). Zachry says
“Lacy testified that Zachry had no viable alternative-cutoff wall to bifurcate the
project…and thus had to switch in the wet” (id.), but Lacy gave no such testimony.
Rather in the 45 pages Zachry cites, (1) Lacy testified that Mageau’s alternative
frozen-COW design would not work, but (2) Lacy never testified, in those 45
pages or elsewhere in the record, that there was no other alternative cutoff wall
that could have been used to divide the project so as to allow Zachry to continue
working “in the dry.”
Even if non-engineer Anderson said no other cutoff wall could have been
used, Anderson is not an expert and his testimony (were it that of an expert) is
conclusory and unreliable. When Anderson attempted to testify about “alternative”
cutoff wall designs, PHA objected that Anderson “does not have any qualifications
13 to give…expert engineering testimony.” 19:47. Zachry responded that Anderson
was not giving expert testimony but, rather, was just “talking about what his
thoughts were at the time” of the R&R response. 19:48.
Zachry’s damages expert Draper disclaimed any intent to testify on
causation. P.S.Br.33. Draper never opined that no other cutoff wall (other than
Zachry’s frozen-COW design or Mageau’s alternative) could have been used to
divide the project so as to allow Zachry to continue working “in the dry.”
Zachry says it had no time in the schedule to identify/build an alternative
COW (Z.S.Br.20), but no expert so testified; instead Zachry cites PHA witnesses
who said no such thing (Thiess, 40:4548; Vincent, 46:78-79, 90-92; McQueen,
28:22) and Anderson (19:38-50).5 Zachry had time to have Mageau prepare his
alternative frozen-COW design which Zachry says would not have worked, so
Zachry had time to identify/build an alternative COW that would have worked.
Also, Zachry could have asked for more time under §5.08. P.S.Br.49 (trial error in
excluding evidence that, faced with R&R response, Zachry never asked for more
time).
Zachry says it did not need an expert on causation. Z.S.Br.40. But whether
some other cutoff wall—other than Zachry’s frozen-COW design or Mageau’s
5 Zachry cites PHA’s Vincent’s testimony (46:83) that Vincent was unaware of whether a sketch for an alternative wall existed. Z.S.Br.17. Neither Thiess, Vincent nor McQueen testified that no other cutoff wall could have been used.
14 alternative—could have been used is not a matter about which the lay jury would
have understanding.
Causation experts have to rule out alternative causes—such as the possibility
that Zachry switched to working “in the wet” because Zachry believed, at the time,
that it could finish the project faster/cheaper “in the wet.”6 Such an alternative
cause may explain why Zachry failed to give PHA’s chief engineer the required
§5.42 written notice of Zachry’s contention that the R&R response breached the
Contract.
IV. As a Matter of Law, Zachry Failed to Satisfy §5.42’s Condition Precedent of Giving PHA’s Chief Engineer Written Notice of Zachry’s Contention That the R&R Response Was Contrary to the Contract.
A. As Zachry does not deny, §5.42 is a condition precedent.
Contract §5.42 requires Zachry to give immediate (or at least five days’)
written notice to PHA’s Chief Engineer “[i]f [Zachry] believes that any
interpretation of the Contract…by the Inspectors…or other agents of [PHA]
constitutes a change to the Contract.” A15:§5.42. And §5.42 states (in language
Zachry nowhere quotes in its brief): “Any notice not timely made by [Zachry]
shall be deemed a waiver by [Zachry] of its right to assert a claim in respect of
[the] interpretation.” Id. The R&R response was issued by CH2M’s Thiess who,
6 PHA’s expert Hoshino said Zachry’s real-time schedules—which did not show Zachry meeting Contract deadlines—did not tell the true story, and Zachry was further behind than it admitted. 62:49-50.
15 according to Special Condition 12(b), is PHA’s Inspector. A16. Section 5.42
creates a condition precedent. Cajun Constructors v. Velasco Drainage Dist., 380
S.W.3d 819, 822 (Tex.App.-Hous.[14th Dist.] 2012, pet. denied); Arbor Windsor
Court v. Weekley Homes, 2015 WL 1245548, at *1 (Tex.App.-Hous.[14th Dist.]
2015, no pet. h.).
B. Unambiguously, §5.42 applies to Zachry’s contention that the R&R response breached the Contract.
Zachry argues that §5.42 notice—that PHA Inspector’s interpretation would
“change” (deviate from) the Contract—does not apply if PHA Inspector’s
interpretation would “breach” the Contract. Z.S.Br.46. But a disputed
interpretation that would “change” (deviate from) the Contract subsumes an
interpretation that would “breach” (deviate from) the Contract. Zachry says §5.42
is ambiguous as to whether a “change” to the Contract subsumes a “breach” of the
Contract (Z.S.Br.48, 54), but §5.42 unambiguously applies to Zachry’s contention
that the R&R response was a breach.
Zachry prevailed on the trial court to invalidate §5.42 notice—as a condition
precedent to Zachry’s claim for breach—based on CPRC §16.071(a), which states:
“A contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.”
16 Under American Airlines Employees v. Martin, 29 S.W.3d 86 (Tex.2000), a
condition precedent requiring notice of a damages claim is not invalidated by
§16.071 if that notice has an additional purpose—i.e., a purpose other than giving
notice of a damages claim. CPRC §16.071 does not invalidate §5.42 because,
while §5.42 does create a condition precedent requiring notice of Zachry’s
contention of breach, §5.42 notice has another purpose as well—giving PHA’s
Chief Engineer the opportunity to resolve the dispute before damages accrue.7
Zachry argues that if §5.42 applies, Zachry could never recover breach-of-
contract damages because §5.42 says the Chief Engineer’s determination,
following his investigation, is “final and conclusive.” Z.S.Br.48. But such
determinations by the Chief Engineer are subject to judicial review. Texas Dep’t
of Transp. v. Jones Bros., 92 S.W.3d 477, 481-82 (Tex.2002).
C. Zachry is erroneously trying to invalidate §5.42 notice by relying on §5.41’s change order requirement and Shintech.
Because §5.42 so obviously applies to Zachry’s claim of breach, Zachry
wants to argue about another provision, §5.41, which requires Zachry to obtain a
change order before recovering for changes in the work. Quoting §5.41’s language
concerning changes “within the general scope of the Work,” Zachry erroneously
7 Zachry says the “radical-change” doctrine invalidates §5.42 because a “radical change” can be a breach. Z.S.Br.51-52. But the issue is whether the radical-change doctrine invalidates §5.42’s notice requirement, not whether a radical change is a breach. Extending the radical change rule to invalidate a contractually-required notice like §5.42 would lead to absurd results. P.S.Br.47.
17 attempts to limit §5.42’s notice requirement. Z.S.Br.45. But the language of §5.42
talks about “a change to the Contract”—not a change “within the general scope of
the Work.” A15:§5.42. Zachry is trying to re-write §5.42.
Zachry says §5.42 does “not apply to claims [that] the owner breached,”
citing Shintech v. Group Constructors, 688 S.W.2d 144 (Tex.App.-Hous[14th
Dist.] 1985, no writ), and Board of Regents v. S.&G Constr., 529 S.W.2d 90
(Tex.Civ.App.-Austin 1975, writ ref’d n.r.e.). Z.S.Br.46. But in Shintech the court
did not hold that a notice provision is inapplicable to a claim that the owner
breached; rather, the court held in Shintech that the owner had “breached the
contract in ways unrelated to the notice requirements in the contract.” Shintech at
151. Board of Regents did not involve a notice provision. North Harris County
Junior College Dist. v. Fleetwood Construction, 604 S.W.2d 247, 253-54
(Tex.Civ.App.-Hous.[14th Dist.] 1980, writ ref’d n.r.e.) (upholding finding “that
Fleetwood gave adequate notice” required by contract).
In all these cases—Shintech, Board of Regents, and Fleetwood—the Court
of Appeals invalidated a provision, like §5.41 in PHA’s contract, requiring that the
contractor obtain a change order before contractor can recover damages for
owner’s breach. West v. Triple B. Services, 264 S.W.3d 440, 449-50 (Tex.App.-
Hous.[14th Dist.] 2008, no writ) (at headnote 14, citing Shintech and rejecting
18 owner’s argument that contractor failed to comply with contractual provision
requiring contractor to obtain extension of time). Z.S.Br.49.
However, the Supreme Court clarified Shintech when the Supreme Court
reviewed the court of appeals’ application of Shintech in Green v. Solis, 951
S.W.2d 384, 389 (Tex.1997), reviewing Argee v. Solis, 932 S.W.2d 39, 46-47
(Tex.App.-Beaumont 1995). The Court of Appeals in Argee v. Solis held that,
under Shintech, the general contractor’s breach invalidated the contractual
requirement that the subcontractor provide a release of lien. In reviewing that
Court of Appeals holding, the Supreme Court in Green held that the Court of
Appeals’ Shintech reasoning is correct only if, under the law of excuse, the general
contractor’s breach excused the subcontractor from complying with the contractual
obligation to provide the release of lien. The Supreme Court cited Hanks v. GAB
Bus. Servs., 644 S.W.2d 707, 708 (Tex.1982) on the law of excuse. Green, 951
S.W.2d. at 389.
Under the law of “excuse,” a party is excused only if the breaching party
breached a contractual covenant that is mutually dependent with the contractual
covenant that the non-breaching party seeks to be excused from performing.
Hanks, supra. And excuse law provides that a party is not excused from complying
with its contractual obligations unless, in the face of the other party’s breach, the
party seeking to be excused did not demand that the breaching party continue to
19 perform the contract. Id. Thus, when the owner breaches, the contractor is not
excused from complying with the contractor’s obligations where, as here, the
contractor (Zachry) continues to demand that the owner (PHA) perform the
owner’s contractual obligations. Green (citing Hanks); P.S.Br.48-49; Z.S.Br.49-
50.
Zachry claims that Green distinguishes between excusing compliance with
procedural obligations as opposed to substantive obligations. Z.S.Br.49. But
Green makes no such distinction when the Supreme Court states that a Shintech
analysis must comply with the law of excuse.
Importantly, Shintech does not invalidate a contractual requirement that the
contractor give notice that the owner has breached—as opposed to a contractual
requirement that contractor obtain a change order from owner. No public policy
could support using Shintech to invalidate a contractual requirement that contractor
give notice that owner has breached because invalidating such a notice requirement
would deprive the owner of the opportunity to resolve the dispute before damages
accrue. Good public policy underlies Tennessee Gas Pipeline v. Technip USA,
2008 WL 3876141, at *23 n.11 (Tex.App.-Hous.[1st Dist.] 2008, pet. denied), in
which the court refused to apply Shintech to invalidate a contractual provision
requiring notice that the other party has breached. Z.S.Br.50.
20 D. Zachry erroneously says it proved substantial compliance with §5.42’s notice requirement.
As Justice Christopher recognized, it is undisputed that Zachry did not give
§5.42 notice to PHA’s Chief Engineer. OA:17:5-6. Anderson testified Zachry did
not give the notice (16:47), and Zachry does not even claim to this Court that it did
give PHA’s Chief Engineer the required §5.42 notice.
Rather, Zachry tells this Court that it proved substantial compliance with
§5.42 based on oral notice to a lower-level PHA engineer and Thiess.8 Z.S.Br.53.
But such notice is not substantial compliance as a matter of law; it does not satisfy
essential elements of §5.42 notice—form of notice (written) and recipient (PHA’s
Chief Engineer) designed to bring the dispute to the attention of PHA’s top
decision-maker. P.S.Br.44-45. The evidence does not even raise a fact issue on
substantial compliance. The Supreme Court said “Zachry protested” the R&R
response, but that Court was not addressing §5.42 notice. Z.S.Br.16.
8 Thiess had no authority to receive §5.42 notice. Infra, p.33-35. Under Contract §1.07, PHA’s Chief Engineer is the only PHA employee authorized to “resolve disputes.” A15:§1.07. Zachry would have this Court rule that the very PHA employees whose conduct gave rise to the dispute, but who have no authority to resolve the dispute, are permissible recipients of notice of the dispute. Id.; Z.S.Br.53. Zachry’s argument is inconsistent with policies underlying governmental immunity and statutory limitations on government procurement. P.S.Br.37-39, 58-60.
21 E. The parties tried the issue whether Zachry gave §5.42 notice.
Whether Zachry gave §5.42 notice was tried because the court charged the
jury four times during trial, including once in the charge, that the jury could/may
consider §5.42 for determining a party’s state of mind. CR59:17392; 16:56;
49:112: 68:99. Zachry’s state of mind was important on causation, i.e., whether
the real reason for Zachry’s switch to working “in the wet” was not the R&R
response but rather Zachry’s then-belief that it could finish faster/cheaper working
“in the wet.” Had Zachry really switched to working “in the wet” because of the
R&R response, Zachry would have given §5.42 notice of its contention that the
R&R response breached the Contract.
And §5.42 notice was also important to PHA’s state of mind for the
arbitrary/capricious and bad-faith “exceptions” to the NDFD provision—e.g.,
whether PHA was arbitrary/capricious in failing to withdraw the R&R response as
CH2M’s investigation into the concern underlying the R&R response continued.
A2:17392. Zachry’s failure to give §5.42 notice misled PHA into believing that
Zachry did not consider the R&R response to be that significant—certainly not so
significant as to cause Zachry to switch to working “in the wet.”
Zachry says a new trial is required so a jury can once again “determine
whether Zachry substantially complied with §5.42.” Z.S.Br. 54. But the jury in
22 the trial court was already charged (four times) on §5.42 and, as explained above,
the evidence does not even raise a fact issue on substantial compliance.
Relying on insurance law, Zachry argues that a new trial is required so that a
jury can determine whether PHA was harmed/prejudiced by Zachry’s failure to
give §5.42 notice. Z.S.Br.54. Coastal Ref. & Mktg. v. U.S. Fid. & Guar., 218
S.W.3d 279, 284-86 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied)
(harm/prejudice requirement is an insurance rule). But even if insurance law
applied to construction contracts (and it does not), as a matter of law PHA was
prejudiced by Zachry’s failure to give §5.42 notice because PHA’s Chief Engineer
was deprived of the opportunity to resolve the dispute before any damages
accrued—i.e., the very opportunity that §5.42 is designed to provide.
V. PHA is Entitled to Segregated Attorneys’ Fees the Jury Found for Zachry’s R&R Claim.
Contract §3.10 states: “[i]f [Zachry] brings any claim against [PHA] and
[Zachry] does not prevail [on] such claim, [Zachry] shall be liable for all attorneys’
fees incurred by [PHA] as a result of such claim.” A15:§3.10. Zachry will not
prevail on its R&R claim if this Court renders judgment against Zachry on that
claim.
Zachry says that its LD claim, its claim for amounts withheld for dredging
(infra, note 1), and its R&R claim are all one “claim.” Z.S.Br.65. But Zachry
separately pleaded, and the court separately submitted, these three different claims
23 for three different amounts of compensation. Zachry says the judgment “awarded
Zachry one lump sum.” Id. But a judgment could state plaintiff’s recovery as a
single amount that comprises multiple claims.
Zachry says the “cases defining ‘claim’ as a ‘demand for compensation’ do
not address whether a claim can encompass multiple theories.” Z.S.Br.66. PHA
does not deny that each “demand for compensation” (i.e., each “claim”) may be
supported by multiple theories. Zachry’s R&R claim is one “demand for
compensation” (i.e., one “claim”) based on two different theories (breach of §5.10
and breach of CO4).
Even if Zachry were correct (and it is not) in arguing that its three claims
constitute one claim, PHA would still be entitled to attorneys’ fees found by the
jury because, if this Court renders against Zachry’s R&R claim, PHA will prevail
on the main issue in the case. 4901 Main v. TAS Auto., 187 S.W.3d 627, 634
(Tex.App.-Hous.[14th Dist.] 2006, no pet.); P.S.Br.62-63. Zachry says the “main
issue” analysis applies only if “neither party obtains relief.” Z.S.Br.67. Zachry is
wrong. Chevron Phillips Chem. v. Kingwood Crossroads, 346 S.W.3d 37, 72
(Tex.App.-Hous.[14th Dist.] 2011, pet. denied) (alternative holding).
VI. Invalid “Pass-Through” Claim: Zachry Recovered $8.578 Million in Costs Incurred Not by Zachry, but by Another Entity (Question 5).
The jury found that, out of Zachry’s R&R damages, $8.578 million
represented costs incurred not by Zachry, but rather by a new Zachry subsidiary
24 that did not exist until years after PHA’s alleged breach. A2:17395. Zachry
claims it can recover this $8.578 million on a “pass-through” claim under
Interstate Contracting v. City of Dallas, 135 S.W.3d 605, 619 (Tex.2004), but
Zachry is misreading Interstate. Z.S.Br.67-70; P.S.Br.64-68.
A. A pass-through claim requires that the owner’s breach caused the general contractor to breach.
Zachry says Interstate does not require, for a pass-through claim, that the
owner’s breach caused the general contractor (Zachry) to breach its contract with
the subcontractor (Zachry’s new subsidiary). But that is exactly what Interstate
does require when Interstate says: to prove a pass-through claim, the general must
prove that it was “liable to the subcontractor for damages sustained by the
subcontractor.” Id. The only way that the general is “liable to the subcontractor
for damages sustained by the subcontractor” is because the general breached its
contract with the subcontractor.
Because Zachry’s Sub did not exist until after PHA’s alleged breach, any
breach by PHA could not have caused Zachry to breach its contract with the Sub.
Rather, any losses the Sub incurred resulted from a bad bargain the Sub struck with
Zachry when, long after PHA’s alleged breach, the Sub volunteered to work “in the
wet” for compensation Zachry agreed to pay the Sub.
25 Zachry erroneously contends that Interstate recognizes a valid pass-through
claim where the general hires the sub after the owner’s breach. For that
proposition Zachry quotes Interstate:
“Otherwise, the owner could receive a windfall because the subcontractor lacked privity with the owner and the contractor lacked standing to sue the owner for damages suffered by the subcontractor.”
Id. at 615-16. But this language provides the rationale for a proper pass-through
claim—i.e., that, because the owner has no contractual privity with the sub, the sub
would have no breach-of-contract claim against the owner, and thus, absent a pass-
through claim, the owner would get a windfall. Nothing in Interstate’s language
allows a pass-through claim where (1) the sub did not exist when the owner
breached, and therefore (2) the owner’s breach did not cause the general to breach
its contract with the sub.
Zachry says that, if this Court does not recognize a pass-through claim here,
a general contractor will never be able to hire a sub after the owner’s breach. But
that is a false argument. The general can hire a sub after the owner’s breach, but to
preserve a damages claim against the owner, (1) the general must pay the sub fair
compensation, and then (2) the general recoups, from the owner, as the general’s
damages, whatever damages the general sustains, including payments the general
makes to the sub.
26 B. Zachry misreads Interstate concerning when the burden of proof shifts.
To prove a pass-through claim, Zachry must prove that, due to PHA’s
breach, Zachry incurred breach-of-contract damages to its sub. Zachry, misreading
Interstate, argues that Zachry’s burden of proof somehow shifted to PHA. Zachry
quotes Interstate:
“If the owner disputes that this requirement [of continuing liability] has been met, it [the owner] bears the burden of proving, as an affirmative defense, that the pass-through arrangement negates the contractor’s responsibility for the costs incurred by the subcontractor.”
135 S.W.3d at 619. This Interstate language applies where (unlike here) the owner
claims that the pass-through agreement—entered into by general and sub to allow
the general to bring the sub’s damages claim—“negate[d]” the general’s breach-of-
contract liability to the sub. The quoted language does not abrogate the general’s
initial burden to prove a pass-through claim by proving: (1) owner’s breach caused
general to breach its contract with sub, and (2) the amount of general’s breach-of-
contract liability to sub.
C. Zachry misreads the Master Services Agreement (“MSA”).
Zachry argues that MSA, Zachry’s contract with the Sub (A23), requires
Zachry to compensate the Sub for all the Sub’s costs. Z.S.Br.68. But Zachry
ignores: (1) MSA collectively covers six construction contracts, including PHA’s
Contract, and (2) MSA’s §3.2 “Payment Limitation” caps Zachry’s liability to its
27 Sub, for all six contracts collectively, at the total amount of payments that Zachry
receives collectively from all six owners on all six contracts. Because there is no
evidence concerning reimbursable costs or payments received on the other five
contracts, there is no way to know how much, if any, the Sub failed to recoup
(under MSA) for PHA’s contract. Zachry failed to prove how much, under MSA,
Zachry owed the Sub for the PHA contract.
VII. Erroneous Exclusion of PHA’s $8+ Million in Harms/Losses.
Zachry prevailed on the court to exclude evidence that Zachry caused PHA
$8+ million in harms/losses—harms/losses PHA disclosed on July 24, 2009, three
months before trial, in response to Zachry’s June 11, 2009 fourth set of
interrogatories. A12:1-6.
A. PHA’s interrogatory response was timely.
The initial docket control order, in a provision never modified, states: “[t]he
parties may conduct discovery beyond [the discovery] deadline by agreement.”
SCR1:11-12. That is what happened: (1) Zachry propounded Zachry’s June 11,
2009 interrogatory asking PHA to quantify all PHA’s harms/losses; and (2) PHA
responded on July 24, 2009, timely complying with Zachry’s request by fully
quantifying PHA’s harms/losses. P.S.Br.52-53.
Zachry says PHA did not timely disclose that PHA intended to use its
harms/losses as an offset defense (Z.S.Br.56-57), but PHA’s “Theories Disclosure”
28 timely disclosed that “Zachry’s claims” for “any alleged breach…of the Contract”
are “barred by the defense of offset” (P.S.Br.51).
B. Zachry’s interrogatory and PHA’s response were not limited to disclosing PHA’s harms/losses for proportionality of LDs.
The trial court had no discretion to misread, as a matter of law, discovery
and erred, as a matter of law, in holding that Zachry’s interrogatory and PHA’s
response limited the purpose of quantifying PHA’s harms/losses only to showing
that PHA’s actual damages were proportional to contractual liquidated damages
(“LDs”). Z.S.Br.55-56.
Zachry’s interrogatory broadly asked PHA (1) to “describe each and every
way that You contend You have been harmed by Zachry in regards to [Zachry’s]
performance of the Contract,” and (2) to quantify “the amount of damages
sustained for each of the claimed harms You allege resulted from Zachry’s alleged
misconduct.” A12. Neither Zachry’s interrogatory nor PHA’s response was
limited to harms/losses for delay—the only type of harm/losses that could relate to
proportionality of LDs. See A15:§5.05 (LDs for delay).
C. Excluding PHA’s $8+ million in harms/losses was harmful.
PHA prevailed with the jury on the two PHA harms/losses that were tried:
(1) Zachry’s claim for $600,000 that PHA withheld for Zachry’s defective
dredging, and (2) PHA’s defense seeking to offset, against Zachry’s claim for
$2.36 million that PHA withheld as LDs, $970,000 for Zachry’s defective work on
29 the Wharf’s fenders. A2:17402, 17405. A new trial on Zachry’s LD claim is
required because the excluded PHA $8+ million in harms/losses could have
provided an additional offset. 9
VIII. Zachry Opened the Door to PHA’s Harms/Losses.
Zachry says it “never opened the door” (Z.S.Br.58-59), but the trial court
could not have abused its discretion in holding (as it did) that Zachry did open the
door to previously-excluded evidence of PHA’s harms/losses because
(1) Zachry adduced evidence that PHA’s Vincent promised that PHA
would not charge LDs unless PHA was harmed; and
(2) Zachry argued to the jury, and Anderson testified, that PHA’s later
decision to charge LDs, given Vincent’s promise, constituted bad faith
and arbitrary/capricious conduct for NDFD exceptions.
A10; P.S. Br.54-56.
Zachry says “[a]t most Zachry opened the door to evidence the ship was not
able to dock on arrival.” Z.S.Br.59. But the court’s open-the-door order rejected
that view and held that Zachry opened the door to “evidence of reasonably
anticipated actual harms.” A10. Zachry cites the Supreme Court’s recitation of
facts (Z.S.Br.10-11), but the Supreme Court was not addressing the open-the-door
issue/order.
9 If this Court orders a new trial on Zachry’s R&R claim, PHA will seek to try its $8+ million offset against Zachry’s R&R damages.
30 The trial court held that Zachry opened the door and left a misimpression
with the jury as to whether PHA had sustained harms/losses. But then, citing Rule
403, the court excluded the very evidence that the court’s open-the-door order held
was necessary to correct the misimpression Zachry had created. A10. Even if
admitting the previously-excluded harms/losses evidence would prejudice Zachry,
such prejudice would not be “unfair” under Rule 403; any prejudice was of
Zachry’s own making given that Zachry opened the door.
A. Zachry misunderstands Horizon/CMS Healthcare v. Auld, 34 S.W.3d 887, 905-07 (Tex.2000) and misrelies on Hayden v. State, 296 S.W.3d 549, 554 (Tex.Crim.App. 2009).
Auld requires admission of the evidence necessary to correct the
misimpression created by the party opening the door. Zachry says that Auld does
not address Rule 403. Z.S.Br.59. But where, as here, the party opening the door
creates a misimpression on a central issue, the Rule 403 inquiry could only have
one result—i.e., admit evidence necessary to correct the misimpression and prevent
a skewed trial. Zachry cites Hayden, but in Hayden, the misimpression was created
on a “collateral issue” and, by opening the door, the party did not “create[] a false
impression” on any issue that is “directly relevant to the offense charged” or “the
appropriate sentence to impose.” 296 S.W.3d at 554-55.
31 B. The court’s erroneous exclusion of the open-the-door evidence was harmful.
The open-the-door evidence went to two of four NDFD exceptions—bad
faith and arbitrary/capricious conduct. As explained below, charge error tainted
the third NDFD exception, fraud. Under Crown Life Ins. v. Casteel, 22 S.W.3d
378, 381 (Tex.2000), harm is presumed if error tainted any one of the NDFD
exceptions. P.S.Br.57-58.
IX. Charge Error Skewed the Trial on the NDFD Exception for Fraud.
Three Supreme Court cases hold that “[a] promise to do an act in the future
is actionable fraud when made with the intention, design and purpose of
deceiving.” P.S.Br.56-58. Zachry argues the Supreme Court, in its opinion
remanding to this Court, “approved” the reckless fraud instruction. Z.S.Br.60. But
while the Supreme Court said the charge correctly described the owner’s
misconduct giving rise to NDFD exceptions, the Court did not address PHA’s
challenge to the “reckless” fraud charge instruction. Surely, if the Supreme Court
were going to overturn its prior jurisprudence on this recklessness question, that
Court would have addressed the issue.
Zachry misunderstands Casteel when Zachry argues for harmless error.
Z.S.Br.61. Under Casteel, given a charge objection, the error is presumed harmful
because there is no way to know whether the jury based a fraud determination on
32 recklessness. Casteel, 22 S.W.3d at 381. And, the difference in culpability,
between recklessness and intentional misconduct, is significant. Z.S.Br.61.
X. The Erroneous Apparent Authority Instruction Skewed the Trial.
A. The Contract Negated Apparent Authority.
As a matter of law, “apparent authority is not available where the other
contracting party has notice of the limitations of the agent’s power.” Douglass v.
Panama, 504 S.W.2d 776, 779 (Tex.1974); Humble Nat. Bank v. DCV, 933
S.W.2d 224, 237-38 (Tex.App.-Hous. [14th Dist.] 1996, writ denied); P.S.Br.58-
60.
Zachry was aware of limitations on Thiess’s authority because Contract
Special Condition 12(d) said Thiess’s company CH2M “does not have the
authority of [PHA’s] Chief Engineer” and “has no authority to…change any of the
terms and conditions of the Contract.” A16. The erroneous apparent-authority
instruction misled the jury into believing that Thiess had apparent authority to do
what Special Condition 12(d) expressly denies him authority to do—i.e., stand in
place of PHA’s Chief Engineer to receive §5.42 notice or direct additional work.
P.S.Br.58-59.
Zachry cites Equitable Life v. Ellis, 147 S.W. 1152, 1158 (Tex.1912)
(Z.S.Br.62), but Equitable dealt with whether the employee, Brophy, had actual
authority whereas Douglass dealt with apparent authority. Zachry cites Paramount
33 National Life v. Williams, 772 S.W.2d 255, 261-62 (Tex. App.—Hous.[14th Dist.]
1989, writ denied), where it was “unreasonable to expect Mrs. Williams [the
unsophisticated, not-well-educated insured] to comprehend the limit of the
authority of the agent.” Id. at 262. But sophisticated Zachry could have no
problem comprehending Special Condition 12(d) limiting Thiess’ authority.
Zachry says the Construction Management Plan (CMP) abrogated Special
Condition 12(d)’s limits on Thiess authority. Z.S.Br.62. But CMP says that
CH2M has the authority “normally attributed” to a construction manager and that
“delegated to the Inspector by the contract documents,” which include Special
Condition 12(d). CMP says CH2M:
“will not have authority to make changes to any provisions of the
[Contract] in regard to costs[]; time of completion[]; or quality of in-
place work;” and
“will provide no direction related to [Zachry’s] construction means,
methods.”
ZA39:§2.2.
B. Additionally, Zachry did not plead apparent authority.
Zachry pleaded that PHA “charged and designated” CH2M as an agent, but
that language pleaded actual authority and was not “sufficient to present the issue
of apparent authority as contradistinguished from actual authority.” Cont’l Oil v.
34 Baxter, 59 S.W.2d 463, 467 (Tex.Civ.App.-Eastland 1933, no writ). Even broadly
construed, Zachry’s pleading did not give fair notice that Zachry was pleading
apparent authority, as distinguished from actual authority. The court recognized as
much in holding PHA would have been “surprised and prejudiced” by a trial
amendment pleading apparent authority. The court said it “could easily be wrong”
when it held Zachry had pleaded apparent authority. 65:5.
Respectfully submitted,
/s/ Marie R. Yeates David E. Keltner Marie R. Yeates State Bar No. 11249500 State Bar No. 22150700 KELLY HART & HALLMAN LLP Catherine B. Smith 201 Main Street, Suite 2500 State Bar No. 03319970 Fort Worth, Texas 76102 Michael A. Heidler Phone: 817.878.3560 State Bar No. 24059921 Fax: 817.878.9760 VINSON & ELKINS L.L.P. Email: david.keltner@kellyhart.com 1001 Fannin, Suite 2500 Houston, Texas 77002 David H. Brown Phone: 713.758.4576 State Bar No. 03109200 Fax: 713.615.5544 BROWN & KORNEGAY LLP Email: myeates@velaw.com 2777 Allen Parkway, Suite 977 Houston, Texas 77019 Karen L.T. White Phone: 713.528.3703 State Bar No. 20274500 Fax: 713.528.3701 KAREN L.T. WHITE, P.C. Email: dbrown@bkllp.com 1415 S. Voss, Suite 110-539 Houston, Texas 77057 Phone: 832.646.4667 Email: karen@kltwpc.com
35 Lawrence J. Fossi Bill Sims State Bar No. 07280650 State Bar No. 18429500 FOSSI & JEWELL LLP VINSON & ELKINS L.L.P. 4203 Yoakum Blvd., Suite 100 2001 Ross Avenue, Suite 3700 Houston, Texas 77006 Dallas, Texas 75201-2975 Phone: 713.529.4000 Phone: 214.220.7703 Fax: 713.529.4094 Fax: 214.999.7703 Email: lfossi@fossijewell.com Email: bsims@velaw.com
Attorneys for Appellant • The Port of Houston Authority of Harris County, Texas
36 CERTIFICATE OF COMPLIANCE Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I hereby certify that
this brief contains 7,496 words, excluding the words not included in the word
count pursuant to Texas Rule of Appellate Procedure 9.4(i)(1). This is a computer-
generated document created in Microsoft Word, using 14-point typeface for all
text. In making this certificate of compliance, I am relying on the word count
provided by the software used to prepare the document.
/s/ Michael A. Heidler Michael A. Heidler
37 CERTIFICATE OF SERVICE I certify that, on July 13, 2015, the foregoing document was served on all
counsel listed below via the designated service method(s):
Brandon T. Allen [e-service] Robin C. Gibbs [certified mail, return State Bar No. 24009353 receipt requested, and e-service] ballen@reynoldsfrizzell.com State Bar No. 0785300 REYNOLDS, FRIZZEL, BLACK, DOYLE, rgibbs@gibbsbruns.com ALLEN & OLDHAM, LLP Jennifer Horan Greer [e-service] 1100 Louisiana, Suite 3500 State Bar No. 00785611 Houston, Texas 77002 jgreer@gibbsbruns.com Attorney for Appellee, Zachry Sydney G. Ballesteros [e-service] Construction Corporation State Bar No. 24036180 sballesteros@gibbsbruns.com Michael R. Absmeier [e-service] State Bar No. 24050195 mabsmeier@gibbsbruns.com Amanda B. Nathan [certified mail, return receipt requested, and e-mail] State Bar No. 00784662 anathan@gibbsbruns.com GIBBS & BRUNS, LLP 1100 Louisiana, Suite 5300 Houston, Texas 77002 Attorneys for Appellee, Zachry Construction Corporation
/s/ Michael A. Heidler Michael A. Heidler
the Port of Houston Authority of Harris County, Texas v. Zachry Construction Corporation (the Port of Houston Authority of Harris County, Texas v. Zachry Construction Corporation) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.