City of Galveston, Dorothy Palumbo, City Attorney and Sterling W. Patrick, Director of Grants and Housing v. CDM Smith, Inc. ( 2015 )

ACCEPTED
14-14-00294-cv
FOURTEENTH COURT OF APPEALS
HOUSTON, TEXAS
1/7/2015 7:00:06 PM
CHRISTOPHER PRINE
CLERK
Case No. 14-14-00294-CV
_____________________________________________________________
IN THE FOURTEENTH COURT OF APPEALS FILED IN
14th COURT OF APPEALS
HOUSTON, TEXAS HOUSTON, TEXAS
_____________________________________________________________
1/7/2015 7:00:06 PM
CHRISTOPHER A. PRINE
CITY OF GALVESTON AND STERLING PATRICK,Clerk
DIRECTOR OF THE CITY GRANTS AND HOUSING
DEPARTMENT, AND DOROTHY PALUMBO, GALVESTON CITY
ATTORNEY, IN THEIR OFFICIAL CAPACITIES,
Appellants,
v.
CDM SMITH INC.,
Appellee.
_____________________________________________________________
ON APPEAL FROM THE
th
56 DISTRICT COURT, GALVESTON COUNTY, TEXAS
Cause No. 13-CV-0844
____________________________________________________________
UNOPPOSED SUPPLEMENT TO APPELLEE’S
BRIEF AND APPENDIX OF APPELLEE
_____________________________________________________________
Roland Garcia, Esq.
State Bar 07645250
Jennifer Tomsen, Esq.
GREENBERG TRAURIG, LLP
1000 Louisiana Street, Suite 1700
Houston, Texas 77002
Telephone (713) 374-3500, Facsimile (713) 374-3505
garciar@gtlaw.com
Andrew Mytelka, Esq.
Joseph Russo, Esq.
GREER, HERZ & ADAMS, LLP
1 Moody Plaza, Floor 18
Galveston, Texas 77550
Telephone: (409) 797-3200
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TO THE HONORABLE COURT OF APPEALS:
At oral argument on December 4, 2014, Appellee CDM Smith urged that the
Court should uphold the lower court’s ruling that the City of Galveston was not
immune to CDM Smith’s claim for interest under the Prompt Payment Act, among
other arguments. In support, CDM Smith had recently located legislative history
to the 2011 amendments to Chapter 271, specifically House Bill 345 from the 2011
Regular Session of the Legislature, which proposed the revision to Section
271.153(a) of the Texas Local Government Code. See Act of June 17, 2011, 82nd
Leg., R.S., ch. 226, §271.153, 2011 Tex. Sess. Law Serv. 809 (courtesy copy
attached). These are publicly available records that CDM Smith intended to show
the Panel on the Elmo during oral arguments, but the Elmo was not available as
requested. CDM Smith understood the Panel to grant leave to supplement the
record with this authority. (If not, then leave is hereby requested to consider this
supplemental submission, and counsel for the City of Galveston is unopposed to
this submission.) Accordingly, CDM Smith hereby offers this supplement to its
previously filed Appellee’s Brief and Appendix.
Section 271.152 waives immunity to suit for municipalities that enter
contracts for services under that subchapter. House Bill 345 proposed amending
Section 271.153(a) by the addition of the text in bold below:
Section 1. Section 271.153(a), Local Government Code, is amended to
read as follows:
2
HOU 408242630v6
(a) The total amount of money awarded in an adjudication brought
against a local governmental entity for breach of a contract subject to
this subchapter is limited to the following:
....
(4) interest as allowed by law, including interest as
calculated under Chapter 2251, Government Code [the
Prompt Payment Act].
Id. (parenthetical added). The amendment would apply to adjudications
“commenced on or after the effective date of this Act.” See Exhibit A, Section 2.
The amendment reflected in House Bill 345 was adopted and took effect on
September 1, 2011. See Tex. Local Gov’t Code § 271.153; Appellee’s Brief, Tab
B (courtesy copy attached).
Chapter 2251 of the Government Code is the Prompt Payment Act.
Accordingly, the Legislature acted in 2011 to specifically reference interest under
the Prompt Payment Act as allowable damages. Because Section 271.153 already
made reference to “interest as allowed by law,” the Legislature’s amendment to
specifically reference interest calculated under the Prompt Payment Act can only
mean that where immunity is waived under Section 271.152, immunity is
necessarily waived also for the purposes of an award of Prompt Payment Act
interest on the contract.
The City relied on McMahon Contracting, L.P. v. City of Carrollton, 277
S.W.3d 458 (Tex. App.—Dallas 2009, pet. denied) to oppose waiver of immunity
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HOU 408242630v6
for interest under the Prompt Pay Act. CDM Smith briefed reasons why McMahon
does not apply here, and was wrongly decided. Whether or not McMahon was
correctly decided, the 2011 amendment to Section 271.153 renders McMahon and
the cases following McMahon outdated and no longer applicable, because, among
other reasons previously briefed, they were decided before the Legislature
amended Section 271.153 to expressly permit Prompt Payment Act interest as
allowable damages, i.e., as part of the damages “as allowed by law.” See Section
271.153(a)(4). See also McMahon Contracting, L.P. v. City of Carrollton, 277
S.W.3d 458, 465 (Tex. App.—Dallas 2009, pet. denied); Harris Co. Flood Control
Dist. v. Great American Ins. Co., 309 S.W.3d 614, 617-618 (Tex. App.—Houston
[14th Dist.] 2010, no pet.). City of Midland v. M.T.D. Environmental, L.L.P. was
decided after the 2011 amendment but is also not applicable, not only because it
relied on the cases following McMahon, but because the 2011 amendment
referencing the Prompt Payment Act applied to adjudications commenced after the
Act’s effective date. 429 S.W.3d 800, 806 (Tex. App.—Eastland 2014, no pet.).1
The litigation here was commenced in 2013.
CDM Smith has not located any other case on point post the 2011 legislative
amendments. The Panel’s decision in this case should clarify the state of the law
1
The case does not reference the date that suit was commenced, but the court decided that the
city was immune from Prompt Payment Act claims because the 2011 amendment “applied
prospectively only,” suggesting a litigation commencement date prior to the effective date of the
amendment. City of Midland, 429 S.W.3d at 806.
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HOU 408242630v6
on the Prompt Payment Act, and give effect to the Texas Legislature’s 2011
amendment to Section 271.153, i.e. to allow recovery of Prompt Payment Act
interest from a local government entity. 2
This Supplement is filed as soon as practicable considering the holidays and
the undersigned counsel’s schedule, and is not sought for purposes of delay, but so
that justice may be served.
WHEREFORE, CDM Smith requests that the Court consider this
supplement to its Brief and Appendix, and affirm the District Court’s denial of the
Plea to the Jurisdiction by Appellants.
2
See Senate Comm. on Intergovernmental Relations, Bill Analysis, Tex. H.B. 345, 82nd Leg.,
R.S. (2011)(“Author’s/Sponsor’s Statement of Intent”)(“In general, a contractor, subcontractor,
or supplier is entitled under state law to receive interest, commonly called prompt pay interest,
on past due payments for work performed on a public construction project owned by the state or
other governmental entity. Some interested parties contend that recent court decisions have
misinterpreted Texas law regarding whether prompt pay interest on public jobs is barred
by governmental immunity. H.B. 345 seeks to clarify that issue.”) (emphasis added)
(courtesy copy attached). Moreover, the Bill Analysis of HB 345 by the House Research
Organization further clarified the Legislature’s intent: “HB 345 would allow for the recovery of
‘prompt pay interest’ from local government entities in breach of contract claims, resolving a
misinterpretation of the law. Government Code, sec. 2251.042, which allows for prompt pay
interest from a governmental entity, was enacted in 1993. Local Government Code, sec. 271-
153, which provides for ‘interest as allowed by law’ in a contract claim against a local
government, was enacted in 2005. Therefore, prompt pay interest should be interest allowed
by law in 2005. However, recent court decisions in this area have not been consistent with
the plain meaning of the law. HB 345 would clarify this issue.” House Comm. on Judiciary
and Civil Jurisprudence, Bill Analysis, Tex. H.B. 345, 82nd Leg., R.S. (2011)(“Supporters Say,”
emphasis added) (courtesy copy attached).
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Respectfully submitted,
/s/Roland Garcia
Roland Garcia, Esq.
State Bar 97645250
Jennifer Tomsen, Esq.
State Bar No. 24064535
GREENBERG TRAURIG, LLP
1000 Louisiana Street, Suite 1700
Houston, Texas 77002
Telephone (713) 374-3500,
Facsimile (713) 374-3505
garciar@gtlaw.com
tomsenj@gtlaw.com
Andrew Mytelka, Esq.
Joseph Russo, Esq.
GREER, HERZ & ADAMS, LLP
1 Moody Plaza, Floor 18
Galveston, Texas 77550
Telephone: (409) 797-3200
Facsimile (409) 766-6424
amytelka@greerherz.com
jrusso@greerherz.com
COUNSEL FOR APPELLEE
CERTIFICATE OF SERVICE
This will certify that a true and correct copy of the foregoing was served on
th
the 7 day of January, 2015 via electronic filing on all counsel of record.
/s/ Roland Garcia
Roland Garcia
CERTIFICATE OF COMPLIANCE
This Brief complies with the type-volume limitation of TEX. R. APP. P.
9.4(i)(2)(B) because the aggregate of all of Appellee’s briefs contain fewer than
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27,000 words, excluding the parts of the Brief exempted under the Rule.
/s/ Roland Garcia
Roland Garcia
Attorney for Appellee CDM Smith Inc.
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TEXAS SESSION LAWS 2011
GENERAL AND SPECIAL
Eighty-Second Legislature, Regular Session
CHAPTER 226
H.B. No. 345
AN ACT
relating to limitations on awards in an adjudication brought against a local governmental entity for
breach of contract.
Be it enacted by the Legislature of th6 State of Tems:
SECTION 1. Section 271.153(a), Local Government Code, is amended to read as follows:
(a) The total amount of money awarded in an adjudication brought against a local
governmental entity for breach of a contract subject to this subchapter is limited to the
following:
(1) the balance due and owed by the local governmental entity under the contract as it
may have been amended, including any amount owed as compensation for the increased
cost to perfonn the work as a direct result of owner-caused delays or acceleration;
(2) the amount owed for change orders or additional work the contractor is directed to
perfonn by a local governmental entity in connection with the contract;
(S) reasonable and necessary attorney's fees that are equitable and just; and
(4) interest as allowed by law, including interest as calculated unckr Chapter ~51,
Govemment Code.
SECTION 2. The change in law made by this Act applies only to an adjudication
commenced on or after the effective date of this Act. An adjudication commenced before the
effective date of this Act is governed by the law applicable to the adjudication immediately
before the effective date of this Act, and the fonner law is continued in effect for that
purpose.
SECTION 8. This Act takes effect September 1, 2011.
Passed by the House on April 19, 2011: Yeas 142, Nays 0, 2 present, not voting; the
House concurred in Senate amendments to H.B. No. 345 on May 19, 2011: Yeas
140, Nays 0, 2 present, not voting; passed by the Senate, with amendments, on May
17,2011: Yeas 31, Nays 0.
Approved June 17, 2011.
Effective September 1, 2011.
CHAPTER 227
H.B. No. 350
AN ACT
relating to discharging fines and costs assessed against certain juvenile defendants through communi-
ty service or tutoring.
809
LIMITATIONS ON AWARDS IN AN ADJUDICATION ... , 2011 Tex. Sess. Law •.•
2011 Tex. Sess. Law Serv. Ch. 226 (H.B. 345) (VERNON'S)
VERNON'S TEXAS SESSION LAW SERVICE 2011
Eighty-Second Legislature, 2011 Regular Session
Additions are indicated by ;J!``; deletions by +tm.
Vetoes are indicated by
stricken material by ·'
CHAPTER226
H.B.No.345
LIMITATIONS ON AWARDS IN AN ADJUDICATION BROUGHT AGAINST A LOCAL GOVERNMENTAL
ENTTIY FOR BREACH OF CONTRACT
AN ACT
relating to limitations on awards in an adjudication brought against a local governmental entity for breach of contract.
Be it enacted by the Legislature of the State of Texas:
SECTION 1. Section 271.153(a), Local Government Code, is amended to read as follows:
<< TX LOCAL GOVT § 271.153 »
(a) The total amount of money awarded in an adjudication brought against a local governmental entity for breach of a
contract subject to this subchapter is limited to the following:
(1) the balance due and owed by the local governmental entity under the contract as it may have been amended, including
any amount owed as compensation for the increased cost to perfonn the work as a direct result of owner-caused delays or
acceleration;
(2) the amount owed for change orders or additional work the contractor is directed to perform by a local governmental
entity in connection with the contract;
(3) reasonable and necessary attorney's fees that are equitable and just; and
(4) interest as allowed by law,lit~'Cl.~t(iiig:ljnteT:~S:t:aS'~a1culat~i:i;iulidet.lCiia:Pter tlSt, GovernmenfCode.
«Note: TX LOCAL GOVT § 271.153 >>
SECTION 2. The change in law made by this Act applies only to an adjudication commenced on or after the effective date of
this Act. An adjudication commenced before the effective date of this Act is governed by the law applicable to the
adjudication immediately before the effective date of this Act, and the former law is continued in effect for that purpose.
SECTION 3· This Act takes effect September 1, 2011.
WestlawNext © 2014 Thomson Reuters. No claim to original U.S. Government Works.
LIMITATIONS ON AWARDS IN AN ADJUDICATION .•. , 2011 Tex. Sess. Law..•
Passed by the House on April 19, 2011: Yeas 142, Nays 0, 2 present, not voting; the House concurred in Senate
amendments to H.B. No. 345 on May 19, 2011: Yeas 140, Nays 0, 2 present, not voting; passed by the Senate, with
amendments, on May 17,2011: Yeas 31, Nays 0.
Approved June 17,2011.
Effective September 1, 2011.
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
WestlawNext © 2014 Thomson Reuters. No claim to original U.S. Government Works. 2
HOUSE
RESEARCH HB345
ORGANIZATION bill analysis 4/18/2011 Kleinschmidt
SUBJECT: Payment of interest by a local government in a breach of contract suit
COMMITTEE: Judiciary and Civil Jurisprudence -favorable, without amendment
VOTE: 10 ayes- Jackson, Lewis, Bohac, S. Davis, Hartnett, Madden, Raymond,
Scott, Thompson, Woolley
Onays
1 present not voting - Castro
WITNESSES: For- Timothy Ross, Associated Builders & Contractors of Texas;
(Registered, but did not testify: Jon Fisher, Associated Builders &
Contractors of Texas; Corbin VanArsdale, Associated General
Contractors of America-Texas Building Branch; Michael White, Texas
Construction Association)
Against- None
BACKGROUND: Under Local Government Code, sec. 271.152, a local government entity
waives sovereign immunity from a civil lawsuit for the purposes of a
breach of contract claim. Sec. 271.153limits the available damages in
breach of contract claims against a local government entity. Damages are
limited to the balance due and owed, including any amounts owed for the
increased cost of performing the work due to owner-caused delays or
acceleration, change orders or additional work the contractor must perform
in connection with the contract, attorney's fees, and interest as allowed by
law.
Government Code, sec. 2251.042 governs disputed invoices with a
governmental entity. If a dispute is resolved in favor of the vendor, the
vendor is entitled to receive interest on the unpaid balance of the invoice
beginning on the date that the payment is overdue. If a dispute is resolved
in favor of the governmental entity, the vendor must submit a corrected
invoice, and the unpaid balance accrues interest if the corrected invoice is
not paid by the appropriate date.
\
HB345
House Research Organization
page2
DIGEST: HB 345 would allow a plaintiff in a breach of contract claim against a
local government entity to recover interest as allowed by law, including
interest on the unpaid balance of a disputed, overdue payment as provided
by Government Code, sec. 2251.042.
The bill would take effect on September 1, 2011, and would apply only to
suits commenced on or after the effective date.
SUPPORTERS HB 345 would allow for the recovery of "prompt pay interest" from local
SAY: government entities in breach of contract claims, resolving a
misinterpretation of the law. Government Code, sec. 2251.042, which
allows for prompt pay interest from a governmental entity, was enacted in
1993. Local Government Code, sec. 271.153, which provides for "interest
as allowed by law" in a contract claim against a local government, was
enacted in 2005. Therefore, prompt pay interest should be interest allowed
by law in 2005. However, recent court decisions in this area have not been
consistent with the plain meaning of the law. HB 345 would clarify this
issue.
OPPONENTS Creating an additional fmancial obligation for local governments could
SAY: add further strain in a tight budget environment.
NOTES: The companion bill, SB 1382 by Wentworth, was referred to the
Intergovernmental Relations Committee on March 22.
BILL ANALYSIS
Senate Research Center C.S.H.B. 345
82R26295 NC-F By: Kleinschmidt (Wentworth)
Intergovernmental Relations
5/5/2011
Committee Report (Substituted)
AUTHOR'S I SPONSOR'S STATEMENT OF INTENT
Current law specifies that a local government entity that is authorized to enter into certain
contracts waives its right to sovereign immunity for a breach of contract claim relating to that
contract. This wavier allows a contractor to sue that local government entity for nonpayment.
Other statutory provisions specify the types of recovery available to plaintiffs in such a breach of
contract dispute. In general, a contractor, subcontractor, or supplier is entitled under state law to
receive interest, commonly called prompt pay interest, on past due payments for work performed
on a public construction project owned by the state or other governmental entity. Some
interested parties contend that recent court decisions have misinterpreted Texas law regarding
whether prompt pay interest on public jobs is barred by governmental immunity. H.B. 345
seeks to clarify that issue.
C.S.H.B. 345 amends current law relating to limitations on awards in an adjudication brought
against a local governmental entity for breach of contract.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer,
institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION I. Amends Section 271.153(a), Local Government Code, as follows:
(a) Provides that the total amount of money awarded in an adjudication brought against a
local government entity for breach of a contract subject to this subchapter is limited to
certain amounts, including as calculated under Chapter 2251 (Payment for Goods and
Services), Government Code.
SECTION 2. Makes application of this Act prospective.
SECTION 3. Effective date: September 1, 2011.
SRC-BCD C.S.H.B. 345 82(R) Page I oft