the Port of Houston Authority of Harris County, Texas v. Zachry Construction Corporation

Affirmed and Opinion filed December 15, 2016.
In The
Fourteenth Court of Appeals
NO. 14-10-00708-CV
THE PORT OF HOUSTON AUTHORITY OF HARRIS COUNTY, TEXAS,
Appellant
V.
ZACHRY CONSTRUCTION CORPORATION N/K/A ZACHRY
INDUSTRIAL, INC., Appellee
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 2006-72970
OPINION ON REMAND
This contract dispute is before our court for a second time, on remand from
the Texas Supreme Court. See Port of Houston Auth. of Harris Cty. v. Zachry
Constr. Corp., 377 S.W.3d 841, 844 (Tex. App.—Houston [14th Dist.] 2012),
rev’d, Zachry Constr. Corp. v. Port of Houston Auth of Harris Cty., 449 S.W.3d
98, 101 (Tex. 2014). Zachry Construction Corporation n/k/a Zachry Industrial,
Inc. (Zachry) sued the Port of Houston Authority of Harris County, Texas (the
Port) for breach of contract. Following a three-month jury trial, the trial court
signed a final judgment awarding Zachry damages of $19,992,697, plus pre- and
post-judgment interest. On remand from the Texas Supreme Court, numerous
challenges to the trial court’s judgment remain. We affirm.
I. Background
In 2003, the Port solicited bids to construct a wharf at the Bayport Ship
Channel. The wharf consisted of five sections, each approximately 330 feet in
length. Zachry’s bid proposed building the wharf “in the dry” by using a U-
shaped, frozen earthen wall to seal out water from Galveston Bay from the
construction site. Zachry proposed to freeze the wall by sinking 100–foot pipes
into the wall and circulating chilled brine through the pipes. Then, Zachry would
install drilled shafts into the ground, pour a concrete deck on top of the drilled
shafts and dirt using the ground as the bottom of the concrete form, excavate the
dirt under the deck, and place revetment to stabilize the slope. After completing
the wharf, Zachry would breach the freeze wall, flooding the area, and remove the
remainder of the freeze wall so that ships would be able to dock at the wharf and
unload their cargo.
An advantage of working “in the dry” instead of “in the wet” was that fewer
“NOx” emission credits would be consumed. The Port accepted Zachry’s bid in
large part because of the environmental benefits of using the freeze wall. On June
1, 2004, Zachry entered into the Bayport Phase 1A Wharf and Dredging Contract
(the Contract) with the Port for the construction of a 1,660–foot wharf. The Port
had concerns about the possible impact of the frozen soil on adjacent structures but
provided in the Contract that Zachry would be an independent contractor and
control the means and methods, thus “insulating itself from liability to which it
2
would be exposed were it exercising control over Zachry’s work.” Zachry Constr.
Corp., 449 S.W.3d at 102.
The Port designated Steve DeWolf as the Chief Engineer for the project.
The Port additionally hired CH2M Hill as its construction manager; Andy Thiess
was CH2M Hill’s engineer/construction manager, while Jeff Ely was CH2M Hill’s
engineer/design manager for this project. Zachry designated Andy Anderson as its
Project Manager and hired RKK–SoilFreeze Technologies to work on the freeze
wall. RKK in turn, hired Dan Mageau of GeoEngineers, a geotechnical engineer,
to design the freeze wall.
The Contract provided a strict timeline. Specifically, Zachry was to
complete construction of the wharf by June 1, 2006. Zachry was also to meet an
interim deadline of February 1, 2006—Milestone A—by which a portion of the
wharf would be sufficiently complete to allow delivery of large ship-to-shore
cranes that were to be shipped from China. The Contract also provided that
Zachry’s sole remedy for any delay on the project was an extension of time.
Nine months into the project, the Port realized that it would need longer
berths to accommodate the ships it expected to service. In March 2005, the Port
decided to extend the original wharf Zachry was constructing by 332 feet. Zachry
submitted price quotes for the wharf extension on April 13, May 18, and July 11,
and described its plan during meetings with, among others, Thiess and Ely.
Zachry’s proposal was based on using the freeze-wall technology to add this
additional footage to the wharf. Zachry had Mageau design a frozen cutoff wall, a
perpendicular wall to the main freeze wall, to split the project into two phases: a
west side including Area A and an east side, as had been discussed at meetings
prior to Zachry’s submission of its price quotes. On September 9, Zachry sent the
frozen cutoff wall design to the Port for “review,” not “approval.” The Port and
3
Zachry executed Change Order 4 for the wharf extension on September 27, after
Zachry had submitted its frozen cutoff wall design to the Port. Change Order 4
extended the dates for Milestone A to February 15, 2006, and final completion to
July 15, 2006. Change Order 4 incorporated Zachry’s April 13 proposal as further
modified by the May 18 and July 11 proposals.
After entering into Change Order 4, the Port refused to approve Zachry’s
frozen cutoff wall design and sent Zachry a “revise and resubmit” response (R&R
response). In this R&R response, the Port noted preliminary indications that the
design may have an indeterminate effect on up to fourteen shafts and directed
Zachry either to “present [an] alternative cutoff wall design” or to “present the Port
of Houston with an alternate means of mitigating risk” to the shafts. Ultimately, in
late November 2005, after finding no viable alternative to the frozen cutoff wall
design that would allow it to meet the Contract deadlines, Zachry abandoned the
frozen cutoff wall and switched to an “in the wet” scenario. Zachry, working in
the wet, managed to complete the Area A section of the wharf in time to
accommodate the arrival of the shipment from China.
In late 2006, Zachry sued the Port for breach of contract, by failing to
comply with Change Order 4 and section 5.10 of the Contract through the Port’s
R&R response. As damages, Zachry sought the difference between the cost that
Zachry would have incurred had it been allowed to complete the wharf “in the dry”
using the frozen cutoff wall and the actual cost Zachry incurred in completing the
wharf “in the wet” without the frozen cutoff wall. Zachry also sued the Port for
withholding liquidated damages for delays in the amount of $2.36 million, and for
the Port’s withholding of $600,000 as a purported offset for alleged defective
dredging. The Port filed a counterclaim for attorney’s fees under section 3.10 of
the Contract, which provided that Zachry was liable for the Port’s attorney’s fees if
4
Zachry brought a “claim” against the Port and “d[id] not prevail with respect to
such claim.” Over two years after suing the Port, Zachry declared the wharf
complete on January 26, 2009.
After a three-month trial, the case was submitted to the jury. The jury found
that the Port had breached the Contract by failing to comply with Change Order 4
and section 5.10, and found compensatory damages in the amount of $18,602,697
for the Port’s breach of the Contract. These damages represented Zachry’s
increased costs for switching to working “in the wet.” The jury did not find that the
Port failed to comply with the Contract by withholding $600,000 from the Port’s
payment on the amounts invoiced by Zachry for defective dredging.
The trial court instructed the jury that the Port had not complied with the
Contract by failing to pay Zachry $2.36 million withheld as liquidated damages.
Thus, the jury needed only to determine whether the Port was entitled to offset; the
jury found for the Port on an offset defense in the amount of $970,000 for Zachry’s
defective work on the wharf fenders.
In its final judgment, the trial court awarded Zachry damages in the amount
of $19,992,697.00 ($18,602,697.00 plus $2,360,000.00 in liquidated damages, less
the $970,000.00 offset for the defective fenders), pre-judgment interest of
$3,451,022.40, post-judgment on the total sum award of $23,443,719.00, and
taxable costs. The trial court did not award the $600,000.00 withheld for defective
dredging that the jury refused to award Zachry and did not award attorney’s fees to
the Port.
On direct appeal, we held that the no-damages-for-delay provision of the
Contract barred Zachry’s recovery of delay damages, that Zachry unambiguously
released its claims to $2.205 million of the liquidated damages withheld, that the
Port was entitled to the $970,000 found by the jury for the defective wharf fenders,
5
and that the Port was entitled to attorney’s fees under the Contract. See Port of
Houston Auth., 377 S.W.3d at 850–51, 857–58, 861. We reversed the judgment in
favor of Zachry and rendered judgment for the Port. See id. at 865. However, the
Supreme Court of Texas reversed this court, holding that (a) the Local Government
Contract Claims Act waived the Port’s immunity to suit—an issue that this court
had not reached; (b) the no-damages-for-delay provision of the Contract was void
and unenforceable as against public policy due to the Port’s arbitrary and
capricious conduct, active interference, bad faith and/or fraud; (c) Zachry did not
release its claims to the withheld liquidated damages; (d) the evidence was
sufficient to support the jury’s finding that the Port was entitled to the $970,000
offset for defective wharf fenders; and (e) the Port was not entitled to attorney’s
fees. See Zachry Constr. Corp., 449 S.W.3d at 113–14, 116–18, 119–20. The
supreme court remanded to this court to address the Port’s remaining issues.
The Port submitted supplemental briefing, urging the following issues it
contends are outstanding: (1) the liability findings fail as a matter of law; (2) the
damages finding fails as a matter of law; (3) Zachry’s “but-for” causation theory
fails as a matter of law;1 (4) Zachry’s R&R claim fails as a matter of law because
Zachry did not satisfy contractual conditions precedent; (5) the trial court wrongly
1
The Port asserts it is challenging the factual sufficiency of the evidence, as well as the
legal sufficiency, in its first three issues However, in its briefing, it urges repeatedly that there is
“no evidence” to support these findings or that “as a matter of law” these findings fail. Thus,
despite labeling its issues as challenges to the factual sufficiency of the evidence, the Port
provides no argument in support of a factual sufficiency challenge. Indeed, the Port consistently
urges that Zachry’s R&R claim should be rendered. See Dongsheng Huang v. Riverstone
Residential Grp. (Alexan Piney Creek), No.14-11-00009-CV, 2011 WL 6003949, at *1 (Tex.
App.—Houston [14th Dist.] Dec. 1, 2011, pet. denied) (mem. op.); see also Tex. R. App. P.
38.1(i); Garden Ridge, L.P. v. Clear Lake Center, L.P., –S.W.3d–, No. 14-15-00695-CV,
2016WL 5497501, at *10 (Tex. App.—Houston [14th Dist.] Sept. 29, 2016, no pet. h.) (“Clear
Lake Center does not refer to the standard of review, cite any other legal authority, or analyze the
facts of the case under the appropriate legal authority in such a manner to demonstrate that the
trial court committed reversible error.”). We thus only consider the legal sufficiency of the
evidence to support the jury’s findings as to breach, causation, and damages.
6
excluded evidence of the Port’s harms/losses caused by Zachry; (6) the trial court
wrongly excluded this evidence of harms/losses even though Zachry opened the
door to the evidence; (7) charge error in the fraud no-damages-for-delay exception
requires a new trial; (8) the trial court improperly included apparent authority
instructions in the jury charge; (9) because Zachry’s R&R claim should be
rendered, the Port is entitled to attorney’s fees as found by the jury; and
(10) Zachry erroneously recovered purported “pass-through” damages sustained by
a Zachry subcontractor.2 We address these issues in turn.
II. Liability
The Port couches its first issue as a challenge to the sufficiency of the
evidence to support the jury’s findings of liability against the Port. Much of its
argument concerns the jury’s allegedly erroneous interpretation of various
contractual provisions. We thus begin our analysis of this issue by setting forth the
appropriate standard of review for a legal sufficiency challenge and then turn to
general principles governing contract interpretation. Finally, we consider the
sufficiency of the evidence to support the jury’s finding in response to Question
No. 2 that the Port failed to comply with section 5.10.
A. Standard of Review and Applicable Law
In reviewing the legal sufficiency of the evidence, we view the evidence in
the light most favorable to the verdict, crediting favorable evidence if reasonable
persons could, and disregarding contrary evidence unless reasonable persons could
not. City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005); United Nat’l Ins.
2
In a final issue, the Port asserts that the jury’s answer of “No” to Question No. 9, which
asked whether the Port breached the Contract by withholding $600,000 for defective dredging,
was neither charge error nor against the great weight of the evidence. Zachry did not respond or
mention this cross-appeal issue in its post-remand supplemental briefing. Indeed, in its prayer, it
simply requests that the trial court’s judgment be affirmed. It appears that Zachry has abandoned
its claim to this $600,000. Accordingly, this issue presents nothing for our review.
7
Co. v. AMJ Invs., LLC, 447 S.W.3d 1, 6 (Tex. App.—Houston [14th Dist.] 2014,
pet. dism’d). We may not sustain a legal sufficiency, or “no evidence,” point
unless the record demonstrates: (1) a complete absence of a vital fact; (2) the court
is barred by the rules of law or of evidence from giving weight to the only
evidence offered to prove a vital fact; (3) the evidence to prove a vital fact is no
more than a scintilla; or (4) the evidence establishes conclusively the opposite of
the vital fact. City of Keller, 168 S.W.3d at 810; United Nat’l Ins. Co., 447 S.W.3d
at 6–7. If the evidence, viewed in the light most favorable to the verdict, would
enable reasonable and fair-minded people to find the challenged fact, then the
evidence is legally sufficient. See City of Keller, 168 S.W.3d at 822; see also
United Nat’l Ins. Co., 447 S.W.3d at 7.
Because the Port’s first issue concerns the jury’s findings based on its
interpretation of the Contract, we review the general principles concerning contract
interpretation. Our primary concern when interpreting a contract is to ascertain
and give effect to the intent of the parties as expressed in the contract. Seagull
Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006);
Bhatia v. Woodlands N. Houston Heart Ctr., 396 S.W.3d 658, 669 (Tex. App.—
Houston [14th Dist.] 2013, pet. denied). Contract terms are given their plain,
ordinary, and generally accepted meanings, and contracts are to be construed as a
whole in an effort to harmonize and give effect to all provisions of the contract.
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005); Bhatia, 396
S.W.3d at 669–70. Whether a contract is ambiguous is a question of law for the
court; when a contract is ambiguous, its interpretation becomes a fact issue for the
jury to resolve. Coker v. Coker, 650 S.W.2d 391, 394–95 (Tex. 1983); see Dynegy
Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009)
(stating that a contract is ambiguous when its meaning is uncertain and doubtful or
8
is reasonably susceptible to more than one interpretation). Here, by instructing the
jury to interpret certain provisions of the Contract and Change Order 4, the court
determined that these provisions were ambiguous and left their interpretation to the
jury to resolve. See Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 705 (Tex.
2008) (“[B]y sending the interpretation of the [agreements] to the jury, the trial
court implicitly held the [agreements] were ambiguous.”).
Finally, because the damages finding was premised on the Port’s liability
under either Question No. 1, pertaining to Change Order 4, or Question No. 2,
pertaining to section 5.10 of the Contract, we need only consider whether the Port
failed to comply with either of these provisions. See, e.g., Soon Phat, L.P. v.
Alvarado, 396 S.W.3d 78, 89–90 (Tex. App.—Houston [14th Dist.] 2013, pet.
denied). We thus focus on whether the Port failed to comply with section 5.10—
the jury’s finding in response to Question No. 2.
B. Application
We begin our analysis with the language of the charge, which informs the
sufficiency of the evidence to support the jury’s finding. See Osterberg v. Peca, 12
S.W.3d 31, 55 (Tex. 2000). In Question No. 2 the trial court provided the
following question and instructions to the jury:
Did the Port fail to comply with § 5.10 of the General
Conditions?
In answering this question, it is your duty to interpret §§ 5.10
and 5.22 and the terms contained therein.
You must decide the meaning of these provisions of the
Contract by determining the intent of the parties at the time of the
agreement. Consider all the facts and circumstances surrounding the
making of the agreement, the interpretation placed on the agreement
by the parties, and the conduct of the parties.
9
In determining the meaning of these provisions, you may also
consider a trade custom or usage, if any, if you find that such trade
custom or usage existed. However, a trade custom or usage, if any,
cannot vary, control, impair, restrict or enlarge the express language
of the Contract. A trade custom or usage exists if it is a practice so
generally or universally well known and used in the industry that the
parties are charged with knowledge of its existence to such an extent
as to raise the presumption that the parties contracted with reference
to it.
Furthermore, in answering this question, you are instructed that
nothing in § 5.41 gave the Port the right to issues its October 11, 2005
response to the September 9, 2005 frozen cutoff wall design.
Answer “yes” or “no.”
The jury answered “yes” to this question.
We next discuss the relevant provisions of the Contract referenced in the
charge. We begin with section 5.10, which provided the Port with insulation from
liability:
5.10 Independent Contractor:
It is agreed between the parties that the Contractor is and shall
be an independent contractor. Nothing in the Contract Documents
shall create a relationship of employer and employee or principal and
agent between the Port Authority, on the one hand, and the Contractor
or any of its employees, Subcontractors, Suppliers or agents of any
thereof, on the other hand. Neither the Contractor nor any of its
employees, Subcontractors, Suppliers or agents shall have the ability
to bind or obligate the Port Authority for any purpose whatsoever.
The Port Authority shall not have the right to control the
manner in which or prescribe the method by which the Contractor
performs the Work.[3] As an Independent Contractor, the Contractor
3
“Work” is defined by the Contract as:
The construction and services required by the Contract documents, whether
commenced or not, or completed or partially completed, and all labor, Materials,
Equipment and services provided or to be provided by the Contractor to fulfill the
10
shall be solely responsible for the supervision of and performance of
the Work and shall prosecute the Work at such time and seasons, in
such order or precedence, and in such manner, using such methods as
the Contractor shall choose; provided, however, that the order, time,
manner and methods of prosecution shall be in compliance with
Contractor’s Standard of Care and Work shall be completed within the
Contract Time and in accordance with the Contract Documents.[4]
This section of the Contract clearly contemplates that Zachry will control the
“manner and methods” of its work. Indeed, the Supreme Court of Texas
emphasized this fact in its opinion: “The contract made Zachry an independent
contractor in sole charge of choosing the manner in which the work would be
conducted. . . . [section 5.10] benefitted the Port, insulating it from the liability to
which it would be exposed were it exercising control over Zachry’s work.” Zachry
Constr. Corp., 449 S.W.3d at 102. The court noted controlling authority,
explaining that “‘an owner or occupier does not owe a duty to ensure that
independent contractors perform their work in a safe manner. But one who retains
a right to control the contractor’s work may be held liable for negligence in
exercising that right.’” Id. at 102 n.4 (quoting Gen. Elec. Co. v. Moritz, 257
S.W.3d 211, 214 (Tex. 2008)).
Yet despite this Contract provision, the Port contends that it was entitled to
reject Zachry’s freeze-wall design and order Zachry to revise and resubmit its
Contractor’s obligations pursuant to the Contract Documents. The Work may
constitute the whole or a part of the Project.
4
“Contract Documents” include
the Contract agreement signed by the Port Authority and Contractor, Addenda (if
any), Contractor’s Bid/Proposal (including documentation accompanying the
Bid/Proposal and any post-Bid/Proposal documentation submitted and agreed to
by the Port Authority prior to commencement of Work), the Bonds, Insurance
Certificates, these General Conditions, Special Conditions, Specifications and
Drawings, the Purchase Order, and Modifications.
“Submittals” are explicitly excluded from the Contract Documents, as noted infra.
11
proposed use of the frozen cutoff wall under section 5.22 of the Contract. This
section, excerpted next, required that Zachry “submit” designs or plans to the Port
prior to commencing certain “Work” under the contract:
5.22 Submittals to be Furnished by the Contractor after Award
The Contractor shall prepare, or cause to be prepared, and
submit to the person indicated below for such person’s review (which
review shall be conducted with reasonable promptness so as not to
delay the Work), complete design and detailed Shop Drawings,
Product Samples, and other pertinent information showing all
materials and details of Work to be incorporated into the Project.
Contractor shall submit such Submittals:
(a) if there is no Design Consultant responsible for checking
Submittals in connection with the Work, to the Chief
Engineer with a copy of the transmittal therewith to the
Inspector; or
(b) if there is a Design Consultant responsible for checking
Submittals in connection with the Work, to such Design
Consultant with copies of the transmittal letter transmitted
therewith to the Chief Engineer and the Inspector.
Submittals of a non-technical nature, such as the Contractor’s
health and safety plan, spill prevention plan, and appointment of
Contractor’s superintendent, shall always be submitted to the Chief
Engineer or such other individual specified in the Contract
Documents as responsible for reviewing such documents.
***
The person reviewing the Submittal will return them to the
Contractor marked to indicate whether the Contractor may proceed
with the Work based on the Submittal as is or with specified changes,
whether the Contractor must make changes to the Submittal and
resubmit it, or whether the Submittal is rejected and the Contractor
must submit another Submittal. The review and/or acceptance of any
Submittals shall not relieve the Contractor of its full responsibility for
proper functioning, fit and conformity with the Contract Documents.
***
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Submittals are not and, notwithstanding any review and
acceptance thereof by the Port or any Design Consultant, shall not be
construed to be Contract Documents.
The purpose of review and acceptance of Submittals by the Port
Authority or Design Consultant is merely an effort on the part of the
Port to determine whether the Contractor is complying with the
requirements of the Contract Documents and shall in no way operate
as a waiver of any right of the Port or any obligation of Contractor
hereunder, nor in any way relieve Contractor of any of its obligations
hereunder. Review and acceptance of Submittals is not conducted for
the purpose of determining the accuracy and completeness of other
details such as dimensions and quantities, or for substantiating
instructions for installation or performance of equipment or systems,
all of which remain the responsibility of the Contractor as required by
the Contract Documents. The Port Authority’s and/or Design
Consultant’s review and acceptance of the Contractor’s Submittals
shall not constitute approval of safety precautions or of any
construction means, methods, techniques, sequences or procedures.
The Port Authority’s and/or Design Consultant’s review and
acceptance of a specific item shall not indicate review and approval of
an assembly of which the item is component.
(emphasis added).
As discussed next, we reject the Port’s contention that it was entitled to
order Zachry to revise and resubmit the use of the frozen cutoff wall to complete
the expanded wharf as contemplated by Change Order 4. Instead, we conclude that
legally sufficient evidence supports the jury’s contract interpretation—i.e., that the
frozen cutoff wall was included in Zachry’s chosen means and methods of
performing the work.
The parties agree that Zachry’s original freeze-wall design was part of its
excavation and shoring safety plan, which is covered by section 4.07 of the
Contract. This section, entitled “Health and Safety,” provides:
The Contractor shall submit five (5) copies of a health and
safety plan for the Work to the Chief Engineer for review at least
13
forty-eight (48) hours prior to commencing performance of any Work
at the site. Prior to beginning any field work at the site, such plan
shall be certified, by signature of the SHSC [Contractor-designated
Site Health and Safety Coordinator], that it complies with applicable
portions of OSHA standards 29 CFR 1910 and 29 CFR 1925. Such
plan shall provide, at a minimum, for safe working practices, medical
surveillance, engineering safeguards, personnel protective equipment,
training, safe operating procedures, emergency planning, reporting
and sanitation. Notwithstanding the Chief Engineer’s review of the
health and safety plan, the Contractor, and not the Port Authority,
shall be responsible for and have control over ensuring the safety of
its personnel and its Subcontractors, agents, representatives and any
other person who visits the site in connection with the Work.
(emphasis added). Thus, the Port was authorized to “review” the plan, but this
section re-emphasizes that it was Zachry, not the Port, that was responsible for—
and had control over—ensuring on-site safety. And in fact, the Port did not
approve or reject the initial freeze-wall plan, which Zachry submitted to the Port as
Zachry’s shoring-safety-plan addendum to its previously filed health and safety
plan under Technical Specification 02161 (T.S. 02161).5
Specifically, T.S. 02161 required Zachry to (1) submit its Proposed Trench
Excavation and Shoring Safety Plan and (2) submit all modifications of the plan to
the Port’s Chief Engineer, accompanied by the signed statement of a Registered
Professional Engineer that the modification is “designed in compliance with the
Contractor’s Standard of Care” and is in conformance with OSHA. The Port
counters that because T.S. 02161 requires “submission” of modifications to the
safety and shoring plan, these “submissions” were subject to the “submittal”
process provided in section 5.22. Thus, the Port urges that it was authorized to
order Zachry to revise and resubmit its frozen cutoff wall plan, which is exactly
5
Instead, the record reflects that the plan, which had been approved by a Texas
Professional Engineer as required by T.S. 02161, was provided to the Port and marked
“Accepted for Records.”
14
what it did when it returned Zachry’s plan with the R&R response. We disagree
with the Port’s proposition, as we explain next.
T.S. 02161, entitled “Trench Excavation and Shoring Safety Plan,” provides
in pertinent part as follows:
C. Modifications
All modifications to the CONTRACTOR’S Trench Excavation and
Shoring Safety Plan or the detailed plans and specifications
necessitated by the site conditions, CONTRACTOR’S trench
construction means, methods, techniques or procedures and
CONTRACTOR’S equipment to be used in construction of project
facilities to be submitted to the Chief Engineer. All such
modifications to be signed and sealed by a Registered Professional
Engineer licensed in the State of Texas and a statement provided
stating that the modified plan and/or the modified detailed plans and
specifications for the trench safety system are designed in compliance
with the Contractor’s Standard of Care and is in conformance with
appropriate OSHA standards. Such modifications to
CONTRACTOR’S plan and/or the CONTRACTOR’S detailed plans
and specifications for the trench safety system to thereafter be
incorporated into the Construction Contract.
***
1.3 SUBMITTALS
The successful Contractor to submit its proposed Trench Excavation
and Shoring Safety Plan after the Award of the Contract. The plan to
incorporate detailed PLANS and Specifications for a trench safety
system conforming to OSHA standards that accounts for project site
conditions, CONTRACTOR’S trench construction means, methods,
techniques or procedures, the relationship of spoil to edge of trench,
and CONTRACTOR’S equipment to be used in construction of
project facilities requiring trench system(s). CONTRACTOR to
provide a statement signed and sealed by a Registered Professional
Engineer licensed in the State of Texas stating that the Trench
Excavation and Shoring Safety Plan and the detailed plans and
specifications for the trench safety system are designed in compliance
with the Contractor’s Standard of Care and in conformance with
15
appropriate OSHA standards. CONTRACTOR’S plan and the
detailed PLANS and SPECIFCATIONS for the trench safety system
to be incorporated into the bid documents and the Construction
Contract.
Thus, nothing in the plain language of T.S. 01261 references section 5.22 or
suggests that the Port could control Zachry’s manner and methods of ensuring the
safety of the construction site.
However, the Port asserts that section 1.1(A) of T.S. 01261, which provides
that it is “subject to” the general and special conditions of the contract, permitted it
to order Zachry to revise and resubmit the frozen cutoff wall plan under the
procedures provided in section 5.22 of the Contract. But just as this provision is
“subject to” section 5.22, it is likewise “subject to” section 5.10, which prohibited
the Port from exercising control over Zachry’s “manner and methods” of
performing the work. And the fact that some provisions of the Contract allowed
the Port to receive means-and-methods-related submittals does not mean that the
Port was authorized to exercise control over Zachry’s manner and methods.
Instead, as the Port’s Chief Engineer Steve DeWolf explained, there were
“activities and other things that [Zachry] would not be required to submit” under
the revise-and-resubmit portion of section 5.22. Thus, according to DeWolf,
Zachry “would not necessarily have to submit [its] means and methods as a capital
S Submittal.” DeWolf testified that the Port “would not want to be held
responsible for some issue that might develop from [Zachry’s] means and
methods.” DeWolf distinguished between “capital S” submittals subject to the
revise and resubmit option under section 5.22 and other, non-technical submittals
that were not subject to that option.
Indeed, DeWolf’s explanation of the difference between “capital S
Submittals” and other, non-technical submittals harmonizes sections 5.10 and 5.22
16
so that neither is rendered meaningless. See, e.g., J.M. Davidson, 128 S.W.3d at
229 (a contract should be considered in its entirety, with provisions harmonized so
that none of them are rendered meaningless). Thus, section 5.22 can be read as
providing for two types of submittals: (1) technical, “Work”-related submittals (or,
as DeWolf characterized them, “capital S Submittals”) and (2) other, non-technical
submittals. Under this reading of section 5.22, only technical, work-related
“capital S” submittals would be subject to the revise and re-submit option
contained therein. Those submittals that related to Zachry’s means and methods of
completing the work—including the use of the freeze-wall technology—would be
provided to the Port for its review. In contrast, reading section 5.22 to permit the
Port to exercise control over Zachry’s means and methods of performing the work
would vitiate section 5.10.
And if the Port exercised control over Zachry’s health and safety plan, it
risked losing the insulation from liability that section 5.10 of the Contract was
explicitly designed to provide. See Zachry Constr. Corp., 449 S.W.3d at 102 &
n.4. The Port’s witnesses testified that the Port did not approve or reject the
original freeze wall to avoid claims it controlled Zachry’s methods and any
attendant liability. The record supports an inference that neither party
contemplated that the Port could approve or order Zachry to revise its main freeze-
wall plan because Zachry built it and began installing freeze-pipes before
providing the Port the design. Further, DeWolf agreed that the freeze wall and the
frozen cutoff wall “would not have been part of the permanent work, so it would
not be a capital S Submittal” subject to the revise and resubmit process contained
in section 5.22. De Wolf stated that Port “would not have wanted to be in a
position of having approved means and methods.” And he acknowledged that
17
using the freeze-wall technology “was Zachry’s selected method of performing the
construction.” (emphasis added).6
All of this evidence supports the jury’s determination that, despite section
5.22, many parts of Zachry’s performance under the Contract—including Zachry’s
submission of its frozen cutoff wall plan under T.S. 01261—were not subject to the
“revise and resubmit” option therein Indeed, Zachry bid the entire project,
including Change Order 4, with the expectation that it would use the freeze-wall
methodology; the Port selected Zachry for this job based on this innovative and
environmentally friendly technique. As the Texas Supreme Court explained,
Zachry’s plan was innovative. It would use soil dredged from the
channel to construct an 8–foot–wide earthen berm starting from the
shore at either end of the worksite, extending out toward the center of
the channel, then running parallel to the shore, forming a long, flat U-
shaped wall in the channel around the construction area. Zachry
would install a refrigerated pipe system in the wall and down into the
channel floor that would carry supercooled brine, freezing the wall to
make it impenetrable to the water in the channel. Zachry would then
remove the water from the area between the wall and the shore. In
this way, Zachry could work “in the dry”, using bulldozers and other
land equipment for the excavation and revetment work. Another
advantage to this freeze-wall approach was that it would lower diesel
emissions and require fewer nitrous oxide credits under environmental
laws, giving the Port more flexibility in other construction projects.
Zachry believed this approach would make the work less expensive
and allow it to be completed more quickly.
6
The Port asserts that Zachry “absurdly argues” that “no R&R response could be based
on risk to the Wharf’s structural integrity.” But the jury was tasked with interpreting the
Contract as a whole, including whether and to what extent Change Order 4 impacted the “Work”
under the Contract. And there was conflicting evidence concerning the impact of Zachry’s use
of the frozen cutoff wall on the structural integrity of the wharf. In fact, there was some
evidence from which a reasonable juror could determine that the Port manufactured concerns
about the frozen cutoff wall’s impact on the structural integrity of the wharf. By its answer to
Question 1, the jury determined that the use of the frozen cutoff wall did not amount to “Work”
under the Contract. We will not revisit this issue because it rests on the jury’s reasonable
credibility determinations. See City of Keller, 168 S.W.3d at 816–17, 819–20, 822.
18
Id. at 102. Simply put, to permit the Port to later modify Zachry’s manner and
methods of performance would contravene the clear insulation from liability
provided by section 5.10. See id.
In sum, the record supports the jury’s determination that not all submittals
under the Contract were subject to the revise and resubmit process detailed in
section 5.22. And there is more than a scintilla of evidence that the frozen cutoff
wall was Zachry’s chosen method of completing the project (as expanded by
Change Order 4). Viewing the evidence in the light most favorable to the jury’s
finding that the Port failed to comply with section 5.10, we conclude that
reasonable and fair-minded people could find that the Port’s R&R order in
response to Zachry’s submission of the frozen cutoff wall design violated section
5.10 of the Contract. Thus the evidence is legally sufficient to support this finding.
See City of Keller, 168 S.W.3d at 822.
Because we determine that the evidence is legally sufficient to support the
jury’s finding that the Port failed to comply with section 5.10, we overrule the
Port’s first issue.
III. Damages and Causation
In the Port’s second and third issues, the Port challenges the damages
finding. The same standard of review laid out above for legal sufficiency of the
evidence applies to this issue.
A. Damages
The Port urges in issue two that the jury’s damages findings fail as a matter
of law.7 These challenges are all based on the Port’s allegation that the testimony
7
The pertinent jury question and instructions is as follows:
19
and methodology of Zachry’s damages expert, Gary Draper, was unreliable and
thus no evidence because it was based on assumed facts that were contrary to the
undisputed facts. See Burroughs Wellcome Co. v. Cyre, 907 S.W.2d 497, 499–500
(Tex. 1995) (“When an expert’s opinion is based on assumed facts that vary
What sum of money, if any, if paid now in cash, would fairly and
reasonably compensate Zachry for its damages, if any, that resulted from the
Port’s failure to comply?
Consider the following elements of damages, if any, and none other.
A. The balance due and owed by the Port, if any, under the Contract,
including any amount owed as compensation for any increased cost to
perform the work as a direct result of Port-caused delays, and
B. The amount owed, if any, for additional work that Zachry was directed to
perform by the Port in connection with the Contract.
You may consider amounts, if any, owed as compensation for increased cost
to perform the work as a direct result of Port-caused delays, if any, only if you
find that such increased costs were a natural, probable, and foreseeable
consequence of the Port’s failure to comply.
In determining the balance due and owed for the increased cost to perform the
work under A (above), if any, and the amount owed for additional work under B
(above), if any, you should include Reimbursable Costs as defined in section 1.1
of the Management Services Agreement (PX 643), incurred by New Zachry to
perform Zachry’s obligations under the Contract.
You are instructed that Zachry was not required to take any of the following
actions to be able to recover damages for the Port’s failure to comply: (1) obtain a
written Construction Change Directive or a fully executed Change Order from the
Chief Engineer under § 5.41 or under § 5.52 to the extent it imposes requirements
consistent with §5.41; or (2) provide notice that a Contract interpretation by the
Port constituted a change to the Contract under § 5.42 and that Zachry was
entitled to an adjustment in the Contract Time and Price. You are instructed that
you may consider §§ 5.41, 5.42, and 5.52 to the extent it imposes requirements
consistent with §5.41, only in assessing a party’s state of mind.
***
Do not include in your answer any amount that you find that the Port proved, by a
preponderance of the evidence, that Zachry could have avoided by the exercise of
reasonable care.
The jury answered this question, “$18,602,697.”
20
materially from the actual, undisputed facts, the opinion is without probative value
and cannot support a verdict or judgment.”).
Draper provided a damages model to the jury that compared Zachry’s actual
costs to complete the work “in the wet” with a hypothetical model of Zachry’s
costs had it been able to complete the work “in the dry” as Zachry had planned and
bid the project. More specifically, Draper (a) identified the construction activities
the switch impacted; (b) as to each impacted activity, calculated the cost Zachry
would have incurred working in the dry as long as possible; (c) compared those
costs to the costs Zachry reasonably incurred as a result of switching to the wet
earlier than it would have absent the Port’s breach; and (d) excluded all other costs.
Using this methodology, Draper calculated the costs of the switch to be
approximately $27 million. After hearing the evidence, the jury awarded Zachry
$18,602,697, roughly two-thirds of the damages supported by Draper’s model.
We begin by noting that the Port ignores the evidence supporting Draper’s
model and instead asserts Draper’s dry schedule “varies drastically” from “dozens
of schedules” Zachry prepared around the time of the Port’s rejection of the frozen
cutoff wall method. The record reflects that Draper’s model was based on the use
of a frozen cutoff wall methodology; in contrast, the schedules the Port relies on
were not based on a frozen cutoff wall, as they were created after the Port’s
rejection of this process. Accordingly, these schedules did not project what Draper
projected—a completion schedule using a frozen cutoff wall. But despite this
defect in the Port’s general argument, we consider each of the Port’s asserted
“contrary facts” on which Draper relied in turn.
1. Removal of Freeze Pipes from Berm
The Port claims that “Draper erroneously assumed it would take Zachry no
time (and cost Zachry no money) to remove a thousand freeze pipes from the
21
thawed earthen wall (berm).” This faulty assumption, according to the Port, means
that Draper’s testimony and evidence was unreliable and no evidence of Zachry’s
damages. But the Port ignores the evidence supporting Draper’s methodology.
First, Draper’s “in the dry” model—consistent with the evidence—provided
for freeze-pipe removal to occur concurrently with berm removal. The record
reflects that Zachry’s dry approach was to remove the berm and freeze-pipes
simultaneously and using the same equipment. And the Port’s own freeze-wall
expert at trial, Mageau, concluded at the time of the R&R order that Zachry could
remove the freeze-pipes and perform the remainder of the work by mid-February
to mid-March 2006 so the crane-ship could timely dock, even though he was aware
of issues with the freeze-pipes and other challenges Zachry faced. In fact, Draper’s
schedule was consistent with the contemporaneous frozen cutoff wall project
schedule created by Zachry shortly before the Port rejected that method.
Second, the Port characterizes Draper’s testimony to suggest that Zachry
could remove all the freeze pipes in one day. Draper did not testify that all the
freeze pipes could be removed in one day; instead, he stated that the float time in
his methodology would cover any time necessary to remove these pipes. Finally,
the Port cross-examined Draper on this point. The jury did not unquestioningly
accept the testimony of Zachry’s expert but reduced the amount of damages
presumably based on the challenges made by the Port to Draper’s model. Cf.
Am.’s Favorite Chicken Co. v. Samaras, 929 S.W.2d 617, 629 (Tex. App.—San
Antonio 1996, writ denied) (upholding damages for lost profits in breach of
contract case despite varying assumptions in the parties’ competing damages
models).
For the foregoing reasons, we conclude that Draper’s damages model was
not unreliable based on the Port’s freeze-pipe removal assertion; conflicting
22
evidence was presented on this issue and the jury resolved the conflicts in favor of
Zachry, although it reduced the damages amount established by Draper’s model.
Cf. id.
2. Work on Sheet Pile for Frozen cutoff wall
The Port urges that, because Draper’s damages model showed Zachry
working on installing sheet pile8 for the frozen cutoff wall forty days before it
actually began doing so, Draper’s methodology is unreliable and no evidence of
damages. In making this argument, the Port relies on Anderson’s testimony
referencing a November 15 list of remaining tasks. Neither that list nor
Anderson’s testimony references sheet-pile-installation timing for the frozen cutoff
wall; the Port had rejected the frozen cutoff wall a month earlier. Yet in its
briefing, the Port inserts “frozen” into Anderson’s testimony “that there was work
to be done before we were ready for the [frozen] cutoff wall.” Anderson was
discussing the status as of November 15—when Zachry was considering the
alternate cutoff wall’s viability. The Port’s argument assumes that, after the
Port’s October 11 rejection of the frozen cutoff wall, Zachry nonetheless
proceeded as if Zachry would still be using the frozen cutoff wall.
Further, even if Anderson were testifying that work remained as of October
11, he also testified it would take “a couple of days at best.” And although
Draper’s schedules showed sheet-pile installation starting October 7, it was an
“early start,” meaning it could start later with no impact on his analysis. Indeed,
the float allotted for in Draper’s schedule allowed the sheet-pile installation to be
delayed until November 15 or later.
8
“Sheet pile”—steel sheets—would have lined the frozen cutoff wall berm and also
would have composed Mageau’s alternate cutoff wall.
23
Finally, as with the freeze-pipe removal issue, the Port raised this issue
during cross-examination, and the jury’s damages award––significantly less than
Draper’s model supported––accounted for any weight the jury gave it. Cf. id. In
short, the Port’s assertion regarding the sheet piles does not render Draper’s
testimony unreliable and no evidence.
For the foregoing reasons, we overrule the Port’s second issue in its entirety.
B. Causation
Next, in its third issue, the Port contends that expert testimony was
necessary to prove that the Port’s breach caused Zachry to abandon Zachry’s “in
the dry” construction methods. In support of this proposition, the Port cites Mack
Trucks v. Tamez, 206 S.W.3d 572, 583 (Tex. 2006). But Mack Trucks is not a
breach of contract case; instead, it is a products liability case in which the plaintiff
failed to present expert testimony regarding the cause of a fuel leak in a tractor’s
fuel system. See id. at 582–83.
Our research has not revealed a breach of contract case requiring expert
testimony to establish a causal link between the breach that occurred and the
resulting damages.9 Because the Port has not cited, nor have we found, any cases
requiring expert testimony to establish that a party’s breach of contract caused the
damages awarded by the jury, we decline to impose such a requirement in this
case. Cf. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 504 (Tex. 2001)
(concluding that, in a DTPA case, non-expert testimony may provide legally
sufficient evidence to establish causation and exclude alternative causes).
9
Although numerous cases discuss the necessity of expert testimony to prove damages in
contract cases, these cases concern the quantification of the damages, rather than the cause of
damages. See, e.g., Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d
323, 345 (Tex. 2011); Ginn v. NCI Bldg. Sys., Inc., 472 S.W.3d 802, 842–43 (Tex. App.—
Houston [1st Dist.] 2015, no pet.).
24
Instead, the evidence must show that the damages are the natural, probable,
and foreseeable consequence of the defendant’s conduct. Mead v. Johnson Grp.,
Inc., 615 S.W.2d 685, 687 (Tex. 1981). Moreover, this court has recognized that a
contractor is entitled to recover damages from an owner for losses due to delay and
hindrance of its work if it proves: (1) that its work was delayed or hindered, (2)
that it suffered damages because of the delay or hindrance, and (3) that the owner
was responsible for the act or omission that caused the delay or hindrance.
Shintech Inc. v. Grp. Constructors, Inc., 688 S.W.2d 144, 148 (Tex. App.—
Houston [14th Dist.] 1985, no writ) (citing City of Houston v. R.F. Ball Constr.
Co., 570 S.W.2d 75, 77 (Tex. Civ. App.—Houston [14th Dist.] 1978, writ ref’d
n.r.e.)). Here, there is more than a scintilla of evidence to support the finding that
the Port was responsible for the act that caused the delay to Zachry’s work.
Anderson and geotechnical expert Hugh Lacy testified that, once the Port rejected
the frozen cutoff wall, Zachry had no viable alternative method to bifurcate the
project and complete the wharf in the dry in time for the crane ship to dock. Both
agreed that Zachry had to switch to working in the wet far earlier than it otherwise
would have. In fact, the Texas Supreme Court summarized the evidence regarding
the Port’s breach and the resulting delay damages to Zachry as follows:10
10
Although the sufficiency of the evidence was not before the Supreme Court on this
particular issue, we note that the Court stated its background facts under a legal sufficiency
standard:
The evidence in this case was hotly disputed at almost every turn. We do not
pause in this rehearsal of the proceedings to note each disagreement. In reviewing
any case tried to a jury, we must view the evidence “in the light most favorable to
the verdict”—in this case a verdict for the petitioner—“crediting favorable
evidence if reasonable jurors could, and disregarding contrary evidence unless
reasonable jurors could not” and so summarize the evidence in that light. Cruz v.
Andrews Restoration, Inc., 364 S.W.3d 817, 819 (Tex. 2012) (citing City of Keller
v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005)).
Zachry Constr. Corp., 449 S.W.3d at 101 n.3.
25
Nine months into the project, the Port realized that it would
need two 1,000–foot berths to accommodate the ships it ultimately
expected to service. A sixth 332–foot section would have to be added
to the wharf. As a practical matter, only Zachry could perform the
additional work, and Zachry and the Port began discussions on a
change order. To complete the two sections of the wharf needed by
February 2006, and to continue to work “in the dry”, Zachry proposed
to build another freeze-wall—a cutoff wall—though the middle of the
project, perpendicular to the shoreline out to the existing wall,
splitting the project into two parts. Zachry would finish the west end
where the ship from China would dock, remove the wall barricading
water from that area, then continue working on the east end “in the
dry”.
The Port had reservations about this plan. Near the shore, the
cutoff wall would have to be built through the area where piers had
already been driven into the channel floor. The Port’s engineers were
concerned that freezing the ground near the piers might destabilize
them, weakening the wharf and making it unsafe. But the Port was
also concerned that if it rejected Zachry’s plan, Zachry might simply
refuse to undertake the addition of a sixth section. So the Port did not
raise its concerns with Zachry. Zachry, for its part, had already
identified the issue, but its own engineers had concluded that any piers
that might be affected could be insulated from the frozen ground.
Change Order 4, using Zachry’s approach to add a sixth section of the
wharf at a cost of $12,962,800, was finalized September 27, 2005.
Two weeks later, the Port ordered Zachry to revise and resubmit its
plans without the cutoff wall. The practical effect of the Port’s order
was to refuse to allow construction of the cutoff wall. Zachry
protested that, under Section 5.10 of the contract, the Port had no
right to determine the method and manner of the work, but the Port
would not budge. Zachry’s only option was to finish the westmost
sections in time for the ship from China to dock, then remove the wall
altogether and continue to work “in the wet”, which would delay
completion of the project and increase its cost.
Zachry Constr. Corp., 449 S.W.3d at 102–03 (emphasis added).
Viewing the evidence in the light most favorable to the verdict, we conclude
that that the evidence was legally sufficient to support the jury’s verdict. Although
26
the Port submitted evidence that tended to contradict Zachry’s evidence, there was
“more than a mere scintilla” of evidence on which a reasonable jury could find that
the Port’s failure to comply with the Contract resulted in damages to Zachry. We
thus overrule Zachry’s third issue.11
IV. Alleged Conditions Precedent
In its fourth issues, the Port contends that Zachry failed to comply with two
provisions of the Contract that the Port urges were conditions precedent—sections
5.41 and 5.42. As such, according to the Port, judgment in the Port’s favor on
Zachry’s R&R claim must be rendered. The trial court instructed the jury that
Zachry did not have to comply with these sections to recover damages; instead, the
jury was to consider sections 5.41 and 5.42 “only in assessing a party’s state of
mind.”
Sections 5.41 and 5.42 set forth procedures that allowed the Port to make
changes within the scope of the contract work during performance of the Contract.
Section 5.41 relates to “Changes or Modifications” through change orders, and
11
The Port further argues in this issue that CH2M Hill’s Andy Thiess “issued” the R&R
response, which he lacked authority to do. The Port cites special condition 12(d) of the Contract,
which provided that CH2M Hill, as the Construction Manager of the project, did not have the
authority of the Port’s Chief Engineer and had “no authority to . . . change any of the terms and
conditions of the Contract, including without limitation, issuing Modifications . . . or Change
Orders.” But the R&R response is not a modification or change order, and nothing on the face of
the R&R order indicates it was issued by Thiess. Instead, it bears the seal of the Port of Houston.
And under special condition 12(d), CH2M Hill was tasked with coordinating the paper flow for
the Project, including Submittals and Change Orders. Zachry was required to submit paperwork
to CH2M Hill, and CH2M Hill was charged with managing the flow of the paperwork to and
from the appropriate Port personnel, including the Chief Engineer. CH2M Hill additionally was
charged with conducting all pre-construction and progress meetings, and it was during these
progress meetings that CH2M Hill and Zachry personnel discussed the Port’s R&R response to
Change Order 4. Further, we resolve the Port’s complaint regarding the “apparent authority”
instruction in the jury charge against the Port infra in section VII of this opinion. Thus, the jury
properly considered whether CH2M Hill had authority to act on behalf of the Port as regards to
the R&R response.
27
section 5.42 concerns “Changed Conditions or Contract Interpretations.” More
specifically, section 5.41 applies to “changes and modifications to the Contract
Documents within the general scope of the Work,” and requires a change order to
“stipulate the Work to be performed” and “any difference in the Contract Price.”
Section 5.42,12 on the other hand, required five days’ written notice of any
“interpretation of the Contract” by the Port that Zachry “believes . . . constitutes a
change to the Contract,” if Zachry believed it was entitled to an adjustment in the
Contract time or price. Under section 5.42, the Chief Engineer’s determination of
whether there should be a “modification” or “equitable adjustment” was “final and
conclusive,” and Zachry was forbidden from “begin[ning] performing that portion
of the Work affected by such interpretation” before giving notice.
Zachry has never asserted that the Port, by denying Zachry the use of the
frozen cutoff wall as its means and methods of performing Change Order 4,
effected “changes or modifications” to the Contract or “interpreted” the Contract in
a manner that constituted a “change” to the Contract as is provided for in these
sections. Rather, Zachry’s case hinges on the proposition that the Port breached
the Contract by rejecting the frozen cutoff wall. Zachry did not seek the
“difference in the Contract Price” under section 5.41 or “an adjustment in the . . .
Contract Price” under section 5.42. Instead, Zachry sought, and the jury awarded,
damages for the Port’s breach of the Contract. We thus interpret these provisions
as applying only to changes relating to the “Work” under the Contract, not to
12
Pre-trial, the Port unsuccessfully moved for summary judgment on the ground that
Zachry’s claim for R&R damages was barred by this provision. Zachry, also pre-trial, sought to
invalidate section 5.42’s notice requirements on the grounds that this section did not apply to
Zachry’s breach-of-contract claim and, even if it did, it was invalid under Texas Civil Practice &
Remedies Code section 16.071. The trial court agreed with Zachry and determined that section
5.42 was “inapplicable” to the facts of this case and “void” under section 16.071 of the Civil
Practice & Remedies Code.
28
Zachry’s methods and means, over which Zachry was explicitly in control under
section 5.10, as discussed supra.
Further, the Port’s interpretation of section 5.42 of the Contract would
require us to read this section as follows: “If the Contractor believes that any
interpretation of the Contract Documents by [the Port and its agents] constitutes a
breach of the Contract, the Contractor shall immediately notify the Chief
Engineer” in writing within five calendar days after the interpretation constituting
the breach. Such a reading of this provision would run afoul of Texas Civil
Practice & Remedies Code section 16.071, which provides:
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.
Tex. Civ. Prac. & Rem. Code § 16.071(a).
The Port asserts that section 16.071 of the Civil Practice & Remedies Code
does not apply to section 5.42 because it only “voids contract provisions that
require, as a condition precedent to suit, less than 90 days’ notice of a claim for
damages.” The Port urges that, under American Airlines Employees Federal
Credit Union v. Martin,13 section 16.071 does not apply where the notice has some
“other purpose, i.e., a purpose other than giving notice of a claim for damages.”
But American Airlines does not stand for a proposition so broad; rather the
Supreme Court of Texas simply explained in American Airlines that “section
16.071 by its terms does not apply here, when the notice to be given is not notice
of a claim for damages, but rather notice of unauthorized transactions. The
13
29 S.W.3d 86, 97–98 (Tex. 2000).
29
purpose of this notice requirement, as we have discussed, is to prevent further
unauthorized transactions.” 29 S.W.3d 86, 97 (Tex. 2000) (emphasis added).
Moreover, our interpretation of section 5.42 does not render the provision
meaningless or invalid, as the Port argues, because not every interpretation of the
Contract documents by the Port would constitute a breach of the contract. For
example, if the Port specified the type of a particular material to be used in
building the Wharf, such as a certain type of concrete, and Zachry believed that
this interpretation of the Contract entitled it to a change in the Contract time or
price, then this provision would have provided a valid means of quickly resolving
the issue.14 Thus, in many circumstances, this provision would not violate section
16.071 of the Civil Practice & Remedies Code. Conversely, here, Zachry has
never claimed that the Port interpreted the Contract in such a manner that Zachry
was entitled to an adjustment in the Contract time or price. Instead, Zachry has
urged that the Port breached the Contract by controlling Zachry’s methods and
means—i.e., by rejecting Zachry’s use of the frozen cutoff wall. If section 5.42
operated, as the Port urges, to require Zachry to provide five days’ written notice
of this claim for breach and damages, it would be void under section 16.071 of the
Civil Practice & Remedies Code. Indeed, interpreting section 5.42 as the Port
suggests would convert nearly any breach of the Contract by the Port into a
“change” subject to the Chief Engineer’s “final and conclusive” determination as
14
As another example, Zachry suggests in its briefing that section “5.42 would apply if
the specifications required ‘steel,’ and [the Port] interpreted that to mean galvanized steel, but
Zachry believed black steel complied.” Because section 5.42 could have operated validly in
some situations, the “circular reasoning” problem identified in Tennessee Gas Pipeline Co. v.
Technip USA Corp., No. 01-06-00535-CV, 2008 WL 3876141, at *23 n.11 (Tex. App.—Houston
[1st Dist.] 208, pet. denied) (mem. op. on reh’g), does not arise in this case. In other words,
section 5.42 is not rendered meaningless under our interpretation. See id. (“We will not construe
a contract in a way that renders a provision meaningless.”).
30
to whether the Port had properly interpreted the Contract and whether Zachry was
entitled to a change in the Contract time or price.15
We conclude that section 5.42’s notice provision is inapplicable under the
circumstances of this case as it applies only to “changes” in the Contract, not to
“breaches” of the contract. See Criswell v. European Crossroads Shopping Ctr.,
792 S.W.2d 945, 948 (Tex. 1990) (“In construing a contract, forfeiture by finding a
condition precedent is to be avoided when another reasonable reading of the
contract is possible.”). Further, interpreting this provision under the facts of this
case as the Port suggests would result in the provision being void under the Civil
Practice & Remedies Code. See Tex. Civ. Prac. & Rem. Code § 16.071(a); cf.
Frost Nat’l. Bank v. L & F. Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per
curiam) (citing Reilly v. Rangers Mgmt., Inc., 727 S.W. 2d 527, 530 (Tex. 1987),
and explaining we avoid when possible a contract construction that is
“unreasonable, inequitable, and oppressive”).
Finally, even if these sections applied to a breach-of-contract claim, “[w]hen
an owner breaches a construction contract, it relinquishes its contractual procedural
rights concerning change orders and claims for additional costs.” Shintech, 688
S.W.2d at 151. In other words, breaching owners like the Port are precluded from
invoking procedural clauses to bar contractors’ claims for damages. See, e.g., West
v. Triple B. Servs., LLP, 264 S.W.3d 440, 446–50 (Tex. App.—Houston [14th
Dist.] 2008, no pet.) (30-day notice requirement); Shintech, 688 S.W.2d at 151
(written-notice requirement); N. Harris Cty. Jr. Coll. Dist. v. Fleetwood Constr.
15
And the Port knew how to draft a provision detailing conditions precedent to suit. In
section 5.55 of the Contract, the Port detailed the process of dispute resolution, explicitly stating,
“Participation in non-binding mediation in accordance with this paragraph shall be a condition
precedent to Contractor having the right to file any legal or equitable action against the Port
Authority or any of its commissioners, officers, directors, employees or agents.” (emphasis
added).
31
Co., 604 S.W.2d 247, 254 (Tex. App.—Houston [14th Dist.] 1980, writ ref’d
n.r.e.) (change-order requirement); Bd. of Regents of Univ. of Tex. v. S & G Constr.
Co., 529 S.W.2d 90, 96 (Tex. Civ. App.—Austin 1975, writ ref’d n.r.e.) (change-
order requirement), overruled on other grounds by Fed. Sign v. Tex. S. Univ., 951
S.W.2d 401 (Tex. 1997).16 Thus, because the Port materially breached the
Contract, it is barred from invoking sections 5.41 and 5.42 to bar Zachry’s claims
for damages.17
Under these circumstances, we overrule the Port’s fourth issue.
V. Exclusion of Port’s Evidence of Harms/Losses
The Port asserts in its fifth issue that the trial court abused its discretion by
excluding evidence of its harm and losses due to Zachry’s failure to perform in
accordance with the Contract. In its related sixth issue, the Port contends that the
trial court erred or abused its discretion by continuing to exclude (as a discovery
sanction) a “subset of evidence” of its harms and losses even after the court held
16
The Port argues that this line of cases does not apply if the contractor continued to
perform after the breach. The Port is simply wrong; in all these cases, the contractors continued
to perform after the defendants breached. See, e.g., N. Harris Cty. Jr. Coll. Dist., 604 S.W.2d at
254 (“At the point of the breach, when the College failed to change its specifications to conform
to the actual soil condition, Fleetwood was given the choice of stopping work and recovering
under the contract or continuing to work and claiming damages caused by the breach. Fleetwood
chose to continue and sue for damages, and the College cannot now insist on enforcement of the
claims provision.”). None of the cases have been overruled on this basis.
17
The Port also includes a small subsection in this portion of its argument relating to
section 5.08 of the Contract, which permitted Zachry to request additional time in certain
circumstances. This section of the Port’s argument provides in toto as follows:
The court erred/abused its discretion by excluding evidence that, despite the R&R
response, Zachry never exercised its §5.08 right to seek more time to perform.
This evidence went to causation; had Zachry viewed the R&R response as a
breach causing the switch to “in the wet,” Zachry would have invoked §5.08 and
sought more time.
(record citations omitted). The Port has failed to “make a clear and concise argument for the
contentions made, with appropriate citations to authorities and to the record.” Tex. R. App. P.
38.1(i). Thus, it has waived this sub-issue by inadequate briefing.
32
that Zachry had “opened the door” to evidence of these harms and losses. We
begin with a brief overview of the pertinent facts.
A. Facts Pertinent to Exclusion of Port’s Harms/Losses
Zachry filed suit against the Port in 2006, seeking, among other things, the
liquidated damages the Port had withheld from Zachry. On June 3, 2009, the Port
filed its third amended original answer and counterclaim. At that time, the
discovery deadline had expired on January 16, the pleading deadline had expired
on January 23, and trial was set to begin on July 20. In this pleading, the Port, for
the first time, alleged, in pertinent part, the following as a defense:
Zachry agreed to a Milestone A date and the Final Completion date.
Zachry agreed to liquidated damages in the event it failed to meet
these dates. Zachry failed to meet the Milestone A date and the Final
Completion date. In addition, Zachry failed to properly perform Work
and the Port Authority had to pay another contractor to correct or
mitigate harm caused by Zachry’s defective Work. The Port
Authority’s withholding of monies from payments to Zachry is
supported by enforceable provisions of the Contract, including the
right to withhold payments (Section 6.05 of the General Conditions),
the right of offset (Section 6.17 of the General Conditions),[18] the
right to liquidated damages (Section 5.05 of the General Conditions),
the right to actual damages in lieu of liquidated damages (Section 5.06
of the General Conditions),[19] and the Specification and Proposal
18
Section 6.17 states:
Offset:
The Port Authority, without waiver or limitation of any of its other rights
or remedies under this Contract and Applicable Law, shall have the right but not
the obligation to from time to time deduct from any amounts due or owing by the
Port Authority to the Contractor or its surety any and all amounts owed by the
Contractor or its surety to the Port Authority.
19
This section provides that the agreed-to liquidated damages are the minimum amount
of damages suffered by the Port: “If the Port Authority suffers damages in excess of such
minimum amount due to the Contractor’s failure to complete within the Contract Time, the Port
Authority shall have the right to recover its actual damages.” (emphasis added).
33
(setting forth the concept of reduction of the contract price for late
performance). The liquidated damages withheld were a reasonable
forecast of just compensation because the Contract provided for
liquidated damages in lieu of actual damages and because the Port
Authority sustained actual damages in an amount that was not
disproportionate to the liquidated damages.20
The next day, the Port filed its second amended response to Zachry’s request for
disclosure, in which it asserted that Zachry was not entitled to recovery against the
Port for breach of contract because the Port “acted in accordance with the Contract
provisions, including, but not limited to the right to withhold payments (sections
6.05, 6.17, 5.05, and 5.06 of the General Conditions).” The Port further repeated
the above allegations from its amended petition.21
Zachry responded with an interrogatory on June 11, asking the Port to
quantify these harms. The Port responded on July 24—Zachry’s interrogatory
deadline—by quantifying more than $8 million in alleged harms. Yet the Port did
not disclose that it sought to offset these harms against Zachry’s damages; instead,
this interrogatory response quantified harms in the context of the Port’s disclosure
20
In contrast, in its second amended original answer, the Port had alleged more generally
as follows:
Zachry agreed to a Milestone A date and the Final Completion date. Zachry
agreed to liquidated damages in the event it failed to meet these dates. Zachry
failed to meet the Milestone A date and the Final Completion date. The Port
Authority’s withholding of monies from payments to Zachry is supported by
enforceable provisions of the Contract, including the right to withhold payments
(Section 6.05 of the General Conditions), the right of offset (Section 6.17 of the
General Conditions), the right to liquidated damages and actual damages in lieu of
liquidated damages (Sections 5.05 and 5.06 of the General Conditions), and the
Specifications and Proposal (setting forth liquidated damages and the concept of
reduction of the Contract price).
21
Meanwhile, Zachry had attacked the Port’s withholding of liquidated damages as an
invalid penalty when Zachry filed a motion for partial summary judgment on that basis in
December 2008. Although this motion was later denied, the Port was on notice that Zachry
would be seeking to invalidate the Port’s withholding of liquidated damages nearly eighteen
months before the Port set out to quantify its alleged harms/losses.
34
that it “sustained actual damages in an amount that was not disproportionate to the
liquidated damages.” Later, in September, the Port increased its claimed
harms/losses to around $10.5 million but continued to make this disclosure in the
context of proportionality to liquidated damages. The Port did not disclose that it
intended to submit these harms/losses to the jury as an offset to reduce Zachry’s
damages. In fact, the Port’s September 17th draft jury charge did not seek any
findings as to the Port’s actual damages for an offset defense to reduce Zachry’s
damages award.
On September 29, 2009, the Port revealed that it intended to seek its alleged
$10.5 million harms/losses as a defense to reduce any judgment in favor of
Zachry.22 The next day, Zachry moved to strike the Port’s defense and exclude any
evidence in support of these damages. After a flurry of responses, replies, and
hearings, on October 16, the trial court granted in part and denied in part Zachry’s
motion to strike. In its five-page order, the trial court explained in detail its
reasoning:
[The Port] only listed ANY amounts (other than the $600,000.00
dredging issue) of its actual damages that it proposed to serve as an
offset in late July 2009. However, the legal theory under which those
quantities were listed was ONLY the proportionality of its liquidated
damages offset claim to actual damages. Additionally, [the Port] had
timely disclosed $600,000.00 in actual damages much earlier as part
of an offset claim pertaining to certain dredging costs.
To this day, [the Port] has not enunciated in any discovery
response any legal theory that it was seeking to defensively offset or
recoup ANY actual damages other than the $600,000.00 amount.
Zachry allegedly only learned of [the Port’s] apparent attempt to inject
first $8 million and then $10.5 million in actual damages (as opposed
to liquidated damages) as a defensive claim for offset informally, and
not through any supplementation of discovery, such as a supplement
22
At that time, trial was set to begin on October 20.
35
to a request for disclosure under Rule 194.2(c). The Court stated at a
hearing that the surprise to Zachry was not that [the Port] was seeking
an offset, but that it was seeking to offset a long list of itemized
damages as opposed to liquidated damages. It is important to note,
again, that in quantifying its “harms” in July 2009, [the Port] was not
stating that it would actually be seeking to recover those quantities for
those specific harms as an offset.
***
[The Port] argues that this Court’s March 2009 ruling denying
[Zachry’s] motion for summary judgment on the enforceability of the
liquidated damages clause of the contract excused it from pleading
and enunciating in its disclosure responses this alternate theory of
actual damages. The Court wants to be fair, as always, but if
anything, the suggestion by Zachry by its motion that the liquidated
damages clause may not be enforceable should have alerted [the Port]
that it needed to plead this theory and enunciate it in terms of the legal
theory and amounts in its disclosure responses. Further, Zachry again
sought to eliminate the liquidated damages claim by its Rule 166g
Motion on or about July 31, 2009, and [the Port] still has not amended
its Rule 194.2(c) disclosure response to enunciate an actual damages
theory of offset or recoupment, nor sought leave to do so, to the
Court’s knowledge. [The Port’s] inclusion, long ago, of the
$600,000.00 actual damages figure as part of its offset claim also
highlights that [the Port] should have included all of the other
categories and quantities of offsets well before the discovery cutoff.
***
The bottom line is that to inject $10.5 million in actual damages
or recoupment well after all discovery deadlines have passed would
dramatically change the landscape of what promises to be a lengthy
and complicated trial. It is not fair to ask either side to engage in what
the Court perceives would be extensive discovery (including
document production, depositions, and potentially additional expert
witnesses) on the evidentiary bases for the amounts sought to be offset
by [the Port]. The results of that discovery will not be known until
long after voir dire and opening statements, and the trial Court will
not allow that much fluidity and uncertainty into this trial.
36
The trial court permitted the Port to offer the following amounts and categories of
damages as potential offsets to any damages awarded to Zachry: (1) $600,000 for
dredging; (2) “$1 million or so” for damages to wharf fenders; and (3) “$25,000.00
or so” for “cleaning and grubbing.” The trial court excluded the remaining
categories and evidence of offset harms/losses the Port sought to introduce.
Later, during trial, testimony concerning an email from Port personnel,
which was admitted into evidence, was adduced. For example, Zachry’s Anderson
testified regarding the email and conversation he had with the Port’s personnel.
Anderson testified and a Port email to the Port’s Chief Engineer DeWolf stated that
the Port would not charge Zachry the liquidated damages penalty “if no expense or
loss” to the Port occurred. Anderson testified that Project Engineer Jim McQueen
told him during a meeting that, although Zachry had sought an extension of time
due to a concrete shortage, the Port was denying the time extension, but would not
charge Zachry penalties “since the [crane ship from China] ha[d] been delayed in
its arrival time” and “there were no damages done.”
The Port argued that testimony about this email, as well as the email itself,
opened the door to evidence of its harms/losses that had been excluded pre-trial.
The trial court agreed that Zachry had opened the door to evidence of harms/losses,
later clarifying by a written order that Zachry had opened the door to this evidence
“to a degree” and only up to the date that the Port notified Zachry that it would be
charging liquidated damages, i.e., May 15, 2006. However, in this same order, the
trial court concluded that, under Texas Rule of Evidence 403, “any probative value
of injecting all of the evidence of alleged harms into the trial would be
substantially outweighed by the danger of (1) unfair prejudice to Zachry, and (2)
considerations of undue delay.”
37
The Port complains about both the trial court’s pre-trial ruling excluding
evidence of its harms/losses and the trial court’s Rule 403 ruling during trial. With
this factual background in mind, we consider each of these issues in turn, bearing
in mind that we apply an abuse of discretion standard to the question of whether a
trial court erred in an evidentiary ruling. U-Haul Int’l, Inc. v. Waldrip, 380 S.W.3d
118, 132 (Tex. 2012) (“Evidentiary rulings are committed to the trial court’s sound
discretion.”). Further, even if the trial court erred in its evidentiary ruling,
“reversal is only appropriate if the error was harmful, i.e., it probably resulted in an
improper judgment.” Id.B. Pre-trial Exclusion
The Port challenges the pre-trial exclusion of this evidence in its fifth issue.
Our Rules of Civil Procedure provide that a party may request disclosure of “the
legal theories and, in general, the factual bases of the responding party’s claims or
defenses” or “the amount and any method of calculating economic damages.” Tex.
R. Civ. P. 194.2(c), (d); see also Tex. R. Civ. P. 194.6 cmt. 2 (explaining that a
defendant in a negligence suit involving a car wreck “would be required to disclose
his or her denial of . . . any basis for contesting the [plaintiff’s] damage
calculation”). Further,
[a] party who failed to make, amend, or supplement a discovery
response in a timely manner may not introduce in evidence that
material or information that was not timely disclosed . . . unless the
court finds that:
(1) there was good cause for the failure to timely make, amend, or
supplement the discovery response; or
(2) the failure to timely make, amend, or supplement the discovery
response will not unfairly surprise or unfairly prejudice the other
parties.
38
Tex. R. Civ. P. 193.6(a). The party seeking to introduce the evidence bears the
burden of establishing good cause or lack of unfair surprise or unfair prejudice.
Tex. R. Civ. P. 193.6(b). Finally, it is within the trial court’s discretion to
determine whether the party offering the evidence has abided by the appropriate
disclosure rule. Cf. Sharp v. Roadway Nat’l Bank, 784 S.W.2d 669, 671 (Tex.
1990) (per curiam) (“However, if the trial court finds that the party offering the
testimony had good cause for failing to supplement, it may, in its discretion, admit
the testimony.”)
The Port claims that the trial court “misread” Zachry’s interrogatory and the
Port’s response. The Port urges that its reference to “offset” in its disclosure and
later interrogatory response quantifying its harms/losses were sufficiently timely
such that the trial court “wrongly” excluded this evidence. Finally, the Port
suggests that neither Zachry’s interrogatory nor the Port’s response mentioned
proportionality or limited the relevance of the quantified harms/losses to
proportionality of the liquidated damages.
But we do not examine these pleadings in a vacuum. Despite the Port’s
assertions that neither Zachry’s interrogatory nor the Port’s response mention
liquidated damages, it is clear from the context of the pleadings at issue that the
Port was quantifying its alleged damages in an effort to establish proportionality to
the liquidated damages it had withheld. Further, as the trial court stated in its
order, the Port did not detail the $8.5 million of actual damages it sought as an
offset until July 2009, months past the January 2009 discovery deadline. And as
the trial court opined, the Port was on notice well before the discovery deadline
that Zachry was seeking to have the liquidated damages provision invalidated. We
additionally note that the Port admittedly was aware of the amounts and categories
of its alleged actual harms/losses before the discovery deadline.
39
In light of the foregoing, we cannot say the trial court abused its discretion in
concluding that the Port did not meet its burden to establish good cause or the lack
of unfair surprise or unfair prejudice. See Tex. R. Civ. P. 193.6(b); Perez v.
Williams, 474 S.W.3d 408, 420–21. We overrule the Port’s fifth issue.
C. Trial Exclusion of Evidence
The Port contends in issue six that the trial court’s exclusion of this
harms/loss evidence after Zachry “opened the door” to this evidence “skewed the
trial on two of four [no damages for delay] ‘exceptions’—bad faith and
arbitrary/capricious.” The Port asserts that a trial court must admit “open the door”
evidence without performing a Texas Rule of Evidence 403 balancing test, relying
on Horizons/Healthcare v. Auld, 34 S.W.3d 887, 905–07 (Tex. 2000). Yet no Rule
403 analysis was performed in Auld, contrary to the Port’s contention. See id.Here, the trial court performed a Rule 403 balancing analysis. The trial court
articulated a basis for its Rule 403 reasoning, including but not limited to the
absence of any basis to relieve the Port of the prior discovery sanction or to compel
Zachary to cross examine witnesses on damages for which it had had no discovery
opportunity—all with little probative value. The Port has not offered any
substantive analysis or cited any appropriate authority concerning the propriety of
the trial court’s analysis.23
In short, the Port has failed to establish that the trial court’s exclusion of this
evidence, even if erroneous, probably resulted in an improper judgment. See U-
Haul Int’l, Inc., 380 S.W.3d at 132; see also Tex. R. App. P. 44.1(a). Under these
circumstances, the Port’s sixth issue is overruled.
23
And the Texas Court of Criminal Appeals has held, in considering the very same rules
of evidence, that “even if a party opens the door to rebuttal evidence, the trial judge still has the
discretion to exclude the evidence under Rule 403.” Hayden v. State, 296 S.W.3d 549, 554 (Tex.
Crim. App. 2009).
40
VI. No-Damages-for-Delay Fraud Instruction
The Port urges in its seventh issue24 that the fraud definition included in the
no-damages-for-delay portion of the jury charge was erroneous because it
permitted the jury to find fraud based on reckless, rather than intentional, behavior.
The Port complains that the type of fraud at issue—a promise of future
performance made with no intent to perform—must be intentional, not reckless.
Yet the Supreme Court explicitly held, “The charge correctly described the
misconduct that cannot be covered by a no-damages-for-delay provision.” Zachry
Constr. Corp., 449 S.W.3d at 117. The Port’s argument ignores the law-of-the-
case doctrine. Under this doctrine, a decision rendered in a former appeal of a case
is generally binding in a later appeal of the same case. Paradigm Oil, Inc. v.
Retamco Operating, Inc., 372 S.W.3d 177, 182 (Tex. 2012) (citing Briscoe v.
Goodmark Corp., 102 S.W.3d 714, 716 (Tex. 2003)).
We are bound by the Texas Supreme Court’s express holding that the charge
“correctly described the misconduct that cannot be covered by a no-damages-for-
delay provision.” Thus, this issue is without merit, and we overrule it.
VII. Apparent Authority Instruction
In issue eight, the Port raises various challenges to the trial court’s apparent
authority instruction to the jury, including that Zachry failed to plead that CH2M
Hill acted with the Port’s apparent authority.25 At bottom, if Zachry pleaded
apparent authority, then the trial court did not err in instructing the jury on this
matter so long as it was raised by the evidence. See Tex. R. Civ. P. 278 (“The
24
This issue is not presented in the Port’s “issues presented” section of its brief, but is
urged in the Port’s argument section.
25
Importantly, as noted above, nothing on the face of the R&R order indicates it was
issued by CH2M Hill; instead, it bears the seal of the Port of Houston.
41
court shall submit the questions, instructions and definitions in the form provided
by Rule 277, which are raised by the written pleadings and the evidence.”). The
Port does not assert that this issue was not raised by the evidence. Indeed, the
Port’s Chief Engineer DeWolf testified that he had designated CH2M Hill to be his
“representative” in exchanging information with Zachry. Other evidence
established that the Port expected Zachry to rely on CH2M Hill’s communications,
that CH2M Hill was DeWolf’s representative, that CH2M Hill was the Port’s
primary contact with Zachry, and that the Port’s executives treated CH2M Hill like
the Port’s own staff.
We thus examine Zachry’s pleadings to determine whether it sufficiently
pleaded apparent authority, bearing in mind that the trial court stated on the record
that Zachry pleaded apparent authority. Zachry pleaded that the Port “expressly
charged and designated its Construction Manager, CH2M-Hill, to act on its behalf
on this critical cutoff-wall issue.” Zachry additionally referred to the CH2M Hill
as the Port’s designated agent. The purpose of pleadings is to give adversaries
notice of each party’s claims and defenses, as well as notice of the relief sought.
Perez v. Briercroft Serv. Corp., 809 S.W.2d 216, 218 (Tex. 1991). Generally, in
the absence of special exceptions, a petition will be construed liberally in favor of
the pleader. Roark v. Allen, 633 S.W.2d 804, 809 (Tex. 1982). The Port did not
specially except to Zachry’s pleadings; thus Zachry’s pleadings must be construed
liberally.
Although Zachry did not use the term “apparent authority,” Zachry’s
allegation is sufficient to give notice to the Port that it faced a claim that CH2M
Hill had apparent authority to act on the Port’s behalf. See Tex. R. Civ. P. 45; see
also Iron Mountain Bison Ranch, Inc. v. Easley Trailer Mfg., Inc., 42 S.W.3d 149,
157 (Tex. App.—Amarillo 2000, no pet.). The distinguishing factor between
42
actual and apparent authority is to whom such authority is communicated: “An
agent’s authority to act on behalf of a principal depends on some communication
by the principal either to the agent (actual or express authority) or to the third party
(apparent or implied authority).” Gaines v. Kelly, 235 S.W.3d 179, 182 (Tex.
2007). If the Port questioned what was being pleaded, it had the option of
specially excepting and having the pleading clarified. See Tex. R. Civ. P. 91.
In sum, we cannot conclude that the trial court abused its discretion in
determining that Zachry adequately pleaded apparent authority, especially in light
of the Port’s failure to specially except to Zachry’s petition. We thus overrule the
Port’s eighth issue.
VIII. Attorney’s Fees
In its ninth issue, the Port asserts that it is entitled to attorney’s fees because
Zachry’s R&R claim “should be rendered.” Because we have determined that
Zachry’s R&R claim should not be reversed and rendered, there is no basis for the
Port’s attorney’s fee claim. Accordingly, we overrule the Port’s ninth issue.
IX. Zachry’s Pass-Through Damages
In January 2008, Zachry reorganized. The work on this Contract going
forward was performed by a new Zachry entity, which the parties refer to as the
“Sub,” a term we will adopt for ease of reference.26 The jury found, in Question
No. 5, that $8,578,712 of the $18,602,697 R&R damages were costs incurred by
26
In 2007, the Sub was formed as ZCC Corporation, Zachry took a new name (Zachry
Industrial, Inc.), and the Sub changed its name to Zachry Construction Corporation (Zachry’s
former name). In April 2009, Zachry entered into the subcontract with the Sub, but the
subcontract was effective January 1, 2008—the date the Sub began performing Zachry’s
obligations under the Contract. It is undisputed that the Port never consented to Zachry
assigning the Contract to the Sub. But, the contract between Zachry and the Sub—the
Management Services Agreement—provides that the contract was not and had not been assigned
to the Sub, and Zachry remained fully liable to the Port under the terms of the Contract.
43
the Sub. In its tenth issue, the Port contends that Zachry cannot recover this
amount because (1) Zachry did not own the claim for these damages; (2) Zachry
cannot recover these damages as a purported “pass-through” claim;27 (3) Zachry
failed to establish its liability to the Sub for these damages; and (4) charge error
tainted the jury’s finding to Question No. 5. We consider those arguments
necessary to resolve this issue next.
A. Zachry May Recover these Damages as a Pass-Through Claim
The Port contends Zachry cannot assert a pass-through claim because it
hired the Sub after PHA’s breach, and thus the Port’s “breach . . . did not cause
Zachry to breach the subcontract.” But nothing in the seminal case approving
pass-through agreements requires a breach by Zachry:
We hold that Texas recognizes pass-through claims. Consequently, if
the contractor is liable to the subcontractor for damages sustained by
the subcontractor, pursuant to a pass-through agreement the contractor
can bring an action against the owner for the subcontractor’s damages.
If the owner contests the contractor’s pass-through suit on grounds
that the contractor is not liable to the subcontractor for the claimed
damages, the owner bears the burden of proof.
Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605, 607, 619–20 (Tex.
2004). Thus, the court in Interstate Contracting required only that Zachry “remain
liable to the subcontractor for damages sustained by the subcontractor.” Id. at 619.
The Interstate Contracting court also recognized a general contractor’s decision to
27
A pass-through claim is a claim (1) by a party who has suffered damages (in this case,
the Sub), (2) against a responsible party with whom it has no contract (here, the Port); and
(3) presented through an intervening party (Zachry) who has a contractual relationship with both.
Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605, 610 (Tex. 2004) (citing Carl A.
Calvert, Pass Through Claims and Liquidation Agreements, Construction Lawyer, Oct. 18, 1998,
at 29; 3 Bruner and O’Connor on Construction Law § 8:51 (2003)). “Instead of one lawsuit
between a subcontractor and general contractor and another between the general contractor and
the owner, pass-through claims permit a contractor to pursue its subcontractor’s claims directly
against the owner.” Id. (citing 3 Bruner and O’Connor on Construction Law § 8:51).
44
hire a subcontractor to perform work necessitated by the owner’s breach does not
preclude the contractor from recovering the cost for the sub. Id. at 611.
“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.
Zachry established its continuing liability to the Sub for the costs the jury
assessed. In the Management Services Agreement (“MSA”) between Zachry and
the Sub, Zachry promised (1) “to pay to [the Sub] the Reimbursable Costs” the Sub
incurred while performing services for Zachry, and (2) to pay to the Sub any
payments it received from the Port. In the Pass-Through Agreement between the
two, Zachry “agree[d] . . . it is liable to [the Sub], to present the [the Sub’s] Claims
and remit any recovery from the Port of Houston to [the Sub], in accordance with
the terms of this Agreement.” The burden therefore shifted to the Port to negate
this continuing liability: “If the owner disputes that this requirement [of continuing
liability] has been met, it 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.” Id. at 619–20.
Referencing section 3.2 of the MSA, the Port asserts Zachry might not
remain liable to the Sub by speculating that owners on other MSA contracts might
have paid Zachry more than the Reimbursable Costs on their contracts. This
section provides, in pertinent part,
Zachry shall have no obligation to pay or reimburse [the Sub] for any
Reimbursable Costs in excess of the Contract Payments. Therefore, if
the Contract Payments received by [the Sub] are less than the
Reimbursable Costs, Zachry will have no liability for any such
shortfall. If the Contract Payments exceed the Reimbursable Costs,
the parties shall confer and agree upon a mutually satisfactory
45
allocation of any such excess amounts between the Parties consistent
with the intents and purposes of the Corporate Restructuring.
According to the Port, any excess payments from any other contracts controlled by
the MSA would limit Zachry’s liability for reimbursable costs for the Port
Contract. But the MSA unambiguously states, “Zachry agrees to pay to [the Sub]
the Reimbursable Costs.” The Port reads section 3.2 of the MSA to limit Zachry’s
obligation to pay reimbursable costs when contract payments exceed reimbursable
costs. But this section does not suggest that allocation of “such excess amounts”
limits any reimbursable costs Zachry must pay to the Sub on other contracts.
Finally, the Pass-Through Agreement explicitly requires Zachry to “remit any
recovery from the Port of Houston” to the Sub. Thus, there is simply nothing in
any of the agreements that limits Zachry’s liability to the Sub, and the Port has not
born its burden of proving, as an affirmative defense, that the Pass-Through
Agreement negated Zachry’s responsibility for the costs incurred by the Sub. See
id.
Regarding the Port’s assertion that Zachry provided no evidence that it had
any liability to the Sub, Zachry’s vice president, John Abiassi, confirmed Zachry’s
continuing liability to the Sub. Abiassi explained that Zachry was liable to the Sub
for “any costs incurred . . . after January 1 of 2008.” Abiassi further testified that
Zachry agreed to reimburse the Sub for any costs the Sub incurred after January 1
and to remit any claims from this lawsuit that are associated with those costs.
Thus, there is more than a scintilla of evidence that Zachry had continuing liability
to the Sub for the Sub’s costs incurred after January 1, 2008. See City of Keller,
168 S.W.2d at 810.
46
B. Governmental Immunity Does Not Bar the Pass-Through Claims
Finally, the Port further asserts, in two sentences (excluding citations), that
governmental immunity bars Zachry’s pass-through claim: “[The Port] has
immunity for breach of a contract to which [the Port] is not a party. Before
enactment of Chapter 271, the Court in Interstate said immunity may bar a pass-
through claim against the government.” Yet the Texas Supreme Court, in
Interstate Contracting, explained why it specifically chose not to address the issue
of sovereign immunity. Id. at 620 (“Although the questions certified do not limit
our answers, we decline to extend our answers in this case to the issue of sovereign
immunity, which is well beyond the scope of the questions certified. Doing so
would require us to venture into the facts of this particular case and analyze the
merits of the parties’ claims at issue before the Fifth Circuit Court of Appeals,
rather than provide answers solely as to the status of the Texas law on the
questions asked.”). Thus, we disagree with the Port’s assertion that the court in
Interstate Contracting stated that governmental immunity may bar a pass-through
claim.
Further, our sister court in San Antonio was squarely presented with the
issue of whether governmental immunity bars a pass-through claim in City of San
Antonio v. Valemas, Inc., No. 04-11-00768-CV, 2012 WL 2126932 at *1–7 (Tex.
App.—San Antonio June 13, 2012, no pet.) (mem. op.). The San Antonio court,
after a thorough analysis, determined that governmental immunity did not bar the
pass-through claim of the subcontractor. See id. at *7. In determining this issue,
the San Antonio court examined the language of section 271.152 of the Local
Government Code, as well as several other relevant provisions of Chapter 271. See
id. at *5–6. After examining the language of the statutory provisions, the San
Antonio court stated, “We find nothing in any of these sections to show the
47
Legislature intended to exclude pass through claims from the waiver provision in
section 271.152.” Id. at *6. The court of appeals then went on to consider the
legislative history and bill analysis of section 271.152. See id. at *6. The court
noted that the legislative history “strongly suggests” the Legislature intended to
enact a “broad waive for local governmental entities in the contractual setting.” Id.
And the bill analysis suggested that “enactment of section 271.152 was based on
the Legislature’s recognition of the inherent unfairness in allowing governmental
entities to enter into contracts, but then avoid [their] obligations under such
contracts by claiming immunity.” Id.
Ultimately, the San Antonio court explained:
It is common knowledge that when a local governmental entity enters
into a contract for extensive renovations or construction, the general
contractor with whom it contracts will subcontract with others. If a
local governmental entity is immune from pass through claims,
requiring subcontractors to sue the general contractor to recover rather
than rely on the general contractor to pursue such claims, smaller
subcontractors will be less likely to risk entering such agreements-
knowing that in the event the contractor is unable to pay because of
non-payment by the governmental entity they will be forced to engage
in expensive litigation, the cost of which they may not be able to bear,
or simply write the matter off as a loss. This puts subcontractors into
the same position as contractors, and as recognized by the supporters
of the bill that proposed section 271.152 in the context of general
contractors, will make many highly qualified subcontractors,
especially small businesses, hesitant to enter into such contracts. This
will discourage and disadvantage a diverse range of bidding
subcontractors and limit the choices of general contractors in direct
opposition to what the bill was intended to do.
Accordingly, we hold that just as it is inconsistent with the
purpose of section 271.152 to construe it to deny waiver to assignees
of those who enter into contracts subject to subchapter I, so is it
inconsistent to deny waiver to pass through claims brought by a
contractor against a local governmental entity on a subcontractor’s
behalf. To hold otherwise would subject subcontractors to the same
48
risk of non-redressable breach the statue sought to eliminate, resulting
in subcontractors suffering the same problems once suffered by
general contractors prior to the enactment of section 271.152.
Id. at *6–7. We agree with the San Antonio court’s rationale and likewise hold
that governmental immunity does not bar the pass-through claim at issue here. Cf.
Galveston Indep. Sch. Dist. v. Clear Lake Rehab. Hosp., L.L.C., 324 S.W.3d 802,
810 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (“[W]hen a governmental
entity and a contracting party enter into a contract subject to subchapter I and
denominate a third-party beneficiary of that contract, the third-party beneficiary’s
claim for breach of contract falls within the waiver of immunity authorized under
section 271.152.”).
For the above-described reasons, we overrule the Port’s tenth issue in its
entirety.28 See Tex. R. App. P. 47.1.
X. Conclusion
We have addressed and overruled all the issues the Port raised that are
necessary to the disposition of this appeal. See Tex. R. App. P. 47.1. For the
foregoing reasons, we affirm the judgment of the trial court.
/s/ Sharon McCally
Justice
Panel consists of Justices Christopher, Boyce, and McCally.
28
The remainder of the Port’s arguments in this section of its brief are contingent upon
our sustaining one of the issues addressed supra.
49