James Constr. Grp., LLC v. Westlake Chem. Corp.

• Decision Date: 20 May 2022
• Docket Number: 20-0079
• Citation: 650 S.W.3d 392
• Parties: JAMES CONSTRUCTION GROUP, LLC and Primoris Services Corporation, Petitioners, v. WESTLAKE CHEMICAL CORPORATION, Respondent
• Court: Texas Supreme Court

650 S.W.3d 392

JAMES CONSTRUCTION GROUP, LLC and Primoris Services Corporation, Petitioners,

v.WESTLAKE CHEMICAL CORPORATION, Respondent

No. 20-0079

Supreme Court of Texas.

Argued October 26, 2021

OPINION DELIVERED: May 20, 2022

Rehearing Denied September 2, 2022

Lisa Erin Hobbs, Kuhn Hobbs PLLC, Austin, Karlene Dunn Poll, Slate & Associates, Houston, for Amici Curiae Associated General Contractors-Texas Building Branch, Associated General Contractors Houston Chapter, Associated General Contractors Austin Chapter, TEXO The Construction Association, Associated General Contractors San Antonio Chapter.

Anthony T. Golz, Houston, Roger D. Townsend, Gregory M. Cokinos, Houston, Robert Naudin Jr., for Petitioner.

Warren W. Harris, Walter Simons, Bracewell LLP, Houston, Shawn D. Blackburn, William R. H. Merrill, Ryan V. Caughey, Susman Godfrey LLP, Houston, for Respondent.

Justice Lehrmann delivered the opinion of the Court, in which Justice Young joined in full, in which Chief Justice Hecht, Justice Devine, Justice Busby, and Justice Bland joined as to Parts I and II(D), and in which Justice Boyd, Justice Blacklock, and Justice Huddle joined as to Parts I, II(A), II(B), II(C), and II(E).

This case arises out of a construction contract dispute and involves competing claims of breach stemming from the owner's replacement of a contractor for safety violations and the owner's claimed entitlement to excess costs incurred in having to change contractors. The jury found that both the owner and the contractor breached the contract in various respects and awarded damages and attorney's fees to both. The principal issues raised in this Court are: (1) whether the owner's entitlement to recover contract damages associated with a termination of the contractor for default hinged on strict (or only substantial) compliance with the written-notice conditions precedent to such recovery; (2) if substantial compliance with the notice conditions was sufficient, whether legally sufficient evidence supports the jury's finding of compliance despite the fact that at least two of the required notices were not given in writing; and (3) whether a contractual provision barring recovery of consequential damages merely waived liability for such damages or constituted a covenant not to sue, such that asserting a claim to recover consequential damages amounted to a breach of the contract.

The court of appeals held, among other things, that strict compliance was not required, that legally sufficient evidence supported the jury's substantial-compliance findings, and that the contractual provision governing consequential damages was a liability waiver, not a covenant not to sue. Accordingly, the court of appeals affirmed the portion of the trial court's judgment awarding damages and attorney's fees to the owner but reversed as to the contractor.

We agree with the court of appeals that, as a general matter under Texas law, a party's substantial compliance with contractual notice conditions is sufficient to satisfy those conditions. However, when a contract mandates written notice, a writing is a necessary part of complying with that condition, substantially or otherwise. A contrary holding would allow parties to elude the bargain they freely made and would open the door to a host of factual disputes about whether proper contractual notice was given—the very kinds of disputes that the writing requirement is intended to foreclose.

Because the owner failed to provide the requisite written notices to be entitled to recover expenses associated with a termination for default, and because we disagree with the owner's alternative argument that it was independently entitled to recover those same expenses under a different contractual provision, the judgment awarding them to the owner cannot stand. However, the portion of the judgment awarding the owner damages for the contractor's breach of an indemnity provision in the contract was properly upheld. Further, we agree with the court of appeals that the contract did not contain a covenant not to sue for consequential damages and thus hold that the portion of the judgment awarding damages to the contractor was properly reversed. Accordingly, we affirm the court of appeals’ judgment in part, reverse it in part, and remand the case to the trial court for further proceedings consistent with this opinion.

I. Background

A. Facts and Pertinent Contractual Provisions

In May 2012, Westlake Chemical Corporation, on behalf of its subsidiary Westlake Vinyls Company, L.P.,¹ hired James Construction Group, LLC, as a general contractor to perform civil and mechanical construction work on Westlake Vinyls’ chlor-alkali plant in Geismar, Louisiana. Primoris Services Corporation, James's parent company, guaranteed the contract.

The contract itself did not obligate Westlake Chemical to assign James any work. Rather, under Section 1.2, if Westlake wanted James to "perform certain services and/or provide equipment, materials, supplies or other products," and James "agree[d] to perform and/or provide such Work," then Westlake would issue a work order for James to execute.² The contract confirmed that "[u]nless and until a Work Order has been executed by the Parties," Westlake was not obligated "to retain [James] for any Work" and James was not obligated "to accept any request for any Work." Further, Westlake was entitled to "retain other contractors to perform comparable work" as it saw fit.³

James was contractually "responsible for the safety and health of its employees and Subcontractors" and "for the adequacy, stability and safety of all operations, construction temporary facilities, construction equipment and the construction site and methods necessary for the performance of the Work." At the same time, the contract gave Westlake certain rights to "intervene" if it had safety concerns. Specifically, Section 17.2 authorized Westlake "to intervene in any appropriate way" if in its reasonable opinion James was, among other things, "performing its duties under th[e] Contract in an unsafe way or manner" that Westlake "believe[d] may cause injury or damage to persons or property." In such cases, Westlake had the "right to require [James] to immediately take remedial action," and James would be "solely accountable for all costs associated with such intervention and remedial action" regardless of who incurred the costs.

Section 21 of the contract governed termination. Under Section 21.2, either party could cancel the contract with sixty days’ written notice. Section 21.5 further authorized Westlake, "at any time," to terminate the contract "for [Westlake's] convenience and without cause." James was required to take certain actions upon receipt of written notice of Westlake's termination for convenience and was "entitled to receive payment for Work executed, and reasonable actual costs incurred by reason of such termination."

Finally, Section 21.3 authorized Westlake to terminate James for "[d]efault" if Westlake determined "in its reasonable opinion" that James, among other things, had "serious safety violations."⁴ To terminate under Section 21.3, Westlake was required to give James three notices: (1) notice that Westlake had determined there were serious safety violations, triggering a seventy-two-hour window for James to "begin to remedy" the violations; (2) notice that Westlake was "not reasonably satisfied with the pace and the quality of the remediation effort"; and (3) notice that Westlake had elected to terminate the contract or a portion of the work. Per Section 9.1, all notices given pursuant to the contract were required to be in writing. Upon termination of the contract under Section 21.3, Westlake had the "right to take possession of the Work or the portion thereof terminated" and to complete that work, with James being responsible for "[a]ny extra costs in excess of the Contract Price incurred by [Westlake]."

Following the contract's execution, James performed both civil and mechanical work on the project on a cost-reimbursable basis in accordance with work orders issued by Westlake. The record shows that James had several safety incidents between May 2012 and April 2013—when Westlake transferred all remaining mechanical work to another contractor—including multiple "OSHA-recordable" injuries and "near misses." Though the parties dispute the precise nature, severity, and cause of many of the safety incidents, it is undisputed that James was cited for a serious safety violation that occurred on December 28, 2012, when James employee Gregory Price suffered a fatal injury on the job.⁵

Immediately following the incident, the parties began discussing James's safety record. In an internal Westlake email to project manager Abram Kuo and others, Westlake Vice President Andrew Kenner began inquiring about James's Total Recordable Incident Rate and proposed a safety review with James to "show us how" James would prevent further such incidents, saying that "[t]his was completely preventable." Kuo forwarded that email to other Westlake employees and copied James's project site manager Rusty DeBarge, adding "see Andrew's comment" and stating that "[w]e have to develop preventive safety mind set [sic] with some extraordinary measure[s] on job safety." Kuo further noted in the email that he would be at the project office on January 2, 2013, for a safety meeting that James's management had "been asked to attend." Kenner testified that the meeting's focus was on improving safety performance "to make sure we didn't have another serious incident."

After the meeting, Westlake internally discussed the possibility of moving a portion of the mechanical work to another contractor "so that James could have a better chance to manage their scope and keep their project safe." The next day, January 3, Kuo contacted Turner Industries Group, LLC, about potentially taking over some of that work.

For James's part, on January 9, a week after the meeting, DeBarge sent an...