Martin K Eby Construction Company Inc v. Dallas Area Rapid Transit, No. 03-10728 (Fed. 5th Cir. 5/18/2004)

Decision Date18 May 2004
Docket NumberNo. 03-10728.,03-10728.
CourtU.S. Court of Appeals — Fifth Circuit

Appeal from the United States District Court for the Northern District of Texas.

Before KING, Chief Judge, and BENAVIDES and CLEMENT, Circuit Judges.

KING, Chief Judge:

Plaintiff-Appellant Martin K. Eby Construction Company, Inc. (Eby) appeals the district court's judgment dismissing its action against Defendant-Appellee Dallas Area Rapid Transit (DART). Agreeing with the lower court that Eby must exhaust administrative remedies before pursuing this action, we affirm.

I. Background
A. Facts

DART is a regional transportation authority created under Chapter 452 of the Texas Transportation Code. See Williams v. Dallas Area Rapid Transit, 242 F.3d 315, 317 (5th Cir. 2001); see also In re Dallas Area Rapid Transit, 967 S.W.2d 358, 359 (Tex. 1998). In April 2002, after a competitive-bidding process, DART awarded to Eby a contract to build a section of DART's light-rail transit line near downtown Dallas. Construction commenced in June 2002. During the first six months of work on the project, Eby made little progress. According to Eby, this delay was caused by numerous deficiencies and inaccuracies in the designs that were contained in DART's bid solicitation. In DART's view, however, Eby bears significant responsibility for the construction delays. Regardless of the cause of the delays, we must determine whether Eby can pursue its suit without first exhausting administrative remedies.

DART's Administrative Dispute-Resolution Process

DART's bid solicitation for the light-rail project—which is incorporated into the parties' contract as an exhibit—contains a provision stating that the bidder, by responding to the solicitation, "agrees to exhaust its administrative remedies under . . . [1] [DART]'s Procurement Regulations or [2] the Disputes Clause of any resulting contract" before "seeking judicial relief of any type in connection with any matter related to this solicitation, the award of any contract, and any dispute under any resulting contract." DART's procurement regulations contain procedures for resolving disagreements with its contractors. They were promulgated in accordance with express statutory authority; the Texas Legislature has empowered regional transportation authorities, such as DART, to "adopt and enforce procurement procedures, guidelines, and rules . . . covering: [inter alia] the resolution of . . . contract disputes." TEX. TRANSP. CODE ANN. § 452.106(a)(2)(C) (Vernon 1999). Also, the contract between DART and Eby contains a disputes clause, which requires the contractor, Eby, to submit its grievances to DART's administrative process before seeking judicial review.

DART's procurement regulations and the contract's disputes clause both provide for a similar administrative dispute-resolution process, and the regulations contain greater detail. Both encompass a broad range of potential disagreements. The disputes clause applies to "any dispute concerning a question of fact or law arising under or related to [the] contract." Expounding on the coverage of DART's administrative process, DART's regulations state that the process covers "controversies between [DART] and a contractor which arise under, or by virtue of, a contract between them," including, "without limitation, controversies based upon breach of contract, mistake, misrepresentation, or other cause for contract modification, reformation, or rescission." The regulations further explain that the "word `controversy' is meant to be broad and all-encompassing," applying to "the full spectrum of disagreements from pricing of routine contract changes to claims of breach of contract."

The regulations and the disputes clause both mandate that controversies be submitted to the contracting officer—the person executing the contract on behalf of DART—for resolution.1 The decision of the contracting officer is final unless the contractor appeals within ninety days. Administrative appeals are heard by DART's authorized representatives, who are mostly current or former members of the federal Armed Services Board of Contract Appeals. DART also has promulgated a set of extensive procedural rules for adjudicating appeals; the rules envision a quasi-judicial proceeding that includes, among other things, discovery and a de novo hearing where the contractor can be represented by counsel.

Regarding the finality of the administrative decision, the regulations and the disputes clause contain nearly identical language: "The decision . . . shall be final and conclusive as to questions of fact unless determined by a court of competent jurisdiction to have been fraudulent, capricious, arbitrary, so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence."2 Further, the administrative resolution is not final on questions of law. The regulations and the disputes clause permit a dissatisfied contractor to seek judicial review of the administrative decision within two years of the contractor's receipt of the decision.

Although Eby did not submit its grievances to the administrative process described above, it asserts that it complained to DART regarding the allegedly inadequate bid specifications. According to Eby, DART neither accepted responsibility for the design defects nor compensated Eby for most of the cost overruns that it had incurred in performing the work.3 Substantial construction remains to be done, and Eby anticipates significant additional losses if it is forced to complete the project. Frustrated with this state of affairs, Eby filed suit in federal court against DART in January 2003.

B. Proceedings in the District Court

In its complaint, Eby pleaded two causes of action: breach of contract and misrepresentation. As remedies, Eby sought rescission of the agreement and compensation on a quantum meruit basis. In response, DART moved to dismiss, contending first that Eby had failed to state a claim on which relief could be granted because it had not exhausted its administrative remedies. Second, DART asserted that Eby's misrepresentation claim should be dismissed because it is a tort claim and governmental immunity bars tort claims against DART.

The district court granted DART's motion to dismiss both of Eby's claims under Rule 12(b)(6). First, the court held that Eby could not pursue its breach-of-contract claim without first exhausting the administrative procedure that has been established by DART in accordance with Texas statutory law and incorporated into the parties' contract.4 Second, the court concluded that governmental immunity bars Eby's tort claim of misrepresentation. Accordingly, in July 2003, the district court entered a judgment that Eby take nothing on its claims against DART.5 Eby appeals, challenging both of the district court's rulings.

II. Standard of Review

The grant of a Rule 12(b)(6) motion to dismiss is reviewed de novo. Gregson v. Zurich Am. Ins. Co., 322 F.3d 883, 885 (5th Cir. 2003). Further, this court accepts "all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999). "Thus, the court should not dismiss [a] claim unless the plaintiff would not be entitled to relief under any set of facts or any possible theory that [it] could prove consistent with the allegations in the complaint." Id.

III. Eby's Breach-of-Contract Claim

Eby maintains that the district court erred by requiring it to exhaust DART's administrative dispute-resolution process before seeking relief for breach of contract in a court of law. It challenges both the district court's reliance on the parties' contract and the court's reliance on the dispute-resolution procedures promulgated by DART at the direction of the Texas Legislature. Defending the district court's judgment, DART primarily contends that the doctrine of exhaustion of administrative remedies requires Eby to submit its grievances to DART's administrative process before pursuing judicial review. Alternatively, DART relies on both its bid solicitation and the parties' contract in maintaining that Eby agreed to exhaust administrative remedies before seeking judicial review.

As DART asserts, Texas courts generally do require a party to exhaust its administrative remedies before seeking judicial review of the decision of a governmental entity. See Tex. Dep't of Transp. v. Jones Bros. Dirt & Paving Contractors, Inc., 92 S.W.3d 477, 484-85 (Tex. 2002); Tex. Educ. Agency v. Cypress-Fairbanks I.S.D., 830 S.W.2d 88, 89-90 & n.1 (Tex. 1992); Tex. State Bd. of Exam'rs in Optometry v. Carp, 343 S.W.2d 242, 246-47 (Tex. 1961); Firefighters' & Police Officers' Civil Serv. Comm'n v. Herrera, 981 S.W.2d 728, 732 (Tex. App.—Houston [1st Dist.] 1998, pet. denied); Caspary v. Corpus Christi Downtown Mgmt. Dist., 942 S.W.2d 223, 226 (Tex. App.—Corpus Christi 1997, writ denied); Bandera Downs, Inc. v. Alvarez, 824 S.W.2d 319, 321 (Tex. App.—San Antonio 1992, no writ); see also Glasscock Underground Water Conservation Dist. v. Pruit, 915 S.W.2d 577, 580 (Tex. App.—El Paso 1996, no writ) ("In most instances, a party must exhaust available administrative remedies before resorting to the courts." (citing Webb County Appraisal Dist. v. New Laredo Hotel, Inc., 792 S.W.2d 952, 954 (Tex. 1990))). But, as Eby notes, none of these cases is precisely on point; they all deal with administrative procedures codified in a statute.6 DART's dispute-resolution process, by contrast, is found only in its own procurement regulations and in the parties' contract. Thus, this case presents a question of first impression in Texas— i.e., whether a contractor can sue a regional transportation authority for breach of contract without first submitting its claim to the authority's administrative...

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