Port of Hous. Auth. of Harris Cnty. v. Zachry Constr. Corp.

• Court: Texas Court of Appeals
• Writing for the Court: Sharon McCally, Justice
• Citation: Port of Hous. Auth. of Harris Cnty. v. Zachry Constr. Corp., 513 S.W.3d 543 (Tex. App. 2016)
• Decision Date: 15 December 2016
• Docket Number: NO. 14–10–00708–CV,14–10–00708–CV
• Parties: The PORT OF HOUSTON AUTHORITY OF HARRIS COUNTY, Texas, Appellant v. ZACHRY CONSTRUCTION CORPORATION n/k/a Zachry Industrial, Inc., Appellee

513 S.W.3d 543

The PORT OF HOUSTON AUTHORITY OF HARRIS COUNTY, Texas, Appellant

v.ZACHRY CONSTRUCTION CORPORATION n/k/a Zachry Industrial, Inc., Appellee

NO. 14–10–00708–CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion filed December 15, 2016.

Marie R. Yeates, Houston, TX, David E. Keltner, Fort Worth, TX, for Appellant.

Jennifer Horan Greer, Robin C. Gibbs, Houston, TX, Douglas W. Alexander, Austin, TX, for Appellee.

Panel consists of Justices Christopher, Boyce, and McCally.

OPINION ON REMAND

Sharon McCally, Justice

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 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 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 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, 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...