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

• Decision Date: 09 August 2012
• Docket Number: No. 14–10–00708–CV.,14–10–00708–CV.
• Citation: 377 S.W.3d 841
• Parties: The PORT OF HOUSTON AUTHORITY OF HARRIS COUNTY, Texas, Appellant v. ZACHRY CONSTRUCTION CORPORATION, Appellee.
• Court: Texas Court of Appeals

377 S.W.3d 841

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

v.ZACHRY CONSTRUCTION CORPORATION, Appellee.

No. 14–10–00708–CV.

Court of Appeals of Texas,

Houston (14th Dist.).

Aug. 9, 2012.

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

Jennifer Horan Greer, Robin C. Gibbs, Houston, TX, for Appellee.

Panel consists of Justices BOYCE, CHRISTOPHER, and McCALLY.

MAJORITY OPINION

SHARON McCALLY, Justice.

Zachry Construction Corporation (Zachry) sued the Port of Houston Authority of Harris County, Texas (the Port) for breach of contract arising from the Bayport Terminal Complex Phase 1A Wharf and Dredging Contract. Following a three-month jury trial, the trial court entered a final judgment, awarding Zachry damages in the amount $19,992,697, plus pre- and post-judgment interest. The Port appeals the final judgment in eleven issues. Zachry also brings three issue on cross-appeal. We reverse and render.

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” is that fewer “NOx” emission credits would be consumed. The Port accepted Zachry's bid 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 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 control the means and methods. Zachry hired RKK–SoilFreeze Technologies, which, in turn, hired Dan Mageau of GeoEngineers, a geotechnical engineer, to design the freeze wall.

The contract also 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.

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. The Port and Zachry executed Change Order 4 for the wharf extension on September 27, 2005. Change Order 4 extended the dates for Milestone A to February 15, 2006, and final completion to July 15, 2006.

From Zachry's perspective, Change Order 4 incorporated the April 13 proposal as further modified by the May 18 and July 11 proposals. So, Zachry had Mageau design a frozen cutoff wall (frozen COW), 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. Zachry sent that September 9, 2005 frozen COW design to the Port for “review,” not “approval.” Zachry believed it had the right to use the frozen cutoff wall and to do so with “uninterrupted work process.”

From the Port's perspective, Zachry's September 9, 2005 frozen cutoff wall design was subject to a contractual technical specification that provided the Port with the right to respond. Because the contract specifically provided the Port a right to respond with a “revise and resubmit” (R & R), and because the Port had serious concerns about the design, that is precisely what it did. The Port provided its R & R response that (1) noted preliminary indications that the design may have an indeterminate effect on up to 14 shafts, (2) 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, and (3) allowed Zachry to use the frozen COW design if the shafts were protected.

Ultimately, in late November 2005, Zachry abandoned the frozen COW and switched to an “in the wet” scenario. The Port urges the course was Zachry's voluntary change in recognition that the freeze wall was “killing the schedule.” Zachry urges that it was due to the Port's rejection of the frozen COW (Zachry's means and methods) and unwillingness to depart from the contract deadlines.

In May 2006, the Port notified Zachry that, due to Zachry's delay, the Port would begin withholding liquidated damages from payments on Zachry's monthly invoices. After withholding $2.36 million in liquidated damages, the Port voluntarily stopped withholding liquidated damages.

In late 2006, Zachry sued the Port for breach of contract, i.e., the R & R response, by failing to comply with Change Order 4 and section 5.10 of the contract, for the difference between the cost that Zachry would have incurred had it been allowed to complete the wharf “in the dry,” i.e., using the frozen cutoff wall, and the actual cost Zachry incurred in completing the wharf “in the wet,” i.e., 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 under Change Order 1. The Port filed a counterclaim for attorney's fees under section 3.10 of the contract, which provides that Zachry is liable for the Port's attorney's fees if Zachry brings a “claim” against the Port and “does 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 found that 58.13% of those damages were for delay or hindrance.

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 failed to comply 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 the offset defense in the amount of $970,000 for Zachry's defective work on the Wharf fenders.

The jury found reasonable attorney's fees for the Port with respect to Zachry's claim relating to Change Order 4 and/or section 5.10: (1) $10,500,000 for trial; (2) $90,000 for appeal to the court of appeals; and (3) $22,500 for appeal to the Texas Supreme Court. The jury found reasonable attorney's fees for the Port as to Zachry's claim for withholding the $2.36 million as liquidated damages and the $600,000 for dredging: (1) $80,250 for trial; (2) $3,750 for appeal to the court of appeals; and (3) $1,250 for appeal to the Texas Supreme Court.

In its final judgment, the trial court awarded Zachry damages in the amount of $19,992,697—$18,602,697 plus $2.36 million in liquidated damages, less the $970,000 offset for the defective fenders, pre-judgment interest in the amount of $3,451,022.40, post-judgment interest on the total sum award of $23,443,719, and taxable costs. The trial court did not award the $600,000 withheld for defective dredging that the jury refused to award to Zachry. The trial court did not award attorney's fees to the Port.

In this appeal, the Port claims that the evidence is legally and factually insufficient to support the jury's findings on breach, causation, and damages; governmental immunity bars Zachry's claim for R & R damages; the no-damages-for-delay clause bars Zachry's delay damages; Zachry's failure to obtain a change order bars its recovery of R & R damages; Zachry's failure to provide written notice of a breach bars its R & R damages; governmental immunity bars Zachry's “pass-through” claim damages incurred by its subcontractor; the trial court abused its discretion by excluding evidence of the Port's harms and losses; the Port's failure to comply with the contract by withholding liquidated damages was excused by release, as a matter of law; the trial court erred by instructing the jury on apparent authority; and the Port is entitled to attorney's fees.

In its cross-appeal, Zachry claims it is entitled to judgment, as a matter of law, for the $600,000 the Port withheld for defective dredging; the evidence is legally and factually insufficient to support to support the jury's findings that the Port did not fail to comply with the contract with respect to the fenders; and the evidence is factually insufficient to support the jury's findings on the amount of the Port's attorney's fees.

II. Analysis

A. No–Damages–for–Delay Clause

Because we find the Port's Issue 4A dispositive of the award of R & R damages, we address it first. In Issue 4A, the Port contends that section 5.07's no-damages-for-delay clause bars Zachry's R & R damages. Specifically, the Port...