Powell Elec. Sys., Inc. v. Hewlett Packard Co.

• Decision Date: 12 August 2011
• Docket Number: No. 01–09–00876–CV.,01–09–00876–CV.
• Parties: POWELL ELECTRICAL SYSTEMS, INC. f/k/a Powell Electrical Manufacturing Company, Appellant and Cross–Appellee, v. HEWLETT PACKARD COMPANY, Appellee and Cross–Appellant.
• Court: Texas Court of Appeals

356 S.W.3d 113

POWELL ELECTRICAL SYSTEMS, INC. f/k/a Powell Electrical Manufacturing Company, Appellant and Cross–Appellee,

v.HEWLETT PACKARD COMPANY, Appellee and Cross–Appellant.

No. 01–09–00876–CV.

Court of Appeals of Texas, Houston (1st Dist.).

April 28, 2011.Rehearing Overruled Aug. 12, 2011.

Thomas C. Wright, Wright & Close, L.L.P., Houston, TX, for Appellant.

Constance H. Pfeiffer, Troy Ray Ford, Beck, Redden, & Secrest, L.L.P., Houston, TX, for Appellee.

Panel consists of Chief Justice RADACK and Justices ALCALA and BLAND.

OPINION

JANE BLAND, Justice.

Crossed wires caused an on-site electrical transformer to blow, necessitating repairs and the use of a temporary transformer while the blown transformer was out of commission. The manufacturing plant owner sued its electrical services company for breach of contract and breach of warranty. The trial court rendered judgment on the jury's verdict favoring the owner. On appeal, Powell Electrical Systems, Inc. (“Powell”) asserts that (1) all of the damages awarded by the jury are contractually barred consequential damages, (2) because the damages are barred, Hewlett Packard Company (“HP”) is not entitled to attorney's fees as a prevailing party, and (3) the liability questions that the trial court submitted erroneously conflate proper and improper theories of liability. In a cross-appeal, HP argues that the jury's damages and attorney's fees findings impermissibly reduce the awards to fifteen percent less than the amount conclusively established by the evidence and that it is entitled to appellate attorney's fees.

We conclude that (1) most of the damages the jury awarded are direct damages, but the damages relating to loss of use are consequential damages, (2) the jury charge is proper, (3) HP did not establish the full amount of its damages as a matter of law and thus is not entitled to an increased award, (4) the jury's take-nothing award for appellate attorney's fees is not supported by legally sufficient evidence, and (5) in light of our reduction of HP's damages, the jury's award for attorney's fees at trial must also be remanded. We therefore reverse the trial court's judgment with respect to the award of damages pursuant to the jury findings on damage elements (d) and (e), relating to costs for loss of use, and reform the judgment accordingly. We reverse the trial court's judgment with respect to the award of attorney's fees at trial and on appeal and remand those issues. We affirm the trial court's judgment in all other respects.

Background

HP owns a manufacturing facility in Houston with its own power substation. The substation uses a two-transformer system to power the facility. Powell designs, manufactures and installs electrical equipment. HP contracted with Powell to perform breaker retrofitting services at the substation. This process required Powell to remove breaker cables from the transformers' breaker cabinets and then reconnect them when the work was completed. Powell failed to document how the breaker cables were placed before removing them and unintentionally crossed certain breaker cables when it reconnected them. The cross-phased breaker cables caused one of HP's dual transformers, transformer B, to fail. As a result, HP incurred costs to repair transformer B and to obtain a temporary transformer for use while the repairs were made. HP brought this suit against Powell to recover for these costs.

After a trial on the merits, the jury found in favor of HP on its breach of contract and breach of express warranty claims against Powell, awarding HP $926,585.98 in damages and $163,526.24 for attorney's fees. The damages awarded by the jury included the following elements:

(a) fault testing and removal of transformer B: $76,518.03;

(b) disposal of oil from transformer B: $17,067.80;

(c) repair of transformer B: $581,024.20;

(d) cost of temporary transformer less amount for which it was sold: $105,097.26;

(e) installation and testing of temporary transformer: $73,718.15; and

(f) reinstallation of transformer B: $73,160.54.

The jury's findings on damages and attorney's fees are approximately fifteen percent less than the amount HP sought at trial, except that the jury refused to award any fees for an appeal. HP asked the trial court to enter judgment on the jury verdict in its favor but to award the full amount it sought. Powell asked the trial court to disregard the jury findings, asserting that the damages found are barred by the limitations of liability in the contract. The trial court denied both parties' motions and rendered judgment on the verdict, reducing the total damages award to $876,810.61 to account for an offset and awarding pre- and post-judgment interest.

Contractual Limitation on Consequential Damages

Powell contends that the trial court erred in denying Powell's motions to disregard the jury finding on damages. Powell argues that the damages found by the jury are consequential damages, which are barred under the terms of the parties' contract. HP responds that the damages are direct damages, rather than consequential damages. The parties agree that their contract bars consequential damages but not direct damages.¹

A. Standard of Review

The dispute between the parties is whether the damages awarded in this case constitute direct or consequential damages under Texas law. We review such questions of law de novo. In re Humphreys, 880 S.W.2d 402, 404 (Tex.1994); Harris Cnty. Appraisal Dist. v. Wilkinson, 317 S.W.3d 763, 766 (Tex.App.-Houston [1st Dist.] 2010, pet. denied). Likewise the interpretation of unambiguous contracts is a legal question that we review de novo. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650–51 (Tex.1999); Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 209 (Tex.App.-Houston [1st Dist.] 2004, pet. denied).

B. Applicable Law on Damages

1. Direct Damages

Direct damages are those damages that flow naturally and necessarily from the breach. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex.1997) (emphasis added). “Direct damages compensate for the loss, damage, or injury that is conclusively presumed to have been foreseen or contemplated by the party as a consequence of his breach of contract or wrongful act.” Id. “By definition, if particular damages are specifically accounted for in the contract, they are direct, not consequential, in nature.” McKinney & Moore, Inc. v. City of Longview, No. 14–08–00628–CV, 2009 WL 4577348, *5 (Tex.App.-Houston [14th Dist.] Dec. 8, 2009, pet. denied) (mem. op.) (citing Boyer, Inc. v. Trinity River Auth. of Tex., 279 S.W.3d 354, 358 (Tex.App.-Fort Worth 2008, pet. denied)); ² see also Tennessee Gas Pipeline Co. v. Technip USA Corp., No. 01–06–00535–CV, 2008 WL 3876141, at *8–9 (Tex.App.-Houston [1st Dist.] Aug. 21, 2008, pet. denied) (mem. op.).

Examples of direct damages can be found in our decision in Tennessee Gas Pipeline. In that case, a pipeline owner, Tennessee Gas Pipeline (“TGP”), sought to recover damages for Technip's delayed and defective construction work on a pipeline. Tennessee Gas Pipeline, 2008 WL 3876141, at *8. The parties' contract precluded recovery of consequential damages, and we reviewed the various categories of damages awarded to determine which damages were consequential damages and which were direct. Id. at *8–10. We concluded that various “project delay costs”—including costs for labor, travel, environmental contractors, inspectors, purchase and supply of additional construction consumables, wastewater hauling, services and utilities—were direct damages, because the contract contained a provision requiring TGP to provide power during construction. Id. at *8–9. On this basis, we concluded that Technip contemplated that its construction delay would naturally and necessarily cause TGP's power costs to be extended over a longer period of time. Id.; see also McKinney & Moore, Inc., 2009 WL 4577348, at *5.

2. Consequential Damages

“Consequential damages” are those which result naturally, but not necessarily, from the breach. Arthur Andersen, 945 S.W.2d at 816 (emphasis added); see Stuart v. Bayless, 964 S.W.2d 920, 921 (Tex.1998). Consequential damages are recoverable only if they are foreseeable and directly traceable to the wrongful act and result from it. Stuart, 964 S.W.2d at 921; Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 901 (Tex.2011) (quoting Stuart ).

Tennessee Gas Pipeline also provides examples of consequential damages. We held that TGP could not recover for the cost of renting a backup generator after a power outage occurred, which TGP asserted would not have been necessary but for Technip's premature dismantling of the existing backup generator before the new generator was fully operational. Tennessee Gas Pipeline, 2008 WL 3876141, at *9–10. We concluded that the power outage and need for a backup generator could not be conclusively presumed to have been foreseen by the parties as a consequence of Technip's breach. Id. We also precluded as consequential damages TGP's alleged losses relating to (1) lost efficiency from the extended use of the old compressor rather than the new compressor, (2) lost investment returns on funds tied up during the delay, (3) costs incurred as a penalty under TGP's contract with the utility company for delayed commencement of utilities use, and (4) lost profits on gas that TGP was unable to sell because it had to be used for venting and to perform emergency shutdowns. Id. at 10–11.

C. Analysis

We conclude that some of the damages awarded to HP are permitted direct damages and some are impermissible consequential damages.

1. Costs Relating to Transformer B: Damage Elements (a), (b), (c) & (f)

Damages that flow “naturally and necessarily” from a breach of the parties' contract are those inherent in the nature of the breach of the obligation between the parties, as compared to those damages that flow “naturally but not necessarily”...