Sw. Elec. Contracting Servs. v. Indus. Accessories Co.

• Decision Date: 10 May 2022
• Docket Number: MO:18-CV-00123-DC
• Parties: SOUTHWEST ELECTRICAL CONTRACTING SERVICES, LTD., Plaintiff, v. INDUSTRIAL ACCESSORIES COMPANY AND ADELPHI CONSTRUCTION, LC, Defendants.
• Court: U.S. District Court — Western District of Texas

SOUTHWEST ELECTRICAL CONTRACTING SERVICES, LTD., Plaintiff,
v.
INDUSTRIAL ACCESSORIES COMPANY AND ADELPHI CONSTRUCTION, LC, Defendants.

No. MO:18-CV-00123-DC

United States District Court, W.D. Texas

May 10, 2022

FINDINGS OF FACT AND CONCLUSIONS OF LAW

DAVID COUNTS UNITED STATES DISTRICT JUDGE

A subcontractor performed electrical work for a general contractor on two frac sand plant construction projects. The subcontractor alleges breach of contract against the general contractor and seeks equitable adjustment for unpaid work and delay damages under the contracts. The general contractor counterclaims for breach of contract, indemnity, negligence, and breach of implied warranties related to Plaintiff's allegedly deficient performance under the relevant contracts. This case, first filed in Texas state court and subsequently removed to federal court, was tried to the Court on March 2, 2022, through March 4, 2022.

The Court makes the following findings of fact and conclusions of law following the bench trial on the claims and counterclaims that remain after the Court's Federal Rule 52(a) partial findings dismissing Plaintiff SOUTHWEST ELECTRICAL CONTRACTING SERVICES, LTD.'s (“Plaintiff” or “SWECS”) claims for quantum meruit, false misrepresentation, and negligent misrepresentation (Doc. 105) against Defendants

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INDUSTRIAL ACCESSORIES COMPANY (“Industrial Accessories”) and ADELPHI CONSTRUCTION, LC (“Adelphi”) (collectively, “Defendants” or “IAC”).^[1]

Following trial, and for the reasons that follow, the Court FINDS and CONCLUDES that Plaintiff is entitled to recover $85, 057.74 plus prejudgment interest on its breach of contract claim against Defendants; that Defendants are entitled to recover $2, 091, 409.77 plus prejudgment interest on their counterclaim against Plaintiff for breach of contract and indemnity, and the Court will enter judgment in favor of Defendants on those claims in accordance with this memorandum opinion after offsetting the amount awarded to Plaintiff. Except for attorney fees, all other relief not expressly granted herein is DENIED and the parties' remaining claims are DISMISSED WITH PREJUDICE except to the extent set forth in this opinion.

I. Introduction

On October 8, 2017, and November 1, 2017, SWECS submitted proposals for electrical work for the Preferred Sands of Atascosa, LLC South Texas (“STX”) and Preferred Sands of Monahans, LLC West Texas (“WTX”) frac sand plants, respectively. The STX sand plant is in Atascosa County, Texas. The WTX sand plant is in Ward County, Texas. Industrial Accessories contracted with the leasehold owners of STX and WTX directly or through the leasehold owners' agents for the design, the procurement, and the construction of the frac sand plants. Industrial Accessories also contracted with Adelphi to provide construction management services. IAC subcontracted with SWECS to furnish and install electrical work at both STX and WTX.

SWECS claims IAC breached contracts entered by the parties regarding the electrical work performed by SWECS at STX and WTX and that IAC owes SWECS contract damages. IAC counterclaims that SWECS breached the terms and conditions set forth in IAC Master

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Supplier Terms and Conditions (“T&Cs”), which were attached to each of the purchase orders (“POs”). IAC also brings counterclaims for indemnity, negligence, and breach of implied warranties.

Having considered the pleadings of the parties, the evidence, proposed findings of fact and conclusions of law, and arguments of counsel, the Court issues the following findings of fact and conclusions of law. For the reasons set out below, the Court GRANTS SWECS's claim against IAC for breach of contract, GRANTS IAC's counterclaims for breach of contract and indemnity, and DENIES IAC's counterclaims for negligence and breach of implied warranties.

II. Applicable Law

This state law action is brought pursuant to the Court's diversity jurisdiction. 28 U.S.C. § 1332(a). SWECS is a Texas limited partnership that removed this action to this Court and has been realigned as Plaintiff. Industrial Accessories is a Kansas corporation that initiated this action and has been realigned as a Defendant. Adelphi is a Kansas limited partnership that initiated this action and has also been realigned as a Defendant. The amount in controversy exceeds the sum of $75, 000.00, excluding interest and costs.

Originally filed in state court, Cause No. B-18-06-0662-CV, in the 161st District Court, Ector County, Texas, this action was removed to the Midland/Odessa Division of the Western District of Texas. Venue is proper in this Court under 28 U.S.C. § 1441(a) because the state court where the suit was pending is in this district and division. The parties agree venue is proper. Pursuant to diversity jurisdiction, Texas law governs the substantive law claims of SWECS's breach of contract cause of action and IAC's counterclaims for breach of contract, indemnity, negligence, and breach of implied warranties.^[2]

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III. Background

A. Parties

Industrial Accessories is an Engineering, Procurement, and Construction (“EPC”) contractor with specialization in the design and construction of industrial projects, like steel, cement, plastic, frac sand, and ethanol plants. Adelphi is a wholly owned subsidiary of Industrial Accessories and performs construction functions on Industrial Accessories' industrial projects. Preferred Sands, operating in Texas through Sand Mining of Texas, LLC and Letterkenny Ranch, LLC (“Preferred Sands”), is a frac sand mining company.

SWECS is a full-service electrical contractor. Industrial Accessories contracted with Preferred Sands for the design, procurement, and construction of the frac sand plants. Industrial Accessories also contracted with Adelphi to provide construction management services. IAC subcontracted with SWECS to furnish and install electrical work at both STX and WTX.

B. Facts

In 2017, Preferred Sands hired IAC as an EPC contractor to build two frac sand facilities in Texas. Each facility contained two plants-a wet plant and a dry plant. Preferred Sands located one facility in Poteet, Texas (STX) and another in Monahans, Texas (WTX). Preferred Sands erected each facility in phases, building the wet plant as one phase and the dry plant as another phase. On October 8, 2017, and November 1, 2017, SWECS submitted proposals for electrical work for the STX and WTX frac sand plants, respectively.

In October 2017, IAC and SWECS negotiated and entered into two contracts for SWECS to perform electrical subcontract work at the STX wet and dry plants. In November 2017, IAC and SWECS negotiated and entered into two contracts for SWECS to perform electrical Code Ann. § 272.001. Neither SWECS nor IAC urges the application of Kansas law. Therefore, the Court applies Texas law, which the parties assert is substantively the same. R.R. Mgmt. Co., L.L.C. v. CFS La. Midstream Co., 428 F.3d 214, 222 (5th Cir. 2005).

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subcontract work at the WTX wet and dry plants. IAC approved the SWECS proposals and issued two base POs per facility-for a dry plant and a wet plant. The original four POs were fixed-cost contracts and shall collectively be referred to as the Base Work or Base Scope POs. SWECS performed electrical work at the STX and WTX facilities between October 2017 through 2018.

During this time, Preferred Sands added additional scopes of work to the underlying STX and WTX projects-either changes to the Base Work POs or entirely new work. IAC, in turn, asked SWECS to bid on this additional work. In response, SWECS issued either a written change proposal or a bid for new work. IAC then accepted by issuing either a change order to an existing PO or a unique PO for that scope of work. All additional work was agreed to in writing, and SWECS billed IAC on both a fixed-cost basis and on a time and materials (“T&M”) basis.

C. Procedural History

IAC filed suit against SWECS on June 7, 2018, in the 161st Judicial District Court for Ector County, Texas. SWECS removed this action to the United States District Court for the Western District of Texas, Midland/Odessa Division on July 13, 2018. SWECS filed an Unopposed Motion to Realign Parties (Doc. 18), asserting that SWECS should have the burden to prove up its delay claims against IAC first before IAC prosecuted its claims under the express provisions of the contract.

On May 13, 2019, SWECS joined Preferred Sands of Monahans, LLC, Preferred Sands of Atascoa, LLC, and Signal Peak Silica, LLC (“Preferred Sands Defendants”) as defendants and sought to foreclose and collect on certain mineral, mechanic's, and materialman's Liens filed related to the STX and WTX facilities. (Doc. 19). SWECS stipulated to a settlement with the Preferred Sands Defendants and moved this Court to dismiss the Preferred Sands Defendants,

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which was granted. (Docs. 30, 31). Plaintiff filed its Third Amended Complaint on September 20, 2020. (Doc. 46).

SWECS claims IAC did not adequately compensate SWECS for the work performed. SWECS alleges IAC regularly directed SWECS to proceed with additional work on the projects without issuing or adjusting POs, including work relating to plant startup and commissioning. According to SWECS, it fully performed the work IAC directed. As a result, SWECS claims it incurred substantial costs for additional work and productivity loss. SWECS alleges it suffered productivity loss on the STX project in the amount of $1, 773, 208.40, and on the WTX project in the amount of $1, 331, 646.04.

As to STX, SWECS seeks to recover the following balances for unpaid invoices, which IAC contends are not due and owing or are subject to offset:

Date	PO/Invoice #	Description	Invoice
9/12/2018	E30974-17112	Terminations for dry plant	$10, 500.00
5/17/2018	SC125-21	Material provided on work excluded from SWECS...