Texas Dot v. Jones Bros. Dirt & Paving

• Decision Date: 27 June 2002
• Docket Number: No. 00-1067.,00-1067.
• Citation: 92 S.W.3d 477
• Parties: TEXAS DEPARTMENT OF TRANSPORTATION, Petitioner, v. JONES BROTHERS DIRT & PAVING CONTRACTORS, INC., Respondent.
• Court: Texas Supreme Court

92 S.W.3d 477

TEXAS DEPARTMENT OF TRANSPORTATION, Petitioner, v. JONES BROTHERS DIRT & PAVING CONTRACTORS, INC., Respondent.

No. 00-1067.

Supreme Court of Texas.

Argued on January 16, 2002.

Decided June 27, 2002.

John Cornyn, Attorney General of the State of Texas, Andy Taylor, First Assistant Attorney General, Jack F. Gilbert, Assistant Attorney General, Ronda Leigh Neff, Grady Click, Jeffrey S. Boyd, Office of the Attorney General, Austin, for Petitioner.

Douglass D. Hearne, Hearne & Eppright, Ann R. Powers, Hearne Eppright & Gest, Austin, for Respondent.

Justice BAKER delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice HECHT, Justice OWEN, Justice HANKINSON, Justice O'NEILL, Justice JEFFERSON and Justice RODRIGUEZ joined.

Jones Brothers Dirt & Paving Contractors' contract with the Texas Department of Transportation provides that, prior to terminating or removing a Disadvantaged Business Enterprise (DBE) subcontractor from a project, Jones had to demonstrate "to the satisfaction of the Business Opportunity Program [BOP] Office in Austin" that the DBE was unwilling or unable to perform. We decide the appropriate standard for reviewing the BOP's decision under the contract's satisfaction clause. We also decide whether section 201.112 of the Texas Transportation Code, which establishes administrative remedies for contract disputes with TxDOT, provides the exclusive remedy for Jones's common-law claims for breach of contract and declaratory relief.

We conclude that the Administrative Law Judge correctly reviewed the BOP's decision for whether it was based on partiality, fraud, misconduct, or gross error. Therefore, the court of appeals erroneously instructed the trial court to remand the administrative claim to the ALJ to review the BOP's decision under a different standard. 24 S.W.3d 893, 899-900. Furthermore, we conclude that the Transportation Code provides the exclusive remedy for Jones's common-law claims against TxDOT. Thus, the court of appeals incorrectly remanded claims to the trial court for Jones to replead facts showing waiver of sovereign immunity. 24 S.W.3d at 902. Accordingly, we reverse the court of appeals' judgment remanding Jones's common-law claims to the trial court for repleading, dismiss those claims for lack of jurisdiction, and remand the remaining claim to the trial court for proceedings consistent with this opinion.

I. BACKGROUND

Jones contracted with TxDOT to reconstruct 4.28 miles of FM 170 in Presidio County. Because federal funds partly supported the project, the contract required Jones to subcontract at least ten percent of the work to a DBE. Also, because of this funding, the federal government required Jones's contract with TxDOT to have a provision requiring Jones to obtain approval from TxDOT's BOP before terminating a DBE that Jones hired for a project:

Prior to terminating or removing a DBE subcontractor named in the commitment, the Contractor must demonstrate to the satisfaction of the Business Opportunity Program Office in Austin the originally designated DBE was not able or willing to perform.... Any substitutions of DBEs shall be subject to approval by the Business Opportunity Program Office in Austin.

The contract authorized Jones to determine what work the DBE that Jones chose would perform. Jones contracted forty-two percent of the work to AK Concrete, a DBE. However, Jones and TxDOT soon became concerned that AK Concrete was unqualified, and its substandard work had to be corrected as the project progressed. Jones formally notified AK Concrete that its work was unsatisfactory, and then attempted to terminate AK Concrete from the project. Jones also notified the BOP that it wanted to replace AK Concrete with another DBE subcontractor.

The BOP, a TxDOT subdivision charged with administering the DBE programs, requested that Jones provide documents to demonstrate that AK Concrete was unable or unwilling to perform. After reviewing the documentation Jones provided, and after interviewing Jones and AK Concrete, the BOP concluded that, although AK Concrete's work was substandard and had to be corrected, there was no evidence that the problems had delayed the project. Therefore, the BOP denied Jones's request to replace AK Concrete.

Eventually, TxDOT discharged AK Concrete for attempting to bribe a TxDOT inspector. But by that time, Jones could no longer secure a substitute subcontractor and thus completed the work itself. Because of this, Jones finished the job late, and TxDOT assessed $22,500 in liquidated damages against Jones for failing to meet the contract deadline.

Jones then initiated administrative proceedings under the Transportation Code to recover about $139,000 in additional costs, which included a refund of the $22,500 in liquidated damages that TxDOT assessed against Jones. See TEX. TRANSP. CODE § 201.112. TxDOT's contract claims committee denied Jones's claim. Next, Jones requested a contested case hearing in the State Office of Administrative Hearings. See TEX. TRANSP. CODE § 201.112(b); TEX. GOV'T CODE §§ 2001.051, 2003.021(b)(1). The ALJ determined that Jones was not liable to TxDOT for the liquidated damages, but she denied Jones's claims for the additional costs related to Jones's finishing AK Concrete's work. The ALJ determined that the BOP's decision denying Jones's request to terminate its DBE "was reasonable and was not based on partiality, fraud, misconduct, or gross error." TxDOT adopted the ALJ's proposed decision to reimburse Jones the liquidated damages and deny additional damages.

Jones sought substantial evidence review of TxDOT's decision in the trial court. See TEX. TRANSP. CODE § 201.112(d); TEX. GOV'T CODE § 2001.171. In that suit, Jones also raised original claims for common-law breach of contract, declaratory judgment, and attorney's fees. TxDOT answered and asserted sovereign immunity against Jones's original claims. Without issuing findings of fact or conclusions of law, the trial court affirmed the part of TxDOT's order reimbursing the liquidated damages, but it reversed the part of the order denying additional damages. The trial court then rendered judgment for Jones for $139,077 in damages, which included the $22,500 in liquidated damages, plus interest and attorney's fees.

The court of appeals reversed the trial court's judgment. First, the court of appeals remanded the administrative claim to the trial court with instructions to remand to the ALJ to review the BOP's decision denying Jones's request to terminate AK Concrete under a different standard of review. 24 S.W.3d at 899-900. Second, the court of appeals concluded that the trial court erred because it did not rule on TxDOT's plea to the jurisdiction and, instead, impliedly overruled it when it rendered the final judgment. The court of appeals noted that, because Jones's petition failed to allege facts showing a waiver of TxDOT's sovereign immunity for the common-law breach of contract and declaratory judgment claims, Jones should have an opportunity to amend. 24 S.W.3d at 902. Therefore, the court of appeals remanded these claims to the trial court to allow Jones an opportunity to replead "waiver by conduct" as an exception to TxDOT's sovereign immunity. 24 S.W.3d at 901-02. Because the court of appeals did not affirm Jones's recovery under any grounds, it did not decide if Jones could recover attorney's fees. 24 S.W.3d at 902. Both parties petitioned this Court for review.

II. ADMINISTRATIVE PROCEEDING — JUDICIAL REVIEW

Jones's contract claim against TxDOT — in the administrative proceeding and in the trial court — seeks to recover, among other things, the costs Jones allegedly incurred because the BOP did not approve its request to replace the DBE. In the trial court, Jones claimed that the ALJ committed an error of law, because she applied the wrong standard when she reviewed the BOP's decision to deny Jones's request to terminate the DBE. Jones asserts that the ALJ should have reviewed the BOP's decision under a "reasonableness" standard, because that standard applies when reviewing a decision under a "satisfaction" contract. See Black Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80, 88 (Tex. 1976), overruled in part on other grounds, Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.1989). On the other hand, TxDOT asserts that the ALJ properly reviewed the BOP decision under the partiality, fraud, misconduct, or gross error standard, because that standard applies when reviewing an agreed-upon referee's decision. See City of San Antonio v. McKenzie Constr. Co., 136 Tex. 315, 150 S.W.2d 989, 996 (1941).

The court of appeals agreed with Jones, reversed the trial court's judgment, and remanded the case to the trial court. The court of appeals determined that, because the BOP is a TxDOT subdivision, the satisfaction clause was effectively subject to TxDOT's sole determination. 24 S.W.3d at 899. Relying on Black Lake, the court of appeals concluded that the ALJ committed an error of law when it reviewed Jones's contract claim, because the proper review standard is reasonableness rather than partiality, fraud, misconduct, or gross error. 24 S.W.3d at 899-900. Thus, the court of appeals instructed the trial court to remand to the ALJ to decide whether the BOP's decision to deny Jones's request to terminate AK Concrete was unreasonable. 24 S.W.3d at 899-900.

A. APPLICABLE LAW

There are two different standards for reviewing decisions under a contract's "satisfaction" provision. Which standard applies depends on the nature of the contract involved. The first standard — whether the decision was based on partiality, fraud, misconduct, or gross error — is derived from our decision in McKenzie, 150 S.W.2d at 989. In McKenzie, the Court held that "[w]hen parties to a building contract agree to submit questions which may arise thereunder to the decision of the engineer, his decision is final and conclusive; unless in making it...