TX D.O.T. v. Jones Brothers Dirt & Paving

• Decision Date: 27 July 2000
• Citation: 24 S.W.3d 893
• Parties: (Tex.App.-Austin 2000) Texas Department of Transportation, Appellant v. Jones Brothers Dirt & Paving Contractors, Appellee NO. 03-99-00640-CV Filed:
• Court: Texas Court of Appeals

Page 893

24 S.W.3d 893 (Tex.App.-Austin 2000)

Texas Department of Transportation, Appellant v. Jones Brothers Dirt & Paving Contractors, Appellee

NO. 03-99-00640-CV

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

Filed: July 27, 2000

Rehearing Overruled August 10, 2000

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT NO. 99-01807, HONORABLE PAUL R. DAVIS, JR., JUDGE PRESIDING

[Copyrighted Material Omitted]

Before Justices Jones, Yeakel and Patterson

J. WOODFIN JONES, Justice

Jones Brothers Dirt & Paving Contractors (Jones Brothers) filed an administrative claim against the Texas Department of Transportation (the Department) for breach of contract. After the Department denied Jones Brothers' claim, a contested case hearing was held before an Administrative Law Judge (ALJ). The ALJ's proposed decision, which the Department later adopted, ordered the Department to reimburse Jones Brothers for erroneously imposed liquidated damages, but otherwise denied the requested relief. After its motion for rehearing was overruled, Jones Brothers filed suit for judicial review in district court. In that suit, Jones Brothers also asserted separate claims for declaratory relief¹ and breach of contract and sought attorney's fees. The trial court reversed the agency order and rendered judgment in favor of Jones Brothers, awarding specific damages and attorney's fees. We will reverse and remand.

FACTUAL AND PROCEDURAL BACKGROUND

On January 13, 1995, Jones Brothers signed a contract with the Department to reconstruct 4.28 miles of FM 170 in Presidio County. The project required regrading an existing roadway, installing drainage structures and flex bases, constructing gabions, and then repaving the rebuilt roadway. The project was federally funded, and to receive federal aid the Department had to comply with a federal requirement that the state's chosen contractor award at least 10% of the contract work to a Disadvantaged Business Enterprise (DBE). A DBE is defined by Department rule as "a small business concern which is at least 51% owned by one or more socially and economically disadvantaged individuals, . . . and whose management and daily operations are controlled by one or more of the socially and economically disadvantaged individuals who own it." 43 Tex. Admin. Code § 9.51 (1999). The Department's Business Opportunity Program (BOP) is in charge of overseeing compliance with federal DBE requirements.

The contract between Jones Brothers and the Department contained the following provision regarding DBEs:

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 substitution of DBEs shall be subject to approval by the Business Opportunity Program Office in Austin.

Jones Brothers hired AK Concrete as a designated DBE and subcontracted 42% of the contract to it. AK Concrete was hired primarily to build and install gabions, defined by the ALJ as "wire baskets filled with rocks to be placed in trenches beside the roadway to equalize the water when it rained and to keep the road from eroding." Jones Brothers and Department inspectors soon became concerned that AK Concrete was unqualified to do the work, and substandard work had to be corrected as the project progressed.² In May 1995, Jones Brothers notified AK Concrete formally that its work was unsatisfactory, then finally tried to fire AK Concrete from the project on June 15, 1995. Jones Brothers notified the BOP that it was in the process of replacing AK Concrete with another DBE subcontractor.

The BOP requested further documentation from Jones Brothers before it would approve the dismissal. After Jones Brothers submitted supporting documentation, the BOP office refused to approve Jones Brothers' request to replace AK Concrete. The BOP stated that, although work performed by AK Concrete failed to meet specifications and had to be corrected, there was no information demonstrating that these problems had caused delays on the project. In the subsequent eleven weeks, Jones Brothers continued to have problems with AK Concrete on the job. Finally, on September 7, 1995, the Department itself removed AK Concrete from the project for attempting to bribe a Department inspector.

After AK Concrete was removed, Jones Brothers was unable to secure the services of its alternate subcontractor and instead had to finish the job itself. The job was finished late as a result, and the Department assessed $20,900 in liquidated damages for failing to meet the contract deadline. Jones Brothers then initiated administrative proceedings to recover approximately $118,000 in costs, including the liquidated damages, it incurred in finishing the job over and above what it would have paid the substitute contractor had it been allowed to dismiss AK Concrete when requested.

The claim was first heard before the Department's Contract Claims Committee, which denied the claim. Jones Brothers then petitioned the Department for a formal administrative hearing. See 43 Tex. Admin. Code § 9.2 (1999). At the State Office of Administrative Hearings, an ALJ heard the case and ultimately recommended that Jones Brothers be reimbursed for the liquidated damages but recommended that other requested relief be denied. The Department adopted the ALJ's proposed decision.

Jones Brothers filed suit in district court, seeking declaratory judgment and common-law breach-of-contract damages and attorney's fees in addition to judicial review of the agency order. The Department filed an answer asserting sovereign immunity against the common-law contract and declaratory-judgment claims and the accompanying request for attorney's fees. The Department argued that judicial review of the agency order was the only form of relief Jones Brothers was entitled to seek. The trial court affirmed the portion of the Department's order regarding liquidated damages but reversed the portion of the order regarding other damages. The court proceeded to render judgment awarding Jones Brothers $139,077 damages,³ plus interest and $69,049.50 in attorney's fees. The Department now appeals that judgment, complaining in two issues on appeal that the trial court erred in (1) reversing the Department order and rendering judgment in favor of Jones Brothers and (2) awarding attorney's fees to Jones Brothers without statutory or contractual authority.

DISCUSSION

Although Jones Brothers pleaded three causes of action--an action for judicial review of the Department's order, a common-law breach-of-contract claim, and a request for declaratory judgment--the trial court did not specify the basis for its judgment in favor of Jones Brothers, nor did the trial court file findings of fact and conclusions of law. Thus, the trial court impliedly found the Department liable under every theory. See Johnson v. Coggeshall, 578 S.W.2d 556, 560 (Tex. Civ. App.--Austin 1979, no writ). We can reverse only if no theory of recovery supports the judgment and award of damages. See Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 79 (Tex. 1989) (if any theory advanced is meritorious, judgment must be affirmed).

Action for Judicial Review of Agency Order

In its first issue on appeal, the Department complains that the trial court erred in reversing the Department's order. The Transportation Code provides that contract claims appealed from the agency are entitled to judicial review under the Administrative Procedure Act (APA) found in Chapter 2001 of the Government Code. See Tex. Transp. Code Ann. § 201.112(d) (West 1999). Under the APA, a trial court may reverse an agency determination only if the substantive rights of the appellant have been prejudiced because the agency's "findings, inferences, conclusions, or decisions" are:

(A) in violation of a constitutional or statutory provision;

(B) in excess of the agency's statutory authority;

(C) made through unlawful procedure;

(D) affected by other error of law;

(E) not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or

(F) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Tex. Gov't Code Ann. § 2001.174(2) (West 2000). Each of these grounds for reversal presents a question of law, which we review de novo. See Texas Dep't of Pub. Safety v. Stanley, 982 S.W.2d 36, 37 (Tex. App.--Houston [1st Dist.] 1998, no pet.); Texas Dep't of Pub. Safety v. Valdez, 956 S.W.2d 767, 769 (Tex. App.--San Antonio 1997, no pet.).⁴

In the district court, Jones Brothers claimed that it was entitled to reversal because the Department committed an error of law. Specifically, Jones Brothers claimed the Department applied the wrong legal standard in evaluating the BOP's decision not to allow Jones Brothers to dismiss AK Concrete from the project. In its proposed decision, the ALJ concluded that "[t]he standard of review for the decision made by [the Department's] BOP office is whether the decision was based on partiality, fraud, misconduct, or gross error." The ALJ went on to hold that the BOP's decision refusing to authorize Jones Brothers to replace AK Concrete as the DBE on the project was not based on partiality, fraud, misconduct, or gross error.

This standard of review is derived from City of San Antonio v. McKenzie Construction Co., 150 S.W.2d 989, 996 (Tex. 1941), in which the supreme 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 he is guilty of fraud, misconduct, or such gross mistake as would employ bad faith or failure to exercise an honest judgment." Id. The same standard has been applied in other cases where an engineer on a building...