County of Galveston v. Triple B Services, LLP

Citations: 498 S.W.3d 176; 2016 Tex. App. LEXIS 5604; 2016 WL 3025261Docket: NO. 01-15-00565-CV

Court: Court of Appeals of Texas; May 26, 2016; Texas; State Appellate Court

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Triple B Services, LLP initiated a lawsuit against Galveston County, alleging breach of a road-expansion contract. The claims included disruption damages due to the County’s failure to timely relocate utilities, interest under the Prompt Payment Act, and attorney’s fees. The County responded with a plea to the jurisdiction, which the trial court denied, leading to the County’s appeal. 

The key legal question revolves around whether Section 262.007 of the Local Government Code waives the County's sovereign immunity for Triple B's claims. The statute allows for claims related to owner-caused delays in construction contracts, raising issues regarding the classification of disruption damages, interest, and attorney’s fees. 

The factual background reveals that the County was responsible for moving utilities to enable the road expansion. Despite a contractual deadline for the utility relocation, the County delayed this process by nearly a year. Triple B managed to complete the project on time but incurred additional costs due to the County's inefficiencies, including expenses related to modified construction plans and extended overhead. 

In its petition, Triple B sought compensation for these additional costs, arguing they were a direct result of the County-caused delays. The County contended that the trial court lacked jurisdiction because the statute only permits recovery for delay damages, implying that disruption damages were not covered. The trial court's denial of the plea to the jurisdiction is central to the County's appeal, which relies on expert testimony detailing the impact of the County's delay on Triple B’s project execution. The appellate court affirmed the trial court's decision in part, but reversed it regarding Triple B's claims for attorney’s fees, dismissing those for lack of jurisdiction.

Triple B had to modify its work approach due to delays caused by the County, leading to segmented roadway work and inefficiencies stemming from utility-related issues. The expert testified that these delays resulted in wasted man-hours as crews had to navigate around utilities, relocate barricades, and deal with unforeseen obstacles like an unnoticed septic tank and various utility lines. This led to the need for additional crews and extra cleanup work due to disorganized material staging.

The expert distinguished between 'delay damages,' which are time-based and schedule-driven, and 'disruption damages,' which are task-based and relate to the impact on man-hours. While disruptions could arise from delays, the expert clarified that the damages incurred by Triple B were not classified as 'delay damages' per construction law definitions. He noted that his damage calculations did not include any delay damages as outlined in the contract, and he recognized the legal complexities involved in the definitions of delay versus disruption damages.

The County argues that the lack of acknowledgment of 'delay damages' by Triple B's expert supports its claim that the damages sought do not fall under the legislative waiver of sovereign immunity in Section 262.007 of the Local Government Code. The County contends that the term 'owner-caused delays' in the statute should be interpreted to apply solely to delay damages, thus excluding disruption damages and asserting that Triple B's claims do not waive the County's sovereign immunity.

The legislature's language regarding "delay damages" explicitly excludes consequential damages, which Triple B claims fall under this category but are not subject to immunity waiver. Triple B concedes that its disruption damages do not fit the traditional definition of delay damages in construction law. However, it contends that the statutory waiver for damages resulting directly from owner-caused delays or acceleration encompasses more than just delay damages. Under construction law, delay damages relate specifically to injury from delays in project completion, while disruption damages pertain to reductions in productivity and efficiency, even if the project is completed on time. Disruption damages are claimable when events disrupt the contractor’s performance, leading to increased costs. Texas law asserts that sovereign immunity prevents lawsuits against governmental entities unless waived by clear legislative intent. The waiver of immunity applies to breach-of-contract claims, but immunity from suit remains unless explicitly stated by the Legislature.

A statute does not waive sovereign immunity unless explicitly stated in clear and unambiguous language, allowing the legislature to adapt to changing conditions while managing state fiscal matters. There is a limited waiver of immunity for breach-of-construction-contract lawsuits against counties, requiring parties to plead damages recoverable under the statute. Recoverable damages include: (1) amounts due under the contract, including for delays or acceleration; (2) amounts for change orders; (3) reasonable attorney’s fees; and (4) legally permissible interest. The statute prohibits the recovery of certain damages, such as consequential damages, except as specified. 

A plea to the jurisdiction challenges a trial court's subject-matter jurisdiction, which is essential for the court's authority to hear a case and must be demonstrated by the plaintiff. When jurisdictional facts are contested, courts examine evidence from both parties. If a factual dispute exists, the trial court cannot grant the plea, leaving the resolution to the fact finder. Non-contested jurisdictional facts in the petition are accepted as true, and determining subject-matter jurisdiction is a legal question.

Interpreting statutes that waive sovereign immunity requires clarity and unambiguity in the waiver. Under Tex. Gov’t Code Ann. 311.034, a trial court's ruling on a plea to the jurisdiction is reviewed de novo. Triple B's claim for 'disruption damages' is not barred by sovereign immunity if it pertains to increased costs due to the county's delay in fulfilling contractual obligations. Section 262.007 permits such claims, as its language does not differentiate between 'delay damages' and disruption damages caused by delays from the other party. 

The statute specifies damages resulting 'as a direct result of owner-caused delays or acceleration,' and must be interpreted based on the ordinary meanings of the words involved. The term 'delay' is defined as impeding progress or causing something to occur more slowly, which encompasses delays to both the final performance date and specific tasks. This interpretation aligns with legal precedent, affirming that disruption damages can arise from the county’s late performance. Therefore, damages due to hindrances caused by the county are recoverable under Section 262.007, validating Triple B's claim for damages directly resulting from owner-caused delays.

Section 262.007 of the Texas Local Government Code waives immunity for claims related to the increased costs incurred due to owner-caused delays or acceleration. A cost is deemed a 'direct result' of a delay if it is a necessary consequence of the defendant's wrongful act. The record does not sufficiently establish whether all damages claimed by Triple B are directly attributable to the County’s delays. Courts are required to liberally interpret pleadings in favor of the plaintiff to determine if jurisdiction exists. Some of Triple B's claimed damages, such as costs for hand-forming manholes and additional labor, are likely direct results of the delays and thus qualify for immunity waiver. However, claims such as lost profits are considered consequential damages and do not qualify for immunity waiver.

Regarding contract interpretation, the court follows the precedent set in Zachry, which states that the local government statute allows for claims of delay damages not explicitly addressed in the contract. The phrase 'the balance due and owed under the contract' refers to any unpaid damages for breach of contract, with no requirement that all recoverable damages be stated in the contract. Therefore, Triple B can pursue claims for additional costs resulting from the County’s delays, even if not explicitly mentioned in the contract. The contract does provide for certain damages claimed by Triple B, such as additional labor and equipment costs, indicating that some claims fit within both the statutory framework and the contract terms.

Zachry does not alter the outcome regarding the distinction between delay and disruption damages in breach-of-construction-contract claims against government entities. The Texas Supreme Court in Zachry confirmed that the statutory waiver of immunity permits recovery of delay damages but did not address whether disruption damages are included under this waiver. The statute allows recovery for costs incurred due to owner-caused delays or acceleration, and disruption damages are encompassed within the broader category of contractual damages. Consequently, Triple B’s claims for disruption damages are permitted under the waiver of immunity in Section 262.007.

Regarding the Texas Prompt Payment Act (PPA), the County argues that, if sovereign immunity is waived for breach-of-contract claims, it is not waived for claims under the PPA. The PPA, enacted five years after the federal counterpart, mandates timely payments to contractors and mirrors many provisions of the federal law. It applies to contracts between vendors and government entities and does not create new payment obligations beyond what is stipulated in the contract. Under the PPA, payments are considered overdue 31 days after the government entity receives goods, completes services, or receives invoices. Additionally, the PPA allows for higher interest on overdue payments compared to the standard prejudgment interest, starting to accrue immediately after the payment becomes overdue and at a higher rate than that provided under the Finance Code.

The interest rate specified in the Prompt Payment Act (PPA) is set at one percent plus the prime rate published in the Wall Street Journal on the first day of July of the previous fiscal year, excluding weekends. The PPA mandates that political subdivisions, such as counties, pay interest on late payments and that this interest must be paid at the time the principal is settled, submitted alongside the net amount due for goods or services. Section 262.007 of the Texas Local Government Code waives immunity for claims of interest as permitted by law, and it prohibits counties from requiring vendors or subcontractors to waive their right to interest as a contractual condition. 

Statutory interpretation requires adherence to the text as written, applying the plain meaning unless context dictates otherwise or unless such meaning leads to absurd results. Under Section 262.007, counties can be sued for late payments and associated interest allowed by law. Since the PPA entitles contractors to recover interest from counties for late payments, the interest claimed by Triple B qualifies as 'interest allowed by law,' thus waiving immunity.

The County's argument against this waiver cites various cases asserting that immunity is not waived unless the PPA contains an explicit waiver. These cases, which interpreted similar statutory language for non-county local government entities, concluded that the phrase 'interest as allowed by law' did not constitute a clear waiver of immunity without the PPA's explicit waiver. In response, the Legislature amended the statute for non-county entities to clarify that recovery of 'interest as allowed by law' includes interest calculated under the PPA, while the statute for counties remains unchanged. The interpretation from the cited cases is deemed unpersuasive as the plain language of Section 262.007 does provide a waiver of immunity for interest allowed by law, which includes interest under the PPA.

The County contends that the Legislature's amendment to the local government statute, which does not specifically reference interest under the Prompt Payment Act (PPA), indicates an intent for counties to maintain immunity from interest under the PPA. However, the amendment could also be interpreted as a clarification, as it explicitly waives immunity for "interest as allowed by law, including interest as calculated under [the PPA]." The term "including" suggests examples rather than limitations, allowing for the conclusion that the amendment does not definitively restrict waivers of immunity. Therefore, the County's immunity is waived regarding Triple B's claims under the PPA, leading to the overruling of the County’s second issue.

Regarding attorney's fees, the County argues that Triple B failed to identify a statute or contractual provision supporting such a claim. While the County recognizes Section 262.007 as waiving immunity for attorney’s fees in breach-of-construction-contract claims, it asserts that this section does not substantively support the claim itself. Triple B counters that the County's argument is procedural and should be addressed via a Motion for Summary Judgment, which has not been filed. The court rejects this procedural argument, asserting that a governmental entity's immunity from attorney's fees can be addressed through a plea to the jurisdiction.

Triple B cited two statutes, Section 38.001 of the Civil Practices and Remedies Code and Section 262.007(b)(3) of the Local Government Code, as bases for its attorney’s fees claim. However, recovery under Section 38.001 is barred against counties, as it only allows claims against individuals or corporations. Section 262.007 permits recovery of reasonable and necessary attorney’s fees but does not provide a substantive basis for such fees; it merely waives immunity if another statute or the contract allows for attorney’s fees. Consequently, the court concludes that Section 262.007 serves solely to waive immunity and does not substantively support a claim for attorney's fees.

A claim against a county for attorney's fees is limited to reasonable, necessary, equitable, and just fees, without creating a right to recover such fees. The statute waives immunity only under specific conditions related to breach of contract claims, as interpreted by the Zachry case, which states that the provisions outline limitations on the waiver of immunity rather than create entitlements. Consequently, Triple B is not entitled to attorney’s fees as immunity has not been waived for that claim. The trial court's order regarding Triple B's breach-of-contract claim and interest under the Prompt Payment Act is affirmed, while the order related to attorney’s fees is reversed. The County contends that deadlines were not strict and highlights that Triple B’s expert testimony regarding damages was based on oral testimony and not legally binding. Courts maintain that expert opinions cannot dictate legal classifications of damages, which remain a legal question for the trial judge. Furthermore, the expert's damage analysis is based on the County's delay, and courts typically avoid rigid categorization of damages in construction contracts with "no damages for delay" clauses.

Disruption damages resulting from a breaching party's delay are generally barred by 'no damages for delay' clauses, as established in various case law. Courts such as in *Quinn Constr. Inc. v. Skanska USA Bldg. Inc.* have upheld these clauses to prevent claims for delay and disruption. In *The Law Co. v. Mohawk Constr. Supply Co.*, a contract’s sole remedy of a schedule extension was determined to negate a subcontractor's claim for disruption damages. Additionally, in *U.S. ex rel. Tennessee Valley Marble Holding Co. v. Grunley Const.*, a contractual provision that allowed the contractor to recover delay damages from the owner was interpreted to bar disruption damages. Conversely, in *Bell BCI Co. v. United States*, the court found that a contract releasing a party from damages due to government changes did not necessarily bar disruption damages, indicating a factual question regarding the parties' intent.

The County's argument that Triple B must cite a specific contractual provision for disruption damages is countered by the County's acceptance of the reading in *Zachry*. The Texas Supreme Court clarified that the phrase 'balance due and owed under the contract' pertains to the total damages owed, not just the amounts specified for payment. Triple B's claims for consequential damages are outside the statutory waiver discussed. 

The Prompt Payment Act (PPA) provides for the recovery of reasonable attorney's fees for actions to collect payment under certain contracts, but Triple B did not invoke the PPA for attorney's fees, leaving that issue unaddressed. There is uncertainty in Texas case law regarding whether Section 262.007 waives immunity for attorney’s fees or creates a substantive right to them. A case cited, *City of Willow Park*, suggested that similar statutory language allowed for the recovery of attorney's fees, but it also indicated limitations based on explicit contracts. The court declines to adopt this interpretation due to its lack of supporting analysis.