Arrow Field Services, LLC v. Linde Engineering North America Inc.

Opinion issued December 17, 2024

In The

Court of Appeals

For The

First District of Texas

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NO. 01-23-00023-CV

———————————

ARROW FIELD SERVICES, LLC, Appellant

V.

LINDE ENGINEERING NORTH AMERICA, INC., Appellee

On Appeal from the 133rd District Court

Harris County, Texas

Trial Court Case No. 2019-89936

OPINION

In this commercial construction contract dispute, appellant Arrow Field

Services, LLC (Arrow) appeals the final judgment rendered on the jury’s verdict in

favor of appellee Linde Engineering North America, Inc. (Linde) on Linde’s claims

against Arrow for breach of contract and violation of the Texas Prompt Payment

Act1 (PPA or the Act) and the awards to Linde of $20,739,741 in damages,

$17,683,501 in prejudgment interest, $4,616,760 in attorney’s fees, and $130,568 in

costs. In five issues, Arrow contends that (1) the PPA does not apply in this case

because the Act’s “mineral exemption” excludes the parties’ agreement and,

independently, the PPA does not apply extraterritorially to injuries that occur outside

Texas; (2) Linde failed to present legally sufficient evidence that Arrow is liable to

Linde for Base Costs exceeding the $124 million that Arrow has already paid; (3)

even if the PPA applies to the parties’ agreement, the jury’s award of $17,683,501

in prejudgment interest to Linde should be reversed based on (a) Linde’s uncured

defaults or (b) the trial court’s acceptance of a post-trial interest calculation

unsupported by any jury finding; (4) Linde failed to present legally sufficient

evidence that it is entitled to a $729,000 Safety Incentive; and (5) because Linde’s

PPA claim fails, the final judgment should be modified by deleting the award of

attorney’s fees and costs and recalculating the prejudgment interest. For the reasons

discussed below, we affirm in part, reverse and render in part, and reverse and

remand in part the trial court’s final judgment.

1

TEX. PROP. CODE §§ 28.001-.010.

2

Background

Arrow is a midstream company located in North Dakota that gathers oil and

rich natural gas and processes the natural gas to extract natural gas liquids (NGLs).2

Linde provides construction, procurement, engineering, and project management

services to clients in the oil and gas industries.

The EPC Agreement

In April 2018, Arrow and Linde executed a Target Price Agreement for

Engineering, Procurement, and Construction (EPC Agreement) for the Bear Den II

Plant, in Watford City, North Dakota.3 Under the EPC Agreement, Arrow hired

Linde as the general contractor on the project.4

Article 7 of the EPC Agreement, entitled “Total Contract Price and Payments

to Contractor,” provides in relevant part, as follows:

7.1 Total Contract Price. As compensation in full for the full and complete

performance of the Work by Contractor and all of Contractor’s other

2

Arrow is a subsidiary of Crestwood Midstream Partners LP. Crestwood was a

named defendant in the underlying suit but is not a party to this appeal.

3

Arrow had an existing plant at the time, the Bear Den I plant. From 2015 to 2017,

the natural gas volumes produced by producers and gathered by Arrow in the field

near the Bear Den I plant increased but the Bear Den I plant lacked the capacity to

meet the increased volume. In 2017, Arrow decided to build the Bear Den II plant,

a new, larger natural gas processing plant in the area to accommodate the increased

volume.

4

Although Arrow initially hired Linde to engineer and build a unit of the plant called

the “Core-Cryo,” which cryogenically freezes natural gas so that natural gas liquids

separate out, Arrow later hired Linde as the general contractor for the balance of the

plant.

3

obligations under this Agreement with respect to the Work, Owner shall pay

and Contractor shall accept sum of: (a) a Fixed Fee as described in Section

7.1A, adjusted in accordance with the Incentive Plan set forth in Schedule C-

3; and (b) Base Costs as described in Section 7.1B (together, the “Total

Contract Price”).

....

A. Fixed Fee. Owner shall pay Contractor a fixed fee as further defined in

Schedule C-1 (“Fixed Fee”), subject to adjustment in accordance with

the Incentive Plan set forth in Schedule C-3. The Fixed Fee shall be

payable in each Invoice, with each such payment calculated as set forth

in Schedule C-1. The Fixed Fee shall not be subject to adjustment

except as specified in this Agreement.

B. Base Costs. Owner shall pay Contractor those costs, charges and

expenses incurred by Contractor in the performance of the Work

payable as “Base Costs” as defined in Schedule C-1. Base Costs shall

be net of any interest, commission, offset credits, rebates or other direct

or indirect payment received by Contractor from third parties incident

to the performance of the Work. Contractor shall remit to Owner any

such amounts received.

Section 3.1 of Schedule C-1, “Fixed Fee,” provides, in part, as follows:

Owner shall pay Contractor $9,579,980 USD for the satisfactory

completion of all Work performed by Contractor (“Fixed Fee”). The

Fixed Fee shall be inclusive of all profit for the Project, all

Subcontractor mark-ups, certain of Contractor’s overhead costs, and

other costs and expenses of Contractor performing the Work other than

the Base Cost and, if applicable, the Incentive Plan Adjustment.

As to Base Costs, Section 5.1 of Schedule C-1 states:

Contractor shall only be entitled to be paid for the Base Cost incurred

in the course of carrying out the Work under this Agreement if those

disbursements:

(a) have been actually, reasonably and properly incurred for the

sole purpose of carrying out the Work; and

4

(b) are enumerated as Base Costs in accordance with Schedule C-

2 and as further clarified in Table C-1.

Section 5.2 provides that “Owner shall reimburse Contractor as a Base Cost

for the actual invoiced cost to Contractor and paid by Contractor to Approved

Subcontractors engaged in accordance with Sections 2.3 and 2.4 of the Agreement.”

These reimbursable Base Costs included “[f]ees and expenses of Subcontractors

performing a portion of the Work.” In addition, the parties agreed on a list of

“Disallowed Costs” which were not reimbursable, including costs resulting from any

negligence of Linde.

Schedule C-3A sets forth a “Target Base Cost” for Linde’s work of

$65,691,533. The Total Base Cost actually incurred by Linde would be compared to

the Target Base Cost to determine the “Cost Adjustment Factor,” i.e., whether the

Fixed Fee would be adjusted upward or downward, and Section 2.3 delineates how

the Fixed Fee shall be adjusted. Linde warranted that it could perform the work at

the Target Price of $75,271,513 and within the schedule of key dates. 5

Schedule C-3, Section 3.1, “Safety Incentive Program,” provides:

The Parties agree the following safety incentive program shall apply to

the Project: If, upon Final Completion, Contractor and Subcontractors

and Sub-subcontractors combined have (i) a Total Recordable Incident

Rate of less than or equal to 1.4, (ii) a Lost Time Case Rate of less than

or equal to 0.67, and (iii) zero fatalities, then the Fixed Fee shall be

5

The “Target Price” is defined as the Target Base Cost ($65,691,533) plus the Fixed

Fee ($9,579,980).

5

increased by an amount equal to one percent (1%) of the Target Base

Cost.

From April 2018 through August 2019, Arrow paid Linde’s monthly invoices

in full. A dispute, however, subsequently arose over payments. In August 2019,

Arrow stopped paying Linde’s invoices and Linde stopped paying its subcontractors.

The Bear Den II plant was completed and became commercially operational that

same month.

Procedural History

In December 2019, Linde sued Arrow asserting claims for breach of contract,

violation of the PPA, and quantum meruit and sought more than $50 million in actual

damages based on unpaid Base Costs. Arrow answered and counterclaimed for

fraudulent inducement, civil conspiracy to commit fraudulent inducement, and

breach of contract. In the course of litigation, Arrow paid Linde $22,736,218 as

partial payment for the unpaid Base Costs.

A. The Trial

Trial began in May 2022 and lasted nearly five weeks. The jury heard

testimony from the following witnesses:

Ali Jangi

Jangi is Linde’s Director of Project Execution. He testified that, prior to being

hired to build the Bear Den II plant, Linde had built six other gas processing plants.

He testified that Arrow initially hired Linde to build the Core-Cryo, which is the

6

heart of the plant, and that Kahuna was the general contractor on the project.

However, when Arrow became concerned about Kahuna’s engineering competency

and its ability to meet the scheduling requirements of the project, Crestwood

approached Linde about taking over the work on the balance of the plant. Linde

accepted the job.

Jangi testified that the Bear Den II project was different from the other plants

Linde had previously built in several ways. He testified that, in contrast to the Bear

Den II project, the other projects did not involve Linde replacing a previous general

contractor, they were not “fast-track” projects, they did not require substantial

changes, and the contracts for the other projects were all lump sum contracts as

opposed to a cost reimbursable contract.

In his role as Director of Project Execution, Jangi reviewed the status of the

Bear Den II project monthly with the execution team in Linde’s Tulsa office. Jangi

testified that Crestwood asked for significant changes to be made to the project,

“literally every day new things,” and that Crestwood caused delay in finalizing

portions of the project which, in turn, affected Linde’s ability to proceed with the

engineering work and maintain the project schedule.6 He testified that Crestwood

6 Jangi testified that Crestwood had back-and-forth discussions with Linde about the

electrical portion of the project, i.e., the “brain and nerve” of the plant, that lasted

eight to ten weeks, and that such a delay can impact the overall delivery of the

product.

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told Linde to do what it asked and that Crestwood would reimburse Linde for the

work. Jangi testified he became more engaged in the execution of the project as

problems and issues arose.

Jangi testified that in accordance with the payment terms under the parties’

contract, Linde submitted an invoice to Crestwood each month with supporting

back-up documentation in order to be reimbursed for, among other things, the man-

hours spent by the engineering group, the purchase of materials and equipment, and

payments made to subcontractors. Jangi stated that Linde internally reviewed the

documentation and then reviewed it with Crestwood before submitting the invoice

for payment. He testified that if a mistake in an invoice occurred, Linde discussed it

with Crestwood and made modifications or corrections, when necessary. He stated

that, in general, Crestwood had no major objections to any of Linde’s invoices and

that Crestwood paid all of Linde’s invoices from the start date of the project in April

2018 until August 2019.

Jangi testified that the Fixed Fee in Article 7.1A of the contract consisted

mainly of the profit that Linde would earn from the project. The Fixed Fee was set

In his deposition testimony admitted at trial, James Sloan, one of Linde’s lead

project managers on the Bear Den II project, testified that the plant that was

ultimately built was different that the plant whose target price was $75 million in

the EPC contract, characterizing them as “two different projects.” According to

Sloan, the plant that Linde built was spread out and likely covered twice the surface

area of the original plant.

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forth in Section 3.1 of Schedule C-1: “Owner shall pay Contractor $9,579,980 USD

for the satisfactory completion of all Work performed by Contractor.” Jangi testified

that Linde did not receive the entire $9.5 million of the Fixed Fee. Jangi stated that

the Base Cost under Article 7.1B of the contract refers to the actual cost incurred by

Linde: “Owner shall pay Contractor those costs, charges and expenses incurred by

Contractor in the performance of the Work payable as “Base Costs” as defined in

Schedule C-1.” Under Section 5.2 of Schedule C-1, subcontractor costs are

reimbursable Base Costs: “Owner shall reimburse Contractor as a Base Cost for the

actual invoiced cost to Contractor and paid by Contractor to Approved

Subcontractors engaged in accordance with Sections 2.3 and 2.4 of the Agreement.”

Jangi testified that Bilfinger Westcon (Westcon), the primary construction

contractor, and Ardent, the electrical instrumentation subcontractor for the project,

were among Linde’s subcontractors on the Bear Den II project.

The contract also defines other terms including “Disallowed Costs” and

“Target Price.” Jangi testified that the Target Price “was the price that we shoot at,”

and that at no time did Linde promise Crestwood that the plant would cost $75

million or promise to build the plant for $75 million.

Jangi testified that the Target Base Cost of $65,691,533 could change through

the change order process. He explained that each contract Linde enters has an

agreed-upon scope of work. He stated that during project execution the client might

9

request changes or a different direction which changes Linde’s scope of work on the

project. Jangi testified that the Target Base Cost changed during the Bear Den II

project.

Jangi also testified that Linde’s Fixed Fee could be adjusted upward or

downward depending on the Cost Adjustment Factor, which is determined by

comparing the Total Base Cost to the Target Base Cost. He explained that under

Sections 2.2 and 2.3 of Schedule C-3, if the Total Base Cost, i.e., the actual cost of

building the plant, exceeded the Target Base Cost, plus a $1 million deadband,7

Linde’s Fixed Fee would decrease, but if the Total Base Cost was less than the Target

Base Cost, minus the $1 million deadband, Linde’s Fixed Fee would increase.

Jangi testified that all of Linde’s other contracts had been lump sum contracts

and that it had never been a party to a reimbursable contract before the Bear Den II

project. Jangi explained that “the most important difference between a lump-sum

contract and a reimbursable contract is who is carrying the risk.” He testified that, in

a lump-sum contract, the contractor bears the risk of cost overrun and absorbs any

overrun. By contrast, in a reimbursable contract, the risk of cost overrun remains

with the client and it is the client who pays for any cost overruns that occur. He

7

Jangi described “deadband” as a “tolerance” on the Base Cost. This means that $1

million over or under the Base Cost was acceptable but exceeding $1 million in

either direction would impact Linde’s Fixed Fee.

10

testified that to enter a lump-sum contract, Linde must have an absolute clear scope

of work so that it can properly evaluate the risk, come up with a lump-sum number,

and determine whether it is willing to take on the risk of cost overrun. Jangi testified

that absent a clear scope of work, Linde cannot lock in the numbers and that its only

choice is a reimbursable contract. Jangi stated that Linde did not have all the

information it needed to propose a lump-sum contract for the Bear Den II plant.8

Jangi testified that Linde considered the schedule for construction of the Bear

Den II plant “aggressive.” He stated that, based on Linde’s past experience, gas

plants this size normally take about two years to build. However, changes to a project

will impact a project’s schedule and should be avoided when there is an aggressive

schedule in place. Jangi testified that the schedule for the Bear Den II plant was

aggressive because it was shorter than the typical two-year schedule to build such a

plant and, with the changes that occurred, it became more and more aggressive. Jangi

testified that Crestwood made it very clear that keeping to the schedule was more

important than the costs and that it needed the plant to be operational by August

2019.

Jangi testified that the Bear Den II plant began commercial operations on

August 14, 2019. One month later, on September 20, 2019, Jangi received a letter

8

As an example, Jangi pointed to the fact that Linde did not have a clear

understanding of the work that the previous contractor, Kahuna, had completed and

whether it was properly performed and aligned with Linde’s design.

11

from Chris McFarland, Crestwood’s project manager, advising Linde for the first

time that Crestwood intended to withhold payment of Invoice 16 Rev. 1 in the full

amount of $31,047,189.23 due to, among other things, Linde’s refusal to participate

in an audit. Jangi stated that Crestwood never informed Linde that it required an

audit of Linde’s records as a condition of payment at any time prior to the September

20, 2019 letter. Linde employees remained at the project site in September 2019 and

left the site in late October 2019.

Jangi testified that Crestwood paid Linde’s invoices from April 2018 through

August 2019 in full and that, if Crestwood had stopped paying those invoices, Linde

would have stopped its work because the parties’ agreement was a cost reimbursable

contract. Jangi stated that the costs reflected in its invoices were actually incurred

by Linde for the sole purpose of carrying out the work at the Bear Den II plant. He

stated that Linde told Crestwood from the beginning of the project that Linde would

stop work if Crestwood did not pay its invoices. Jangi also recalled telling Hugo

Guerrero, Crestwood’s Senior Vice-President of Technical Services, that Linde

would stop its work if Arrow stopped paying Linde’s invoices.

Jangi testified that he was not aware of any provision in the parties’ contract

requiring Linde to track disallowed costs and Linde did not track them. He also

testified that under Section 12.2 of the EPC Agreement, any rework, i.e., work

requiring modification or replacement, was reimbursable while work performed by

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Linde to correct any defective work prior to mechanical completion was at Linde’s

expense.

Jangi stated that the Target Price as set forth in the EPC Agreement for the

Bear Den II project was $65 million in Base Costs plus a Fixed Fee of $9.5 million

but the project ended up costing about $156 million. Jangi testified that the

significant cost increase was due mainly to the changes that Crestwood requested.

In particular, Jangi pointed to Crestwood’s requests that Linde move a control

building that had been constructed in the middle of the plant to the top of a hill and

that it expand a compressor building and the stabilizer for future expansion. He

stated that these change requests had a “huge impact” on the final cost and that the

arrangement of the plant, or “plot plan,” that was discussed as part of the original

scope of work for the balance of the plant “was completely different than what

Crestwood got [at the] end of the day.”

Jangi created a PowerPoint presentation for Crestwood’s project team that

showed the status of the project. Guerrero, Arrow Manager Asim Siddiqui, and

McFarland attended the meeting. The presentation showed that the original design

for the plant upon which Linde’s scope of work was based was for “60,000 Square

Process Area,” but that the design eventually became a “120,000 Square Process

Area,” increasing the cost of the project from $75 million to $156 million. He said

13

that the purpose of the presentation was to show Crestwood that the plant it would

get was not the plant that was negotiated with Linde in January 2018.

Jangi testified that Crestwood hired Westcon as the mechanical contractor on

the project prior to awarding Linde the balance of the plant. Linde and Westcon

subsequently executed a T&M (time and materials) reimbursable subcontract under

which Westcon was to perform the civil and mechanical work on the project and

Linde would reimburse Westcon for its work. Jangi testified that Westcon invoiced

Linde under the subcontract which included markups of the subcontracts to cover

the indirect costs, i.e., overhead costs, as well as other costs. Jangi testified that, as

of September 2018, Crestwood had copies of the subcontract as well as Westcon’s

invoices and supporting documentation that it submitted to Linde. Jangi testified that

the first time Crestwood expressed concern that the Westcon subcontract was

inconsistent with Section 2.3 of the EPC Agreement was in September 2019, after

the plant was completed.

Linde first learned of Crestwood’s request for an audit of its books and records

by Veritas Advisory Group (Veritas) in late July 2019. In response, Linde provided

more than 30,000 pages of documentation to Veritas. On September 24, 2019, Lane

Sharrah, Linde’s project manager for the Bear Den II Project, emailed Kenneth

Monson, Veritas’s Vice-President, ahead of a scheduled meeting to ask whether

there were any outstanding items that Veritas had requested but not yet received

14

from Linde. Monson responded that he was not aware of any outstanding items at

that time. This email exchange occurred four days after McFarland’s September 20

letter to Linde advising that Crestwood would stop paying Linde’s invoices because

Linde was not cooperating with the audit. Jangi stated that Linde subsequently

canceled its meeting with Veritas because Crestwood had already stopped paying

Linde and Veritas wanted to interview Linde’s employees which was beyond the

scope of audit under the EPC Agreement.

Jangi testified that Change Order No. 1 increased the Target Price under the

contract by $5,884,324.51. The Change Order, dated April 10, 2019, was signed and

approved by McFarland and Arturo Puigbo, Linde’s Vice-President of Sales and

Technology, Natural Gas. Jangi testified that Change Order No. 1 was the result of

an earlier meeting with Crestwood, Linde, Westcon, and Ardent during which there

was discussion about how to accelerate the schedule to meet the Target Date. Jangi

testified that during the meeting Crestwood assured Linde, Westcon, and Ardent that

they would be paid to have the project completed by August 2019. The Change Order

reflected that one of the additional costs was due to the subcontractors’ employees

working night shifts and a 13-1 schedule, i.e., working thirteen consecutive days

followed by one day off. Jangi testified that in issuing the Change Order, Crestwood

confirmed to Linde that it would adjust the Target Price as well as Linde’s Fixed

Fee. Crestwood issued Change Order No. 2 which increased the Target Price by $2.1

15

million and the Fixed Fee by $370,000. Similarly, Crestwood issued Change Order

Nos. 3 and 4 which likewise increased the Target Price and the Fixed Fee. In all,

Crestwood approved Linde’s Change Order Nos. 1 through 5 but did not approve

Change Order Request Nos. 6 through 19.

Jangi testified that Linde’s subcontractors put liens on the plant when they

stopped receiving payments from Linde. He stated that Linde subsequently paid the

subcontractors, and the liens were removed, even though Crestwood had stopped

paying Linde. Jangi testified that even though Crestwood failed to comply with their

contractual requirements to pay Linde, Linde paid the subcontractors because it had

an obligation to do so under their contract. Jangi recalled that when he mentioned to

Guerrero in September or October 2019 that Crestwood failed to comply with its

obligations under the EPC Agreement when it stopped paying Linde, Guerrero

replied “I got what I wanted. You need to follow up with our legal team.” Jangi

testified that at the time of trial, Linde had a lien on the property. He stated that Linde

did not make any money on its contract with Crestwood.

Robert Phillips

Phillips is Crestwood’s Chairman of the Board and Chief Executive Officer.

Crestwood is the parent company of Arrow and headquartered in Houston and Arrow

is a subsidiary of Crestwood with assets located in North Dakota.

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The Bear Den gas processing facility is the terminus of the Arrow Gathering

System. Phillips testified that Crestwood decided to expand the Bear Den facility in

2017. After selecting Linde as the EPC contractor for the Bear Den II project,

Crestwood and Linde entered into a reimbursable contract.

Phillips testified that the EPC contract included specific protections to protect

Crestwood and ensure that Linde’s costs were actual, reasonable, and proper

expenses. He stated that Crestwood’s audit rights entitled it to evaluate the

subcontractors’ costs as well. Phillips testified that Crestwood negotiated for the

right to disallow certain costs that they did not think were reasonable or proper.

Phillips testified that one unique feature of the EPC Agreement was that it

allowed Crestwood to ensure that Linde hired subcontractors using the same type of

contract that it had with Crestwood, i.e., a reimbursable contract. In this way,

Crestwood would have the ability to audit all the way through to the subcontractor

agreements and ensure that the invoices Linde was sending to Crestwood as charges

from their subcontractors were reasonable and proper and in accordance with the

project design. Phillips stated that Crestwood later learned that the subcontractors’

contracts were not the same type of contract as it had with Linde, and that Crestwood

never had the chance to audit those subcontractors.

Phillips testified that he relied on the $75 million Target Price in the EPC

Agreement in authorizing Crestwood to enter into the contract. He stated that

17

Crestwood’s internal target date of completion was September 1, 2019. He testified

that Crestwood made it clear that it needed the plant completed by this date to begin

handling more gas volume and earn more money. He stated that he authorized

Crestwood to enter into the EPC Agreement with Linde based on Linde’s

representation that it could meet that deadline.

Phillips testified that Crestwood continued to pay the invoices but “it was

confounding to us that we couldn’t get the type of verification or documentation to

support the invoices that were coming in.” Phillips stated that he told the project

controls department to continue calling Linde to request the supporting documents

and “find out why the bills are what they are.”

According to Phillips, the issue came to a head when it became apparent to

Crestwood that the past and future projected cost of the project was going to be

nearly double the original estimate. Crestwood began asking Linde why the costs

were so high. He testified that while the different project teams were initially open

and transparent, Crestwood eventually became less comfortable with Linde’s

answers, and at times received no answer from Linde. Phillips testified that Linde

sometimes indicated that there was a problem with an invoice, and it had to re-

invoice or provide a different explanation as to why the costs were so high, but this

was never satisfactory to Crestwood.

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Phillips testified that, in May or June 2019, he directed the team to inform

Linde that Crestwood intended to exercise its audit rights under the contract. Phillips

stated that Crestwood continued to try to process the invoices from Linde and pay

them, but that it was not satisfied with the explanations Linde provided and it

expected Linde to answer its questions or provide the supporting documentation.

Phillips testified that the disputes often involved documentation from third-party

subcontractors and Linde refused to provide it. He stated that Linde initially

cooperated with the audit and provided Crestwood with access to additional

documents and to Linde personnel. To ensure that it fully understood what was in

the documentation, Crestwood hired its own experts to determine whether the

invoices and supporting documentation were reasonable and proper and met the

original design of the project. Crestwood’s experts and Linde’s experts were

scheduled to meet in Houston. However, Linde cancelled the meeting the night

before and stopped cooperating with the audit.

In a letter dated September 20, 2019, Crestwood advised Linde that Arrow

intended to withhold and/or offset the amount set forth in Invoice 16 Rev. 1. The

letter stated that after reviewing revised Invoice 16, and considering amounts

previously paid to Linde, Arrow was disputing payment in the full amount of

$31,047,189.23. The letter noted that at a meeting with Crestwood, Linde

representatives admitted that Invoice 15 and original Invoice 16 were incorrect.

19

Phillips testified that after Crestwood questioned Linde about inconsistent back-up

documentation for revised Invoice 16, Linde again admitted that the information was

incorrect. The letter stated, in part:

Given Linde’s repeated errors, lack of transparency, and inability to

substantiate significant overruns and delays, we have no confidence that Linde

is properly accounting for and invoicing its reimbursable costs. This is

particularly troubling as Linde’s estimated cost to complete the project is now

twice the amount we agreed to when Linde was selected for the work and we

have had to take significant actions to try and prevent further delays. Linde

has not provided adequate support for the significant cost overruns or

extensions of time, and the change orders Linde has submitted are not

acceptable under the contract.

The letter also stated that Linde had failed to present representatives with

sufficient knowledge of the project necessary to respond to the auditors’ questions,

and that many of the requested documents had yet to be provided despite repeated

requests. It stated that the audit revealed that Linde failed to comply with material

terms in the agreement which significantly impacted the overall costs of the project.

The letter stated:

Linde’s subcontracts are not consistent with the material terms of the

Agreement with Linde, in violation of Section 2.3 of the Agreement.

While complete documentation has not been forthcoming, we

understand that Linde’s major subcontracts are not structured on a cost

reimbursable basis to account for the actual costs incurred by the

subcontractor. Linde’s material omission has resulted in the submission

of Disallowed Costs for which we have paid but are not responsible

. . ..

As a result of Linde’s failure to comply with its obligations under

the Agreement and failure to properly substantiate its invoices, among

other reasons, we have no reasonable alternative than to withhold and

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offset within our rights pursuant to Section[s] 7.4, 7.5, 7.7 and 7.8 of

the Agreement in order to protect Owner from losses arising from

Linde’s conduct.

Without limitation to any other defects that have been or may be

identified, and in support of our good faith basis for withholding and/or

offsetting amounts pursuant to the Agreement, we provide the

following illustrative list of Linde failures:

• unreasonable engineering delays, errors, and omissions, which

have resulted in significant Project delays, additional costs, and

other damages to Owner;

• failure to conduct a reasonable inquiry or analysis of the job site

resulting in a grossly underestimated bid upon which Owner

relied;

• extreme construction inefficiencies;

• unreasonable equipment expenditures resulting from incomplete

or negligent design plans, for which a more cost-effective

alternative was available;

• rework costs caused by assembly error or construction defects;

• failure to present accurate information on the project schedule

and progression of work;

• delay damages incurred by Owner due to Linde’s failure to

achieve timely Mechanical Completion;

• invoicing of Disallowed Costs incurred by Linde and/or its

subcontractors for which Crestwood has tendered payment but is

not responsible;

• amounts paid by Owner to Linde in preceding invoicing periods

incorrect[] and for which there was insufficient or inaccurate

supporting information; and/or

• multiple changes in personnel throughout the Project that have

disrupted administration of the Project.

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The letter concluded that “[a]s a result of the foregoing, Owner intends to

withhold payment of Invoice 16 Rev. 1 in its entirety pursuant to Owner’s rights and

remedies under the terms of the Agreement, at law, and in equity.” Phillips

acknowledged, however, that he made the decision to stop paying Linde without

having read any portion of the EPC Agreement.

On September 30, 2019, Crestwood sent a Notice of Default letter to Linde.

The letter stated: “Linde is in Default under Section 15.1 of the Agreement,”

specifically noting that “Linde’s refusal to cooperate with the audit process is an

event of Default pursuant to Section 15.1 (iv) of the Agreement” and its “failure to

pay amounts owed to subcontractors is another event of Default under Section

15.l(xi) of the Agreement.” The letter concluded that “pursuant to Section 15.1 of

the Agreement, Linde has seven (7) days to cure these Defaults, and in accordance

with Section 7.7 of the Agreement, Owner is not obligated to make any payments

that might otherwise be due to Linde unless and until Linde does so.”

Phillips stated that, as of October 2019, in addition to Veritas’s determination

that Linde’s invoices to Crestwood included approximately $24 million in

disallowed costs, three outstanding issues with Linde remained: (1) a critical piece

of equipment in the plant was not working properly, (2) Linde’s refusal to renew the

letter of credit upon which Crestwood could draw for additional costs or damages

incurred by Linde, and (3) Linde’s failure to pay the subcontractors and the resulting

22

liens that were filed on Crestwood’s property.9 Philips testified that Crestwood made

two additional payments to Linde—one for approximately $19 million and one for

$3 million—based upon the reports of Crestwood’s experts as to what the reasonable

cost of the plant should have been.

Hugo Guerrero

Hugo Guerrero was Crestwood’s Senior Vice-President of Technical Services

who oversaw the planning and execution of the Bear Den II project.10 He testified

that Crestwood reimbursed 100% of Linde’s costs until the plant went into service

in August 2019.

Guerrero testified that staying on schedule to complete the Bear Den II plant

was very important to Crestwood because its contract with ONEOK, a midstream

gas processing company, was set to expire in August 2019.11 He testified that the

9

Jangi testified that Linde paid all the subcontractors in full. He also testified that the

missing part Phillips referred to was the center section of an expander-compressor,

part of the Core-Cryo unit for which Linde was initially hired. Thus, Linde was not

required to provide this part to Crestwood under the EPC Agreement (which was

for the balance of the plant work).

10

At the time of trial, Guerrero was employed as Senior Vice President at Summit

Midstream Partners.

11

He testified that the significance of the contract’s expiration was that it represented

some risk to Crestwood because there was no guarantee that it was going to be able

to renegotiate or extend that contract, but Crestwood had the obligation to process

that gas from producers. He also testified that at least one of the producers in the

Arrow gathering system urged Crestwood to complete the Bear Den II project as

quickly as possible.

23

urgency to get a new contractor in place after Crestwood terminated Kahuna’s work

on the Bear Den II project and meeting the schedule were factors in Crestwood’s

decision to hire Linde as its EPC contractor without receiving any other written bids.

In accordance with Crestwood’s schedule, construction of the Bear Den II plant

began in April 2018 and the plant went into service in August 2019.

Guerrero testified that he was involved in negotiating key aspects of the EPC

Agreement between Crestwood and Linde, such as the Target Price, the cost

reimbursable nature of the agreement, and the warranty provisions. He testified that

before executing the EPC Agreement, the parties executed a Letter of Intent (LOI)

to allow Linde to begin some of the work and authorize payment so that the work

could begin without delay while the two parties negotiated the provisions of the

formal EPC Agreement. The LOI stated, among other things, that “Arrow shall pay

. . . [Linde’s] total, actual cost to complete the work,” “[a] Fixed Fee of $9,579,980

. . . subject to adjustment based upon the attainment of the in-service date,” and a

safety incentive of up to one percent (1%) of the Target Base Cost, subject to

achievement of safety metrics.

Guerrero testified that the EPC Agreement between Crestwood and Linde was

a Target Price agreement. He testified that Crestwood understood the Target Price

as a guarantee that, subject to some adjustments, Linde could deliver the project for

that price. However, Guerrero also recalled that, in February 2018, he told Jody

24

Black, his counterpart at Linde, that the Target Price was “just a target.” Guerrero

testified that he assured Linde before the contract was executed that all costs would

be reimbursed and that it was implied that those costs meant “allowable costs.”

As the project progressed into the latter part of 2018, Linde’s estimated cost

of completion began to increase. Guerrero testified that this increase, as well as

keeping to the schedule, concerned Crestwood but it continued paying 100% of

Linde’s invoices. On July 22, 2018, Guerrero sent an email to Black, Puigbo, and

Carlos Conerly that after speaking with Siddiqui he was “very concerned about the

direction we are heading in,” specifically the lack of progress and delay in execution

by Linde. Guerrero sent a letter to Linde on August 21, 2018, in which he formally

requested that Linde produce a recovery schedule pursuant to Section 5.5 of the EPC

Agreement that explained how Linde intended to regain compliance with the

schedule of key dates for the project. In the letter, Guerrero also stated that “[i]n

addition to the very significant schedule concerns . . . Arrow has a number of other

material concerns with Linde’s performance,” including that “Linde has failed to

maintain any semblance of cost control for the project.” Guerrero testified that

Conerly told him that Guerrero’s letter represented a serious issue for Linde

internally and asked if Guerrero could talk to Crestwood management about possibly

recalling it. Days later, Crestwood withdrew its demand for a recovery schedule.

Guerrero testified that after a series of reviews and analyses, Crestwood management

25

decided to stay with Linde and the subcontractors because that would allow for the

best possible outcome on the project.

In 2018, there were multiple discussions between Linde and Crestwood about

the Westcon subcontract and how Westcon was charging for its work. Guerrero

testified that in the fall of 2018, he reached the conclusion that the Westcon contract

violated the EPC contract and created disallowed costs. Guerrero was not aware,

however, of any communication by Crestwood in 2018 advising Linde that

Crestwood would not reimburse Linde for Westcon’s costs.

In an email dated February 5, 2019, Guerrero attached a document entitled

“Bear Den Plant 2 Overrun” which he prepared for Crestwood’s Board of Directors.

In it, Guerrero listed a series of reasons which he determined were causes of the cost

overrun Crestwood was experiencing. The document identified, among other

reasons, the rising price of raw materials and diesel fuel as factors contributing to

increased costs. The document also stated that Crestwood’s original estimate of the

cost of construction of the plant was prepared without sufficient detail about the

scope of the project, and that the timing of the project did not allow Crestwood to

solicit bids for the project. The document stated that, “[a]s such, we entered into a

Cost Plus Fixed Fee [CPFF] agreement that did not adequately protect Crestwood in

the event of a significant cost overrun.” Guerrero testified that Crestwood explicitly

26

agreed that Linde would be compensated and that its costs would be reimbursed in

connection with its schedule recovery efforts.

Guerrero testified that the Bear Den II Plant began generating revenue as of

August 14, 2019. Guerrero stated that other than an issue with some bottom pumps

manufactured by another company for which there was a warranty claim, he could

not recall any issue that Crestwood experienced with respect to the construction of

the Bear Den II Plant.

Guerrero recalled that one of Linde’s concerns at the outset of the EPC

Agreement was its ability to remain cash-flow neutral. He stated that Linde wanted

to make sure that as it made large payments to Westcon and other subcontractors, it

would be reimbursed for those payments promptly because it did not want to lose

money on a cost reimbursable job. He was aware that Linde paid an enormous

amount out of pocket on the project that remained unreimbursed at the time of trial.

He agreed that Crestwood eventually got the plant that it bargained for but through

its own measures.

Section 1.1 of the EPC Agreement defines “Mechanical Completion” in part

as "[t]he project is capable of receiving and processing natural gas in a safe

uninterrupted manner 24 hours per day, 7 days per week without further anticipated

shutdowns, except for preventive maintenance.” Guerrero testified that the Bear Den

II plant was not able to operate in a safe manner 24/7 and uninterrupted in August

27

2019. He believed that Crestwood’s decision to withhold payment from Linde was

reasonable because Linde had overcharged Crestwood by $40 million at the time

and it had not produced evidence that those charges were reasonable and allowable

in accordance with the contract. He testified that Crestwood did not get the plant it

bargained for because the plant was only able to run because his team came in and

salvaged it at the end with the help of the subcontractors. He further testified that he

relied on Linde’s misrepresentations in executing the contract and that Crestwood

was defrauded by Linde.

Chris McFarland

McFarland was Crestwood’s Project Manager on the Bear Den II project. In

this role, he was primarily involved in helping to prepare, along with Linde, some of

the attachments to the contract such as scope of work, contractor deliverables, and

the plot plan.

McFarland disputed that the plot plan at Bear Den II Plant doubled in size

from 60,000 sq. ft. to 120,000 sq. ft. McFarland also stated that he had never seen a

project change in its cost estimate at completion (EAC) as drastically as the Bear

Den II project did. When asked how he would rate Linde’s overall performance on

the project as compared to other projects he had managed, he testified, “[t]his was

unlike anything I had seen. It had no coordination. It was, I mean, frankly a complete

disaster from engineering through fabrication, procurement, construction

28

management, the construction itself, no coordination, communication was not good,

there were engineering busts, there w[ere] late deliverables, there were fabrication

errors . . . .” He testified that late engineering changes, delays in fabrication and

delivery of piping and steel, defects in the piping and steel, and the turnover in key

Linde project management personnel resulted in unnecessary costs and schedule

impacts to the project. McFarland stated that the accuracy of Linde’s cost reports on

the project were haphazard at best, inaccurate, and contained frequent errors and

omissions. According to McFarland, Crestwood approved all of Linde’s change

orders that were appropriately supported by documentation.

McFarland testified that due to instability, shutdowns in the plant, and a

missing component of the Core-Cryo section, the plant did not achieve “Mechanical

Completion” by mid-December 2019. However, he also stated that all major systems

at the Bear Den II Plant were mechanically complete on August 1, 2019. McFarland

further testified that Crestwood did not receive as-built drawings from Linde within

sixty days after Mechanical Completion as required under Section 3.1(a) of the

contract, but he acknowledged that Crestwood had refused to certify the Mechanical

Completion certificate submitted by Linde for signature. McFarland testified that he

did not believe that Linde qualified for a Safety Incentive as provided in the EPC

Agreement.

29

McFarland testified that, in October 2017, before Linde was hired, Crestwood

estimated that the Bear Den II project would cost $130 million. He testified that the

estimated cost for the full project included the Core-Cryo, Crestwood’s own internal

labor, and equipment that Crestwood purchased.

Section 2.5D of the contract, under “Contractor Acknowledgements,” states

in part that “Contractor has investigated to its satisfaction Applicable Law and

Applicable Codes and Standards and warrants that it can perform the Work at the

Target Price and within the Schedule of Key Dates in accordance with Applicable

Law and Applicable Codes and Standards.” McFarland agreed that this provision is

not a promise by Linde to perform the work at the Target Price but rather it warrants

that Linde has reviewed all the applicable law, codes, and standards and believes it

can achieve the work to be done for the Target Price. McFarland testified that Target

Price is neither a guaranteed price nor a cap on Base Costs. In an August 26, 2018

email from Siddiqui to McFarland, titled “Linde Contract,” Siddiqui stated, “[w]e

bear all costs,” to which McFarland responded, “[w]ell, that sucks but not

surprising.”

McFarland testified that all major systems at the Bear Den II Plant were

mechanically complete on August 1, 2019, and the plant was in full commercial

operation by August 14, 2019. McFarland acknowledged that on September 20,

2019—the date that he sent the letter advising Linde that Arrow intended to withhold

30

payment—Crestwood’s daily report stated that the plant ran with “no major issues

or events.”

McFarland testified that Linde met the requirements to receive the Safety

Incentive under Schedule C-3, Section 3.1; that is, the total recordable incident rate

for the project was less than 1.4, the lost time case rate for the project was zero, and

there were zero fatalities at the plant.12 McFarland testified that 1% of the Target

Base Cost under the contract was about $729,000. However, McFarland testified that

he did not believe that Linde was entitled to a Safety Incentive because there was no

final completion although he acknowledged that final completion could only be

reached after mechanical completion was achieved.

B. The Verdict

At the conclusion of trial, the jury returned a verdict in favor of Linde. The

jury found that Arrow breached the EPC Agreement by failing to pay Linde for Base

Costs that Linde incurred (Question 1) and that an award of $20,010,362 would

compensate Linde for Arrow’s failure to pay the unpaid Base Costs (Question 2). It

12

Schedule C-3, Section 3.1 states:

The Parties agree the following safety incentive program shall apply to the

Project: If, upon Final Completion, Contractor and Subcontractors and Sub-

subcontractors combined have (i) a Total Recordable Incident Rate of less

than or equal to 1.4, (ii) a Lost Time Case Rate of less than or equal to 0.67,

and (iii) zero fatalities, then the Fixed Fee shall be increased by an amount

equal to one percent (1%) of the Target Base Cost.

31

also found that Arrow failed to promptly pay Linde for an amount allowed to Linde

under the EPC Agreement for properly performed work because it did not pay Linde

within thirty-five days after Arrow received a written payment request from Linde

(Question 3) and that Arrow’s failure to promptly pay was not excused (Question

4).13 Further, the jury found that Arrow violated the EPC Agreement by not paying

Linde the Safety Incentive under the EPC Agreement and that $729,379 would

compensate Linde for Arrow’s failure to pay the Safety Incentive (Questions 6 and

7). And, the jury found that Linde did not fail to comply with the EPC Agreement in

any of three enumerated ways (Question 8).14 Linde moved for entry of judgment.

13

Question 4 states:

Arrow’s failure to promptly pay is excused if—

1. Arrow disputed in good faith its obligation to pay or the amount of

payment, and

2. Arrow withheld no more than 100 percent of the difference between the

amount Linde claims is due and the amount that Arrow claims is due.

A good-faith dispute includes a dispute regarding whether the work was performed

in a proper manner.

14

Question 8 asked:

Did Linde fail to comply with the EPC Contract in any of the following ways?

(a) Did Linde fail to comply with the obligation to “perform the Work

in accordance with GECP [Good Engineering and Construction

Practices]” in Section 3.1 of the EPC Agreement?

(b) Did Linde fail to comply with the Subcontracts provisions in

Section 2.3 or 2.4(F) of the EPC Agreement?

32

Following the jury’s verdict, the parties briefed the applicability of Section

28.010 of the Texas Prompt Payment Act and whether the Act’s exemption for

“mineral development and oilfield services” contained in that section precluded

entry of judgment in favor of Linde on its Prompt Payment Act claim. The trial court

concluded that the mineral development exemption did not apply.

The trial court signed the final judgment on October 24, 2022, ordering that

Arrow take nothing from Linde and that Linde recover the following from Arrow:

a. Actual damages in the amount of $20,010,362.

b. Actual damages caused by Arrow’s failure to comply with the EPC

Agreement by not paying Linde the Safety Incentive set out in Section 3.1 of

Schedule C-3 of the Agreement in the amount of $729,379.

c. Interest under the Texas Prompt Payment Act in the amount of $17,683,501

as of October 24, 2022.

d. Reasonable and necessary attorneys’ fees in the amount of $4,616,760.

e. Costs in the amount of $130,568.

f. Post-judgment interest at the rate of 8.25% per annum pursuant to Texas

Finance Code § 304.002 and EPC Contract § 7.9, compounded annually on

the sum of $20,739,741 from the date of judgment until paid.

g. Post-judgment interest at the rate of 6.25% per annum pursuant to Texas

Finance Code § 304.003 compounded annually on the sum of $22,430,829

from the date of judgment until paid.

(c) Did Linde fail to comply with the requirement to provide CPM

[Critical Path Method] Schedule submissions in accordance with

Section 5.4(a) of the EPC Agreement?

33

Arrow moved for judgment notwithstanding the verdict, for a new trial, and

to modify the judgment. The motions were overruled by operation of law. This

appeal followed.15

Applicability of the Texas Prompt Payment Act

Arrow contends that the Texas Prompt Payment Act does not apply to the EPC

Agreement in two ways. First, it argues that the Act’s “mineral exemption”

unambiguously excludes the parties’ agreement. Second, it asserts that the Act does

not apply extraterritorially to injuries that occur outside Texas. Linde responds that

this case involves a construction contract for a manufacturing facility and is not one

of the three types of agreements to which the “mineral exemption” applies. It further

contends that there is no bar on “extraterritorial” application of Texas statutes—here,

the Prompt Payment Act—under choice-of-law clauses.16

A. Texas Prompt Payment Act

The Texas Prompt Payment Act provides, in relevant part, as follows:

(a) If an owner or a person authorized to act on behalf of the owner

receives a written payment request from a contractor for an amount that

is allowed to the contractor under the contract for properly performed

work or suitably stored or specially fabricated materials, the owner shall

pay the amount to the contractor, less any amount withheld as

15

In its brief, Arrow states that it does not seek a new trial and therefore limits its

requests for relief to reversal and rendition or reformation.

16

The parties have not cited and research has not revealed an opinion in which a Texas

appellate court has construed Section 28.010 of the PPA.

34

authorized by statute, not later than the 35th day after the date the owner

receives the request.

TEX. PROP. CODE § 28.002. Section 28.010 provides an exemption from the Act for

“Mineral Development and Oilfield Services”:

(a) This chapter does not apply to any agreement:

(1) to explore, produce, or develop oil, natural gas, natural gas

liquids, synthetic gas, sulphur, ore, or other mineral substances,

including any lease or royalty agreement, joint interest

agreement, production or production-related agreement,

operating agreement, farmout agreement, area of mutual interest

agreement, or other related agreement;

(2) for any well or mine services; or

(3) to purchase, sell, gather, store, or transport oil, natural gas,

natural gas liquids, synthetic gas, or other hydrocarbon

substances by pipeline or by a fixed, associated facility.

(b) In this section:

(1) “Agreement” includes a written or oral agreement or

understanding:

(A) to provide work or services, including any

construction, operating, repair, or maintenance services;

or

(B) to perform a part of the services covered by Paragraph

(A) or an act collateral to those services, including

furnishing or renting equipment, incidental transportation,

or other goods and services furnished in connection with

those services.

(2) “Well or mine services” includes:

35

(A) drilling, deepening, reworking, repairing, improving,

testing, treating, perforating, acidizing, logging,

conditioning, purchasing, gathering, storing, or

transporting oil or natural gas, brine water, fresh water,

produced water, condensate, petroleum products, or other

liquid commodities, or otherwise rendering services in

connection with a well drilled to produce or dispose of oil,

gas, or other minerals or water; and

(B) designing, excavating, constructing, improving, or

otherwise rendering services in connection with an oil,

gas, or other mineral production platform or facility, mine

shaft, drift, or other structure intended directly for use in

exploring for or producing a mineral.

Id. § 28.010.

Section 28.004, “Interest on Overdue Payment,” states:

(a) An unpaid amount required under this chapter begins to

accrue interest on the day after the date on which the payment

becomes due.

(b) An unpaid amount bears interest at the rate of 1½ percent

each month.

(c) Interest on an unpaid amount stops accruing under this

section on the earlier of:

(1) the date of delivery;

(2) the date of mailing, if payment is mailed and delivery

occurs within three days; or

(3) the date a judgment is entered in an action brought

under this chapter.

36

Id. § 28.004. Finally, Section 28.005(b) provides that “[i]n an action brought under

this chapter, the court may award costs and reasonable attorney’s fees as the court

determines equitable and just. Id. § 28.005.

B. Rules of Statutory Construction

In Texas, statutes must be strictly construed according to their plain language,

which is “the most reliable guide to the Legislature’s intent.” Miles v. Tex. Cent. R.R.

& Infrastructure, Inc., 647 S.W.3d 613, 619 (Tex. 2022) (quoted citation omitted);

see also Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 866 (Tex.

1999) (“stray[ing] from the plain language of a statute… risk[s] encroaching on the

Legislature’s function to decide what the law should be”). Statutory terms “bear their

common, ordinary meaning, unless the text provides a different meaning or the

common meaning leads to an absurd result.” Miles, 647 S.W.3d at 619 (quoted

citation omitted). Words and phrases that have acquired a technical or particular

meaning, whether by legislative definition or otherwise, shall be construed

accordingly.” TEX. GOV’T CODE § 311.011(b); see Citizens Bank of Bryan v. First

State Bank, 580 S.W.2d 344, 348 (Tex. 1979) (“[A] statute is to be construed with

reference to its manifest object, and if the language is susceptible of two

constructions, one of which will carry out and the other defeat such manifest object,

it should receive the former construction.”).

37

C. “Exemption for Mineral Development and Oilfield Services”

Arrow contends that subsections (a)(1) and (a)(3) of Section 28.010 of the Act

apply as a matter of law to the EPC Agreement. Thus, it argues, the Agreement

satisfies the mineral exemption, and the Act does not apply. We examine each

subsection below.

1. Subsection (a)(1)

This subsection states that the PPA does not apply to any agreement:

(1) to explore, produce, or develop oil, natural gas, natural gas

liquids, synthetic gas, sulphur, ore, or other mineral

substances, including any lease or royalty agreement, joint

interest agreement, production or production-related

agreement, operating agreement, farmout agreement, area of

mutual interest agreement, or other related agreement.

TEX. PROP. CODE § 28.010(a)(1). “Agreement” includes a written or oral agreement

or understanding . . . to provide work or services, including any construction,

operating, repair, or maintenance services[.]” Id. § 28.010(b)(1)(A).

It is undisputed that the EPC Agreement is a written agreement to provide

construction services. Arrow contends that because the Bear Den II plant “produces

NGLs” and “develops natural gas and NGLs through its gas processing operations,”

Linde’s construction services were secured, in part, to produce and develop natural

gas or natural gas liquids. Thus, it concludes, the Agreement satisfies subsection

(a)(1) because it is “a written agreement to provide construction services to produce

or develop natural gas or natural gas liquids.”

38

When the PPA was enacted in 1999, the verb “produce” was defined as “[t]o

bring into existence; to create” and “to bring (oil, etc.) to the surface of the earth.”

Produce, BLACK’S LAW DICTIONARY 1225 (7th ed. 1999). Prior to that, “produce”

was defined as “[t]o make, originate, or yield, as gasoline” and “[t]o bring to the

surface, as oil,” reflecting that usage of the term existed in the oil and gas field. See

Produce, BLACK’S LAW DICTIONARY 1225 (6th ed. 1990); see also Produce, THE

AM. HERITAGE DICTIONARY 660 (3rd College ed. 1994) (defining “produce” as “[t]o

bring forth; yield,” “[t]o create by mental or physical effort,” and “[t]o

manufacture”). The Texas Supreme Court has used the term “produce” with respect

to NGLs, explaining that “processing plants employ compression, refrigeration, and

other processes to remove water and other contaminants and to produce gas liquids.”

See Dynegy Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d 164, 166

(Tex. 2009). Similarly, The Department of Energy has recognized that NGLs are

produced through this process, noting that “NGL production happens at natural gas

processing plants . . . .” U.S. Dep’t of Energy, Natural Gas Liquids Primer 5 (June

2018).17

The evidence presented at trial demonstrates that the Bear Den II plant is a

natural gas processing facility that produces NGLs. Arrow CEO Phillips testified

17

https://www.energy.gov/sites/prod/files/2018/07/f54/NGL_Primer.pdf (last viewed

December 10, 2024). The Texas Supreme Court cited the 2018 edition of the DOE

Primer in Hlavinka v. HSC Pipeline Partnership, LLC, 650 S.W.3d 483 (Tex. 2022).

39

that the Bear Den II plant uses cryogenic technology to freeze the gas stream to allow

the extraction of NGLs (e.g., propane, butane, natural gasoline). Jangi described the

cryogenic process as the separation of the different components of natural gas that

come out of the wells. Guerrero testified that the raw gas from the wells is taken

through a gathering network into the Bear Den II plant which super cools the gas

allowing the heavier components of the gas ring to fall out of the gas in liquid form.

McFarland stated that high pressure natural gas goes through various temperature

and pressure changes at the Bear Den II plant causing liquids to drop out which are

then exposed to very cold temperatures in the Core-Cryo facility.

The evidence also shows that the Bear Den II plant “develops” natural gas and

NGLs through its gas processing operations. “Develop” in this context is defined as

“to make more available or effective: develop natural resources.” Develop, THE

AM. HERITAGE DICTIONARY at 389.18 “The word ‘develop’ as used in the oil and

gas industry contemplates any step taken in the search for, capture, production and

marketing of hydrocarbons.” Howard R. Williams & Charles J. Meyers, M ANUAL

OF OIL AND GAS TERMS at 260 (15th ed. 2012). Several witnesses testified that the

Bear Den II plant was built to ensure adequate processing capacity to meet the

18

See also www.merriam-webster.com/dictionary/develop (defining “develop” as “to

make available or usable: develop natural resources”) (last viewed December 10,

2024).

40

increasing natural gas volume. Construction of the plant is a step in the production

of natural gas and NGLs and their development as distinct, marketable products.19

The EPC Agreement satisfies the mineral exemption because it constitutes a

written agreement to provide construction services to produce or develop natural gas

or natural gas liquids. See TEX. PROP. CODE § 28.010(a)(1), (b)(1)(A). Because the

EPC Agreement falls within subsection (a)(1), the PPA does not apply.

2. Subsection (a)(3)

Subsection (a)(3) states that the PPA does not apply to any agreement:

....

(1) to purchase, sell, gather, store, or transport oil, natural gas,

natural gas liquids, synthetic gas, or other hydrocarbon

substances by pipeline or by a fixed, associated facility.

TEX. PROP. CODE § 28.010(a)(3). Arrow contends that the EPC Agreement

separately satisfies the mineral exemption under subsection (a)(3) because it “is a

written agreement to provide construction services to gather, store, or transport

19

Jangi explained that each of the components separated out during the cryogenic

process has different values and that companies want the more valuable components

separated from lower value components so that they can be sold at different prices.

Phillips testified that the Arrow system gathers oil and rich natural gas and processes

it through the cryogenic technology to extract NGLs from the dry gas thereby

creating marketable products.

41

natural gas [or] natural gas liquids by pipeline or by a fixed, associated facility.”20

See TEX. PROP. CODE § 28.010(a)(3), (b)(1)(A).

As noted above, there is no dispute that the EPC Agreement is a written

agreement to provide construction services. Both Arrow’s and Linde’s witnesses

testified that the plant has an inlet pipeline through which raw gas first enters, the

raw gas is then processed and the NGLs are extracted, and the dry gas and NGLs are

distributed via separate pipelines. The evidence shows that the Bear Den II plant is

“a fixed, associated facility” that includes pipelines.

The ordinary meaning of “gather” is “[t]o cause to come together; convene”

and “[t]o accumulate gradually; amass.” Gather, THE AM. HERITAGE DICTIONARY

at 550.21 “Gathering” in the oil and gas context is defined as “the collecting of gas

from various wells and bringing it by separate and several individual lines to a

central point where it is delivered into a single line.” MANUAL OF OIL AND GAS

TERMS at 260. A processing plant may be the designated “central point”: “A

gathering system generally consists of ‘interconnected subterranean natural gas

pipelines and related compression facilities that collect the raw gas from wells and

deliver it to a central point, such as a processing plant.’” Id. at 435. Notably, the

20

Under Section 28.010(a), a party need only show that subsection (a)(1), (a)(2), or

(a)(3) applies to satisfy the mineral exemption. See TEX. PROP. CODE § 28.010(a).

21

See also www.meriam-webster.com/dictionary/gather (defining “gather” as “to

bring together”) (last viewed December 10, 2024).

42

Texas Supreme Court recently approved this definition of a “gathering system.”

Nettye Engler Energy, LP v. BlueStone Natural Res. II, LLC, 639 S.W.3d 682, 692

(Tex. 2022) (quoting MANUAL OF OIL AND GAS TERMS).

The evidence shows that the Bear Den II plant is “the terminus of the Arrow

Gathering System” which “gathers oil, rich gas, and produce[s] water.” Phillips

testified that the purpose of the plant expansion was to ensure adequate processing

capacity to enable Arrow to gather the gas, extract the liquids, and place them in the

downstream pipeline. The EPC Agreement constitutes a written agreement for

construction services secured, in part, to “gather” natural gas by pipeline or by a

fixed associated facility.

Similarly, the Bear Den II plant was constructed in part to “store” natural gas

and NGLs. “Store” is defined as “[t]o keep (goods, etc.) in safekeeping for future

delivery in an unchanged condition.” Store, BLACK’S LAW DICTIONARY at 1432;

Store, THE AM. HERITAGE DICTIONARY at 1201 (defining “store” as “[t]o reserve

or put away for future use, “[t]o fill, supply, or stock, “[t]o deposit or receive in a

storehouse or warehouse for safekeeping”). McFarland testified that the Bear Den II

plant provides storage of NGLs “in the tanks.” The Agreement constitutes a written

43

agreement for construction services to, in part, “store” natural gas and NGLs by a

fixed, associated facility.22

Lastly, the Bear Den II plant was also constructed, in part, to “transport”

natural gas and NGLs. “Transport” means “[t]o carry or convey (a thing) from one

place to another.” Transport, BLACK’S LAW DICTIONARY at 1505; Transport, THE

AM. HERITAGE DICTIONARY at 1288 (defining “transport” as “[t]o carry from one

place to another; convey.”).23 In the natural gas context, “‘transportation’ involves

the movement of gas through a pipeline’s principal transmission system.” MANUAL

OF OIL AND GAS TERMS at 1082. Under the EPC Agreement, Linde certified that

the Bear Den II plant was “capable of receiving and transporting natural gas in a safe

and uninterrupted manner . . . .” The EPC Agreement is a written agreement for

construction services to, in part, “transport” natural gas by pipeline or a fixed,

associated facility.

The EPC Agreement thus satisfies the mineral exemption because it

constitutes a “written agreement to provide construction services to gather, store, or

transport natural gas [or] natural gas liquids by pipeline or by a fixed, associated

22

At trial, Linde acknowledged that the Bear Den II plant stores NGLs but argued that

their storage was only “incidental” to their processing. The mineral exemption,

however, evinces no requirement that their storage be the agreement’s primary

activity. See TEX. PROP. CODE § 28.010(a)(3).

23

See also www.merriam-webster.com/dictionary/gather (defining “transport” as “to

transfer or convey from one place to another”) (last viewed December 10, 2024).

44

facility.” See TEX. PROP. CODE § 28.010(a)(3), (b)(1)(A). Because the EPC

Agreement falls within subsection (a)(3), the PPA does not apply. Accordingly, we

sustain Arrow’s first issue.24

Legal Sufficiency Challenge

In its second issue, Arrow contends that Linde failed to present legally

sufficient evidence that Arrow is liable to Linde for Base Costs beyond the $124

million that Arrow has already paid. Arrow argues that conclusive evidence

establishes that Linde defaulted on its contractual obligations and that Linde engaged

subcontractors in violation of the EPC Agreement. It also argues that Linde is not

entitled to its unpaid Base Costs because it offered no reliable, non-conclusory

evidence that unpaid Base Costs were “reasonably and properly incurred for the sole

purpose of carrying out the Work.”

Linde responds that Arrow failed to carry its burden to establish by conclusive

evidence that its failure to pay Linde’s Base Costs was excused because Linde was

in default under the contract and Linde’s subcontracts violated the EPC Agreement.

It further argues that Arrow’s assertion that there is no evidence that Linde’s Base

Costs were reasonably and properly incurred for the sole purpose of carrying out its

24

In light of our conclusion that the mineral exemption excludes the EPC Agreement

from the Act, we do not reach Arrow’s additional argument that the PPA does not

apply to extraterritorial injuries. See TEX. R. APP P. 47.1.

45

work, i.e., the furthering of the Bear Den II plant’s construction, is refuted by the

evidence in the record.

A. Standard of Review

In conducting a legal sufficiency review, we view the evidence in a light that

tends to support the finding of the disputed facts and disregard all evidence and

inferences to the contrary. Wal–Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709

(Tex. 2003); Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d 778, 782 (Tex. 2001).

We must credit evidence favorable to the verdict if reasonable jurors could, disregard

contrary evidence unless reasonable jurors could not, and reverse the jury’s

determination only if the evidence presented at trial would not enable reasonable and

fair-minded people to reach the verdict under review. City of Keller v. Wilson, 168

S.W.3d 802, 827 (Tex. 2005).

We may sustain a legal sufficiency, or no-evidence, point if the record reveals

one of the following: (1) the complete absence of a vital fact, (2) the court is barred

by rules of law or of evidence from giving weight to the only evidence offered to

prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a

scintilla, or (4) the evidence established conclusively the opposite of the vital fact.

See Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998). If

more than a scintilla of evidence exists, it is legally sufficient. Lee Lewis Constr.,

70 S.W.3d at 782. More than a scintilla of evidence exists if the evidence furnishes

46

some reasonable basis for differing conclusions by reasonable minds about the

existence of a vital fact. Id. at 782–83.

When a party “attacks the legal sufficiency of an adverse finding on an issue

on which it bears the burden of proof, the judgment must be sustained unless the

record conclusively establishes all vital facts in support of the issue.” Shields Ltd.

P’ship v. Bradberry, 526 S.W.3d 471, 480 (Tex. 2017). For a party to conclusively

establish a fact, “the evidence must leave no room for ordinary minds to differ as to

the conclusion to be drawn from it.” Cath. Diocese of El Paso v. Porter, 622 S.W.3d

824, 834 (Tex. 2021) (quotation omitted). Jurors “are the sole judges of the

credibility of the witnesses and the weight to give their testimony.” City of Keller v.

Wilson, 168 S.W.3d 802, 819 (Tex. 2005).

B. Analysis

Arrow contends there are three reasons to reverse and render a take-nothing

judgment on Linde’s breach of contract claim for unpaid Base Costs: (1) conclusive

evidence establishes that Linde is in default of its contractual obligations so it is not

entitled to payment of any unpaid Base Costs; (2) conclusive evidence establishes

that Linde engaged subcontractors in violation of the EPC Agreement so Linde is

not entitled to any payment for its fees; and (3) Linde offered no reliable, non-

conclusory evidence that unpaid Base Costs were “reasonably and properly incurred

for the sole purpose of carrying out the Work.”

47

1. Default

Linde’s breach of contract claim and Arrow’s counterclaims and affirmative

defense of Linde’s prior material breach were submitted to the jury in Questions 1

and 8 of the charge. Question 1 of the jury charge (Linde’s breach of contract claim)

asked whether Arrow failed to comply with the EPC Agreement by failing to pay

Linde for Base Costs that Linde incurred. The jury answered “yes.” Question 8—

which contained both Arrow’s counterclaim and its affirmative defense of prior

breach—asked whether Linde failed to comply with certain provisions of the EPC

Agreement.25 The jury answered “no.”

In support of its argument that Linde’s own breaches entitled Arrow to

withhold payment, Arrow points to Sections 7.7 and 15.1 of the EPC Agreement.

Section 7.7 provides:

Payments During Default. Owner shall not be obligated to make any

payments hereunder or release any payments disputed or withheld, at

25

Question 8 asked:

Did Linde fail to comply with the EPC Contract in any of the

following ways?

(a) Did Linde fail to comply with the obligation to “perform the Work

in accordance with “GECP” in Section 3.1 of the EPC Agreement?

(b) Did Linde fail to comply with the Subcontracts provisions in

Section 2.3 or 2.4(F) of the EPC Agreement?

(c) Did Linde fail to comply with the requirement to provide CPM

Schedule submissions in accordance with Section 5.4(a) of the EPC

Agreement?

48

any time in which (i) a Contractor Default shall have occurred and is

continuing, or (ii) an event has occurred which, with the passage of

time, will constitute a Contractor Default.

Section 15.1 lists certain acts or omissions which constitute “defaults”: “If

Contractor shall at any time . . . (iii) abandon the project; (iv) repudiate any of its

obligations under this Agreement; . . . (viii) fail to discharge liens filed by any

Subcontractor or Sub-subcontractor as required under this Agreement; [or] (xi) fail

to make payment to Subcontractors for labor or Equipment owed in accordance with

the respective Subcontracts . . . .”

Arrow argues that the evidence conclusively establishes that Linde defaulted

under the EPC Agreement in the following three ways: (1) it stopped paying its

subcontractors, (2) it allowed the subcontractors to file liens on the property, and (3)

it abandoned the project and repudiated its obligations.26

a. Payment to Subcontractors

Arrow argues that the evidence shows that Linde became worried that Arrow

would stop paying its invoices and decided to stop paying its subcontractors as a

preemptive strike. It asserts that the issue came to a head when Linde submitted its

Rev. Invoice 16 for $31 million on September 5, 2019. This revised invoice is the

first time Arrow stopped payment. It further argues that even if Invoice 16 Rev. 1

26

The record shows that by the time of trial, Linde had paid its subcontractors in full

and all subcontractor liens on the plant had been removed.

49

was valid, Arrow did not have to pay Linde until September 20, 2019, at the earliest,

but that Linde had already stopped paying its subcontractors by that time.

Arrow argues that it urged Linde to pay the subcontractors and that it only

decided to withhold payment after Linde had already stopped paying its

subcontractors, and that Linde’s actions forced Arrow to send a Notice of Default

on September 30, 2019. Arrow argues that because the unpaid invoices postdate

Linde’s decision to halt payment to its subcontractors, Arrow was entitled to

withhold payment under Section 7.7 of the EPC Agreement during this period of

default.

Linde contends that Arrow has not conclusively established that Linde was in

default and that it had materially breached the Agreement when Arrow stopped

paying Linde’s invoices in 2019. It argues that the record shows that these alleged

defaults are post-hoc justifications offered now for Arrow’s decision to withhold

payment in 2019.

With regard to Arrow’s assertion that Linde defaulted by not paying its

subcontractors, we note that there is no mention in McFarland’s September 20, 2019

withholding letter of Linde’s non-payment of its subcontractors as a reason for

withholding payment from Linde. At trial, Arrow CEO Phillips testified that when

he made the decision to stop paying Linde in 2019, he did so without having read

any portion of the EPC Agreement. Further, Phillips testified that the reason Arrow

50

decided to stop paying Linde was that Linde was not cooperating with the Veritas

audit.

b. Subcontractors’ Liens

Arrow argues that by the time Linde decided to pay the subcontractors, Ardent

and Westcon had filed liens on the Bear Den II plant and that Linde’s failure to

remove them constituted a default under the Agreement.

Section 16.5 of the EPC Agreement provides:

Lien Indemnification. SHOULD ANY SUBCONTRACTOR

OR SUB-SUBCONTRACTOR OR ANY OTHER PERSON ACTING

THROUGH OR UNDER CONTRACTOR OR ANY

SUBCONTRACTOR OR SUB-SUBCONTRACTOR FILE A LIEN

OR OTHER ENCUMBRANCE AGAINST ALL OR ANY PORTION

OF THE WORK, THE SITE OR THE PROJECT, CONTRACTOR

SHALL, AT ITS SOLE COST AND EXPENSE, REMOVE AND

DISCHARGE, BY PAYMENT, BOND OR OTHERWISE, SUCH

LIEN OR ENCUMBRANCE WITHIN TEN (10) DAYS OF THE

FILING OF SUCH LIEN OR ENCUMBRANCE.

A contractor’s failure to discharge a lien filed by a subcontractor or sub-

subcontractor constitutes a default under Section 15.1.

Arrow argues that despite its obligation to remove the liens, Linde allowed

the liens to remain until at least August 2020, and that Westcon’s lien was only

released on October 1, 2020. Arrow argues that Linde continued billing Arrow and

sent its last disputed invoice (Invoice 24) on August 19, 2020, long before Westcon’s

lien was removed. Arrow asserts that Section 7.7 permitted it to withhold payment

during this default.

51

Linde responds that its alleged default in allowing subcontractors to file liens

against the plant had not yet occurred when Arrow sent Linde its withholding letter

in September 2019 listing the reasons for its withholding payment. Indeed, the record

shows that Ardent recorded a $5.7 million lien on October 22, 2019, and Westcon

recorded a $17.1 million lien on November 1, 2019, after the September 20, 2019

withholding letter. There is also no mention of subcontractors’ liens in the

September 30, 2019 Notice of Default letter to Linde.

c. Abandonment of Project

Arrow argues that Linde defaulted when it abandoned the project and

repudiated its obligations. In support of its argument, it points to Jangi’s letter dated

October 9, 2019 to Arrow, stating that “[i]n accordance with Article 15.4 of the

Target Price Agreement (Agreement) between Linde Engineering North America

Inc. (LENA) and Arrow Field Services, LLC (Arrow Field or Owner), LENA gives

written notice that it intends to suspend work on the Bear Den Plant 2 project due to

Owner’s failure to pay undisputed amounts due and owing to LENA . . .and [t]he

suspension will continue until Arrow Field has paid LENA undisputed amounts

owed under the Agreement.” Arrow also points to Jangi’s testimony that Linde

demobilized from the site in late October or November 2019. It asserts that despite

Linde’s position that the plant was operational when it left, Linde had other duties

including the duty to deliver as-built drawings to Arrow, which it did not do. Arrow

52

contends that this evidence conclusively establishes that Linde abandoned the

project and repudiated its obligations, both of which constitute a default under the

contract.

The record shows that Linde’s alleged abandonment of the project had not

occurred when Arrow sent its withholding letter. Jangi’s letter advising Arrow that

Linde intended to suspend its work, on which Arrow relies, is dated October 9, 2019,

which is after the September 20 withholding letter. As to the as-built drawings,

McFarland testified that Linde did not provide the drawings within sixty days after

Mechanical Completion as required under Section 3.1(a) of the contract. However,

he also acknowledged that Crestwood had refused to certify the Mechanical

Completion certificate submitted by Linde for signature. As to Arrow’s assertion

that Linde abandoned the project before it was complete, Jangi testified that

“Mechanical Completion” meant that the Bear Den II plant was ready to be

commercially operated and it is undisputed that the plant began commercial

operations at the latest by August 14, 2019.

Linde also argues that even if it had committed an event of default, Arrow was

required under Section 15.1(A) to send Linde “written notice . . . specifying the

general nature of the Default.” When Arrow sent its withholding letter on September

20, 2019, it had not provided Linde written notice stating that Linde had defaulted

by failing to pay subcontractors. And the other two events of default alleged by

53

Arrow—that Linde allowed liens to be placed on the plant and it abandoned the

project—had not occurred. Thus, Linde argues, Arrow has failed to conclusively

prove that its September 20 withholding letter was not a prior material breach that

excused Linde’s obligations thereby precluding the supposed events of default.

Linde further argues that there is some evidence that Arrow materially

breached the EPC Agreement first before Linde committed any of the alleged

defaults and that, as of that point, Linde was excused from its ongoing obligations

under the EPC Agreement. See Bartush-Schnitzius Foods Co. v. Cimco

Refrigeration, Inc., 518 S.W.3d 432, 436 (Tex. 2017) (per curiam) (“It is a

fundamental principle of contract law that when one party to a contract commits a

material breach of that contract, the other party is discharged or excused from further

performance.” (quotation omitted)); Mustang Pipeline Co. v. Driver Pipeline Co.,

134 S.W.3d 195, 196 (Tex. 2004); R3Build Constr. Svcs., LLC v. Drayden, No. 01-

20-00144-CV, 2022 WL 3452436, at *11 (Tex. App.—Houston [1st Dist.] Aug. 18,

2022, no pet.) (mem. op.). The evidence shows that, as of late August 2019, Linde

was aware that, after the plant’s completion, Arrow had decided to stop payments to

Linde. Jangi testified that to process further payments, Linde needed Arrow to

increase the purchase order for the plant. He testified that although Linde explained

this to Arrow on several occasions, Arrow refused to do so. Mustang Pipeline, 134

S.W.3d at 196; see Patriot Contracting, LLC v. Shelter Prods., Inc., 650 S.W.3d 627

54

(Tex. App.—Houston [1st Dist.] 2021, pet. denied) (concluding evidence of

subcontract agreement was sufficient to support trial court’s finding that general

contractor materially breached its contract with subcontractor where general

contractor received payment from project but did not pay subcontractor until seven

days after it was due under subcontract, and general contractor wholly failed to pay

subcontractor funds it received from the second and third payment applications from

project); 4922 Holdings, LLC v. Rivera, 625 S.W.3d 316, 327 (Tex. App.—Houston

[14th Dist.] 2021, pet. denied) (concluding jury reasonably could have found that

general contractor materially breached contract with subcontractor where it failed to

pay subcontractor some or all of retainage withheld for work actually performed

through date of termination); see also Restatement (Second) of Contracts § 241, cmt.

E (recognizing failure to pay amounts owed generally supports determination of

materiality). This is some evidence that Arrow materially breached the EPC

Agreement first before Linde committed any of the alleged defaults.

2. Subcontracts

Next, Arrow contends that the conclusive evidence establishes that Linde

engaged subcontractors in violation of the Agreement and, therefore, Linde is not

entitled to any payment for its fees.

In support of its argument, Arrow points out that the EPC Agreement

distinguishes between Linde’s Fixed Costs and Base Costs. The Fixed Fee includes

55

all profit for the Project and all subcontractor mark-ups while Base Costs cover the

actual invoiced cost to the contractor and the cost paid by the contractor to approved

subcontractors. Arrow argues that to control costs, Linde was required to structure

its subcontracts in the same way but failed to do so.27 Instead, Linde allowed its

subcontractors to bundle their profit and actual costs together which prevented

Arrow from identifying their actual costs and Linde then billed Arrow for

everything. Arrow states that the EPC Agreement contained certain “flow down”

provisions which meant that the protections in the Agreement were supposed to

“flow down” to the subcontracts.28 Instead, it argues, Linde made it impossible to

honor the contractual distinction between Fixed Fee and Base Costs.

As an example, Arrow argues that Westcon’s subcontract allowed it to blend

its actual costs and its profits, leaving Arrow with no way to determine how much

to reimburse Linde for its actual costs.29 Arrow also complains that the problematic

27

Section 2.3 of the EPC Agreement provides: “All contracts with Subcontractors. . .

shall be consistent in all material respects with the terms or provisions of this

Agreement.”

28

As an example, Arrow points to Section 2.4(E), under which Linde promised “to

use reasonable endeavors” to require its “Major Subcontractors” to agree to “comply

with and perform for the benefit of Owner all requirements and obligations of

Contractor to Owner under this Agreement.”

29

According to Arrow, this was problematic for several reasons. First, Westcon’s

compensation rested largely on “Unit Rates,” which set a fixed price per unit of

work. The unit rates were not based on Westcon’s actual costs but instead were “all-

inclusive,” containing undisclosed markups for “profit,” “taxes,” and other elements

56

pricing structure was compounded by the narrow audit provisions in the Westcon

subcontract, specifically, Sections 17.5 and 20.12 stating:

Contractor shall not be required to provide access to data concerning

those of its costs covered by a lump sum, any labor or equipment rates

(whether set forth in the CONTRACT or subsequently approved),

agreed multipliers, agreed per diems or agreed markups. Agreed rates,

multipliers, per diem allowances and markups are not subject to audit

except to verify their proper application to the WORK performed.”

Arrow argues that due to this provision, Westcon refused to provide Arrow with full

cost data about its actual expenditures. Further, Arrow asserts, Westcon was not even

required to track the disallowed costs that Linde was barred from passing on to

Arrow under the EPC Agreement.

Arrow argues that because the Westcon contract is inconsistent with the

Agreement it cannot determine how much Base Costs Linde truly incurred. Arrow

points to an email dated August 30, 2019, from Juergen Fuchs, Linde’s Head of

Contract Management, to Jangi. In it, he expressed his opinion that Crestwood “can

make a case” under Article 2.3 of the EPC [“All Contracts with Subcontractors shall

be consistent in all material respects with the provisions of the Agreement.”] and

noted that “[a]s we negotiated a lump sum contract with our subcontractor, we were

of the Fixed Fee. Under the EPC Agreement, however, “Subcontractor markups”

are part of the Fixed Fee.

57

not consistent with the provisions of the [EPC] Agreement.”30 Arrow also argues

that Linde did not try to prove that all the other subcontracts were consistent with

the EPC Agreement, as those subcontracts were neither offered nor admitted at trial,

and therefore Linde could not meet its burden to prove that it honored the flow down

clauses of the Agreement.

Arrow argues that Linde had an obligation under the EPC Agreement to

structure the subcontracts in a way that makes an accurate determination possible.

Without evidence that its subcontractors were properly “engaged in accordance

with” the flow down clauses, Linde cannot show that Arrow had a duty to cover

these subcontractor costs and therefore there is no evidence to support the jury’s

answer to Question 1.31

Linde contends that Arrow failed to conclusively establish that the costs of

Linde’s subcontractors were not reimbursable because the subcontracts were

supposedly inconsistent with the EPC Agreement. In response to Arrow’s contention

that Linde’s allowing its subcontractors to blend their actual costs and profits

together violated Sections 2.3 and 2.4(F) of the EPC Agreement, Linde argues that

Arrow cannot overcome the dispositive effect of Section 6.1 of Schedule C-1, Table

30

At trial, Jangi testified that Linde did not negotiate a lump sum contract with

Westcon but rather the subcontract was a “reimbursable/target price” contract.

31

Question 1 asked: “Did Arrow fail to comply with the EPC Agreement by failing to

pay Linde for Base Costs that Linde incurred?”

58

6, “Cost Allocation Table”: “Fees and expenses of Subcontractors performing a

portion of the Work” are included in Base Costs. Linde points to the “Notes to Table

C-1” which state that “the general descriptions set forth in Table C-1 shall control

over any other conflicting provisions of the Agreement.” Thus, Linde reasons,

Section 6.1 which defines subcontractor fees and expenses as reimbursable Base

Costs controls over any conflicting provision in the EPC Agreement.

In response to Arrow’s argument that (1) Schedule C-1 § 6.1 is limited by

Schedule C-1 § 3.1’s provision that the EPC Agreement’s “Fixed Fee shall be

inclusive of . . . all subcontractor mark-ups,” (2) Schedule C-1 § 5.2’s provision that

subcontractors must be “engaged in accordance with Sections 2.3 and 2.4,” and (3)

Schedule C-1 § 6.2(c)’s provision that Disallowed Costs include “any cost that . . .

include[s] profit and/or an element of Fixed Fee,” Linde asserts that Arrow has failed

to conclusively show that there was no conflict between these provisions, and that

the general description in Table C-1 § 6.1 would not control. Linde contends that the

jury would also have been within its rights to conclude that the provisions in

Schedule C-1 §§ 3.1, 5.2, and 6.2(c) upon which Arrow relies conflicted with Table

C-1 §6.1’s statement that “Fees and expenses of Subcontractors performing a portion

of the Work” are included in Base Costs.

Linde further argues that, in any case, Arrow failed to conclusively prove that

59

Schedule C-1 § 3.1 (“Fixed Fee shall be inclusive of . . . all subcontractor mark-

ups”) and § 6.2(c) (Disallowed Costs include “any cost that . . . include[s] profit

and/or an element of Fixed Fee”) actually dealt with subcontractors’ profits and did

not instead mean that Linde could not add a mark-up for itself on the subcontractor

invoices it paid and that Linde could not include its own profit or an element of the

Fixed Fee as reimbursable Base Costs.

In response to Arrow’s contention that Linde’s costs were not reimbursable

because Arrow could not audit Westcon about Westcon’s mark-ups, Linde argues

that the EPC Agreement does not require this type of audit to verify that Linde’s

costs paid to subcontractors were reimbursable Base Costs.

Linde also argues that Section 2.3 does not say that Linde’s subcontracts with

the subcontractors needed to be identical to the EPC Agreement. Instead, it said the

subcontracts were to be “consistent in all material respects with” the EPC

Agreement. It asserts that Arrow has not conclusively proven that the Westcon

subcontract, which is a “target price agreement,” is inconsistent with the EPC

Agreement, and that the parties could have intended that “consistent” meant not

directly in conflict or mutually exclusive. Linde further argues that Arrow has not

conclusively proven that Linde did not “use reasonable endeavors” to get Westcon

to agree to “comply with and perform for the benefit of Owner all requirements and

obligations of Contractor to Owner under [the EPC] Agreement,” nor has it cited

60

any evidence regarding Linde and Westcon’s negotiation of the subcontract. Thus,

it argues, the jury was within its discretion when it answered in Question 8(b) that

Linde did not “fail to comply with the Subcontracts provisions in Section 2.3 or

2.4(F) of the EPC Agreement.”

Linde further argues that contrary to Arrow’s assertion, Linde was not

required to submit into evidence subcontracts, other than the Westcon subcontract,

to show its entitlement to Base Costs for subcontractor costs. Linde points out that

Question 8 put the burden on Arrow to show that Linde failed to comply with Section

2.3 or Section 2.4(F), so Arrow had the burden to admit those subcontracts and

conclusively establish they violated those sections of the EPC Agreement.

Linde argues that Arrow also effectively waived any complaint about the

Westcon subcontract because Linde gave the subcontract to Arrow right away,

Arrow and Linde met about it and reviewed it, Linde fixed the only complaint Arrow

had, Phillips testified that he would expect Arrow to advise Linde of any complaint

and Arrow did not do so until after the plant was completed, and Arrow was looking

for a reason not to pay Linde.

Finally, Linde argues that Arrow would still lose even if it could conclusively

prove that Linde failed to comply with the EPC Agreement. According to Linde,

Arrow’s only remedy for that failure, due to how the jury charge was structured, is

a new trial, a remedy that Arrow expressly waived. Question 9 asked whether any

61

failure to comply by Linde was excused, but the jury did not answer it because it

was predicated on a “yes” answer to some or all of Question 8. Because Arrow has

not raised an argument that would preclude a jury finding on excuse, a new trial

would be required to resolve this issue. As Arrow has expressly waived the relief of

a new trial, Arrow cannot obtain any relief based on its arguments that its failure to

pay Linde’s Base Costs was excused by Linde’s alleged defaults or the alleged

inconsistency of the Westcon subcontract with the EPC Agreement.

3. “Reasonably and Properly Incurred”

Arrow argues that there is no evidence that any unpaid Base Costs were

“reasonably and properly incurred for the sole purpose of carrying out the Work.”

Section 5.1 of Schedule C-1 of the EPC Agreement sets out a two-part test for

reimbursement:

5.1 Generally. Contractor shall only be entitled to be paid for the Base

Cost incurred in the course of carrying out the Work under this

Agreement if those disbursements:

(a) have been actually, reasonably and properly incurred for

the sole purpose of carrying out the Work; and

(b) are enumerated as Base Costs in accordance with Schedule

C-2 and as further clarified in Table C-1.

Arrow argues that Linde’s witnesses focused almost exclusively on subpart (b) and

that the testimony of Linde’s expert witness, Bryan Byrd, and Jangi, did not satisfy

62

subpart (a) requiring that unpaid Base Costs were “reasonably and properly incurred

for the sole purpose of carrying out the Work.”

a. Standard of Review

For an expert’s testimony to be admissible, the expert witness must be

qualified to testify about “scientific, technical, or other specialized

knowledge,” TEX. R. EVID. 702, and the testimony must be relevant and based upon

a reliable foundation. Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 628 (Tex. 2002).

An expert’s testimony is relevant when it assists the jury in determining an issue or

in understanding other evidence. TEX. R. EVID. 702. Testimony based on an

unreliable foundation or flawed methodology is unreliable and does not satisfy Rule

702’s relevancy requirement. See TXI Transp. Co. v. Hughes, 306 S.W.3d 230, 234

(Tex. 2010); E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 556–57

(Tex. 1995) (discussing TEX. R. EVID. 702). Expert testimony is unreliable when

“‘there is simply too great an analytical gap between the data and the opinion

proffered[,]’” Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 39 (Tex. 2007), or if it is

not grounded in scientific methods and procedures but is rather based upon

subjective belief or unsupported speculation. See Coastal Transp. Co. v. Crown

Cent. Petrol. Corp., 136 S.W.3d 227, 232 (Tex. 2004). We review the admission of

expert testimony under an abuse of discretion standard. See TXI Transp., 306 S.W.3d

at 239.

63

b. Byrd’s expert testimony

Arrow contends that Byrd’s expert testimony was unreliable and therefore

inadmissible for several reasons. First, it contends that Byrd’s opinion about the

propriety of Linde’s billed costs was based on nothing than more than his feelings

and pure ipse dixit. In support of its position, it points to the following excerpts from

Byrd’s deposition testimony: “So I feel like I did an exhaustive review of the project

records as I identified costs,” and that he gave his own “judgment as to what I believe

from an industry viewpoint should be—or was properly billed and should be paid

and what wasn’t.” Second, it argues that Byrd never provided any reliable basis for

demonstrating whether costs were “reasonably and properly incurred.” Arrow argues

that Byrd did not even try to explain why the Base Costs were incurred for the “sole

purpose” of the work. Instead, Byrd simply proclaimed them to be so. Third, Arrow

asserts that Byrd mistakenly assumed that if costs were actually incurred and among

the enumerated categories of costs then they also satisfied the “reasonably and

properly incurred” and “sole purpose” tests. Arrow points to the following testimony

by Byrd to make its point:

So, by definition, if I state that it’s a base cost, it is a cost that I found

through a detailed review of all of the cost records and all of the

invoices and numerous other types of project documents, that was

actually, reasonably, properly incurred for the sole purpose of

performing the work.

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Next, Arrow argues that even is his opinion was admissible, his trial testimony

was facially speculative and conclusory. It asserts that Byrd’s testimony about

whether costs were actually incurred, among the categories of Base Costs, or among

the disallowed costs, provided no basis for his opinion that the costs were

“reasonably and properly incurred for the sole purpose of carrying out the Work.”

And, it argues, Byrd’s assumption that if a charge had been improper either Linde

or Arrow would have caught it because the costs “were being monitored and

managed all the way through by a number of eyeballs” is baseless.

At trial, Byrd testified that his opinions were based on his twenty-five years’

experience in the construction industry, including significant experience with

processing facilities, and that he had worked on half a dozen natural gas plants like

the Bear Den II plant. He testified that he has substantial experience with EPC

projects both in the United States and overseas and has been heavily involved in fast-

track projects. Byrd has been hired to do cost controls, cost estimating, risk analysis,

project controls, and has been involved as a project management representative. He

testified that he has forensically analyzed costs on EPC projects numerous times,

including cost reimbursable contracts with a target price like the one in this case. He

has experience analyzing performance-related costs such as labor productivity,

delays, acceleration, rework, change order work, and other types of costs.

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When asked how he “confirm[ed] that Linde’s costs were actually, reasonably,

and properly incurred for the sole purpose of carrying out the work,” Byrd testified

that in addition to the invoices and back-up documentation, he interviewed Linde

employees, reviewed Linde’s internal cost accounting system, or SAP, and relied on

the provisions of the EPC Agreement. He explained that the Base Cost is set forth in

Table C-1 of the contract and that there is also a provision addressing disallowed

costs. Using these provisions as a guide as well as his industry experience on similar

projects, Byrd testified that he performed a detailed analysis of the project records

and determined what he believed was the Base Cost of the contract. This entailed

“looking at the nature of the costs, how they were incurred, the magnitude of the

cost, confirming . . . what types of costs they were, that they were incurred on this

project in the advancement of the project.” He also evaluated the process that was

followed in executing the project and how it was managed. He explained that the

costs being incurred were monitored at different levels throughout the project,

including project superintendents and subcontract managers as well as Crestwood’s

project manager and other personnel. He testified about specific instances where he

excluded costs because they were not supported by the documentation. Byrd’s

testimony provided a reliable basis for determining whether costs were “reasonably

and properly incurred for the sole purpose of carrying out the work,” and his

testimony was not unduly speculative or conclusory in this regard. The trial court

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did not abuse its discretion in admitting his testimony. See TXI Transp., 306 S.W.3d

at 239; Coastal Transp., 136 S.W.3d at 232.

c. Jangi’s testimony

Arrow also contends that Jangi’s testimony did not “fill the gap” left by Byrd

and cannot support the judgment for two reasons. It argues that the rules of evidence

bar Jangi’s unsupported lay opinion from being given any weight.

First, Arrow argues that Jangi’s testimony that Linde complied with Section

5.1 of the EPC Agreement should have been excluded because he lacked personal

knowledge regarding all the alleged Base Costs and could not testify about whether

Linde’s invoices satisfied Section 5.1. Second, Arrow argues that even if his

testimony was admissible, it is facially incompetent because Jangi’s legal

conclusions that the charges were “reasonably and properly incurred for the sole

purpose of carrying out the Work” are insufficient to demonstrate that any of the

unpaid costs satisfy the reimbursement test under Section. 5.1.32

The record shows that Jangi testified over several days about Linde’s work on

the project. As Linde’s Director of Project Execution, Jangi reviewed the status of

the Bear Den II project monthly. He testified about the costs Linde incurred, the

invoices that Linde sent to Arrow, and Linde’s cost reports. He testified about

32

At a gatekeeping hearing, the trial court prohibited Jangi from testifying that the

costs were “reasonable and necessary.”

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Arrow’s project change orders and the significant impact those changes had on costs.

He also testified about the policies and procedures Linde implemented on the project

to ensure the costs Linde invoiced to Arrow were reimbursable Base Costs. Contrary

to Arrow’s assertion, Jangi’s testimony was based on his experience and was not

improper expert testimony that failed to “fill the gap,” and the jury was entitled to

weigh his testimony as it saw fit. See City of Keller, 168 S.W.3d at 819 (Jurors “are

the sole judges of the credibility of the witnesses and the weight to give their

testimony.”). We overrule Arrow’s second issue.

Prejudgment Interest

In its third issue, Arrow contends that even if the PPA applies to the parties’

agreement, the jury’s award of $17.6 million in prejudgment interest to Linde should

be reversed or reformed based on (a) Linde’s uncured defaults or (b) the trial court’s

acceptance of a post-trial interest calculation unsupported by any jury finding.

Because the PPA does not apply for the reasons discussed above, Linde cannot

recover the $17,683,501 awarded in the final judgment as prejudgment interest based

on Linde’s claim for unpaid Base Costs under the PPA. See TEX. PROP. CODE §

28.004(a) (allowing interest on “[a]n unpaid amount”). We therefore do not consider

Arrow’s third issue challenging the prejudgment interest awarded to Linde.

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Safety Incentive Award

In its fourth issue, Arrow contends that Linde never achieved “Final

Completion” of the Bear Den II plant under the EPC Agreement and did not invoice

Arrow for the EPC Agreement’s Safety Incentive. Thus, Arrow asserts, it is entitled

to reversal of the award.

The trial court awarded $729,379 based on Arrow’s “failure to comply with

the [Agreement] by not paying Linde the Safety Incentive set out in Section 3.1 of

Schedule C-3 of the Agreement.” The Safety Incentive allowed Linde to recover a

larger Fixed Fee if it met certain safety criteria “upon Final Completion.” Under the

EPC Agreement, “‘Final Completion’ means that all Work and all other obligations

under the Agreement for the Project . . . are fully and completely performed in

accordance with the terms of this Agreement . . . .” The definition also includes a list

of tasks that must be performed prior to Final Completion, many of which Arrow

asserts that Linde failed to prove, among them:

• “delivery by Contractor to Owner of all documentation required to be

delivered under this Agreement, including Record As-Built Drawings.”

• “removal from Site of all of Contractor’s . . . waste, materials, rubbish,

[and] Hazardous Materials.”

• “the completion of all Punchlist items.”

• “delivery by Contractor to Owner of fully executed Final Lien and

Claim Waivers.”

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• “delivery by Contractor to Owner of a Final Completion

Certificate. . .which Owner has accepted.”

Arrow asserts that it is undisputed that Linde ordered its engineers not to

provide as-built drawings, burdened the facility with a lien that is still pending, and

never submitted a “final completion certificate.” Thus, it argues there is no evidence

that the project reached “Final Completion” entitling Linde to the Safety Incentive.

It also argues that there is no evidence that Linde invoiced Arrow for the Safety

Incentive and that it is not obligated to pay sums in the abstract.

In response, Linde points to the EPC Agreement’s Safety Incentive provision

which provided that Linde would be entitled to an additional Fixed Fee amount if

the project met certain safety metrics.33 The record shows that Linde satisfied these

requirements. And, as to Arrow’s argument that “Final Completion” was not

reached, the jury heard testimony that it was impossible to obtain “Final

33

Schedule C-3, Section 3.1 states:

The parties agree the following safety incentive program shall apply to the

Project: If upon Final Completion, Contractor and Subcontractors and Sub-

subcontractors combined have (i) a Total Recordable Incident Rate of less

than or equal to 1.4, (ii) a Lost Time Case Rate of less than or equal to 0.67,

and (iii) zero fatalities, then the fixed Fee shall be increased by an amount

equal to one percent (1%) of the Target Base Cost.

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Completion” because Arrow had wrongfully withheld certification of “Mechanical

Completion,” which was a prerequisite to “Final Completion.”34

Linde also asserts that it was within the jury’s discretion to reject Arrow’s

argument that Linde was required to invoice it for the Safety Incentive. We agree.

As Linde points out, Section 7.1 of the EPC Agreement, which states that the “Fixed

Fee shall be payable in each invoice,” makes no mention of the Safety Incentive.

We overrule Arrow’s fourth issue.

Modification of Final Judgment

In its fifth issue, Arrow contends that because Linde’s PPA claim fails, the

final judgment should be modified by deleting the award of attorney’s fees and costs

and recalculating the prejudgment interest at the contract rate.

The final judgment awarded Linde $4,616,760 in attorney’s fees and $130,568

as costs based on the PPA. Because we have concluded that Linde’s PPA claim fails,

Linde was not entitled to recover the $4,616,760 awarded as attorney’s fees 35 and

the $130,568 awarded as costs based on the PPA.

34

McFarland testified that all major systems at the Bear Den II Plant were

mechanically complete on August 1, 2019, and that Crestwood had refused to certify

the Mechanical Completion certificate submitted by Linde for signature.

35

Linde sought fees “under section 38.001 of the Civil Practice and Remedies Code.”

However, the applicable version of Chapter 38 “does not authorize the recovery of

attorney’s fees in a breach-of-contract action against a limited liability company.”

Composite Solutions, LLC v. Composite Advanced Techs. LLC, No. 01-20-00413-

CV, 2021 WL 4095249, at *2 & n.1 (Tex. App.—Houston [1st Dist.] Sept. 9, 2021,

no pet.) (mem. op.); see also TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d

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Further, because the PPA does not apply, prejudgment interest must be

recalculated. The EPC Agreement provides for the accrual of interest on “amounts

due but not paid . . . at the lesser of” the prime rate +2% or “the maximum rate

permitted under Applicable Law.” Under that provision, the applicable interest rate

is the statutory rate for post-judgment interest. See TEX. FIN. CODE § 304.003(a),

(c)(1); Tennessee Gas Pipeline Co. v. Technip USA Corp., No. 01-06-00535-CV,

2008 WL 3876141, at *24 (Tex. App.—Houston [1st Dist.] Aug. 21, 2008, pet.

denied) (holding, as matter of law and equity, that “[w]hen the interest rate is not

specified in a contract, pre-judgment interest should be calculated based on the

statutory rate” in § 304.003) (citing ExxonMobil Corp. v. Valence Op. Co., 174

S.W.3d 303, 319 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (applying

section 304.003 in breach of contract claim)). Although Section 304.003 expressly

applies to post-judgment rates, pre-judgment interest is computed at the same

statutory rate. See Tennessee Gas Pipeline, 2008 WL 3876141, at *24 (citing Tips v.

Hartland Developers, Inc., 961 S.W.2d 618, 624 (Tex. App.—San Antonio 1998,

no pet.). Accordingly, we modify the final judgment to delete the awards of

$4,616,760 in attorney’s fees and $130,568 as costs based on the PPA. We remand

176, 188 (Tex. App.—Houston [1st Dist.] 2018, pet. denied). At oral argument,

Linde conceded that the PPA is the only basis upon which it could recover attorney’s

fees.

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the case to the trial court to recalculate the prejudgment interest at the proper rate.

We sustain Arrow’s fifth issue.

In summary, we conclude that the exemptions under Subsections (a)(1) and

(a)(3) of Section 28.010 of the Prompt Payment Act apply as a matter of law to the

EPC Agreement and that the PPA therefore does not apply. Because Linde’s PPA

claim fails, it cannot recover the $4,616,760 awarded as attorney’s fees, the

$130,568 awarded as costs, and the $17,683,501 awarded as prejudgment interest

under the PPA, and the 18% prejudgment interest must be recalculated at the proper

rate. Finally, we conclude that there is legally sufficient evidence to support the

jury’s verdict on Linde’s breach of contract claim for unpaid costs and the award of

a $729,000 Safety Incentive to Linde.

Conclusion

We reverse the portion of the final judgment awarding $17,683,501 as

prejudgment interest, $4,616,760 as attorney’s fees, and $130,568 as costs to Linde

under the Prompt Pay Act and render judgment that Linde take nothing on its PPA

claim. We remand the case to the trial court to recalculate interest at the proper rate

as provided by the parties’ agreement. We affirm the final judgment in all other

respects.

Amparo Monique Guerra

Justice

Panel consists of Chief Justice Adams and Justices Goodman and Guerra.

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