Safeco Surety and C.A. Walker, Inc. v. J.P. Southwest Concrete, Inc.

Opinion issued April 2, 2009

In The

Court of Appeals

For The

First District of Texas

NO. 01-07-00904-CV

C.A. WALKER CONSTRUCTION COMPANY AND SAFECO SURETY,

Appellants

V.

J.P. SOUTHWEST CONCRETE, INC., Appellee

On Appeal from the 189th District Court

Harris County, Texas

Trial Court Cause No. 2005-70198

MEMORANDUM OPINION

Appellants, C.A. Walker Construction Company and Safeco Surety

(collectively "Walker"), appeal from the trial court's judgment awarding appellee,

J.P. Southwest Concrete, Inc. ("J.P."), $47,000 in actual damages, as well as

attorney's fees and pre- and post-judgment interest. In its first three issues, Walker

contends the trial court erred in the amount of damages awarded to J.P. because (1)

the damages award is not supported by the evidence, (2) the language of the contract

between Walker and J.P. precludes at least some of the consequential damages sought

by Walker, and (3) J.P. did not plead for the damages the trial court awarded. In its

fourth issue, Walker contends the trial court improperly rendered judgment against

Walker on its counterclaim. We conclude that Walker waived its challenge to the

counterclaim due to inadequate briefing, and the trial court erred in its determination

of the amount of the damages award. We therefore affirm in part and reverse and

remand in part.

Background Walker was the general contractor on a construction project for the Spring

Branch Independent School District. J.P. was a subcontractor on the project and

contracted to perform concrete work, including drilling pier holes and pouring

concrete piers. Among other requirements, the contract provided that extra work

performed by J.P. outside the scope of the contract must have Walker's approval and

signature in a written change order. The contract provided for Walker to pay

$243,000 in exchange for J.P.'s performance of "all concrete work" for the project,

including "concrete slabs, walks and paving" and "providing and placing all concrete

related: concrete, rebar, vapor barrier, form boards, expansion materials, and tie-wires." The contract did not mention site work or removal of existing obstructions.

According to Jeff Pantle, J.P.'s president, J.P. was not responsible for site clearing,

demolition, and subsoil debris removal, and those jobs should have been done by the

time J.P. was to do the concrete work.

In September 2004, when J.P. began its work for Walker, it encountered severe

subsoil obstructions while attempting to drill pier holes. Pantle and Donnelly, J.P.'s

superintendent, both described numerous obstructions J.P. encountered while

attempting to drill pier holes. Walker instructed J.P. to prepare and submit written

change orders to cover the removal of the obstructions. J.P. did submit a number of

written change orders for work outside the scope of the contract. However, Walker

only approved some of these orders.

As work progressed, J.P. submitted applications for payment along with

supporting documentation. As of December 2004, J.P. had been paid $57,349.25 .

J.P. submitted another application for payment seeking $79,796 for January. Later,

J.P. sought a payment of $17,099 for work done in February. Walker did not pay J.P.

until March 16, 2005, when it paid $84,756.35 . In exchange for the March 16, 2005

payment, Pantle, on behalf of J.P., executed a "Subcontractor Affidavit of Payment

and Partial Release of Lien."

After the March 16, 2005 payment, the amount remaining to be performed

under the contract was $132,043.40 and J.P. continued to work for Walker. Walker

told J.P. that subsoil debris and obstructions had been removed and requested it

continue drilling pier holes. J.P. went to the site, bringing with it another

subcontractor that had drilling equipment, but was unable to perform work due to

subsoil debris and obstructions. Walker acknowledged that it owed J.P. money as

payment for this work that was done March 22, 2005, but only for the amount of

$2,848.

For several months, J.P. attempted to get paid for the work it had done. J.P.

sent a demand letter stating Walker owed J.P. $77,501, which was for $19,501 for

completed, unpaid work and $58,000 in lost profits. When Walker did not pay the

amount requested, J.P. filed suit for that same amount. Walker requested a disclosure

under rule 194.2(d) of "the amount and any method of calculating economic

damages." (1) J.P. replied,

Damages: $19,501.00 for billed unpaid work,

$58,000.00 lost profit,

Total: $77,501.00

At the bench trial, Pantle testified J.P. was seeking $19,501 for unpaid work and

$58,000 for lost profits.

Several weeks after the trial concluded, J.P. filed a motion for entry of

judgment. Within this motion, J.P. asserted total damages in the amount of

$74,059.52 for the following:

$17,099.00 for unpaid contract work in February 2005[;]

$21,748.52 for unpaid contract work in March 2005[;]

$8,389.00 for funds retained by Walker from previous payments[; and]

$26,823.00 for extra work completed for unsigned change orders.

J.P. requested that the $74,059.52 be reduced to $69,099.17 to allow for a credit for

the amount by which the March 16, 2005 payment exceeded the requested payment

for the January work. J.P. then requested that the $69,099.17 be increased to

$72,699.17 to compensate for $3,600 for Transit Mix's attorney's fees paid by J.P.

In addition, instead of the $58,000 originally sought for lost profits, J.P. reduced its

lost profits claim to $26,499.05. The proposed judgment submitted by J.P. stated the

actual damages as the sum of the unpaid work and Transit Mix attorney's fees only;

it did not include the reduced lost profits. The trial court rendered judgment in favor

of J.P., awarding $47,000 in actual damages. The trial court did not explain how it

reached the $47,000 figure, nor did it make findings of fact and conclusions of law. The Amount of Damages

Walker challenges the $47,000 amount for damages by claiming any damages

incurred prior to March 16, 2005 are disclaimed by J.P. in a release; the evidence

does not support the lost profits claim; J.P. cannot recover damages from Walker for

Transit Mix's lawsuit against J.P.; and J.P. cannot recover damages never disclosed

to Walker until after trial. We agree with Walker that it would have been improper

for the trial court to render its damages award by taking any of these damages into

account in its award to J.P.

A. Release

As part of its first issue, Walker contends, "The damage award is not supported

by the evidence introduced at trial" because J.P. agreed to release all damages

stemming from any payments due prior to the date the release was executed, on

March 16, 2005, which left only $2,848 in damages for work done March 22, 2005.

1. Sufficiency of Pleadings and Trial by Consent

J.P. contends Walker waived any issue concerning the release because release

is an affirmative defense that was not pleaded by Walker.

The Texas Rules of Civil Procedure require certain defenses, including the

defense of "release," to be affirmatively pleaded. Tex. R. Civ. P. 94. Generally, an

affirmative defense is waived if it is not pleaded. Alvarado v. Wingfoot Enters. , 53

S.W.3d 720, 725 (Tex. App.--Houston [1st Dist.] 2001) (quoting Shoemake v. Fogel,

Ltd. , 826 S.W.2d 933, 937 (Tex. 1992)) rev'd on other grounds by 111 S.W.3d 134

(Tex. 2003). However, "[u]npleaded claims or defenses that are tried by express or

implied consent of the parties are treated as if they had been raised by the pleadings."

Hartford Fire Ins. Co. v. C. Springs 300, Ltd. , No. 01-06-00065-CV, 2008 WL

2208887 , at *6 (Tex. App.--Houston [1st Dist.] May 29, 2008, no pet. h.) (citing

Roark v. Stallworth Oil & Gas, Inc. , 813 S.W.2d 492, 495 (Tex. 1991)). "The party

who allows an issue to be tried by consent and who fails to raise the lack of a

pleading before submission of the case cannot later raise the pleading deficiency for

the first time on appeal." Id. (citing Roark , 813 S.W.2d at 495 ). "Moreover, '[w]hen

issues not raised by the pleadings are tried by express or implied consent of the

parties, they shall be treated in all respects as if they had been raised in the

pleadings.'" Id. (quoting Tex. R. Civ. P. 67). "To determine whether an issue was

tried by consent, we examine the record not for evidence of the issue, but rather for

evidence of trial of the issue." Id. (citing Case Corp. v. Hi-Class Bus. Sys. of Am.,

Inc. , 184 S.W.3d 760, 771 (Tex. App.--Dallas 2005, pet. denied)). "A party's

unpleaded issue may be deemed tried by consent when evidence on the issue is

developed under circumstances indicating that both parties understood the issue was

in the case, and the other party failed to make an appropriate complaint." Id. (citing

Case Corp. , 184 S.W.3d at 771 ).

Here, it is undisputed Walker did not plead release as an affirmative defense.

We therefore must examine the evidence of this issue being tried by consent. Id. In

opening statements, Walker's counsel raised the issue of the release. The release was

admitted into evidence without objection. Walker testified the March payment was

made despite J.P. not providing all the required documentation and included amounts

for work that had not been done by J.P. In response to questions from the judge,

Walker's counsel asserted the plain language of the release indicated J.P.

acknowledged that, as of March 16, 2005, it had been paid for all work. Pantle was

cross-examined concerning the release, acknowledging he signed it. J.P.'s counsel

then conducted a re-direct examination of Pantle concerning the circumstances

surrounding the signing of the release. The trial court did not hear closing arguments,

but instead discussed a number of issues with counsel. The release came up several

times and both sides presented their theories and arguments concerning the proper

interpretation and effect of the release. J.P. did not complain of the lack of pleadings

to support the affirmative defense of release before the trial court, raising the issue

for the first time in its brief to this Court.

We conclude the issue of release was tried by consent because the record shows

the release was introduced at the trial without objection, witnesses were examined

concerning the release, both parties discussed and argued the meaning and effect of

the release to the trial court, and J.P. did not make any complaint concerning the lack

of pleadings to support the defense of release. See Hartford Fire Ins. Co. , 2008 WL

2208887 at *7 (concluding issue tried by consent when issue "was raised several

times during the trial" and no objection to lack of pleadings made until charge

conference).

2. Consequence of the Release

Walker contends J.P. released all damages stemming from any payments due

prior to March 16, 2005, the date the release was executed.

A release is a type of contract and is construed according to the rules governing

contracts generally. Baty v. ProTech Ins. Agency , 63 S.W.3d 841, 848 (Tex.

App.--Houston [14th Dist.] 2001, pet. denied). Our primary concern when

construing a written contract is to ascertain the true intent of the parties, as expressed

in the contract itself. Coker v. Coker , 650 S.W.2d 391, 393 (Tex. 1983). In

determining intent, we must look to the contract, not what the parties allegedly meant.

Union Pacific R.R. v. Novus Int'l, Inc. , 113 S.W.3d 418, 421 (Tex. App.--Houston

[1st Dist.] 2003, pet. denied). An unambiguous contract will be enforced as written.

David J. Sacks, P.C. v. Haden , 266 S.W.3d 447, 450 (Tex. 2008). Parol evidence

may not be introduced to create an ambiguity or to alter the intent of the parties as

expressed in the instrument. Id.

The release signed by Pantle on behalf of J.P. acknowledges payment of

$84,756.35 "and other good and valuable consideration." It then states,

Subcontractor waives, releases, relinquishes and discharges all known

and unknown causes of action, including, but not limited to those arising

out of contract, by statute, in tort or otherwise, and waives, releases,

relinquishes and agrees to discharge any suits, debts, accounts, bonds,

contracts, promises, damages, liens, encumbrances, judgments, claims

and demands whatsoever, in law or equity, which are against the

Contractor . . . that the Subcontractor now has or might hereinafter

obtain that relates directly or indirectly to the aforesaid relationship,

Contract, and/or Project.

. . . .

Subcontractor and I hereby acknowledge that Subcontractor has

previously been paid from Contractor $57,349.25 for the above named

job, and this payment constitutes full payment for the work performed

to date and any and all change orders or claims for additional work

performed. . . .

J.P. challenges the release by pointing to Pantle's testimony and letters written

by Walker that state that the March 16, 2005 payment is only for work done in

January 2005. The release itself, however, plainly states that the $84,756.35

"payment constitutes full payment for the work performed to date and any and all

change orders or claims for additional work performed." The testimony and letters

are parol evidence that cannot properly be considered to change the written terms of

the release. See David J. Sacks, P.C. , 266 S.W.3d at 451 .

J.P. also asserts "the numbers at the top of right 0105, is the date January

2005." The portion of the release that J.P. points to states, "Date: 03/16/2005

Payment Request: 0105R." The date of the release clearly is March 16, 2005, which

is also the date Pantle signed the release. We conclude that by signing the release,

J.P. acknowledged it was fully paid for all work it had performed as of March 16,

2005.

We sustain Walker's first issue to the extent that the trial court would have

erred by including any amounts for work done before March 16, 2005 because J.P.

released its claim for those amounts.

B. Lost Profits Damages

Within its first issue, Walker contends J.P.'s claim for lost profits is not

supported by the evidence. Specifically, Walker contends lost profits must be proved

with reasonable certainty and J.P. failed to do so, because J.P.'s claim for lost profits

assumed a 25 percent profit margin based on speculation.

1. Recovery of Lost Profits

In a breach-of-contract case, damages are usually measured by the "benefit-of-the-bargain" standard, intended to put the party seeking damages in as good a

position as if the contract had been performed. Bowen v. Robinson , 227 S.W.3d 86,

96 (Tex. App.--Houston [1st Dist.] 2006, pet. denied). Benefit-of-the-bargain

damages may include reasonably certain lost profits. Id. "Lost profits are damages

for the loss of net income to a business and, broadly speaking, reflect income from

lost business activity, less expenses that would have been attributable to that

activity." Id. (citing Miga v. Jensen , 96 S.W.3d 207, 213 (Tex. 2002)). In other

words, "[l]ost profits must be based on net profits, not gross revenues." Texaco, Inc.

v. Phan , 137 S.W.3d 763, 771 (Tex. App.--Houston [1st Dist.] 2004, no pet.).

To recover lost profits, the party seeking them must prove them with

reasonable certainty and competent evidence. Bowen , 227 S.W.3d at 96 . "Generally,

lost profits are properly calculated by deducting the costs of the injured party's

performance supported by data from the actual contract price." Id. (citing Cmty. Dev.

Serv., Inc. v. Replacement Parts Mfg., Inc. , 679 S.W.2d 721, 725 (Tex.

App.--Houston [1st Dist.] 1984, no writ)). "However, a witness may also prove lost

profits by testifying as to what his profit would have been, based on his knowledge

of the cost of performance of each element of the contract and subtracting the total

of such costs from the contract price." Id. (quoting Cmty. Dev. Serv., Inc. , 679

S.W.2d at 725 ). "What constitutes reasonably certain evidence of lost profits is a fact

intensive determination. At a minimum, opinions or estimates of lost profits must be

based on objective facts, figures, or data from which the amount of lost profits can

be ascertained." Id. at 97 (quoting Holt Atherton Indus., Inc. v. Heine , 835 S.W.2d

80, 84 (Tex. 1992)).

2. Evidence of Lost Profits

At trial, Pantle testified J.P. was seeking $58,000 in lost profits. The following

testimony is the only calculation Pantle provided:

Q: Okay. How did you arrive at the $58,000 lost profits?

A: I based it on the contract amount, the approved change orders that

Walker did approve. Then I added in the unchanged--the

unsigned change orders. I came up with a total, subtracted it from

what had already been paid, came up with a balance and then put

a 25 percent net markup on that.

Q: How--what do you mean by 25 percent?

A: On a job, on this particular job, I had a 25 percent--not

gross--but net markup.

Q: And the $58,000 lost profits reflects that 25 percent flat figure?

A: Well, it--it's that and the change orders and such.

J.P. contends this evidence is "based on objective facts from which the amount

of the lost profits can be ascertained," citing Texaco, Inc. v. Phan as support. In

Texaco , this Court found the affidavit testimony of the owners of a gas station and

convenience store was no evidence to support an award of lost profits. Texaco, Inc ,

137 S.W.3d at 772 . The owners stated they had a profit margin of 30 percent, basing

this assertion on the prior 17 months of operation at their stores. Id. However, this

Court noted that the owners did not define "profit margin" or address expenses. Id.

The bare assertion of a profit margin of a certain percent, even one based on prior

experience, was not sufficient evidence to support an award of lost profits. Id. at

772-73 .

Here, like the owners in Texaco , Pantle did not address J.P.'s expenses. See

id. at 772 . Pantle did not testify what expenses J.P. would incur in performing the

contract. Rather, he simply stated, "On a job, on this particular job, I had a 25

percent--not gross--but net markup." Pantle did not "testify[] as to what his profit

would have been, based on his knowledge of the cost of performance of each element

of the contract and subtracting the total of such costs from the contract price."

Bowen , 227 S.W.3d at 96 . J.P. failed to present "objective facts, figures, or data from

which the amount of lost profits can be ascertained." See id. at 97 . We conclude the

evidence is factually insufficient to support an award of lost profits. See id. ; Texaco,

Inc , 137 S.W.3d at 772-73 .

We sustain Walker's first issue to the extent that the trial court would have

erred by including any amounts for lost profits because the evidence did not show

objective facts, figures, or data from which the amount of lost profits could be

ascertained. Further, any lost profits incurred before March 16, 2005 are not properly

included in the award.

C. Consequential Damages

In its second issue, Walker asserts the contract language precluded J.P.'s

recovery of its claimed damages incurred by paying the claims asserted against J.P.

by Transit Mix. Walker contends that part of the $58,000 lost profit award sought by

[J.P] was a claim for consequential damages for costs associated with settling a

lawsuit asserted against it by one of its subcontractors, Transit Mix[,]" a company that

sued J.P. to recover payment for supplies.

The contract provides,

In the event suit is filed by any person, firm or corporation asserting a

claim or lien for labor, services or materials used or purchased for use

in the work covered by this contract, [J.P.] will, at its own cost and

expense, including counsel fees, defend such suit and pay any judgment

rendered therein.

The plain language of the contract excuses Walker from paying any damages for a

suit filed against J.P. by Transit Mix for services or materials, or the attorney's fees

incurred by Transit Mix and paid by J.P. See David J. Sacks, P.C. , 266 S.W.3d at 450

(stating unambiguous contract will be enforced as written). Additionally, to the

extent the damages award included materials provided before March 16, 2005, the

release executed by J.P. precludes such an award. We sustain Walker's second issue

to the extend the trial court may have included damages for Transit Mix's attorney's

fees.

D. Unpleaded and Undisclosed Elements of Damages

In its third issue, Walker contends the trial court erred to the extent it based the

award of damages to J.P. on damages not pleaded or disclosed prior to trial. J.P. does

not reply to Walker's issue concerning the failure to disclose the amount and method

of calculating damages, instead asserting, "The damages models presented by [J.P.]

[w]as supported in the testimony of Pantle and succinctly set out at CR000089, in

[J.P.'s] Motion for Entry of Judgment."

Texas Rule of Civil Procedure rule 194.2(d) provides that a party may request

disclosure of "the amount and any method of calculating economic damages." Tex.

R. Civ. P. 194.2(d). Comment 2 to the rule provides that subsection (d) is "intended

to require disclosure of a party's basic assertions, whether in prosecution of claims

or in defense." Id. cmt. 2. As an example of the required disclosure, comment 2

notes, that, in a claim for damages suffered in a car accident, the plaintiff would be

required to state how loss of past earnings and future earning capacity was calculated.

Id.

Rule 193.6(a) provides, "A party who fails to make, amend, or supplement a

discovery response in a timely manner may not introduce in evidence the material or

information that was not timely disclosed." Tex. R. Civ. P. 193.6. The purpose

behind this rule is to prevent trial by ambush. Harris County v. Inter Nos, Ltd. , 199

S.W.3d 363, 367 (Tex. App.--Houston [1st Dist.] 2006, no pet.) (citing Aetna Cas.

& Sur. Co. v. Specia , 849 S.W.2d 805, 807 (Tex. 1993)). "Absent a showing of good

cause, lack of unfair surprise, or lack of unfair prejudice, rule 193.6 mandates

exclusion of the undisclosed material or information." Id. "The burden of

establishing good cause or the lack of unfair surprise or unfair prejudice is on the

party seeking to introduce the evidence . . . ." Tex. R. Civ. P. 193.6(b); Harris

County , 199 S.W.3d at 367 .

In the demand letter, petition, response to the request for disclosure under rule

194.2(d), and at trial, J.P. sought damages for $77,501, an amount consisting of

$19,501 for unpaid work and $58,000 for lost profits. However, the request for

$19,501 for unpaid work was changed after the trial to become a request for damages

for $17,099.00 for unpaid contract work in February 2005; $21,748.52 for unpaid

contract work in March 2005; $8,389.00 for funds retained by Walker from previous

payments; and $26,823.00 for extra work completed for unsigned change orders. The

request for $58,000 for lost profits was reduced after the trial to $26,499.05.

Additionally, after the trial, a new request for damages was made by J.P. for $3,600

for Transit Mix's attorney's fees paid by J.P. We conclude the post trial requests for

damages and attorneys fees violated rule 193.6 because J.P. failed to amend its

responses to requests for disclosure, and rule 194.2(d) because J.P. failed to disclose

the amount and method of calculating economic damages. Tex. R. Civ. P. 193.6,

194.2(d); see also Harris County , 199 S.W.3d at 368 (holding trial court did not

abuse discretion in excluding evidence concerning Harris County's calculation of fair

market value in condemnation case because Harris County did not present evidence

of good cause, lack of unfair surprise, or lack of unfair prejudice in failing to correct

erroneous response to request for disclosure). We sustain the third issue to the extent

the trial court erred if it based the damages award on the undisclosed method of

calculating economic damages. See id.

E. Conclusion

Although the trial court did not make findings of fact and conclusions of law

to show how it reached the $47,000 damages figure, we conclude that the amount of

the award is erroneous because the figure could not have been reached without taking

into consideration amounts that were disclaimed by the release, were for lost profits,

were for Transit Mix's lawsuit, or were not properly disclosed before post trial. We

must therefore remand the cause for a new damages determination.

Walker's Counterclaim

In its fourth issue, Walker contends, "Although the trial court never expressly

disposed of [Walker's] counterclaim for breach of contract, the court implicitly ruled

in favor of [J.P.]." Walker, however, does not cite to a single authority in its

discussion of this issue. We hold error, if any, is waived due to inadequate briefing.

See Tex. R. App. P. 38.1(i) ("The brief must contain a clear and concise argument for

the contentions made, with appropriate citations to authorities and to the record.");

Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc. , 106 S.W.3d 118, 128 (Tex.

App.--Houston [1st Dist.] 2002, pet. denied) (holding rule 38 not satisfied by

"merely uttering brief conclusory statements, unsupported by legal citations").

We overrule Walker's fourth issue.

Conclusion

We affirm that portion of the trial court's judgment rendering a take-nothing

judgment on C.A. Walker Construction and Safeco Surety's counterclaim. We

reverse that portion of the trial court's judgment awarding damages to J.P. Southwest

Concrete, Inc. and remand this cause to the trial court for the limited purpose of

conducting a new trial on the issue of damages.

Elsa Alcala

Justice

Panel consists of Chief Justice Radack and Justices Alcala and Hanks.

1. Tex. R. Civ. P. 194.2(d).