Port Neches-Groves Independent School District v. Pyramid Constructors, L.L.P.

In The

Court of Appeals

Ninth District of Texas at Beaumont

____________________

NO. 09-08-00197-CV

____________________

PORT NECHES-GROVES INDEPENDENT SCHOOL DISTRICT, Appellant

V.

PYRAMID CONSTRUCTORS, L.L.P., Appellee

On Appeal from the 60th District Court

Jefferson County, Texas

Trial Cause No. B-163,853

OPINION

Port Neches-Groves Independent School District appeals a judgment awarding

damages, interest and attorney fees to Pyramid Constructors, L.L.P. In five issues, the

District: (1) asserts sovereign immunity; (2) contends the trial court erred in granting

summary judgment as to liability; (3) contends the trial court erred in granting a motion for

instructed verdict on damages and interest; (4) challenges the legal sufficiency of the

evidence supporting the damage award; and (5) erred in awarding attorney fees and interest.

We hold the trial court properly exercised jurisdiction because the District is not immune

from suit in this case, but hold the trial court erred in granting summary judgment and further

erred in granting Pyramid's motion for an instructed verdict. We reverse the judgment and

remand the cause to the trial court.

Pyramid, then known as Pyramid Constructors, Inc., sued the Port Neches-Groves

Independent School District for breach of an April 1997 school renovation contract. The

District filed a counterclaim for breach of contract and breach of warranty and a plea to the

jurisdiction based on governmental immunity. In a mediated settlement, Pyramid's liability

insurer paid the District $900,000. Pyramid kept its claims for retainage withheld under the

contract, together with its claims for interest and attorney fees. The trial court denied the

District's plea to the jurisdiction. The District appealed to this Court, which affirmed the

order, and to the Supreme Court, which reversed our judgment and remanded the cause to

the trial court. Port Neches-Groves I.S.D. v. Pyramid Constructors, L.L.P., 140 S.W.3d 440

(Tex. App.--Beaumont 2004), reversed, 201 S.W.3d 679 (Tex. 2006). On remand, the trial

court denied the plea to the jurisdiction, granted summary judgment on liability, granted an

instructed verdict and charged the jury only upon the award of attorney fees. The trial court

entered a judgment for: (1) $531,012.76 with interest at the rate of 1% per month until paid;

(2) $389,912.02 in attorney fees with additional amounts of $35,000 for an appeal, $35,000

for response to petition for review, and $10,000 for briefing in the Supreme Court as found

by the jury, plus interest; and (3) costs of court.

First, the District contends it has governmental immunity that has not been waived.

The Supreme Court held the "sue and be sued" language of Section 11.151 of the Education

Code is not a clear and unambiguous waiver of immunity, but indicated that Pyramid should

be provided with an opportunity to raise and develop a record to support other possible bases

for a waiver of immunity. See Port Neches-Groves I.S.D. v. Pyramid Constructors, L.L.P.,

201 S.W.3d 679, 681 (Tex. 2006). The District argues Pyramid failed to develop a record

on remand to establish a waiver of governmental immunity. The post-remand motion for

partial summary judgment filed by Pyramid had no summary judgment evidence attached to

it, but the body of the motion referred to an affidavit attached to its response to the District's

motion for summary judgment. That affidavit and the accompanying settlement agreement

were before the trial court. The construction contract was also before the trial court. See

Tex. R. Civ. P. 166a(c). Additional evidence germane to the jurisdictional issue was

developed during the trial. See Tex. Dep't of Parks and Wildlife v. Miranda, 133 S.W.3d

217, 228 (Tex. 2004) ("by reserving for the fact finder the resolution of disputed

jurisdictional facts that implicate the merits of the claim or defense, we preserve the parties'

right to present the merits of their case at trial."). (1)

Pyramid contends Chapter 2251 of the Government Code waives governmental

immunity; however, for contracts executed before September 1, 2003, Chapter 2251 does not

apply to a payment made by a governmental entity if there is a bona fide dispute between the

political subdivision and a vendor about the goods delivered or service performed that causes

the payment to be late. (2) See Act of May 4, 1993, 73rd Leg., R.S., ch. 268, 1993 Tex. Gen.

Laws 583 , 843; amended by Act of April 25, 1995, 74th Leg., R.S., ch. 76, §§ 5.41-.42, 1995

Tex. Gen. Laws 458 , 497; amended by Act of May 26, 2001, 77th Leg., R.S., ch.

1158, §§ 61, 94, 2001 Tex. Gen. Laws 2570 , 2605, 2615; amended by Act of May 28, 2003,

78th Leg., R.S., ch. 286, 2003 Tex. Gen. Laws 1252 . The 2003 amendment to Section

2251.002(a) of the Texas Government Code does not apply in this case. See Act of May 28,

2003, 78th Leg., R.S., ch. 286, § 4, 2003 Tex. Gen. Laws 1255 ("This Act applies only to a

contract executed on or after September 1, 2003. A contract executed before September 1,

2003, is governed by the law as it existed on the date the contract is executed, and the former

law is continued in effect for that purpose."); current version at Tex. Gov't Code

Ann. § 2251.002 (a) (Vernon 2008).

Chapter 2251 provides for recovery of interest on late payments by governmental

entities. See Tex. Gov't Code Ann. § 2251.025 (Vernon 2008). The unpaid balance of a

partial payment accrues interest unless the balance is in dispute. See Tex. Gov't Code Ann.

§ 2251.029 (Vernon 2008). If a disputed payment is resolved in favor of the vendor, the

vendor is entitled to receive interest on the unpaid balance from the date the payment is

overdue. Tex. Gov't Code Ann. § 2251.042 (b) (Vernon 2008). In a formal judicial action

to collect an invoice payment or interest due under Chapter 2251, the opposing party shall

pay the prevailing party's attorney fees. Tex. Gov't Code Ann. § 2251.043 (Vernon 2008).

Thus, a vendor may recover on a disputed payment and may recover attorney fees, but until

the dispute is resolved the vendor cannot recover pursuant to Chapter 2251. Chapter 2251

does not waive governmental immunity for resolving a disputed payment.

The District argues Pyramid is not entitled to recover under Chapter 2251 because a

bona fide dispute exists. Specifically, the District contends the retainage is not due until the

contract is "fully performed" and Pyramid satisfies the express conditions precedent by

paying the subcontractors and submitting lien releases to the architect. Pyramid argues that

an action on the payment bond is a subcontractor's sole remedy. See Tex. Gov't Code Ann.

§ 2253.073 (Vernon 2008). Because a subcontractor cannot place a lien on the District's

property, Pyramid argues, the required submission of a release of lien is meaningless.

Pyramid contends the law does not require the doing of a vain and useless thing. The

case on which Pyramid relies involved a garnishment. On the date of the application for a

writ of garnishment, one of the joint judgment debtors was dead and had died insolvent.

Mackey v. Lucey Prods. Corp., 150 Tex. 188 , 239 S.W.2d 607, 608 (Tex. 1951). An

execution against the estate would have accomplished nothing towards reducing the original

judgment and execution would have been void because the judgment had to be collected

through the probate court. Id. The Court held it was not necessary that the deceased

judgment debtor be named in the application for writ of garnishment. Id. In this case, the

contract's supplemental conditions required Pyramid to submit to the architect the following

documents prior to final payment: (1) contractor's affidavit of payment of debts and claims;

(2) contractor's affidavit of release of liens; (3) consent of surety to final payment; (4)

general contractor's guarantee; (5) subcontractor's guarantee; (6) subcontractor's lien

releases; (7) asbestos affidavit; (8) maintenance and instruction manuals; (9) record

drawings; and (10) final list of subcontractors. The contract calls for final payment upon full

performance of the contract and the issuance of a final certificate of payment. Thus,

regardless of the remedies available to subcontractors, the contract between Pyramid and the

District required Pyramid to submit to the architect documents establishing that all debts

associated with the project had been paid and all claims had been released before Pyramid

would be entitled to final payment. The action required by the contract was not vain and

useless.

Pyramid argues that the District was required to pay the retainage upon substantial

completion of each phase of the project because the contract's construction schedule provides

for a proportional amount of retainage to be released for all areas where final completion has

been achieved. The construction schedule called for release of proportional amounts of

retainage upon final completion, not substantial completion. (3) Substantial completion triggers

the right to payment other than the retainage, but only full performance triggers the payment

of retainage. Nothing in the construction schedule excuses performance of the actions

required for final payment in the supplemental conditions. Assuming the construction

schedule allowed Pyramid to apply for a release of retainage as to each phase of the project,

the contract between Pyramid and the District required Pyramid to establish that all claims

related to that phase had been released before Pyramid could obtain a release of the retainage

for that phase of the project. At trial, Pyramid's president testified that Pyramid obtained all

releases except one. He also testified that Pyramid paid the subcontractors two-thirds of the

retainage owed to them when the District released two-thirds of the retainage. He admitted

Pyramid never paid the final one-third owed to the subcontractors, with the exception of a

$5,000 claim that was not paid at all and a claim that Pyramid paid in full after the

subcontractor prevailed in a lawsuit. (4) He did not identify the phases of the project to which

these claims related. Furthermore, Pyramid submitted a single pay application for the full

amount of the retainage.

Pyramid argues the architect's approval of Pyramid's pay application triggered

Pyramid's right to payment of all of the retainage because the attachments showed the project

was complete. The architect approved a partial release of retainage on May 17, 2000, but did

not approve the application in its entirety. The architect sent letters to Pyramid in June and

August 2000 that clearly state the final payment awaited receipt by the architect of the final

close-out documents. In addition, an affidavit from Pyramid's president admitted Pyramid

did not submit all of the required close-out documents to the architect. Under the facts and

circumstances present in this case, a bona fide dispute existed as a matter of law. We hold

Chapter 2251 does not operate to waive the District's immunity in this case.

Pyramid contends the enactment of Chapter 271 of the Local Government Code

created a legislative waiver of the District's immunity for Pyramid's breach of contract claim.

See Tex. Loc. Gov't Code Ann. § 271.152 (Vernon 2005) ("A local governmental entity

that is authorized by statute or the constitution to enter into a contract and that enters into a

contract subject to this subchapter waives sovereign immunity to suit for the purpose of

adjudicating a claim for breach of the contract, subject to the terms and conditions of this

subchapter."). Section 271.152 applies only to a claim for which immunity had not been

waived under prior law. Act of May 23, 2005, 79th Leg., R.S., ch. 604, § 2, 2005 Tex. Gen.

Laws 1548 , 1549. Although the case was decided after the effective date of the new statute,

Reata did not create new law but merely explained the law as it already existed. See Reata

Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 376 (Tex. 2006). (5) The District both filed

and settled its counterclaim before the effective date of Chapter 271. Thus, Chapter 271 is

inapplicable if by filing the counterclaim the District waived immunity.

Pyramid contends the District waived governmental immunity by filing a

counterclaim. By asserting an affirmative claim for relief, the District joined into the

litigation process and the trial court acquired subject-matter jurisdiction over claims made

against the District "which were connected to, germane to, and properly defensive" to the

matters on which the District based its claim for damages. Id. at 377 . A Reata waiver does

not extend to claims for monetary relief exceeding amounts necessary to offset the District's

claims. Id.

The District argues that Pyramid would not be entitled to an offset because it refused

to participate in the settlement negotiated by its insurance carrier. Although Pyramid's

corporate representative testified that Pyramid did not participate in the settlement negotiated

by its insurer, the settlement agreement states that "Pyramid Constructors, Inc. agrees to pay

Port Neches-Groves I.S.D. the sum of $900,000.00 dollars, on or before June 10, 2003."

Regardless of the circumstances of its execution, the settlement agreement expressly states

that Pyramid is the party paying the settlement.

The District also argues Pyramid's claim for retainage is not connected to, germane

to, and properly defensive to the District's counterclaim for construction defects. In its

opinion remanding the case to the trial court, the Supreme Court noted that "Pyramid should

have the opportunity to argue, based on our decision in Reata, that the District does not have

immunity from suit." Port Neches-Groves I.S.D. v. Pyramid Constructors, L.L.P., 201

S.W.3d 679, 681 (Tex. 2006). On remand, Pyramid filed a motion for partial summary

judgment that sought judgment as to liability based upon the District's settlement of its

claims against Pyramid. The only argument even remotely addressing Reata immunity in

Pyramid's motion for summary judgment relied solely upon the Supreme Court's opinion in

the District's first appeal. Pyramid argued that once the District settled its claim against

Pyramid, it no longer retained a bona fide defense to Pyramid's retainage claim. Although

provided with an opportunity to argue that the District does not have immunity from suit

because Pyramid's retainage claim is connected to, germane to, and properly defensive of the

District's settled claims, Pyramid relied solely upon the settlement as a waiver of immunity.

Neither the settlement agreement nor the order of dismissal links the District's claims against

Pyramid and the architect to Pyramid's claims against the District. To the contrary, the

documents state that all claims for contribution by and between Pyramid and the architect

were moot and that Pyramid's original claim for retainage under the construction contract has

not been resolved by the settlement.

In allowing an offset, the court must specify the claims that arise from the District's

suit and limit any recovery to an offset. State v. Fidelity and Deposit Co. of Maryland, 223

S.W.3d 309, 310-11 (Tex. 2007) (surety could offset cost-related dispute against state

agency's recovery on performance bond). Here, no connection between the retainage dispute

and the District's claims is shown, other than the fact that the two disputes arise out of the

performance of the same construction contract. Accordingly, the trial court could not

exercise jurisdiction pursuant to Reata.

In response to Pyramid's contention that Chapter 271 waives the District's immunity,

the District contends Pyramid consistently asserted that the District waived immunity and

argues Pyramid cannot now take the inconsistent position of arguing that the District's

immunity was not waived before September 1, 2005. Although not expressly stated as an

alternative to its Reata waiver allegations, Pyramid's allegation that immunity has been

waived pursuant to Chapter 271 of the Local Government Code can be understood to be an

alternative pleading. See Tex. R. Civ. P. 48. Pyramid failed to establish its other bases for

jurisdiction; therefore, we consider its alternative pleading.

The District entered into a contract with Pyramid and did not waive governmental

immunity before September 1, 2005. See Tex. Loc. Gov't Code Ann. § 271.152 (Vernon

2005). Accordingly, the District's immunity is waived subject to the terms and conditions

of Sections 271.151 through 271.160 of the Local Government Code. Id. Issue one is

sustained in part and overruled in part.

In its fifth issue, the District contends the trial court erred in awarding attorney fees

and interest. The terms and conditions of Chapter 271 limit recovery against a local

governmental entity. Id. Generally, attorney fees are not recoverable under Chapter 271.

See Tex. Loc. Gov't Code Ann. §§ 271.153 , 271.159 (Vernon 2005). In its brief to this

Court, Pyramid states "it does not seek to recover attorney fees under Chapter 271 of the

Local Government Code which waives [the District's] governmental immunity in cases such

as this, but under Chapter 2251 of the Government Code. . . ." Thus, Pyramid does not argue

that it is entitled to recover attorney fees pursuant to Chapter 271. Generally, only "interest

as allowed by law" may be recovered under Chapter 271. Tex. Loc. Gov't Code

Ann. § 271.153 . The supplementary conditions to the contract between Pyramid and the

District expressly excluded the contractual provision for interest. As discussed elsewhere

in this Opinion, the existence of a bona fide dispute precludes operation of the interest

provision contained in Chapter 2251. See Tex. Gov't Code Ann. § 2251.029 . Although

Section 271.152 waives the District's governmental immunity from a suit for breach of the

construction contract, Pyramid cannot recover either attorney fees or interest. We sustain

issue five.

In its second issue, the District contends the trial court erred in granting partial

summary judgment. In reviewing the granting of a summary judgment, we accept as true all

evidence favorable to the non-movant, indulge every reasonable inference in favor of the

non-movant, and resolve any doubts in the non-movant's favor. Nixon v. Mr. Prop. Mgmt.

Co., Inc., 690 S.W.2d 546, 548-49 (Tex. 1985). The summary judgment will be affirmed

only if the movant establishes its right to summary judgment as a matter of law. Tex. R. Civ.

P. 166a(c). Pyramid's motion for summary judgment argued three distinct events entitled

Pyramid to recover the retainage as a matter of law: (1) the completion of each phase of the

project; (2) the architect's acceptance of Pyramid's pay application; and (3) the settlement

and non-suit of the District's claims against Pyramid.

As discussed in our analysis of the District's first issue: (1) Pyramid failed to establish

that it met all of the conditions for payment as to each phase of the project; (2) a bona fide

dispute existed as a matter of law; and (3) the architect did not accept Pyramid's entire pay

application. Accordingly, Pyramid's first two grounds cannot support summary judgment.

The trial court held that the District "released Pyramid from all claims, reserving none" and

"may not therefore raise any affirmative defenses to Pyramid's suit including the 'bonafide

dispute' defense to Pyramid's contentions under Chapter 2251 of the Government Code."

The trial court also found that the District breached the contract as a matter of law when it

"failed to release the retainage in its possession after it settled its counterclaim and therefore

Pyramid is entitled to recover under Chapter 2251 of the Government Code the retainage and

such interest and reasonable attorney fees as it may prove."

Pyramid argues that by dismissing its affirmative claims for relief the District waived

its defenses to Pyramid's retainage claim. Pyramid relies in part on the language of the

settlement agreement, which identifies the claim being released as "arising from or related

to the events and transactions which are the subject matter of this case" and Pyramid argues

this language includes the District's defenses to Pyramid's retainage claim.

"Waiver requires intent, either the 'intentional relinquishment of a known right or

intentional conduct inconsistent with claiming that right.'" In re General Elec. Capital

Corp., 203 S.W.3d 314, 316 (Tex. 2006) (quoting Sun Exploration & Prod. Co. v. Benton,

728 S.W.2d 35, 37 (Tex. 1987)). For waiver to be implied, "intent must be clearly

demonstrated by the surrounding facts and circumstances." Jernigan v. Langley, 111 S.W.3d

153, 156 (Tex. 2003). When the surrounding facts are undisputed, the question becomes one

of law. Id. at 156-57 . An unambiguous contract must be enforced as written. Lopez v.

Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 862 (Tex. 2000). Ambiguity is a question

of law. Id. at 861 . "A contract is not ambiguous if it can be given a certain or definite legal

meaning or interpretation." Id.

In this case, the settlement agreement states that Pyramid "retains all causes of action

for retainage withheld under the contract" and the order of dismissal states that Pyramid's

"original claim for retainage under the construction contract at issue is preserved as between

Plaintiff Pyramid Constructors, Inc. and Port Neches-Groves I.S.D. This claim has not yet

been resolved and is still active[.]" Thus, the settlement agreement expressly excludes

Pyramid's retainage claim and is silent regarding the District's defenses to the excluded

claim. Because the District did not expressly waive its defenses to the claim that was

expressly excluded from the settlement agreement, as a matter of law those defenses were

not waived by the settlement agreement. We sustain issue two.

The District's third issue contends the trial court erred in granting Pyramid's motion

for instructed verdict. "In reviewing the granting of an instructed verdict, we must determine

whether there is any evidence of probative force to raise a fact issue on the material questions

presented." Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994). "We

consider all of the evidence in a light most favorable to the party against whom the verdict

was instructed and disregard all contrary evidence and inferences; we give the losing party

the benefit of all reasonable inferences created by the evidence." Id. "If there is any

conflicting evidence of probative value on any theory of recovery, an instructed verdict is

improper and the case must be reversed and remanded for jury determination of that issue."

Id.

After entering a summary judgment on liability and hearing testimony regarding the

dates on which Pyramid substantially completed each phase of the project, the trial court

refused to submit questions on substantial completion, the dates of completion, and the

amount of retainage due for each phase of the project, but granted an instructed verdict based

upon calculations submitted by Pyramid. (6) As we noted above, substantial completion did not

trigger Pyramid's right to payment and Pyramid did not file applications for proportional

release of retainage but filed a single pay application for the full retainage. The instructed

verdict of $531,012.76 with interest to run at the rate of 1% per month until paid is based

upon Pyramid's testimony regarding when Pyramid completed each phase of the project and

its calculation of the proportion each phase held to the whole, with interest added pursuant

to Chapter 2251. The bona fide dispute between the parties regarding Pyramid's right to

payment precludes the operation of Chapter 2251. See Tex. Gov't Code Ann. § 2251.029

(Vernon 2008). Furthermore, the contract required Pyramid to submit the close-out

documents to the architect before the architect would certify payment of the retainage. The

architect did not unconditionally accept Pyramid's pay application, but identified the

documentation required for final completion. Pyramid did not conclusively establish its right

to payment. Accordingly, the trial court erred in granting an instructed verdict. We sustain

issue three.

Issue four challenges the legal sufficiency of the evidence supporting the damages

awarded in the judgment. In response, Pyramid argues that "the contract between the

[p]arties could not be clearer." While we agree that the contract is unambiguous, we disagree

that the uncontroverted evidence established Pyramid sustained damages in the amount of

$531,012.76. In considering the District's second and third issues, we hold that the trial

court erred by granting summary judgment on liability and instructing a verdict on damages

based upon an unsupportable construction of the settlement agreement. There is no evidence

that Pyramid sustained damages in the amount of $531,012.76 as a result of a breach by the

District. Furthermore, the record in this case indicates the conditions precedent have not

been satisfied. The District did not move for summary judgment on liability, however, and

neither the trial court nor the jury considered whether Pyramid satisfied the conditions

precedent to its right to release of the retainage. Therefore, we do not render judgment. See

CRA, Inc. v. Bullock, 615 S.W.2d 175, 176 (Tex. 1981) ("In this situation where upon appeal

it is determined that the summary judgment was improperly granted, the appeal does not

afford a basis for rendering a judgment for the non-moving party."). We reverse the

judgment of the trial court and remand the case to the trial court for further proceedings

consistent with this Opinion.

REVERSED AND REMANDED.

______________________________

STEVE McKEITHEN

Chief Justice

Submitted on December 11, 2008

Opinion Delivered February 5, 2009

Before McKeithen, C.J., Gaultney and Horton, JJ.

1. Although the trial court submitted a single question regarding attorney fees to the

jury, the Supreme Court had remanded the case to the trial court for a reconsideration of the

District's plea to the jurisdiction and the trial court's partial summary judgment on liability

did not specifically rule on the plea. See Port Neches-Groves I.S.D. v. Pyramid

Constructors, L.L.P., 201 S.W.3d 679, 681 (Tex. 2006). If the trial court ruled on the plea

before trial or we presume a deemed jury finding on factual issues relating to jurisdiction, the

sufficiency of the evidence supporting jurisdiction can be challenged on appeal following

trial on the merits. See Univ. of Houston v. Barth, 265 S.W.3d 607, 611 (Tex. App.--Houston

[1st Dist.] 2008, no pet. h.).

2. For contracts executed after September 1, 2003, the exclusion is limited to

Subchapter B (Sections 2251.021-.030). In such a case, Subchapter D provides a

remedy to a vendor for nonpayment through suspension of performance. See Tex.

Gov't Code Ann. § 2251.051 (Vernon 2008).

3. As the District notes in its brief, the section of the contract regarding progress

payments excludes reduction of retainage from the formula for calculating progress

payments.

4. Hearing the case on a docket equalization order, the Amarillo Court held that the

subcontract required Pyramid to release accumulated retainage to its subcontractor without

regard to whether Pyramid or the District breached the construction contract. See Pyramid

Constructors, L.L.P. v. Sunbelt Controls, Inc., No. 07-03-0443-CV, 2005 WL 464896 , *3

(Tex. App.--Amarillo Feb. 28, 2005, no pet.) (mem. op.)

5. The Supreme Court's initial opinion in Reata pre-dates the statute. See Reata

Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 373 (Tex. 2006).

6. In the charge conference the District argued that if the trial court rejected the

District's argument that Pyramid's right to payment required final completion--including

submission of the close-out documents to the architect--rather than substantial completion,

then the trial court should submit the issue to the jury. The District's request was contingent

on the denial of its motion for directed verdict based upon Pyramid's failure to meet its

burden of proof regarding its performance of the conditions precedent to a right to payment.