Pepper Lawson Horizon International Group, LLC v. Texas Southern University

Supreme Court of Texas

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No. 21-0966

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Pepper Lawson Horizon International Group, LLC,

Petitioner,

v.

Texas Southern University,

Respondent

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On Petition for Review from the

Court of Appeals for the First District of Texas

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PER CURIAM

This interlocutory appeal involves the application of a statutory

immunity waiver in a suit alleging breach of a contract to construct

university housing. See TEX. CIV. PRAC. & REM. CODE § 114.003. The

trial court held that the university was not immune from suit, but the

court of appeals reversed and rendered judgment dismissing the

contract claims for want of subject-matter jurisdiction. We reverse and

remand to the trial court.

In 2014, Texas Southern University (TSU) executed a contract

naming “Pepper-Lawson/Horizon International Group” as the

“Contractor” on a project to construct student housing. Representatives

of Pepper Lawson Construction and Horizon International Group each

signed the contract as part of a joint venture subsequently formed as

Pepper Lawson Horizon International Group, LLC (PLH). PLH sued

TSU, alleging that, as recounted below, the university defaulted on its

payment obligations under the construction contract.

The construction contract required substantial project completion

by July 1, 2015, and final completion by August 31, 2015, subject to

justified time extensions and equitable price adjustments for certain

types of delays. See infra note 1. PLH did not complete the project until

February 2016. On completion, PLH invoiced TSU for $3,320,605—the

remaining “balance due” under the contract, as adjusted by approved

change orders—plus $3,677,580 for “additional direct costs” PLH had

allegedly incurred due to “excusable delays.”

TSU refused to pay the adjusted contract balance because the

project was completed 155 days late and a liquidated-penalty clause in

the construction contract entitles TSU to deduct $20,000 per day for

untimeliness. TSU declined to pay the additional direct costs based on

Section 9.7 of the construction contract, which states, “Contractor has

no claim for monetary damages for delay or hindrances to the work from

any cause, including without limitation any act or omission of [TSU].”

After completing a contractually required dispute-resolution

process, PLH sued TSU for breach of contract. PLH asserted that

(1) TSU failed to grant contractually required extensions of the

completion deadline for excusable delays, as provided in contract

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Sections 9.6.2.2 and 9.6.3;1 (2) the liquidated-penalty clause did not

preclude recovery of the amount due under the contract, including the

excusable-delay costs, because TSU should have extended the

completion deadline, which would have made the February completion

date timely; and (3) PLH was not seeking delay damages under contract

1 “Excusable Delay” is defined in Section 9.6.2.2 of the contract:

Excusable Delay. Contractor is entitled to an equitable

adjustment of the Contract Time, issued via change order, for

delays caused by the following: [1] Errors, omissions and

imperfections in design . . . [2] Unanticipated physical

conditions at the Site, which A/E [Architect/Engineer] corrects

by means of changes to the Drawings and Specifications or for

which ODR [Owner’s Designated Representative] directs

changes in the Work identified in the Contract Documents.

[3] Changes in the Work that effect [sic] activities identified in

Contractor[’]s schedule as “critical” to completion of the entire

Work, if such changes are ordered by ODR or recommended by

A/E and ordered by ODR. [4] Suspension of Work for unexpected

natural events (sometimes called “acts of God”), civil unrest,

strikes or other events which are not within the reasonable

control of Contractor. [5] Suspension of Work for convenience of

ODR, which prevents Contractor from completing the Work

within the Contract Time.

As provided in Section 9.6.3 of the contract:

Contractor[’]s relief in the event of such delays is the time impact

to the critical path as determined by analysis of Contractor[’]s

schedule. In the event that Contractor incurs additional direct

costs because of the excusable delays other than [Suspension of

Work for unexpected natural events (sometimes called ‘acts of

God’), civil unrest, strikes or other events which are not within

the reasonable control of Contractor] and within the reasonable

control of [TSU], the Contract price and Contract Time are to be

equitably adjusted by [TSU] pursuant to the provisions of

Article 11.

(Emphases added.)

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Section 9.7, but rather, an equitable adjustment of the

project-completion deadline and the contract price, as authorized under

Section 9.6.3 for excusable delays.

PLH alleged that various issues delayed project completion and

increased PLH’s costs, including delays caused by TSU or within TSU’s

reasonable control. Among other things, PLH discovered that

“undisclosed underground obstructions” from a previous building—a

pool, basement walls, and piers—remained buried under the worksite.

While TSU agreed to a cost increase to remove the obstructions, it

denied PLH’s request for additional time to perform the work under

contract Sections 9.6.2.2 and 9.6.3. According to PLH, that delay had

the added effect of pushing construction into Texas’s “wet season,” which

had a record rainfall that further delayed construction. PLH requested

a 67-day extension to account for rain days under a contract provision

requiring TSU to extend the completion deadline for excusable delays

and certain “weather days,”2 but the university only granted a 21-day

extension. Finally, PLH alleged that TSU agreed to supply the project

with permanent power but missed the agreed deadline by 192 days.

2 Section 9.6.2 of the contract provides for an extension of time on the

following terms: “When a delay defined herein as excusable prevents

Contractor from completing the Work within the Contract Time, Contractor is

entitled to an extension of time. [TSU] will make an equitable adjustment and

extend the number of days lost because of excusable delay or Weather Days, as

measured by Contractor[’]s progress schedule.”

Section 9.6.2.1, in turn, defines a “Weather Day” as “a day on which

Contractor[’]s current schedule indicates Work is to be done, and on which

inclement weather and related site conditions prevent Contractor from

performing seven (7) continuous hours of Work between the hours of 7:00 a.m.

and 6:00 p.m. Weather days are excusable delays.”

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Because of the power delay, PLH requested a commensurate deadline

extension under the contract’s excusable-delay provision, but TSU

refused to grant any additional time.

Along with sums allegedly due and owing under the construction

contract, PLH prayed for interest and attorney’s fees under the Texas

Prompt Payment Act (PPA) because the construction contract expressly

required TSU to comply with that statute3 and because TSU did not pay

PLH’s final invoice within the statutorily mandated 30-day period. See

TEX. GOV’T CODE § 2251.021(a).

TSU generally denied PLH’s allegations and asserted sovereign

immunity to suit, among other defenses. Although PLH’s pleadings

expressly invoked the immunity waiver in Section 114.003 of the Texas

Civil Practice and Remedies Code, TSU filed a plea to the jurisdiction,

asserting Section 114.003 was inapplicable because PLH failed to plead

a claim covered by the waiver provision.

Section 114.003 waives immunity to suit against “[a] state agency

that . . . enters into a contract subject to [Chapter 114]” but only “for the

purpose of adjudicating a claim for breach of an express provision of the

contract” and “subject to [Chapter 114’s] terms and conditions[.]” TEX.

CIV. PRAC. & REM. CODE § 114.003. Chapter 114 “applies only to a claim

for breach” of certain contracts, including “a written contract

for . . . construction services or for materials related to . . . construction

3Section 6.4.2 of the contract references the PPA as follows: “Provided

that Contractor’s payment applications are submitted by the last day of each

month and approved by [TSU], [TSU] shall pay Contractor the approved

amount in accordance with Chapter 2251 of the Texas Government Code [the

PPA].”

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services brought by a party to the written contract.” Id. § 114.002. The

amount in controversy must be at least $250,000, but the awardable

damages are limited to:

(1) the balance due and owed by the state agency under the

contract as it may have been amended, including any

amount owed as compensation for the increased cost to

perform the work as a direct result of owner-caused

delays or acceleration if the contract expressly provides

for that compensation;

(2) the amount owed for written change orders;

(3) reasonable and necessary attorney’s fees based on an

hourly rate that are equitable and just if the contract

expressly provides that recovery of attorney’s fees is

available to all parties to the contract; and

(4) interest at the rate specified by the contract or, if a rate

is not specified, the rate for postjudgment interest

under Section 304.003(c), Finance Code, but not to

exceed 10 percent.

Id. §§ 114.002, .004(a).

Despite Chapter 114’s clear and unambiguous waiver of

immunity for construction-contract suits like this one, TSU claimed it

retained immunity to suit because (1) PLH failed to plead facts showing

“breach of an express provision of the contract”; (2) PLH failed to point

to a contractual provision expressly allowing recovery of damages for

owner-caused delays or attorney’s fees; (3) PLH’s “delay claim” for

alleged underground obstructions was moot because PLH executed a

change order that resolved those claims according to the procedure

provided by the construction contract; (4) PLH’s weather-delay claim

was moot because the parties executed a change order for the disputed

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weather days that resolved those claims according to the procedure

provided by the construction contract; (5) PLH could not recover

enhanced interest rates and attorney’s fees under the PPA because that

statute does not clearly and unambiguously waive sovereign immunity;

and (6) PLH failed to identify a separate immunity waiver that would

allow it to recover interest and fees under the PPA. TSU’s mootness

arguments hinged on contract provisions making the Contractor’s

signature on change orders conclusive as to the agreed contract price

and time adjustments.4 To support the plea, TSU attached the contract

and change orders.

In response, PLH asserted that its petition sufficiently invoked

Section 114.003’s immunity waiver by pleading the express contract

provisions TSU allegedly breached and detailing how TSU defaulted on

its obligations under those provisions.

The trial court denied TSU’s plea, but on interlocutory appeal, the

court of appeals reversed and rendered judgment dismissing the suit.

634 S.W.3d 428, 440 (Tex. App.—Houston [1st Dist.] 2021). The court

held that PLH “failed to show, as a matter of law,” that Chapter 114

waived immunity because “no express contract provision required TSU

to perform as PLH alleged in its second amended petition.” The court

further held that TSU was immune from suit for interest and attorney’s

4 Uniform General Conditions Article 11.1, incorporated into the

construction contract, provides: “A Change Order signed by Contractor

indicates his agreement therewith, including the adjustment in the Contract

Sum and/or the Contract Time.” Article 11.10 further makes an executed

Change Order conclusive: “Upon execution of a Change order . . . by Owner,

Contractor and A/E, all costs and time issues regarding that change are final

and not subject to adjustment.”

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fees under the PPA because that statute contains no immunity waiver

and PLH failed to identify any other waiver of immunity applicable to

those claims. Id. at 436, 440. Having found no waiver of immunity

under Chapter 114, the court of appeals did not consider whether TSU’s

contractual agreement to abide by the PPA—“[TSU] shall pay

Contractor the approved amount in accordance with Chapter 2251 of the

Texas Government Code”—made TSU amenable to suit for attorney’s

fees and interest as provided in the PPA under the awardable damages

categories in Section 114.004(a)(3) and (a)(4). See id. at 435-36.

PLH’s petition for review assails the court of appeals’ analysis on

both the contract and prompt-pay claims, asserting that the court

misapplied the standard of review articulated in Texas Department of

Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226-28 (Tex. 2004). In

response, TSU presents a new issue not raised in the courts below: that

PLH lacks “standing” to claim Chapter 114’s immunity waiver because

it was not “a party to the written contract.” See TEX. CIV. PRAC. & REM.

CODE § 114.002. We agree with PLH that the court of appeals erred in

its analysis of the issues before it, but for the reasons explained below,

we do not substantively address what the State characterizes as a

“standing” issue.

Sovereign immunity protects various divisions of state

government, including state universities, from lawsuits for damages

unless the Constitution or a legislative enactment waives that

immunity. Wasson Ints., Ltd. v. City of Jacksonville, 489 S.W.3d 427,

433 (Tex. 2016); see Ben Bolt-Palito Blanco Consol. Indep. Sch. Dist. v.

Tex. Pol. Subdivisions Prop./Cas. Joint Self-Ins. Fund, 212 S.W.3d 320,

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323-24 (Tex. 2006) (“The State’s sovereign immunity extends

to . . . [state] universities.”). A statute does not waive sovereign

immunity absent clear and unambiguous language to that effect. TEX.

GOV’T CODE § 311.034; Kirby Lake Dev., Ltd. v. Clear Lake City Water

Auth., 320 S.W.3d 829, 838 (Tex. 2010).

Section 114.003 clearly and unambiguously waives immunity

from suit for breach-of-contract claims against a “state agency,”

including “a university system or a system of higher education,” that has

entered into a written contract for construction services or materials.

TEX. CIV. PRAC. & REM. CODE §§ 114.001(3), .002, .003. But at the same

time, the statute cabins the waiver to “a claim for breach of an express

provision of the contract.” Id. § 114.003. The immunity waiver is also

“subject to [Chapter 114’s] terms and conditions,” id., and under a

similarly worded waiver provision applicable to local governmental

entities, we have held that such language waives immunity from suit

only to the extent the plaintiff seeks categories of damages that are

recoverable under the statute, cf. Zachry Constr. Corp. v. Port of Hous.

Auth. of Harris Cnty., 449 S.W.3d 98, 107-10 (Tex. 2014) (construing

TEX. LOC. GOV’T CODE §§ 271.151–.160). Here, the issue is not whether

a clear and unambiguous immunity waiver exists but whether PLH’s

breach-of-contract allegations and damages claims fall within the scope

of the express statutory waiver.

Because immunity from suit implicates subject-matter

jurisdiction, a defendant may properly raise the defense in a plea to the

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jurisdiction.5 Miranda, 133 S.W.3d at 225-26. In considering the plea’s

merits, the court must determine whether the plaintiff has met its

burden to allege facts affirmatively showing the trial court’s jurisdiction,

but the court “may [also] consider evidence and must do so when

necessary to resolve the jurisdictional issues raised.” Bland Indep. Sch.

Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000). But there is an important

caveat: a plea to the jurisdiction does not authorize an inquiry so far into

the substance of the claims that plaintiffs would be required to put on

their case to establish jurisdiction. Id. at 554. The court of appeals erred

in this regard.

Pleading a claim under Chapter 114, PLH alleged that TSU

(1) entered a written contract with PLH for construction services, (2) did

not timely pay the balance owed under the contract, and (3) did not

equitably adjust the contract price and time as contractually required

for excusable delays. PLH further identified the specific contract

provisions it contends TSU breached—Sections 9.6.2.2, 9.6.3, and

9.9.4.2. TSU’s jurisdictional plea argued that PLH could not prevail on

its claims under the construction contract and change orders, which

were attached to its plea.

When analyzing TSU’s jurisdictional challenge, the court of

appeals conflated statutory-construction rules with contract

interpretation. In doing so, the court required PLH to show that “the

parties’ contract unambiguously waives TSU’s immunity” and “show

5While sovereign immunity implicates subject-matter jurisdiction, the

contours of the two are not co-extensive, and “sovereign immunity does not

equate to a lack of subject-matter jurisdiction for all purposes.” Gulf Coast Ctr.

v. Curry, 658 S.W.3d 281, 284 n.2 (Tex. 2022).

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breach of an express provision of the parties’ contract.” 634 S.W.3d at

433, 439. In short, TSU brought forward a host of contract defenses

pertaining to the merits of PLH’s claims, and the court of appeals

required PLH to prove its case.

But PLH was not required to prove that “the parties’ contract

unambiguously waives TSU’s immunity from suit for PLH’s

breach-of-contract claim,” as the court of appeals held. Id. at 439. PLH

only had to establish that Chapter 114, not the contract, unambiguously

waived immunity. See TEX. GOV’T CODE § 311.034; Kirby Lake Dev., 320

S.W.3d at 838. Because sovereign immunity is unambiguously waived

for Chapter 114 claims, PLH’s burden was to allege facts affirmatively

demonstrating the court’s jurisdiction to hear the cause, and it did. See

Miranda, 133 S.W.3d at 226-27. To the extent the jurisdictional inquiry

implicated the merits of PLH’s cause of action, TSU failed to

conclusively establish that (1) it did not breach an express provision of

the contract when it refused to equitably adjust the contract time and

price for “additional costs” incurred for PLH’s alleged excusable delays

that were within TSU’s “reasonable control” and (2) PLH did not follow

the procedures triggering TSU’s obligation to pay. See id. at 227.

The court of appeals improperly held that the contract did not

obligate TSU to equitably adjust the time and price based on excusable

delays because PLH failed to allege or prove that it met the conditions

precedent for requesting a time extension. 634 S.W.3d at 434. PLH

generally pleaded that it had satisfied all conditions precedent, and TSU

neither specifically denied that PLH satisfied the payment conditions

nor challenged the facts that were actually pleaded.

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Plaintiffs may generally plead that all conditions precedent have

been performed or have occurred, and when they have done so, they need

not prove satisfaction of any conditions the opposing party has not

specifically denied. See TEX. R. CIV. P. 54. Because TSU did not

specifically deny that PLH satisfied all conditions precedent, the court

of appeals erred in holding that PLH failed to plead a cognizable

Chapter 114 claim based on any failure to satisfy contractual conditions

precedent to requesting a time extension.

In its second issue, PLH challenges the court of appeals’

disposition on its PPA claims for attorney’s fees and interest. Having

erroneously found no waiver of immunity under Chapter 114, the court

of appeals did not consider whether PLH could recover PPA penalty

interest and attorney’s fees through Chapter 114’s waiver provision. We

hold that it can because (1) the construction contract expressly

incorporates and requires compliance with the PPA; (2) the categories of

damages sought under the PPA are included in the categories of

damages awardable under Chapter 114; and (3) Section 114.003 is a

clear and unambiguous waiver of immunity as to the awardable

categories of damages.6 See TEX. CIV. PRAC. & REM. CODE

§ 114.004(a)(3), (4); City of Houston v. Williams, 353 S.W.3d 128, 144

(Tex. 2011) (parties may incorporate a statute into their contract by

reference).

6 Because we resolve the waiver issue based on the contract’s language

and the awardable damages under Section 114.004, we do not consider PLH’s

argument that the PPA would be rendered meaningless if it were not construed

as a self-executing waiver of sovereign immunity.

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In a suit to which Chapter 114 applies, Section 114.004

authorizes an award of “reasonable and necessary attorney’s fees . . . if

the contract expressly provides that recovery of attorney’s fees is

available to all parties to the contract” and “interest at the rate specified

by the contract[.]” TEX. CIV. PRAC. & REM. CODE § 114.004(a)(3), (4).

Chapter 114 waives immunity for both categories of damages in this

case because the PPA through incorporation into the construction

contract (1) provides a formula to calculate the interest rate for untimely

payments and (2) makes attorney’s fees available to all parties by

providing that in a “judicial action to collect an invoice payment or

interest due under this chapter, the opposing party, which may be the

governmental entity or vendor, shall pay the reasonable attorney fees of

the prevailing party.” TEX. GOV’T CODE §§ 2251.025, .043.

Finally, we address TSU’s new argument that PLH cannot claim

Section 114.003’s immunity waiver because it lacks “standing” to invoke

the waiver. Chapter 114 applies “only to a claim for breach of a written

contract . . . brought by a party to the written contract[.]” See TEX. CIV.

PRAC. & REM. CODE § 114.002 (emphasis added). TSU maintains that

PLH is not “a party to” the construction contract because PLH did not

exist when the contract was executed, is not named in the contract, and

is not a contract signatory. Rather, the contract named

“Pepper-Lawson/Horizon International Group” as the Contractor and

representatives of “Pepper Lawson Construction” and “Horizon

International Group” signed the contract.

We need not consider whether the State has properly framed this

inquiry as involving a question about PLH’s standing. See Pike v. Tex.

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EMC Mgmt., LLC, 610 S.W.3d 763, 774, 778 (Tex. 2020) (“[A] plaintiff

does not lack standing in its proper, jurisdictional sense simply because

he cannot prevail on the merits of his claim; he lacks standing [when]

his claim of injury is too slight for a court to afford redress.” (internal

citations omitted)). Even if the issue implicates subject-matter

jurisdiction, see TEX. GOV’T CODE § 311.034, we decline to consider it for

the first time on appeal because TSU has not conclusively established

either that PLH had a full and fair opportunity to develop the record in

the trial court and amend their pleadings or that it would be unable to

do so on remand, see Rusk State Hosp. v. Black, 392 S.W.3d 88, 100 (Tex.

2012).

Accordingly, without hearing oral argument, we grant PLH’s

petition for review, reverse the court of appeals’ judgment, and remand

to the trial court for further proceedings. See TEX. R. APP. P. 59.1.

OPINION DELIVERED: May 19, 2023

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