Appeal from the 405th District Court Galveston County, Texas
Trial Court Cause No. 10-CV-4248
consists of Justices Boyce, Busby, and Jewell.
we decide whether a trial court possessed jurisdiction to
confirm an arbitration award on a breach of contract claim
against a school district notwithstanding the district's
assertion of governmental immunity from suit. In the
aftermath of Hurricane Ike, the school district contracted
with a "national disaster recovery services"
company to provide "restoration services" regarding
the district's facilities. After the work was complete
but before the company received full payment, the district
accused the contractor of (1) fabricating invoices to
substantiate its charges, (2) failing to perform services for
which it had submitted invoices, and (3) price gouging by
charging an inflated rate for work performed under the
contract. The district sued the contractor for fraud and for
money had and received. Citing an arbitration provision in
the contract, the company sought arbitration, which we
compelled in a prior appeal. Cotton Commercial USA, Inc.
v. Clear Creek Indep. Sch. Dist., 387 S.W.3d 99, 108
(Tex. App.-Houston [14th Dist.] 2012, no pet.)
("Cotton I"). During the arbitration, the
contractor asserted its own claim for breach of contract
because the district allegedly failed to pay the full balance
owed. The arbitrator (1) found the contractor knowingly made
false representations and billed for work not performed, but
awarded no damages to the district; and (2) found the
district materially breached the contract and awarded the
contractor damages for the amount due and owing.
the contractor moved to confirm the award, the district
asserted governmental immunity in a plea to the jurisdiction.
The trial court denied the plea and confirmed the arbitration
district appeals, asserting that the trial court erred in
exercising its subject-matter jurisdiction to confirm the
award. The trial court lacked jurisdiction, the district
argues, because the parties' agreement did not fall
within Texas Local Government Code section 271.152's
waiver of immunity for breach of contract claims against
local governmental entities.
conclude that the agreement qualifies as a "contract
subject to [chapter 271]" and that the district's
immunity from suit is waived to adjudicate a claim for the
agreement's breach. Accordingly, we hold that the trial
court had subject-matter jurisdiction to confirm the
arbitration award, and we affirm the trial court's
September 2008, Hurricane Ike damaged a number of campuses
within the Clear Creek Independent School District
("CCISD"). To reopen its campuses, CCISD entered into
a Restoration Service Agreement ("Restoration
Agreement") with Cotton USA ("Cotton"), an
independent general contractor. The Restoration Agreement
called for Cotton to provide "restoration services,
" which, according to CCISD's amended petition,
obligated Cotton "to remove debris from its premises and
perform remediation and restoration services following clean
up." The Restoration Agreement was presented to CCISD as
a time and materials contract with an attached rate sheet.
While the agreement stated that Cotton would provide a
"scope of services" in a written estimate, it is
undisputed that Cotton never provided CCISD with a scope of
services or a written estimate.
Restoration Agreement specifically authorized the use of
subcontractors Cotton deemed necessary for completion of the
work and provided for payment in accordance with a rate
schedule. The Restoration Agreement also authorized the use
of "a particular trade or service" on a "cost
plus 10% overhead and 10% profit" basis if there was a
"specific need" for a service that Cotton did not
subcontracted with Cottonwood Debris Company, LLC
("Cottonwood"), a company owned by Cotton's
principals, to provide debris-removal services. Cotton's
Chief Executive Officer arranged the subcontract relationship
and set the prices that CCISD would be charged. Different
from CCISD's time and materials agreement with Cotton,
Cottonwood's charges were to be made on a per crew basis.
CCISD was not informed orally or in writing of the rates that
Cottonwood would charge, or the fact that debris removal
would not be performed on a time and materials basis.
debris removal occurred from approximately September 18,
2008, through September 29, 2008. Remediation occurred
through the end of October 2008. Cottonwood never actually
had an employee on the CCISD job, nor did Cottonwood actually
perform any work on the CCISD job. Instead, Cotton's CEO
arranged for a number of subcontractors to remove debris from
CCISD's facilities. Cottonwood then added its profit to
the subcontractors' charges and invoiced Cotton. Cotton,
in turn, added a twenty percent markup to Cottonwood's
charges and invoiced CCISD.
disagreement over payment for debris-removal services is the
source of the present dispute. In reviewing Cotton's
billing, including $1.4 million in charges related to
Cottonwood's debris-removal work, CCISD discovered that
Cottonwood had billed for certain services that the District
knew with certainty Cottonwood had not performed. The total
billed for those discrete services was $36, 000. To
substantiate Cottonwood's charges, CCISD requested
documentation supporting the work Cottonwood claimed it
performed. Further, at CCISD's request, CCISD and
Cottonwood dealt directly with each other in an attempt to
resolve the issues surrounding Cottonwood's charges.
had not maintained detailed backup documentation of the work
it performed, and the Restoration Agreement did not require
documentation of subcontractor charges. After the work was
completed, CCISD asserted that payment of the invoices
required backup documentation. Cottonwood did not disclose to
CCISD that it did not have all backup information, but
Cottonwood's Vice President directed Cotton's
Executive Director to provide CCISD with backup documents.
Although CCISD knew that some of the documentation would have
to be created, neither Cotton nor Cottonwood informed CCISD
that all documents were estimates and some were false. Cotton
advised Cottonwood that it did not have the type of
documentation requested by CCISD. Because Cottonwood did not
have the documentation, Cotton's Executive Director and
one of his subcontractors created crew sheets to provide to
CCISD. Cottonwood provided the crew sheets to CCISD in
January 2009. Cottonwood did not disclose that the crew
sheets were falsified.
subsequently paid Cottonwood approximately $700, 000-half of
Cottonwood's $1.4 million in debris-removal charges.
from debris removal, CCISD also discovered that Cottonwood
had fabricated documents relating to fuel charges. In
February 2009, CCISD requested that Cottonwood provide
substantiation for the fuel Cottonwood claimed to have used
on the job. Cottonwood estimated and created purported
third-party fuel tickets and submitted them to CCISD as
genuine invoices from the fuel provider. CCISD, however,
confirmed with the fuel provider that the invoices were not
on Cottonwood's fabricated documentation, CCISD decided
to make no further payments to Cottonwood. Neither the false
crew sheets nor the fabricated fuel tickets increased the
amount Cotton originally billed to CCISD.
which was at the time attempting to seek reimbursement of its
debris-removal costs from the Federal Emergency Management
Agency ("FEMA"), notified FEMA of Cottonwood's
allegedly fraudulent actions. FEMA initially denied
CCISD's request for reimbursement. CCISD appealed
FEMA's determination and was successful in obtaining a
partial reimbursement of $296, 315.
left CCISD with a gap of $258, 816.99 in reimbursement that
would potentially have to be borne by the district and,
ultimately, its taxpayers and students. That gap in payment
was in large part due to Cotton's falsification of
invoices. CCISD subsequently obtained a grant from the Texas
Education Agency that covered CCISD's out-of-pocket costs
related to Hurricane Ike not otherwise reimbursed by FEMA.
The grant was only available because FEMA had refused full
filed this suit against Cotton Commercial USA, Inc.
("Cotton Commercial"), the surviving company after
Cotton and Cottonwood merged, asserting claims for fraud and
money had and received. CCISD sought to recover money damages
for lost FEMA reimbursements and for amounts paid to
Cottonwood to which, CCISD alleged, Cottonwood was not
entitled. Cotton Commercial moved to compel
arbitration and stated that it would assert a counterclaim
against CCISD for breach of contract in the arbitration
proceeding. The trial court granted Cotton Commercial's
motion to compel as to Cotton Commercial's putative
counterclaim against CCISD, but denied the motion as to
CCISD's claims against Cotton Commercial. On
interlocutory appeal, this court reversed the partial denial
of arbitration, and the parties proceeded to arbitration as
to their respective claims against each other. Cotton
I, 387 S.W.3d at 108.
arbitration proceeding, Cotton Commercial asserted a breach
of contract claim against CCISD for approximately $700, 000,
the amount it alleged was due and owing for Cottonwood's
debris-removal work. Based on the evidence presented by the
parties, the arbitrator found:
1. Cotton and CCISD entered into a valid and binding contract
that allowed Cotton to hire Subcontractors and bill on a
"cost plus" basis.
2. The contract did not limit the number of subcontractors
nor require any time and materials information from them.
3. CCISD failed to pay the $705, 122.60 due pursuant to the
4. CCISD has a lawful credit in the amount of $36, 000 for
overcharges on work not done.
5. Cotton breached the contract by invoicing for work not
performed, but its breach was not material.
6. CCISD['s] failure to pay is a material breach of
7. CCISD is not liable under the Prompt Pay Act, Tex.
Gov't Code [§] 2251.021 because a bona fide, good
faith dispute existed as to the charges.
8. Cotton by and through its agent for negotiations on
payment of the invoices, Cottonwood, knowingly made false
representations, which were initially relied upon by CCISD to
9. CCISD was forced not to submit a large portion of
Cotton/Cottonwood's charges to FEMA because they were
10. Although CCISD was ultimately compensated for [its]
losses during Ike, [its] recovery was made more arduous and
difficult by the fraudulent statements of Cotton. There is no
evidence of the value of the difficulty or additional expense
to recover reimbursement that were incurred.
11. The Texas Education Agency grant that ultimately covered
the gap in FEMA payments is not a "collateral
source" as asserted by CCISD. FEMA and the Texas
Education Agency were both sources available to CCISD for
reimbursement of storm costs.
12. CCISD is immune from the award of attorney's fees
because pursuant to the provision of chapter 271 of the Texas
Local Government Code applicable to the contract in issue,
the contract must specifically allow the recovery of fees and
specifically reference Section 271.159. The contract in issue
did not. CCISD has not waived [its] immunity for
on her findings, the arbitrator ordered that Cotton
Commercial recover from CCISD the total sum of $669, 122.60,
plus pre- and post-judgment interest. The arbitrator declined
to award damages to CCISD on its affirmative claims.
Commercial moved to confirm the award in the trial court.
CCISD moved to vacate the award and filed a plea to the
jurisdiction. As grounds for its motion to vacate and plea to
the jurisdiction, CCISD asserted that it remained immune from
suit because the legislature's waiver of immunity for
breach of contract claims against a local governmental entity
did not apply under the present facts. See Tex. Loc.
Gov't Code § 271.152. As CCISD argued, section
271.152's waiver of immunity provision does not apply to
Cotton Commercial's claim for debris-removal damages
because the parties never executed a written contract for
debris-removal services. More particularly, CCISD argued that
the Restoration Agreement lacked an essential term because it
contained no scope of work. Hence, the Restoration Agreement
upon which Cotton Commercial's claim is based is not a
"contract subject to this subchapter" under section
271.151(2). The trial court denied CCISD's motion
and plea, confirmed the award, and rendered a final judgment
in Cotton Commercial's favor.