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James Construction Group, LLC v. Westlake Chemical Corporation

Court of Appeals of Texas, Fourteenth District

December 17, 2019

JAMES CONSTRUCTION GROUP, LLC AND PRIMORIS SERVICES CORPORATION, Appellants/Cross-Appellees
v.
WESTLAKE CHEMICAL CORPORATION, Appellee/Cross-Appellant

          On Appeal from the 334th District Court Harris County, Texas Trial Court Cause No. 2014-72717

          Panel consists of Chief Justice Frost and Justices Jewell and Bourliot.

          MAJORITY OPINION

          KEVIN JEWELL JUSTICE.

         James Construction Group, LLC ("James"), Primoris Services Corporation ("Primoris"), and Westlake Chemical Corporation ("Chemical") appeal a judgment adjudicating their respective contract claims, which arose out of a construction agreement between Chemical and James. Following a jury trial, the trial court signed a judgment awarding Chemical $1, 157, 019.50 in breach-of-contract damages against James and Primoris, jointly and severally, and $2, 923, 600.50 in attorney's fees against Primoris only. The judgment also awards James $1, 270, 962.89 in breach-of-contract damages against Chemical on James's counterclaim. Each party raises multiple issues on appeal. For the reasons explained below, we modify the judgment and affirm the judgment as modified.

         General Background

         Chemical and James signed a construction contract providing for James to perform over $500 million in civil and mechanical construction work at a chloralkali chemical plant owned by Westlake Vinyls Company, L.P. ("Vinyls"). Although Chemical signed the contract in its own name, Vinyls authorized Chemical to sign it on Vinyls's behalf, and the jury found that Chemical was acting as Vinyls's agent in entering the contractual relationship. In a separate agreement (the "Guaranty"), James's parent company, Primoris, unconditionally guaranteed James's performance under the construction contract.

         Following various disputes during the project Chemical filed this lawsuit, and the parties asserted breach-of-contract claims against each other. We first summarize the general nature of the claims at issue and then detail additional pertinent facts in connection with their related issues.

         A. Summary of Chemical's claims

         Chemical's claims against James mainly involve allegations that James breached contract provisions requiring it to perform work safely and to compensate Chemical for remedial or termination costs resulting from unsafe work. Chemical contends that due to James's safety violations Chemical intervened and terminated some or all of James's scope of work in accordance with Chemical's contract rights. Chemical sought to recover damages allegedly incurred in exercising those rights and hiring others to complete the job.

         Chemical's claims are grounded on two key contract provisions. First, paragraph 17.2, entitled "Inspection and Intervention," provides that Chemical may "intervene in any appropriate way" if, in its reasonable opinion, James performs its contractual duties in an unsafe manner. In that instance, Chemical has the right to require James to take immediate remedial action to Chemical's satisfaction. James is solely accountable for all costs associated with such intervention and remedial action, whether those costs are incurred by Chemical, James, or any third party.

         Another section, paragraph 21, applies to "Termination and Substitute Performance." Specifically, paragraph 21.3 enumerates Chemical's right to terminate the contract for James's default, including for serious safety violations. Paragraph 21.3 sets forth the relevant contractual sequence of events as follows: if Chemical determines in its reasonable opinion that James has "serious safety violations," then Chemical may so notify James. Upon notification, James must begin to remedy the defect cited within a certain period. If Chemical is not reasonably satisfied with the pace or quality of the remediation effort, Chemical must notify James of that fact and may elect to terminate the contract or a portion of the work by providing notice to that effect. After providing notice, Chemical has the right to take unrestricted possession of the work or portion terminated and pay for its completion. Any extra cost in excess of the contract price incurred by Chemical in completing the terminated work is at James's expense.

         Chemical also asserts a claim under the contract's indemnity provision, paragraph 19.1. Chemical avers that James's employee died while performing work under the contract, that Chemical incurred expenses in defending a wrongful-death claim asserted by the employee's family, and that James breached paragraph 19.1 by failing to indemnify Chemical for its costs resulting from the claim.

         At trial, Chemical contended its damages resulting from James's breaches exceeded $8.5 million.

         Finally, Chemical sued Primoris for breach of the Guaranty, contending that Primoris was liable for all contract damages owed by James.

         B. Summary of James's claims

         James's counterclaims also rest in part on paragraph 21.3. James alleges that Chemical breached paragraph 21.3 by (1) improperly terminating James's work because Chemical's grounds for termination were unreasonable, and (2) failing to provide the notice paragraph 21.3 requires.

         James also contends that Chemical violated paragraph 26 of the contract, which is entitled "Waiver of Consequential Damages" and states among other things that neither party shall be liable to the other for any "consequential, incidental, indirect or punitive damages of any kind or character," and "no claim shall be made" by either party against the other for such damages regardless of the legal theory supporting the claim. According to James, all of Chemical's asserted contract damages are consequential in nature and barred by paragraph 26.

         C. Summary of the jury findings and judgment

         Following a multi-week trial, a jury made the following relevant findings:

1. Chemical entered into the construction contract in its own name but with authority to act on behalf and for the benefit of Vinyls. The jury also found that James was estopped from denying that Chemical entered into the construction contract with Vinyls's authority and on Vinyls's behalf.
2. James failed to comply with paragraph 17.2, the "intervention" provision. The jury awarded Chemical $1, 054, 251.81 as a result of this breach.
3. James failed to comply with paragraph 21.3, the "termination" provision; and Chemical substantially complied with that paragraph's notice provisions. The jury awarded Chemical $1, 054, 251.81 as a result of this breach.[1] Due to the jury's findings in Chemical's favor, it did not answer a series of questions on James's counterclaims under paragraph 21.3.
4. James failed to comply with paragraph 19.1, the "indemnity" provision. The jury awarded Chemical $102, 767.69 as a result of this breach.
5. Chemical incurred $2, 923, 600.50 in reasonable and necessary attorney's fees through trial and would incur up to an additional $450, 000 in attorney's fees in the event of appeal.
6. Chemical failed to comply with paragraph 26, the waiver of consequential damages provision. The damages awarded for this breach were divided into two categories. The jury awarded James $238, 778.26 for attorney's fees incurred in defending against "chlorine costs" asserted by Chemical.[2] Additionally, the jury awarded James a total of $1, 032, 184.63 for attorney's fees incurred through trial (plus $62, 500 in appellate fees) in defending against "consequential damages other than chlorine costs" asserted by Chemical.

         After several post-verdict motions, the trial court signed an amended judgment incorporating the above findings. The judgment grants recovery to Chemical against James and Primoris, jointly and severally, for contract damages of $1, 157, 019.50, plus interest and taxable court costs. The judgment grants recovery to Chemical for its attorney's fees of $2, 923, 600.50 against Primoris only, based on the Guaranty, plus conditional appellate attorney's fees.[3] The judgment grants recovery to James against Chemical for contract damages of $1, 270, 962.89, plus conditional attorney's fees on appeal. All parties timely appealed.

         Issues Presented

         James and Primoris present seven issues for review. Because many of their arguments overlap, we refer to James and Primoris collectively as "appellants" when discussing their joint contentions. In their first three issues, appellants argue that the trial court erred in rendering judgment for Chemical on Chemical's claims under the contract's termination (paragraph 21.3), intervention (paragraph 17.2), and indemnification (paragraph 19.1) provisions. In issues four and five, Primoris challenges the trial court's award of attorney's fees to Chemical. James urges in issue six that the trial court erred in refusing to award it prejudgment interest on its counterclaim for breach of paragraph 26. Finally, in issue seven James complains that the trial court erred in rendering a take-nothing judgment in Chemical's favor on James's counterclaim under paragraph 21.3.

         Chemical challenges the judgment in two cross-issues. First, Chemical contends the trial court erred in rendering judgment for James on James's counterclaim for breach of paragraph 26. Second, Chemical argues that the trial court erred in holding only Primoris liable for Chemical's attorney's fees, when James should be liable for the fees as well.

         We begin with appellants' complaints.

         Analysis

         Appellants' Issues

         A. Termination - Paragraph 21.3

         In issue one, appellants challenge the judgment against them on Chemical's claim for breach of the contract's termination provision. Appellants contend that: (1) no evidence supports the jury's liability finding; (2) Chemical failed to comply with all conditions precedent to its right to terminate the contract for default and recover damages because it did not strictly comply with paragraph 21.3's notice provisions, and alternatively the jury's substantial compliance findings regarding notice are unsupported by evidence or pleading; and (3) the jury's damage awards are either unsupported by evidence or barred by paragraph 26.

         1. Standards of review

         When reviewing the legal sufficiency of the evidence, we view the evidence in the light most favorable to the judgment and indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit favorable evidence if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. Id. at 807, 827; Vast Constr., 526 S.W.3d at 719. If there exists more than a scintilla of evidence to support the judgment, we must uphold it. Coffman v. Melton, 448 S.W.3d 68, 71 (Tex. App.- Houston [14th Dist.] 2014, pet. denied). More than a scintilla of evidence exists when the evidence supporting the finding rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Id.

         We sustain a legal sufficiency or "no evidence" challenge only when: (1) the record discloses a complete absence of evidence 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 mere scintilla; or (4) the evidence establishes conclusively the opposite of the vital fact. Regal Fin. Co. v. Tex Star Motors, Inc., 355 S.W.3d 595, 603 (Tex. 2010) (citing Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)). We apply this standard mindful that the jury is the sole judge of the credibility of the witnesses and the weight to be given to their testimony. See City of Keller, 168 S.W.3d at 819, 822.

         We construe contracts as a matter of law, absent ambiguity. Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014). Our primary concern is to ascertain and give effect to the parties' true intentions as expressed in the agreement. El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 805 (Tex. 2012). We consider the entire writing and attempt to harmonize and give effect to all the provisions of the contract by analyzing them mindful of the whole agreement. See Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005) (per curiam). "No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument." J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).

         2. Legal sufficiency challenge to the liability finding

         In the first part of their first issue, appellants challenge the legal sufficiency of the evidence to support the jury's liability finding in response to question 3D, which asked whether James breached paragraph 21.3. As relevant, paragraph 21.3 provides:

21 TERMINATION AND SUBSTITUTE PERFORMANCE
21.3 Right of Company to Terminate for Contractor Default. If [Chemical] discovers or determines, in its reasonable opinion that:
21.3.2 [James] has serious safety violations; . . .
then [Chemical] may so notify [James]. Upon receipt of any such notice, [James] shall begin to remedy the breach or defect cited within seventy-two (72) hours. If at any time, [Chemical] is not reasonably satisfied with the pace and the quality of the remediation effort, [Chemical] will so notify [James] and [Chemical] may thereafter, at its sole discretion, elect to either terminate this Contract or a portion of the Work by providing notice to that effect. After providing such notice, [Chemical] shall have the unrestricted right to take possession of the Work or the portion thereof terminated and to purchase and/or hire materials, tools, supervision, labor, and equipment for the completion of the Work or of the unremedied condition, as [Chemical] elects. Any extra costs in excess of the Contract Price incurred by [Chemical] in this regard shall be at the expense of [James]. This right is in addition to any other remedies [Chemical] may have hereunder.

         In question 3D, the jury was asked:

Did James fail to comply with Section 21.3 of the Construction Contract?
You are instructed that James failed to comply with Section 21.3 of the Construction Contract if all of the following circumstances occurred:
• Westlake Chemical discovered or determined in its reasonable opinion that James had serious safety violations, and
• Westlake Chemical was not reasonably satisfied with the pace and the quality of the remediation effort; and
• Westlake Chemical terminated the Construction Contract or a portion of the Work, and took possession of the Work or the portion thereof terminated and purchased and/or hired materials, tools, supervision, labor, and equipment for the completion of the Work; and
• James has not paid Westlake Chemical for some or all of the extra costs in excess of the Contract Price incurred by Westlake Chemical in regards to taking possession of the Work or the portion thereof terminated and purchasing and/or hiring materials, tools, supervision, labor, and equipment for the completion of the Work.

         The jury found that James failed to comply with paragraph 21.3. In response to the next question, question 3E, the jury awarded Chemical $1, 054, 251.81 as fair and reasonable compensation for James's failure to comply. The damages were divided into two categories: (1) $211, 836.81 in "safety training costs," and (2) $842, 415 in "increased foreman costs."[4]

         To recover on a breach-of-contract claim, a party must prove: (1) the existence of a valid contract, (2) the party performed, tendered performance, or was excused from doing so, (3) the other party breached the contract, and (4) damages resulting from the breach. See Vast Constr., 526 S.W.3d at 718 n.6; Aguiar v. Segal, 167 S.W.3d 443, 450 (Tex. App.-Houston [14th Dist] 2005, pet. denied).

         The essence of appellants' point is that there is no evidence that Chemical incurred any termination costs. Emphasizing the charge instruction that an affirmative answer to question 3D must be predicated on proof that the extra costs were "incurred by Westlake Chemical," appellants say the jury finding is not supported by legally sufficient evidence because all the costs awarded were incurred by Vinyls, not Chemical. In response, Chemical argues that it is legally entitled to recover damages incurred by Vinyls because Chemical is Vinyls's agent with respect to the construction contract, as the jury found.[5]

         Appellants are correct that Vinyls incurred the termination costs underlying the jury's award. Andrew Kenner, who served as vice-president of manufacturing for both Chemical and Vinyls, testified that Vinyls controlled the construction project on its property and "paid the bills." Of the damages sought, Kenner stated that the only portion paid by Chemical was the cost related to the indemnification claim based on the death of James's employee. He said all other damage elements were based on costs paid by Vinyls. Further, it is undisputed that Turner Industries, which replaced James as the mechanical contractor on the project, operated under a contract with Vinyls, not Chemical. Bryan Byrd, Chemical's damage expert, stated that the payments to all major contractors, including Turner, came from Vinyls, even though other documents referenced Chemical. Byrd did not distinguish between Vinyls and Chemical for purposes of his review and considered both entities simply as "Westlake."

         It is also true that Vinyls and Chemical are distinct corporate entities and they are correctly treated as such in the jury charge.[6] But we ultimately conclude nonetheless that question 3D's reference only to Chemical and not Vinyls does not permit us to sustain appellants' legal sufficiency challenge under the present circumstances. We reach this conclusion for several reasons.

         First, appellants do not challenge the agency findings on appeal, so the relationship between Vinyls as principal and Chemical as agent is established conclusively, and we are bound by those findings. See, e.g., IKB Indus. v. Pro-Line Corp., 938 S.W.2d 440, 445 (Tex. 1997) (appellate courts are bound by unchallenged jury findings); Carbona v. CH Med., Inc., 266 S.W.3d 675, 687 (Tex. App.-Dallas 2008, no pet.); OXY USA, Inc. v. Cook, 127 S.W.3d 16, 21 (Tex. App.-Tyler 2003, pet. denied). We measure the sufficiency of the evidence by the charge as given. See Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 254 (Tex. 2008); TecLogistics, Inc. v. Dresser-Rand Grp., Inc., 527 S.W.3d 589, 595 (Tex. App.-Houston [14th Dist.] 2017, no pet.). In doing so, we consider unchallenged and binding jury findings in one part of the charge to the extent they are relevant when we review the evidentiary sufficiency of other findings. See Venture v. UTSW DVA Healthcare, LLP, 559 S.W.3d 155, 160 (Tex. App.-Dallas 2015) (noting unchallenged findings on prior material breach were binding and defeated appellant's challenges to other findings), aff'd in part, rev'd in part on other grounds, 578 S.W.3d 469 (Tex. 2019); see also Eagle Oil & Gas Co. v. TRO-X, L.P., 416 S.W.3d 137, 148-49 (Tex. App.-Eastland 2013, pet. denied) (reviewing legal sufficiency challenge, court examined instructions from charge as a whole, not only instructions in the question at issue; charge as a whole was pertinent to issue). We thus consider the jury's agency findings and their legal consequences in our no-evidence review of question 3D, and appellants do not contend that we should do otherwise.

         As an agent, Chemical is Vinyls's fiduciary. Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002) (agency is special relationship that gives rise to a fiduciary duty); see Robles v. Consol. Graphics, Inc., 965 S.W.2d 552, 558 n.4 (Tex. App.-Houston [14th Dist.] 1997, pet. denied); Rauscher Pierce Refsnes, Inc. v. Great Sw. Sav., F.A., 923 S.W.2d 112, 115-16 (Tex. App.-Houston [14th Dist.] 1996, no writ); West v. Touchstone, 620 S.W.2d 687, 690 (Tex. App.-Dallas 1981, writ ref'd n.r.e.) ("the relationship between an agent and principal is a fiduciary one"); Restatement (Third) of Agency § 1.01 (2006). Once the principal-agent relationship is established, the agent's acts are the principal's acts for the limited purpose and scope of the agency relationship authorized by the principal. What a principal does through an agent it does itself. Shaw v. Kennedy, Ltd., 879 S.W.2d 240, 245 (Tex. App.-Amarillo 1994, no writ). Thus, agent and principal generally are considered one and the same with respect to acts within the relationship's scope. See Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995) (stating that agent cannot tortiously interfere with principal's contract because agent and principal are "one and the same").

         As the jury found, Chemical signed the construction contract on behalf and for the benefit of Vinyls. Historically in Texas, agents cannot sue on contracts entered into on their principal's behalf. See Tinsley v. Dowell, 26 S.W. 946, 948 (Tex. 1894). But the Supreme Court of Texas has long recognized four exceptions to this rule: (1) when the agent contracts in his own name; (2) when the principal is undisclosed; (3) when the agent is authorized to act as owner of the property; and (4) when the agent has an interest in the contract's subject matter. Id. The first exception applies here because Chemical undisputedly signed the construction contract in its own name. An agent may sue in his own name when the agent contracts in his own name. See Perry v. Breland, 16 S.W.3d 182, 187 (Tex. App.- Eastland 2000, pet. denied).[7] In Texas, a contracting agent's right to enforce a contract on the principal's behalf has arisen in the context of standing challenges, [8]and in response to arguments that the principal is an indispensable party.[9] In each circumstance, courts have held that an agent who is a contracting party may sue in the agent's own name on the principal's behalf. Thus, when, as here, the agent is a party to a contract for a disclosed principal, the agent may sue on the contract in the agent's name, the principal's name, or both. See Restatement (Third) of Agency § 6.01 cmt. e (2005). Chemical, the named plaintiff, pleaded that it brought suit as agent of Vinyls and on Vinyls's behalf.

         More to the point, an agent's right to enforce the contract by legal action on the principal's behalf includes the right to recover damages suffered by the principal alone. See Restatement (Second) of Agency § 364 cmt. k ("If the agent brings an action in his own name but on account of the principal, he sues as a fiduciary and hence he recovers the full measure of damages although he is personally caused no pecuniary loss by the failure of the third person to perform."); see also Brooks v. Hollaar, 297 P.3d 125, 129 (Alaska 2013) (agent may sue on contract in own name to recover principal's damages) (citing Restatement (Second) of Agency § 364 cmt. k).[10] In a non-precedential opinion, Texas Utilities Fuel Co. v. Marathon Oil Co., No. 11-98-00079-CV, 2000 WL 34234653 (Tex. App.-Eastland Mar. 9, 2000, no pet.) (not designated for publication), [11] Texas Utilities Fuel Company ("TUFCO") contracted to purchase gas from the defendant Marathon, but the gas was to benefit and be used by TUFCO's sister company, Texas Utilities Electric Company ("TU Electric"). TUFCO sued on the contract, claiming Marathon breached. The trial court granted summary judgment for Marathon on the ground that TUFCO suffered no damages because TUFCO was reimbursed by TU Electric for its costs in supplying gas to TU Electric. Id. at *9. Marathon argued that TU Electric was never mentioned in the pleadings, and that "the pleadings seek only damages claimed to have been suffered directly by TUFCO, not TU Electric." Id. The court of appeals reversed the summary judgment. The court noted that although TUFCO sued in its own name, the record showed it was acting as the agent of TU Electric. Id. "At the very least," the court said, "this summary judgment evidence creates a fact issue as to whether TUFCO purchased gas under the contract as TU Electric's agent." Id. The court held that if TUFCO purchased the gas as an agent for TU Electric, TUFCO could still bring the lawsuit because "an agent who is a party promisee on a contract made by him on behalf of his principal may bring suit on that contract in his own name." Id. (citing Lubbock Feed Lots, Inc. v. Iowa Beef Processors, Inc., 630 F.2d 250, 258 (5th Cir. 1980)). We conclude that Chemical may sue on Vinyls's behalf to recover contract damages even though Vinyls alone incurred them.

         Appellants neither present contrary authority nor dispute the legal effect of the jury's agency findings. They characterize the agency findings as irrelevant, but we disagree. Chemical's status as Vinyls's agent, coupled with Chemical's signing of the construction contract in its own name, means that Chemical is a party to the contract; that Vinyls is a party to the contract;[12] that Chemical is entitled to sue on the contract in Vinyls's name, in Chemical's name, or both; and that Chemical may recover in its own name Vinyls's damages.[13] We have not located and the parties have not cited a case involving this issue that proceeded to jury verdict, so we have no guide against which to compare the present charge instructions when an agent sues to recover damages incurred only by the principal. But no party claims the instruction accompanying question 3D is defective in wording, and it contains language consistent with the effect of the jury's agency findings in questions 1A and 1B. Based on those findings, Vinyls and Chemical are considered one and the same at least for the purpose of enforcing the contract rights at issue. See Holloway, 898 S.W.2d at 795.[14] If Chemical can sue in its own name to recover Vinyls's damages, then it is entitled to a jury question in its own name to secure a judgment in its own name. Otherwise, there would be little point to recognizing a contracting agent's right to sue in its own name to recover the principal's contract damages. Chemical recovers as Vinyls's fiduciary[15] or trustee, [16] and thus the recovery is rightfully Vinyls's-a result not materially different than if question 3D had referred to costs "incurred by Westlake Vinyls" instead of "incurred by Westlake Chemical."

         For these reasons, we overrule appellants' legal-sufficiency challenge to the jury's finding in response to question 3D.

         3. Challenge to findings that Chemical substantially complied with notice conditions

         In the next part of their first issue, appellants contend that Chemical may not recover under paragraph 21.3 because it failed to strictly comply with that paragraph's notice provisions, which they claim are conditions precedent to recovery for breach. Alternatively, appellants argue that to the extent Chemical may satisfy paragraph 21.3's notice requirements by substantial compliance, the evidence is legally insufficient to support the jury's findings that Chemical substantially complied.[17]

         a. Strict compliance versus substantial compliance

         In questions 3A, 3B, and 3C, the jury found that Chemical substantially complied with each of the three notice provisions referenced in paragraph 21.3.[18]The jury instruction regarding substantial compliance was the same in each question, though tailored to the substance of each relevant notice:

Answer "Yes" or "No" as to each of the following grounds on which you may find that Westlake Chemical provided notice regarding this notice provision of Section 21.3 of the Construction Contract:
Westlake Chemical notified James in "substantial compliance" with this notice provision?
You are instructed that Westlake Chemical notified James in "substantial compliance" with this notice provision if all of the following circumstances occurred:
• James received actual notice from Westlake Chemical that
[Question 3A] Westlake Chemical had discovered or determined, in its reasonable opinion, that James had serious safety violations
[Question 3B] Westlake Chemical was not reasonably satisfied with the pace and the quality of the remediation effort
[Question 3C] Westlake Chemical had elected in its sole discretion to terminate the Construction Contract or a portion of the Work, and
• the form of actual notice to James did not severely impair the purpose of this notice provision and caused no harm to James.
Answer "Yes" or "No."
Answer: Yes

         Appellants contend that Texas law mandates strict compliance with notice provisions in construction contracts. This contract requires notices to be written.[19] Because no notices were communicated in writing, appellants argue that Chemical did not strictly comply with the notice conditions, and consequently appellants cannot be liable for breach. Appellants do not contend that Chemical failed to strictly comply in any other respect. According to appellants, the jury's substantial compliance findings are therefore immaterial. Appellants cite this court's decisions in Arbor Windsor Court, Ltd. v. Weekley Homes, LP, 463 S.W.3d 131, 136-41 (Tex. App.-Houston [14th Dist.] 2015, pet. denied); Cajun Constructors, Inc. v. Velasco Drainage District, 380 S.W.3d 819, 825-26 (Tex. App.-Houston [14th Dist.] 2012, pet. denied); and Emerald Forest Utility District v. Simonsen Construction Co., 679 S.W.2d 51, 54 (Tex. App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.). Appellants also cite Ogden v. Gibraltar Savings Association, 640 S.W.2d 232, 233-34 (Tex. 1982), and Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991), in support of the proposition that Texas courts consistently require strict compliance with written-notice requirements attendant to contractual forfeiture and termination provisions.

         In turn, Chemical insists that Texas law recognizes the doctrine of substantial compliance with respect to contractual notice provisions. Chemical cites three Dallas Court of Appeals opinions-Burlington Northern Railroad Co. v. General Projection Systems, Inc., No. 05-97-00425-CV, 2000 WL 1100874, at *5 (Tex. App.-Dallas Aug. 8, 2000, pet. denied) (not designated for publication); Texas Utilities Electric Co. v. Aetna Casualty & Surety Co., 786 S.W.2d 792, 793-94 (Tex. App.-Dallas 1990, writ denied); Barbier v. Barry, 345 S.W.2d 557, 562 (Tex. App.-Dallas 1961, no writ)-and the Fifth Circuit's decision in South Texas Electric Co-op. v. Dresser-Rand Co., 575 F.3d 504, 507 (5th Cir. 2009).

         All parties agree that paragraph 21.3's notice provisions are conditions, not covenants.[20] Paragraph 21.3 imposes two potential duties on James but only if certain events occur. The first duty is to begin remedying safety violations. If Chemical desired to trigger James's remediation duty, the triggering conditions are that Chemical must have first discovered or determined in its reasonable opinion that James has serious safety violations, and it must have so notified James. James is then required to begin remediation of the defects cited within seventy-two hours after receiving Chemical's notice. The second potential duty is to pay for post-termination costs above the contract price. That duty is triggered if: (1) Chemical is not reasonably satisfied with the pace and quality of the remediation; (2) Chemical notifies James of its dissatisfaction; and (3) Chemical notifies James that it elects to terminate the contract or a portion of the work. The question we must decide is whether James's duties to begin remediation and then pay for post-termination costs above the contract price are invoked if Chemical did not strictly comply with the conditions by providing notices in writing, as paragraph 9.1 requires, but instead substantially complied because James received non-written notice, the form of which did not severely impair the provision's purpose and caused James no harm.

         The Supreme Court of Texas has considered whether a failure to comply with certain notice conditions precedent excuses the other party's performance or precludes liability for failure to perform. Most recently, the issue has arisen in the insurance context. E.g., Prodigy Commc'ns Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. 2009); PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008). In PAJ, the court considered the effect on commercial general liability coverage when an insured fails to timely notify the insurer of a claim but the insurer suffers no harm. PAJ, 243 S.W.3d at 632. The court held that a failure to comply with a timely-notice provision does not excuse the insurer's performance if the insurer is not prejudiced by the delay. Id. at 636-37. The ruling rested in large part on fundamental contract law that material breaches excuse the other party's performance, but immaterial breaches do not. Id. at 633. In that case, the parties disputed whether the notice provisions were conditions precedent or covenants, but the court applied basic contract law of immateriality regardless of the character of the provision. Id. at 636-37. Additionally, the court noted that the timely-notice provisions were not essential to the overall bargain, and that excusing performance altogether for de minimus deviations from notice requirements would be "draconian." Id. at 636.

         In Prodigy, the court considered whether PAJ's holding would apply to a claims-made (as distinguished from an occurrence-based) insurance policy containing an "as soon as practicable" timely-notice provision. Prodigy, 288 S.W.3d at 375. There the policy required that the insured give notice of a claim "as soon as practicable . . ., but in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period." Id. at 378. The contract clearly described the notice provision and reporting period provision as conditions precedent. Id. The parties disputed whether notice of the claim was given "as soon as practicable," but the insurer admitted it suffered no prejudice. The court held that PAJ's "notice-prejudice" rule also applied to the "as soon as practicable" notice provision in the claims-made policy at issue in Prodigy. Id. at 382. The principal reason for the court's holding was because the "as soon as practicable" notice clause was not essential to the bargain in that case. Id. Thus, the insured's failure to comply with the timely-notice condition did not excuse the insurer's performance. Id.

         In another insurance dispute pre-dating PAJ and Prodigy, the supreme court addressed an insured's failure to comply with proof-of-loss conditions precedent in a policy providing disability benefits. See Am. Teachers Life Ins. Co. v. Brugette, 728 S.W.2d 763 (Tex. 1987). There the insured raised theories that he substantially complied with the conditions, or the insurer waived them. Id. at 764. The court held that it was the insured's burden to secure jury findings on substantial compliance, absent conclusive evidence in his favor, and because he failed to do so he was not entitled to prevail. Id. Brugette recognizes that an insured may satisfy a proof-of-loss condition precedent by establishing he substantially complied with the condition. Id.

         From these informative examples, we learn, in the insurance context at least, that a party will not lose the benefit of its bargain for immaterial or non-prejudicial non-compliance with timely-notice provisions, see PAJ, 243 S.W.3d at 636-37, including when those notice provisions are conditions precedent. See Prodigy, 288 S.W.3d at 382. Under Prodigy's reasoning, when a triggering condition is not essential to the overall bargain, a party's failure to fully satisfy that condition does not necessarily excuse the other's party's obligation that would be triggered by the condition's occurrence. See id. This reasoning is consistent with other statements of a similar principle grounded in the Restatement: the non-performance of a condition precedent is excused if the condition's requirement "(a) will involve extreme forfeiture or penalty, and (b) its existence or occurrence forms no essential part of the exchange for the promisor's performance." Lesikar Constr. Co. v. Acoustex, Inc., 509 S.W.2d 877, 881 (Tex. App.-Fort Worth 1974, writ ref'd n.r.e.) (citing Restatement (First) of Contracts § 302). Brugette clearly acknowledges an insured's right to recover on an insurance policy if the insured substantially complies with a proof-of-loss condition precedent.

         The supreme court also has considered the issue in the construction context, though not recently. Over a century ago, the high court upheld a contractor's recovery for breach of contract despite the contractor's failure to strictly comply with a contract condition requiring it to produce an architect's certification that work performed complied with specifications. See Linch v. Paris Lumber & Grain Elev. Co., 80 Tex. 23, 15 S.W. 208 (1891). In Linch, the contractor allegedly completed the first stage of construction but the owner refused full payment, contending that the work and materials did not strictly comply with the contract. The contractor sued for breach though it had not complied with the condition that it first secure an architect's certification.[21] The jury found for the contractor and the trial court rendered judgment in its favor. Id. The owner complained on appeal about jury-charge instructions that permitted recovery upon substantial compliance with the contract's terms. In particular, the owner argued that the contractor was not entitled to recover because the certificate condition had not been satisfied. Id. at 213. The court rejected the argument and concluded that less than strict compliance with the certificate condition did not defeat the contractor's right of recovery. Id. Not long after Linch, the supreme court stated in Perkins v. Locke, 88 Tex. 66, 29 S.W. 1048 (1895), that substantial compliance with a contract's certificate provision would suffice, though in Perkins the certificate did not substantially comply with the contract. Id. at 1050.

         Appellants cite the supreme court's decisions in Ogden and Shumway as supporting their contention that parties must strictly comply with written notice requirements attendant to contractual termination provisions. But Ogden and Shumway discussed and applied equity and Uniform Commercial Code (UCC) rules uniquely applicable to acceleration and notice-of-acceleration provisions in promissory notes. Shumway, 801 S.W.2d at 893-94; Ogden, 640 S.W.2d at 234-35. In Ogden, the court held that the note holder's letter "gave no clear and unequivocal notice" that it would exercise its option to accelerate the note. Ogden, 640 S.W.2d at 234. Thus, the notice of acceleration was insufficient and the maker could recover for wrongful foreclosure. Later, in Shumway, the court held that promissory note makers can waive presentment, notice of intent to accelerate, and notice of acceleration, which, to be effective, also must be expressed in clear and unequivocal language. Shumway, 801 S.W.2d at 893. But the court later clarified Ogden in Jasper Federal Savings & Loan Association v. Reddell, 730 S.W.2d 672 (Tex. 1987), in which the court held, in a deed-of-trust dispute, that actual knowledge of the right to reinstate after acceleration was sufficient despite a notice provision in the deed. Id. at 675. In distinguishing Ogden, the court in Jasper observed that the bank never contended that Ogden had actual knowledge of its intent to accelerate. Id. Jasper also relied on the court's decision in University Savings Association v. Springwoods Shopping Center, 644 S.W.2d 705 (Tex. 1982), upholding a foreclosure sale in which there had been no compliance with provisions relating to the recording of the appointment of the substitute trustee before sale. See Jasper, 730 S.W.2d at 675. The court held the borrower's actions for wrongful foreclosure were barred by his actual notice of the substitution and identity of the substitute trustee, and the time and place of the sale, when no prejudice resulted from the failure to comply with the recordation provision in the deed of trust. Id. (citing Univ. Savings, 644 S.W.2d at 705).

         In addition to the above authority, several Texas intermediate appellate courts have held, stated, or assumed that the substantial compliance doctrine applies to contract conditions precedent, including those containing notice provisions. In a notably comparable context, the Eastland Court of Appeals applied the substantial compliance doctrine to cancellation notice provisions in a construction contract and held that the terminating party substantially complied with the notice provision even though the notice was untimely. S. Mortg. Co. v. McGregor, 279 S.W. 860, 861 (Tex. App.-Eastland 1926), aff'd, 286 S.W. 1086 (Tex. Comm'n App. 1926, judgm't adopted). Additionally and outside the construction context, the Dallas Court of Appeals has applied the substantial compliance doctrine to cancellation notice provisions in a contract to install audiovisual equipment, [22] a licensing agreement, [23] a contract to supply electrical power to a commercial business, [24] and an employment contract.[25] Our court and the San Antonio Court of Appeals have explicitly or implicitly applied the substantial compliance doctrine to notice provisions in lease agreements and in other contexts.[26]

         Appellants cite Texas intermediate appellate court decisions that are less clear, relying heavily on this court's opinion in Emerald Forest. 679 S.W.2d at 51. There, Emerald Forest Utility District sued an engineer and construction company after an underground sewer system built by the construction company failed. Id. The jury found that the line failed because the engineer's design was insufficient to deal with underground wet sand conditions discovered during construction. Id. at 52. The jury also found that the utility district failed to provide sufficient plans to the construction company. Id. We reversed and held that the construction company was liable for breach of its promise to deliver a working sewer system because the company was in a position to discover the insufficient soil conditions before it executed the contract, and it agreed to investigate and apply its independent judgment concerning worksite conditions. Id. at 53. The company argued that it could not be liable on that ground because it notified the engineer and utility district of the wet sand conditions and requested a substitute design. Id. at 54. This court said that the construction company could not avoid contract liability because the record did not show that the company gave written notice of the subsurface conditions varying from the original specifications, as the contract required.[27] Id. As we stated, "[w]hen a contract provides for a particular form of notice, compliance with such provisions is a condition precedent to invoking the contract rights which are conditioned on the notice." Id. (citing Handelman v. Handelman, 608 S.W.2d 298 (Tex. App.-Houston [14th Dist.] 1980, writ ref'd n.r.e.)). We did not, however, discuss or mention the doctrine of substantial compliance as applied to the contract conditions, and it does not appear the construction company raised the issue. We will not construe Emerald Forest as holding that substantial compliance never applies to notice conditions precedent when it is not clear that the issue was raised, considered, and expressly rejected by our court in that case.

         We also disagree with appellants that our decisions in Arbor Windsor and Cajun Constructors compel us to deny Chemical's recovery absent strict compliance with the contract's notice provisions. In Arbor Windsor, we stated that Arbor Windsor had the burden to prove that it was excused from sending a notice of default to Weekley as a condition precedent to its right to invoke contractual remedies for default, and also had the burden to obtain a jury finding of excuse. Arbor Windsor, 463 S.W.3d at 142. Arbor Windsor neither obtained a jury finding that it was excused nor argued that it conclusively established it was excused from sending notice of default. Id. Here, in contrast, Chemical secured findings that it substantially complied with the notice provision. Indeed, by observing that Arbor Windsor could have proven it was excused from complying with the notice provision there at issue, our court necessarily recognized that a failure to strictly comply with the notice condition precedent would not always foreclose recovery, just that Arbor Windsor had not made the necessary showing in that case. In Cajun Constructors, we affirmed a summary judgment against a party seeking recovery for breach of contract because the plaintiff did not present evidence that it complied with the contract's notice requirements, which we held to be conditions precedent to bringing suit. Cajun Constructors, 380 S.W.3d at 825-26. As in Emerald Forest, however, the parties in Cajun Constructors did not raise the issue of substantial compliance and the court did not discuss it.

         We are not bound by the Fifth Circuit's interpretation of state law, but we note that court has characterized as "well-established Texas law" the "applicability of the doctrine of substantial compliance to contractual notice provisions." S. Tex. Elec. Co-op., 575 F.3d at 507 (citing Barbier, 345 S.W.2d at 562, and Tex. Utilities Elec. Co., 786 S.W.2d at 794). No Texas state case is more factually on point than South Texas. In that case, which involved manufacture of a turbine, Dresser, like James, was required to correct defects after receiving written notice. Id. at 506. Despite many problems, and Dresser's awareness of them, Dresser did little to remedy the issues. South Texas employed others to perform repairs without providing Dresser written notice. Id. South Texas sued for its repair costs; the jury found Dresser was liable for breach, and that South Texas substantially complied with the notice provision. Id. On appeal, Dresser, again like James, argued that the court erred in submitting the substantial compliance issue to the jury because Texas law required strict compliance with the notice provision. Id. at 507. The Fifth Circuit disagreed and reasoned that the notice provision's purpose was served by Dresser's actual knowledge of the problems and was not impaired by South Texas's failure to strictly comply. See id. at 508-09.

         In light of the above authority, we reject appellants' argument that Texas law categorically requires strict compliance with written notice conditions precedent in construction contracts. We hold that Chemical's failure to strictly comply with the written notice provisions required by paragraphs 9.1 and 21.3 does not compel reversal, and that Chemical's substantial compliance suffices to support recovery if the evidence shows that James received actual notice, and that the form of the notice did not severely impair the notice provision's purpose and caused James no harm. We turn to whether the evidence in fact supports these findings.[28]

         b. Legal sufficiency challenge to the jury's substantial compliance findings

         Appellants contend that no legally sufficient evidence supports the jury's substantial compliance findings in questions 3A, 3B, and 3C, and that those findings lack support because Chemical's notices of default and termination were not clear and unequivocal. As to questions 3A and 3B, appellants argue more particularly that Chemical's communications were insufficiently specific to constitute actual notice of any of the mentioned events. Appellants say there was no specific mention of any safety violations or that Chemical was unsatisfied with the pace or quality of James's remedial efforts. Also, James could not determine from the communications when the seventy-two-hour period to institute remedial measures began after the first notice. Regarding question 3C, appellants argue that an April 2013 meeting about James's deficient safety performance was vague, and that Chemical never actually informed James that it was being "terminated" for "default."

         This issue requires us to examine whether the evidence supports the jury's findings. As stated, we view the evidence in the light most favorable to the judgment and indulge every reasonable inference that would support it. City of Keller, 168 S.W.3d at 822. We credit favorable evidence if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. Id. at 807, 827. If more than a scintilla of evidence supports the judgment, we must uphold it. Coffman, 448 S.W.3d at 71. More than a scintilla of evidence exists when the evidence supporting the finding rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Id.

         First Notice

         In question 3A, the jury found that Chemical provided notice to James that Chemical had discovered or determined, in its reasonable opinion, that James had serious safety violations, in that: (1) James received actual notice of that fact from Chemical; and (2) the form of actual notice did not severely impair the notice provision's purpose and caused James no harm.

         James was responsible for performing its work safely. However, during the project, James incurred multiple OSHA-recordable safety incidents, as well as numerous documented "near miss" incidents. For example, on September 25, 2012, one of James's workers broke his leg while on the jobsite. A root cause of this incident involved lack of communication between an operator and a flagger. Several other near-miss incidents occurred that also could be attributed to James's failure to have appropriate flagging or spotting personnel.

         Three months after the worker injured his leg, another significant safety incident resulted in a fatality. In December 2012, one of James's employees, Gregory Price, sustained a head injury from a fall on the job and later died. OSHA cited James for a "serious" safety violation for this fatality, which resulted from a lack of appropriate flagging personnel.

         Immediately following the Price incident, Chemical's project manager, Abram Kuo, expressed Chemical's displeasure over James's safety performance to James's site manager, Rusty DeBarge. Kuo copied DeBarge on an email in which Kuo explained that the parties needed "to develop [a] preventive safety mind set with some extraordinary measure[s] on job safety." Further, Kuo stated in the email that he would be on site January 2, 2013, to review the "safety performance and counter measures for safety prevention," and that James's management had been asked to attend that meeting. In a prior email in the chain on which DeBarge was copied, Kenner stated: "James Construction needs to show us how they will really prevent this and other types of incidents. [The Price fatality] was completely preventable." In a separate email between Kuo and Kenner, Kuo confirmed that he had spoken with DeBarge and "expressed our displeasure over the incidents and safety performance of James." According to Kuo, at the January 2 meeting, site teams from both James and Chemical sat down and discussed the safety incidents that had occurred, including the Price fatality, and Chemical stressed "how important [it was] to have [James] improve [its] safety performance on the job." After that meeting, Chemical's technology manager, Scott Campbell, met with DeBarge and asked James to document its safety procedures before and after the fatality, and told James that "we wanted to see their program improve greatly." Chemical's project team met and discussed how they could help James improve its safety performance. The team discussed whether the project was "too big for James" and talked about carving out portions of the work to help James improve its safety performance.

         In response to James's actual knowledge that Chemical determined it had serious safety violations, James in fact began remedial measures, thus demonstrating that this knowledge satisfied the notice provision's purpose. On January 9, DeBarge sent Chemical an email summarizing some of the post-accident measures implemented.[29] DeBarge also stated subsequently in another email that because of the Price fatality, James "would never consider ourselves successful in a general sense of safety on this project."

         We conclude the above evidence is more than a scintilla that: (1) James received actual notice from Chemical that Chemical had discovered or determined, in its reasonable opinion, that James had serious safety violations; and (2) the form of actual notice (email and oral) did not severely impair the notice provision's purpose and ...


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