The Port of Houston Authority of Harris County, Texas v. Zachry Construction Corp. 377 S.W.3d 841 (Tex. App. 2012), involved a no damages for delay cause that was particularly strict. As a result of its contents, the Texas Court of Appeals reversed in its entirety a judgment in the amount of $23 million dollars, and awarded $10.5 million dollars to the other side.
In 2003 the Port of Houston Authority of Harris, Texas (Port) issued a bid for the construction of a wharf at the Bayport Ship Channel. Zachry Construction Corporation
(Zachry) proposed a construction plan designed for construction “in the dry”
through use of a “U shaped, frozen earthen wall to seal out water from
Galveston Bay from the construction site.” Zachry planned to construct a “freeze wall” by sinking 100 foot pipes into the earthern wall and circulating chilled brine
through the pipes. The “dry” construction method had environmental benefits due to fewer “NOx” emission credits being consumed during construction, and it was this feature that ultimately won Zachry the bid.
Construction was subject to a strict timeline, and was required to be complete by June 1, 2006. Zachry’s construction contract with the Port included a no damages for
delay clause that not only stated that the contractor’s sole remedy would be an
extension of time, but also stated that this was the case even if such delay or
hindrance resulted from the negligence, breach of contract, or “other fault” of
the Port authority. The contract also contained a provision holding that any party that does not prevail with respect to a claim, is liable for the Port’s attorneys’ fees.
Ultimately, Zachry’s plan to construct the wharf had to be altered. The Port claimed this was because Zachry’s frozen wall plan was not working within the schedule
requirements, and Zachry claimed this was because the Port had interfered with
Zachry’s means and methods and prevented it from proceeding as planned. Zachry completed construction “in the wet,” and filed suit against the Port while the project was still ongoing. In May 2006, the Port began withholding liquidated damages from Zachry, and held $2.36 million in liquidated damages before voluntarily agreeing to stop the withholdings.
Zachry and the Port went to trial, and after a three month jury trial, a verdict was returned in Zachry’s favor in the amount of$18,602.697.00 for the Port’s breach of contract. The jury also found that the Port had reasonably incurred $10,500,000 for trial. The trial court awarded Zachry an additional 2.36 million for the withheld liquidated damages, less an offset for defective work, plus pre and post judgment interest and costs. Thetotal award was $23,443,719, in favor of Zachry.
The Port appealed the decision, and Zachry cross appealedthe defective workmanship finding.
In a stunning reversal of fortune, the Texas Court of Appeals reversed the award in its entirety, not only reversing the award to Zachry, but also awarding the Port $10,500,000 in attorneys’ fees for trial, plus additional fees and costs for the appeals.
The Court of Appeals’ decision was predicated upon three findings.
First, the court found that the no damages for delay clausein the parties’ contract precluded any delay damages award to Zachry. The trial court and jury found active
interference on the part of the owner, which has traditionally been treated as
a common-law basis for evading a no damages for delay contract provision. However, the Court of Appeals held otherwise, enforcing the language of the contract’s no damages for delay clause to the letter. Since the clause precluded delay damages even for “other fault” on the part of the Port, the Court held there could be no award of damages, even for active interference. Zachry argued such interpretation rendered
the contract unbreachable and illusory, but the Court disagreed, finding Zachry
proceeded with the work with full knowledge of the contract’s limitations, and
held that it could not rewrite the provisions of the contract.
Second, the court found that by executing lien releases containing language stating that the Port had paid “all sums owing” on the payment estimate at issue and that Zachry had “no further claims against the Port for the portion of the Work completed,” Zachry released the Port from having to reimburse Zachry for the liquidated damages it had withheld from Zachry totaling $2.36 million dollars, even though such damages had been found to have been wrongfully withheld. Zachry argued that the lien release was never intended to release its additional claims against the Port, but the Court disagreed, holding Zachry to the language of the lien release which it deemed unambiguous and therefore not susceptible to alternative interpretation.
Third, the court awarded the Port $10,500,000 in attorneys’ fees incurred defending against Zachry’s claims, even though this sum represented an amount several times the sums expended by Zachry. The Port had hired four law firms to represent it against Zachry, and Court blamed Zachry in part for the escalation in fees, recounting how Zachry refused to produce its records to counsel, but instead required them to review the records on site, in a sweltering container “crammed full of boxes not organized in any manner.”
In all, the Court’s decision effected a staggering $39,000,000 reversal of fortune for the contractor, who has since filed a petition for review of the appellate court’s decision.
Note: this case represents the dramatic impact of contract and accompanying contract document provisions parties sometimes treat as boilerplate. Not all damages for delay clauses will be subject to common law exceptions, and the specific language of the clause is crucial to that point. The same holds with lien releases executed during the course of the job and typically not carefully examined by parties signing them in haste and anticipation of payment. As a practitioner who has spent many an hour reviewing documents inside of non-air conditioned containers, the attorneys’ fee provision and award in this case is also fascinating. Since this was a public project and the contract and forms were likely set at the time of bid, it is questionable what bargaining power, if any, Zachry would have had toalter the provisions and forms at issue.
