ACI, the general contractor on a hotel-construction project, was sued by Ram, the subcontractor who installed the window. Ram won a summary judgment for a violation of Texas’s Prompt Payment Act. ACI asserted a defense under the Construction Trust Fund Act involving “actual expenses directly related to the construction or repair of the improvement … .” The Fifth Court found the relevant statutory language clear and unambiguous, requiring no further use of statutory-interpretation techniques: “[The Trust Fund Act provision] acts as a defense to claims of misapplication of funds the contractor holds in trust for beneficiaries. It does not apply to a claim the contractor failed to promptly pay subcontractors.” Alberelli Constr. v. Ram Indus. Acquisitions LLC, No. 05-18-01529-CV (May 15, 2020).

AMX brought an arbitration against an architect; the architect moved to dismiss because AMX did not obtain a certificate of merit, and when that motion was unsuccessful sought appellate review. The Fifth Court, noting that this was an issue of first impression, concluded that “the right to interlocutory appeal granted by section 150.002 does not apply to an order rendered by an arbitration panel, and the Texas Arbitration Act (TAA) does not provide a means for judicial review of such an order . . . .” Accordingly, it vacated the trial court’s order of dismissal as void and dismissed the appeal for lack of jurisdiction. SM Architects v. AMX Veteran Specialty Services, 05-17-01064-CV (Nov. 9, 2018).

Ferreira v. Russell presented a swearing match between the named parties about the quality of certain construction materials. The Fifth Court found no evidence of nondisclosure about the use of “surplus or repurposed” materials, and thus reversed a DTPA recover, when:

• Russell admitted that he did not ask Ferreira to use only new materials and that Ferreira did not specifically say the materials would all be new.
• When Russell was asked whether Ferreira told him he had a warehouse full of new equipment, he replied, “He said he had a warehouse with equipment.”
• As to the specific representation Ferreira made, Russell said he was told that the materials would be suitable for a commercial building and would meet code. Russell further admitted that he simply assumed the material would all be new or first class and that it would not have been used.
• Ferreira testified (without contradiction) that his company was doing the build-out for Russell because Russell could not afford any of the other companies they looked at, and thatFerreira was doing the work “for no profit.”
• According to Ferreira, both he and Russell knew that some of the materials used to build the store would be new, some would be surplus (unused materials left over from other projects), and some would be repurposed (used) so that they could keep the cost within Russell’s budget.

No. 05-16-01235-CV (Aug. 13, 2018) (mem. op.)

Brooks sued CalAtlantic about the construction of a retaining wall; CalAtlantic argued that the suit was barred by the 10-year statute of repose in Tex. Civ. Prac. & Rem. Code § 16.069. The Fifth Court affirmed summary judgment for the defense. Procedurally, the Court concluded that the plaintiff had the burden to establish an exception to the statute once the defendant showed its applicability, citing Ryland Group v. Hood, 924 S.W.2d 120 (Tex, 1996). Substantively, the Court distinguished plaintiff’s authority, observingL “[T]here is no evidence of [defendant’s] awareness that deviating from the Civil Plans could create property defects and dangerous conditions. And neither [cited case] supports Brooks’s contention that proof of deviation from construction plans, alone, is evidence of willful misconduct.” Brooks v. CalAtlantic Homes of Texas, No. 05-16-01203-CV (Oct. 9, 2017) (mem. op.)

Sylvester Davis sued TexPro Construction Group after the contractor failed to complete a backyard construction project. When TexPro failed to file an answer, Davis sought and obtained a partial default judgment on liability. TexPro then answered, but Davis moved forward with a hearing to establish damages. TexPro did not appear at the hearing, and the trial court awarded judgment for $117,230 in compensatory damages, treble damages under the DTPA and $350,000 in exemplary damages. After blowing through the deadlines for an ordinary appeal, TexPro hired new counsel and filed a restricted appeal. The Court of Appeals held that there was no error on the face of the record just because TexPro’s registered agent had been served at a location different from the address listed on the citation. The Court also held that there was no error in the trial court’s decision to move forward with the damages hearing, since the filing of TexPro’s answer did not negate the previously-signed default judgment on liability. However, Davis’ testimony on damages was the full amount of the money paid to TexPro, without accounting for the value of the work that TexPro had actually performed. Because his affidavit testimony was conclusory in alleging that the work done was valueless, the Court of Appeals reversed and remanded for a new trial on damages.

TexPro Constr. Group, LLC v. Davis, No. 05-14-00050-CV

An architectural firm subcontracted with Pavecon Commercial Concrete to pour the foundation for a wedding facility in Carrollton. The architect failed to pay the last of Pavecon’s invoices, prompting Pavecon to sue the architect and the owner of the facility. The defendants counterclaimed for breach of contract and negligence, alleging that the concrete services had been performed improperly. Pavecon moved for summary judgment on the counterclaims. The trial court granted the motion and the Court of Appeals affirmed, holding that the architect had failed to submit admissible evidence of any specific pecuniary loss and that the negligence claims were barred by the economic loss doctrine. Justice Moseley dissented in part, arguing that the trial court should not have sustained Pavecon’s objection that the defendants’ summary judgment affidavit was conclusory in averring their damages.

Trebuchet Siege Corp. v. Pavecon Commercial Concrete Ltd., No. 05-12-00945-CV

Trebuchet Siege Corp. v. Pavecon Commercial Concrete Ltd. (dissent)

The developer of a condominium project in Fort Worth sued the general contractor it had hired to construct a rooftop pool and deck. Inevitably, the general filed third party claims and cross-claims against various other participants, including engineers and subcontractors, seemingly all of whom filed claims, cross-claims, and counterclaims against everyone else. Two of the defendants moved to dismiss some of third party claims on the basis that the claimants had not complied with the certificate of merit requirement for suits against licensed architects, engineers, and surveyors.  See Tex. Civ. Prac. & Rem. Code § 152.002. Applying recent authority from the Texas Supreme Court, the Court of Appeals held that a certificate of merit is only required to initiate suit, not for defendants or third-party defendants who assert claims for relief within a lawsuit. However, the Court also ordered the dismissal of the plaintiffs’ fifth amended petition as to one of the two defendants on the basis that they had failed to attach a certificate of merit to the amended petition before the deadline.

Hydrotech Engineering, Inc. v. OMP Dev., LLC, No. 05-13-00713-CV

Liability for foundation damage under a multi-year series of CGL policies was at issue in Mid-Continent Casualty Co. v. Castagna, No.05-12-00383-CV (Aug. 20, 2013).  Among other holdings, the Court concluded that one policy, which named “McClure Brothers Custom Homes, LLC,” did not extend to an entity of which it was a general partner, “McClure Brothers Homes LP,” because of an exclusion “with respect to the conduct of any current or past partnership . . . or limited liability company” not expressly named. While that policy did reach members and managers of the LLC, no summary judgment evidence made that connection as to this party.  The Court also found that a breach of the implied warranty of good workmanship, despite its relationship to the parties’ construction contracts, did not go so far as to trigger the “contractual liability” exclusion under Gilbert Texas Construction, LP v. Underwriters at Lloyds, 327 S.W.3d 118 (Tex. 2010).

The court reversed a judgment in favor the Texas Historical Commission and the City of Dallas related to demolition of a historical building and rendered a take nothing judgment for TWE. In March 2006, the City granted TWE a permit to demolish an historical Railway freight station in the West End of Dallas. The City later determined that the permit was improperly issued and revoked it. The City contended that they told TWE of the revocation and placed notice at the property. TWE proceeded with demolition. The City and THC sued TWE under the Local Government Code for demolishing a historic building without proper municipal approval and for fraud. The jury found against TWE on all claims, but the trial court granted TWE’s motion to disregard, in part, and awarded only civil penalties and damages under the Government Code.

The Government Code provides a cause of action for a city against someone who adversely affects a historic structure, but only if the City has already filed a verified listing of historic structures with the county clerk. The Code goes on to provide a cause of action for the THC if the city fails to pursue the cause of action under that same section. On appeal, the court held that the THC’s cause of action also required that the City file the required listing, which was not done, and therefore the THC’s action failed. Also, the statutes under which the City sought civil penalties did not specifically provide civil penalties. One allowed the City to adopt such penalties, which it never did, and the second addressed the enforcement of health and safety ordinance, not historical structure zoning. Thus, the trial court erred by assessing penalties against TWE.

TWE v. City of Dallas and Texas Historical Commission, No. 05-11-00582-CV

The court reversed a trial court’s judgment in favor of PlainsCapital Bank for damages and attorney’s fees resulting from Martin’s loan default based on Chapter 51 of the Property Code. In 2008 Martin defaulted and the Bank foreclosed upon and purchased the underlying property at auction for $539,000. Martin owed the Bank nearly $800,000. In 2009, over a year later, the Bank sold the property for $599,000 and sued Martin for the deficiency. Martin sought a damages offset under Property Code § 51.003 based on the value of the property, introducing expert testimony at trial that the property’s fair market value at the time of foreclosure was $850,000. The Bank argued that § 51.003 did not apply because it was not seeking to apply the foreclosure sale price as a credit but instead what the Bank actually received from the property: the 2009 sales price. The trial court agreed, holding § 51.003 inapplicable and crediting Martin $599,000 toward the deficiency.

On appeal, the court held that § 51.003 applies, regardless of the lender’s requested measure of damages, when (1) §51.002 foreclosure sale occurs, (2) the foreclosure sale price is less than the debt, and (3) an action is brought to recover the “deficiency,” or the amount owed on the debt after application of the collateral’s value. The court noted that the lender may not receive the benefit of a § 51.002 foreclosure sale but then “opt out” of § 51.003’s offset to the borrower. Additionally, the price received in the 2009 sale was legally insufficient evidence under § 51.003 because the Bank failed to link that price to the property’s value on the date of foreclosure. The court refused to render judgment based on Martin’s evidence, however, noting that the Bank refuted this value with its own expert testimony but indicating that the 2009 sales price was not evidence of the property’s fair market value at foreclosure.

It should be noted that the court did not hold that a later sales price of property can never be evidence of its fair market value. Rather, it is important for the lender to tie the actual sales price closely to § 51.003’s definition of fair market value, including a showing how it reflects the property’s value on the date of foreclosure.

Martin v. PlainsCapital Bank, No. 05-10-00235-CV

In 1989, the Texas Legislature passed the Residential Construction Liability Act, which preempts or modifies many types of claims for damages arising from any “construction defect.” In this case, the court of appeals applied the RCLA to bar a homeowner’s claim for lost rental value of his condominium during the long delay occasioned by the remodeling contractor before the contract was finally terminated. Under the statute, a “construction defect” is defined broadly to include any matter “concerning the design, construction, or repair of a new residence, of an alteration of or repair or addition to an existing residence, or of an appurtenance to a residence, on which a person has a complaint against a contractor.” Tex. Prop. Code § 27.001(4). Because the contractor’s delay was one such matter, the court held that the RCLA governed the claim for damages caused by the delay. The plaintiff’s claim could not succeed under the RCLA for two reasons. First, the homeowner had failed to give the contractor notice of the claim, as required by the statute. Second, the plaintiff was seeking to recover the rental value of his own home during the time that completion of the remodeling was delayed, while the RCLA would only allow the homeowner to recover the cost of substitute housing. Id. § 27.004(g)(4). The court of appeals therefore rendered judgment that the plaintiff take nothinig and remanded the case to the trial court to determine the amount of attorney fees the defendant was entitled to under an agreement of the parties.

Timmerman v. Dale, No. 05-11-01690-CV

In 2004, the Byers family hired Jered Custom Homes (“JCM”) to build their home.  Since Brad Byers worked for an engineering firm, he had his own company design the foundation. To protect itself, JCM included a provision in its contract with the Byerses that Brad Byers and his firm would be entirely responsible for the design and sufficiency of the foundation and that the Byerses would be responsible for all necessary soil and subsoil tests.  Two years later, the Byerses sold their home to appellant, Kay Yost.  Shortly after moving in, however, Yost noticed that the locks installed in the doors no longer fit.  Yost hired a series of inspectors, and ultimately concluded that the house’s foundation had suffered cracking caused by issues with its design with an estimated cost of repair of $524,563.  Yost sued JCM for damages associated with the house, but JCM moved for a no evidence summary judgment and the court granted it, ordering that Yost take nothing.

On appeal, the Court agreed with the trial judge’s decision.  Yost argued that the affidavits of her two experts provided sufficient evidence to survive summary judgment.  But the Court of Appeals found that nothing in the expert reports presented any evidence that JCM itself was negligent in constructing the house’s foundation in accordance with the design prepared by Byers’ employer.  Indeed, although Yost’s expert report stated that it is customary practice in the home construction industry for a geotechnical report to be obtained and reviewed, “he does not state who should review it or utilize its information.”  Nevertheless, the Court reversed the trial judge’s decision on Yost’s claim for breach of the implied warranty of habitability because Yost’s failure to produce documents evidencing that the how was not uninhabitable did not constitute a judicial admission.

Yost v. Jered Custom Homes

The court affirmed a summary judgment in favor of the bank in a foreclosure case dealing with the waiver statutory offset rights contained in Chapter 51 of the Texas Property Code. A builder entered construction loan agreement secured by four properties and signed a personal guaranty of the loan, eventually defaulting. The bank foreclosed on and sold the properties and sued the builder for the deficiency. The builder invoked Chapter 51, asking the court to determine the fair market value of the properties for the deficiency calculation rather than the foreclosure sale price. Town North moved for summary judgment arguing that the guaranty included a waiver of his right to claim any deductions or offsets from the amount guaranteed including any right to seek a reduction in the deficiency under section 51.003, which the trial court granted and then entered a judgment on the deficiency.

On appeal, the court cited its opinion in Interstate 35/Chisam Road, L.P. v. Moayedi, No. 05-11-00209-CV, 2012 WL 3125148 (Tex. App.—Dallas Aug. 2, 2012, no pet.) holding that the rights provided by section 51.003 are subject to waiver. It also cited King v. Park Cities Bank, No. 05-11- 00593-CV, 2012 WL 3144881, at *3 (Tex. App.—Dallas Aug. 3, 2012, no pet. h.) to reject the builder’s argument that language in the guaranty waiving “any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness” did not encompass a waiver of section 51.003’s right of offset despite the guaranty’s later reference to a “claim of setoff.” Thus, the court held that the builder waived his rights under section 51.003.

Smith v. Town North Bank, 05-11-00520-CV

The court affirmed a judgment in a construction contract dispute between two subcontractors. The general contractor of a shopping center project, Mycon, subcontracted with Bulldog to fabricate the steel and erect the steel-reinforced concrete panels around the center’s trash dumpsters. Bulldog subcontracted Top Flight to erect the panels. Top flight testified that Mycon directed the concrete pouring to take place well outside of the range that Top Flight had instructed. Top Flight then requested a $7,500 change order from Bulldog for the extra erection cost, which Mycon refused. Under pressure from Mycon, Bulldog eventually installed the panels themselves, without notifying Top Flight, and then invoiced and eventually sued Top Flight for the cost of installation. Top Flight counterclaimed for the 10% retainage amount left on the contract. Finding that Bulldog did not notify Top Flight to complete installation of the panels breached the subcontract by preventing Top Flight’s performance, the trial court rendered judgment for Top Flight for its retainage, interest, and attorney’s fees.

On appeal, Bulldog did not challenge the trial court’s finding that Top Flight was never notified to complete the installation of the dumpster panels despite the extra cost, and without allowing Top Flight an opportunity to perform, Bulldog undertook to install the dumpster panels using its own employees. The court held the fact that Bulldog prevented Top Flight from performing under the contract, which supported the conclusion that Top Flight did not breach the contract and that Bulldog did.

Bulldog Ironworks, LLC v. Top Flight Steel, Inc., 05-10-01360-CV

In this certificate of merit case, the court affirmed the trial court’s denial of the defendant-architect’s motion to dismiss. After walking into a very clean glass wall in the lobby of a condominium complex, Zion sued the owners of the building and added claims against the architect, MSM, for negligently designing the wall. He included with his petition a certificate of merit, which was an affidavit authored by architect James R. Drebelbis, as required by § 150.002 of the Texas Civil Practice and Remedies Code. MSM filed a motion to dismiss, arguing the affidavit did not meet the requirements of § 150.002. The trial court denied MSM’s motion to dismiss.

On appeal, the court first held that a certificate of merit need not demonstrate the affiant’s practice in the same sub-specialty as the defendant. Drebelbis’s affidavit, which stated he was knowledgeable in the area of architecture, was therefore sufficient. Next, the court held that the certificate of merit need not state the applicable standard of care to satisfy the statute’s requirement that it allege a negligent action, error, or omission. Finally, the court held that the affidavit included a sufficient factual basis for Zion’s claims, as opposed to merely conclusory opinions, to meet the requirements of § 150.002. Thus, the affidavit was sufficient and the court affirmed the trial court’s order.

Morrison Seifert Murphy, Inc. v. Buck Zion, 05-11-00621-CV

The court reversed the dismissal of a claim against an engineering consultant in an opinion dealing with the “certificate of merit” requirement in section 150.002 of the Texas Civil Practice and Remedies Code. Though there was no written contract between JJW and Strand, JJW originally asserted claims against Strand for breach of contract and negligence arising from a cracked foundation Strand designed. JJW later dropped its negligence claims and asserted only the contract action against Strand in its third amended petition, claiming that it entered an oral or implied contract with Strand to perform a “pre-pour” inspection of the foundation. JJW alleged that Strand breached this contract by failing to measure the depth of the concrete slab. Strand moved to dismiss the action because JJW failed to file a certificate of merit with its petition. JJW responded that the applicable 2005 version of section 150.002 does not apply to a claim for breach of contract. The trial court dismissed the claim.

On appeal, the court first held that it would consider the live pleadings at the time of the trial court’s ruling on the motion to dismiss to determine whether and how section 150.002 applied to the plaintiff’s claims. Examining the third amended petition, the court agreed with the majority of the Texas courts of appeals and held that the 2005 version of section 150.002 requires a certificate for negligence claims only and not for non-negligence claims. In doing so, the court rejected the approach recently taken by an en banc panel of the Austin court of appeals. The court noted, however, that it still must determine whether JJW’s contract claim was truly based on Strand’s alleged contractual obligations to JJW or was merely a negligence claim recast as breach of contract.

To determine the nature of the claim, the court looked to the source of the duty owed and the nature of the remedy sought. The court held that because JJW alleged that Strand had an express or implied contractual obligation to measure the depth of the slab – independent from its duty to exercise a professional degree of care, skill, and competence in performing the pre-pour inspection – the duty arose from the contract. The court also held that the remedy – consequential damages for the diminution in value of the residence and the loss of use and other damages due to necessary repairs – was based in contract because those damages are “consequences of the alleged failure to perform a pre-pour inspection.” Thus, the court concluded that the nature of the claim was, indeed, contractual.

JJW Development, LLC v. Ramer Concrete, Inc. and Strand Systems Engineering, Inc., 05-10-01359-CV

In a construction contract case, the court has reversed summary judgment in favor of an electrician subcontractor against a retail property leaseholder. The subcontractor alleged that he had performed 80% of the work at the property when the general contractor’s check bounced, and the subcontractor sued the property leaseholder for the difference. The district court granted summary judgment in favor of the subcontractor. The court of appeals reversed and remanded, holding that (1) a fact issue existed as to the proper amount of retainage the leaseholder was to retain and (2) the court erroneously awarded the subcontractor certain amounts under the Texas “Fund Trapping” statute that the leasehold had paid to replacement contractors.

Jewelry Manufacturer’s Exchange, Inc. v. Tafoya, No. 05-11-00065-CV