Texas Construction Law Blog

Last week, the Texas Supreme Court issued an important case involving governmental immunity in construction contract disputes. The case, Pepper Lawson Horizon International Group LLC v. Texas Southern University, arose out of a project to construct student housing on TSU’s campus.

Background

The project, originally contracted for completion by August 31, 2015, was delayed approximately six months until February 2016. The contractor, Pepper Lawson (“PLH”), asserted a claim for approximately $7 million--$3.3 million in unpaid contract balance, and $3.7 million in delay costs. TSU denied both payments, asserting that (1) PHL was entitled to $20,000 per day in liquidated damages due to late completion; and (2) the contract contained a “no damages for delay” clause that waived all damages for delays incurred by PHL, regardless of cause. After unsuccessful attempts to resolve the dispute, PLH sued TSU, seeking its unpaid claims, plus interest and attorney’s fees.

Because TSU is a public university, it is a state agency entitled to immunity from suit unless that indemnity is waived by statute. TSU filed a plea to the jurisdiction, asking the court to dismiss the case on immunity grounds. PLH argued that TSU waived immunity under Chapter 114 of the Civil Practice and Remedies Code, a statute that waives immunity from suit against any “state agency” that “enters into a contract subject to [Chapter 114]” but only “for the purpose of adjudicating a claim for breach of an express provision of the contract.” Tex. Civ. Prac. & Rem. Code § 114.003. Contracts subject to Chapter 114 include “written contract[s] for . . . construction services or for materials related to . . . construction services brought by a party of the written contract.” Id. PLH pressed three express provisions of the parties’ contract it claimed TSU breached. The trial court denied TSU’s plea to the jurisdiction, but the Court of Appeals reversed, holding that PLH failed to show that any “express contract provision required TSU to perform as PLH alleged . . . .” The Court of Appeals also held TSU immune from suit for interest and attorney’s fees.  However, Chapter 114 did not waive claims for either.

Texas Supreme Court Reverses Lower Court Rulings and Allow Claims to Proceed

The Texas Supreme Court reversed the Court of Appeals and allowed PLH’s claims to proceed. In doing so, the Court noted that the Court of Appeals required PLH to show that the parties’ contract waived immunity, rather than the statute. In other words, the Court held that PLH “only had to establish that Chapter 114, not the contract, unambiguously waived immunity,” and that it had done so. The Court further held that, because PLH established a waiver of immunity under Chapter 114, TSU had to conclusively establish that (1) it did not breach an express provision of the contract; and (2) PLH failed to follow conditions precedent to suit in order to prevail at the plea to the jurisdiction stage. On the last point, the Court noted that PLH generally alleged that it “satisfied all conditions precedent,” and that TSU “neither specifically denied” such allegations “nor challenged the facts that were actually pleaded.” Finally, the Court held that PLH could pursue its claims for attorneys’ fees and interest because both the contract and Chapter 114 waived immunity for such claims.

Conclusion

As this case demonstrates, claims involving state agencies and other governmental entities rely upon the specific language of the parties’ contracts and applicable statutes. If you are a party to such a dispute, it is essential to seek legal representation to help guide you through these issues.