No. 06-17-00075-CV

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

In the Sixth Court of Appeals

at Texarkana, Texas

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The City of Wolfe City, Texas, Appellant,

v.

American Safety Casualty Insurance Company, Appellee.

Amended Reply Brief of Appellant 

the City of Wolfe City, Texas 

__________________________________________________________________

Daniel W. Ray

Texas Bar No. 24046685

SCOTT, RAY & SULLIVAN, 

PLLC

2608 Stonewall Street

Post Office Box 1353

Greenville, Texas 75403-1353

Tel. (903) 454-0044

Fax (903) 454-1514

Daniel@scottraylaw.com

ATTORNEY FOR APPELLANT, 

THE CITY OF WOLFE CITY, 

TEXAS

ACCEPTED

06-17-00075-CV

SIXTH COURT OF APPEALS

TEXARKANA, TEXAS

1/4/2018 3:36 PM

DEBBIE AUTREY

CLERK

 FILED IN 6th COURT OF APPEALS TEXARKANA, TEXAS 1/5/2018 1:30:00 PM DEBBIE AUTREY Clerk
Appellant’s Amended Reply Brief Page 2

TABLE OF CONTENTS

Table of Contents ............................................................................ 2

Index of Authorities ........................................................................ 4

Arguments....................................................................................... 5

1. The City does not have the burden to prove ASCIC’s defense of 

“Design Defect” under the no-evidence MSJ standard. ............. 5

A. The correct no-evidence MSJ standard.................................. 5

B. The City carried its burden under the correct standard. ...... 6

C. ASCIC attempts to modify the no-evidence MSJ standard... 7

2. ASCIC failed to prove the design-defect defense in its traditional 

MSJ.............................................................................................. 9

A. The standard of proof for a design-defect defense. .............. 10

B. ASCIC’s evidence of a design-defect falls short of the 

standard..................................................................................... 10

3. The terms of the bond, and the contract it secures, controls 

ASCIC’s liability. ...................................................................... 11

A. The AMR system was not an acceptable punch list item. .. 11

B. ASCIC was responsible as a surety for punch list items..... 12

C. Change Order No. 2 was not a confirmation of substantial 

completion. ................................................................................ 13

4. The City could not have objected to the certificate of substantial 

completion within the contractual time-frame because Hayter 

acted fraudulently or in bad faith. ........................................... 14

5. The Trial Court contemplated that additional evidence would be 

discovered after the hearing on ASCIC’s motions for summary 

judgment. .................................................................................. 16
Appellant’s Amended Reply Brief Page 3

Conclusion..................................................................................... 17

Certificate of Compliance.............................................................. 19

Certificate of Service..................................................................... 19
Appellant’s Amended Reply Brief Page 4

INDEX OF AUTHORITIES

CASES

Barraza v. Eureka Co., 25 S.W.3d 225 (Tex. App.—El Paso 2000, pet. 

denied) ......................................................................................... 9

Bayshore Constructors, Inc. v. S. Montgomery County Mun. Util. 

Dist.543 S.W.2d 898, 901 02 (Tex. Civ. App.—Beaumont 1976), 

writ ref'd n.r.e. (Mar. 30, 1977)................................................. 12

Blackard v. Fairview Farms Land Co., Ltd., 346 S.W.3d 861 (Tex. 

App.—Dallas 2011, no pet.)......................................................... 5

City of Hous. v. Clear Creek Basin Auth., 589 S.W.2d 671 (Tex.1979)

..................................................................................................... 9

Foreman v. Whitty, 392 S.W.3d 265 (Tex. App.—San Antonio 2012, 

no pet.) ........................................................................................ 9

Maguire Oil Co. v. City of Hous., 69 S.W.3d 350 (Tex. App.—

Texarkana 2002, pet. denied) .................................................... 6

Montgomery v. Kennedy, 669 S.W.2d 309 (Tex. 1984) .................. 9

 

RULES

Tex. R. Civ. P. 166a(i) ..................................................................... 5

 

OTHER AUTHORITIES

4A Bruner & O'Connor Construction Law § 12:46................... 8, 10
Appellant’s Amended Reply Brief Page 5

Arguments 

To be as brief as possible, the City incorporates in this reply all the 

arguments put forth in the City’s Brief. The City further shows this Court 

the following:

1. The City does not have the burden to prove ASCIC’s defense of 

“Design-Defect” under the no-evidence MSJ standard. 

 

In its effort to skirt liability on the performance bond, the recurring 

theme of American Safety Casualty Insurance Company’s (“ASCIC” or 

“Appellee”) brief is to suggest that McKinney & McMillen (“M&M”), the 

general contractor, is not liable because of an alleged “Design-Defect” in 

the fixed-based automatic meter-reading collection system (“AMR

system”). In doing so, ASCIC improperly shifts to the City the burden to 

prove ASCIC’s defense of a design defect.

 A. The correct no-evidence MSJ standard. 

The no-evidence MSJ standard states that a “court must grant the 

motion unless the respondent produces summary judgment evidence 

raising a genuine issue of material fact.” Tex. R. Civ. P. 166a(i). Courts 

have interpreted this standard to require the nonmovant to produce only 

more than a ‘scintilla of evidence,” and the evidence must be read “in a 

light most favorable to the nonmovant”—here the City. See Blackard v. 
Appellant’s Amended Reply Brief Page 6

Fairview Farms Land Co., Ltd., 346 S.W.3d 861, 868 (Tex. App.—Dallas 

2011, no pet.). “More than a scintilla of evidence exists when the evidence 

would enable reasonable and fair-minded people to reach different 

conclusions.” Id. Further, the nonmovant is only required to present 

evidence on the elements on the elements the movant challenges. See 

Maguire Oil Co. v. City of Hous., 69 S.W.3d 350, 357 (Tex. App.—

Texarkana 2002, pet. denied). The only element ASCIC challenged in its 

no-evidence motion is whether M&M defaulted. (1CR327) (“an essential 

element of the City’s bond claim is that the City must show that the 

contractor, M&M, failed to fulfill its duty of performance under the 

construction contract”). 

B. The City carried its burden under the correct standard. 

To survive the no-evidence MSJ, the City needed to provide only 

“more than a scintilla of evidence” that M&M defaulted on the 

Construction contract. The City met this requirement when it provided 

evidence of M&M’s responsibilities under the Contract and M&M’s 

failure to comply with those terms. (1CR668.) M&M failed to comply with 

the terms of the Contract when it did not deliver a fully functional system 

(1) as admitted by George McKinney, a representative of M&M, in his 
Appellant’s Amended Reply Brief Page 7

deposition (1CR697, 706); (2) as admitted to by M&M when it admitted 

it stopped work before this lawsuit was filed (1CR710-6); and (3) as 

admitted to by M&M in its response to Wolfe City’s Demand for Contract 

Performance when it refused to continue working on the project.

(1CR724.) This put M&M in default of the construction contract, which

makes ASCIC liable under the performance bond. Because there is more 

than a scintilla of evidence that M&M was in default, the no-evidence 

MSJ was erroneous. (See Appellant’s Br. at 27-30.)

 C. ASCIC attempts to modify the no-evidence MSJ standard. 

Because the City provided sufficient evidence to surpass the “more 

than a scintilla” threshold when the evidence is viewed in a “light most 

favorable to the nonmovant,” ASCIC attempts to shift to the City the 

burden to prove that the City’s problems were NOT due to a designdefect. Thus, ASCIC attempts to modify the no-evidence MSJ standard.

ASCIC asserts: “M&M’s responsibility is solely for construction or 

installation defects. If the City’s problems arose from a design defect in 

Zenner’s or Datamatic’s components, then M&M did not default on the 

construction contract.” (Appellee Br. at 16.) Further, “M&M could not 

have defaulted on the construction contract if the City’s problems 
Appellant’s Amended Reply Brief Page 8

resulted from a design defect rather than a construction or installation 

defect.” (Id. at 22.)

After shifting the burden of proof for a no-evidence MSJ, ASCIC 

then claims that the City falls short: “[t]hus, for the City to raise a 

genuine fact issue on ASCIC’s ‘no evidence’ motion, it had to offer some 

evidence that the City’s failure to receive a fully functional system 

resulted from M&M’s default, and not from a defect in the Datamatic 

components that Hayter specified for the system.” (Id. at 25) (emphasis 

added.)

Existence of a design defect is a defense, which is ASCIC’s burden 

to prove. “[A] surety is entitled to the protection of the principal's 

‘contract defenses.’ One such defense is the owner's control over 

preparation and issuance of detailed design documents with design 

inadequacies.” 4A Bruner & O'Connor Construction Law § 12:46. In 

short, existence of a design defect is a contract defense belonging to 

M&M. ASCIC can urge that defense, but also has the burden of proof on 

the defense.

Because ASCIC carries the burden of proof for this defense, it 

cannot shift this burden to the City in a no-evidence MSJ. It is not proper 
Appellant’s Amended Reply Brief Page 9

in a no-evidence MSJ to raise a legal issue on which the movant has the 

burden of proof. A movant cannot file a no-evidence motion for summary 

judgment on a claim or defense on which he has the burden of proof at 

trial. Foreman v. Whitty, 392 S.W.3d 265, 279 (Tex. App.—San Antonio 

2012, no pet.); See also, e.g., Barraza v. Eureka Co., 25 S.W.3d 225, 231 

(Tex. App.—El Paso 2000, pet. denied) (party may not urge no-evidence 

summary judgment on claims or defenses on which it has burden of 

proof). 

In sum, the City met the actual no-evidence threshold and was not 

required to meet the threshold of providing evidence to disprove ASCIC’s 

design-defect defense.

2. ASCIC failed to prove the design-defect defense in its traditional 

MSJ. 

 

The burden that ASCIC attempts to require of the City in the noevidence MSJ is a burden ASCIC itself does not meet in its traditional 

MSJ. “Defendants moving for summary judgment must expressly present 

and conclusively prove all essential elements of their defense as a matter 

of law; there can be no genuine issues of material fact.” Montgomery v. 

Kennedy, 669 S.W.2d 309, 310-11 (Tex. 1984) (citing City of Houston v. 

Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979)).
Appellant’s Amended Reply Brief Page 10

A. The standard of proof for a design-defect defense. 

Bruner & O’Connor’s treatise on Construction Law sets forth the 

standard ASCIC must prove for its design-defect defense:

“[W]here the owner issues detailed design documents found to be 

defective, fails to disclose critical information to the contractor, or 

maintains control over the contractor's construction methods, the 

contractor's nonperformance will be excused.” 

4A Bruner & O'Connor Construction Law § 12:46 (emphasis added).

ASCIC cites the same treatise in putting forth its design-defect defense.

(Appellee Br. at 23.) For ASCIC to claim the design-defect defense, it had

the burden to prove that detailed design documents provided by the City 

or its agent are defective and, thus, are the cause of the nonfunctioning 

AMR system.

B. ASCIC’s evidence of a design-defect falls short of the 

standard. 

 

ASCIC’s evidence of an alleged design defect amounts to the City 

selecting the type of water meter and requiring it to be supplied by an 

experienced qualified vendor—none of which comprise “detailed design 

documents that have been found to be defective.” ASCIC offered evidence 

that the Engineer specified the type of meters for the project. (1CR328.) 

The contractor could use one of five brands of water meters: Master 

Meter, Itron, Neptune, Badger, or Infinity. (Appellee Br. at 3, citing
Appellant’s Amended Reply Brief Page 11

1CR135.) ASCIC further points to evidence that the engineer required 

the AMR system to be “supplied by an experienced, qualified, vendor.” 

(Id.) That is where the evidence stops. ASCIC did not present any 

evidence of “detailed design documents that were found to be defective.”

Because ASCIC did not conclusively its design-defect defense, it was 

error to grant ASCIC’s traditional MSJ.

3. The terms of the bond, and the contract it secures, controls ASCIC’s 

liability. 

 

 ASCIC attempts to convince this Court that freedom of contract 

does not exist and it is entitled to rely on a certificate of substantial 

completion, regardless of how it was obtained and regardless of the terms 

of the contract. 

A. The AMR system was not an acceptable punch list item. 

ASCIC’s erroneously argues that the AMR System was a punch list 

item. However, the Contract explicitly states that the punch list must not 

contain any major deficiencies. CR 411-12, 585. In this case, the entire 

purpose of the AMR System was so that the City could read the meters 

remotely, but this could not occur because the AMR System was not 

functional, as indicated on the punch list. See CR 412-13. Because the 

AMR System could not fulfil its intended purpose and was a major 
Appellant’s Amended Reply Brief Page 12

component of the overall project, it follows that the indication of the AMR 

System on the punch list as a deficiency was contrary to the explicit terms 

of the Contract and therefore not an actual punch list item pursuant to 

the terms of the Contract. Nevertheless, pursuant to the Contract, ASCIC

was responsible for deficient items which were not corrected within 30 

days after being noted on the punch list. 

B. ASCIC was responsible as a surety for punch list items. 

 

A surety can be responsible for punch list items. Indeed, in 

Bayshore Constructors, the contract specified that “[t]he Contractor shall 

remedy any defects in the work and pay for any damage to other work 

resulting therefrom, which shall appear within a period of one (1) year 

from the date of final acceptance of the work unless a longer period is 

specified.” Bayshore Constructors, Inc. v. S. Montgomery County Mun. 

Util. Dist., 543 S.W.2d 898, 902 (Tex. Civ. App.—Beaumont 1976, writ 

ref'd n.r.e.). The Court interpreted the contract, and the bond, to include 

the one year warranty period. Id. 

In this case, the Contract specified that all punch list items shall be 

remedied within 30 days from the date of the certificate of substantial 

completion. CR 418-19. Even though completion of the punch list items 
Appellant’s Amended Reply Brief Page 13

did not occur, ASCIC argues that it should not be responsible for punch 

list items because the City is provided a remedy through warranty. 

ASCIC’s argument is in opposition with Bayshore Constructors, which 

held a performance bond open under a one year warranty period. 

Furthermore, in this case, the contract reinstituted liquidated damages 

in the event the punch list items were not remedied within the allotted 

time-frame. CR 418-19. In other words, there was no warranty period if 

the punch list items were not remedied within 30 days, and it follows that 

ASCIC contemplated liability under the terms of the contract beyond the

issuance of substantial completion when it issued the bond. Therefore, 

because liquidated damages were reinstituted after the issuance of 

substantial completion, ASCIC argument, that punch list items should 

be covered under warranty, fails. 

C. Change Order No. 2 was not a confirmation of substantial 

completion. 

 

ASCIC also erroneously argues that the City confirmed substantial 

completion through Change Order No. 2. ASCIC’s argument is erroneous 

because the date contained on Change Order No. 2 was an estimated 

completion date. Change orders are a routine practice in the construction 

industry because the scope of any given project typically changes over the 
Appellant’s Amended Reply Brief Page 14

life of the project. It follows that if a project is to change in scope, the time 

of completion will also change, hence the necessity to input a date of 

substantial completion (time of performance) on the change order. For 

instance, in this case, Change Order No. 1 contained the date of October 

13, 2012. Change Order No. 1 did not confirm that the project was 

completed on October 13, 2012, it merely adjusted the time of 

performance based on the change of scope. See CR 1464-65. If the date 

on Change Order No. 1 was merely a time of performance, then it follows 

that Change Order No. 2, which contained a different date, merely 

adjusted the time of performance from October 13, 2012 to March 21, 

2013 to account for the change of scope in the project. Even if Change 

Order No. 2 constitutes an agreement that confirmed substantial 

completion, the City is excused because it was obtain fraudulently or in 

bad faith. 

4. The City could not have objected to the certificate of substantial 

completion within the contractual time-frame because Hayter acted 

fraudulently or in bad faith. 

 

 ASCIC argues that the City did not comply with the requirements 

to contest Hayter’s certificate of substantial completion. ASCIC further 

argues that the City offered no summary judgment evidence that Hayter 
Appellant’s Amended Reply Brief Page 15

acted fraudulently or in bad faith. Simply, the former fails because of the 

latter fails. The evidence was very clear from the engineer’s deposition 

that he acted intentionally in opposition with the terms of the Contract 

and in opposition with his duties as a professional engineer to the 

detriment of the City. CR 415-17, 531, 537-40. ASCIC attempts to 

downplay his actions as mere negligent acts within an engineer’s 

discretion. However, as noted by the City’s expert, Hayter’s actions were 

contrary to that of a licensed professional engineer in Texas. See CR 

1462-64. Even if the testimony of the City’s expert is not admissible as

newly discovered evidence, ASCIC cannot deny that Hayter’s actions 

were intentional conduct to the detriment of the City, which meets the 

requirements for gross negligence, gross mistake, and/or bad faith. 

It follows that since the evidentiary standard for summary 

judgment indicates that Hayter acted in bad faith to the City’s detriment, 

the City would have never known whether to contest Hayter’s certificate 

of substantial completion within the contractual time frame. Hayter’s 

admission of its actions certainly were not volunteered within 30 days 

after substantial completion. Indeed, only through the deposition of Mike 

Tibbets did the City confirm the scope of the engineer’s betrayal. See CR 
Appellant’s Amended Reply Brief Page 16

760-61. Further, it is pointless for ASCIC to argue that the City did not 

contest Hayter’s issuance of the certificate of substantial completion. If 

this Court holds the substantial completion valid, there is no need to 

consider this point, and if this Court holds the certificate invalid due to 

fraud, gross mistake, or bad faith, as the City contends, then ASCIC’s 

argument collapses because there would have been no valid certificate for 

the City to contest. 

5. The Trial Court contemplated that additional evidence would be 

discovered after the hearing on ASCIC’s motions for summary judgment. 

 

 Although the issue of newly discovered evidence has been debated 

at great length between Appellant and Appellee, when considering 

whether the Trial Court abused its discretion in denying the City’s 

Motion for Reconsideration, it is important to note that the Trail Court 

contemplated that there would be newly discovered evidence after 

ASCIC’s hearing on its motions for summary judgment. The morning of 

and prior to the hearing, the Trial Court signed an agreed order, which 

extended the discovery deadline. CR 780-81. The principle reason for this 

order was to extend deadlines due to the addition of Hayter as a named 

defendant only 11 days prior to ASCIC’s hearing. 
Appellant’s Amended Reply Brief Page 17

Conclusion 

In its no-evidence MSJ, ASCIC improperly attempted to increase 

the no-evidence MSJ threshold (which the City met) by shifting to the 

City the burden to prove ASCIC’s “Design-Defect” defense and then 

claiming that the City falls short of the shifted burden. In its traditional 

MSJ, ASCIC fell short of the standard to conclusively prove its “DesignDefect” defense.

Further, ASCIC should be held accountable to the terms of its bond 

and the contract that it secured. Even though the AMR System was not 

a contractual punch list item, the Contract explicitly required contract 

damages to be reinstated if any deficiency on the punch list was not 

corrected within 30 days. In addition, ASCIC’s argument that Change 

Order No. 2 confirmed substantial completion is erroneous and against 

industry practice because the change in date simply noted a change in 

time of performance. The City did not agree to actual substantial 

completion via Change Order No. 2, and it could not have contested 

Hayter’s certificate of substantial completion because it had no 

knowledge of Hayter’s bad faith and/or fraudulent actions until the 

deposition of its engineer. Because bad faith or fraudulent actions are 
Appellant’s Amended Reply Brief Page 18

frequently denied until the bitter end, the Trial Court should have 

contemplated that newly discovered evidence would be forthcoming, 

especially since it signed an order extending the discovery period the very 

morning of ASCIC’s hearing on its motions for summary judgment. 

Respectfully Submitted,

/s/ Daniel W. Ray_____________

Daniel W. Ray 

 Texas Bar No. 24046685

Daniel@scottraylaw.com

Scott, Ray & Sullivan, PLLC 

P.O. Box 1353

2608 Stonewall Street

Greenville, Texas 75403

Tel: (903) 454-0044

Fax: (903) 454-1514

ATTORNEY FOR APPELLANT THE 

CITY OF WOLFE CITY, TEXAS
Appellant’s Amended Reply Brief Page 19

CERTIFICATE OF COMPLIANCE 

 This brief was prepared using Microsoft Word in Century font with 

14-point type. This brief contains 2,717 words, not counting the sections 

excluded by Tex. R. App. P. 9.4(i)(1).

/s/ Daniel W. Ray_____________

Daniel W. Ray 

 

CERTIFICATE OF SERVICE 

On January 4, 2018, a copy of this brief was served through 

efileTexas.gov on all counsel, as indicated below: 

James D. Cupples

Texas Bar No. 05252300

CUPPLES & ASSOCIATES, PLLC

700 Gemini Street #200 

Houston, Texas 77058 

Tel. (281) 218-8888 

Fax (281) 218-8788 

Cupplesjd@comcast.net

Byron C. Keeling

State Bar No. 11157980

KEELING & DOWNES, P.C.

bck@keelingdownes.com 

1500 McGowen, Suite 220 

Houston, Texas 77004 

Tel (832) 214-9900 

Fax (832) 214-9908

/s/ Daniel W. Ray_____________

Daniel W. Ray