Opinion ID: 894515
Heading Depth: 2
Heading Rank: 6

Heading: Privity and Standing

Text: The City of Dallas also argues that privity and standing concerns bar contractors from asserting claims on behalf of their subcontractors. The City contends that because only the person whose primary legal right has been breached may seek redress for an injury, see Nobles v. Marcus, 533 S.W.2d 923, 927 (Tex.1976), ICC lacks standing as it has suffered no loss from the City's purported breach of the contract. Furthermore, the City asserts that because there is no privity between an owner and a subcontractor under Texas law, see George v. Hall, 371 S.W.2d at 876, a subcontractor's only legal remedy is to seek redress from the contractor who then looks to the owner. See Black Lake Pipe Line, 538 S.W.2d at 87, 91; City of La-Porte v. Taylor, 836 S.W.2d 829, 831 (Tex. App.-Houston [1st Dist.] 1992, no writ). ICC counters that a contractor has standing to pursue the claims of its subcontractor because it remains liable to the subcontractor for the amounts recovered. See W.G. Yates, 192 F.3d at 991; TEX. PROP. CODE 28.002; see also Gulf Constr. Co. v. Self, 676 S.W.2d 624, 629-30 (Tex.App.-Corpus Christi 1984, writ ref'd n.r.e.) (holding that unless there is an express contractual provision to the contrary, a contractor is ultimately responsible for payment of its subcontractors). Furthermore, ICC argues that the decisions in Fleetwood, Triton Oil & Gas, and H.B. Zachry support its contention that a contractor has standing to assert the claims of its subcontractor to an owner. See Fleetwood, 604 S.W.2d at 255; Triton Oil & Gas, 509 S.W.2d at 686; H.B. Zachry, 404 S.W.2d at 116. ICC also contends that the subcontractor is not suing the owner for breach of contract because it acknowledges that the subcontractor is not in privity with the owner. That non-privity bar, ICC argues, is the primary rationale for pass-through claims in the first place. We believe ICC has the better argument. Rather than allowing a party to sue another with whom it has no privity, pass-through claims recognize the continued liability of a contractor to its subcontractor. See Self, 676 S.W.2d at 628-30. This liability gives the contractor, who is in privity of contract with an owner, standing to assert the claims of its subcontractor. See W.G. Yates, 192 F.3d at 991. In articulating this rule, we explicitly confine our rationale to construction contracts involving owners, contractors, and subcontractors. In this context, it is not potential liability but continuing liability that gives the contractor standing to sue the owner. Therefore, our recognition of pass-through claims does not run afoul of our long-held tradition of requiring privity of contract and standing for a party to maintain a suit. See Brown v. Todd, 53 S.W.3d 297, 305 (Tex.2001); Republic Nat'l Bank v. Nat'l Bankers Life Ins. Co., 427 S.W.2d 76, 79 (Tex.Civ.App.-Dallas 1968, writ ref'd n.r.e.). Finally, we note that our recognition of pass-through claims does not, as the City contends, affect the procedures for perfecting statutory mechanic's and materialman's liens in private contracts or for asserting claims on payment bonds in public contracts. Neither statutory scheme provides a remedy for subcontractors damaged by an owner's or a governmental entity's breach of contract with the contractor. See TEX. PROP. CODE §§ 53.001B.159 (mechanic's and materialman's liens), Tex. Gov't Code §§ 2253.001B.079 (payment bonds). In both instances, the contractor bears the burden of payment, and subcontractors may recover only an amount up to the subcontract price, thus precluding recovery of additional costs. Pass-through claims, on the other hand, allow subcontractors to recover from an owner when the owner's breach has caused damages that exceed the subcontract price and place the ultimate responsibility for an owner's breach on the owner. Accordingly, pass-through claims provide protections not afforded by the lien and payment bond statutes, and our recognition of passthrough claims does not disturb the existing statutory procedures and requirements. In sum, three policy justifications shape our decision that Texas recognizes pass-through claims. First, recognition of this practice, common in the construction industry, aligns Texas with federal procedure and with the majority of states that have considered this issue. Second, passthrough claims protect subcontractors against an owner's breach without undue prejudice to the owner. Finally, passthrough claims promote judicial economy by eliminating unnecessarily duplicative litigation and encouraging full settlement of claims. Because we answer the first question in the affirmative, we proceed to the second question certified by the Fifth Circuit.