Court Opinion

ID: 4039429
Source: CourtListenerOpinion
Date Created: 2016-09-28 22:13:37.94877+00
Date Added: 2024-06-11T13:52:54.057532
License: Public Domain

ACCEPTED
                                                                                                         14-14-00294-cv
                                                                                           FOURTEENTH COURT OF APPEALS
                                                                                                       HOUSTON, TEXAS
                                                                                                     1/7/2015 7:00:06 PM
                                                                                                    CHRISTOPHER PRINE
                                                                                                                  CLERK

                                  Case No. 14-14-00294-CV
              _____________________________________________________________

                            IN THE FOURTEENTH COURT OF APPEALS     FILED IN
                                                             14th COURT OF APPEALS
                                     HOUSTON, TEXAS             HOUSTON, TEXAS
              _____________________________________________________________
                                                                    1/7/2015 7:00:06 PM
                                                                                   CHRISTOPHER A. PRINE
         CITY OF GALVESTON AND STERLING PATRICK,Clerk
        DIRECTOR OF THE CITY GRANTS AND HOUSING
    DEPARTMENT, AND DOROTHY PALUMBO, GALVESTON CITY
          ATTORNEY, IN THEIR OFFICIAL CAPACITIES,

                                                Appellants,

                                                     v.

                                        CDM SMITH INC.,

                                                 Appellee.
              _____________________________________________________________

                                     ON APPEAL FROM THE
                       th
                  56        DISTRICT COURT, GALVESTON COUNTY, TEXAS
                                        Cause No. 13-CV-0844
                  ____________________________________________________________

      UNOPPOSED SUPPLEMENT TO APPELLEE’S
        BRIEF AND APPENDIX OF APPELLEE
              _____________________________________________________________

                                              Roland Garcia, Esq.
                                              State Bar 07645250
                                            Jennifer Tomsen, Esq.
                                     GREENBERG TRAURIG, LLP
                                       1000 Louisiana Street, Suite 1700
                                            Houston, Texas 77002
                              Telephone (713) 374-3500, Facsimile (713) 374-3505
                                              garciar@gtlaw.com

                                           Andrew Mytelka, Esq.
                                             Joseph Russo, Esq.
                                       GREER, HERZ & ADAMS, LLP
                                          1 Moody Plaza, Floor 18
                                          Galveston, Texas 77550
                                         Telephone: (409) 797-3200
                                                      1
HOU 408242630v6
 

TO THE HONORABLE COURT OF APPEALS:

       At oral argument on December 4, 2014, Appellee CDM Smith urged that the

Court should uphold the lower court’s ruling that the City of Galveston was not

immune to CDM Smith’s claim for interest under the Prompt Payment Act, among

other arguments. In support, CDM Smith had recently located legislative history

to the 2011 amendments to Chapter 271, specifically House Bill 345 from the 2011

Regular Session of the Legislature, which proposed the revision to Section

271.153(a) of the Texas Local Government Code. See Act of June 17, 2011, 82nd

Leg., R.S., ch. 226, §271.153, 2011 Tex. Sess. Law Serv. 809 (courtesy copy

attached). These are publicly available records that CDM Smith intended to show

the Panel on the Elmo during oral arguments, but the Elmo was not available as

requested. CDM Smith understood the Panel to grant leave to supplement the

record with this authority. (If not, then leave is hereby requested to consider this

supplemental submission, and counsel for the City of Galveston is unopposed to

this submission.) Accordingly, CDM Smith hereby offers this supplement to its

previously filed Appellee’s Brief and Appendix.

       Section 271.152 waives immunity to suit for municipalities that enter

contracts for services under that subchapter. House Bill 345 proposed amending

Section 271.153(a) by the addition of the text in bold below:

    Section 1. Section 271.153(a), Local Government Code, is amended to
    read as follows:
                                       2
HOU 408242630v6
 

    (a) The total amount of money awarded in an adjudication brought
       against a local governmental entity for breach of a contract subject to
       this subchapter is limited to the following:
              ....
              (4)   interest as allowed by law, including interest as
              calculated under Chapter 2251, Government Code [the
              Prompt Payment Act].

Id. (parenthetical added).      The amendment would apply to adjudications

“commenced on or after the effective date of this Act.” See Exhibit A, Section 2.

The amendment reflected in House Bill 345 was adopted and took effect on

September 1, 2011. See Tex. Local Gov’t Code § 271.153; Appellee’s Brief, Tab

B (courtesy copy attached).

       Chapter 2251 of the Government Code is the Prompt Payment Act.

Accordingly, the Legislature acted in 2011 to specifically reference interest under

the Prompt Payment Act as allowable damages. Because Section 271.153 already

made reference to “interest as allowed by law,” the Legislature’s amendment to

specifically reference interest calculated under the Prompt Payment Act can only

mean that where immunity is waived under Section 271.152, immunity is

necessarily waived also for the purposes of an award of Prompt Payment Act

interest on the contract.

       The City relied on McMahon Contracting, L.P. v. City of Carrollton, 277
S.W.3d 458 (Tex. App.—Dallas 2009, pet. denied) to oppose waiver of immunity

                                         3
HOU 408242630v6
 

for interest under the Prompt Pay Act. CDM Smith briefed reasons why McMahon

does not apply here, and was wrongly decided. Whether or not McMahon was

correctly decided, the 2011 amendment to Section 271.153 renders McMahon and

the cases following McMahon outdated and no longer applicable, because, among

other reasons previously briefed, they were decided before the Legislature

amended Section 271.153 to expressly permit Prompt Payment Act interest as

allowable damages, i.e., as part of the damages “as allowed by law.” See Section

271.153(a)(4). See also McMahon Contracting, L.P. v. City of Carrollton, 277
S.W.3d 458, 465 (Tex. App.—Dallas 2009, pet. denied); Harris Co. Flood Control

Dist. v. Great American Ins. Co., 309 S.W.3d 614, 617-618 (Tex. App.—Houston

[14th Dist.] 2010, no pet.). City of Midland v. M.T.D. Environmental, L.L.P. was

decided after the 2011 amendment but is also not applicable, not only because it

relied on the cases following McMahon, but because the 2011 amendment

referencing the Prompt Payment Act applied to adjudications commenced after the

Act’s effective date. 429 S.W.3d 800, 806 (Tex. App.—Eastland 2014, no pet.).1

The litigation here was commenced in 2013.

              CDM Smith has not located any other case on point post the 2011 legislative

amendments. The Panel’s decision in this case should clarify the state of the law

                                                            
1
  The case does not reference the date that suit was commenced, but the court decided that the
city was immune from Prompt Payment Act claims because the 2011 amendment “applied
prospectively only,” suggesting a litigation commencement date prior to the effective date of the
amendment. City of Midland, 429 S.W.3d at 806.
                                                               4
HOU 408242630v6
 

on the Prompt Payment Act, and give effect to the Texas Legislature’s 2011

amendment to Section 271.153, i.e. to allow recovery of Prompt Payment Act

interest from a local government entity. 2

       This Supplement is filed as soon as practicable considering the holidays and

the undersigned counsel’s schedule, and is not sought for purposes of delay, but so

that justice may be served.

       WHEREFORE, CDM Smith requests that the Court consider this

supplement to its Brief and Appendix, and affirm the District Court’s denial of the

Plea to the Jurisdiction by Appellants.

                                                            
2
  See Senate Comm. on Intergovernmental Relations, Bill Analysis, Tex. H.B. 345, 82nd Leg.,
R.S. (2011)(“Author’s/Sponsor’s Statement of Intent”)(“In general, a contractor, subcontractor,
or supplier is entitled under state law to receive interest, commonly called prompt pay interest,
on past due payments for work performed on a public construction project owned by the state or
other governmental entity. Some interested parties contend that recent court decisions have
misinterpreted Texas law regarding whether prompt pay interest on public jobs is barred
by governmental immunity. H.B. 345 seeks to clarify that issue.”) (emphasis added)
(courtesy copy attached). Moreover, the Bill Analysis of HB 345 by the House Research
Organization further clarified the Legislature’s intent: “HB 345 would allow for the recovery of
‘prompt pay interest’ from local government entities in breach of contract claims, resolving a
misinterpretation of the law. Government Code, sec. 2251.042, which allows for prompt pay
interest from a governmental entity, was enacted in 1993. Local Government Code, sec. 271-
153, which provides for ‘interest as allowed by law’ in a contract claim against a local
government, was enacted in 2005. Therefore, prompt pay interest should be interest allowed
by law in 2005. However, recent court decisions in this area have not been consistent with
the plain meaning of the law. HB 345 would clarify this issue.” House Comm. on Judiciary
and Civil Jurisprudence, Bill Analysis, Tex. H.B. 345, 82nd Leg., R.S. (2011)(“Supporters Say,”
emphasis added) (courtesy copy attached). 

                                               5
HOU 408242630v6
 

                                  Respectfully submitted,

                                  /s/Roland Garcia
                                  Roland Garcia, Esq.
                                  State Bar 97645250
                                  Jennifer Tomsen, Esq.
                                  State Bar No. 24064535
                                  GREENBERG TRAURIG, LLP
                                  1000 Louisiana Street, Suite 1700
                                  Houston, Texas 77002
                                  Telephone (713) 374-3500,
                                  Facsimile (713) 374-3505
                                  garciar@gtlaw.com
                                  tomsenj@gtlaw.com

                                  Andrew Mytelka, Esq.
                                  Joseph Russo, Esq.
                                  GREER, HERZ & ADAMS, LLP
                                  1 Moody Plaza, Floor 18
                                  Galveston, Texas 77550
                                  Telephone: (409) 797-3200
                                  Facsimile (409) 766-6424
                                  amytelka@greerherz.com
                                  jrusso@greerherz.com

                                  COUNSEL FOR APPELLEE

                          CERTIFICATE OF SERVICE

      This will certify that a true and correct copy of the foregoing was served on
      th
the 7 day of January, 2015 via electronic filing on all counsel of record.

                                        /s/ Roland Garcia
                                        Roland Garcia

                         CERTIFICATE OF COMPLIANCE

           This Brief complies with the type-volume limitation of TEX. R. APP. P.

9.4(i)(2)(B) because the aggregate of all of Appellee’s briefs contain fewer than

                                          6
HOU 408242630v6
 

27,000 words, excluding the parts of the Brief exempted under the Rule.

                                     /s/ Roland Garcia
                                     Roland Garcia
                                     Attorney for Appellee CDM Smith Inc.

                                        7
HOU 408242630v6
      TEXAS SESSION LAWS 2011
                          GENERAL AND SPECIAL
           Eighty-Second Legislature, Regular Session

                                         CHAPTER 226

                                          H.B. No. 345
                                              AN ACT
relating to limitations on awards in an adjudication brought against a local governmental entity for
breach of contract.
  Be it enacted by the Legislature of th6 State of Tems:
   SECTION 1. Section 271.153(a), Local Government Code, is amended to read as follows:
   (a) The total amount of money awarded in an adjudication brought against a local
governmental entity for breach of a contract subject to this subchapter is limited to the
following:
      (1) the balance due and owed by the local governmental entity under the contract as it
   may have been amended, including any amount owed as compensation for the increased
   cost to perfonn the work as a direct result of owner-caused delays or acceleration;
      (2) the amount owed for change orders or additional work the contractor is directed to
   perfonn by a local governmental entity in connection with the contract;
      (S) reasonable and necessary attorney's fees that are equitable and just; and
      (4) interest as allowed by law, including interest as calculated unckr Chapter ~51,
  Govemment Code.
   SECTION 2. The change in law made by this Act applies only to an adjudication
commenced on or after the effective date of this Act. An adjudication commenced before the
effective date of this Act is governed by the law applicable to the adjudication immediately
before the effective date of this Act, and the fonner law is continued in effect for that
purpose.
  SECTION 8. This Act takes effect September 1, 2011.
  Passed by the House on April 19, 2011: Yeas 142, Nays 0, 2 present, not voting; the
       House concurred in Senate amendments to H.B. No. 345 on May 19, 2011: Yeas
       140, Nays 0, 2 present, not voting; passed by the Senate, with amendments, on May
       17,2011: Yeas 31, Nays 0.
  Approved June 17, 2011.
  Effective September 1, 2011.

                                        CHAPTER 227
                                          H.B. No. 350
                                              AN ACT
relating to discharging fines and costs assessed against certain juvenile defendants through communi-
ty service or tutoring.
                                                809
LIMITATIONS ON AWARDS IN AN ADJUDICATION ... , 2011 Tex. Sess. Law •.•

                                2011 Tex. Sess. Law Serv. Ch. 226 (H.B. 345) (VERNON'S)

                                      VERNON'S TEXAS SESSION LAW SERVICE 2011

                                         Eighty-Second Legislature, 2011 Regular Session

                                       Additions are indicated by ;J!~~; deletions by +tm.
                                                Vetoes are indicated by
                                                  stricken material by ·'

                                      CHAPTER226
                                       H.B.No.345
    LIMITATIONS ON AWARDS IN AN ADJUDICATION BROUGHT AGAINST A LOCAL GOVERNMENTAL
                             ENTTIY FOR BREACH OF CONTRACT

                                                           AN ACT
   relating to limitations on awards in an adjudication brought against a local governmental entity for breach of contract.

                                     Be it enacted by the Legislature of the State of Texas:

SECTION 1. Section 271.153(a), Local Government Code, is amended to read as follows:

                                              << TX LOCAL GOVT § 271.153 »
(a) The total amount of money awarded in an adjudication brought against a local governmental entity for breach of a
contract subject to this subchapter is limited to the following:

  (1) the balance due and owed by the local governmental entity under the contract as it may have been amended, including
  any amount owed as compensation for the increased cost to perfonn the work as a direct result of owner-caused delays or
  acceleration;

  (2) the amount owed for change orders or additional work the contractor is directed to perform by a local governmental
  entity in connection with the contract;

  (3) reasonable and necessary attorney's fees that are equitable and just; and

  (4) interest as allowed by law,lit~'Cl.~t(iiig:ljnteT:~S:t:aS'~a1culat~i:i;iulidet.lCiia:Pter tlSt, GovernmenfCode.

                                           «Note: TX LOCAL GOVT § 271.153 >>

SECTION 2. The change in law made by this Act applies only to an adjudication commenced on or after the effective date of
this Act. An adjudication commenced before the effective date of this Act is governed by the law applicable to the
adjudication immediately before the effective date of this Act, and the former law is continued in effect for that purpose.

SECTION 3· This Act takes effect September 1, 2011.

WestlawNext © 2014 Thomson Reuters. No claim to original U.S. Government Works.
LIMITATIONS ON AWARDS IN AN ADJUDICATION .•. , 2011 Tex. Sess. Law..•

  Passed by the House on April 19, 2011: Yeas 142, Nays 0, 2 present, not voting; the House concurred in Senate
  amendments to H.B. No. 345 on May 19, 2011: Yeas 140, Nays 0, 2 present, not voting; passed by the Senate, with
  amendments, on May 17,2011: Yeas 31, Nays 0.

Approved June 17,2011.
Effective September 1, 2011.
End of Document                                            © 2014 Thomson Reuters. No claim to original U.S. Government Works.

WestlawNext © 2014 Thomson Reuters. No claim to original U.S. Government Works.                                             2
HOUSE
RESEARCH                                                                               HB345
ORGANIZATION bill analysis                 4/18/2011                              Kleinschmidt

SUBJECT:         Payment of interest by a local government in a breach of contract suit

COMMITTEE:       Judiciary and Civil Jurisprudence -favorable, without amendment

VOTE:             10 ayes- Jackson, Lewis, Bohac, S. Davis, Hartnett, Madden, Raymond,
                  Scott, Thompson, Woolley

                 Onays

                  1 present not voting -   Castro

WITNESSES:        For- Timothy Ross, Associated Builders & Contractors of Texas;
                  (Registered, but did not testify: Jon Fisher, Associated Builders &
                  Contractors of Texas; Corbin VanArsdale, Associated General
                  Contractors of America-Texas Building Branch; Michael White, Texas
                  Construction Association)

                 Against- None

BACKGROUND:      Under Local Government Code, sec. 271.152, a local government entity
                 waives sovereign immunity from a civil lawsuit for the purposes of a
                 breach of contract claim. Sec. 271.153limits the available damages in
                 breach of contract claims against a local government entity. Damages are
                 limited to the balance due and owed, including any amounts owed for the
                 increased cost of performing the work due to owner-caused delays or
                 acceleration, change orders or additional work the contractor must perform
                 in connection with the contract, attorney's fees, and interest as allowed by
                 law.

                 Government Code, sec. 2251.042 governs disputed invoices with a
                 governmental entity. If a dispute is resolved in favor of the vendor, the
                 vendor is entitled to receive interest on the unpaid balance of the invoice
                 beginning on the date that the payment is overdue. If a dispute is resolved
                 in favor of the governmental entity, the vendor must submit a corrected
                 invoice, and the unpaid balance accrues interest if the corrected invoice is
                 not paid by the appropriate date.
                 \
                                   HB345
                          House Research Organization
                                    page2

DIGEST:      HB 345 would allow a plaintiff in a breach of contract claim against a
             local government entity to recover interest as allowed by law, including
             interest on the unpaid balance of a disputed, overdue payment as provided
             by Government Code, sec. 2251.042.

             The bill would take effect on September 1, 2011, and would apply only to
             suits commenced on or after the effective date.

SUPPORTERS   HB 345 would allow for the recovery of "prompt pay interest" from local
SAY:         government entities in breach of contract claims, resolving a
             misinterpretation of the law. Government Code, sec. 2251.042, which
             allows for prompt pay interest from a governmental entity, was enacted in
             1993. Local Government Code, sec. 271.153, which provides for "interest
             as allowed by law" in a contract claim against a local government, was
             enacted in 2005. Therefore, prompt pay interest should be interest allowed
             by law in 2005. However, recent court decisions in this area have not been
             consistent with the plain meaning of the law. HB 345 would clarify this
             issue.

OPPONENTS    Creating an additional fmancial obligation for local governments could
SAY:         add further strain in a tight budget environment.

NOTES:       The companion bill, SB 1382 by Wentworth, was referred to the
             Intergovernmental Relations Committee on March 22.
                                             BILL ANALYSIS

     Senate Research Center                                                              C.S.H.B. 345
     82R26295 NC-F                                                       By: Kleinschmidt (Wentworth)
                                                                           Intergovernmental Relations
                                                                                             5/5/2011
                                                                        Committee Report (Substituted)

     AUTHOR'S I SPONSOR'S STATEMENT OF INTENT

     Current law specifies that a local government entity that is authorized to enter into certain
     contracts waives its right to sovereign immunity for a breach of contract claim relating to that
     contract. This wavier allows a contractor to sue that local government entity for nonpayment.
     Other statutory provisions specify the types of recovery available to plaintiffs in such a breach of
     contract dispute. In general, a contractor, subcontractor, or supplier is entitled under state law to
     receive interest, commonly called prompt pay interest, on past due payments for work performed
     on a public construction project owned by the state or other governmental entity. Some
     interested parties contend that recent court decisions have misinterpreted Texas law regarding
     whether prompt pay interest on public jobs is barred by governmental immunity. H.B. 345
     seeks to clarify that issue.

     C.S.H.B. 345 amends current law relating to limitations on awards in an adjudication brought
     against a local governmental entity for breach of contract.

     RULEMAKING AUTHORITY

     This bill does not expressly grant any additional rulemaking authority to a state officer,
     institution, or agency.

     SECTION BY SECTION ANALYSIS

     SECTION I. Amends Section 271.153(a), Local Government Code, as follows:

             (a) Provides that the total amount of money awarded in an adjudication brought against a
             local government entity for breach of a contract subject to this subchapter is limited to
             certain amounts, including as calculated under Chapter 2251 (Payment for Goods and
             Services), Government Code.

     SECTION 2. Makes application of this Act prospective.

     SECTION 3. Effective date: September 1, 2011.

SRC-BCD C.S.H.B. 345 82(R)                                                                          Page I oft