Spring 2015

Immunity from Breach of Contract Claims

Zachry Construction Corporation contracted to construct a wharf on the Bayport Ship Channel for the Port of Houston Authority of Harris County, Texas.  The contract made Zachry an independent contractor in sole charge of choosing the manner in which the work would be conducted.  Nine months into the project, the Port needed to make significant changes to the project, and the parties negotiated a $12 million change order.  Despite promises to the contrary made during negotiations, the Port began withholding liquidated damages for delays in completion of the project from Zachry’s payments.

Zachry sued claiming $30 million in damages from delays caused by the Port.  The Port argued that its contract with Zachry included a no-damages-for-delay provision, which stated that the Port would not be liable for any damages arising out of any delay, even if the delay was caused by the negligence, breach of contract or other fault of the Port.  The Port also argued that the Local Government Contract Claims Act (Texas Local Government Code sections 271.151-.160) does not waive governmental immunity from suit for any recovery a contract does not itself provide for.  Section 271.153 of the Act states that the total amount of money awarded in an adjudication brought against a local governmental entity for breach of a contract is limited to the balance due and owed under the contract, the amount owed for change orders or additional work, reasonable and necessary attorney's fees, and interest as allowed by law.

At trial, the jury concluded that Zachry’s delay damages resulted from the Port’s “arbitrary and capricious conduct, active interference, bad faith and/or fraud.”  The Texas Supreme Court concluded that a no-damages-for-delay provision was unenforceable because the Port’s intentional misconduct caused the delay.  The court also held that the Local Government Contract Claims Act waived the Port’s immunity from suit for a claim for delay damages even though such damages were not listed at Section 271.153 or expressly provided for in the contract.

The Texas Supreme Court delivered a 5-4 opinion and attorneys for the Port of Houston filed a motion for rehearing.  LAF filed a brief with the Texas Supreme Court supporting the Port of Houston’s motion for rehearing, arguing that the court’s construction of Section 271.153 exposes school districts to substantial open-ended liability and that the legislature did not waive sovereign immunity for delay compensation claims.

The Texas Supreme Court denied the motion for rehearing, effectively ending the Port of Houston’s appeal and making its decision final.  LAF’s Attorney: Brendan McBride, McBride Law Firm, San Antonio.