Design Tech Homes, Ltd. and Design Tech Homes of Texas, LLC v. Mary Maywald and Randy Maywald

In The

Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-11-00589-CV
____________________

DESIGN TECH HOMES, LTD. AND
DESIGN TECH HOMES OF TEXAS, LLC, Appellants

V.

MARY MAYWALD AND RANDY MAYWALD, Appellees
_______________________________________________________ ______________

On Appeal from 359th District Court
Montgomery County, Texas
Trial Cause No. 09-09-08476-CV
________________________________________________________ _____________

MEMORANDUM OPINION

Mary and Randy Maywald contracted with Design Tech Homes, L.P. and

Design Tech Homes of Texas, LLC (collectively referred to as DTH) to build a

house. The Maywalds sued DTH because the house had foundation problems.

DTH appeals the trial court’s judgment awarding the Maywalds actual damages,

prejudgment interest, additional DTPA damages, and attorney fees.

1
 THE FIRST AND SECOND CONSTRUCTION AGREEMENTS

The Maywalds entered into an initial Construction Agreement with DTH on

January 13, 2000. The agreement was revised and the Maywalds and a DTH

representative signed the second Construction Agreement on February 24, 2000. In

the agreement, the Maywalds agreed to pay $109,696 to DTH for the construction

of a residence. The agreement included a reference to an “ACES Builder Limited

Warranty,” and disclaimed and waived other warranties.

The ACES limited warranty was purchased by DTH for the Maywalds, and

the cost of the warranty was included in the contracted cost of the house. The

Maywalds were given the ACES “Builder Limited Warranty and Performance

Standards” which explains that the builder is the warrantor and ACES is the

warranty administrator. The ACES warranty states that “[s]ubject to the provisions

of this Limited Warranty, builder will repair or replace a Major Structural Failure

occurring during the ten year warranty period.” The ACES warranty states that the

determination of whether a foundation failure has occurred is based on calculations

pursuant to the “Foundation Stability Guide,” and the warranty provides the

process for a foundation failure claim by a homeowner.

2
 THE THIRD CONSTRUCTION CONTRACT

On March 14, 2000, the Maywalds and DTH signed a third contract: the

“Residential Construction Contract (with Transfer of Lien to Lender).” The

Residential Construction Contract states, “Contractor agrees to furnish and pay for

all work and materials . . . needed to construct the Improvements not later than the

Completion Date in a good and workmanlike manner according to the Plans and

Specifications.”

The contract provided further that “[t]his Contract constitutes the final

expression of the parties with respect to the matters in it, all other discussions,

agreements and contracts being replaced hereby and merged herein.” The contract

incorporated by reference any “work agreement or construction contract” executed

by the contractor and homeowner, but stated that “[s]uch incorporation is not

intended to and shall not amend, supersede or qualify in any way the terms and

conditions of this Contract and to the extent they contain conflicting provisions, the

provisions of this Contract shall control.”

THE EVIDENCE

In 2001, the Maywalds began noticing problems with the house. In 2003, the

Maywalds contacted DTH regarding “cracking in the ceiling, in the living room

and some nail pops[.]” DTH sent a repair crew and the crew put putty in the cracks

3
and painted the sheetrock. According to Mary, she contacted DTH four to eight

months later for additional repairs, and the Maywalds and DTH “had numerous

phone calls back and forth trying to reschedule, reschedule, reschedule” due to

scheduling conflicts of both parties. In 2003, a DTH representative looked at the

damage and told the Maywalds there was no foundation problem. Mary testified

that she believed DTH because they were experts in construction.

Mary testified that up until 2008 they believed the assertions by DTH that

there was no foundation problem. The damage had become “[e]xtremely worse” by

2008. In 2008 DTH again represented that there was no foundation problem. After

the Maywalds witnessed more cracks in the tile and sheetrock, doors “sticking and

coming out of square[,]” “reoccurring nail pops,” and the cracks spreading

throughout the house and getting worse, the Maywalds decided DTH was lying and

that, in fact, there was a foundation problem. The Maywalds filed a claim in 2008

under the ACES warranty. The Maywalds contracted foundation repair companies

in 2007 and 2008.

Pursuant to the ACES warranty, homeowners who believe they have a

foundation failure must give written notice to the builder no later than thirty days

after the expiration of ten years of coverage. The builder then will inspect the

foundation and notify the homeowner whether a foundation failure has occurred. If

4
the homeowner disagrees with the determination, the homeowner chooses an

inspector from ACES’s list of foundation inspectors to inspect the house and

determine, pursuant to the Foundation Stability Guide, whether a foundation

failure has occurred. If the inspector’s report finds no foundation failure, the

homeowner has the right to select an engineer from ACES’s foundation engineer

list to perform an additional inspection. If, after the issuance of the engineer’s

inspection report, the builder and the homeowner do not agree whether a

foundation failure has occurred, then the alternative resolution procedure

(requiring mediation) of the warranty applies.

In February 2008, an engineer sent by ACES and a DTH representative

visited the Maywald’s home. ACES sent another independent engineer in August

2008. Both engineers inspected the home and scored the damage according to a

“foundation performance worksheet.” A score of “25” or more constituted a

“Foundation Failure.” Both engineer reports scored the damage to the Maywalds

home less than a “25”.

Sean Dunbar, Vice President of Operations for DTH, testified that the first

time he went to the Maywalds’ house was with one of the ACES engineers in

2008. According to Dunbar, there was a drainage problem with the Maywalds’ lot

because of the Maywalds’ addition of a circular driveway and landscaping. The

5
cracks observed by Dunbar appeared to him as only hairline cracks. Dunbar did

admit that what he saw was not “normal” but he claimed he was not qualified to

say whether or not it constituted foundation failure.

The parties attended a mediation. On May 20, 2009, DTH proposed a

settlement offer to re-tile the Maywalds’ floor if the Maywalds would install

gutters and alter the slope and drainage pattern on the lot to allow for more positive

drainage. DTH also offered to pay $1,500 on the Maywalds’ attorney fees. Mary

testified that in 2009 the cracks were in the foundation and replacing the tile would

not have fixed the cracks. In September 2009, the Maywalds filed suit against DTH

for DTPA violations, common law and statutory fraud, breach of contract and

breach of express warranties, negligent misrepresentation, and breach of common

law implied warranties.

Mary testified that at the time of trial she had collected pieces of the tile

floor that were coming up, materials that were falling out of the expansion joint,

and plaster that had fallen off the ceiling, and these items were admitted into

evidence. Photographs of the house in 2009 and just prior to the time of trial were

also admitted into evidence. Mary testified that at the time of trial there were more

cracks in their house, that the cracks increased in size, and that the longest crack

runs all the way across the house.

6
 Gary Boyd, a registered professional engineer, testified for the Maywalds.

Boyd visited the Maywalds’ house on four occasions. His first visit was in May of

2010. He did not notice anything unusual regarding the driveway. He testified that

he saw floor cracks in the ceramic tile that went “all the way across the tile from

one extreme to the other.” He explained that some of the cracks that “stop and

feather down in the bathroom . . . pick up again one or two, three feet over and

continue and get wider toward the edge of the foundation.” In May of 2010 there

were signs of distress in the sheetrock and symptoms of “differential foundation

movement or at least from movement which is due to foundation movement.”

Concerning the exterior of the house, Boyd noted that the expansion joint in the

brick veneer had separated. He described the foundation settlement as “moving

beyond what is tolerable.” He took measurements of elevations, slopes, and

deflections, and determined that the Maywalds’ foundation was defective. Boyd

testified that the Maywalds’ house was not built according to the plans and

specifications provided to the Maywalds by DTH. Boyd explained that the

deviances make a difference in the foundation’s performance. Boyd’s expert

opinion was that the foundation was not built in a good and workmanlike manner.

In determining the foundation is defective, Boyd used the Standard Guideline for

7
Engineers which gives criteria to use to determine whether or not a foundation

passes or fails.

Boyd explained that the proper way to repair the foundation would be to lift

the foundation by tunneling under the house and putting perimeter piers around the

outside. Because this process would impact the drain line system, Boyd included

plumbing in determining the necessary cost of repairing the foundation and

testified that the total cost would be $55,000-$60,000. In May 2010, a construction

consultant for the Maywalds estimated that, in addition to the foundation repair,

the repairs to the interior of the home would be $43,672.06.

JURY VERDICT

The jury found that DTH engaged in a false, misleading, or deceptive act or

practice, and that the Maywalds relied on, to their detriment, the act or practice that

proximately caused their damages. The jury also found that DTH’s failure to

comply with a warranty proximately caused the Maywalds’ damages, and that

DTH failed to comply with its agreement with the Maywalds. The jury found that

the percentage of responsibility for the damages to the Maywalds’ house should be

attributed 15% to the Maywalds and 85% to DTH. The trial court denied DTH’s

motion for judgment notwithstanding the verdict, and signed a judgment awarding

damages, prejudgment interest, and attorney fees.

8
 THE DISCOVERY RULE

In their first two issues, appellants argue the trial court erred in denying their

motion for judgment notwithstanding the verdict. Contending the Maywalds’

claims are barred by the statute of limitations, appellants first assert the Maywalds

did not plead the discovery rule. The facts pleaded in the Maywalds’ petition and

the evidence admitted regarding when the Maywalds discovered the damage put

DTH on notice that the Maywalds were seeking the application of the discovery

rule. The evidence relating to the application of the discovery rule was introduced

without objection. It was not until DTH made its motion for directed verdict that

DTH argued that the Maywalds failed to plead the discovery rule. The trial court

reasonably concluded that the application of the discovery rule was tried by

consent. Parker v. Parker, 897 S.W.2d 918, 929 (Tex. App.—Fort Worth 1995),

disapproved of on other grounds, Formosa Plastics Corp. USA v. Presidio Eng’rs

and Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998); see generally Murray v. O

& A Express, Inc., 630 S.W.2d 633, 636-37 (Tex. 1982).

The appellants also argue that, when the discovery rule is applied, the

Maywalds’ claims of negligent misrepresentation and DTPA violations accrued

before September 2, 2007, and that the Maywalds’ claims of breach of contract and

breach of express or implied warranty accrued by December 31, 2007. The

9
Maywalds filed suit in September 2009. The discovery rule is a limited exception

to the statute of limitations. Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d

453, 455 (Tex. 1996). When the nature of the injury is inherently undiscoverable,

courts apply the discovery rule. Id. at 456. Only when it is difficult for the injured

party to learn of the negligent act or omission should the discovery rule be applied.

Id. (citing Willis v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988)). For both DTPA

and common-law causes of action, accrual occurs when the plaintiff knew or

should have known of the wrongful injury. KPMG Peat Marwick v. Harrison Cnty.

Fin. Corp., 988 S.W.2d 746, 749-50 (Tex. 1999); see also Tex. Bus. & Com. Code

Ann. § 17.565 (West 2011).

The Supreme Court in Gonzales v. S.W. Olshan Found. Repair Co., LLC.,

No. 11-0311, 2013 Tex. LEXIS 231 (Mar. 29, 2013), recently discussed the

discovery rule in the context of DTPA claims in a foundation case. There, the

homeowner hired a plumber to repair water leaks under the homeowner’s

foundation and hired Southwest Olshan Foundation Repair Company to repair

foundation problems. Id. at **2-3. The foundation repair contract included a

“lifetime, transferrable warranty on the work requiring Olshan to adjust the

foundation due to settling.” Id. at *3. The contract further provided that Olshan

10
‘“perform all the necessary work in connection with this job . . . in a good and

workmanlike manner.”’ Id.

In April 2002, Gonzales noticed doors not locking, windows not opening,

and new cracks appearing in previously repaired walls. Id. She notified Olshan and

her property insurer and both informed her there were additional plumbing leaks.

Id. In May 2003, Olshan excavated tunnels under the house and a plumbing

company repaired the leaks. Id. In August 2003, Olshan leveled the foundation. Id.

Olshan leveled the foundation again in October 2003 and, according to Gonzales,

an Olshan employee informed her during this work that Olshan was ‘“not doing a

good job under the home. . . . In fact, it’s the worst job I have ever seen.”’ Id. at

**3-4. The employee warned Gonzales not to allow Olshan to fill in the tunnels

because the foundation had not been repaired properly, and he told her to contact

an attorney. Id. at *4. She did not allow Olshan to fill the tunnels despite Olshan’s

continued representations that there was no problem and that they needed to fill in

the tunnels. Id. at **4-5. In May 2006, Gonzales noticed more cracking and hired

an engineer to inspect her home. Id. at *5. The engineer determined that Olshan

improperly repaired the foundation. Id. Gonzales filed suit in June 2006. Id.

The Supreme Court held that Olshan’s express warranty superseded the

implied warranty of good and workmanlike repair, and the jury’s finding that

11
Olshan did not breach the express warranty precluded liability on Gonzales’s

warranty claims. Id. at *7. As for Gonzales’s DTPA claims, the Supreme Court

held that they were time-barred because her conversation with the Olshan

employee conclusively established that she knew of the injury in October 2003. Id.

at *16.

Mary explained that until 2008 she relied on DTH’s representations that

there was no foundation problem and that the cracks were attributable to normal

settlement. Mary testified that in 2008 she no longer believed DTH’s

representations and filed an ACES warranty claim. In May 2009, DTH offered to

retile the Maywalds’ flooring if the Maywalds would alter the drainage pattern of

their property. The jury found that the Maywalds “knew of, or, in exercise of

reasonable diligence, should have discovered the injury to their property” by

January 2008, and that the Maywalds should “have discovered all the false[,]

misleading, or deceptive acts or practices of Design Tech” by May 2009. The

lawsuit was filed in September 2009, within two years of when the jury found the

Maywalds should have discovered the foundation problems. Considering the

evidence presented, the jury could reasonably find that the Maywalds relied on

DTH’s representations; sufficient evidence supports the jury’s findings. The trial

12
court did not err in denying the motion for judgment notwithstanding the verdict.

Issue one is overruled.

THE DISCLAIMER

In their second issue, DTH contends that the trial court should have

dismissed all express or implied warranty claims because all warranties, except the

ACES warranty which was not breached, were disclaimed in the Construction

Agreement. But after the agreement disclaiming warranties, the parties on March

14, 2000, executed the Residential Construction Contract. The Residential

Construction Contract stated that DTH would construct the house in “a good and

workmanlike manner according to the [p]lans and [s]pecifications.” The contract

provided that any previous work agreement or construction contract “shall not

amend, supersede or qualify in any way the terms and conditions of this

Contract[,]” and also provided that the contract constituted “the final expression of

the parties with respect to the matters in it, all other discussions, agreements and

contracts being replaced and merged herein.” The trial court did not err in giving

effect to the language of the parties’ final written agreement.

Relying on Gonzales, DTH argues that the Maywalds were limited to an

express warranty claim under the ACES limited warranty “which was neither pled

nor proven” because the express warranty to perform the work in a good and

13
workmanlike manner “supersedes the common law gap-filling warranty of good

and workmanlike performance.” The Supreme Court held in Gonzales that

Olshan’s express warranty to perform the work in a good and workmanlike manner

superseded the implied warranty of good and workmanlike repair. Gonzales, 2013

Tex. LEXIS 231, at *8. In that case, unlike here, the jury found the express

warranty was not breached. The Maywalds do not rely on a “gap-filling” implied

warranty. The Residential Construction Contract includes an express warranty of

good and workmanlike performance. Issue two is overruled.

SUFFICIENCY OF THE EVIDENCE

In issues three, four, and five, DTH raises legal sufficiency points: no

evidence that DTH breached the ACES warranty or that any workmanship issue

proximately caused failure, no evidence that supports a finding of “reliance” or

“proximate cause” under the DTPA, and no evidence to support a finding of

liability under the doctrine of negligent misrepresentation. When confronted with

conflicting evidence, a factfinder may sometimes rationally choose to believe one

witness and disbelieve another, may resolve inconsistencies in the testimony of any

witness, or may reject expert testimony. See City of Keller v. Wilson, 168 S.W.3d

802, 819-20 (Tex. 2005). In addition to the evidence that two engineers sent out by

ACES determined that the Maywalds’ foundation had not failed, the jury also

14
heard Boyd’s expert testimony that the Maywalds’ foundation was defective and

was not constructed in a good and workmanlike manner. Despite the express

warranty in the final Residential Construction Contract, DTH attempted to limit the

home warranty to the ACES limited warranty. The jury viewed photographs of the

condition of the house at various times. Boyd testified that DTH failed to follow

the foundation plans and specifications that were part of the agreement between the

parties, and that the deviations from the plans and specifications resulted in the

foundation problems. In addition to Boyd’s testimony, the jury heard Mary

Maywalds’ testimony concerning the false representations of DTH and her reliance

upon them. The evidence is legally sufficient to support the jury’s findings. Issues

three, four, and five are overruled.

THE DTPA DAMAGES

In their sixth issue, DTH asserts that the Residential Construction Liability

Act in the Texas Property Code bars mental anguish damages and damages for a

“knowing” violation of the DTPA. DTH maintains that section 27.004(g) provides

the exclusive list of recoverable damages in a construction defect case. See Tex.

Prop. Code Ann. § 27.004(g) (West Supp. 2012). The Maywalds are seeking to

recover damages arising from a construction defect. See id. § 27.002(a)(1) (West

15
Supp. 2012).1 The RCLA controls to the extent of a conflict with other laws,

including the DTPA. Id. § 27.002(b) (West Supp. 2012).

Section 27.004(g) provides the following:

Except as provided by Subsection (e), in an action subject to this
chapter the claimant may recover only the following economic
damages proximately caused by a construction defect:

(1) the reasonable cost of repairs necessary to cure any construction
defect;
(2) the reasonable and necessary cost for the replacement or repair of
any damaged goods in the residence;
(3) reasonable and necessary engineering and consulting fees;
(4) the reasonable expenses of temporary housing reasonably
necessary during the repair period;
(5) the reduction in current market value, if any, after the construction
defect is repaired if the construction defect is a structural failure;
and
(6) reasonable and necessary attorney’s fees.

Tex. Prop. Code Ann. § 27.004(g).

Asserting that the RCLA does not bar claims for mental anguish and for

“exemplary” damages under the DTPA, the Maywalds rely on this Court’s opinion

in Sanders v. Construction Equity, Inc., 42 S.W.3d 364 (Tex. App.—Beaumont
1
Because the Maywalds’ cause of action accrued in 2008 and none of the
subsequent amendments affect the outcome of this appeal, the current version of
sections 27.002, 27.003, and 27.004 of the Texas Property Code applies. See Act of
June 2, 2003, 78th Leg., R.S., ch. 458, § 2.07(a), 2003 Tex. Gen. Laws 1703, 1728
(“The changes in law made by this article to Sections 27.002, 27.003, and 27.004,
Property Code, apply only to a cause of action that accrues on or after the effective
date of this Act.”); Act of May 24, 2007, 80th Leg., ch. 843, §§ 2, 3, 2007 Tex.
Gen. Laws 1752, 1753.
16
2001, pet. denied). This Court held in Sanders that the RCLA limits compensatory

damages in construction defect cases to those enumerated in section 27.004. See

Sanders, 42 S.W.3d at 372. In Sanders we addressed a prior version of section

27.004. The Legislature changed the limitation for “damages” to a limitation on the

“economic damages,” and also defined economic damages. See Tex. Prop. Code

Ann. §§ 27.004(g); 27.001(6) (West Supp. 2012).

In the final judgment, the trial court awarded the Maywalds “actual damages

in the amount of $72,675.00, plus prejudgment interest in the amount of $5,985.59,

plus additional damages pursuant to Chapter 17 of the Texas Business and

Commerce Code in the amount of $20,000.00, for a total amount of $98,660.59.”

Although the jury verdict also included a finding of $10,000 for mental anguish,

the trial court apparently did not include that amount in the final judgment.

In DTH’s motion for judgment notwithstanding the verdict, DTH requested

that the trial court sign a JNOV reflecting a take-nothing judgment, or in the

alternative, sign a judgment that did not include $20,000 for a “knowing” violation

of the DTPA. DTH argues on appeal that the $20,000 DTPA additional damages

should be deleted.

Additional damages for “knowing” violations under the DTPA are

considered punitive in nature. See PPG Indus., Inc. v. JMB/Houston Ctrs. Partners

17
Ltd. P’ship, 146 S.W.3d 79, 89 (Tex. 2004). Section 27.004(g) restricts economic

damages, not punitive damages. See Sanders, 42 S.W.3d at 371-72 (exemplary

damages not precluded by RCLA); see also Tex. Prop. Code Ann. §§ 27.004(g);

27.001(6) (Economic damages do “not include exemplary damages or damages for

physical pain and mental anguish . . . [.]”). RCLA does not bar additional damages

under the DTPA for knowing violations. Issue six is overruled. The trial court’s

judgment is affirmed.

AFFIRMED.

________________________________
DAVID GAULTNEY
Justice

Submitted on January 17, 2013
Opinion Delivered June 13, 2013

Before Gaultney, Kreger, and Horton, JJ.

18