the Port of Houston Authority of Harris County, Texas v. Zachry Construction Corporation

ACCEPTED
14-10-00708-CV
FOURTEENTH COURT OF APPEALS
HOUSTON, TEXAS
7/13/2015 11:06:10 AM
CHRISTOPHER PRINE
CLERK

___________________ FILED IN
14th COURT OF APPEALS
HOUSTON, TEXAS
7/13/2015 11:06:10 AM
CHRISTOPHER A. PRINE
Clerk

___________________
Port of Houston Authority of Harris County, Texas,
Appellant,
v.
Zachry Construction Corporation,
Appellee.
On appeal from the 151st District Court of Harris
County, Texas Trial Court Cause No. 2006-72970

Post-Remand Supplemental Reply Brief of Appellant
_________________________________________________
David E. Keltner Marie R. Yeates
State Bar No. 11249500 State Bar No. 22150700
KELLY HART & HALLMAN LLP Catherine B. Smith
201 Main Street, Suite 2500 State Bar No. 03319970
Fort Worth, Texas 76102 Michael A. Heidler
Phone: 817.878.3560 State Bar No. 24059921
Fax: 817.878.9760 VINSON & ELKINS L.L.P.
david.keltner@kellyhart.com 1001 Fannin, Suite 2500
Houston, Texas 77002
David H. Brown Phone: 713.758.4576
State Bar No. 03109200 Fax: 713.615.5544
BROWN & KORNEGAY LLP myeates@velaw.com
2777 Allen Parkway, Suite 977
Houston, Texas 77019 Karen L.T. White
Phone: 713.528.3703 State Bar No. 20274500
Fax: 713.528.3701 KAREN L.T. WHITE, P.C.
dbrown@bkllp.com 1415 S. Voss, Suite 110-539
Houston, Texas 77057
Phone: 832.646.4667
karen@kltwpc.com
Attorneys for Appellant the Port of Houston Authority of Harris County, Texas
 TABLE OF CONTENTS

TABLE OF AUTHORITIES...................................................................................... v

RECORD REFERENCES....................................................................................... viii

INTRODUCTION ...................................................................................................... 1

ARGUMENT ............................................................................................................. 2

I. Liability Findings Fail as a Matter of Law..................................................... 2

A. PHA did not breach §5.10.................................................................... 2

1. Contract’s plain language authorized the R&R response. ......... 2

2. No Contract provision Zachry cites supports Zachry’s
argument that the R&R response breached §5.10...................... 3

a. §5.10’s plain language defeats Zachry’s argument. ........ 3

b. §5.22’s plain language defeats Zachry’s argument. ........ 4

c. Tech.Spec.02161’s plain language defeats
Zachry’s argument........................................................... 5

d. §4.07’s plain language defeats Zachry’s argument. ........ 6

B. The finding that PHA breached CO4 also fails as a matter of
law........................................................................................................ 6

C. Zachry has no answer to the charge error. ........................................... 8

II. The Damages Finding Fails as a Matter of Law. ........................................... 9

A. Draper assumed no time to remove 1,000 freeze pipes. ...................... 9

B. Draper assumed no cost to remove freeze pipes. ............................... 11

C. Draper assumed that Zachry could install sheet pile on
October 7, 2005, but Zachry was not ready to begin sheet pile
installation until November 15—40 days later than Draper
assumed.............................................................................................. 11

ii
 D. Draper’s assumptions—contrary to undisputed facts—make his
testimony no evidence........................................................................ 12

III. “But-for” Causation Fails as a Matter of Law for Lack of Expert
Testimony..................................................................................................... 12

IV. As a Matter of Law, Zachry Failed to Satisfy §5.42’s Condition
Precedent of Giving PHA’s Chief Engineer Written Notice of
Zachry’s Contention That the R&R Response Was Contrary to the
Contract. ....................................................................................................... 15

A. As Zachry does not deny, §5.42 is a condition precedent.................. 15

B. Unambiguously, §5.42 applies to Zachry’s contention that the
R&R response breached the Contract. ............................................... 16

C. Zachry is erroneously trying to invalidate §5.42 notice by
relying on §5.41’s change order requirement and Shintech............... 17

D. Zachry erroneously says it proved substantial compliance with
§5.42’s notice requirement................................................................. 21

E. The parties tried the issue whether Zachry gave §5.42 notice. .......... 22

V. PHA is Entitled to Segregated Attorneys’ Fees the Jury Found for
Zachry’s R&R Claim. .................................................................................. 23

VI. Invalid “Pass-Through” Claim: Zachry Recovered $8.578 Million in
Costs Incurred Not by Zachry, but by Another Entity (Question 5). ........... 24

A. A pass-through claim requires that the owner’s breach caused
the general contractor to breach. ........................................................ 25

B. Zachry misreads Interstate concerning when the burden of
proof shifts. ........................................................................................ 27

C. Zachry misreads the Master Services Agreement (“MSA”). ............. 27

VII. Erroneous Exclusion of PHA’s $8+ Million in Harms/Losses. ................... 28

A. PHA’s interrogatory response was timely. ........................................ 28

B. Zachry’s interrogatory and PHA’s response were not limited to
disclosing PHA’s harms/losses for proportionality of LDs. .............. 29

iii
 C. Excluding PHA’s $8+ million in harms/losses was harmful. ............ 29

VIII. Zachry Opened the Door to PHA’s Harms/Losses. ..................................... 30

A. Zachry misunderstands Horizon/CMS Healthcare v. Auld, 34
S.W.3d 887, 905-07 (Tex.2000) and misrelies on Hayden v.
State, 296 S.W.3d 549, 554 (Tex.Crim.App. 2009)........................... 31

B. The court’s erroneous exclusion of the open-the-door evidence
was harmful........................................................................................ 32

IX. Charge Error Skewed the Trial on the NDFD Exception for Fraud............. 32

X. The Erroneous Apparent Authority Instruction Skewed the Trial. .............. 33

A. The Contract Negated Apparent Authority. ....................................... 33

B. Additionally, Zachry did not plead apparent authority. ..................... 34

CERTIFICATE OF COMPLIANCE........................................................................ 37

CERTIFICATE OF SERVICE................................................................................. 38

iv
 TABLE OF AUTHORITIES

CASES

4901 Main v. TAS Auto.,
187 S.W.3d 627 (Tex.App.-Hous.[14th Dist.] 2006, no pet.)............................. 24

Abraham v. Union Pac. R.R.,
233 S.W.3d 13 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied) ........................ 12

American Airlines Employees Federal Credit Union v. Martin,
29 S.W.3d 86 (Tex.2000).................................................................................... 17

Arbor Windsor Court v. Weekley Homes,
2015 WL 1245548 (Tex.App.-Hous.[14th Dist.] 2015, no pet. h.)..................... 16

Argee v. Solis,
932 S.W.2d 39 (Tex.App.-Beaumont 1995) ....................................................... 19

Board of Regents v. S.&G Constr.,
529 S.W.2d 90 (Tex.Civ.App.-Austin 1975, writ ref’d n.r.e.)............................ 18

Burroughs Wellcome v. Crye,
907 S.W.2d 497 (Tex.1995)................................................................................ 12

Cajun Constructors v. Velasco Drainage Dist.,
380 S.W.3d 819 (Tex.App.-Hous.[14th Dist.] 2012, pet. denied) ...................... 16

Chevron Phillips Chem. v. Kingwood Crossroads,
346 S.W.3d 37 (Tex.App.-Hous.[14th Dist.] 2011, pet. denied) ........................ 24

Coastal Ref. & Mktg. v. U.S. Fid. & Guar.,
218 S.W.3d 279 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied) ...................... 23

Cont’l Oil v. Baxter,
59 S.W.2d 463 (Tex.Civ.App.-Eastland 1933, no writ)...................................... 35

Crown Life Ins. v. Casteel,
22 S.W.3d 378 (Tex.2000)............................................................................ 32, 33

Douglass v. Panama, Inc.,
504 S.W.2d 776 (Tex.1974)................................................................................ 33

v
Equitable Life v. Ellis,
147 S.W. 1152 (Tex.1912).................................................................................. 33

Green v. Solis,
951 S.W.2d 384 (Tex.1997)................................................................................ 19

Hanks v. GAB Bus. Servs.,
644 S.W.2d 707 (Tex.1982).......................................................................... 19, 20

Hayden v. State,
296 S.W.3d 549 (Tex.Crim.App. 2009).............................................................. 31

Horizon/CMS Healthcare v. Auld,
34 S.W.3d 887, (Tex.2000)................................................................................. 31

Houston Exploration v. Wellington,
352 S.W.3d 462 (Tex.2011).................................................................................. 4

Humble Nat. Bank v. DCV, Inc.,
933 S.W.2d 224 (Tex.App.-Hous. [14th Dist.] 1996, writ denied)..................... 33

Interstate Contracting v. City of Dallas,
135 S.W.3d 605 (Tex.2004).................................................................... 25, 26, 27

North Harris County Junior College Dist. v. Fleetwood Construction,
604 S.W.2d 247 (Tex.Civ.App.-Hous.[14th Dist.] 1980, writ ref’d n.r.e.)......... 18

Paramount National Life v. Williams,
772 S.W.2d 255 (Tex. App.—Hous.[14th Dist.] 1989, writ denied) .................. 34

Shintech, Inc. v. Group Constructors,
688 S.W.2d 144 (Tex.App.-Hous[14th Dist.] 1985, no writ) ................. 18, 19, 20

Tennessee Gas Pipeline v. Technip USA,
2008 WL 3876141 (Tex.App.-Hous.[1st Dist.] 2008, pet. denied)..................... 20

Texas Dep’t of Transp. v. Jones Bros.,
92 S.W.3d 477 (Tex.2002).................................................................................. 17

West v. Triple B. Services,
264 S.W.3d 440 (Tex.App.-Hous.[14th Dist.] 2008, no writ............................. 18

vi
Wolf Hollow I v. El Paso Mktg.,
409 S.W.3d 879 (Tex.App.-Hous.[14th Dist.] 2013), rev’d on other
grounds, 450 S.W.3d 121 (Tex.2014)................................................................... 4

STATUTES

Civil Practice & Remedies Code §16.071 .............................................................. 17

Civil Practice & Remedies Code §16.071(a).......................................................... 16

RULES

Fed. R. Evid. 403.................................................................................................... 31

vii
 RECORD REFERENCES
Clerk’s Record:
Clerk’s Record (Volumes 1-64) CR[volume]:[page]
Supp. Clerk’s Record (Volumes 1-6) SCR[volume]:[page]
Reporter’s Record:
Trial and post-trial hearings (Volumes 1-77) [volume]:[page]
E.g., Volume 16 at page 20 will be cited as “16:20”
Pre-trial hearings [(hearing date)]:[page]
E.g., the 9/18/09 hearing at page 20 will be cited as “(9/18/09):20”
Status Conference on 9/11/09 [volume][(hearing date)]:[page]
(only pre-trial hearing with more than one volume)
Plaintiff’s Exhibits (Volumes 78-99) PX[number]
Defendant’s Exhibits (Volumes 100-116) DX[number]
Court Only Exhibits (Volume 117) DX(Court Only):[number]
The Contract:
Contract §[General Condition number]
The Contract will be cited by General Condition number, not by
exhibit number. The General Conditions are in the Appendix.
Appendices:
PHA’s Appendix (Tabs 1-18) A[Tab]
The Appendix Index contains the record location for each document.
Zachry’s Appendix (Tabs 1-43) ZA[Tab]
Briefs:
Brief of Appellant Br.App’t
Brief of Appellee Br.App’e
PHA’s Post-Remand Supplemental Brief
of Appellant P.S.Br.
Zachry’s Supplemental Brief of Appellee Z.S.Br.

viii
Oral Argument Transcript:
The transcript of the oral argument before
the Court of Appeals in this case is attached
to PHA’s Post-Remand Supplemental
Brief of Appellant and cited in the format: OA:[page]:[line]

* Emphasis Is Added Throughout Brief Unless Otherwise Noted.

ix
 INTRODUCTION
Zachry (“Z.S.Br.”) discusses only Zachry’s R&R claim.1 Four

separate/independent grounds—not addressed by the Supreme Court—require

render against Zachry on its R&R claim.

First, the Contract’s face negates the jury’s liability findings that the R&R

response breached Contract §5.10 and Change Order 4 (“CO4”).

Second, Draper, Zachry’s sole damages expert, was unreliable—and his

testimony no evidence—because Draper assumed facts contrary to undisputed

facts.

Third, Zachry has no expert testimony on “but-for” causation—i.e., no

expert testified that, absent use of Zachry’s frozen-COW design or Mageau’s

alternative frozen-COW design, there was no way for Zachry to divide the project

so as to allow Zachry to continue working “in the dry.”

Fourth, Zachry failed to comply with §5.42’s conditions precedent that

Zachry give written notice, within five days, to PHA’s Chief Engineer of Zachry’s

contention that the R&R response, issued by CH2M’s Thiess, contravenes the

Contract.

Zachry’s R&R claim should be rendered on no liability, no damages, no

causation, and no compliance with conditions precedent. And Zachry’s R&R
1
Zachry does not mention its claim (which Zachry lost to the jury) for
$600,000 payment for dredging; nor does Zachry mention its claim for withheld
LDs. P.S.Br.69-70; infra p.29-30.

1
claim is, in any event, subject to a partial render because $8.578 million of the

R&R damages represent costs sustained not by Zachry but by a different entity.

The Supreme Court did not address any of these render arguments or PHA’s

multiple grounds for new trial. The R&R claim should be rendered against Zachry,

and PHA should be awarded the segregated attorneys’ fees for the R&R claim

found by the jury.

Zachry relies on the Supreme Court’s recitation of facts, but that Court was

not interpreting the Contract’s face or addressing PHA’s legal arguments on

remand. The Supreme Court remanded to this Court for that purpose.

ARGUMENT
I. Liability Findings Fail as a Matter of Law.

A. PHA did not breach §5.10.

1. Contract’s plain language authorized the R&R response.

 Contract Tech.Spec.02161 required Zachry to provide a Submittal,

including Zachry’s “means [and] methods,” for the frozen COW

because the frozen COW modified the main freeze wall, a shoring

wall;

 Contract §5.22 authorized PHA to require Zachry to revise and

resubmit Zachry’s frozen-COW design/Submittal based on PHA’s

concern that Zachry’s means/methods would not comply with the

Contract;

2
  Contract Tech.Spec.01500 required Zachry to “protect the Work,”

including the Wharf; and,

 §5.22 authorized the R&R response based on PHA’s concern that

Zachry’s frozen-COW design could endanger the Wharf’s structural

integrity.

PHA’s Post-Remand Supplemental Brief of Appellant (“P.S.Br.”) p.22-28.

Zachry argues that, in response to a Submittal required by Tech.Spec.02161,

PHA may require Zachry to revise and resubmit based only on whether the

Submittal complies with OSHA. Z.S.Br.28-29. But Zachry’s Contract

interpretation is unreasonable/absurd because it would require PHA to stand silent

when a Submittal, if implemented, could cause the Wharf to collapse. Zachry’s

expert Lacy agreed that PHA’s concern underlying the R&R response was

reasonable. 42:125; 43:18, 159-60.

2. No Contract provision Zachry cites supports Zachry’s
argument that the R&R response breached §5.10.

a. §5.10’s plain language defeats Zachry’s argument.

Zachry quotes §5.10 as stating that Zachry shall “prosecute the Work…in

such manner, using such methods as [Zachry] shall choose.” Z.S.Br.4. But

Zachry’s quotation leaves out §5.10’s proviso—appearing immediately after the

language Zachry quotes—stating:

3
 “provided, however, that the Work shall be
completed…in accordance with the Contract Documents
[the Contract].”

A15:§5.10. A “proviso must be construed as a limitation or restraint upon the

authority defined in the clause immediately preceding it.” Wolf Hollow I v. El

Paso Mktg., 409 S.W.3d 879, 888 (Tex.App.-Hous.[14th Dist.] 2013), rev’d on

other grounds, 450 S.W.3d 121 (Tex.2014). Zachry’s right to choose its

mean/methods is limited/restrained by §5.10’s proviso that Zachry must comply

with the Contract, including §5.22 authorizing the R&R response.

Zachry says §5.10 is “specific” and controls over §5.22, which Zachry

claims is “general.” Z.S.Br.27-28. Actually, §5.10 states that Zachry’s general

right to choose means/methods is subject to §5.10’s specific proviso that Zachry

must comply with the Contract.

b. §5.22’s plain language defeats Zachry’s argument.

Zachry says §5.22 “did not authorize PHA to control Zachry’s means and

methods.” Z.S.Br.29. But, as Justice Christopher’s pointed out, §5.22 authorized

the R&R response. OA:26:8-10. Because §5.22 is unambiguous, Zachry is wrong

to rely on parol evidence of Zachry’s witnesses’ belief that §5.22 would preclude

PHA from reviewing Zachry’s means/methods. Z.S.Br.30-31; Houston Exploration

v. Wellington, 352 S.W.3d 462, 469 n.25 (Tex.2011).

4
 Zachry says §5.22 does not apply to means/methods because §5.22 calls for

submittals to include “all…details of Work to be incorporated into the Project,”

and, according to Zachry, the Contract’s definition of “Work” excludes “Zachry’s

chosen means and methods.” Z.S.Br.30, 46. But the “Work” includes

means/methods because §1.42 defines “Work” to include “all labor, Materials,

Equipment and services…provided by [Zachry] to fulfill [Zachry’s] obligations

pursuant to the Contract.” A15:§1.42. And §1.30 defines “Project” to include the

Work. A15:§1.30.

The question is whether §5.22 authorized the R&R response, not whether

PHA was negligent/arbitrary as to issuance of the R&R response or not taking it

back (Z.S.Br.11). The Supreme Court cited facts relevant to the

arbitrary/capricious exception to the no-damages-for-delay (“NDFD”) provision,

but that Court did not address breach.

c. Tech.Spec.02161’s plain language defeats Zachry’s
argument.

Zachry argues that Tech.Spec.02161 “did not authorize PHA” to comment

on Zachry’s means/methods. Z.S.Br.28. But, as Zachry admits, Tech.Spec.02161

requires Zachry to submit its means/methods to PHA. Id. And §5.22 authorizes an

R&R response to that Submittal. Zachry says that Tech.Spec.02161 is “[s]ubject to

the General and Special Conditions” (id.), but the General and Special Conditions

include §5.22 (A15§5.22).

5
 Zachry says that PHA’s review of a Tech.Spec.02161 submittal was only “to

ensure the shoring plan satisfied OSHA safety rules.” Z.S.Br.29. But, as

explained above, Zachry’s interpretation would absurdly mean that PHA could not

respond to such a submittal based on PHA’s concern that Zachry’s frozen-COW

design threatened the Wharf’s structural integrity. Zachry cites parol evidence of

what witnesses thought §5.22 authorized. Z.S.Br.29. But parol evidence is not

relevant because §5.22 and Tech.Spec.02161 unambiguously authorize the R&R

response.

d. §4.07’s plain language defeats Zachry’s argument.

Zachry argues that §4.07 “forbids PHA control over Zachry’s health-and-

safety plans,” so Zachry says §4.07 precluded the R&R response. Z.S.Br.28. But,

while §4.07 says Zachry is responsible for health/safety of people on site, nothing

in §4.07 precluded the R&R response (authorized by §5.22) to the frozen-COW

Submittal (required by Tech Spec.02161) based on PHA’s concern for the Wharf’s

structural integrity. A15§4.07.

B. The finding that PHA breached CO4 also fails as a matter of law.

Nothing on the face of CO4, a three-page document (A21)—or the one-page

April 13, 2005 price proposal (A20)—supports Anderson’s interpretation of CO4.

Anderson—the only witness to testify about what Zachry intended CO4 to mean—

testified:

6
  use of the frozen COW was not a term of CO4, such that CO4 did not

obligate Zachry to use the frozen COW;

 under CO4, Zachry continued to have the right, option, or election

under §5.10 to choose whether to use, or not use, the frozen COW as

means/methods; and

 if Zachry elected to use the frozen COW, then, according to

Anderson, CO4 provided that PHA would no longer have §5.22 rights

to require Zachry to revise and resubmit Zachry’s frozen-COW

design.

15:61-62. But Zachry never explains what language in CO4 (or the April 13 price

proposal) supports Anderson’s notion that, in CO4, PHA gave up its §5.22 rights to

require Zachry to revise and resubmit if Zachry elected to use the frozen COW as

means/methods. The reference in the April 13 price proposal to a frozen COW

cannot reasonably be read to carry Anderson’s interpretation. Neither CO4 nor the

April 13 price proposal mentions §5.22, and CO4 states that all provisions of the

Contract not modified herein (such as §5.22) remain in effect. A20, A21.

Even if, due to the April 13 price proposal, CO4 was based on Zachry’s use

of a frozen COW, that would be no different from Zachry’s original proposal to

enter into the Contract being based on Zachry’s use of the main freeze wall. And,

7
PHA exercised its §5.22 right to require Zachry to revise and resubmit its design

for the main freeze wall to which Zachry complied. PX313, 922-23.

Zachry appears now to be reverting back to its pre-trial interpretation in

which Zachry claimed (1) use of the frozen COW was unambiguously a term of

CO4, such that (2) as a matter of law, Zachry was obligated to use the frozen COW

and PHA was obligated to let Zachry use the frozen COW. Z.S.Br.33-35;

P.S.Br.6. Zachry cannot now prevail on its pre-trial as-a-matter-of-law

interpretation because (1) as the trial court held, CO4 does not unambiguously

make use of the frozen COW a term binding on both parties (A6:13296)2, and

(2) Anderson testified that use of the frozen COW was not a term of CO4, and

Anderson said that, under CO4, Zachry was not obligated to use the frozen COW

(15:61-62).

C. Zachry has no answer to the charge error.

Over PHA’s objections, the court erroneously instructed the jury: “[i]n

answering [Question 1] you are not being asked to decide whether [PHA] failed to

comply with §5.10.” A27:24; A2:17390. CO4 incorporates the rest of the

Contract (including §5.10), so the jury could not decide whether PHA breached

CO4 without considering §5.10—especially given Anderson’s interpretation of

2
CO4 says Zachry will “perform [] in accordance with [Zachry’s price]
proposal dated July 11, 2005.” A21 at DX0052.004. The July 11 price proposal
does not mention a frozen COW.

8
CO4 that turns on §5.10. Zachry says this charge error is harmless because the

jury found that PHA failed to comply with §5.10. Z.S.Br.35. But the jury’s note

shows the instruction confused the jury. CR59:17445.

II. The Damages Finding Fails as a Matter of Law.

Expert Draper provided the only evidence on damages, calculating costs for

his hypothetical “in the dry” schedule for completing the project and then

subtracting those costs from Zachry’s actual costs to complete the project “in the

wet.” But Draper’s hypothetical schedule and costs are unreliable and no

evidence. P.S.Br.28-32.

A. Draper assumed no time to remove 1,000 freeze pipes.

Draper admitted he scheduled no time for removing 1,000 freeze pipes

buried, sometimes at angles, 100 feet into the earthen berm. 53:30-32.

Question: In your schedule, you don’t include any time for
removing the pipe, correct?

Draper: We have some float time in that schedule, so it would
allow for that, yes. We didn’t explicitly schedule the pipe
removal.

Question: It doesn’t appear anywhere in your schedule?

Draper: No…There wasn’t time to account for that.

Question: Thank you. And I know you have explanation and float
and all that. And you don’t include any costs for
removing that pipe either, do you?

Draper: No.

53:30.

9
 Zachry says Draper’s schedule had “float” time to cover removing freeze

pipes. Z.S.Br.38. But freeze-wall expert Mageau said it would take two to four

weeks to remove the freeze pipes. DX276.015.3 Draper never testified that (1) he

had two to four weeks of float for freeze-pipe removal, or (2) how much float was

in his schedule. Draper acknowledged that his schedule was extremely tight.

53:33. Draper’s reliance on float does not make his methodology reliable.

Left with no answer to Draper’s unreliable hypothetical schedule, Zachry

makes up evidence when Zachry says:

“[T]he day after pipe-removal started, Zachry would
begin the more time-consuming critical-path activity of
berm removal where the pipes had been removed. After
the first day, pipe and berm removal would proceed
simultaneously.”

Z.S.Br.38 (citing 53:29-30). Thus, Zachry tells this Court that Draper testified

that, on day one, Zachry would remove pipe at a first location on the berm, and

then on day two, Zachry would remove pipe at a second location on the berm while

(on day two) Zachry concurrently dredged the berm at the first location—with the

process proceeding seriatim for day three and forward. But Draper did not say

anything like this, either on pages Zachry cites (53:29-30) or anywhere else.

Draper did say that if Zachry had to remove the freeze pipes, then Zachry would

3
Mageau’s schedule cannot make Draper’s schedule reliable (Z.S.Br.18)
because, according to Mageau, Mageau’s schedule did not account for several
known problems Zachry was facing. (30:106-08, 116-17).

10
“lose a day.” Id. But Draper did not testify to the “day one, day two” seriatim

procedure for pipe removal that Zachry’s brief describes.

B. Draper assumed no cost to remove freeze pipes.

Draper conceded he did not “include any costs for removing [the freeze]

pipe.” 53:30, 32. Even under Zachry’s conjured-up “evidence” of the “day one,

day two” seriatim procedure for pipe removal, Zachry would need to pay for

workers and equipment to remove 1,000 deeply-buried freeze pipes.

C. Draper assumed that Zachry could install sheet pile on October 7,
2005, but Zachry was not ready to begin sheet pile installation
until November 15—40 days later than Draper assumed.

Zachry claims Anderson’s sheet pile testimony had to do with Mageau’s

alternative frozen COW (Z.S.Br.39), but regardless of which COW design was

used, Zachry would still need to install sheet pile (P.S.Br.31). Zachry disputes

PHA’s claim that, as of November 15, 2005, Zachry still was not ready to install

sheet pile. Z.S.Br.39. But Anderson, referring to “the status…on November 15,”

testified about “[e]verything else [that] has to be done for the cutoff wall,”

including “the sheet pile” that Zachry’s people still “weren’t ready for.” 14:101-

02. Zachry quotes Anderson’s testimony that sheet-pile installation would take “a

couple of days at best,” but Anderson was referring to “a couple of days” after

November 15. 14:102-03.

11
 Zachry says Draper had float to allow “sheet-pile installation to be delayed

until November 15 or later.” Z.S.Br.39-40. But Zachry’s cites do not support that.

Draper never said his schedule had 40 days of float.4

D. Draper’s assumptions—contrary to undisputed facts—make his
testimony no evidence.

The nature of construction scheduling makes it impossible to know how

Draper’s erroneous assumptions affected his “what-if” schedule and costs. Where,

as here, an expert’s assumptions are contrary to the undisputed facts, his opinion is

unreliable and no evidence. Burroughs Wellcome v. Crye, 907 S.W.2d 497, 499

(Tex.1995); Abraham v. Union Pac. R.R., 233 S.W.3d 13, 16–17 (Tex.App.-

Hous.[14th Dist.] 2007, pet. denied).

III. “But-for” Causation Fails as a Matter of Law for Lack of Expert
Testimony.

To prove “but-for” causation, Zachry needed expert testimony that, given

the R&R response, there was no way for Zachry to continue working “in the

dry”—i.e., there was no other cutoff wall that could have been used to divide the

project and thus allow Zachry to continue working “in the dry.” Zachry’s evidence

shows (1) the R&R response precluded Zachry from using Zachry’s frozen-COW

4
On July 11, 2015, Zachry filed with this Court a pleading styled NOTICE
OF INCORRECT CITATION, in which Zachry notes that its Supplemental Brief of
Appellee erroneously cited to PX580, which was not admitted in evidence and is
not in the record. 1:422; 3:420. Instead, Zachry now cites CR37:10572 and
CR44:12675, but neither shows Draper having 40 days of float for sheet-pile
installation.

12
design, and (2) Mageau’s alternative design would not work. However, there is no

expert testimony that, excluding Zachry’s frozen-COW design and Mageau’s

alternative, no other cutoff wall could have been used. Zachry argues that the R&R

response “demanded a non-frozen alternative” COW (Z.S.Br.16), but Zachry

adduced no expert evidence that a non-frozen alternative could not have been used.

Recognizing that it needed expert testimony (i.e., that no alternative cutoff

wall could have been used), Zachry misstates the testimony of its engineering

expert Lacy. Apparently Zachry hopes this Court will not read the 45 pages of

Lacy’s testimony that Zachry cites. Z.S.Br.40-41 (citing 42:59-104). Zachry says

“Lacy testified that Zachry had no viable alternative-cutoff wall to bifurcate the

project…and thus had to switch in the wet” (id.), but Lacy gave no such testimony.

Rather in the 45 pages Zachry cites, (1) Lacy testified that Mageau’s alternative

frozen-COW design would not work, but (2) Lacy never testified, in those 45

pages or elsewhere in the record, that there was no other alternative cutoff wall

that could have been used to divide the project so as to allow Zachry to continue

working “in the dry.”

Even if non-engineer Anderson said no other cutoff wall could have been

used, Anderson is not an expert and his testimony (were it that of an expert) is

conclusory and unreliable. When Anderson attempted to testify about “alternative”

cutoff wall designs, PHA objected that Anderson “does not have any qualifications

13
to give…expert engineering testimony.” 19:47. Zachry responded that Anderson

was not giving expert testimony but, rather, was just “talking about what his

thoughts were at the time” of the R&R response. 19:48.

Zachry’s damages expert Draper disclaimed any intent to testify on

causation. P.S.Br.33. Draper never opined that no other cutoff wall (other than

Zachry’s frozen-COW design or Mageau’s alternative) could have been used to

divide the project so as to allow Zachry to continue working “in the dry.”

Zachry says it had no time in the schedule to identify/build an alternative

COW (Z.S.Br.20), but no expert so testified; instead Zachry cites PHA witnesses

who said no such thing (Thiess, 40:4548; Vincent, 46:78-79, 90-92; McQueen,

28:22) and Anderson (19:38-50).5 Zachry had time to have Mageau prepare his

alternative frozen-COW design which Zachry says would not have worked, so

Zachry had time to identify/build an alternative COW that would have worked.

Also, Zachry could have asked for more time under §5.08. P.S.Br.49 (trial error in

excluding evidence that, faced with R&R response, Zachry never asked for more

time).

Zachry says it did not need an expert on causation. Z.S.Br.40. But whether

some other cutoff wall—other than Zachry’s frozen-COW design or Mageau’s

5
Zachry cites PHA’s Vincent’s testimony (46:83) that Vincent was unaware
of whether a sketch for an alternative wall existed. Z.S.Br.17. Neither Thiess,
Vincent nor McQueen testified that no other cutoff wall could have been used.

14
alternative—could have been used is not a matter about which the lay jury would

have understanding.

Causation experts have to rule out alternative causes—such as the possibility

that Zachry switched to working “in the wet” because Zachry believed, at the time,

that it could finish the project faster/cheaper “in the wet.”6 Such an alternative

cause may explain why Zachry failed to give PHA’s chief engineer the required

§5.42 written notice of Zachry’s contention that the R&R response breached the

Contract.

IV. As a Matter of Law, Zachry Failed to Satisfy §5.42’s Condition
Precedent of Giving PHA’s Chief Engineer Written Notice of Zachry’s
Contention That the R&R Response Was Contrary to the Contract.

A. As Zachry does not deny, §5.42 is a condition precedent.

Contract §5.42 requires Zachry to give immediate (or at least five days’)

written notice to PHA’s Chief Engineer “[i]f [Zachry] believes that any

interpretation of the Contract…by the Inspectors…or other agents of [PHA]

constitutes a change to the Contract.” A15:§5.42. And §5.42 states (in language

Zachry nowhere quotes in its brief): “Any notice not timely made by [Zachry]

shall be deemed a waiver by [Zachry] of its right to assert a claim in respect of

[the] interpretation.” Id. The R&R response was issued by CH2M’s Thiess who,

6
PHA’s expert Hoshino said Zachry’s real-time schedules—which did not
show Zachry meeting Contract deadlines—did not tell the true story, and Zachry
was further behind than it admitted. 62:49-50.

15
according to Special Condition 12(b), is PHA’s Inspector. A16. Section 5.42

creates a condition precedent. Cajun Constructors v. Velasco Drainage Dist., 380

S.W.3d 819, 822 (Tex.App.-Hous.[14th Dist.] 2012, pet. denied); Arbor Windsor

Court v. Weekley Homes, 2015 WL 1245548, at *1 (Tex.App.-Hous.[14th Dist.]

2015, no pet. h.).

B. Unambiguously, §5.42 applies to Zachry’s contention that the
R&R response breached the Contract.

Zachry argues that §5.42 notice—that PHA Inspector’s interpretation would

“change” (deviate from) the Contract—does not apply if PHA Inspector’s

interpretation would “breach” the Contract. Z.S.Br.46. But a disputed

interpretation that would “change” (deviate from) the Contract subsumes an

interpretation that would “breach” (deviate from) the Contract. Zachry says §5.42

is ambiguous as to whether a “change” to the Contract subsumes a “breach” of the

Contract (Z.S.Br.48, 54), but §5.42 unambiguously applies to Zachry’s contention

that the R&R response was a breach.

Zachry prevailed on the trial court to invalidate §5.42 notice—as a condition

precedent to Zachry’s claim for breach—based on CPRC §16.071(a), which states:

“A contract stipulation that requires a claimant to give
notice of a claim for damages as a condition precedent to
the right to sue on the contract is not valid unless the
stipulation is reasonable. A stipulation that requires
notification within less than 90 days is void.”

16
Under American Airlines Employees v. Martin, 29 S.W.3d 86 (Tex.2000), a

condition precedent requiring notice of a damages claim is not invalidated by

§16.071 if that notice has an additional purpose—i.e., a purpose other than giving

notice of a damages claim. CPRC §16.071 does not invalidate §5.42 because,

while §5.42 does create a condition precedent requiring notice of Zachry’s

contention of breach, §5.42 notice has another purpose as well—giving PHA’s

Chief Engineer the opportunity to resolve the dispute before damages accrue.7

Zachry argues that if §5.42 applies, Zachry could never recover breach-of-

contract damages because §5.42 says the Chief Engineer’s determination,

following his investigation, is “final and conclusive.” Z.S.Br.48. But such

determinations by the Chief Engineer are subject to judicial review. Texas Dep’t

of Transp. v. Jones Bros., 92 S.W.3d 477, 481-82 (Tex.2002).

C. Zachry is erroneously trying to invalidate §5.42 notice by relying
on §5.41’s change order requirement and Shintech.

Because §5.42 so obviously applies to Zachry’s claim of breach, Zachry

wants to argue about another provision, §5.41, which requires Zachry to obtain a

change order before recovering for changes in the work. Quoting §5.41’s language

concerning changes “within the general scope of the Work,” Zachry erroneously

7
Zachry says the “radical-change” doctrine invalidates §5.42 because a
“radical change” can be a breach. Z.S.Br.51-52. But the issue is whether the
radical-change doctrine invalidates §5.42’s notice requirement, not whether a
radical change is a breach. Extending the radical change rule to invalidate a
contractually-required notice like §5.42 would lead to absurd results. P.S.Br.47.

17
attempts to limit §5.42’s notice requirement. Z.S.Br.45. But the language of §5.42

talks about “a change to the Contract”—not a change “within the general scope of

the Work.” A15:§5.42. Zachry is trying to re-write §5.42.

Zachry says §5.42 does “not apply to claims [that] the owner breached,”

citing Shintech v. Group Constructors, 688 S.W.2d 144 (Tex.App.-Hous[14th

Dist.] 1985, no writ), and Board of Regents v. S.&G Constr., 529 S.W.2d 90

(Tex.Civ.App.-Austin 1975, writ ref’d n.r.e.). Z.S.Br.46. But in Shintech the court

did not hold that a notice provision is inapplicable to a claim that the owner

breached; rather, the court held in Shintech that the owner had “breached the

contract in ways unrelated to the notice requirements in the contract.” Shintech at

151. Board of Regents did not involve a notice provision. North Harris County

Junior College Dist. v. Fleetwood Construction, 604 S.W.2d 247, 253-54

(Tex.Civ.App.-Hous.[14th Dist.] 1980, writ ref’d n.r.e.) (upholding finding “that

Fleetwood gave adequate notice” required by contract).

In all these cases—Shintech, Board of Regents, and Fleetwood—the Court

of Appeals invalidated a provision, like §5.41 in PHA’s contract, requiring that the

contractor obtain a change order before contractor can recover damages for

owner’s breach. West v. Triple B. Services, 264 S.W.3d 440, 449-50 (Tex.App.-

Hous.[14th Dist.] 2008, no writ) (at headnote 14, citing Shintech and rejecting

18
owner’s argument that contractor failed to comply with contractual provision

requiring contractor to obtain extension of time). Z.S.Br.49.

However, the Supreme Court clarified Shintech when the Supreme Court

reviewed the court of appeals’ application of Shintech in Green v. Solis, 951

S.W.2d 384, 389 (Tex.1997), reviewing Argee v. Solis, 932 S.W.2d 39, 46-47

(Tex.App.-Beaumont 1995). The Court of Appeals in Argee v. Solis held that,

under Shintech, the general contractor’s breach invalidated the contractual

requirement that the subcontractor provide a release of lien. In reviewing that

Court of Appeals holding, the Supreme Court in Green held that the Court of

Appeals’ Shintech reasoning is correct only if, under the law of excuse, the general

contractor’s breach excused the subcontractor from complying with the contractual

obligation to provide the release of lien. The Supreme Court cited Hanks v. GAB

Bus. Servs., 644 S.W.2d 707, 708 (Tex.1982) on the law of excuse. Green, 951

S.W.2d. at 389.

Under the law of “excuse,” a party is excused only if the breaching party

breached a contractual covenant that is mutually dependent with the contractual

covenant that the non-breaching party seeks to be excused from performing.

Hanks, supra. And excuse law provides that a party is not excused from complying

with its contractual obligations unless, in the face of the other party’s breach, the

party seeking to be excused did not demand that the breaching party continue to

19
perform the contract. Id. Thus, when the owner breaches, the contractor is not

excused from complying with the contractor’s obligations where, as here, the

contractor (Zachry) continues to demand that the owner (PHA) perform the

owner’s contractual obligations. Green (citing Hanks); P.S.Br.48-49; Z.S.Br.49-

50.

Zachry claims that Green distinguishes between excusing compliance with

procedural obligations as opposed to substantive obligations. Z.S.Br.49. But

Green makes no such distinction when the Supreme Court states that a Shintech

analysis must comply with the law of excuse.

Importantly, Shintech does not invalidate a contractual requirement that the

contractor give notice that the owner has breached—as opposed to a contractual

requirement that contractor obtain a change order from owner. No public policy

could support using Shintech to invalidate a contractual requirement that contractor

give notice that owner has breached because invalidating such a notice requirement

would deprive the owner of the opportunity to resolve the dispute before damages

accrue. Good public policy underlies Tennessee Gas Pipeline v. Technip USA,

2008 WL 3876141, at *23 n.11 (Tex.App.-Hous.[1st Dist.] 2008, pet. denied), in

which the court refused to apply Shintech to invalidate a contractual provision

requiring notice that the other party has breached. Z.S.Br.50.

20
 D. Zachry erroneously says it proved substantial compliance with
§5.42’s notice requirement.

As Justice Christopher recognized, it is undisputed that Zachry did not give

§5.42 notice to PHA’s Chief Engineer. OA:17:5-6. Anderson testified Zachry did

not give the notice (16:47), and Zachry does not even claim to this Court that it did

give PHA’s Chief Engineer the required §5.42 notice.

Rather, Zachry tells this Court that it proved substantial compliance with

§5.42 based on oral notice to a lower-level PHA engineer and Thiess.8 Z.S.Br.53.

But such notice is not substantial compliance as a matter of law; it does not satisfy

essential elements of §5.42 notice—form of notice (written) and recipient (PHA’s

Chief Engineer) designed to bring the dispute to the attention of PHA’s top

decision-maker. P.S.Br.44-45. The evidence does not even raise a fact issue on

substantial compliance. The Supreme Court said “Zachry protested” the R&R

response, but that Court was not addressing §5.42 notice. Z.S.Br.16.

8
Thiess had no authority to receive §5.42 notice. Infra, p.33-35. Under
Contract §1.07, PHA’s Chief Engineer is the only PHA employee authorized to
“resolve disputes.” A15:§1.07. Zachry would have this Court rule that the very
PHA employees whose conduct gave rise to the dispute, but who have no authority
to resolve the dispute, are permissible recipients of notice of the dispute. Id.;
Z.S.Br.53. Zachry’s argument is inconsistent with policies underlying
governmental immunity and statutory limitations on government procurement.
P.S.Br.37-39, 58-60.

21
 E. The parties tried the issue whether Zachry gave §5.42 notice.

Whether Zachry gave §5.42 notice was tried because the court charged the

jury four times during trial, including once in the charge, that the jury could/may

consider §5.42 for determining a party’s state of mind. CR59:17392; 16:56;

49:112: 68:99. Zachry’s state of mind was important on causation, i.e., whether

the real reason for Zachry’s switch to working “in the wet” was not the R&R

response but rather Zachry’s then-belief that it could finish faster/cheaper working

“in the wet.” Had Zachry really switched to working “in the wet” because of the

R&R response, Zachry would have given §5.42 notice of its contention that the

R&R response breached the Contract.

And §5.42 notice was also important to PHA’s state of mind for the

arbitrary/capricious and bad-faith “exceptions” to the NDFD provision—e.g.,

whether PHA was arbitrary/capricious in failing to withdraw the R&R response as

CH2M’s investigation into the concern underlying the R&R response continued.

A2:17392. Zachry’s failure to give §5.42 notice misled PHA into believing that

Zachry did not consider the R&R response to be that significant—certainly not so

significant as to cause Zachry to switch to working “in the wet.”

Zachry says a new trial is required so a jury can once again “determine

whether Zachry substantially complied with §5.42.” Z.S.Br. 54. But the jury in

22
the trial court was already charged (four times) on §5.42 and, as explained above,

the evidence does not even raise a fact issue on substantial compliance.

Relying on insurance law, Zachry argues that a new trial is required so that a

jury can determine whether PHA was harmed/prejudiced by Zachry’s failure to

give §5.42 notice. Z.S.Br.54. Coastal Ref. & Mktg. v. U.S. Fid. & Guar., 218

S.W.3d 279, 284-86 (Tex.App.-Hous.[14th Dist.] 2007, pet. denied)

(harm/prejudice requirement is an insurance rule). But even if insurance law

applied to construction contracts (and it does not), as a matter of law PHA was

prejudiced by Zachry’s failure to give §5.42 notice because PHA’s Chief Engineer

was deprived of the opportunity to resolve the dispute before any damages

accrued—i.e., the very opportunity that §5.42 is designed to provide.

V. PHA is Entitled to Segregated Attorneys’ Fees the Jury Found for
Zachry’s R&R Claim.

Contract §3.10 states: “[i]f [Zachry] brings any claim against [PHA] and

[Zachry] does not prevail [on] such claim, [Zachry] shall be liable for all attorneys’

fees incurred by [PHA] as a result of such claim.” A15:§3.10. Zachry will not

prevail on its R&R claim if this Court renders judgment against Zachry on that

claim.

Zachry says that its LD claim, its claim for amounts withheld for dredging

(infra, note 1), and its R&R claim are all one “claim.” Z.S.Br.65. But Zachry

separately pleaded, and the court separately submitted, these three different claims

23
for three different amounts of compensation. Zachry says the judgment “awarded

Zachry one lump sum.” Id. But a judgment could state plaintiff’s recovery as a

single amount that comprises multiple claims.

Zachry says the “cases defining ‘claim’ as a ‘demand for compensation’ do

not address whether a claim can encompass multiple theories.” Z.S.Br.66. PHA

does not deny that each “demand for compensation” (i.e., each “claim”) may be

supported by multiple theories. Zachry’s R&R claim is one “demand for

compensation” (i.e., one “claim”) based on two different theories (breach of §5.10

and breach of CO4).

Even if Zachry were correct (and it is not) in arguing that its three claims

constitute one claim, PHA would still be entitled to attorneys’ fees found by the

jury because, if this Court renders against Zachry’s R&R claim, PHA will prevail

on the main issue in the case. 4901 Main v. TAS Auto., 187 S.W.3d 627, 634

(Tex.App.-Hous.[14th Dist.] 2006, no pet.); P.S.Br.62-63. Zachry says the “main

issue” analysis applies only if “neither party obtains relief.” Z.S.Br.67. Zachry is

wrong. Chevron Phillips Chem. v. Kingwood Crossroads, 346 S.W.3d 37, 72

(Tex.App.-Hous.[14th Dist.] 2011, pet. denied) (alternative holding).

VI. Invalid “Pass-Through” Claim: Zachry Recovered $8.578 Million in
Costs Incurred Not by Zachry, but by Another Entity (Question 5).

The jury found that, out of Zachry’s R&R damages, $8.578 million

represented costs incurred not by Zachry, but rather by a new Zachry subsidiary

24
that did not exist until years after PHA’s alleged breach. A2:17395. Zachry

claims it can recover this $8.578 million on a “pass-through” claim under

Interstate Contracting v. City of Dallas, 135 S.W.3d 605, 619 (Tex.2004), but

Zachry is misreading Interstate. Z.S.Br.67-70; P.S.Br.64-68.

A. A pass-through claim requires that the owner’s breach caused the
general contractor to breach.

Zachry says Interstate does not require, for a pass-through claim, that the

owner’s breach caused the general contractor (Zachry) to breach its contract with

the subcontractor (Zachry’s new subsidiary). But that is exactly what Interstate

does require when Interstate says: to prove a pass-through claim, the general must

prove that it was “liable to the subcontractor for damages sustained by the

subcontractor.” Id. The only way that the general is “liable to the subcontractor

for damages sustained by the subcontractor” is because the general breached its

contract with the subcontractor.

Because Zachry’s Sub did not exist until after PHA’s alleged breach, any

breach by PHA could not have caused Zachry to breach its contract with the Sub.

Rather, any losses the Sub incurred resulted from a bad bargain the Sub struck with

Zachry when, long after PHA’s alleged breach, the Sub volunteered to work “in the

wet” for compensation Zachry agreed to pay the Sub.

25
 Zachry erroneously contends that Interstate recognizes a valid pass-through

claim where the general hires the sub after the owner’s breach. For that

proposition Zachry quotes Interstate:

“Otherwise, the owner could receive a windfall because
the subcontractor lacked privity with the owner and the
contractor lacked standing to sue the owner for damages
suffered by the subcontractor.”

Id. at 615-16. But this language provides the rationale for a proper pass-through

claim—i.e., that, because the owner has no contractual privity with the sub, the sub

would have no breach-of-contract claim against the owner, and thus, absent a pass-

through claim, the owner would get a windfall. Nothing in Interstate’s language

allows a pass-through claim where (1) the sub did not exist when the owner

breached, and therefore (2) the owner’s breach did not cause the general to breach

its contract with the sub.

Zachry says that, if this Court does not recognize a pass-through claim here,

a general contractor will never be able to hire a sub after the owner’s breach. But

that is a false argument. The general can hire a sub after the owner’s breach, but to

preserve a damages claim against the owner, (1) the general must pay the sub fair

compensation, and then (2) the general recoups, from the owner, as the general’s

damages, whatever damages the general sustains, including payments the general

makes to the sub.

26
 B. Zachry misreads Interstate concerning when the burden of proof
shifts.

To prove a pass-through claim, Zachry must prove that, due to PHA’s

breach, Zachry incurred breach-of-contract damages to its sub. Zachry, misreading

Interstate, argues that Zachry’s burden of proof somehow shifted to PHA. Zachry

quotes Interstate:

“If the owner disputes that this requirement [of
continuing liability] has been met, it [the owner] bears
the burden of proving, as an affirmative defense, that the
pass-through arrangement negates the contractor’s
responsibility for the costs incurred by the
subcontractor.”

135 S.W.3d at 619. This Interstate language applies where (unlike here) the owner

claims that the pass-through agreement—entered into by general and sub to allow

the general to bring the sub’s damages claim—“negate[d]” the general’s breach-of-

contract liability to the sub. The quoted language does not abrogate the general’s

initial burden to prove a pass-through claim by proving: (1) owner’s breach caused

general to breach its contract with sub, and (2) the amount of general’s breach-of-

contract liability to sub.

C. Zachry misreads the Master Services Agreement (“MSA”).

Zachry argues that MSA, Zachry’s contract with the Sub (A23), requires

Zachry to compensate the Sub for all the Sub’s costs. Z.S.Br.68. But Zachry

ignores: (1) MSA collectively covers six construction contracts, including PHA’s

Contract, and (2) MSA’s §3.2 “Payment Limitation” caps Zachry’s liability to its

27
Sub, for all six contracts collectively, at the total amount of payments that Zachry

receives collectively from all six owners on all six contracts. Because there is no

evidence concerning reimbursable costs or payments received on the other five

contracts, there is no way to know how much, if any, the Sub failed to recoup

(under MSA) for PHA’s contract. Zachry failed to prove how much, under MSA,

Zachry owed the Sub for the PHA contract.

VII. Erroneous Exclusion of PHA’s $8+ Million in Harms/Losses.

Zachry prevailed on the court to exclude evidence that Zachry caused PHA

$8+ million in harms/losses—harms/losses PHA disclosed on July 24, 2009, three

months before trial, in response to Zachry’s June 11, 2009 fourth set of

interrogatories. A12:1-6.

A. PHA’s interrogatory response was timely.

The initial docket control order, in a provision never modified, states: “[t]he

parties may conduct discovery beyond [the discovery] deadline by agreement.”

SCR1:11-12. That is what happened: (1) Zachry propounded Zachry’s June 11,

2009 interrogatory asking PHA to quantify all PHA’s harms/losses; and (2) PHA

responded on July 24, 2009, timely complying with Zachry’s request by fully

quantifying PHA’s harms/losses. P.S.Br.52-53.

Zachry says PHA did not timely disclose that PHA intended to use its

harms/losses as an offset defense (Z.S.Br.56-57), but PHA’s “Theories Disclosure”

28
timely disclosed that “Zachry’s claims” for “any alleged breach…of the Contract”

are “barred by the defense of offset” (P.S.Br.51).

B. Zachry’s interrogatory and PHA’s response were not limited to
disclosing PHA’s harms/losses for proportionality of LDs.

The trial court had no discretion to misread, as a matter of law, discovery

and erred, as a matter of law, in holding that Zachry’s interrogatory and PHA’s

response limited the purpose of quantifying PHA’s harms/losses only to showing

that PHA’s actual damages were proportional to contractual liquidated damages

(“LDs”). Z.S.Br.55-56.

Zachry’s interrogatory broadly asked PHA (1) to “describe each and every

way that You contend You have been harmed by Zachry in regards to [Zachry’s]

performance of the Contract,” and (2) to quantify “the amount of damages

sustained for each of the claimed harms You allege resulted from Zachry’s alleged

misconduct.” A12. Neither Zachry’s interrogatory nor PHA’s response was

limited to harms/losses for delay—the only type of harm/losses that could relate to

proportionality of LDs. See A15:§5.05 (LDs for delay).

C. Excluding PHA’s $8+ million in harms/losses was harmful.

PHA prevailed with the jury on the two PHA harms/losses that were tried:

(1) Zachry’s claim for $600,000 that PHA withheld for Zachry’s defective

dredging, and (2) PHA’s defense seeking to offset, against Zachry’s claim for

$2.36 million that PHA withheld as LDs, $970,000 for Zachry’s defective work on

29
the Wharf’s fenders. A2:17402, 17405. A new trial on Zachry’s LD claim is

required because the excluded PHA $8+ million in harms/losses could have

provided an additional offset. 9

VIII. Zachry Opened the Door to PHA’s Harms/Losses.

Zachry says it “never opened the door” (Z.S.Br.58-59), but the trial court

could not have abused its discretion in holding (as it did) that Zachry did open the

door to previously-excluded evidence of PHA’s harms/losses because

(1) Zachry adduced evidence that PHA’s Vincent promised that PHA

would not charge LDs unless PHA was harmed; and

(2) Zachry argued to the jury, and Anderson testified, that PHA’s later

decision to charge LDs, given Vincent’s promise, constituted bad faith

and arbitrary/capricious conduct for NDFD exceptions.

A10; P.S. Br.54-56.

Zachry says “[a]t most Zachry opened the door to evidence the ship was not

able to dock on arrival.” Z.S.Br.59. But the court’s open-the-door order rejected

that view and held that Zachry opened the door to “evidence of reasonably

anticipated actual harms.” A10. Zachry cites the Supreme Court’s recitation of

facts (Z.S.Br.10-11), but the Supreme Court was not addressing the open-the-door

issue/order.

9
If this Court orders a new trial on Zachry’s R&R claim, PHA will seek to
try its $8+ million offset against Zachry’s R&R damages.

30
 The trial court held that Zachry opened the door and left a misimpression

with the jury as to whether PHA had sustained harms/losses. But then, citing Rule

403, the court excluded the very evidence that the court’s open-the-door order held

was necessary to correct the misimpression Zachry had created. A10. Even if

admitting the previously-excluded harms/losses evidence would prejudice Zachry,

such prejudice would not be “unfair” under Rule 403; any prejudice was of

Zachry’s own making given that Zachry opened the door.

A. Zachry misunderstands Horizon/CMS Healthcare v. Auld, 34
S.W.3d 887, 905-07 (Tex.2000) and misrelies on Hayden v. State,
296 S.W.3d 549, 554 (Tex.Crim.App. 2009).

Auld requires admission of the evidence necessary to correct the

misimpression created by the party opening the door. Zachry says that Auld does

not address Rule 403. Z.S.Br.59. But where, as here, the party opening the door

creates a misimpression on a central issue, the Rule 403 inquiry could only have

one result—i.e., admit evidence necessary to correct the misimpression and prevent

a skewed trial. Zachry cites Hayden, but in Hayden, the misimpression was created

on a “collateral issue” and, by opening the door, the party did not “create[] a false

impression” on any issue that is “directly relevant to the offense charged” or “the

appropriate sentence to impose.” 296 S.W.3d at 554-55.

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 B. The court’s erroneous exclusion of the open-the-door evidence
was harmful.

The open-the-door evidence went to two of four NDFD exceptions—bad

faith and arbitrary/capricious conduct. As explained below, charge error tainted

the third NDFD exception, fraud. Under Crown Life Ins. v. Casteel, 22 S.W.3d

378, 381 (Tex.2000), harm is presumed if error tainted any one of the NDFD

exceptions. P.S.Br.57-58.

IX. Charge Error Skewed the Trial on the NDFD Exception for Fraud.

Three Supreme Court cases hold that “[a] promise to do an act in the future

is actionable fraud when made with the intention, design and purpose of

deceiving.” P.S.Br.56-58. Zachry argues the Supreme Court, in its opinion

remanding to this Court, “approved” the reckless fraud instruction. Z.S.Br.60. But

while the Supreme Court said the charge correctly described the owner’s

misconduct giving rise to NDFD exceptions, the Court did not address PHA’s

challenge to the “reckless” fraud charge instruction. Surely, if the Supreme Court

were going to overturn its prior jurisprudence on this recklessness question, that

Court would have addressed the issue.

Zachry misunderstands Casteel when Zachry argues for harmless error.

Z.S.Br.61. Under Casteel, given a charge objection, the error is presumed harmful

because there is no way to know whether the jury based a fraud determination on

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recklessness. Casteel, 22 S.W.3d at 381. And, the difference in culpability,

between recklessness and intentional misconduct, is significant. Z.S.Br.61.

X. The Erroneous Apparent Authority Instruction Skewed the Trial.

A. The Contract Negated Apparent Authority.

As a matter of law, “apparent authority is not available where the other

contracting party has notice of the limitations of the agent’s power.” Douglass v.

Panama, 504 S.W.2d 776, 779 (Tex.1974); Humble Nat. Bank v. DCV, 933

S.W.2d 224, 237-38 (Tex.App.-Hous. [14th Dist.] 1996, writ denied); P.S.Br.58-

60.

Zachry was aware of limitations on Thiess’s authority because Contract

Special Condition 12(d) said Thiess’s company CH2M “does not have the

authority of [PHA’s] Chief Engineer” and “has no authority to…change any of the

terms and conditions of the Contract.” A16. The erroneous apparent-authority

instruction misled the jury into believing that Thiess had apparent authority to do

what Special Condition 12(d) expressly denies him authority to do—i.e., stand in

place of PHA’s Chief Engineer to receive §5.42 notice or direct additional work.

P.S.Br.58-59.

Zachry cites Equitable Life v. Ellis, 147 S.W. 1152, 1158 (Tex.1912)

(Z.S.Br.62), but Equitable dealt with whether the employee, Brophy, had actual

authority whereas Douglass dealt with apparent authority. Zachry cites Paramount

33
National Life v. Williams, 772 S.W.2d 255, 261-62 (Tex. App.—Hous.[14th Dist.]

1989, writ denied), where it was “unreasonable to expect Mrs. Williams [the

unsophisticated, not-well-educated insured] to comprehend the limit of the

authority of the agent.” Id. at 262. But sophisticated Zachry could have no

problem comprehending Special Condition 12(d) limiting Thiess’ authority.

Zachry says the Construction Management Plan (CMP) abrogated Special

Condition 12(d)’s limits on Thiess authority. Z.S.Br.62. But CMP says that

CH2M has the authority “normally attributed” to a construction manager and that

“delegated to the Inspector by the contract documents,” which include Special

Condition 12(d). CMP says CH2M:

 “will not have authority to make changes to any provisions of the

[Contract] in regard to costs[]; time of completion[]; or quality of in-

place work;” and

 “will provide no direction related to [Zachry’s] construction means,

methods.”

ZA39:§2.2.

B. Additionally, Zachry did not plead apparent authority.

Zachry pleaded that PHA “charged and designated” CH2M as an agent, but

that language pleaded actual authority and was not “sufficient to present the issue

of apparent authority as contradistinguished from actual authority.” Cont’l Oil v.

34
Baxter, 59 S.W.2d 463, 467 (Tex.Civ.App.-Eastland 1933, no writ). Even broadly

construed, Zachry’s pleading did not give fair notice that Zachry was pleading

apparent authority, as distinguished from actual authority. The court recognized as

much in holding PHA would have been “surprised and prejudiced” by a trial

amendment pleading apparent authority. The court said it “could easily be wrong”

when it held Zachry had pleaded apparent authority. 65:5.

Respectfully submitted,

/s/ Marie R. Yeates
David E. Keltner Marie R. Yeates
State Bar No. 11249500 State Bar No. 22150700
KELLY HART & HALLMAN LLP Catherine B. Smith
201 Main Street, Suite 2500 State Bar No. 03319970
Fort Worth, Texas 76102 Michael A. Heidler
Phone: 817.878.3560 State Bar No. 24059921
Fax: 817.878.9760 VINSON & ELKINS L.L.P.
Email: david.keltner@kellyhart.com 1001 Fannin, Suite 2500
Houston, Texas 77002
David H. Brown Phone: 713.758.4576
State Bar No. 03109200 Fax: 713.615.5544
BROWN & KORNEGAY LLP Email: myeates@velaw.com
2777 Allen Parkway, Suite 977
Houston, Texas 77019 Karen L.T. White
Phone: 713.528.3703 State Bar No. 20274500
Fax: 713.528.3701 KAREN L.T. WHITE, P.C.
Email: dbrown@bkllp.com 1415 S. Voss, Suite 110-539
Houston, Texas 77057
Phone: 832.646.4667
Email: karen@kltwpc.com

35
Lawrence J. Fossi Bill Sims
State Bar No. 07280650 State Bar No. 18429500
FOSSI & JEWELL LLP VINSON & ELKINS L.L.P.
4203 Yoakum Blvd., Suite 100 2001 Ross Avenue, Suite 3700
Houston, Texas 77006 Dallas, Texas 75201-2975
Phone: 713.529.4000 Phone: 214.220.7703
Fax: 713.529.4094 Fax: 214.999.7703
Email: lfossi@fossijewell.com Email: bsims@velaw.com

Attorneys for Appellant • The Port of Houston Authority of Harris County, Texas

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 CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), I hereby certify that

this brief contains 7,496 words, excluding the words not included in the word

count pursuant to Texas Rule of Appellate Procedure 9.4(i)(1). This is a computer-

generated document created in Microsoft Word, using 14-point typeface for all

text. In making this certificate of compliance, I am relying on the word count

provided by the software used to prepare the document.

/s/ Michael A. Heidler
Michael A. Heidler

37
 CERTIFICATE OF SERVICE
I certify that, on July 13, 2015, the foregoing document was served on all

counsel listed below via the designated service method(s):

Brandon T. Allen [e-service] Robin C. Gibbs [certified mail, return
State Bar No. 24009353 receipt requested, and e-service]
ballen@reynoldsfrizzell.com State Bar No. 0785300
REYNOLDS, FRIZZEL, BLACK, DOYLE, rgibbs@gibbsbruns.com
ALLEN & OLDHAM, LLP Jennifer Horan Greer [e-service]
1100 Louisiana, Suite 3500 State Bar No. 00785611
Houston, Texas 77002 jgreer@gibbsbruns.com
Attorney for Appellee, Zachry Sydney G. Ballesteros [e-service]
Construction Corporation State Bar No. 24036180
sballesteros@gibbsbruns.com
Michael R. Absmeier [e-service]
State Bar No. 24050195
mabsmeier@gibbsbruns.com
Amanda B. Nathan [certified mail, return
receipt requested, and e-mail]
State Bar No. 00784662
anathan@gibbsbruns.com
GIBBS & BRUNS, LLP
1100 Louisiana, Suite 5300
Houston, Texas 77002
Attorneys for Appellee, Zachry
Construction Corporation

/s/ Michael A. Heidler
Michael A. Heidler

38