Business Litigation | The Law Offices of Gregory D. Jordan

Texas Court Rules in Subcontractor’s Favor in Prompt Payment Act Claim

The Prompt Payment Act is a federal law that was passed to ensure the timely payment to all tiers of contractors who work on federally funded construction projects. The Act accomplishes this by providing a timeline of when payments will be released to the prime contractor, subcontractors, and suppliers. The State of Texas has its own version of the Prompt Payment Act that applies to state-funded construction projects.

Recently a state appellate court issued an opinion in a Texas construction payment dispute case under the Prompt Payment Act. The lawsuit arose when a window company, a subcontractor, installed windows on a hotel construction project at the request of the general contractor. The two companies entered into an agreement outlining the terms of the project, as well as how payment would be made.

As the project got underway, the owner of the hotel contacted the general contractor, concerned that the construction was not going according to schedule. As a result, the owner of the hotel began to withhold payment to the general contractor. Eventually, the general contractor submitted a bill to the hotel owner, including an amount for the windows that were installed by the subcontractor. However, while the hotel owner paid most of the amount due, it withheld a certain sum that was designated for the general contractor’s “overhead and profit.” Rather than take the potential loss itself, the general contractor kept the money and only paid select subcontractors. The window company was not paid by the general contractor. Eventually, after finding out what the general contractor had done, the hotel owner terminated the general contractor for cause.

The hotel owner then sued the general contractor, and the window company intervened in that lawsuit, claiming breach of contract, violation of the Prompt Payment Act, quantum meruit, breach of fiduciary duty, violation of the Construction Trust Fund Act, and unjust enrichment. The general contractor responded by explaining that the hotel owner did not pay the general contractor, and that it was permissible to pass this loss on to the subcontractor.

The trial court heard and granted the subcontractor’s motion for summary judgment, and awarded the subcontractor the amount it was due.

The Court’s Analysis

The court began its analysis by citing the language from the Prompt Payment Act, which provides:

A contractor who receives a payment from the owner . . . in connection with a contract to improve real property shall pay each of its subcontractors the portion of the owner’s payment, including interest, if any, that is attributable to work properly performed or materials suitably stored or specially fabricated as provided under the contract by that subcontractor, to the extent of that subcontractor’s interest in the owner’s payment. The payment . . . must be made not later than the seventh day after the date the contractor receives the owner’s payment.

The court went on to explain that the only exception to this requirement arises when there is a “good faith dispute concerning the obligation to pay or the amount of payment.”

The court then noted that, to prove its claim under the Prompt Payment Act, the subcontractor needed to show that the general contractor received payment from the hotel owner that was attributable to the work performed by the subcontractor. The general contractor argued that, because some of the windows were installed after the hotel owner started to withhold payment to the general contractor, the hotel owner was responsible for paying the subcontractor. However, as the court pointed out, the agreement between the general contractor and subcontractor provided that the general contractor would pay the subcontractor, not the owner of the hotel.

Ultimately, the court agreed that the subcontractor was entitled to payment from the general contractor, pursuant to their agreement. In so holding the court rejected the general contractor’s argument under the Construction Trust Fund Act. The Construction Trust Fund Act provides that:

It is an affirmative defense to prosecution or other action brought under section 162.031(a) that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee’s actual expenses directly related to the construction or repair of the improvement or have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee’s reasonable belief that the beneficiary is not entitled to such funds or have been retained as authorized or required by statute.

In reaching this conclusion, the court noted that the subcontractor was not a beneficiary to the Construction Trust, and that the Act did not apply.

Is Your Business Dealing with a Complex Texas Contract Issue?

When success matters, every decision you make for your business is essential. Choosing which Austin contract dispute or business litigation attorney to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 30 years of experience helping all types of businesses deal with the full range of legal issues they confront, including breach of contract claims and business fraud cases. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Texas Court Discusses the Formation of a Texas Contract Through Email

In Texas, a contract can be something as simple as an agreement between two parties that is supported by consideration. Notably, not all contracts need to be written to be enforceable. However, before a court determines that a contract is enforceable, the party in favor of the contract must show that there was, indeed, an agreement between the parties. In contract law, this is referred to as a “meeting of the minds.”

Recently, a state appellate court issued a written opinion in a case involving a Texas contract dispute illustrating how courts analyze agreements. The specifics of the purported agreement are not particularly relevant to the court’s discussion. Essentially, a group of sellers, the defendants, agreed to develop and eventually sell a group of assets worth hundreds of millions of dollars. The sellers moved forward with development and, when it came time to sell the assets, enlisted the assistance of a third-party.

The third-party solicited bids from several potential buyers. The plaintiff was one of the high bidders. The parties exchanged several emails back and forth. Eventually, the plaintiff sent a counter offer with the following email:

We will not be modifying or accepting any changes to the base deal described above and don’t want to be jerked around anymore. We will give you till 5:00 pm CST tomorrow to accept. Best we can do and you hopefully understand I have recommended to my Board to pass if the timeline is not met or a counter proposal is sent.

An agent for the sellers responded that they are ready to “move forward” with the sale. However, before the contract was drawn up, another bidder revised their offer, making it more favorable to the sellers. The sellers then accepted the other buyer’s offer and the plaintiff filed a breach-of-contract claim against the sellers.

The case ultimately came down to whether a contract was formed through email. If so, then the sellers were committed to selling the assets to the plaintiff. However, if a contract had not formed by the time the sellers accepted the other bidder’s offer, then the sellers were under no obligation to the plaintiff.

The court determined that no contract existed, and that the sellers were free to accept the other bidder’s offer. The court explained that, in general, parties are free to write contracts however they see fit. Included in this freedom of contract, is the ability to insert language into negotiations explaining when a contract comes into existence. Here, the sellers included the following language in the Confidentiality Agreement that they sent out to all prospective buyers:

The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof.

The court explained that this “no obligation” clause required a definitive agreement before a legally enforceable contract could be formed. The court then held that the emails between the parties did not constitute a definitive agreement.

In concluding that the emails were not a definitive agreement, the court explained that the emails resembled a preliminary agreement in that they represented a “precontractual understanding in which two commercial parties allocate their contributions to an undertaking but do not specify all the important terms of the deal.” The court noted that a definitive agreement requires a “final solution” that is “authoritative and apparently exhaustive.”

The court explained that the emails contemplated the need for an upcoming formal agreement. In fact, the court pointed out that the emails even referenced a purchase and sale agreement. In addition, the court found that a contract was not created merely by laying out the “assets to be sold, the purchase price, a closing day, and other key provisions.” The court explained that the emails “left much to the imagination” and that there were still key areas that needed to be negotiated.

Is Your Business Dealing with a Complex Texas Contract Issue?

When success matters, every decision you make for your business is essential. Choosing which Austin contract dispute attorney to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 30 years of experience helping all types of businesses deal with the full range of legal issues they confront, including breach of contract claims and business fraud cases. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Texas appellate court hears business dispute centering on tortious interference and misappropriation claims

Last month, a state appellate court issued an opinion in a Texas tortious interference case discussing whether the defendant corporation improperly “poached” workers whom the plaintiff corporation had “located and groomed.” Ultimately, the appellate court concluded that the defendant corporation was entitled to summary judgment on each of the plaintiff’s claims, affirming the dismissal of the case. 

The facts of the case

According to the court’s opinion, both plaintiff and defendant corporations are in the business of supplying offshore labor to energy companies. The plaintiff had a contract with two other companies in which one company would provide the plaintiff with laborers that the plaintiff would then place with one of its energy clients. In effect, the plaintiff corporation was the middleman in the staffing transaction. 

On December 15, 2015, the plaintiff’s client gave notice to the plaintiff that it would no longer continue to use the plaintiff’s services, because it needed a lower-cost option. After several months of discussion between the defendant corporation, the labor supplier and the plaintiff’s former client, the defendant was invited to submit a bid for the client’s business. The defendant corporation did so, and ultimately secured the client’s business. The agreement provided that the defendant would supply the same laborers that had previously been provided by the plaintiff corporation. The plaintiff corporation filed a lawsuit against the defendant alleging that the defendant engaged in tortious interference with its contracts between the labor supplier and its client. 

The trial court granted the defendant’s motion for summary judgment, noting that the plaintiff’s case was contingent on proving that the defendant misappropriated workers from the plaintiff. However, the court pointed out that the theory of misappropriation had not been applied to people, explaining “had the workers in question been employed by the plaintiff they could not have been prevented from going to work for defendants or anyone else. Why, then, where the plaintiff does not employ the workers in question, could plaintiff prevent them going to work for Defendants or anyone else?” The plaintiff appealed. 

The appellate court affirms the lower court’s decision

The court began its analysis by noting that a defendant bringing a motion for summary judgment must show “that no genuine issues of material fact exist on at least one essential element of the cause of action asserted against it and that it is entitled to judgment as a matter of law.”

To establish a claim of misappropriation, or unfair competition, the court explained that a plaintiff must establish three elements:

  • The plaintiff created a product through extensive time, labor, skill and money;
  • The defendant used that product in competition against the plaintiff, gaining a special advantage because the defendant did not have to incur the expense to develop the product; and
  • The plaintiff suffered commercial damage as a result.

The plaintiff’s claim centered on a finding that its system of locating, hiring, training and getting offshore laborers to domestic corporations constitutes a “work product.” In support of its claim, the plaintiff argued that the “institutional knowledge that it developed over time and used to craft this pool of labor,” and its “ability to navigate the international customs issues involved” constitute work product.

The court rejected the plaintiff’s claim. Initially, the court noted that knowledge, training and expertise, are not typically considered work product. The court went on to explain that the training and certification provided by the plaintiff were similarly not work product. These assets, the court held, could not be separated from the laborers themselves, once they were imparted. The court also noted that the contract the plaintiff relied on to establish its claim clearly states that the employees themselves were to remain employees of the labor-supplying corporation, meaning that they never “belonged” to the plaintiff.  

The court went on to affirm the denial of the plaintiff’s remaining claims, finding that the plaintiff’s evidence was insufficient to establish a claim of tortious interference. In so holding, the court noted that the contract between the plaintiff and its client was not in effect at the time when the defendant engaged the client, and that the plaintiff could not point to any evidence that the defendant induced the labor-supplying corporation to terminate its contract with the plaintiff.

Texas High Court Holds Limitation-Of-Liability Clause Can Effectively Bar a Party From Obtaining Punitive Damages

In November 2018, the state supreme court issued a written opinion in a Texas breach of contract case discussing whether a clause purporting to limit the availability of punitive damages in a contract between two business was enforceable. Ultimately, the court concluded that the term was enforceable and reversed the lower court’s award of punitive damages.

According to the court’s opinion, the plaintiffs planned to purchase an aircraft from the defendant manufacturer, Bombardier. The nature of the transaction was somewhat complex in that it involved several purchasing companies and subsidiaries; however, in essence, the transaction was for the sale of an aircraft.

During negotiations, Bombardier required the plaintiffs to execute a management agreement so that Bombardier could handle preliminary matters such as inspection and registration of the aircraft. The contract contained a clause stating that neither party could be held liable to the other party for any “indirect, special or consequential damages and/or punitive damages for any reason, including delay or failure to furnish the aircraft or by the performance or non-performance of any management services covered by this Management Agreement.”

While Bombardier marketed the plane as new, the aircraft’s engines were previously installed on other planes. When the plaintiffs found this out, they filed several claims against Bombardier, including a claim for punitive damages. The case proceeded to trial, and the jury awarded $2,694,160 in actual damages for fraud and $5,388,320 in exemplary (punitive) damages.

Bombardier appealed, making several arguments including that the award for punitive damages was improper based on the valid agreement signed by the plaintiffs. Initially, the court agreed with the plaintiffs that, absent the agreement, punitive damages would have been appropriate. However, the court explained that it has “long recognized the strongly embedded public policy favoring freedom of contract,” and that the parties in this case indisputably entered into a contract agreeing to waive any right to pursue punitive damages.

The plaintiffs argued that Bombardier knew that the engines were not new and violated a fiduciary duty when it failed to inform them that the engines were used. However, the court held that the plaintiffs’ general claim that Bombardier fraudulently concealed this information did not specifically mention the violation of a fiduciary duty. Thus, the court did not consider whether the violation of a fiduciary duty eliminated any protection the contract provided to Bombardier. Instead, the court held that any fraud on Bombardier’s part did not void the agreement because the court must “respect and enforce terms of a contract that parties have freely and voluntarily entered.”

Contact an experienced business litigation attorney

When success matters, every decision you make for your business is important. Choosing which Austin business litigation firm to handle the unique issues your business faces is no exception. At the Law Offices of Gregory D. Jordan, we have over 25 years of experience assisting businesses in dealing with the full range of issues they confront, including breached contracts and business fraud cases. We also provide guidance and advice to companies looking to anticipate their future needs. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Are Texas Arbitration Agreements Between Employers and Their Employees Always Enforceable?

Over the past decade, it has become common to see arbitration agreements in a variety of business agreements. Indeed, arbitration is the preferred method for many businesses to resolve all kinds of Texas business disputes, whether a dispute is between a company and its customers, employees, suppliers or another business.

Recently, forced arbitration clauses have come under fire, with appellate courts across the country hearing a wide range of cases involving the circumstances in which arbitration agreements are valid. Last year, the U.S. Supreme Court issued an opinion strengthening a business’ ability to compel arbitration based on a validly executed arbitration agreement.

The case consisted of three separate cases that were consolidated before the Court. In each case, employees signed agreements before or during their employment, agreeing that they would resolve any claims that arose during their employment individually and through arbitration, rather than through the court system.

Each of the three cases was based on a dispute that is not relevant to the issue at hand. What is important is that an employee filed a claim against his employer in federal court. The case was filed as a “class action lawsuit,” meaning that a single employee filed the claim, but did so on behalf of other similarly situated employees. The employers sought dismissal of the plaintiff’s claims against them, asking the court to enforce the agreement in which the employees agreed to resolve their grievances through arbitration.

The employees argued that the clause in the agreement requiring they resolve their claim individually violated their rights under the National Labor Relations Act (NLRA). Specifically, the right to take “concerted action” with fellow employees against an employer. The lower court agreed with the employees. On appeal to the Ninth Circuit, the court added that, because the agreement violated the NLRA, the entire contract was invalid, including the arbitration portion of the agreement. The employers appealed the case to the United States Supreme Court.

In its opinion, the Court noted that the terms of the agreement were clear in that the contract called for employees’ claims to be resolved individually and through arbitration. The Court acknowledged that the National Labor Review Board (the federal agency that is responsible for enforcing the NLRA) believed that compelling individualized dispute resolution was a violation of the NLRA. However, the Court added that this was a recent change in the National Labor Review Board’s policy.

The U.S. Supreme Court ultimately reversed the lower courts’ decisions, notwithstanding the National Labor Review Board’s agreement with the employees. The Court explained that the Federal Arbitration Act (FAA) instructs federal courts “to enforce arbitration agreements according to their terms” and that the NLRA “does not mention class or collective action procedures.” Thus, the Court determined that the NLRA does not “displace” the FAA.

The Court reasoned that, when presented with two acts of Congress that could possibly be read to conflict with one another, if possible, the Court must read both in a manner such that there is no conflict. Thus, the Court based its decision on the fact that the FAA explicitly condones individualized dispute resolution and the NLRA does not confer a right to pursue a class action lawsuit.

Are you involved in a Texas business dispute?

When success matters, every decision you make is important. Choosing which Texas business law firm will handle your case is no exception. At the Law Offices of Gregory D. Jordan, we have over 25 years of experience assisting businesses in dealing with the full range of issues they confront, including breach of contract, employment law and franchise litigation. To learn more about how we can help your business through the issues it faces, call 512-419-0684 to schedule a consultation today.

Co-owner dispute at Spider House in Austin, Texas gets serious

The Spider House Cafe and Ballroom has been a famous Austin college hang-out since it opened its doors in 1995. Most customers, however, probably do not know of the legal battle between the two co-owners of the business, John Dorgan and Conrad Bejarano. In October of 2018, Dorgan filed a lawsuit against Bejarano and an employee of Spider House, Jeremy Rogers. The lawsuit accuses both men of libel and slander against Dorgan and Spider House. The lawsuit has brought to light many instances of alleged impropriety in the business and on the premises.

The lawsuit stems from a social media post by Rogers and his wife asserting that Dorgan sexually assaulted his wife in 2014. A day after the post, Bejarano stated that he was banning Dorgan from the property, of which he is still a co-owner. In the lawsuit, Dorgan is seeking monetary damages as well as a declaratory judgment that Bejarano has no legal authority to ban Dorgan or constrain his ownership. There is no record of Bejarano filing any kind of legal document restricting Dorgan from the property.

Motion to Dismiss
On December 21, 2018, Bejarano filed a motion to dismiss Dorgan’s lawsuit, arguing that the lawsuit is inhibiting Bejarano’s free speech. The motion relies on the Texas Citizens Participation Act, which specifically protects free speech made in connection with a “matter of public concern.” Bejarano also filed an answer to the lawsuit denying the substantive claims.

Attorney Gregory D. Jordan is a business litigation and corporate law attorney with offices in Austin who has handled matters under the Texas Citizens Participation Act. To learn more, visit https://www.theaustintriallawyer.com/

Texas lawsuit filed claiming waste management firm engaged in tortious interference with contracts

A Texas waste management company filed a lawsuit in a state court claiming that a competitor engaged in tortious interference with contracts.

Waste Connections of Texas alleges in the complaint that Rubicon Global repeatedly hired local car-towing companies to “unlawfully remove” waste storage containers owned by Waste Connections. The lawsuit claims that Rubicon did this at least 35 times, when it acquired former customers of Waste Connections. Rubicon said that the lawsuit was part of a “pattern of anti-competitive behavior” by Waste Connections, and that Rubicon intended to disrupt the waste management industry.

Waste Connections claims that Rubicon’s methods of taking over accounts are problematic in part because Waste Connections’ contracts include the right to match offers from competitors, but the towing of waste containers is the primary issue in the lawsuit. The complaint alleges that Waste Connections sometimes only receives a few days’ notice that a customer is switching to Rubicon and waste containers need to be removed. If this deadline is not met, then Rubicon hires towing companies to move the containers, sometimes dropping them off full at the nearest Waste Connections yard. Other containers have gone missing for days, the lawsuit claims.

The lawsuit accused Rubicon of conversion, negligence and tortious interference with contracts. Waste Connections is seeking a declaratory judgment that the towing of waste containers violates contracts between Waste Connections and its customers, and an injunction preventing Rubicon from moving waste containers owned by Waste Connections, as well as damages, attorneys’ fees and other relief.

Texas telecommunications company sues Comcast claiming tortious interference

A small Texas telecommunications company has filed a lawsuit against cable giant Comcast, alleging tortious interference with contract.

In the lawsuit, Anthony Luna claims Comcast dug up and destroyed cables owned by his company, Telecom Cable. Luna alleges that Comcast workers cut cables and disrupted service to his customers in the Houston area. The complaint filed June 14 claims that Telecom Cable had to fold after a six-week effort of trying to restore service as customers deserted the company.

According to Luna’s attorney, he had been doing business in the Houston area since 2007, and Comcast offered to buy out his small cable operation in 2013. Luna declined. Comcast then began installing its own cables in shared utility easements, a normal industry practice. Telecom sent Comcast a map of its infrastructure and marked its cables with orange paint and flags, so that Comcast workers would not accidentally damage the cables. However, Luna soon began receiving shortage outages and finding that his cables had been cut. Luna claims that Telecom Cable’s lines were cut repeatedly and he was forced to close the business as customers terminated their service and switched to Comcast.

Luna is seeking damages in excess of $1 million, including punitive damages, for tortious interference with contract, negligence, conspiracy, and aiding and abetting.

Texas appellate court rules against owner of royalty interest in fraudulent inducement lawsuit

A Texas appellate court held that the owner of a royalty interest could not claim fraudulent inducement with regard to its settlement with a Shell Oil affiliate that operated the oil and gas property. In 2014, a Texas state court jury found that the Syrian American Oil Corp. (Samoco) was fraudulently induced into entering a settlement agreement in 1989 with Pecten Orient Co., a Shell affiliate that owned the property in Syria. However, the jury also found that Samoco should have discovered the issue before making the agreement.

On appeal, Samoco argued that it did not discover the fraud until 2006, when Pecten made an offer to buy the royalty interest. However, the First Court of Appeals agreed with the trial court, finding that Samoco’s 2007 lawsuit was time-barred.

The Texas appellate court also held that Pecten should have been awarded a portion of the $3.5 million in attorneys’ fees and costs that it claimed to have incurred, because the jury found that Samoco breached the agreement by filing the lawsuit. The jury awarded zero dollars in damages, but Pecten argued that it was contrary to the weight of the evidence. The court said that the evidence regarding fees was undisputed, and Samoco did not substantively challenge the attorneys’ fees evidence on appeal.

Texas appeals court’s decision shows importance of wording in noncompete agreements

A recent decision by a Texas appeals court demonstrates that the wording of a noncompete agreement must be precise.

In the case, East Texas Copy Systems, Inc. v. Player, the Court of Appeals in Texarkana ruled that a noncompete agreement was nonbinding due to the language used in the agreement.

As part of the sale of a business, the buyer agreed to employ the seller for four years, and the seller agreed not to compete with the buyer in a certain geographic area for a two year period. The noncompete clause stated that if the seller’s employment was terminated “for any reason other than a for cause termination” within two years, then the noncompete clause would no longer be binding. The parties also signed a separate noncompete agreement with identical language regarding the agreement being nonbinding if the seller was terminated for any reason other than for cause.

The seller voluntarily resigned his employment within two years of entering into the agreement and entered into competition with the buyer.

The seller filed a lawsuit seeking a declaration that the noncompete clauses were nonbinding, and the buyer asked the court to enforce the clauses. The trial court found that the seller was not bound by the noncompete agreement. The buyer appealed, arguing that to allow the seller to voluntarily end his employment and begin competing would thwart the purpose of the agreement. The court disagreed, noting that the agreements between the parties covered other issues besides the agreement not to compete. The court held that the plain language of the clause allowed the seller to compete, because both parties agreed that the employment had terminated without cause.

The case illustrates the importance of making sure that a noncompete agreement actually protects the interests that the parties intend to protect.

Website by SEO | Law Firm™, an Adviatech Company