(CN) – Finding that a construction company could not claim damages for work delays under its contract with the Port of Houston, a Texas appeals court threw out a $23 million jury award.
The Port of Houston hired Zachry Construction in 2004 to build a wharf on the Bayport Ship Channel, which feeds into the larger Houston Ship Channel that runs through Galveston Bay to the Gulf of Mexico.
Zachry’s bid proposed using a U-shaped, frozen earthen wall to block water from the construction site. Houston gave Zachry the contract in part because of the environmental benefits associated with freeze walls.
The contract called for Zachry to construct a 1,660 wharf, and perform dredging needed for ships to access the wharf by June 1, 2006.
Trouble arose, however, when the geotechnical engineer working for Zachry’s subcontractor designed a frozen cutoff wall that drew concerns from the port.
After the port rejected the design, Zachry believed that the freeze wall was killing the schedule and that it needed to work “in the wet,” though this process would consume more emission credits.
When construction was not completed by the 2006 deadline, the port withheld $2.36 million in liquidated damages from the contractor’s monthly invoices.
Zachry sued the port in Harris County District Court for breach of contract over its rejection of the frozen wall plan; for costs added by not using the wall; for withholding the $2.36 million for construction delays; and for withholding $600,000 as a supposed offset for Zachry’s defective dredging.
As the lawsuit played out, culminating in a three-month trial, Zachry completed the wharf in January 2009. A jury ultimately found the port had breached its contract and awarded Zachry about $23 million including interest. The verdict did not award Zachry the $600,000 in withheld dredging fees.
Both parties appealed, and the 14th Court of Appeals sided with the port last week.
The 37-page decision notes that a “no-damages-for-delay clause” dooms Zachry’s case. That clause states: “The contractor shall receive no compensation for delay or hindrance … even if such delay or hindrance results from, arises out of or is due, in whole or in part, to the negligence, breach of contract or other fault of the port authority.”
The trial court erred in instructing the jury that the no-damages-for-delay clause precluded Zachry’s damages unless it found the damages came from the port’s “arbitrary and capricious conduct, active interference, bad faith and/or fraud.”
“We conclude that Zachry has failed to establish that the no-damages-for-delay clause was not intended to apply to Port conduct including, arbitrary and capricious conduct, active interference, bad faith, or fraud,” Judge Sharon McCally wrote for a three-judge panel.
This clause precludes Zachry from recovering the jury award. The panel also said that Zachry had released the port from liability over the withheld $2.36 million, so the trial court did not properly instruct the jury on this issue.
The port can collect more than $10.5 million in attorney’s fees, according to the ruling.
In a 14-page dissent, Judge Tracy Christopher said that the evidence is too ambiguous to show that Zachry released the port as to the withheld $2.36 million.