Safeco Surety v. J.P. Southwest Concrete, Inc. (Tex.App.- Houston [1st Dist.] Apr. 2,
2009)(Alcala)(consequences of failure to disclose evidence, failure to plead properly, trial by consent,
release as affirmative defense, lost profit damages)
AFFIRM TC JUDGMENT IN PART, REVERSE TC JUDGMENT IN PART, AND REMAND CASE TO TC FOR
FURTHER PROCEEDINGS: Opinion by Justice Alcala
Before Chief Justice Radack, Justices Alcala and Hanks
01-07-00904-CV Safeco Surety and C.A. Walker, Inc. v. J.P. Southwest Concrete, Inc.
Appeal from 189th District Court of Harris County
MEMORANDUM OPINION
Appellants, C.A. Walker Construction Company and Safeco Surety (collectively "Walker"), appeal
from the trial court's judgment awarding appellee, J.P. Southwest Concrete, Inc. ("J.P."), $47,000
in actual damages, as well as attorney's fees and pre- and post-judgment interest. In its first three
issues, Walker contends the trial court erred in the amount of damages awarded to J.P. because
(1) the damages award is not supported by the evidence, (2) the language of the contract
between Walker and J.P. precludes at least some of the consequential damages sought by
Walker, and (3) J.P. did not plead for the damages the trial court awarded. In its fourth issue,
Walker contends the trial court improperly rendered judgment against Walker on its counterclaim.
We conclude that Walker waived its challenge to the counterclaim due to inadequate briefing, and
the trial court erred in its determination of the amount of the damages award. We therefore affirm
in part and reverse and remand in part.
Background Walker was the general contractor on a construction project for the Spring Branch
Independent School District. J.P. was a subcontractor on the project and contracted to perform
concrete work, including drilling pier holes and pouring concrete piers. Among other
requirements, the contract provided that extra work performed by J.P. outside the scope of the
contract must have Walker's approval and signature in a written change order. The contract
provided for Walker to pay $243,000 in exchange for J.P.'s performance of "all concrete work" for
the project, including "concrete slabs, walks and paving" and "providing and placing all concrete
related: concrete, rebar, vapor barrier, form boards, expansion materials, and tie-wires." The
contract did not mention site work or removal of existing obstructions. According to Jeff Pantle,
J.P.'s president, J.P. was not responsible for site clearing, demolition, and subsoil debris
removal, and those jobs should have been done by the time J.P. was to do the concrete work.
In September 2004, when J.P. began its work for Walker, it encountered severe subsoil
obstructions while attempting to drill pier holes. Pantle and Donnelly, J.P.'s superintendent, both
described numerous obstructions J.P. encountered while attempting to drill pier holes. Walker
instructed J.P. to prepare and submit written change orders to cover the removal of the
obstructions. J.P. did submit a number of written change orders for work outside the scope of the
contract. However, Walker only approved some of these orders.
As work progressed, J.P. submitted applications for payment along with supporting
documentation. As of December 2004, J.P. had been paid $57,349.25. J.P. submitted another
application for payment seeking $79,796 for January. Later, J.P. sought a payment of $17,099 for
work done in February. Walker did not pay J.P. until March 16, 2005, when it paid $84,756.35. In
exchange for the March 16, 2005 payment, Pantle, on behalf of J.P., executed a "Subcontractor
Affidavit of Payment and Partial Release of Lien."
After the March 16, 2005 payment, the amount remaining to be performed under the contract was
$132,043.40 and J.P. continued to work for Walker. Walker told J.P. that subsoil debris and
obstructions had been removed and requested it continue drilling pier holes. J.P. went to the site,
bringing with it another subcontractor that had drilling equipment, but was unable to perform work
due to subsoil debris and obstructions. Walker acknowledged that it owed J.P. money as
payment for this work that was done March 22, 2005, but only for the amount of $2,848.
For several months, J.P. attempted to get paid for the work it had done. J.P. sent a demand letter
stating Walker owed J.P. $77,501, which was for $19,501 for completed, unpaid work and
$58,000 in lost profits. When Walker did not pay the amount requested, J.P. filed suit for that
same amount. Walker requested a disclosure under rule 194.2(d) of "the amount and any method
of calculating economic damages." (1) J.P. replied,
Damages: $19,501.00 for billed unpaid work,
$58,000.00 lost profit,
Total: $77,501.00
At the bench trial, Pantle testified J.P. was seeking $19,501 for unpaid work and $58,000 for lost
profits.
Several weeks after the trial concluded, J.P. filed a motion for entry of judgment. Within this
motion, J.P. asserted total damages in the amount of $74,059.52 for the following:
$17,099.00 for unpaid contract work in February 2005[;]
$21,748.52 for unpaid contract work in March 2005[;]
$8,389.00 for funds retained by Walker from previous payments[; and]
$26,823.00 for extra work completed for unsigned change orders.
J.P. requested that the $74,059.52 be reduced to $69,099.17 to allow for a credit for the amount
by which the March 16, 2005 payment exceeded the requested payment for the January work.
J.P. then requested that the $69,099.17 be increased to $72,699.17 to compensate for $3,600
for Transit Mix's attorney's fees paid by J.P. In addition, instead of the $58,000 originally sought
for lost profits, J.P. reduced its lost profits claim to $26,499.05. The proposed judgment submitted
by J.P. stated the actual damages as the sum of the unpaid work and Transit Mix attorney's fees
only; it did not include the reduced lost profits. The trial court rendered judgment in favor of J.P.,
awarding $47,000 in actual damages. The trial court did not explain how it reached the $47,000
figure, nor did it make findings of fact and conclusions of law. The Amount of Damages
Walker challenges the $47,000 amount for damages by claiming any damages incurred prior to
March 16, 2005 are disclaimed by J.P. in a release; the evidence does not support the lost profits
claim; J.P. cannot recover damages from Walker for Transit Mix's lawsuit against J.P.; and J.P.
cannot recover damages never disclosed to Walker until after trial. We agree with Walker that it
would have been improper for the trial court to render its damages award by taking any of these
damages into account in its award to J.P.
A. Release
As part of its first issue, Walker contends, "The damage award is not supported by the evidence
introduced at trial" because J.P. agreed to release all damages stemming from any payments
due prior to the date the release was executed, on March 16, 2005, which left only $2,848 in
damages for work done March 22, 2005.
1. Sufficiency of Pleadings and Trial by Consent
J.P. contends Walker waived any issue concerning the release because release is an affirmative
defense that was not pleaded by Walker.
The Texas Rules of Civil Procedure require certain defenses, including the defense of "release,"
to be affirmatively pleaded. Tex. R. Civ. P. 94. Generally, an affirmative defense is waived if it is
not pleaded. Alvarado v. Wingfoot Enters., 53 S.W.3d 720, 725 (Tex. App.--Houston [1st Dist.]
2001) (quoting Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 937 (Tex. 1992)) rev'd on other
grounds by 111 S.W.3d 134 (Tex. 2003). However, "[u]npleaded claims or defenses that are tried
by express or implied consent of the parties are treated as if they had been raised by the
pleadings." Hartford Fire Ins. Co. v. C. Springs 300, Ltd., No. 01-06-00065-CV, 2008 WL
2208887, at *6 (Tex. App.--Houston [1st Dist.] May 29, 2008, no pet. h.) (citing Roark v. Stallworth
Oil & Gas, Inc., 813 S.W.2d 492, 495 (Tex. 1991)). "The party who allows an issue to be tried by
consent and who fails to raise the lack of a pleading before submission of the case cannot later
raise the pleading deficiency for the first time on appeal." Id. (citing Roark, 813 S.W.2d at 495).
"Moreover, '[w]hen issues not raised by the pleadings are tried by express or implied consent of
the parties, they shall be treated in all respects as if they had been raised in the pleadings.'" Id.
(quoting Tex. R. Civ. P. 67). "To determine whether an issue was tried by consent, we examine
the record not for evidence of the issue, but rather for evidence of trial of the issue." Id. (citing
Case Corp. v. Hi-Class Bus. Sys. of Am., Inc., 184 S.W.3d 760, 771 (Tex. App.--Dallas 2005, pet.
denied)). "A party's unpleaded issue may be deemed tried by consent when evidence on the
issue is developed under circumstances indicating that both parties understood the issue was in
the case, and the other party failed to make an appropriate complaint." Id. (citing Case Corp., 184
S.W.3d at 771).
Here, it is undisputed Walker did not plead release as an affirmative defense. We therefore must
examine the evidence of this issue being tried by consent. Id. In opening statements, Walker's
counsel raised the issue of the release. The release was admitted into evidence without objection.
Walker testified the March payment was made despite J.P. not providing all the required
documentation and included amounts for work that had not been done by J.P. In response to
questions from the judge, Walker's counsel asserted the plain language of the release indicated
J.P. acknowledged that, as of March 16, 2005, it had been paid for all work. Pantle was
cross-examined concerning the release, acknowledging he signed it. J.P.'s counsel then
conducted a re-direct examination of Pantle concerning the circumstances surrounding the
signing of the release. The trial court did not hear closing arguments, but instead discussed a
number of issues with counsel. The release came up several times and both sides presented their
theories and arguments concerning the proper interpretation and effect of the release. J.P. did not
complain of the lack of pleadings to support the affirmative defense of release before the trial
court, raising the issue for the first time in its brief to this Court.
We conclude the issue of release was tried by consent because the record shows the release
was introduced at the trial without objection, witnesses were examined concerning the release,
both parties discussed and argued the meaning and effect of the release to the trial court, and
J.P. did not make any complaint concerning the lack of pleadings to support the defense of
release. See Hartford Fire Ins. Co., 2008 WL 2208887 at *7 (concluding issue tried by consent
when issue "was raised several times during the trial" and no objection to lack of pleadings made
until charge conference).
2. Consequence of the Release
Walker contends J.P. released all damages stemming from any payments due prior to March 16,
2005, the date the release was executed.
A release is a type of contract and is construed according to the rules governing contracts
generally. Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 848 (Tex. App.--Houston [14th Dist.]
2001, pet. denied). Our primary concern when construing a written contract is to ascertain the true
intent of the parties, as expressed in the contract itself. Coker v. Coker, 650 S.W.2d 391, 393
(Tex. 1983). In determining intent, we must look to the contract, not what the parties allegedly
meant. Union Pacific R.R. v. Novus Int'l, Inc., 113 S.W.3d 418, 421 (Tex. App.--Houston [1st Dist.]
2003, pet. denied). An unambiguous contract will be enforced as written. David J. Sacks, P.C. v.
Haden, 266 S.W.3d 447, 450 (Tex. 2008).. Parol evidence may not be introduced to create an
ambiguity or to alter the intent of the parties as expressed in the instrument. Id.
The release signed by Pantle on behalf of J.P. acknowledges payment of $84,756.35 "and other
good and valuable consideration." It then states,
Subcontractor waives, releases, relinquishes and discharges all known and unknown causes of
action, including, but not limited to those arising out of contract, by statute, in tort or otherwise, and
waives, releases, relinquishes and agrees to discharge any suits, debts, accounts, bonds,
contracts, promises, damages, liens, encumbrances, judgments, claims and demands
whatsoever, in law or equity, which are against the Contractor . . . that the Subcontractor now has
or might hereinafter obtain that relates directly or indirectly to the aforesaid relationship, Contract,
and/or Project.
. .
Subcontractor and I hereby acknowledge that Subcontractor has previously been paid from
Contractor $57,349.25 for the above named job, and this payment constitutes full payment for the
work performed to date and any and all change orders or claims for additional work performed. . . .
J.P. challenges the release by pointing to Pantle's testimony and letters written by Walker that
state that the March 16, 2005 payment is only for work done in January 2005. The release itself,
however, plainly states that the $84,756.35 "payment constitutes full payment for the work
performed to date and any and all change orders or claims for additional work performed." The
testimony and letters are parol evidence that cannot properly be considered to change the written
terms of the release. See David J. Sacks, P.C., 266 S.W.3d at 451.
J.P. also asserts "the numbers at the top of right 0105, is the date January 2005." The portion of
the release that J.P. points to states, "Date: 03/16/2005 Payment Request: 0105R." The date of
the release clearly is March 16, 2005, which is also the date Pantle signed the release. We
conclude that by signing the release, J.P. acknowledged it was fully paid for all work it had
performed as of March 16, 2005.
We sustain Walker's first issue to the extent that the trial court would have erred by including any
amounts for work done before March 16, 2005 because J.P. released its claim for those amounts.
B. Lost Profits Damages
Within its first issue, Walker contends J.P.'s claim for lost profits is not supported by the evidence.
Specifically, Walker contends lost profits must be proved with reasonable certainty and J.P. failed
to do so, because J.P.'s claim for lost profits assumed a 25 percent profit margin based on
speculation.
1. Recovery of Lost Profits
In a breach-of-contract case, damages are usually measured by the "benefit-of-the-bargain"
standard, intended to put the party seeking damages in as good a position as if the contract had
been performed. Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.--Houston [1st Dist.] 2006,
pet. denied). Benefit-of-the-bargain damages may include reasonably certain lost profits. Id. "Lost
profits are damages for the loss of net income to a business and, broadly speaking, reflect
income from lost business activity, less expenses that would have been attributable to that
activity." Id. (citing Miga v. Jensen, 96 S.W.3d 207, 213 (Tex. 2002)). In other words, "[l]ost profits
must be based on net profits, not gross revenues." Texaco, Inc. v. Phan, 137 S.W.3d 763, 771
(Tex. App.--Houston [1st Dist.] 2004, no pet.).
To recover lost profits, the party seeking them must prove them with reasonable certainty and
competent evidence. Bowen, 227 S.W.3d at 96. "Generally, lost profits are properly calculated by
deducting the costs of the injured party's performance supported by data from the actual contract
price." Id. (citing Cmty. Dev. Serv., Inc. v. Replacement Parts Mfg., Inc., 679 S.W.2d 721, 725
(Tex. App.--Houston [1st Dist.] 1984, no writ)). "However, a witness may also prove lost profits by
testifying as to what his profit would have been, based on his knowledge of the cost of
performance of each element of the contract and subtracting the total of such costs from the
contract price." Id. (quoting Cmty. Dev. Serv., Inc., 679 S.W.2d at 725). "What constitutes
reasonably certain evidence of lost profits is a fact intensive determination. At a minimum,
opinions or estimates of lost profits must be based on objective facts, figures, or data from which
the amount of lost profits can be ascertained." Id. at 97 (quoting Holt Atherton Indus., Inc. v. Heine,
835 S.W.2d 80, 84 (Tex. 1992)).
2. Evidence of Lost Profits
At trial, Pantle testified J.P. was seeking $58,000 in lost profits. The following testimony is the only
calculation Pantle provided:
Q: Okay. How did you arrive at the $58,000 lost profits?
A: I based it on the contract amount, the approved change orders that Walker did approve. Then I
added in the unchanged--the unsigned change orders. I came up with a total, subtracted it from
what had already been paid, came up with a balance and then put a 25 percent net markup on
that.
Q: How--what do you mean by 25 percent?
A: On a job, on this particular job, I had a 25 percent--not gross--but net markup.
Q: And the $58,000 lost profits reflects that 25 percent flat figure?
A: Well, it--it's that and the change orders and such.
J.P. contends this evidence is "based on objective facts from which the amount of the lost profits
can be ascertained," citing Texaco, Inc. v. Phan as support. In Texaco, this Court found the
affidavit testimony of the owners of a gas station and convenience store was no evidence to
support an award of lost profits. Texaco, Inc, 137 S.W.3d at 772. The owners stated they had a
profit margin of 30 percent, basing this assertion on the prior 17 months of operation at their
stores. Id. However, this Court noted that the owners did not define "profit margin" or address
expenses. Id. The bare assertion of a profit margin of a certain percent, even one based on prior
experience, was not sufficient evidence to support an award of lost profits. Id. at 772-73.
Here, like the owners in Texaco, Pantle did not address J.P.'s expenses. See id. at 772. Pantle
did not testify what expenses J.P. would incur in performing the contract. Rather, he simply stated,
"On a job, on this particular job, I had a 25 percent--not gross--but net markup." Pantle did not
"testify[] as to what his profit would have been, based on his knowledge of the cost of performance
of each element of the contract and subtracting the total of such costs from the contract price."
Bowen, 227 S.W.3d at 96. J.P. failed to present "objective facts, figures, or data from which the
amount of lost profits can be ascertained." See id. at 97. We conclude the evidence is factually
insufficient to support an award of lost profits. See id.; Texaco, Inc, 137 S.W.3d at 772-73.
We sustain Walker's first issue to the extent that the trial court would have erred by including any
amounts for lost profits because the evidence did not show objective facts, figures, or data from
which the amount of lost profits could be ascertained. Further, any lost profits incurred before
March 16, 2005 are not properly included in the award.
C. Consequential Damages
In its second issue, Walker asserts the contract language precluded J.P.'s recovery of its claimed
damages incurred by paying the claims asserted against J.P. by Transit Mix. Walker contends
that part of the $58,000 lost profit award sought by [J.P] was a claim for consequential damages
for costs associated with settling a lawsuit asserted against it by one of its subcontractors, Transit
Mix[,]" a company that sued J.P. to recover payment for supplies.
The contract provides,
In the event suit is filed by any person, firm or corporation asserting a claim or lien for labor,
services or materials used or purchased for use in the work covered by this contract, [J.P.] will, at
its own cost and expense, including counsel fees, defend such suit and pay any judgment
rendered therein.
The plain language of the contract excuses Walker from paying any damages for a suit filed
against J.P. by Transit Mix for services or materials, or the attorney's fees incurred by Transit Mix
and paid by J.P. See David J. Sacks, P.C., 266 S.W.3d at 450 (stating unambiguous contract will
be enforced as written). Additionally, to the extent the damages award included materials
provided before March 16, 2005, the release executed by J.P. precludes such an award. We
sustain Walker's second issue to the extend the trial court may have included damages for Transit
Mix's attorney's fees.
D. Unpleaded and Undisclosed Elements of Damages
In its third issue, Walker contends the trial court erred to the extent it based the award of damages
to J.P. on damages not pleaded or disclosed prior to trial. J.P. does not reply to Walker's issue
concerning the failure to disclose the amount and method of calculating damages, instead
asserting, "The damages models presented by [J.P.] [w]as supported in the testimony of Pantle
and succinctly set out at CR000089, in [J.P.'s] Motion for Entry of Judgment."
Texas Rule of Civil Procedure rule 194.2(d) provides that a party may request disclosure of "the
amount and any method of calculating economic damages." Tex. R. Civ. P. 194.2(d). Comment 2
to the rule provides that subsection (d) is "intended to require disclosure of a party's basic
assertions, whether in prosecution of claims or in defense." Id. cmt. 2. As an example of the
required disclosure, comment 2 notes, that, in a claim for damages suffered in a car accident, the
plaintiff would be required to state how loss of past earnings and future earning capacity was
calculated. Id.
Rule 193.6(a) provides, "A party who fails to make, amend, or supplement a discovery response
in a timely manner may not introduce in evidence the material or information that was not timely
disclosed." Tex. R. Civ. P. 193.6. The purpose behind this rule is to prevent trial by ambush.
Harris County v. Inter Nos, Ltd., 199 S.W.3d 363, 367 (Tex. App.--Houston [1st Dist.] 2006, no
pet.) (citing Aetna Cas. & Sur. Co. v. Specia, 849 S.W.2d 805, 807 (Tex. 1993)). "Absent a
showing of good cause, lack of unfair surprise, or lack of unfair prejudice, rule 193.6 mandates
exclusion of the undisclosed material or information." Id. "The burden of establishing good cause
or the lack of unfair surprise or unfair prejudice is on the party seeking to introduce the evidence . .
. ." Tex. R. Civ. P. 193.6(b); Harris County, 199 S.W.3d at 367.
In the demand letter, petition, response to the request for disclosure under rule 194.2(d), and at
trial, J.P. sought damages for $77,501, an amount consisting of $19,501 for unpaid work and
$58,000 for lost profits. However, the request for $19,501 for unpaid work was changed after the
trial to become a request for damages for $17,099.00 for unpaid contract work in February 2005;
$21,748.52 for unpaid contract work in March 2005; $8,389.00 for funds retained by Walker from
previous payments; and $26,823.00 for extra work completed for unsigned change orders. The
request for $58,000 for lost profits was reduced after the trial to $26,499.05. Additionally, after the
trial, a new request for damages was made by J.P. for $3,600 for Transit Mix's attorney's fees
paid by J.P. We conclude the post trial requests for damages and attorneys fees violated rule
193.6 because J.P. failed to amend its responses to requests for disclosure, and rule 194.2(d)
because J.P. failed to disclose the amount and method of calculating economic damages. Tex. R.
Civ. P. 193.6, 194.2(d); see also Harris County, 199 S.W.3d at 368 (holding trial court did not
abuse discretion in excluding evidence concerning Harris County's calculation of fair market value
in condemnation case because Harris County did not present evidence of good cause, lack of
unfair surprise, or lack of unfair prejudice in failing to correct erroneous response to request for
disclosure). We sustain the third issue to the extent the trial court erred if it based the damages
award on the undisclosed method of calculating economic damages. See id.
E. Conclusion
Although the trial court did not make findings of fact and conclusions of law to show how it reached
the $47,000 damages figure, we conclude that the amount of the award is erroneous because the
figure could not have been reached without taking into consideration amounts that were
disclaimed by the release, were for lost profits, were for Transit Mix's lawsuit, or were not properly
disclosed before post trial. We must therefore remand the cause for a new damages
determination.
Walker's Counterclaim
In its fourth issue, Walker contends, "Although the trial court never expressly disposed of
[Walker's] counterclaim for breach of contract, the court implicitly ruled in favor of [J.P.]." Walker,
however, does not cite to a single authority in its discussion of this issue. We hold error, if any, is
waived due to inadequate briefing. See Tex. R. App. P. 38.1(i) ("The brief must contain a clear
and concise argument for the contentions made, with appropriate citations to authorities and to
the record."); Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 128 (Tex.
App.--Houston [1st Dist.] 2002, pet. denied) (holding rule 38 not satisfied by "merely uttering brief
conclusory statements, unsupported by legal citations").
We overrule Walker's fourth issue.
Conclusion
We affirm that portion of the trial court's judgment rendering a take-nothing judgment on C.A.
Walker Construction and Safeco Surety's counterclaim. We reverse that portion of the trial court's
judgment awarding damages to J.P. Southwest Concrete, Inc. and remand this cause to the trial
court for the limited purpose of conducting a new trial on the issue of damages.
Elsa Alcala
Justice
Panel consists of Chief Justice Radack and Justices Alcala and Hanks.
1. Tex. R. Civ. P. 194.2(d).