In a multi-million dollar suit stemming from a concrete manufacturer’s refusal to reimburse its lessor for corrosive damage to lessor’s railcars, the Dallas Court of Appeals has reversed the lower court’s conclusion that the statute of limitations barred lessor’s breach of continuing contract claim.
In Trinity Leasing Company v. Lattimore Materials Corp., (No. 05-23-00512-CV; July 29, 2024), the dispute surrounded Article 13 of a 2009 Lease agreement, under which (Defendant) Lattimore rented railcars from (Plaintiff) Texas-based railcar provider, Trinity to haul wet limestone aggregates to its cement mix-sites daily. Article 13 provided that: “if… any of the cars…shall be materially damaged…due to the corrosive or damaging effect of any substance carried therein…Lattimore will reimburse Trinity promptly for such damage” (emphasis added). While Trinity first noticed signs of corrosion as early as 2013, they were of little concern until 2018, when Lattimore began inquiring about its liability for corrosive damage should the contract end. The ensuing inspection revealed corrosion so severe that “all of [the] cars may require a complete re-body,” costing Lattimore upwards of $13.5 million. Throughout these discussions, Lattimore never disputed its responsibility to pay, even renewing the Lease’s Riders until November 2021. Consequently, Trinity allowed Lattimore to defer the repair costs and continue using its cars. However, Lattimore never changed its production habits, forcing Trinity to give it two options: (1) “rebody” the railcars, or (2) sell them to mitigate the economic costs of the damage. Lattimore asked for time to decide and, in the meantime, continued loading Trinity’s railcars with wet materials every day before terminating the Lease in January 2020.
Understandably unhappy about this turn of events, Trinity sued Lattimore for breaching the lease. Lattimore responded that the four-year statute of limitations barred Trinity’s Article 13 claim because it was made more than seven years after the cause of action accrued. The jury awarded Trinity $1.661 million in lost rent and $9 million for Lattimore’s failure to reimburse them for the damage to the cars under Article 13. However, relying on the jury’s finding that Trinity knew about Lattimore’s “failure to comply with Article 13” as early as December 31, 2015, the judge sided with Lattimore and withheld the Article 13 award. Trinity argued that the jury’s response simply misunderstood how Lattimore failed to comply with Article 13 and was “legally immaterial” to the defense. The court denied the motion. Trinity appealed.
In an opinion by Justice Garcia, the Court reversed and reinstated the jury’s verdict of $10,661,000 for breaches of Articles 4 and 13. The court rejected Lattimore’s interpretation that Article 13 required it to “not damage the railcars,” finding that it conflated Lattimore’s Article 13 obligation with the event that triggered it. Because Article 13 considers the chance that “any of the cars…shall be materially damaged,” it does not categorically prohibit damage. Instead, “corrosive damage” triggered Lattimore’s legal obligation under Article 13: to “reimburse Trinity promptly for such damage. Lattimore’s conduct prior to the suit—acknowledging its obligation to reimburse Trinity for corrosive damage, requesting inspection in 2018 to determine its liability, and discussing the restructured Lease—also reflected this interpretation. Thus, the court opined that Article 13 was not breached until 2020, when Lattimore refused to pay Trinity for the corrosive damage it caused. Further, since no evidence showed Trinity should have known Lattimore would not reimburse it for corrosive damage, the court agreed with Trinity that the jury’s determination of when Trinity first knew about the breach was irrelevant to the date of the breach.
TCJL Research Intern Shaan Rao Singh researched and substantially composed this article.
