The Dallas Court of Appeals has reversed a $12 million judgment against a property owner and surety, along with $700,000 in attorney’s fees, in a breach of contract suit filed by a general contractor.
KWA Construction, L.P. and Hartford Fire Insurance Company v. ADC West Ridge, L.P. (No. 05-24-00253-CV; January 30, 2026) arose from a dispute involving a construction contract among the general contractor, the surety, and the owner of a low-income multi-family apartment complex in McKinney. ADC and KWA entered into a contract to build the project, under which ADC agreed to pay KWA the costs of construction plus a designated amount of profit up to $14,220,745. Hartford acted as surety on the performance bond. Due to the nature of the development, HUD backed the financing of the apartment complex. KWA had a deadline to complete the work by July 19, 2017. ADC’s principal hired Pollacia to serve as the project’s architect. Their contract incorporated the 2007 version of the AIA’s A201 General Conditions, which provided separate dispute resolution procedures. Construction was bedeviled by logistical issues from the outset. KWA asked Pollacia for additional time and money to Pollacia, the designated initial decision maker (IDM). Pollacia closed the claim for a lack of specifics, and KWA requested mediation. ADC agreed, but the disputes went unresolved.
KWA filed its original petition in January 2018 for breach of contract, arguing that ADC had failed to pay, process change orders, and submit proper change orders to HUD and the Lender for approval. KWA further maintained that ADC’s prior material breach of the contract excused it from further obligations. ADC filed a counterclaim for breach of contract and a third party petition against Hartford for performance on the surety bond. Outside of the courts Pollacia continued to resolve pending claims through ADR, all in favor of ADC. KWA filed a mechanic’s and materialman’s lien against the property because ADC stopped paying as required by the contract. All of this notwithstanding, HUD granted Permission to Occupy the property on July 31, 2018, and ADC began renting.
Thereafter, Pollacia completed a nine-month warranty report as required by HUD in which he included numerous defective items. This report was not resolved, and a 12-month warranty report was filled out detailing issues with water infiltration, elevator failure, and ADA non-compliance. He provided a ballpark estimate of $1,889,279.28 in corrective costs. ADC submitted a claim to Pollacia for the defective work, and a second round of mediation occurred, although it was equally ineffective. Pollacia then proceeded to update the twelve-month warranty report with a new estimation of $12,149,284.27, based on the proposal and spreadsheet from JQ Development, a construction company that inspected the project. The estimate was otherwise unsubstantiated.
ADC filed motions for partial summary judgment, which the trial court granted as to the breach of contract claim and lien foreclosure. ADC further argued that Pollacia’s approval of payments was a condition precedent to KWA’s obligation to pay. KWA responded that the relevant provisions were covenants, not conditions precedent, buttressing this argument with thousands of pages of documents. The trial court sustained ADC’s objections to KWA’s summary judgment evidence, issued a take-nothing judgment on KWA’s breach of contract claim, and released any lien on the property.
A bench trial followed, at which point KWA no longer had any surviving claims against ADC. ADC asserted J4’s regarding damages damages (without additional evidence), while KWA argued against “any notion that the trial court was required to rubber stamp [$12,149,284.27] like an arbitration prove-up.” Nevertheless, the trial court issued a final judgment holding that Pollacia’s decision was final and binding, mediation was a condition precedent to binding dispute resolution under the contract, Pollacia’s decision should be held as final as to each of Defendant’s claims, and Plaintiff was responsible for all costs and damages in the amount in accordance with J4’s assessment. It awarded the full $12,149,284.27 in actual damages against KWA and Hartford, jointly and severally, $471,725 in attorney’s fees against KWA and Hartford, and $271,717 in attorney’s fees against Hartford. Additionally, the court concluded that Plaintiff waived its right to mediation and binding dispute resolution, as well as its right to challenge any initial decisions, decisions, and final decisions under the contract. KWA appealed.
In an opinion by Justice Barbare, the court of appeals affirmed in part and reversed in part. KWA’s first issue challenged the legal sufficiency of the trial court’s award for actual damages. ADC argued that it wasn’t required to satisfy a standard of reasonableness and necessity because Pollacia’s determination was final and binding. It further suggested that absent a proper challenge to that initial decision, the trial court lacked any power to modify it. The court disagreed on both counts. Instead, it found the opposite to be true. Pollacia’s decision was not final and binding, and KWA did not lose its right to challenge it in a judicial proceeding. The court read the contract, which stated that “either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision” (emphasis added in opinion), as optional, not mandatory. There was no evidence in the record that either party made a written demand that the other file for mediation following any Pollacia decision, and without such evidence, neither party waived its right to mediate or pursue binding dispute resolution regarding the initial decision. Both parties agreed to this optional process, and accordingly, Pollacia’s decision was not binding.
As for actual damages, the court found the J4 report did not present any evidence of reasonableness or necessity of the remedial damages sought. ADC offered nothing showing how J4 arrived at its estimates, and Pollacia himself confessed to having no knowledge or understanding of the estimates. KWA’s construction expert, on the other hand, identified gross miscalculations of up to nine times the costs for the same scope of work determined by Pollacia in his 12-month warranty report. The court sustained KWA’s first issue and reversed the actual damages reward against KWA and Hartford, jointly and severally. It then rendered a take-nothing judgment on ADC’s breach of contract claim.
KWA next argued that the trial court erred in dismissing its breach of contract claim and extinguishing its lien. ADC argued that there were no genuine issues of material fact and that it was entitled to judgment as a matter of law because it could not be held liable for failing to pay under the contract when Pollacia did not certify or approve KWA’s applications for certain payments. KWA maintained that these provisions were covenants, rather than conditions precedent. But the trial court granted ADC’s objections to KWA’s summary judgment evidence, leaving no evidence to oppose ADC’s no evidence summary judgment motion. Consequently, KWA failed to meet its burden to overcome ADC’s motion. The court affirmed the trial court’s dismissal of KWA’s breach of contract claim and extinguishment of its lien.
KWA challenged the attorney’s fees awarded to ADC, arguing the fees were barred by § 38.001, CPRC (at the time of suit, this section did not allow recovery of attorney’s fees against a limited partnership like KWA). ADC relied on § 53,156, Property Code, which provides for the award of attorney’s fees in any proceeding invalidating a lien. KWA contended that the attorney’s fees award must be reversed, or in the alternative reduced because they were excessive and ADC failed to properly segregate its fees between recoverable and unrecoverable claims. ADC attempted to remedy the non-segregation by offering a general 25% reduction in its fees to “reflect any duplicative work that somehow didn’t attack the theories of attacking the liens.” The court found the suggested reduction conclusory and based merely on a generality asserted by counsel. The court sustained KWA’s challenge to the award of $419,725.00 to ADC against KWA and Hartford, jointly and severally. The record indicated, however, that ADC was entitled to some attorney’s fees, so the court remanded to the trial court for further proceedings.
Hartford, in its sole issue, argued that the evidence was factually insufficient to support the $271,717.00 of attorney’s fees against it for the period between summary judgment and trial. ADC responded that the trial court had two alternative bases for awarding fees: (1) the terms of the performance bond, and (2) Chapter 38, CORC. The performance bond required the surety to “fully reimburse and repay all expenses which any Obligee may incur in making good any such default.” Hartford relied on the long-held precedent that “under Texas law, courts have consistently held that attorney’s fees are not costs or expenses.” See In re Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168, 175 (Tex. 2013) (orig. proceeding) (stating that costs or expenses are generally fees and charges required by law to be paid to courts or to their officers, such as filing fees and service fees). ADC argued that no such authority had been cited in a performance bond context, encouraging the court to read this section of the bond as requiring the surety to “fully repay all expenses and damages” incurred by the Obligee. The court declined this invitation, finding that the general rule applied. The other basis failed as well. Because ADC could not recover against KWA as a limited partnership, it couldn’t recover from KWA’s surety because Hartford’s liability was derivative of KWA’s. And to the extent that the trial court may have awarded fees to ADC under § 53.156, Property Code, the trial court erred because when it granted summary judgment and extinguished KWA’s lien, ADC could not recover any additional fees from KWA. The court the $271,717.00 awarded to ADC against Hartford.
TCJL Legal Intern Satchel Williams researched and prepared the first draft of this article.
