Over two dissenting opinions, the Texas Supreme Court has reversed a Fourteenth [Houston] Court of Appeals decision affirming a judgment (including attorney’s fees) obtained by an owner against a contractor in a breach of contract dispute. At the same time, the Court affirmed both the trial and appellate court’s enforcement of an indemnity provision in favor of the owner.

James Construction Group, LLC and Primoris Services Corporation v. Westlake Chemical Corporation (No. 20-0079) arose from a contract dispute that resulted when Westlake, alleging failure to improve its record of safety violations, fired general contractor James (owned by Primoris) from a job at its chlor-alkali plant in Geismar, Louisiana. The facts are somewhat convoluted and account for 20 of the opinion’s 49 pages, but the central issue in the dispute was whether Westlake had given the contractually required written notices before terminating James based on its “reasonable opinion” that James committed “serious safety violations.” If so, Westlake was entitled under the contract to excess costs incurred by having to replace James on the job. The Court unanimously agreed that: (1)“substantial compliance is the appropriate standard when evaluating whether a party complied with a contractual notice condition”; and (2) substantial compliance with a condition precedent requiring written notice may not be achieved without a writing in some form.” Under Texas law, “a party’s minor deviations from a contractual notice condition that do not severely impair the purpose underlying that condition and cause no prejudice do not and should not deprive that party of the benefit of its bargain” [citations omitted]. At the same time, where a written notice is required by the contract, oral notice will not suffice, regardless of whether the party to whom written notice is owed suffers any prejudice.

But the Court went separate ways when applying the holding to the facts. Here there was no dispute that the contract required three separate written notices before Westlake could terminate James under the section of the contract dealing with serious safety violations. What they did dispute was whether a long email chain between the parties constituted “substantial compliance” with the notice requirement. The majority held that the emails did not rise to the level of substantial compliance, particularly because they did not inform James when a 72-hour deadline for commencing remediation measures actually triggered and no notice, written or otherwise, of Westlake’s termination of the contract was ever sent (though James did in fact terminate as requested by Westlake at a meeting). For these reasons James “had no obligation to pay Westlake’s excess costs, and the jury’s award of breach-of-contract damages under that provision cannot stand. In so holding, we give effect, as we must, to the contractual language the parties chose.” Chief Justice Hecht, joined by Justices Devine, Busby, and Bland, would have found substantial compliance with the notice provision because the emails were sufficient to put James on notice and failure to provide formal written notice did not prejudice James.

The majority further found that a separate contract provision allowing Westlake to intervene in James’s work “any time . . . in any appropriate way” if it believed that James was performing the work “in an unsafe way or manner” without providing notice did not cancel out the termination provision that did require the written notices. The jury found, and the court of appeals agreed, that this provision provided an independent basis for Westlake’s recovery of damages for a breach. The majority held that if the court of appeals’ interpretation is correct, the termination provision requiring the written notices would be meaningless. It would also allow Westlake to make an “end-run around the more stringent requirements to terminate for default and recover costs” under the other section of the contract. Again, Chief Justice Hecht dissented, chiding the majority for enforcing one provision of the agreement (written notices) but not the other.

Finally, the Court held that Westlake’s failure to comply with the conditions precedent to termination for default (the written notices) did not excuse James’s obligation to indemnify Westlake for defending against a wrongful death case involving one of James’s employees. James refused to tender a defense, though the negligence of another James employee caused the death. Here Westlake’s failure to provide the required notices did not constitute a material breach that “affect[ed] the enforceability of the remaining provisions” [citations omitted]. The court of appeals thus “properly affirmed the portion of the trial court’s judgment awarding Westlake damages for James’s failure to comply” with the indemnity provision. Additionally, the contractual waiver of consequential damages did not bar the parties from suing for damages “merely because a court may ultimately conclude that they are consequential.” A covenant not to sue should be clearly stated in the contract, which, the majority held, it was not in this case. Justice Boyd, joined by Justices Blacklock and Huddle, dissented on this issue based on the consequential damages provision’s use of the term “claim,” which he took to encompass a “suit.” The Court remanded to the trial court for further consideration of Westlake’s attorney’s fees based on the significant reduction in the breach of contract damages the jury awarded (almost $3 million).

That this case split the Court down the middle seems a bit odd. Nobody disagreed about the applicable legal principles but over how one side or the other interpreted the contract and the communications between the parties. It may be that the wrongful death case and indemnity dispute (which figured prominently in Chief Justice Hecht’s dissent) figured into the minority’s reading of the contract provisions at issue in the owner’s favor, but that is pure speculation. In any event, the Court held to its general rule that contracts should be enforced as they stand and parties should not look to the courts to bail them out of the bargain they made. Still, contract lawyers should take note of this one.

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