by Trent Cotney
In May 2023, an intriguing case reached the Texas Supreme Court. It challenged Chapter 114 of the Civil Practice and Remedies Code, “Adjudication of Claims Arising Under Written Contracts with State Agencies.” And the resulting decision has contractors breathing a sigh of relief.
Details of the Case
In the case Pepper Lawson Horizon International Group LLC v. Texas Southern University, the court reviewed the details surrounding an agreement for Pepper Lawson to construct student housing at Texas Southern University (TSU). As the project progressed, Pepper Lawson went over budget due to delays it alleged that TSU could have controlled. The company requested a time extension, which TSU denied. The university also refused to pay additional direct costs or the final balance from the original contract. The parties attempted to resolve the issue through alternative dispute resolution but were unsuccessful. Then, Pepper Lawson filed a breach of contract lawsuit against TSU. It asked for the funds owed as well as interest and legal fees, per the Prompt Payment Act (PPA).
In its complaint, Pepper Lawson specifically noted the sovereign immunity waiver from Chapter 114.003, Waiver of Immunity to Suit for Certain Claims. It reads as follows: “A state agency that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this chapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of an express provision of the contract, subject to the terms and conditions of this chapter.” In response, TSU stated that this waiver did not apply because the construction company did not establish a claim that this waiver provision would cover.
The trial court initially denied TSU’s plea. However, the First Court of Appeals at Houston reversed the decision and dismissed the suit. The appellate court reasoned that Pepper Lawson failed to demonstrate that Chapter 114 waived immunity because the contract did not require TSU to perform as alleged. It also ruled that TSU was immune from interest and attorney fee claims because there is no sovereign immunity waiver in the PPA. Pepper Lawson appealed to the Texas Supreme Court.
What the Supreme Court Ruled
The Texas Supreme Court reviewed the case and issued a per curiam decision. It noted that a state agency is allowed to raise a jurisdiction defense. However, it ruled that the First Court of Appeals at Houston “conflated statutory-construction rules with contract interpretation.” By doing so, the appellate court had required Pepper Lawson to a) demonstrate that the contract unambiguously waives TSU’s immunity and b) demonstrate an express provision breach in the contract.
However, the Supreme Court determined that Pepper Lawson merely had to show that Chapter 114—not the parties’ contract—waived immunity. In addition, it determined that by finding no waiver immunity, the appellate court failed to consider if Pepper Lawson could recover interest and legal fees through the PPA. However, the Supreme Court ruled, it could recover those funds because the contract requires PPA compliance, and Chapter 114 covers the types of damages sought under the PPA.
Therefore, Supreme Court reversed the appellate decision and remanded the case for further proceedings.
What This Means for Contractors
Based on this decision, contractors disputing contracts for construction projects with state agencies have a lower jurisdictional burden. In addition, state agencies will have less leeway in trying to stall claims made by contractors. The Texas Supreme Court’s ruling clarifies Chapter 114’s waiver of sovereign immunity and will likely influence similar cases going forward.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP. For more information, you can contact him at 1.866.303.5868 or trent.cotney@arlaw.com.