Quantum Electric, Inc. v. Scott & White Properties, Inc.--Appeal from 146th District Court of Bell County

Opinion filed October 25, 2007

Opinion filed October 25, 2007

In The

Eleventh Court of Appeals

____________

 No. 11-05-00355-CV

__________

QUANTUM ELECTRIC, INC., Appellant

V.

SCOTT & WHITE PROPERTIES, INC., Appellee

On Appeal from the 146th District Court

Bell County, Texas

Trial Court Cause No. 210,150B

M E M O R A N D U M O P I N I O N

This lawsuit by Quantum Electric, Inc., a subcontractor, against Scott & White Properties, Inc. (S & W), the owner, arose out of the construction of a Hilton Garden Inn near Scott & White Hospital in Temple. S & W contracted with Lyda Builders, Inc. as the general contractor for Lyda Builders to build the Hilton Garden Inn for the fixed price of $8,545,000. In turn, Lyda Builders signed its standard subcontract agreement with Quantum for $838,000 for the electrical work. Both contracts contemplated that changes would be made during actual construction.

 

The project had numerous problems. There was a meeting in Arlington where representatives of S & W, Lyda Builders, and Quantum agreed to changes that were needed. After the meeting, Quantum=s president wrote to Don Simpson of Lyda Builders on August 12, 2003, to confirm the changes. Rick Martin of S & W noted his agreement or disagreement with the listed changes, and the August 12 letter was faxed back by Tim DeBord, the project superintendent, to Shane Goodrum, the president of Quantum, from Lyda Builders=s office in Bell County. S & W agrees that, after the initial change order meeting in Arlington, A[m]ultiple change orders were authorized and delivered to Quantum Electric by Rick Martin in Temple, Texas. Rick Martin also penciled in change orders on drawings in Temple, Texas.@

S & W wanted the hotel to open in December 2003. To speed up the changes, Don Simpson of Lyda Builders wrote a letter to Rob Hardy of S & W on November 20, 2003, proposing that S & W agree to guarantee to pay for the cost of the materials needed for the changes with Aa 15% markup for the subcontractor (Quantum Electric). Actual cost will be based on invoices paid by Quantum.@ After Hardy signed the letter indicating S & W=s agreement, Simpson sent a copy of the letter to Quantum with a postscript stating: AThis is Quantum Electric=s authorization to purchase the material included in the change orders you have submitted to date.@

Quantum sued S & W, the owner, rather than Lyda Builders, for changes that Quantum allegedly made and for retainage. The suit was filed in Williamson County, although the Hilton Garden Inn was constructed in Bell County. Quantum contends that (1) venue should have remained in Williamson County; (2) S & W breached its contracts (the change orders) with Quantum; (3) alternatively, Quantum was a third-party beneficiary of the letter agreement between Lyda Builders and S & W approving the order of material for the change orders; and (4) alternatively, Quantum was entitled to sue S & W for recovery under quantum meruit.

We hold that the transfer of venue to Bell County was proper, that the change orders were in accord with the Construction Contract and the Electrical Subcontract and that S & W did not breach a contract with Quantum, that S & W did agree in the November 20 letter that Quantum would be a third-party beneficiary of S & W=s guarantee to pay for the cost of materials needed for the changes referred to in the letter, and that Quantum is not entitled to recover under a theory of quantum meruit. We affirm in part.

 

Because there are fact questions on Quantum=s alternative claim that it was a third-party beneficiary of the November 20 letter agreement between Lyda Builders and S & W concerning material Quantum was to order for changes to the original contracts, we reverse in part and remand for a trial on the third-party beneficiary claim.

The Standard of Review

The standards of review for traditional summary judgment proceedings are well established and well defined. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985); City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671 (Tex. 1979).

In reviewing a venue decision, we conduct an independent review of the entire record, including the trial on the merits, to determine whether any probative evidence supports the trial court=s venue decision. Ruiz v. Conoco, Inc., 868 S.W.2d 752, 758 (Tex. 1993). If there is any probative evidence in the entire record, we must uphold the trial court=s determination on the matter of venue. Bonham State Bank v. Beadle, 907 S.W.2d 465, 471 (Tex. 1995).

Quantum=s Venue Arguments and Breach of Contract Claim

Both parties agree that venue in this case is governed by Tex. Civ. Prac. & Rem. Code Ann. ' 15.002(a)(1) (Vernon 2002):

(a) Except as otherwise provided by this subchapter . . . , all lawsuits shall be brought:

(1) in the county in which all or a substantial part of the events or omissions giving rise to the claim occurred.

 

Quantum makes two arguments to support venue in Williamson County: (1) the change orders after August 2003 were separate agreements between S & W and Quantum that were negotiated, performed, and breached in Williamson County and (2) S & W orally agreed in a meeting in Williamson County that S & W would pay Quantum if Quantum allowed S & W to view all Quantum=s documents supporting the amounts claimed. Both arguments rest on false premises. The change orders were not separate agreements but were pursuant to and part of the Construction Contract and the Electrical Subcontract; all or part of the change orders were not substantially negotiated or performed in Williamson County. The alleged oral agreement occurred during settlement negotiations in a meeting after Quantum filed suit, a fact omitted in Quantum=s brief. Even if there were an oral settlement agreement, it would not support venue in Williamson County.

Venue is determined when the cause of action accrues. Tex. Civ. Prac. & Rem. Code Ann. ' 15.006 (Vernon 2002). A meeting between the parties after the lawsuit is filed cannot be relied on to establish venue under Section 15.002(a)(1). In addition, Quantum=s alleged Aadditional agreement@ cannot establish venue because it did not comply with Tex. R. Civ. P. 11. The alleged oral agreement was unenforceable because S & W denied its existence in S & W=s pleadings. Kennedy v. Hyde, 682 S.W.2d 525, 530 (Tex. 1984). We turn to discuss Quantum=s first venue argument and breach of contract claim.

Construction contracts are governed by general contract principles. Raymond v. Rahme, 78 S.W.3d 552, 561 (Tex. App.CAustin 2002, no pet.). Privity is required for any recovery in an action based on construction contracts. Jensen Const. Co. v. Dallas County, 920 S.W.2d 761, 772 (Tex. App.CDallas 1996, writ denied). In its brief, Quantum acknowledges that ordinarily a subcontractor is not in privity with the owner and must look to the general contractor for payment. City of Corpus Christi v. Acme Mech. Contractors, Inc., 736 S.W.2d 894, 897 (Tex. App.CCorpus Christi 1987, writ denied). But Quantum argues that S & W agreed with Quantum that the 150 change orders would be agreements between Quantum and S & W that were separate and apart from the Construction Contract and the Electrical Subcontract. Quantum bases its breach of contract action and its venue argument on its characterization of the change orders as separate contracts. We disagree.

 

S & W and Lyda Builders signed a Standard Form of Agreement Between Owner and Contractor, AIA Document A101-1997 (the Construction Contract). Lyda Builders signed its standard subcontract agreement with Quantum (the Electrical Subcontract). Article 1.1.2 of the general conditions of the Construction Contract provided that the AContract Documents shall not be construed to create a contractual relationship of any kind . . . between the Owner and a Subcontractor or Sub-subcontractor.@ Article 1 of the Electrical Subcontract provided that Athis Agreement and the General Contract between the Owner and Contractor shall constitute Contract Documents.@ Under Article 3 of the Electrical Subcontract, Lyda Builders agreed to pay Quantum $838,000 for the electrical work Asubject to additions and deductions for changes as may be agreed upon in writing.@ Article 7 of the general conditions of the Construction Contract and Article 13 of the Electrical Subcontract provided for change orders. Article 7 required that all subcontractors submit any deviations to the general contractor and that the deviations be approved by the architect, the owner, and/or the general contractor. Article 13 of the Electrical Subcontract provided a detailed agreement between Lyda Builders and Quantum on how changes in the scope of the work would be handled.

Quantum=s contention that each of the 150 change orders was a separate agreement with S & W is based on the following: a letter dated August 12, 2003, from Quantum=s president to Don Simpson of Lyda Builders reflecting changes agreed upon at a meeting earlier that month; a letter agreement dated November 20, 2003, between Lyda Builders and S & W; and Quantum=s conversations with representatives of S & W about the changes to be made. The record does not support Quantum=s contention. The change orders were consistent with the Construction Contract and the Electrical Subcontract. There is no evidence that S & W entered into a separate agreement that was to be outside those two contracts; S & W did, however, modify its Construction Contract with Lyda Builders when it agreed to the additional guarantee in the November 20 letter. Even with S & W=s guarantee of payment for material in the November 20 letter, the actions of the various parties were consistent with the Construction Contract and the Electrical Subcontract. There is no evidence in the record of a contract between S & W and Quantum.

The November 20 letter guaranteed payment for material and indicated that S & W had agreed to changes that were needed, although we cannot tell from the record exactly what changes were contemplated by the letter. The earlier letter dated August 12, 2003, from Quantum=s president to Don Simpson listed some changes and contained written comments by Rick Martin of S & W, agreeing or disagreeing with the listed changes. Quantum=s president testified that he received a faxed copy of that letter with Rick Martin=s notations beside the listed changes. Neither the August 12 letter nor the November 20 letter can be relied on by Quantum to establish privity of contract between S & W and Quantum. Moreover, Quantum=s actions after the letters continued to be consistent with the Construction Documents.

 

After the November 20, 2003 letter from Simpson to Hardy, Quantum followed the procedures set forth in Article 13 of its Electrical Subcontract to process change orders that are the subject of this suit. The change requests, numbering from 44A through 152DC, plus retainage constitute Quantum=s claim for an additional $506,377.13. All of the change requests were on Quantum=s letterhead and were addressed to Lyda Construction or Lyda Builders. Until filing this suit against S & W, Quantum treated this as a normal dispute under its Electrical Subcontract with Lyda Builders. The record does not reflect why Quantum did not sue Lyda Builders (and its bonding company) for payment and S & W only on its guarantee of payment for the materials.

Lyda Builders was required by S & W to post a payment bond. By letter dated April 15, 2004, addressed to Lyda Builders, S & W, and United States Fidelity and Guaranty Company, Quantum=s president stated that Quantum had previously notified Lyda Builders of the amount owed, that the amount of $506,377.13 remained unpaid, and that Quantum was making claims Aupon the bond provided, and if none, claims a lien upon the land.@ Quantum=s claim included retainage under its Electrical Subcontract. In its Subcontractor=s Affidavit of Claim for Mechanic=s Lien, Quantum=s president swore under oath that Quantum was owed the amount pursuant to its Electrical Subcontract with Lyda Builders. That statement was not inconsistent with S & W=s guarantee that Quantum would be reimbursed for the material if Lyda Builders failed to pay Quantum. Subsequent to that demand letter, Quantum=s president exchanged numerous letters with Don Simpson of Lyda Builders in an attempt to get the change orders and retainage claims paid.

After submitting the claims to Lyda Builders, Quantum did meet with Lyda Builders and representatives of S & W. Those discussions appear to have followed the agreement of Lyda Builders and Quantum in Article 13(a) of the Electrical Subcontract:

Any increase or decrease in the Subcontract price resulting from such changes shall be agreed upon in writing by the parties hereto. In case the parties cannot agree thereon, such increase or decrease shall be determined by the Owner=s Representative.

 

The pre-1995 venue law allowed venue Ain the county in which all or part of the cause of action accrued or in the county of defendant=s residence.@ Former Tex. Civ. Prac. & Rem. Code ' 15.001 (1986). The 1995 amendment narrowed the venue requirement to Ain the county in which all or a substantial part of the events or omissions giving rise to the claim occurred.@ Section 15.002(a)(1). After 1995, isolated facts connected to the lawsuit are not sufficient to establish venue, as they were under the old venue scheme. Chiriboga v. State Farm Mut. Auto. Ins. Co., 96 S.W.3d 673, 681 (Tex. App.CAustin 2003, no pet.). The three cases relied upon by Quantum B Hendrick v. McMorrow, 852 S.W.2d 22, 25 (Tex. App.CBeaumont 1993, no writ); Humphrey v. May, 804 S.W.2d 328, 329 (Tex. App.CAustin 1991, writ denied); and Petromark Minerals, Inc. v. Buttes Resources Co., 633 S.W.2d 657, 660 (Tex. App.CHouston [14th Dist.] 1982, writ dism=d w.o.j.) B were decided prior to the 1995 amendments. The Construction Contract and the Electrical Subcontract governed the Hilton Garden Inn construction project. All or substantially all of the events surrounding that project occurred in Bell County

In its motion to transfer venue, S & W also urged that venue should be transferred to Bell County for the convenience of the parties. Most of the events relating to the construction of the Hilton Garden Inn occurred in Bell County. In addition, there remains pending under Cause No. 207,331B in Bell County, Texas, a separate lawsuit concerning some of these same issues and parties. The suit was brought by the Reynolds Company in Bell County against Quantum and Lyda Builders for failure to pay monies owed to the Reynolds Company. Quantum cross-claimed against Lyda Builders for the same $506,377.13 it seeks from S & W in this lawsuit. Quantum also filed a third-party petition against S & W in the Reynolds Company lawsuit. Transfer of this case to Bell County did not work an injustice upon Quantum and was more convenient for the parties. In Garza v. Garcia, 137 S.W.3d 36 (Tex. 2004), the supreme court held that an order transferring venue is not reviewable when one ground for a transfer was convenience. We overrule Quantum=s issues on venue and breach of contract.

Third-Party Beneficiary Claim

Quantum also relies on the letter dated November 20 from Don Simpson of Lyda Builders to Rob Hardy of S & W for its argument that Quantum was a third-party beneficiary of that letter agreement. The contents of that letter are as follows:

Dear Rob:

There have been electrical changes and additions made to the drawings causing an increase in cost for the electrical work on the project. The cost of this work is being reviewed by the architect and the engineer, but the final value of these change orders may not be agreed upon for a few days. The material for these changes must be ordered immediately if the hotel is to open in December.

 

I propose that Scott and White agree to guarantee to pay the cost of these key materials on a cost reimbursable basis for actual material cost, plus sales tax, actual freight cost if any and a 15% markup for the subcontractor (Quantum Electric). Actual cost will be based on invoices paid by Quantum. Upon approval of these change orders in question everything will [be] converted to a lump sum.

This will permit the material to be ordered and Quantum will have approval to purchase with a promise of payment and Scott and White will only be exposed to actual cost of materials required to complete the project.

If you are in agreement with this please sign below.

Don Simpson, P.E. Rob Hardy

Lyda Builders, Inc. Scott and White Properties, Inc.

The terms of the letter indicate that S & W expected that its guarantee would be communicated to Quantum. After both Simpson and Hardy signed the letter, Simpson then sent a copy of the letter to Quantum with this postscript typed at the bottom of the copy:

This is Quantum Electric=s authorization to purchase the material included in the change orders you have submitted to date. Payment will be made as described in agreement between Lyda Builders, Inc. and Scott and White Properties, Inc. Upon approval of change orders everything will be converted to the lump sum contract.

Don Simpson, P.E.

Lyda Builders, Inc.

A third party is a beneficiary to a contract if (1) the contracting parties intended to secure a benefit to the third party and (2) the contracting parties entered into a contract directly for the third party=s benefit. Stine v. Stewart, 80 S.W.3d 586, 590-91 (Tex. 2002). The letter agreement satisfies both those conditions. The letter benefitted both S & W and Quantum: S & W wanted the hotel to open in December and Quantum wanted to be certain it would be paid for materials. Lyda Builders=s contract with S & W was for a fixed price, and Quantum=s Electrical Subcontract was for a fixed price. It is not surprising that Quantum would want to know that S & W had approved the changes required to complete the project and that S & W would guarantee that Quantum would be paid at least for the material if Lyda Builders failed to pay Quantum.

 

To qualify as an intended third-party beneficiary, a party must show that the party is either a Adonee@ or a Acreditor@ beneficiary of the contract. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). An agreement benefits a creditor beneficiary if performance will come to him or her in satisfaction of a legal duty, such as an indebtedness, contractual obligation, or other legally enforceable commitment owed to the third party by the promisee. Stine, 80 S.W.3d at 590-91; Grinnell v. Munson, 137 S.W.3d 706 (Tex. App.CSan Antonio 2004, no pet.). Lyda Builders had contractual obligations to Quantum. We sustain Quantum=s contention that it was the third-party beneficiary of S & W=s guarantee of payment under the November 20 letter agreement. The record does not reflect whether S & W paid Lyda Builders for the material referred to in the November 20 letter. Our holding does not preclude S & W from raising defenses or predicates to its performance on the guarantee.

Quantum Meruit Claim

Quantum meruit is an equitable theory of recovery based on an implied agreement to pay for benefits received. Vortt Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990). To recover under the doctrine of quantum meruit, a plaintiff must establish (1) that valuable services and/or materials were furnished (2) to the party sought to be charged (3) and accepted by the party sought to be charged (4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing, expected to be paid by the recipient. Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992).

If an express contract exists covering the subject matter, there can be no recovery under quantum meruit. Vortt Exploration, 787 S.W.2d at 944. Quantum is attempting to recover for the material and work contemplated by changes pursuant to the Construction Contract and the Electrical Subcontract. The addition of S & W=s guarantee of payment in the November 20 letter was a modification to the Construction Contract, and it expressly covered the subject matter. Therefore, Quantum cannot recover under a quantum meruit theory. Jensen Const., 920, S.W.2d at 774. Quantum=s claim in quantum meruit for the extra work required by S & W required it to prove that the requirements imposed by S & W were not reasonably within the scope of the Construction Documents. Black Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80, 86 (Tex. 1976), overruled on other grounds by Sterner v. Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989). Quantum has not provided that proof.

 

Moreover, Quantum has not established that there were Acircumstances as reasonably notified [S & W] that [Quantum], in performing, expected to be paid by [S & W]@ unless required by its guarantee in the November 20 letter. Simpson=s postscript to the November 20 letter agreement stated to Quantum that payment would be as provided in the Construction Contract. We overrule Quantum=s issue on quantum meruit.

This Court=s Ruling

We reverse the summary judgment for S & W in part and remand for a trial on Quantum=s third-party beneficiary claim for payment of material under the November 20, 2003 letter. Otherwise, the judgment of the trial court is affirmed.

TERRY McCALL

JUSTICE

October 25, 2007

Panel consists of: Wright, C.J.,

McCall, J., and Strange, J.