Tesoro Marine Services, Inc. v. William C. Bagby, David M. Johnson and Sarah Bagby Hill--Appeal from 280th District Court of Harris County

MEMORANDUM OPINION
No. 04-03-00272-CV
TESORO MARINE SERVICES, INC.,
Appellant
v.
William C. BAGBY, David M. Johnson, and Sarah Bagby Hill,
Appellees
From the 280th Judicial District Court, Harris County, Texas
Trial Court No. 2002-08882
Honorable Tony Lindsay, Judge Presiding

Opinion by: Sarah B. Duncan, Justice

Sitting: Catherine Stone, Justice

Sarah B. Duncan, Justice

Phylis J. Speedlin, Justice

Delivered and Filed: November 3, 2004

AFFIRMED

Tesoro Marine Services, Inc appeals the trial court's judgment in the breach of lease suit filed against it by its former landlords, William C. Bagby, David M. Johnson, and Sarah Bagby Hill. We affirm the trial court's judgment.

Factual and Procedural Background

The Port O'Connor No. 2 terminal services commercial vessels using the Intercoastal Canal and consists of a sheet metal bulkhead, (1) protected by a tire bumper and topped with a concrete cap, and a slip or harbor on the Intercoastal Canal, as well as various outbuildings and other improvements. The original lease of the Port O'Connor No. 2 terminal was dated May 1, 1969 and signed by PCD Corporation as lessor and Dresser Magcobar as lessee. The 1969 Lease provided as follows:

Should the Lessee abide by the provisions hereof he shall have the right to occupy the premises peacefully for the term herein provided and shall quit and surrender the premises, including dock and roads, at the expiration or termination hereof in as good condition and state of repair, reasonable wear and tear excepted; provided, however, that Lessee shall not be required to remove any slips, land fill or other changes in the land itself made by Lessee during the term of this lease.

After four renewals and extensions, the 1969 Lease was to expire by its terms on April 30, 1994. By this time, PCD Corporation had been liquidated and, through various assignments, its lessor's interest had been conveyed to William C. Bagby, David M. Johnson, and Sarah Bagby Hill ("the lessors"), while Dresser Magcobar had assigned its lessee's interest to M-I Drilling Fluids Company.

On March 4, 1994, recognizing that the 1969 "Lease Agreement, as extended, will terminate according to its own provisions effective April 30, 1994," M-I Drilling Fluids and the lessors signed an agreement entitled "Lease Modification and Extension Agreement." The 1994 Lease expressly provided that, "[e]ffective May 1, 1994, the terms of the [1969] Lease Agreement shall be, and [are] extended for an additional five (5) year term at a rental of $6,400.00 per month during such extended term." The undisputed testimony of one of the lessors, David Johnson, is that he personally inspected the property each time it was assigned to another lessee through 1994, and each time the premises were in good usable condition, with all needed repairs done.

On April 10, 1995, M-I Drilling Fluids assigned its lessee's interest in the lease to Coastwide Marine Services, Inc. In 1996, Coastwide was purchased by Tesoro, which, as a consequence of its purchase, assumed Coastwide's interest in the lease and its obligation to return the leased property at the expiration of the lease term in "as good condition and state of repair, reasonable wear and tear excepted." When the lease period expired on or about May 12, 2001, Tesoro vacated the property. Some time thereafter, the lessors filed suit against Tesoro for breach of contract, alleging that Tesoro did not return the property in the condition required by the above-quoted lease provision. Since this provision had been in the lease covering the Port O'Connor Terminal No. 2 since the inception of the 1969 Lease, when the terminal was built and the original lease was signed by the lessors' and Tesoro's predecessors in interest, the lessors took the position that this provision required Tesoro to return the premises in as good condition and state of repair as existed when the 1969 Lease was signed. Tesoro, on the other hand, took the position that this lease provision required it to return the premises in as good condition and state of repair as existed when it assumed the lease in 1996.

Before the ensuing bench trial, Tesoro moved to exclude the testimony of the lessors' expert, civil engineer David Gann, on the ground that his methodology was unreliable and without foundation. After hearing Gann's testimony, the trial court denied Tesoro's motion without stating either the test it applied or a reason for its ruling. At the conclusion of trial, the trial court signed a judgment in the lessors' favor for $256,000 in actual damages, together with awards for prejudgment interest and attorney's fees at trial and on appeal. In its findings of fact and conclusions of law, the trial court concluded that "[t]he parties' obligations do not depend on whether they started in 1969 or 1994, or 1996" because, whenever they started, Tesoro breached its contractual duty "to return the premises in 'as good as' condition", "reasonable wear excepted." (2)

Enforceable Contract and Breach

In issues five through twelve, Tesoro argues there is legally and factually insufficient evidence of "an [e]nforceable [c]ontract [d]ating back to 1969 between [the lessors] and Tesoro" or that Tesoro breached the contract. We agree in part. Although Tesoro is correct that there is no evidence that the lessors and Tesoro entered into an enforceable contract in 1969, there is legally and factually sufficient evidence that Tesoro was bound by the provision in the 1969 Lease requiring the lessee to "quit and surrender the premises, including dock and roads, at the expiration or termination hereof in as good condition and state of repair, reasonable wear and tear excepted." And Tesoro's breach of this provision was established by the testimony of the lessors' expert, David Gann.

By virtue of its purchase of Coastwide, Tesoro assumed Coastwide's interest in the 1994 Lease. In the 1994 Lease, the term "Lease Agreement" was defined as the 1969 Lease; the parties stated their "desire to further extend said Lease Agreement and provide for applicable rental thereunder"; and agreed that, "[e]ffective May 1, 1994, the terms of said Lease Agreement shall be, and [are] hereby, extended for an additional five (5) year term at a rental of $6,400.00 per month." Thus, by assuming Coastwide's interest in the 1994 Lease, Tesoro became bound by the provisions of the 1969 Lease, including the provision requiring the lessee to "quit and surrender the premises, including dock and roads, at the expiration or termination hereof in as good condition and state of repair, reasonable wear and tear excepted."

Tesoro argues, however, that for the lessors "to prove . . . an enforceable contract dating back to 1969 under which Tesoro would be liable for any breach transpiring therefrom, [the lessors] would have had to prove privity of contract between themselves and Tesoro under the 1969 Lease Agreement"; and the lessors "failed to produce any evidence that Tesoro was in privity of contract with [the lessors] prior to 1996 when Tesoro purchased Coastwide and assumed obligations under the lease." We agree that the lessors were required to prove privity but disagree that they failed to do so. The evidence of the assignments of the original lessor's and lessee's interests to the lessors and Tesoro establishes privity between them. See 718 Assoc., Ltd. v. Sunwest N.O.P., Inc., 1 S.W.3d 355, 361 (Tex. App.-Waco 1999, pet. denied) ("When the assignor conveys its entire interest, without retaining any reversionary interest, the assignee becomes a tenant in place of the original lessee and is in privity of estate and contract with the lessor.").

Tesoro next argues "the original lease terminated by its own terms in 1994 and Tesoro did not assume the lease obligations until 1996." We again disagree. The 1969 Lease was renewed and extended by its own terms until March 4, 1994 and thereafter by the express terms of the 1994 Lease. To support its argument to the contrary, Tesoro points to one of the lessors' July 11, 1995 letter withdrawing his approval of the 1994 Lease. However, this letter was premised upon the erroneous belief that the 1994 Lease had not been fully executed. In fact, it had been. Therefore, this letter is irrelevant to whether the 1969 Lease terminated by its own terms before the 1994 Lease was executed.

Tesoro also argues "there is no evidence or insufficient evidence that any lessee or transferee, including Tesoro, during the life of the lease ever contracted to be responsible for the breaches of any prior possessor of the leased premises." It is true that neither the 1969 Lease nor the 1994 Lease expressly states that the lessee at the time the lease terminates - whoever that might be - will be responsible for remedying maintenance failures that occurred during a previous lessee's occupation of the leased premises; but that is, at least potentially, the practical effect of the provision requiring the lessee at termination of the lease to return the leased premises "in as good condition and state of repair, reasonable wear and tear excepted."

Tesoro next argues that the evidence is insufficient to support the trial court's breach findings because "a transferee [of an interest in leased property] will not be liable for any breach of the promise which occurred before the transfer to him." Regency Advantage Ltd. P'ship v. Bingo Idea-Watauga, Inc., 936 S.W.2d 275, 277 (Tex. 1996) (brackets in original) (quoting Restatement (Second) of Property 16.1(3) (1977)). In support of its argument, Tesoro relies upon the Restatement's illustration 29, which states as follows:

L leases to T for five years. T promises to keep the leased property in repair. T assigns his interest in the leased property to T1 and at the time of the assignment to T1, T has broken his promise to L by failing to made needed repairs that would cost $200. T1 can only be held liable under the promise to keep the leased property in repair for repairs that become necessary after the assignment to him and which are unrelated to the repairs that were needed at the time of the assignment.

Restatement (Second) of Property 16.1(3), cmt. h, illus. 29. In doing so, Tesoro evidences its misunderstanding of the relevant lease provision, which did not require the lessee to "keep the leased property in repair," like the lease in illustration 29, but instead required the lessee to "quit and surrender the premises, including dock and roads, at the expiration or termination hereof in as good condition and state of repair, reasonable wear and tear excepted." By its terms, a breach of this provision could not be determined until the lease terminated. In short, under the express language of this lease provision, Tesoro is not being held liable for its predecessors' breaches but for its own breach - the failure to return the property at the expiration of the lease term in "as good condition, reasonable wear and tear excepted." (3)

Expert Testimony

In its first issue, Tesoro contends the trial court erred in denying its motion to exclude Gann's testimony. In its next three issues, Tesoro contends that, without Gann's testimony, there is legally and factually insufficient evidence to support the trial court's findings of breach, causation, and damages. We hold the trial court did not err in denying Tesoro's motion to exclude Gann's testimony and therefore do not address Tesoro's second through fourth issues.

Applicable Law and Standard of Review

"Rule 702 of the Texas Rules of Civil Evidence requires a proponent of scientific expert testimony to demonstrate that such evidence is relevant and reliable before it can be admitted." Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 720 (Tex. 1998) (citing E.I. du Pont de Nemours and Co. v. Robinson, 923 S.W.2d 549, 556 (Tex. 1995)). "To be relevant, the proposed testimony must be 'sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute.'" Gammill, 972 S.W.2d at 720 (quoting Robinson, 923 S.W.2d at 556). To be reliable, scientific evidence must be "grounded 'in the methods and procedures of science.'" Gammill, 972 S.W.2d at 720 (quoting Robinson, 923 S.W.2d at 557). "[I]n making the threshold determination of admissibility under Rule 702," "a trial court may consider" the following non-exclusive list of factors:

(1) the extent to which the theory has been or can be tested;

(2) the extent to which the technique relies upon the subjective interpretation of the expert;

(3) whether the theory has been subjected to peer review and/or publication;

(4) the technique's potential rate of error;

(5) whether the underlying theory or technique has been generally accepted as valid by the relevant scientific community; and

(6) the non-judicial uses which have been made of the theory or technique.

Gammill, 972 S.W.2d at 720 (quoting Robinson, 923 S.W.2d at 557). "[E]ven if [these] specific factors ... for assessing the reliability and relevance of scientific testimony do not fit other expert testimony, the court is not relieved of its responsibility to evaluate the reliability of the testimony in determining its admissibility." Gammill, 972 S.W.2d at 724. However, the court may then choose to apply the "test stated in Joiner: whether 'there is simply too great an analytical gap between the data and the opinion proffered." Id. at 727. (referencing General Elec. Co. v. Joiner, 522 U.S. 136, 118 S. Ct. 512, 139 L. Ed. 2d 508 (1997)). But "there are many instances when the relevance and reliability of an expert witness's testimony are shown by the witness's skill and experience." Id. at 722. For instance, "[a]n experienced car mechanic's diagnosis of problems with a car's performance may well be relevant and reliable without resort to engineering principles." Id. On appeal, the trial court's ruling on a motion to exclude expert testimony because it is not reliable is reviewed under an abuse of discretion standard. Id. at 727.

Discussion

Gann testified on each of the items of damage claimed by the lessors. However, the trial court ruled in the lessors' favor on only three items: a concrete walkway near the bunkhouse, the bunkhouse itself, and the bulkhead. (4) Accordingly, these are the only aspects of Gann's testimony that are material on appeal and the only aspects we review.

1. Concrete Walkway and Bunkhouse

Gann testified that the sand that had once supported the concrete walkway near the bunkhouse was gone, producing large (up to six feet) voids under the concrete and uneven settling, and creating an extreme safety hazard. Because "[i]t's pretty difficult to put fill back under pavement," Gann recommended breaking out the concrete and repouring it." "[C]oncrete paving is work [Gann's firm] do[es] all the time on construction projects," so his $39,000 estimate for that work - in "dollars per square foot" - is "just based on estimates that [the firm] would use in any other kind of project" in the area, although it would "be a little bit more difficult to get to this [concrete] because [of] where it's located so it's a little more expensive than it would be if you [were] pouring a driveway." The trial court found that Tesoro "failed to return the concrete paving near the Bunk House in the condition required by the lease, in that the paving is broken, uneven, and lacking support"; and [t]he reasonable and necessary costs to return the concrete paving near the Bunk House to as good condition and state of repair, reasonable wear and tear excepted, are the costs to remove and replace the concrete paving near the Bunk House, in the amount of $39,000."

With respect to the bunkhouse, Gann recommended that it be water blasted, painted, and the siding replaced. His $9000 repair estimate for this work was based upon a contractor's bid. The trial court found Tesoro "failed to return the Bunk House in the condition required by the lease, in that the Bunk House needed to be painted and the siding on the Bunk House needed to be repaired"; and "[t]he reasonable and necessary costs to return the Bunk House to a[s] good condition and state of repair, reasonable wear and tear excepted, are the costs to paint the Bunk House and to repair the siding on the Bunk House, in the amount of $9,000.00."

Tesoro argues Gann's testimony regarding the concrete walkway and bunkhouse is unreliable and irrelevant because it "is not grounded in the methods and procedures of science"; and "Gann did not perform any engineering studies or tests to determine the cause of the alleged damage, or the appropriate method to remedy the condition." We disagree. We hold that these aspects of Gann's testimony concern "instances when the relevance and reliability of an expert witness's testimony are shown by the witness's skill and experience." Gammill, 972 S.W.2d at 722. Gann testified that he is a registered, professional engineer with G&W Engineering in Port Lavaca, Texas with thirty-two years of engineering experience. He and his firm did most of the marine engineering work in Calhoun County for both public entities and private developers. In the last twenty-two years, Gann has been directly involved in over two hundred marine-related projects. He has specific experience inspecting other marine facilities in Port O'Connor. Given Gann's skill and experience in marine engineering projects and, perhaps even more importantly, the fact that the deficiencies in the concrete walkway and the bunkhouse are obvious to the naked eye, as shown in Gann's pictures, and that the remedies for these deficiencies are routine repairs, we hold the trial court did not abuse its discretion in denying Tesoro's motion to exclude Gann testimony regarding the concrete walkway and bunkhouse.

2. Bulkhead

A bulkhead is "a retaining wall along a waterfront." Webster's Ninth New Collegiate Dictionary 186 (1984). The bulkhead at Port O'Connor Terminal No. 2 consists of interlocking sheet piling that was driven into a trench in the ground with a hydraulic or vibratory hammer. After the sheet piling was driven into the ground, it was secured to the land with a tie-back system, like a steel cable; and then the harbor was excavated. Gann testified that, although he did not know how deep they initially dug the harbor, the adjoining Intercoastal Canal is twelve to fourteen feet deep; and there would be no reason to dig the adjoining harbor any deeper. Indeed, to do so would involve unneeded expense.

The stability of a bulkhead is essentially a function of the tie-back system and the length of the piling that is embedded in the harbor. Gann testified that to determine the length of the sheet piling, he simply ran a load calculation based on the soils in the area. Using this method, Gann determined that the bottom of the sheet piling would be thirty-one to thirty-two feet. "[A] reasonably prudent business person would not drive a 65-foot sheet piling in an area that you need a sheet piling that's 35 feet long." Based on his experience, Gann testified that sixty percent of the bulkhead should be embedded.

Gann testified that, based on his experience, it did not appear the sheet piling itself, either above or below the water, presented a problem. Accordingly, Gann did not recommend any repair to the steel piling. But he was concerned about the settlement or holes behind the C-1 and C-2 areas of the bulkhead. One of the holes is almost ten feet long and three feet deep. This condition alerted Gann to the possibility that the sand behind the bulkhead is escaping underneath the bulkhead. Gann confirmed this possibility by comparing the depth of the middle of the harbor (eighteen feet), which is roughly the depth of the Intercoastal Canal, to the depth of the harbor in front of one of the holes behind the bulkhead (twenty-nine feet). (5) What Gann found is that the depth of the harbor in the sixty feet in front of the bulkheads is approximately fifteen feet deeper than he expected, given the depth of the Intercoastal Canal. As a result, the bulkhead is "potentially unstable, particularly the bottom," which "could kick out," resulting in the loss of a section of the wall." Gann testified that correcting the problem would require placing bull rock (6) for sixty feet in front of the wall. Bull rock, unlike sand, would prevent future washouts. To arrive at a cost for doing the work, Gann called a quarry and got a price for the bull rock and delivery to the site. Gann then estimated the cost to unload the bull rock from the barge and put it in place. On cross-examination, Gann admitted he does not know who built the facility, did not review the design criteria for building the facility in 1969, and did no testing on the facility. However, his firm has designed twenty-five to thirty bulkheads in the last twenty years; and all are still in use. The trial court found that Tesoro "failed to return the existing harbor in the condition required by the lease, in that the current depth of the harbor ranges from 18 to 29 feet"; and "[t]he reasonable and necessary costs to return the harbor ... in as good condition and state of repair, reasonable wear and tear excepted, are the costs to fill the existing harbor with bull rock to a depth of 14 feet, in the amount of $208,000."

Tesoro argues Gann's testimony regarding the bulkhead is unreliable, because his theory that prop wash caused the holes behind the bulkhead is speculative and unsubstantiated. We agree that Gann's testimony that prop wash caused the holes is speculative and unsubstantiated. But the cause of the holes behind the bulkhead is immaterial; what is material is that the holes exist. Tesoro also argues that Gann's assessment of the damage to the harbor rests upon the premise that the harbor was initially excavated in 1969 to an even depth, but Gann testified he did not know the depth to which the harbor was initially excavated. This is true. But, as Gann testified, there would be no reason to dig the adjoining harbor any deeper than the Intercoastal Canal and to do so would involve unneeded expense.

Tesoro also argues that Gann's assessment "that the water depths in the harbor basin ... has affected the structural stability of the bulkhead," as has the diminished penetration of the steel sheet piles into the harbor bottom, presupposes that Gann knew the original depth of the harbor when he did not. We disagree. It does not take a registered civil engineer to understand that removing the material behind a bulkhead will destablize it. We hold the trial court did not abuse its discretion in denying Tesoro's motion to exclude Gann's testimony.

Late Findings and Conclusions

Finally, Tesoro argues the trial court reversibly erred in failing to timely mail Tesoro a copy of the court's findings of facts and conclusions of law; consequently, Tesoro was unable to request additional findings and conclusions. We disagree.

To show harm, Tesoro must demonstrate that it either (1) "was unable to request additional findings" or that it (2) "was prevented from properly presenting [its] appeal." Robles v. Robles, 965 S.W.2d 605, 610 (Tex. App.-Houston [1st Dist.] 1998, pet. denied) (citing Jefferson County Drainage Dist. v. Lower Neches Valley Auth., 876 S.W.2d 940, 960 (Tex. App.-Beaumont 1994, writ denied); Morrison v. Morrison, 713 S.W.2d 377, 381 (Tex. App.-Dallas 1986, writ dism'd)). Because "a trial court may file additional findings even after it loses plenary power to affect the judgment," "[t]he failure to request additional findings of fact and conclusions of law constitutes a waiver on appeal of the trial court's lack of such findings and conclusions." Robles, 965 S.W.2d at 611. However, even if reversible error is shown, the usual remedy is to abate the appeal to afford the appellant an opportunity to request additional or amended findings and conclusions. Id. at 610.

Tesoro cannot show reversible error under the first prong of the test because it failed to request additional or amended findings or conclusions after receiving notice of the trial court's findings and conclusions and did not ask this court to abate the appeal to permit it to request additional or amended findings or conclusions. And Tesoro does not argue harm under the second prong of the test. We therefore conclude the trial court did not reversibly err in failing to timely mail Tesoro a copy of the court's findings of facts and conclusions of law.

The trial court's judgment is affirmed.

Sarah B. Duncan, Justice

1. A bulkhead is "a retaining wall along a waterfront." Webster's Ninth New Collegiate Dictionary 186 (1984).

2. The trial court also concluded that Tesoro "had a duty to return the premises to [the lessors] in as good condition as when it received them, reasonable wear and tear excepted." However, we do not view these conclusions as conflicting. A duty to return the premises in as good condition as in 1969 subsumes a duty to return the premises in as good condition as in 1996.

3. Moreover, even if we were to assume that Tesoro's lease obligations did not commence until the date of the 1994 Lease - the lease in which Coastwide was assigned the lessee's interest and which was the lease interest purchased by Tesoro - the undisputed testimony of one of the lessors, David Johnson, is that he personally inspected the property each time it was assigned to another lessee through 1994, and each time the premises were in good usable condition, with all needed repairs done.

4. The court did not award damages for repairing the bulkhead's concrete cap and bumper system or rebuilding the fence.

5. Gann took a fishing boat down the Intercoastal Canal and, using a digital depth finder, measured its depth. He did the same in the harbor. "It would make absolutely no sense to design or excavate a harbor 20 feet to 25 feet, 30 feet if the boat is going to come through 12 feet of water to get to it."

6. Bull rock is river rock that is three to six inches in diameter.