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13-16-00117-CV
THIRTEENTH COURT OF APPEALS
CORPUS CHRISTI, TEXAS
7/11/2016 10:13:16 AM
Dorian E. Ramirez
CLERK
No. 13-16-00117-CV
V.
APPELLANTS BRIEF
Michael A. McGurk
mmcgurk@ktattorneys.com
*Ricardo Pumarejo Jr.
rpumarejo@ktattorneys.com
KITTLEMAN THOMAS, PLLC
4900-B N. 10th Street
McAllen, Texas 78504
p. 956.632.5033
f. 956.630.5199
Counsel for Appellant
IOC Company LLC
Appellant Appellee
IOC Company, LLC City of Edinburg, Texas
2
TABLE OF CONTENTS
Identity of Parties and Counsel .................................................................................. 2
Index of Authorities ................................................................................................... 5
Record References ..................................................................................................... 7
Statement of the Case................................................................................................. 8
Statement Regarding Oral Argument ........................................................................ 9
Issues Presented ....................................................................................................... 10
Issue One: The trial court erred in vacating rather than confirming
the arbitration award.
Statement of Facts .................................................................................................... 11
I. The City breached two construction contracts that it had with IOC
and those breaches resulted in disputes and IOC incurring damages.
..................................................................................................................... 11
II. IOC and the City sought to resolve their disputes through binding
arbitration. After hearing significant evidence, the arbitrator found
that the City breached the contracts and awarded IOC damages................ 12
III. Unhappy with the arbitrations outcome, the City sought to vacate
the arbitration award. Faced with meritless grounds for vacating the
award, the trial court nonetheless granted the Citys request to
vacate the award and denied IOCs request to confirm the award. ............ 14
Summary of Argument ............................................................................................ 15
Argument.................................................................................................................. 17
I. The Court may presume that the arbitration award is governed by
both the Texas and federal arbitration acts. The Court must review
the trial courts decision to vacate the award de novo and can only
consider grounds for vacating that were raised at the trial level. An
arbitrators mistakes of law and fact are an insufficient basis for
vacating an award........................................................................................ 17
II. The City gave the trial court three reasons for vacating the
arbitration award: (1) the award violated public policy; (2) the award
was obtained by undue means in violation of the TAA; and (3) the
arbitrator exceeded his powers in violation of the TAA. Because
3
these reasons lacked merit, the trial court erred in vacating rather
than confirming the award. ......................................................................... 19
A. The arbitration award cannot be vacated on the Citys common-
law ground because the TAAs and FAAs statutory grounds
for vacating an award are exclusive. ................................................... 19
B. In a misguided attempt to prove to the trial court that the
arbitration award was obtained by undue means, the City
sought to show that the award stemmed from the arbitrators
mistakes of law and fact. The mistakes alleged, however, are
incapable of establishing that the arbitration award was
obtained by undue means. Moreover, the Citys failure to
present the trial court with a complete record of the arbitration
proceedings precluded the trial court from recognizing any of
the alleged mistakes............................................................................. 21
C. In a misguided attempt to prove to the trial court that the
arbitrator exceeded the scope of his powers, the City sought to
show that the arbitrator committed mistakes of law and fact.
The mistakes alleged, however, are incapable of establishing
that the arbitrator exceeded his powers. Moreover, the Citys
failure to present the trial court with a complete record of the
arbitration proceedings precluded the trial court from
recognizing any of the alleged mistakes. ............................................ 24
D. The trial court was compelled to confirm the arbitration award
and erred when it failed to do so. ........................................................ 28
Prayer ....................................................................................................................... 29
Certificate of Compliance ........................................................................................ 30
Certificate of Service ............................................................................................... 30
Appendix .................................................................................................................. 31
4
INDEX OF AUTHORITIES
Case Law
AmeriPath, Inc. v. Hebert, 447 S.W.3d 319 (Tex. App.Dallas
2014, pet. denied) ............................................................................................... 21-22
Black v. Shor, 443 S.W.3d 154 (Tex. App.Corpus Christi 2013,
pet. denied) ............................................................................................................... 18
Commonwealth Assoc. v. Letsos, 40 F. Supp. 2d 170 (S.D.N.Y.
1999) ........................................................................................................................ 24
Eddleman v. Ocker, No. 13-15-00217-CV, 2016 Tex. App. LEXIS
4377 (Tex. App.Corpus Christi Apr. 28, 2016, no pet.) (mem.
op.) ........................................................................................................................... 25
Framing v. BBL Builders, LP, No. 05-15-01430-CV, 2016 Tex.
App. LEXIS 6352 (Tex. App.Dallas June 15, 2016, no pet. h.)
(mem. op.) .......................................................................................................... 25-27
Gessee v. U.S. Home Corp., No. 02-02-00405-CV, 2003 Tex. App.
LEXIS 4575 (Tex. App.Fort Worth May 29, 2003, no pet.)
(mem. op.) ................................................................................................................ 24
Good Times Stores, Inc. v. Macias, 355 S.W.3d 240 (Tex. App.
El Paso 2011, pet. denied)........................................................................................ 20
Hale-Mills Constr. Ltd. v. Willacy County, No. 13-15-00174-CV,
2016 Tex. App. LEXIS 340 (Tex. App.Corpus Christi Jan. 14,
2016, no pet.) (mem. op.) ......................................................................................... 17
Hoskins v. Hoskins, No. 15-0046, 2016 Tex. LEXIS 386 (Tex.
May 20, 2016) .......................................................................................................... 19
Las Palmas Med. Ctr. v. Moore, 349 S.W.3d 57 (Tex. App.El
Paso 2010, pet. denied) ...................................................................................... 21-22
Lefoumba v. Legend Classic Homes, Ltd., No. 14-08-00243-CV,
2009 Tex. App. LEXIS 7573 (Tex. App.Houston [14th Dist.]
Sept. 17, 2009, no pet.) (mem. op.).................................................................... 20-22
Long Lake, Ltd. v. Heinsohn, No. 14-09-00613-CV, 2010 Tex.
App. LEXIS 2498 (Tex. App.Houston [14th Dist.] Apr. 8, 2010,
no pet.) (mem. op.) ................................................................................................... 23
5
Parallel Networks, LLC v. Jenner & Block, No. 05-13-748-CV,
2015 Tex. App. LEXIS 10461 (Tex. App.Dallas Oct. 9, 2015,
pet. denied) (mem. op.) ............................................................................................ 20
SCI Tex. Funeral Servs. v. Roussett, No. 13-03-00295-CV, 2005
Tex. App. LEXIS 2511 (Tex. App.Corpus Christi Mar. 31, 2015,
no pet.) (mem. op.) .............................................................................................18, 22
Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564 (Tex.
App.Dallas 2008, no pet.) ..............................................................................23, 28
Thomas Petroleum, Inc. v. Morris, 355 S.W.3d 94 (Tex. App.
Houston [1st Dist.] 2011, pet. denied) ..................................................................... 20
Statutes and Rules
TEX. CIV. PRAC. & CODE 171.087 ......................................................................... 28
TEX. CIV. PRAC. & REM. CODE 171.088................................................................. 21
TEX. CIV. PRAC. & REM. CODE 171.091................................................................ 19
TEX. R. APP. P. 43.2 ................................................................................................. 28
6
RECORD REFERENCES
7
STATEMENT OF THE CASE
the 332nd District Court of Hidalgo County. IOC Company, LLC responded
award. Presiding Judge Mario E. Ramirez Jr. issued an order granting the
Citys request to vacate the arbitration award and a second order denying
IOCs request to confirm the award. IOC timely filed a notice of appeal to
8
STATEMENT REGARDING ORAL ARGUMENT
The Court should not grant oral argument because the issues presented
have been authoritatively decided and are not legally complicated. This
appeal concerns the vacatur of an arbitration award. The trial court vacated
the award in response to the Citys argument that the award violated public
policyan act that directly conflicts with legal authorities establishing that
court also vacated the award in response to the Citys contentions that the
award was obtained by undue means and that the arbitrator exceeded his
powers, but these contentions only purpose was to camouflage the Citys
efforts to vacate based on the arbitrators purported mistakes of law and fact.
nine pages. The clerks record contains 993 pages, but the Court will find
this appeal.
If the Court nonetheless wishes to hear oral argument, IOC will gladly
participate.
9
ISSUES PRESENTED
Issue One: The trial court erred in vacating rather than confirming the
arbitration award.
10
STATEMENT OF FACTS
Canton Road for the City in accordance with the plans, specifications, and
3CR:118. On June 2, 2009, IOC and the City entered into a second contract
Road for the City in accordance with the plans, specifications, and
3CR:118.
3CR:118. IOC asserted that the City breached the Agreements, which
perform to complete the Canton Road Project and Sugar Road Project
11
in the form of additional compensation for the owner-caused delays that
increased IOCs cost to perform the work for the Projects. 3CR:118. In
response, the City argued (1) that it did not breach the Agreements; (2) that
(3) that any delays IOC suffered were caused by third parties over whom the
II. IOC and the City sought to resolve their disputes through binding
arbitration. After hearing significant evidence, the arbitrator
found that the City breached the contracts and awarded IOC
damages.
evidentiary hearing on claims and disputes relating to the Sugar Road Project
on April 16 and 17, 2014. 3CR:772. IOC and the City both accepted the
12
Based on the evidence presented to me, the Canton Road
Agreement and the law of the State of Texas, I find the City
materially breached this Agreement without excuse and is liable
to IOC for damages in the form of additional compensation
arising from City-caused delays, disruptions and interferences.
I further find IOC did not materially breach the Agreement. . . .
The evidence concerning IOCs efforts to perform the
scope of work for the Canton Road Project and the numerous,
serious and costly City-caused delays, interferences and
disruptions it suffered in those efforts is compelling and
supports my finding the City materially breached the
Agreement.
....
IOC faired [sic] no better on the Sugar Road Project in
terms of the delays, interferences and disruptions it suffered at
the hands of the City. Once again, the evidence the Sugar Road
Agreement and the law of the State of Texas compel me to find
the City materially breached the Sugar Road Agreement
without excuse and is liable to IOC for damages in the form of
additional compensation arising from City-caused delays. IOC
did not materially breach the Agreement. . . .
The evidence of IOCs efforts to perform the scope of the
work for the Sugar Road Project and the numerous, serious and
costly City caused delays, interferences and disruptions it
suffered in those efforts is similarly compelling and supports
my finding the City materially breached the Sugar Road
Agreement.
13
connection with the Sugar Road Project; and $25,905.74 as reimbursement
III. Unhappy with the arbitrations outcome, the City sought to vacate
the arbitration award. Faced with meritless grounds for vacating
the award, the trial court nonetheless granted the Citys request
to vacate the award and denied IOCs request to confirm the
award.
On August 14, 2014, the City filed an original petition in the 332nd
Hidalgo County District Court that sought to vacate the Award. 1CR:12. In
its amended petition, the City advanced three reasons for why the Award
should be vacated: (1) the award was obtained by undue means; (2) the
arbitrator exceeded his powers, thus authorizing vacatur under the Texas
Arbitration Act; and (3) the award violates public policy, thus authorizing
vacatur under the Texas Arbitration Act. SR:16-17. IOC filed an answer to
the Citys petition and filed its own petition/motion seeking confirmation of
the Award. 1CR:41,44. On January 27, 2015, the trial court held a brief
11, 2016, the trial court issued an order granting the Citys request to vacate
the Award and another order denying IOCs request to confirm the award.
14
SUMMARY OF THE ARGUMENT
Arbitration Act and the Federal Arbitration Act preclude a court from
could not have properly vacated the Award in response to the Citys
The Citys remaining two grounds for vacating the Award stemmed
from the Texas Arbitration Act, which permits a court to vacate an arbitration
award when (1) it is obtained by undue means and (2) the arbitrator exceeds
his powers. The City made passing reference to these statutory grounds to
the trial court, but the City made no actual attempt to show:
undue means); or
that the arbitrator decided matters that were outside the scope of
The Citys passing references to these statutory grounds were nothing more
than cheap camouflageintended to obscure the reality that the City was
15
recognizing that mistakes of law and fact are an insufficient basis for
vacating an arbitration award, the trial court could not have properly vacated
the Award in response to the Citys statutory grounds for vacatur. But even
if the Citys proffered mistakes of law and fact were capable of satisfying
the statutory grounds the City referenced, the Citys failure to present a
complete record of the proceedings before the arbitrator precludes any court
from recognizing any mistake. Both the trial court and this Court must
presume that the missing portions of the record support the Award and the
The trial court was thus provided with no meritorious basis for
vacating the Award. As a result, the trial court was compelled to confirm the
Award. IOC thus asks the Court to issue an opinion that reverses the trial
courts order vacating the Award and renders judgement confirming the
Award.
16
ARGUMENT
for the Sugar Road Project contains language stating that any contract
between the City and the selected contractor will be governed by the laws of
Texas, while the Canton Road Agreement appears to lack any such language.
3CR:310,348. Neither IOC nor the City contested the applicability of the
FAA and TAA to the Agreements. Under this set of facts, the Court has
deemed it appropriate to assume that both the FAA and TAA apply. See
App. LEXIS 340, at *9-10 n.3 (Tex. App.Corpus Christi Jan. 14, 2016, no
pet.) (mem. op.). That said, the assumption that both the FAA and TAA
apply is only pertinent to addressing the merits of the Citys argument that
The statutory grounds the City advanced at the trial level to justify vacating
the Awardnamely, that the Award was obtained by undue means and that
17
the arbitrator exceeded his powerswere specifically presented as a basis
for vacating the Award under the TAA alone. SR:16-17; 2CR:84-102.
judgment of a court of last resort. SCI Tex. Funeral Servs. v. Roussett, No.
Christi Mar. 31, 2015, no pet.) (mem. op.). The Court reviews a trial courts
award must present any grounds for doing so to the trial court, otherwise,
those complaints are waived on appeal. Black v. Shor, 443 S.W.3d 154, 163
18
II. The City gave the trial court three reasons for vacating the
arbitration award: (1) the award violated public policy; (2) the
award was obtained by undue means in violation of the TAA; and
(3) the arbitrator exceeded his powers in violation of the TAA.1
Because these reasons lacked merit, the trial court erred in
vacating rather than confirming the award.
Three months after the trial court vacated the Award, the Texas
not enumerated in the statute. No. 15-0046, 2016 Tex. LEXIS 386, at *8
(Tex. May 20, 2016). The supreme court held that the TAA did not permit
1
The Citys amended petition vaguely references CPRC 171.091 as a basis for vacating
the Award, but that section must summarily be disregarded since it only sets forth grounds
for modifying or correcting an awardnot vacating an award in its entirety, which is all
the City prayed for in its amended petition. See TEX. CIV. PRAC. & REM. CODE 171.091.
19
In sum, the TAA mandates that, unless a statutory vacatur
ground is offered, the court shall confirm the award. Thus, a
party may avoid confirmation only by demonstrating a ground
expressly listed in section 171.088. [The appellant] complains
that the TAA contains gaps that need common-law
supplementation in order to foreclose arbitration awards that
are unquestionably improper. But we may not rewrite or
supplement a statute to overcome its perceived deficiencies.
The parties signed an agreement to arbitrate under the TAA, and
that agreement contained no limitations on the arbitrators
authority beyond those enumerated in the statute. Because
manifest disregard is not an enumerated vacatur ground under
section 171.088, the court of appeals correctly declined to
consider it in affirming the trial courts confirmation order.
the Court must find that the TAA does not permit the trial court to vacate the
Award based on the Citys contention that the Award violates public policy
similarly find that the FAA does not permit the trial court to vacate the
Award based on its purported violation of public policy. See, e.g., Parallel
Networks, LLC v. Jenner & Block, No. 05-13-748-CV, 2015 Tex. App.
LEXIS 10461, *17 (Tex. App.Dallas Oct. 9, 2015, pet. denied) (mem.
op.); Thomas Petroleum, Inc. v. Morris, 355 S.W.3d 94, 98 (Tex. App.
Houston [1st Dist.] 2011, pet. denied); Good Times Stores, Inc. v. Macias,
355 S.W.3d 240, 247 (Tex. App.El Paso 2011, pet. denied); Lefoumba v.
Legend Classic Homes, Ltd., No. 14-08-00243-CV, 2009 Tex. App. LEXIS
20
7573, at *5-6 (Tex. App.Houston [14th Dist.] Sept. 17, 2009, no pet.)
(mem. op.).
subsection 171.088(a)(1) of the TAA, which states that [o]n the application
of a party, the court shall vacate an award if . . . the award was obtained by
corruption, fraud, or other undue means. TEX. CIV. PRAC. & REM. CODE
otherwise in bad faith. The term describes conduct that is purposeful and
directed against another party. AmeriPath, Inc. v. Hebert, 447 S.W.3d 319,
21
Las Palmas Med. Ctr. v. Moore, 349 S.W.3d 57, 69 (Tex. App.El Paso
2010, pet. denied) (citations omitted); see Lefoumba, 2009 Tex. App. LEXIS
7575, at *7.
In its petition and briefing to the trial court, the City made no effort to
establish (or even allege) that the Award stemmed from the arbitrator
means. See AmeriPath, 447 S.W.3d at 338; Las Palmas, 349 S.W.3d at 69.
Instead, the City misguidedly tried establishing undue means by arguing that
the Award resulted from the arbitrators purported mistakes of law and fact.
award was obtained by undue means, and because mistakes of law and fact
are an insufficient basis for vacating an award, the trial court could not have
Roussett, 2005 Tex. App. LEXIS 2511, at *4 (A mere mistake of law or fact
But even if the mistakes alleged were capable of establishing that the
Award was obtained by undue means, the trial court was precluded from
recognizing any such mistakes since it was not provided with a complete
22
to great deference and every reasonable presumption must be indulged to
establishing the claimed basis for relief. Long Lake, Ltd. v. Heinsohn, No.
[14th Dist.] Apr. 8, 2010, no pet.) (mem. op.) (citations omitted). Without
a complete record, [a court] must presume that the arbitrators award was
In the instant case, the City provided the trial court with transcripts of
the arbitration proceedings, but failed to provide the roughly 354 evidentiary
770,772-853. The Citys failure to provide the trial court with a complete
record thus necessitates a determination that the Award was not obtained by
2
The 354 exhibits consisted of 193 exhibits presented in connection with the proceedings
on the Canton Road Project and 161 exhibits presented in connection with the
proceedings on the Sugar Road Project. The 193 exhibits relating to the Canton Road
Project entailed 44 joint exhibits, 51 exhibits from IOC, and 98 exhibits from the City.
3CR:660-63 (listing exhibits). The 161 exhibits relating to the Sugar Road Project
entailed 34 joint exhibits, 77 exhibits from IOC, and 50 exhibits from the City.
3CR:772-75 (listing exhibits). These exhibits were not presented to the trial court.
23
incomplete record, that the arbitrator made mistakes of law and fact. See
Gessee v. U.S. Home Corp., No. 02-02-00405-CV, 2003 Tex. App. LEXIS
4575, at *2 (Tex. App.Fort Worth May 29, 2003, no pet.) (mem. op.)
(holding that there was no other choice but to reject appellants argument
that arbitration award was obtained by undue means when appellant failed
1999) (where party argued that arbitration award should be vacated because
arbitrator acted in manifest disregard of law, the trial court recognized that
the partys failure to present the trial court with exhibits presented to
arbitrator provided sufficient cause to reject the partys argument since the
[c]ourt was unable to exclude the possibility that the award is supported by
evidence that [the party] has not placed before [the court]).
court shall vacate an award if the arbitrator exceeded his powers. TEX. CIV.
24
An arbitrator exceeds his powers when he decides matters not
properly before him. In determining whether an arbitrator has
exceeded his power, [courts] examine the language in the
arbitration agreement, and any doubts concerning the scope of
what is arbitrable must be resolved in favor of arbitration. The
authority of an arbitrator is derived from the arbitration
agreement and is limited to a decision of the matters submitted
therein either expressly or by necessary implication. It is only
when the arbitrator departs from the agreement and, in effect,
dispenses his own idea of justice that the award may be
unenforceable.
*18 (Tex. App.Corpus Christi Apr. 28, 2016, no pet.) (mem. op.) (citations
2016 Tex. App. LEXIS 6352 (Tex. App.Dallas June 15, 2016, no pet. h.)
(mem. op.). In that case, Elite hired BBL, a general contractor, to complete
a construction project. Id. at *1-2. Elite and BBL went to arbitration when
favorable arbitration award. Id. BBL successfully petitioned the trial court
to vacate the award against it while arguing in part that the arbitrator
rejecting this argument, the Dallas COA provided the following analysis:
25
between the parties. BBL argued to the trial court that the
arbitrator based the damages award on an hourly rate of $28.50
for Elites employees and that the parties had never agreed to
that hourly rate. BBL argued that the contract called for
maximum payments and the arbitrator ignored those maximums
agreed upon by the parties and created a new agreement based
on this hourly rate.
Elite argued that the issue in an exceeded-his-powers
claim is not whether the arbitrator decided an issue . . .
correctly, but instead, whether [the arbitrator] has the authority
to decide the issue at all. Elite argued that the arbitration
agreement gave the arbitrator authority to decide the breach of
contract claim. We agree.
An arbitrator derives his authority from the arbitration
agreement. An arbitrator exceeds his authority when he decides
a matter not properly before him. We presume an arbitrators
actions were within his authority and we resolve all doubts in
favor of the award.
In this case, the parties agreed to arbitrate any
controversy or claim arising out of or related to this
AGREEMENT, or the breach thereof. This is broad language
covering any dispute between BBL and Elite arising out of their
contract. BBL did not dispute that the breach of contract claim
was properly before the arbitrator. Instead, it contended that the
arbitrator calculated damages based on an hourly rate not
agreed to by the parties and, as a result, departed from the
parties agreement and dispensed his own idea of justice.
But the arbitration agreement in this case did not place
restrictions on the arbitrators authority to decide the amount of
damages for the breach of contract claim. The arbitration
agreement gave the arbitrator full authority to resolve the
contract dispute. Although the arbitrator resolved the dispute in
a way that BBL believes was wrong, this does not mean the
arbitrator acted outside the scope of his authority. The breach
of contract claim was properly before the arbitrator. BBLs
argument that the arbitrator erroneously determined damages
for a claim properly before him is an allegation of a mistake of
fact or law and is not a ground for vacating an arbitration award.
26
Id. at *7-10 (citations, brackets, and ellipses omitted).
by mediation, the parties shall submit the dispute to [an arbitrator]. 1CR:59
covering any dispute between IOC and the City arising out of the
Agreements.
claims. CR:923, 957. While before the trial court, the City did not contest
demonstrate to the trial court that the arbitrator exceeded his powers, the City
did nothing more than argue that the arbitrator committed various mistakes
of law and fact. CR:84-102. Much like the losing party in Framing, the City
has improperly conflated the contention that the arbitrator resolved claims
incorrectly with the contention that the arbitrator acted outside the scope of
27
his authority. CR:84-102. The Court must reject the Citys invitation to blur
should find the City failed to show the arbitrator exceeded his powers in
issuing the Award. And even if the Court accepted the Citys fanciful belief
that the alleged mistakes of law and fact are capable of demonstrating that
the arbitrator exceeded his power, neither the trial court nor this Court could
recognize the existence of any such mistakes since the City failed to provide
The TAA states that [u]nless grounds are offered for vacating,
court, on application of the party, shall confirm the award. TEX. CIV. PRAC.
& CODE 171.087 (emphasis added). As explained above, the City provided
the Court with no valid ground for vacating, modifying, or correcting the
Award. In light of that analysis, the Court should find that the trial court was
confirmation. Based on this finding, IOC asks the Court to render judgment
28
PRAYER
IOC prays that the Court issue an opinion that reverses the trial courts
order vacating the Award and renders judgement confirming the Award. IOC
prays for all other relief to which it is legally and equitably entitled.
Respectfully submitted,
29
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4, I hereby certify that this
brief contains 4,415 words. This is a computer-generated document created in
Microsoft Word 2013, using 14-point typeface for all text, except for footnotes
which are in 12-point typeface. In making this certificate of compliance, I am relying
on the word count provided by the software used to prepare the document.
CERTIFICATE OF SERVICE
I hereby certify that on July 11, 2016, a true and correct copy of this document
was served upon the following persons via electronic filing service.
Gerald E. Castillo
law@valleyfirm.com
Steven M. Gonzalez
law@valleyfirm.com
Ricardo Palacios
rpalacios@pgtlawfirm.com
Criselda Palacios
cpalacios@pgtlawfirm.com
Counsel for City of Edinburg
30
CAUSE NO. 13-16-00117-CV
IOC COMPANY, LLC, IN THE THIRTEENTH
VS. COURT OF APPEALS
CITY OF EDINBURG EDINBURG, TEXAS
APPELLANTS APPENDIX
31
Electronically Filed
2/1/20161:16:02 PM
Hidalgo County District Clerks
Reviewed By: Andrea Lopez
After considering IOC Company, LLC's Petition and Motion to Confirm Arbitrator's
Award and for Entry of Final Judgment ("the Motion"), the response, and the arguments of
Michael A. McGurk
Kittlernan, Thomas, PLLC
n1ll1cgurk@ktattornevs.com
StPVPn M ]pz
Gerald E. Castillo
Gonzalez Castillo, LLP
sgonzalez@valleyfirm.com
gcastillo@valley_firm.com
Ricardo Palacios
Criselda Palacios
Palacios, Garza & Thompson, P.C.
rpalacios@pgtlawfirm.com
q~alacios@ptgJaw.firm.com
983
TB
Electronically Filed
1/5/2016 6:07:43 PM
Hidalgo County District Clerks
Reviewed By: Andrea Lopez
11TH
On this the _____________ FEBRUARY
day of ___________________, 2016 came on to be heard
#70 441 Y 00190 12. The Court, after having heard the argument of counsel and having read
the pleadings on file, finds that the Amended Petition/Application to Vacate Arbitration Award
PRESIDING
RESIDIN
IN
NG JUDGE
JUDGE
JU
cc: Steven Gonzalez/Gerald E. Castillo, GONZALEZ CASTILLO, LLP, 1317 E. Quebec Ave., McAllen, Texas, FAX:
(956) 618-0445; email: law@valleyfirm.com and gcastillo@valleyfirm.com
Jesus Garcia, Jr., TUCKER, BARNES, GARCIA & DE LA GARZA, P.C., JP Morgan Chase Building, 712 Main,
Suite 1600, Houston, Texas 77002-3297; email: jgarcia@tuckervaughan.com
Gil Peralez, 1416 W. Dove Avenue, McAllen, Texas 78503; email: gpp@peralezfranzlaw.com
Michael A. McGurk, KITTLEMAN THOMAS, PLLC, 4900-B N. 10th St., McAllen, Texas 78504; Email
mmcgurk@ktattorneys.com
984
TB
C-6852-14-F
Introdnction
The parties to this proceeding are IOC Company, LLC ("IOC''), a highway and road
contractor, and City of Edinburg, Texas ("City"), a municipality. IOC and the City
agreed to my appointment as the arbitrator in this proceeding ancl made no objections to
my continued service as arbitrator after I made disclosures.
The claims and disputes the pru'ties are arbitrating, arise out of two projects but
involve similar facts, agreements and scopes of work. In addition, the witnesses
testifying about the claims and disputes arising out of both projects were identical.
Previously, the parties agreed to consolidate these claims and disputes and present
them to me for resolution.
I conducted bifurcated hearings with respect to each project. I neard the claims
and disputes arising out of the Canton Road Project first at the evidentiary hearing
devoted to that project held on February 17 and 18, 2014 which, by consent of the
parties, was held open until the establishment of the post hearing submission sch edule
set forth in the Order Regarding Post Hearing Briefing Schedule. Next, I heard the
claims and disputes arising out of the Sugar Road Project at the evidentiary hearing
held on April 16 and 17, 2014. The hearings were declared closed on June 18, 2014.
The post hearing briefing schedule 1equired the submission of briefs and closing
statements, replies and attorneys' fees affidavits for both projects.
In accordance with t he post heruing submission schedule as set forth in the above
64
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IOC and the City enter ed into an agreement dated Ap1'il 1, 2008 under which IOC
agreed to perform paving, d1ainage improvements and expansion of a portion of Canton
Road for tbe City in accordance with the plans, specifications and information the City
furnished to roc.
IOC seeks recovery of damages in the form of additional compensation due to the
City's claimed breach of contract, essentially consisting of delays, jnterferences and
disruptions it alleges the City caused it to suffet. IOC also seeks recovery of attorneys'
fees, prejudgment interest and reimbursement of arbitratm compensation and costs.
The City contests IOO's legal entitlement to recovery of damages and argues TOG's
claims are barred or excluded by the parties' agreement and 271.153, Local
Government Code. The City stl'Ongly denies it was responsible for owner-caused delays
that increased IOC's cost to perform the work for this project. In particular, the City
argues the City was not responsible for relocating utilit-y lines, encumbrances and
obstructions that hindered, delayed or disrupted IOC's ability to timely, efficiently and
in a linear, logical and sequential manner pel'foi'm the required scope of work in
accordance with its construction plan. The City further argues any delays IOC suffered
were caused by thi1d parties over whom :it had no coniJ.ol or I'esponsibility.
Similarly, IOC and the City entered into an agreement dated June 2, 2009 under
which IOC agreed to perform paving, drainage improvements and expansion and
widening of a portion of Sugar Road for the City in accordance with the plans,
specifications and information tbe City furnished to IOC.
Essentially, IOC's claim and the types of damages it seeks minor those described
fo1 the Canton Road Project. The same generally holds true for the Cicy's defenses
although the City emphasizes several ptovisions in the Canton Road Agreement which
it asse~ts preclude IOC's claim and damages.
Based on the evidence presented to me, the Canton Road Agreement and the law of
the State of Texas, I find the City materially breached this Agreement without excuse
and is liable to roc for damages in the form of additional compensation alising from
2
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City-caused delays, disruptions and interferences. I further find IOC did not materially
breach the Agreement. I discuss the facts and 1easons in support of these findings
below.
The evidence concerning IOC's efforts to perform the scope of work for the Canton
Road Project and the numerous, serious and costly City-caused delays, interferences
and disruptions it suffered in those efforts is compelling and suppo1ts my :finding the
City materially breached the Agreement.
This evide11ce established the following facts and supports the following reasons
for my ente1ing an award in IOC's favor on its claim arising out of the Canton Road
Pxoject:
1. The City failed to timely and properly provide IOC with the lands necessary
for it to perform the scope of work under the Canton Road Agreement.
2. The City failed to provide IOC timely and proper access to the areas in
which it was to perform the scope of work under the Canton Road
Agreement.
3. The City failed to provide IOC with tmhindered and unobstructed access to
the areas in which it was to perform the scope of work m1de1 the Canton
Road Agreement.
4. The City failed to timely, reasonably and propel'ly manage the removal of
obstacles, conflicts and obstructions in the areas in which roc was to
perform the scope of work under the Canton Road Agreement. The City had
the duty and responsibility to manage the removal of these in the areas in
which roc was to perform the scope of work.
5. The City's preceding failures delayed IOC's ability to timely and efficiently
perform the scope of work under the Canton Road Agreement.
7. The City's preceding failures disrupted and interfered with IOC's ability to
timely and efficiently perform the scope of wo1k under the Canton Road
Agreement.
8, The number and quality of the utility lines (underground and above
ground), power poles, splicing operations. gas lines and meters and
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9. The City also f:ailed to timely acquire permits and easements from the local
dnlinagc and irrigation districts which also delayed and disrupted IOC's
wo1k performance. These, too, are City-caused delays. disruptions and
interferences.
10. As a result of the City-caused delays and the City's material breach of the
Agreement, IOC suffered increased costs in the amount of $1,362l630 to
perform the scope of work under the Canton Road Agreement. These costs
consist of labor costs in the sum of $480,682, equipment costs in the sum of
$475,639, material escalation costs in the sum of $2001 075, extended field
costs in the sum of $28,500 and mark-up of $177,734.
11. The City is liable to IOC for the increased costs totaling $1,362,630 (set
forth in the preceding subparag1aph) as additional compensation.
12. The City is also liable to IOC for IOC's reasonable attorneys' fees in the sum
of $158,000.
13. 271.153, Local Government Code, does not ba:r IOC's claim for additional
compensation arising out of the Canton Road Project.
14. Special Provision 18 of the Canton Road Agreement is not applicable to the
claim asse1'ted by IOC; IOC did not b1'each o1 violate this provision.
Therefore, Special Provision 18 does not bar or preclude ICC's claim.
16. Because the City materially breached the Agreement, it cannot rely on
procedural rights, including notice provisions, in the Agreement. Indeed, by
its breach, th e City relinquished its contractual procedwal rights Iegarding
notice, change orders and claims by roc for additional compensation.
17. By its failures and conduct as described above, tbe City wrongfully
prevented 10C from timely and efficiently peTforming its WOrk.
18. IOC's further performance under the Agreement was excused by the City's
prior material breaches.
19. The City's material breaches a1e not excused based on the failUIe of any
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20. The delays IOC experienced were City-caused and compensable to IOC.
IOC's fared no better on the Sugar Road Project in terms of the delays,
interferences and disruptions it suffered at the hands of the City. Once again, the
evidence, the Sugar Road Agl'eement and the law of the State of Texas compel me to find
the City materially breached the Sugar Road Agreement without excuse and is liable to
IOC for damages in the form of additional compensation arising from City-caused delays.
IOC did not materially breach the Agreement. As before, I discuss the facts and 1easons
in suppmt of these findings below.
The evidence of IOC's efforts to perform the scope of work for the Sugar Road
Project and the numerous, serious and costly City caused delays, interferences and
disruptions it suffered in those efforts is similarly compelling and supports my finding
the City materially breached the Sugar Road Agreement.
Again,. this evidence supports the following facts and reasons for my entering an
award in rOC's favor on its claim arising out of the Sugar Road Project:
1. The City failed to timely and properly provide roc with the lands necessary
for it to perform the scope ofworkunderthe Suga1 Road Agreement.
2. The City failed to provide IOC timely and proper access to the. areas in
which it was to perfurm the scope of work under the SugaT Road Agreement.
3. The City failed to provide roc with unhindered and unobstructed access to
the areas in which it was to perform the scope of work under the Sugar Road
Agreement.
4. The City failed to timely, reasonably and Pl'Operly manage the removal of
obstacles, conflicts and obstructions in the areas in which roc was to
perform the scope of work under the Sugar Road Agreement. The City had
the duty and responsibility to manage the removal of these in the areas in
which roc was to perform the scope of work.
5. The City's preceding failures delayed IOC's ability to timely and efficiently
perform the scope of work under the Sugar RoadAgreement.
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and efficiently perfo1'm the scope ofwork under the SugaT Road Agreement.
7. The City's preceding failures disrupted and interfered with IOC's ability to
timely and efficiently pel'form the scope of work under the Sugar Road
Agreement.
8. The number and quality of the gas lines, manholes, utility poles, and
subgrade access p roblems delayed and disrupted IOC's work performance
are significant and compelling. In addition, the City stopped IOC's
performance of work in one area south of Owassa Street which further
delayed and disrupted IOC's work. These are City-caused delays,
disruptions and interferences.
9. As a result of the City-caused delays and the City's material breach of the
Sugru Road. Agreement, IOC suffered increased costs in the amount of
$673,092 to perform the scope of work under the Sugru Road Agreement.
These costs consist of labor costs in the sum of $219,191, equipment costs in
the sum of $290,944, material costs in the sum of $60,163, extended field
costs in the sum of $15,000 and mark-up in the sum of $87,794.
10. The City is liable to IOC for the increased costs set forth in the preceding
subparagraph in the sum of $673,093 (as set forth in the preceding
subparagraph) as additional compensation, none of which is barred by
271.153, Local Government Code.
11. The City is also liable to IOC for IOC's reasonable attorneys' fees in the sum
of $127,827.
12. 271.153, Local Government Code, does not ba1 IOC's claim for additional
compensation asserted by IOC against the City arising out of the Sugal'
Road Project nor does it bru the damages I am awarding IOC in the amount
of $673,093.
15. By its failures and conduct as described above, the City wrongfully
prevented roc from timely and efficiently performing the scope of work
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16. IOC's further pel'formance under the Agreement was excused by the City's
p1ior material breaches.
17. The City's mateTial breaches are not excused based on the failure of any
third party to remove or relocate their lines or utilities that constitute
obstacles, conflicts and obstructions as described above.
18. Art. 12.l(D) of the Sugar Road Agreement does not bar 10C's claims or
damages. Neither Special P1ovision 18 or 20 preclude IOC"s claims or
damages.
19. Art. 14.8A of the Sugar Road Agteement does not bar IOC's claim or
damages.
20. The delays IOC experienced were City-caused and compensable to IOC.
Award
a. The City shall pay 100 the sum of $1,362,630, the components
of which are set forth in finding number 10 under the Findings
Regarding t he Canton Road Project set forth above; and
a. The City shall pay IOC the sum of $$673,092, the components
of which are set forth in finding number 9 under the Findings
Regarding the Sugar Road Project set forth above; ; and
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The above sums are to be paid on or before 30 days from the date of this Award.
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NOW COMES, City of Edinburg, and files this Amended Petition/Application to Vacate an
CIVIL PRACTICE & REMEDIES CODE and pursuant to Texas Common Law and would respectfully show
I.
PARTIES
IOC Company, L.L.C. is a Texas corporation organized and existing under the laws of the
State of Texas and is authorized to do business in the State of Texas. IOC Company, L.L.C. may
be served with Citation in this action by Service of Citation to: Jesus Garcia, Jr., TUCKER,
BARNES, GARCIA & DE LA GARZA, P.C., JP Morgan Chase Building, 712 Main, Suite 1600,
II.
VENUE
This Petition is filed as an initial application in Hidalgo County, the county in which the hearing
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III.
REQUIREMENTS FOR A PETITION TO VACATE ARBITRATION AWARD
A Petition to Vacate an Arbitration Award must comply with the requirements set forth
by the Texas Civil Practice and Remedies Code 171.085(a) so that City of Edinburg must:
(3) Define the issue subject to arbitration between the parties under the
Agreement;
(4) Specify the status of the Arbitration before the arbitrator; and
(5) Show the need for the Court Order sought by the applicant.
IV.
JURISDICTION
The amount in controversy is with the jurisdictional limits of the District Court.
V.
AGREEMENT TO ARBITRATE
On or about April 1, 2008, the City of Edinburg and IOC Company, L.L.C. entered into a
formal contract entitled Paving and Training Improvements for Canton Road (Canton Road
Project). The Parties Agreement is attached hereto as Exhibit A and incorporated by reference
as if set forth fully and at length. In Section 36 of the Agreement, the parties agreed to arbitrate
any dispute concerning the contract pursuant to the rules of the American Arbitration
Association.
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In addition, on or about June 2, 2009, the City of Edinburg and IOC Company, L.L.C.
entered into a formal contract entitled Paving and Drainage Improvements for Sugar Road
(Sugar Road Project). The Parties Agreement is attached hereto as Exhibit B and incorporated
In paragraph IX of the Agreement, the parties agreed to arbitrate any dispute concerning
written demand for arbitration to the City of Edinburg and with the American Arbitration
Association. A copy of the parties written agreement is attached as Exhibit C and incorporated
by reference.
IV.
ISSUE IN CONTROVERSY
IOC Company, L.L.C. seeks damages as a result of the City of Edinburgs alleged failure
to perform its duties under contracts with IOC for both the Sugar and Canton Road Projects. IOC
Company, L.L.C. claims that during the performance of both projects, the City of Edinburgs
unwillingness and inability to provide right-of ways, easements, and coordinate with third parties
caused significant delays and damages to IOC Company, L.L.C. As such, IOC Company, L.L.C.
filed a Demand for Arbitration asserting claims for breach of contract. The Arbitration Agreement
VII.
STATUS OF THE ARBITRATION
IOC Company, L.L.C. initiated an arbitration proceeding against the City of Edinburg for
two (2) projects referred to as the Canton Road Project and the Sugar Road Project. On July 18,
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2014, an arbitration award was issued by William Andrews, Arbitrator. The arbitration award
was for a total sum $1,362,630 for the Canton Road Project and $673,093 for the Sugar Road
VIII.
NEED FOR COURT ORDER
The City of Edinburg hereby submits that the arbitration award needs to be vacated for
The City of Edinburg hereby submits that the arbitration award needs to be vacated as
the award was obtained by undue means so far so that the City of Edinburgs rights at the
hearing were affected and deprived them of a fair hearing. In addition, the arbitrator exceeded
his powers in granting of the award. Specifically, the arbitrator failed to honor and recognize
contractually agreed upon provisions between IOC Company, L.L.C. and the City of Edinburg,
including but not limited to, provisions regarding requests for additional compensation, change
orders, differing site conditions, and the responsibility of the City of Edinburg for the actions of
others. Failure of the arbitrator to honor and recognize contractually agreed upon provisions
deprived the City of Edinburg a fair hearing. Implementing the arbitrator's award in this case
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would stand for the proposition that contractors are not bound by contractually agreed upon
provisions in the handling of construction projects with the City of Edinburg and/or other
municipalities. Thus, the arbitrator exceeded his powers in granting the award.
Further, the City of Edinburg also submits that the arbitration award violates public policy
Government Code 271-153, that a municipality cannot be adjudicated an award for the
actions of others. The facts of this matter clearly illustrated that the problems that IOC
Company, L.L.C. complained of in the construction project of Canton Road and Sugar Road were
issues caused by others, specifically utility companies such as AT&T and Texas Gas Service.
Despite facts clearly illustrating this, the arbitrator disregarded this fact and issued the award
against the City of Edinburg contrary to established law. The results of such action in this case
would dictate that municipalities and contractors could no longer operate under the basic
principles that the state has mandated. The arbitrator did not merely make a mistake of law
in this case, but his actions are so contrary to established law and public policy that it would
change the manner in which contractors and municipalities do business, and moot Texas law
with respect to the adjudication of awards against municipalities. Therefore, vacating the award
WHEREFORE, PREMISES CONSIDERED, the City of Edinburg, Texas, requests that IOC
Company, L.L.C. be cited to appear and answer, and that on final trial, City of Edinburg, Texas,
Movant herein, have the Court enter a Judgment to Vacate the Arbitration Award given in
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Hidalgo County District Clerks
Reviewed By: Jassia De La Paz
Respectfully submitted,
Ricardo Palacios
SBN: 24010990
Criselda Palacios
SBN: 24067812
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507
FAX: (956) 318-0575
rpalacios@pgtlawfirm.com
cpalacios@pgtlawfirm.com
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing document has
been forwarded as a courtesy copy to attorney for Defendant via electronic mail, on this 25th day
of August, 2014.
/s/Gerald E. Castillo
Gerald E. Castillo
F:\data\WPDOCS\C\CITY OF EDINBURG\IOC v. COE\petition application to vacate arbitration award 082014 1st amended.sm.wpd
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Hidalgo County District Clerks
Reviewed By: Miriam Castillo
NOW COMES, CITY OF EDINBURG, and files this their Brief in Support of Vacating
Arbitration Award# 70 441 Y 00190 12, pursuant to 171.088(a)(1) and 171.091 of the
TEXAS CIVIL PRACTICE & REMEDIES CODE and pursuant to Texas Common Law and would respectfully
I.
BACKGROUND
IOC Company, L..L.C. (IOC) initiated an arbitration proceeding against the City of
Edinburg, Texas (COE) for its alleged failure to perform its duties under contracts with IOC for
both the Canton Road Project and Sugar Road Project, collectively called "Projects." IOC claims
that COE's unwillingness to provide right-of-ways, easements, and coordinate with third parties
On July 18, 2014, an Arbitration Award was issued by Arbitrator, Williams Andrews. The
Arbitration Award was for a total sum of$1,362,630forthe Canton Road Project and $673,093
for the Sugar Road Project, plus attorney fees. See attached Exhibit "A."
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On August 14, 2014, COE filed its Petition/Application to Vacate an Arbitration Award
pursuant to 171.088(a)(1), 171.088(a)(3)(A), and 171.091 of the TEXAS CIVIL PRACTICE &
REMEDIES CoDE and pursuant to Texas Common Law. See attached Exhibit "B."
II.
EXHIBITS BY COE IN SUPPORT OF BRIEF TO VACATE ARB ITRATION AWARD
Exhibit A: Final Award of Arbitrator for Canton and Sugar Road Projects;
ExhibitC: Paving and Draining Improvements for Canton Road (Canton Road
Project Contract);
Exhibit D: Paving and Draining Improvements for Sugar Road (Sugar Road
Contract);
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Ill.
ARGUMENTS
COE hereby submits that the Arbitration Award by Arbitrator, Williams Andrews for the
A. The award was obtained by undue means in violation of 171.088{a)(1) fthe Texas
Civil Practice and Remedies Code:
The award was obtained by undue means in violation of 171.088(a)(1) of the TEXAs
CIVIL PRACTICE & REMEDIES CODE so far so that COE's rights at the hearing were affected and
deprived them of a fair hearing. Specifically, the Arbitrator failed to honor and recognize
contractually agreed upon provisions between IOC and COE, including but not limited to,
provisions regarding requests for additional compensation, change orders, and differing site
conditions. Failure of the Arbitrator to honor and recognize contractually agreed upon
provisions deprived COE of a fair hearing. We will first address tile issues in the Canton Road
IOC claims in this Arbitration that it is owed additional compensation due to delay and
inefficiency damages as a result of the work performed on the Canton Road Project. The
original contract was a unit based contract and IOC admits that it was paid for every unit of work
completed. It was additionally compensated for every change order agreed upon by both the
COE and IOC. IOC only claims that it is owed money because of delays and inefficiencies that
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it allegedly experienced due for the most part to un-relocated utility lines which were owned by
AT&T.
COE argues that the facts as presented at the Final Hearing, and the evidence, illustrate
that COE was not responsible for relocating the utility lines but only bore the responsibility to
notify AT&Tthat the lines needed to be relocated. There Is no evidence or any argument by IOC
that AT&T was not notified of the need for AT&T to relocate its utility lines. Furthermore, the
compensation. The evidence presented illustrates that at no point prior to the completion of
this project did lOC ever request, in writing, a specific amount of additional compensation from
COE. It is COE's position that IOC has waived any request for additional compensation under
the contract.
Special Provision 18 of the contract (Exhibit "C") controls the request for additional
compensation by the contractor. Special Provision 18 states in part "in cases where the
contractor deems extra compensation is due l1im for materials not clearly covered in the
contract, or not ordered by the engineer as an extra Item, the contractor shall notify the
engineer, in writing, of his intention to make a claim for such extra compensation before he
Let us examine this provision as it relates to the evidence presented by IOC. Mr. Cuellar
testified that he reviewed contract documents, including the design documents and the
proposed contract, prior to submitting his bid. He knew of a II of the encumbrances com pia i ned
of by IOC prior to beginning the work. Furthermore, prior to the notice to proceed, IOC did not
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Exhibit "I," Page 249, Line 23- Page 249, Line 1). Mr. Cuellar, by his own testimony, admits
that the known encumbrances, which he purports to have caused IOC's delays and
inefficiencies were identified in the design documents and were visible through his site
inspection. (See Exhibit "I.'' Page 250, Line 6 - Page 251, Line 25.) He further admits that he
did not propose any alternate sequence of construction or seek additional compensation at that
time.
This testimony illustrates that IOC is in direct violation of Special Provision 18, which
requires a contractor to make a claim, in writing, of his intention to seek extra compensation
before work begins. Mr. Cuellar knew that beginning the project with the reported known
encumbrances would create delays and inefficiencies, but nonetheless chose to proceed and
made a conscious decision not to seek extra compensation or advise COE, in writing, of his
Special Provision 18 goes further on to state that ''failure on the part of the contractor
to give such notification or to afford the engineer proper facilities for keeping strict account of
actual costs shall constitute a waiver of the claim for such extra compensation." Mr. Cuellar
admits that during the construction phase of the project, up until the last pay application, IOC
never requested additional compensation, in writing. from COE. (See Page 278, Line 13- Page
279, Line 4; and Page 292, Line 1- Page 292, Line 9.) Special Provision 18 goes further on
to say that "when the work has been completed, the contractor shall, within ten (10) days, file
his claim for extra compensation with the engineer. IOC, in fact. never made a claim for a fixed
amount of compensation at any point during the construction phase. They could have done so
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with a request for a c11ange order or it certainly could have done so within the last pay
Mr. Cuellar's own testimony verifies that IOC did not comply with Special Provision 18
and thus, has waived its request for additional compensation under the contract.
Further, the testimony of lsael Posada, COE Engineer, who indicates he was the person
at COE who was most familiar with Canton Road Project during his tenure with COE. (See Exhibit
"E1" Page 14, Lines 11-14). He also testifies that any changes to the plans or to the amount
of compensation that may be given for a project, needs to be done through change orders and
that the contract, through Special Provision 18, requires that IOC submit any request for
additional compensation to COE for COE's consideration (See Exhibit ''E, '' Page 152, Line 20 -
Page 153, Line 14). In addition, Mr. Posada testified that no request for additional
compensation was ever communicated to COEthroughoutthe Canton Road Project (See Exhibit
What is accurate is that IOC was paid for every unit of work that it completed under the
contract. Furthermore, they were compensated for every change order. Every change order
was agreed upon by both parties. The truth of the matter is that IOC itself cannot, and could
not at the time of the final hearing, provide a straight answer as to whether or not IOC lost
money on this project. (See Page 263, Line 22- Page 270, Line 25.)
In fUrther support of COE's position that IOC is not owed additional compensation
pursuant to the contract, COEwould point to the General Conditions ofthe contract, specifically
Section 18 entitled Claims. Section 18 requires that "any claim involving extra cost under the
contract shall begin within seven (7) days, and in any event, before proceeding to execute tl1e
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work. No such claim shall be valid unless so made." See Exhibit "C" There is no evidence that
IOC complied witl1 this provision, and in fact as stated earlier, IOC never made a request for a
As an excuse, IOC claims that it could not quantify the delay or inefficiency damages
wh ile the delays and inefficiencies were allegedly occurring. This excuse fails factual ly since
IOC admits that prior to the completion ofthe project, there was a point in time where.the actual
pl1ysical construction of the roadway was completed but the project was still open. The last pay
application was submitted after tl1e construction portions of the project were completed but
prior to the closing of the project. IOC did not submit a request for additional compensation in
any amount even though the necessary information was available to IOC.
The fact that the Final Award of Arbitrator clearly states that 11Special Provision 18 of the
Canton Road Agreement is not applicable to the claim asserted by IOC; IOC did not breach or
violate this provision. Therefore 1 Special Provision 18 does not bar or preclude IOC's claim''
shows Arbitrator, Williams Andrews' blatant disregard contractually and recognized agreed upon
provisions between IOC and COE and deprived COE a right to a Fair Hearing in awarding
This dispute pertains to the Sugar Road Project, which was a paving and drainage
improvement project for Sugar Road beginning at the Trenton Road intersection and ending at
the Owassa Road intersection. COE awarded the bid to perform this work to IOC. IOC claims,
in the Arbitration , that it is owed additional compensation due to delay and inefficiency
damages as a result of the work performed on the Sugar Road Project The original contract was
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a unit based contract and IOC concedes that it was paid for every unit of work performed, as
well as every amendment and/or change order. IOC claims that It is owed additional
compensation due to delays and inefficiencies that it allegedly encountered due to various
COE contends that the facts and evidence, as presented, illustrate that any of the
complained about encumbrances that IOC encountered were promptly and reasonably resolved.
Additionally, the complained about encumbrances, including the relocation of Texas Gas lines,
as well as the relocation of an AT&T communication manholes, and were not within the control
of COE. Tile entities responsible for resolution of these issues were either AT&T and/or Texas
Gas. COE contractually is not responsible for the work and/or lack of worl< of others and, by
statute, cannot be held responsible for increased cost to perform work which was not caused
by COE.
In addition, COE contends, and will illustrate below, that IOC has waived any request for
additional compensation pursuant to tl1e agreed upon provisions of the contract at issue
IOC maintains that it encountered unknown encumbrances while completing its work on
the Sugar Road Project. Specifically, IOC details approximately seven (7) issues it encountered,
which it claims impacted their work detrimentally. Discovery and handling of unknown physical
conditions as handled by General Condition Article 4.3(8) of the contract (Exl1ibit "D"). This
provision contemplates unknown physical conditions and Article 4.4 contemplates that the
contractor may encounter differing site conditions. These provisions advised the contractor on
how to handle these conditions. Article 4.3(8), in part, requires that the contractor notify the
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owner of such underground encountered utility as well as to notify COE. COE makes no
contention tl1at IOC failed to meet this requirement. In fact, the evidence indicates that IOC,
upon encountering the AT& T man holes, or the Texas Gas Ii nes, timely advised Texas Gas and/ or
AT&T of these issues and copied COE with these notifications. IOC admits that the movement
or relocation of either the communication manholes, the abandoned manhole, or the Texas Gas
lines (3)werethe responsibility of either AT&T andjorTexas Gas and not COE. (See Exhibit "J,"
Page 183, Line 24- Page 184, Line 5; Page 184, Line 23- Page 184, Line 25; Page 188, Line
7- Page 188, Line 108; Page 189, Line 18- Page 189, Line 25; Page 196, Line 4- Page 196,
Line 23; and Page 213, Line 19- Page 214, Line 11.). Neither IOC nor the City could relocate
or remove these lines. It was tl1e responsibility of other entities, and not COE to complete this
The contract contemplates that work, specifically utility work, will be conducted by
While COE maintains that the relocation of the discovered utility issues with Texas Gas
and AT&T were done in a reasonably timely manner (AT&T manhole issue resolved in twenty-
four (24) days, Texas Gas line issue (1) resolved in thirty-seven (37) days, Texas Gas line issue
(2) resolved in fifteen (15) days, and Texas Gas line issue (3) resolved in thirty-six (36) days),
even if IOC did encounter delay and/or inefficiency damages due to these issues, the contract
specifica lly precludes damages against COE under these circumstances. COE would refer the
"In no event will owner be liable to contractor... , for any increase in the contract
price or other damages arising out or resulting from the following:
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2. Delays beyond the control of both owner and contractor... , or acts or neglect by
those performing other work as contemplated by Article 7 ."
The contract certainly contemplated work by others, specifically utility companies. Even
further, the contract specifically precludes COE from liability as a result of any damages or
increased contract time from the work of others. Even further, as indicated above, IOC
concedes that the relocation ofthe utility encumbrances were either the responsibility of AT&T
andjor Texas Gas service. Therefore, for these issues, COE cannot be held responsible and is
not liable, even in the event that these issues have caused delay and/or inefficiency damages.
In the Final Award, Arbitrator, William Andrews, clearly ignores these provisions of the
contract and states"[t)he City failed to timely, reasonably, and properly manage the removal of
obstacles, conflicts, and obstructions in the areas in which IOC was to perform the scope of
work under the Sugar Road Agreement. The City had the duty and responsibility to manage the
removal of these in the areas which IOC was to perform the scope of work." As illustrated in the
preceding paragraphs, JOC admitted that the relocation of the gas lines and/or manholes were
the responsibility of either AT&T and/or Texas Gas and not COE. Further, the contract
In fact, the testimony of lsael Posada, COE Engineer, clearly illustrates that the contract
between IOC and COE entered into for the Sugar Road Project had a special provision to ensure
that the contractors understood when they bid they are responsible for locating all utilities and
working with the utilities to get them relocated. (See Exhibit "F,'' Page 20, Lines 10-14, and
Page 51, Lines 4-11). Mr. Posadas further testified that neither IOC nor COE is able to move
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these lines and they must be moved by the utility entity. (See Exhibit "F," Page 51, Lines 12-
20).
The fact that Arbitrator, William Andrews, ignored these provisions and awarded IOC
Traffic Switch
The next issue complained of by IOC is for a delay regarding the traffic switch at the
Sugar Road and Owassa Road intersection. This issue had to do indirectly with the reduction
in the work to be performed by IOC In constructing the Sugar Road and Owassa Road
intersection. IOC concedes that they are not making a claim for the reduction in work, and
further concede that they were paid for all the work actually performed at that intersection.
Again, IOC's claim is limited to purported delays and inefficiencies that they encountered While
In this respect, IOC is claiming additional compensation for tt1ose delays and
inefficiencies related to the traffic switch. IOC admits that IOC has not, and still had not at the
time of the Final Hearing, ever quantified the amount of delay or inefficiency damage related
to the traffic switch. (See Exhibit ''J,'' Page 172, Line 16- Page 172, Line 21; Page 205, Line
19 - Page 205, Line 24; Page 200, Line 8- Page 200, Line 21.)
IOC claims that it submitted a request for payment in their November 24, 2010 letter
to COE Manager, Ramiro Garza, for the traffic switch issue. Despite IOC's contentions to the
contrary, the November 24, 2010 letter is not a proper method for requesting additional
compensation under the contract. The contract governs the manner in which additional
compensation for work performed is to be requested. Providing COE Manager with a letter is
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not the appropriate means to do so. In fact, IOC concedes that it did not, either by change order
or by pay application, ever request additional compensation for the traffic switch or for any
other delay or inefficiency damage that it now claims money for (See Exhibit "J," Page 172, Line
16 - Page 172, Line 21). The deposition testimony of Oscar Cuellar also reflects that IOC never
requested additional compensation in writingfrom COE (See Exhibit 11 H," Page 20, Lines 16-20).
Therefore, with respect to the issues encountered and/or com pia i ned of by IOC, they fa II
Into two (2) categories, which in fact do overlap. Tl1e first category is the purported delay in the
relocation of the utilities owned and/ or under the control of either AT&T and/ or Texas Gas.
COE, nor IOC, were responsible or could move these lines on their own. The contract specifically
precludes liability on COE for the work to be performed by others, which work is also
contemplated by the contract. The second area of issue is illustrated by the "traffic switch "
issue complained of by IOC. IOC admits that it never quantified the amount of money that the
traffic switch Issue purportedly cost IOC. If it was never quantified, then it would stand to
reason that it could never have been submitted to COE for consideration andjor payment.
Therefore, the facts illustrate that any additional compensation associated with the traffic
switch was never submitted to COEfor consideration and/or payment. This is precisely why IOC
has to admitthat it never submitted a request for payment, either through change order or final
pay application. The contract dictates that these are the methods in Which the contractor is to
submit requests for payment. Additionally, any request for payment outside of the contract
The change order provision in the contract is Special Provision 20. (See Exhibit ''D. ")
COE maintains that. pursuant to this provision, IOC has waived its' right to additional
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compensation due to its failure to submit a timely request. The fact that Arbitrator, William
Andrews, clearly writes that IOC did not waive its' claim for damages show tl1at COE was
deprived of a Fair Hearing and Arbitrator, William Andrews, ignored contractually agreed upon
B. The Award Violates Carefully Articulated, Fundamental Policy ln Violation of the Texas
Common Law:
The requested areas of damages asked for by IOC, include items of damages, which are
not allowed by statute to be adjudicated against a municipality. These include: delay damages,
home office overhead damages, and lost bonding capacity debts. 271.153, of the Texas
against a municipality. (See Exhibit "K.'') Therefore, $905,903.28 of the Claimant's requested
If we examine IOC's labor overrun calculations presented by paid expert, Jens Baker, it
includes hours submitted for employees of a different company, IOC Trucking, L.L.C. Mr. Cuellar
admitted that IOC Trucking, L.L.C. is a separate company with separate employees (see Exhibit
"C," Page 244, Lines 12-16) yet the pay tickets submitted by IOC to Mr. Baker for calculating
his labor overrun hours Include an unspecified amount of IOC Trucking, L.L.C. employee hours.
Since no alternative amount has been given excluding the IOC Trucking, L.L.C. hours, it is COE's
position that IOC has not met its burden to submit an actual specified amount of alleged labor
overrun costs. That leaves the purported calculations for equipment overrun and material
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As described in the previous section of this Brief, the amount of materials used and paid
for by IOC, as well as the equipment used and paid for by IOC to construct the Canton Road
Project, was information available to IOC during the project time frame. Despite l1aving the
requirement under Section 18 of the Special Provisions to submit any request for extra
compensation within a specified time period, IOC failed to do this and, by contract, its alleged
damages have been waived. Even further, as stated previously, IOC, had all of the information
available, including tl1e information regarding the alleged "known" encumbrances prior to
beginning their work on Canton Road they chose not to submit an alternate sequence of
construction and they chose not to submit a request for additional compensation prior to
commencing the project. After completing the construction of the roadway, IOC chose not to
make a detailed request with a specified amount or, in fact, any request at all prior to the
completion and closing out of the project. For these reasons, IOC's request for additional
Furthermore, the duty to move the utility lines in question was AT&T's. It was not COE's
responsibility to move the utility lines. 271.153(a)(1) holds that a City can only be held Hable
for "owner-caused" delays. If there was a delay in this project, it was not caused by COE, but
by AT&T. COE cannot be held responsible for the failures of AT&T in moving its lines. AT&T
clearly has the responsibility of relocating its utilities pursuant to 54.203 of the Texas Utilities
Code. This is the responsibility of AT&Tand not COE. Once again, Arbitrator, William Andrews,
clearly ignores this and states in his Final Award of Arbitrator "The City's material breaches are
not excused based on the failure of any third party to remove or relocate their lines or utilities
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that constitute obstacles, conflicts, and obstructions as described above." (See Exhibit "A,"
Further, Arbitrator, William Andrews, clearly ignored 271.153 and stated "271.153,
Local Government Code, does not bar IOC's claim for additional compensation arisingoutofthe
Canton Road Project" (See Exhibit ''A," Page 4, Line 13). This clearly illustrates that Arbitrator,
William Andrews, disregarded well established Texas Law and awarded damages to IOC despite
271.153 of the Loca l Government Code. 271.153 of the Local Government Code l'lolds that
a contractor can make a claim for additional compensation for "owner-caused delays" (See
Exhibit "K"). In this case, the delays were clearly not owner-caused but were the fault of a third-
party, namely AT&T. The results of such actions in this case would dictate that municipalities
and contractors could not longer operate under the basic principles that the State has
mandated. The Arbitrator did not merely make a mistake of law in this case, but his actions are
so contrary to well established law and public policy that it would change the manners in which
contractors and municipalities do business, and moot Texas Law witl1 respect to the
IOC had obligations under the contract to request in a specified manner and within a
specified time, additional compensation it deemed warranted. IOC failed to meet its obligations
under the contract. IOC contends that COE failed to provide the necessary lands in order to
complete the project, but tile truth of the matter is that IOC was aware of all of the
circumstances surrounding the project, including the alleged "known encumbrances" that it
encountered. The encumbrances referred to are utility lines which were not owned by COE but
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were, in fact, owned and under the control of another entity, specifically AT&T. The evidence
indicates that AT&T was timely notified of tl1e project and COE met its' obligations to notify
AT&T.
The damages that IOC seeks are either consequential in nature and precluded by
statute, have not been properly proven (labor overrun) or are excluded by IOC's own actions and
failures (material escalation and equipment overrun). Further, if the Arbitration Award stands,
it would violate clear established law and public policy that it would change the manners in
which contractors and municipalities do business, and moot Texas Law with respect to the
For these reasons, COE requests that this Court Vacate the Arbitration Award in favor
of IOC for the Canton Road Project in the amount of $1,362,630 plus $158,000 in attorney
fees.
were delays or inefficiencies caused by other entities, namely AT&T and Texas Gas. The same
argument for the Canton Road Project applies to the Sugar Road Project with respect to COE
being held liable for the actions of others. 271.153(a)(1) ofthe Local Government Code holds
Arbitrator, William Andrews, clearly Ignored 271.153 and stated "271.153, Local
Government Code, does not bar IOC's claim for additional compensation asserted by IOC
against COE arising out of the Sugar Road Project" (See Exhibit "A," Page 6, Line 12). This
clearly illustrates tl1atArbitrator, William Andrews, disregarded well established Texas Law and
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awarded damages to IOC despite 271.153 of the Local Government Code. 271.153 of the
Local Government Code holds that a contractor can make a claim for additional compensation
for ''owner-caused delays" (See Exhibit "K"). In this case, the delays were clearly not owner-
caused but were the fault of a third-party, namely AT&T and Texas Gas. Further, these delays
were resolved in a timely and efficient manner as illustrated above. The results of such actions
in this case would dictate that municipalities and contractors could not longer operate under
the basic principles that the state has mandated. The Arbitrator did not merely make a mistake
of law in this case, but his actions are so contrary to well established law and public policy that
it would change the manners in which contractors and municipalities do business, and moot
While COE maintains that IOC is not owed any damages resulting from delays or
inefficiencies for the reasons stated above and for the reasons presented at the Final Hearing,
the following will address certain issues related to the IOC's claim for damages.
First, IOC is not entitled to any consequential damages claimed pursuant to 271.153
of the Texas Loca l Government Code. Specifically, damages awarded against a municipality
arising under a contract may not include consequential damages, exemplary damages, or
damages and/or unabsorbed home office overhead. COE maintains that, of the items of
damages requested by IOC, all damages, except for labor overrun material escalation, and
equipment overrun, would be precluded on under 271.153 of the Texas Local Government
Code. This was followed by Arbitrator, William Andrews, in his awarding of $673,093 to IOC.
However, 271.15(a)(1) limits the amount of damages whicll can be adjudicated against a
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municipality to amounts owed as compensation for the increased cost to perform the work as
majority, if not all, of IOC's claimed encumbrances were delays or inefficiencies caused by other
Further, the testimony of Jens Baker, IOC's expert, during the Final HearingontheSugar
Road Project further substantiates our position tl1at IOC's complained of delays were primarily
caused by AT&T. (See Exhibit "J," Page 238, Lines 8-14). He further testified that he Identified
384 days of delays on the job, 174 of which were attributable to the lat e start and manhole
issues of AT&T, and 101 days which were attributable to Texas Gas changes. (See Exhibit "J,"
Page 289, Lines 6-25). He also testified that he could portion those damages attributable to
third parties versus those directly caused by COE. (See Exhibit "J," Page 290- Page 291, Line
24). Thus, in essence, he essentially testified that 71.61% (275/384) of his damages was not
Based on U1e above, COE maintains that the damages complained of by IOC are either
precluded by the contract itself (Art. 12.1(D), Special Provision 18, Art. 14.8(A)), by 271.153
of the Texas Local Government Code, or reduced by 71.61% as testified by IOC's expert, Jens
Baker.
IV.
CONCLUSION
Court Vacate and/ or Modify the Arbitration Award by Arbitrator, William Andrews for both the
Canton Road Project and Sugar Road Project pursuant to 171.088(a)(1) and 171.091 of the
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TEXAs CIVIL PRACTICE & REMEDIES CODE and pursuant to Texas Common law, and grant such other
and further relief to which CITY OF EDINBURG, TEXAS may show itself justly entitled.
Respectfully submitted,
Ricardo Palacios
SBN:24010990
Criselda Palacios
SBN:24067812
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507
FAX: (956) 318-0575
roalacios@pgtlawfirm.com
cpalaclos@pgtlawfirm.com
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing document has
been forwarded as a courtesy copy to attorney for Defe.ndant via electronic mail, on this 13u,
day of January, 2015.
Is/Gerald E. Castillo
Gerald E. Castillo
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