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Enforceability of Limitation of Liability Clauses

Limitations of Liability

Texas courts enforce limitation of liability clauses.  See Fox Elec. Co. v. Tone Guard Sec., Inc., 861 S.W.2d 79, 82-83 (Tex. App. 1993); Head v. U.S. Inspect DFW, Inc., 159 S.W.3d 731, 748 (Tex. App. 2005) (enforcing limitation of liability clause in a home inspection contract); Hyundai Corp. v. Contractors Cargo Co., No. H-07-2625, 2008 WL 4178188, at *5 (S.D. Tex. Sept. 5, 2008) (upholding limitation of liability clause in agreement to ship cargo).  In determining the enforceability of a limitation of liability clause, courts examine the relationship of the parties.  Arthur’s Garage, Inc. v. Racal-Chubb Sec. Sys., Inc., 997 S.W.2d 803, 810-11 (Tex. App. 1999) (upholding provision in alarm contract limiting liability to $350 based in part on parties’ equal bargaining positions).  Specifically, courts “look at the bargaining process the parties went through [to] evaluate the fairness of a contractual provision in controversy by determining whether there are legitimate commercial reasons that justify its inclusion as part of the agreement.”  Head, 159 S.W.3d at 748. 

Parties to sales contracts may also limit or modify remedies and warranties, absent unconscionability.  Tex. Bus. & Com. Code Ann. §§ 2.316, 2.719 (West 2021); Global Octanes Tex., L.P. v. BP Expl. & Oil Inc., 154 F.3d 518, 521-23 (5th Cir. 1998) (upholding provision in product supply agreement that limited liability to $500,000 even though buyer’s obligation to pay for delivered product was unconditional); Ergon Oil Purchasing, Inc. v. Canal Barge Co., No. 16-5884, 2018 WL 705870, at *2 (E.D. La. Feb. 2, 2018) (upholding a limitation of liability clause that limited liability to $20,000 and noting that such clauses “may be enforced without regard to whether the limitation is a reasonable estimate of the probable damages resulting from a breach”) (applying Texas law).  Limitations of liability must comply with a “fair notice” requirement, which requires the clause to be conspicuous.  Mickens v. Longhorn DFW Moving, Inc., 264 S.W.3d 875, 878-79 (Tex. App. 2008).  A clause is conspicuous if it is “so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it.”  Id.

Limitations of liability cannot limit liability in an action under the Deceptive Trade Practices Act (“DTPA”).  Arthur’s Garage, 997 S.W.2d at 811-12 (“[A] limitation of liability clause is invalid insofar as it purports to waive liability for an act defined as “deceptive” under the laundry list of DTPA violations”).

Exculpatory Clauses

Texas courts generally enforce exculpatory clauses.  Derr Constr. Co. v. City of Houston, 846 S.W.2d 854, 858-861 (Tex. App. 1992) (enforcing exculpatory clause/indemnity provision in contract between subcontractor and city releasing city from liability for damages to crane).  Exculpatory clauses must meet two requirements: (1) conspicuousness and (2) the express negligence doctrine.  Rackley v. Advanced Cycling Concepts Inc., No. 13-08-00254-CV, 2009 WL 937205, at *3 (Tex. App. Mar. 19, 2009) (citing Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 507 (Tex. 1993)).  The “conspicuousness” prong requires that “something must appear on the face of the [contract] to attract the attention of a reasonable person when he looks at it.”  Id. (quoting Dresser Indus., Inc., 853 S.W.2d at 508).  Under the express negligence doctrine, “an intent to release one of the parties from the consequences of its own negligence must be specifically stated in the four corners of the document.”  Id.  The release must also be unambiguous.  Id.  An exculpatory clause located on the back of a work order is likely unenforceable.  Dresser, 853 S.W.2d at 511.  Courts are likely to invalidate exculpatory clauses if one party is at such a disadvantage in bargaining power that he was “practically compelled to submit to the stipulation.”  Shakeri v. ADT Sec. Servs., Inc., No. 3:13-cv-2852, 2016 WL 6565743, at *4 (N.D. Tex. Nov. 4, 2016).  Courts, however, will uphold an exculpatory clause even if the fair notice requirements are not met “if both contracting parties have actual knowledge of the contract’s terms.”  Rackley, 2009 WL 937205, at *3 (citing Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex. 2004) (citing Dresser Indus., 853 S.W.2d at 508 n.2)).

Indemnity Agreements

Texas law invalidates any provision in a construction contract that requires an indemnitor to indemnify, hold harmless, or defend a party against a claim caused by an indemnitee’s negligence or fault, breach or violation of a statute, ordinance, governmental regulation, standard or rule.  Tex. Ins. Code Ann. § 151.102 (West 2021).  This statute does not apply to a provision in a construction contract that requires a person to indemnify another party to the construction contract or a third party against a claim for the bodily injury or death of an indemnitor’s employee.  Id. § 151.103. 

Tex. Civ. Prac. & Rem. Code Ann. § 130.002(a) (West 2021) invalidates a provision in a construction contract that requires a contractor to indemnify an architect or engineer for damage (personal injury, property damage, or other loss) caused by (1) defects in plans, designs, or specifications that the architect/engineer approved, or (2) the architect’s/engineer’s negligence arising out of the contract and the plans, design, or specifications that are a part of the contract.  Similarly, Section 130.002(b) invalidates a provision in a construction contract (other than contracts for single family or multifamily residences) if the provision provides for an architect or engineer to hold harmless an owner from liability caused by the owner’s negligence.

Finally, Tex. Civ. Prac. & Rem. Code Ann. § 127.003 (West 2021) invalidates any agreement pertaining to a well for oil, gas, or water or to a mine for a mineral if it purports to indemnify a person against loss or liability for damage that is caused by the indemnitee’s sole or concurrent negligence and arises from personal injury or death, property injury, or other loss. 

Enforceability of Waiver of Consequential Damages Clauses

Texas courts enforce contractual waivers of consequential damages in the construction context.  For instance, in Kiewit Offshore Services, Ltd. v. Dresser-Rand Global Services, Inc., No. H-15-1299, 2016 WL 4564472 (S.D. Tex. Sept. 1, 2016), the court enforced contract language related to a waiver of consequential damages and conducted an analysis as to whether liquidated damages fit within the definition of consequential damages.  See id. at *9–10; Wade & Sons, Inc. v. Am. Standard, Inc., 127 S.W.3d 814, 822–24 (Tex. App. 2003) (enforcing exclusion of consequential damages provision in air conditioning installation contract for commercial construction project); see also Cnty. of Galveston, Tex. v. Triple B Servs., LLP, 498 S.W.3d 176, 185 (Tex. App. 2016) (holding that claimed damages for lost profits were not costs incurred as a direct result of the defendant-County’s delay, and therefore Texas local-government code section 262.007(b)(1) did not waive the County’s sovereign immunity from such a claim).  Generally, waivers of consequential damages are also enforced in other contexts in Texas.  See, e.g., Frost Nat. Bank v. Heafner, 12 S.W.3d 104, 111 (Tex. App. 1999) (reversing an award of consequential damages where a contract excluded liability for such damages); see also El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 145–46 (Tex. 2012) (holding that waiver of consequential damages barred some claims but not others).

In Texas, a “general measure of damages is subject to any agreement that the parties might have made with respect to damages because parties to a contract are free to limit or modify the remedies available in the event of a breach of the contract.”  Tenn. Gas Pipeline Co. v. Technip USA Corp., No. 01-06-535-CV, 2008 WL 3876141, at *6 (Tex. App. Aug. 21, 2008).  In enforcing the waiver, the court in Tennessee Gas explained that “[w]hen a contract is unambiguous, ‘the court must enforce it as written.’”  Id. (quoting Transcon. Gas Pipeline Corp. v. Texaco, Inc., 35 S.W.3d 658, 665 (Tex. App. 2000)).  The court also found that “[i]n construing the contract . . . . [w]e presume that the parties intended for every clause to have some effect.”  Id.  Thus, absent ambiguous contractual language, waiver of consequential damages clauses may likely be enforceable in Texas.

In the context of transactions for the sale of goods, the Texas Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances.  See Tex. Bus. & Com. Code Ann. §§ 2.711 – 2.714, 2.715(2).  However, Texas business-and-commercial code section 2.719 permits the buyer and seller to contract to limit or exclude consequential damages unless the limitation or exclusion is unconscionable or where the circumstances cause a contractually specified limited or exclusive remedy to fail of its essential purpose.

Application of Economic Loss Doctrine

Texas law recognizes the economic loss doctrine in products liability and contract actions, including construction cases.  See LAN/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 246 (Tex. 2014) (“We think it beyond argument that one participant on a construction project cannot recover from another … for economic loss caused by negligence.”); see also Yumilicious Franchise, L.L.C. v. Barrie, 819 F.3d 170, 178 (5th Cir. 2016) (“In operation, the rule restricts contracting parties to contractual remedies for those economic losses associated with the relationship, even when the breach might reasonably be viewed as a consequence of a contracting party’s negligence.”); MEMC Pasadena, Inc. v. Riddle Power, LLC, 472 S.W.3d 379, 397 (Tex. App. 2015) (barring owner’s negligence claim against contractor); Med. City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 61 (Tex. 2008) (citing Am. Nat’l Petroleum Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274, 282 (Tex. 1990)); Sw. Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 494-95 (Tex. 1991).  In determining whether the economic loss rule applies, Texas courts focus both on the source of the duty allegedly breached and the nature of the remedy sought.  See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 45 (Tex. 1998).  Thus, the economic loss rule does not bar tort claims based upon a duty that is “independent of the contractual undertaking” and where “the harm suffered is not merely the economic loss of a contractual benefit.”  Croix v. Provident Trust Group, LLC, No. 1:19-cv-102-LY, 2019 WL 6716066, at *3 (W.D. Tex. Dec. 9, 2019) (citations omitted).  Certain professional malpractice actions are excepted from the rule, including “licensed professional engineers.”  See Dunn v. Marine, NO. H–12–03643, 2015 WL 12778390, at *13–*14 (S.D. Tex. Oct. 13, 2015) (citing LAN/STV, 435 S.W.3d at 243–44).

Fraud Exception

Texas courts recognize an exception to the doctrine for a fraudulent inducement claim, even if the plaintiff only suffered an economic loss related to the subject matter of the contract.  Formosa Plastics, 960 S.W.2d at 46-47 (permitting a business plaintiff to recover economic losses for the tort of fraudulent inducement even though the same damages would have been recoverable pursuant to the contract between the parties).

Texas courts have declined to expand this exception to other variations of fraud claims, however, such as claims for negligent misrepresentation and negligent inducement, finding these types of claims require an injury independent from the subject matter of the contract.  See D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 663 (Tex. 1998).

Enforceability of No Damages for Delay Clauses

No damages for delay clauses are generally enforceable in Texas.  See Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 387 (Tex. 1997).  However, in 2014, the Texas Supreme Court held that a no damages for delay clause is not enforceable when it would permit one party to “injure another with impunity.”  Zachry Constr. Corp. v. Port of Houston Auth., 449 S.W.3d 98, 117-118 (Tex. 2014) (upholding trial court’s determination that no damages for delay clause was not enforceable where Port’s intentional misconduct caused delay).  In Zachry, the Texas Supreme Court also acknowledged exceptions recognized in other jurisdictions including situations where the delay: (1) was not contemplated by the parties; (2) resulted from fraud, misrepresentation, or other bad faith; (3) amounted to abandonment of the contract; (4) was not within the specifically enumerated delays to which the clause applies; or (5) resulted from “active interference.”  Id. at 115; see also City of Houston v. R.F. Ball Constr. Co., 570 S.W.2d 75, 78 n.1 (Tex. App. 1978).

Strict Interpretation of Contract

Texas courts strictly interpret contracts.  In Texas, the ultimate goal of contract interpretation is to give effect to the parties’ intent as expressed in the agreement’s words. Endeavor Energy Resources, L.P. v. Energen Resources Corp., 615 S.W.3d 144, 148 (Tex. 2020).  The language of the contract is given its plain and ordinary meaning.  Dynergy Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W. 3d 164, 168 (Tex. 2009).  If the court determines that the contract is not ambiguous, it must enforce it as written.  David J. Sacks P.C. v. Haden, 266 S.W. 3d 447, 450 (Tex. 2008).  Texas courts apply a strict parol evidence rule, holding that parol evidence of intent cannot be admitted for the purpose of creating an ambiguity.  Friendswood Dev. Co. v. McDade & Co., 926 S.W. 2d 280, 283 (Tex. 1996).  “Only after a contract is found to be ambiguous may parol evidence be admitted for the purpose of ascertaining the true intentions of the parties expressed in the contract.”  Id.  Texas courts hold contracts to be ambiguous when “its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation.”  Dynegy, 294 S.W.3d at 168 (quoting Heritage Res., Inc. v. NationsBank, 939 S.W. 2d 118, 121 (Tex. 1996)); see also Endeavor Energy, 615 S.W.3d at 148.  A contract will not be deemed to be ambiguous simply because parties disagree over its meaning.  Dynegy, 294 S.W.3d at 168 (citing Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W. 2d 587, 589 (Tex. 1996)).  While Texas courts will generally follow the principal of construing ambiguous language of a contract against the drafter, this rule is not absolute, and it is first necessary that ambiguity exist in the contract before resorting to this rule.  Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W. 3d 857, 865-66 (Tex. 2000); see also Piranha Partners. v. Neuhoff, 596 S.W. 3d 740, 749 (Tex. 2020). 

Prompt Payment Requirements (Public/Private)

Texas Public – Tex. Gov’t Code Ann. §§ 2251.021 to .028 (West 2022) (owner to prime within 30 days of receipt of goods, completion, or receipt of invoice or within 45 days of receipt of goods, completion, or receipt of invoice if contract executed by Political Subdivision which meets once a month or less; prime to sub/sub to lower tier within 10 days of payment; interest at prime rate on the first weekday of preceding July, plus 1%; fees for prevailing party).

Texas Private – Tex. Prop. Code Ann. §§ 28.001 to 28.010 (West 2022) (owner to prime within 35 days after invoice; prime to sub/sub to lower tier 7 days after receipt of payment; interest at 1.5% per month).  If a good faith dispute exists concerning the amount owed, obligor can withhold 100% of the difference between the amount the obligee claims is due and the amount the obligor claims is due.  Tex. Prop. Code Ann. § 28.003 (West 2022).

False Claims Statute

Federal False Claims Act – 31 U.S.C. § 3729-3733 – Many states have enacted false claims statutes modeled on the federal False Claims Act (referenced as the “FCA” throughout this survey). 31 U.S.C. §§ 37293733. State analogues to the FCA aim to address claims involving state and local governments instead of the federal government.  This summary identifies the FCA’s state analogues for construction claims.  It does not address false claims statutes for other subjects, such as health care claims, applications for public assistance, or insurance claims.  

The FCA defines “claim” as any request or demand for money or property where the government will provide or reimburse any portion of that money or property.  Id.  § 3729(b)(2).  The FCA imposes civil liability for any of seven separate acts including: 1) knowingly presenting a false claim for payment; 2) knowingly making a false record or statement to obtain approval of a claim; 3) conspiring to obtain approval of a false claim; 4) knowingly delivering less than the amount of money or property owed to the government; 5) delivering a receipt for government property without knowledge of the receipt’s veracity and with intent to defraud; 6) knowingly purchasing or receiving public property from a government employee or member of the Armed Forces illegally; and 7) knowingly making or using a false record or statement to decrease a payment obligation to the government. Id. § 3729(a)(1).

A person found guilty of any of the above acts is liable to the government for: 1) a civil penalty between $5,000 and $10,000, as adjusted by inflation; 2) three times the amount of damage sustained by the government; and 3) the costs of a civil action brought to recover damages sustained by the government.  Id. § 3729(a)(1-3).  The FCA, however, allows mitigation of the penalty if the violator cooperates with the government’s investigation.  Courts may reduce the violator’s liability to two times the amount of damage sustained by the government when the violator: 1) provides all of the information known about that violation to the investigative team within 30 days of gaining such knowledge; 2) provides the information without actual knowledge of the investigation and before the government files charges; and 3) fully cooperates with the government’s investigation.  Id. § 3729(a)(2).

Texas – N/A

Licensing Requirements for Construction Managers

 There are no state requirements for a construction manager or general contractor to obtain licenses to perform public or private construction work in Texas.  Contractors may be subject to licensing requirements at the local level. Local licensing requirements vary by municipality.

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