Appeals court erases verdict, remands case over attorney's fees back to trial court

David Yates Feb. 11, 2009, 6:26am

A year ago, The Southeast Texas Record reported that defense attorney Roger McCabe, who represents Port Neches-Groves Independent School District in a suit filed by Pyramid Constructors Inc., promised to appeal after losing a trial over attorney's fees.

On Wednesday, Feb. 5, justices on the Texas Ninth District Court of Appeals released an opinion reversing the award of almost $460,000 in attorney's fees to plaintiff's attorney Dale Tingleaf and remanding the case back to Judge Gary Sanderson's 60th Judicial District.

The case, which was originally a contract dispute over renovations being done at a PNGISD school, ended up as a battle over attorney's fees after eight years of litigation, countersuits and appeals.

On appeal, McCabe argued PNGISD had governmental immunity and that Judge Sanderson erred in approving the verdict.

"We hold the trial court properly exercised jurisdiction because the District is not immune from suit in this case, but hold the trial court erred in granting summary judgment and further erred in granting Pyramid's motion for an instructed verdict," the opinion authored by Chief Justice Steve McKeithen states.

"We reverse the judgment of the trial court and remand the case to the trial court for further proceedings consistent with this Opinion."

According to the opinion, the justices found no evidence that Pyramid sustained damages as a result of a breach by the school district.

The case first came about when Pyramid Constructors owner Stephen Friedman filed suit against PNGISD in 2000, after the school district refused to pay him the rest of his retainer for improvements to two of its schools, including the Port Neches-Groves High School, court documents state.

During the trial, McCabe, an attorney with Mehaffy Weber in Beaumont, told jurors an "elected official prohibited" PNGISD from defending itself from the accusations of Pyramid Constructors, the construction company hired by the school district a decade ago to perform $12 million worth of upgrades.

The defense had argued during the trial that the school district had not fully paid Pyramid because the contractor never fully completed the remodeling job it was hired to perform and had also not paid its subcontractors according to its contract.

In his appellant brief, McCabe argued that instead of doing the remodeling job right, Pyramid opted to abandon the job and sue.
He also argues that the school district was contractually within its right to withhold payment until Pyramid paid its subcontractors.

"It is undisputed that Pyramid never paid its subcontractors in full," McCabe wrote. "In 2003, Pyramid had lawsuits pending against it by several subcontractors for the project."

Case history

As the Record reported, the trial of PNGISD and Pyramid finally ended on Jan. 10, 2008, after spending eight years floundering in Texas court systems.

Jurors awarded Tingleaf $389,912.02 for the handling of the case from its inception through the trial, $35,000 for filing an appeals brief, $35,000 for responding to a petition for review to the Supreme Court and an additional $10,000 if the Supreme Court requests briefs on merit.

According to testimony and court documents, the school district still owed Friedman and his company $210,000 after the school project's completion. PNGISD had paid Friedman $400,000 of his retainer so he could settle up with his subcontractors, but ended up withholding the final $210,000, claiming one subcontractor was still owed $5,000.

Friedman testified that he had not paid the subcontractor because he was dissatisfied with his work and was waiting for him to return and finish the job.

The contract agreed upon by PNGISD and Pyramid stated that all subcontractors had to be paid first before the final retainer was released.

However, Friedman contended the contract was not the reason he had not been paid and testified that he believed the school district's architect, the project's overseer, was "mean spirited and just didn't want to pay (Pyramid)."

After three years of work, Pyramid finished the school's improvements in May 2000. When the school refused to pay Friedman's final retainer, he opted to bypass arbitration and filed suit, court documents showed.

Nearly two years into the litigation, the school's cafeteria floor began "de-bonding and separating from the building slab," court papers say.

The school district's attorney, McCabe, argued Pyramid gave the school a "lousy building" and filed a counterclaim against Pyramid, asserting the construction company failed to supervise its subcontractors and was responsible for the damages.

The counterclaim was resolved and Pyramid's insurance company agreed to a settlement with the PNGISD. McCabe was also able to obtain settlements from the project's architect and Pyramid's subcontractors by threatening to sue them, said Tingleaf during the trial.

After the settlements, McCabe proceeded to bring a plea to the trail court concerning jurisdiction. He claimed the school district had sovereign immunity because it was a government entity. Judge Sanderson dismissed the plea and McCabe appealed, according to court documents.

On July 1, 2004, justices on the Ninth Court of Appeals released an opinion affirming Sanderson's ruling.

"Here, PNG(ISD) was not the first to file suit; Pyramid was," wrote then Justice Don Burgess in the court's affirming opinion.

"PNG(ISD) could have asserted its immunity without counterclaiming against Pyramid and seeking affirmative relief from the court. But, PNG(ISD) could not have filed suit against Pyramid for breach of contract without waiving its immunity. We find PNG(ISD) waived its immunity from suit when it counterclaimed against Pyramid and asserted its affirmative claims for damages."

After his loss at the appeals court, McCabe appealed to the Texas Supreme Court. On Aug. 31, 2006, the Supreme Court reversed the appeal court's judgment, remanded the case to the trial court and ruled that PNGISD recover court costs from Pyramid.

"In this case, we conclude that it would be preferable for the issue to first be presented to the trial court," stated the Supreme Court opinion. "On remand, Pyramid will have the opportunity to develop the record as it deems necessary and will be free to raise the issue."

Trial Case No. B163-853
Appeals Case Nos. 09-03-00589-CV and 09-08-00197-CV
Supreme Court Case No. 04-0737

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