Case over attorney's fees in appeals court � again

By David Yates | Dec 8, 2008

On Thursday, Dec. 11, justices on the Texas Ninth District Court of Appeals will hear oral arguments on a familiar case – a case that after eight years of litigation, countersuits and appeals ended up as a battle over attorney's fees.

In January, the Southeast Texas Record reported on the trial of Pyramid Constructors Inc. vs. the Port Neches-Groves Independent School District, which ended with a jury award of almost $460,000 in attorney's fees to plaintiff's attorney Dale Tingleaf.

No money was awarded to the plaintiff, only to the attorney.

Defense attorney Roger McCabe, who at the time of the trial promised to appeal if he lost, made good on his promise and appealed the award, arguing PNGISD had governmental immunity and that 60th District Judge Gary Sanderson erred in approving the verdict.

The case 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 completing 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 – a requirement of the contract between the parties.

In his appellant brief, McCabe argues 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, 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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