Texas Appeals Court Reverses Jury Verdict for Owner, Holding Owner’s Repair of Allegedly Defective Expansion Joint Without Allowing Contractor to Inspect for Conformity to Design Constituted Spoliation

Miner Dederick Constr., LLP v. Gulf Chemical & Metallurgical Corp.
2013 Tex. App. LEXIS 4589 (Tex. App. April 11, 2013)

Gulf Chemical & Metallurgical Corporation (“Gulf”) hired Miner Dederick Construction, LLP (“Miner”) in May 2005 to construct an addition to a hazardous waste containment building. The addition, designed by a third-party engineer, included a 140-foot expansion joint between the existing and new foundations. Due to the hazardous materials stored in the facility, the expansion joint included a specialty sealant system and was designed prevent fluid leakage. Miner completed construction in January 2006, but by June 2006 Gulf discovered leakage through the expansion joint.

Gulf requested that Miner implement the engineer’s design for repairing the expansion joint under the contract warranty provisions. Miner refused, claiming that it installed the expansion joint per the original design and the repair was a redesign. Gulf bid the repair work and hired a different contractor to repair the expansion joint.

After learning that Gulf hired another contractor in March 2007, Miner made multiple requests to inspect the original installation to confirm that it installed the expansion joint according to the original design. Gulf refused to allow the inspections and refused to allow Miner to witness the repair work. Gulf did, however, inform Miner that it would “document” the conditions for future reference. Without notice to Miner, Gulf also employed a forensic engineering firm to analyze and test the original installation before the repair work started. The repairs were complete in June 2007, and included replacing the sealant system and covering the expansion joint with six to eight inches of concrete.

In November 2007, Gulf filed suit against Miner for breach of contract and breach of warranty, claiming that Milner failed to install the expansion joint per design and failed to repair the joint to conform to the design. Miner counterclaimed for breach of contract damages, alleging that it incurred costs investigating Gulf’s claims.

The trial court granted Gulf’s motion for summary judgment on Miner’s counterclaim, finding that Miner failed to produce evidence of actual damages. It also granted summary judgment on Gulf’s breach of contract claim despite Miner’s argument that it was “severely prejudiced” because Gulf engaged in spoliation by failing to preserve the expansion joint at issue. After a six day jury trial on the breach of warranty claim, the jury returned a verdict in favor of Gulf.

On appeal, Miner first argued that the trial court erred by granting Gulf summary judgment on Miner’s counterclaim. Miner identified a document containing employee names, tasks related to investigating Gulf’s claim, and associated hours constituted evidence of actual damages. The Court of Appeals upheld the trial court’s ruling, finding that there was no evidence that Miner “paid, or was obligated to pay, the sums reflected in the document beyond the salary” already paid to the employee. As such, the Court concluded that Miner failed to present any evidence of actual damages resulting from Gulf’s alleged breach.

Miner also argued that the trial court abused its discretion by refusing to assess spoliation sanctions against Gulf for its failure to preserve the expansion joint. The Court of Appeals agreed with Miner and concluded that spoliation sanctions were appropriate because 1) Gulf had a duty to preserve the expansion joint, 2) Gulf breached that duty, and 3) Gulf’s breach prejudiced Miner’s ability to defend against Gulf’s claims.

The Court of Appeals explained that the duty to preserve applies to material evidence and arises only when a party knows, or reasonably knows, there is a substantial chance of litigation. It then concluded that Gulf’s duty to preserve the expansion joint arose in January 2007 when Miner refused to implement the repairs, well before any repair work started. The Court also identified Gulf’s use of a forensic engineer, as well as its consultation with counsel, as evidence that Gulf knew there was a substantial chance of litigation giving rise to the duty to preserve.

Gulf argued that it did not breach its duty to preserve because it performed the expansion joint repairs in the ordinary course of business and because Miner failed to serve discovery requests seeking to inspect the expansion joint. The Court concluded that Gulf’s ordinary course argument was not applicable because its duty to preserve arose before Gulf destroyed the evidence. Likewise, the Court concluded that Miner did not waive a spoliation argument by not seeking an expansion joint inspection through discovery, as the expansion joint was already destroyed by the time Gulf filed suit.

Finally, the Court determined that Gulf’s conduct prejudiced Miner’s ability to defend against Gulf’s claims. The expansion joint was the “most important piece of evidence” and by altering its condition, Gulf deprived Miner of the ability to prove its work complied with the contract. The Court explained that the photographs, testimony, and samples Gulf used to “document” the original installation were not a substitute for the expansion joint and did not afford Miner an opportunity to perform its own forensic analysis.

The Court of Appeals ultimately concluded that “the entire presentation of the case was affected by the trial court’s error in failing to remedy Gulf’s spoliation.” The Court remanded the case to the trial court to use its broad discretion to “fashion an appropriate spoliation remedy.”

Jason C. Spang

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