No CV. COURT OF APPEALS for the FIFTH DISTRICT OF TEXAS Dallas, Texas. Martin K. Eby Construction Company, Inc.,

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1 No CV COURT OF APPEALS for the FIFTH DISTRICT OF TEXAS Dallas, Texas Martin K. Eby Construction Company, Inc., Oral Argument Requested v. Appellant, LAN/STV, a Joint Venture of Lockwood, Andrews & Newnam, Inc. and STV Incorporated, Appellee. Appeal from the 192nd Judicial District Court of Dallas County, Texas Honorable Craig Smith, Presiding Judge APPELLANT S REPLY AND CROSS-APPELLEE S BRIEF Daniel J. Davis State Bar No Davis Law Firm 1930 Bryan Tower 2001 Bryan Street Dallas, Texas Telephone: Facsimile: Jeffrey A. Ford State Bar No Ford, Nassen & Baldwin P.C N. Central Expwy., #1600, LB65 Dallas, Texas Telephone: Facsimile: Jeffrey S. Levinger State Bar No Brett Kutnick State Bar No Hankinson Levinger LLP 750 N. St. Paul St., Suite 1800 Dallas, Texas Telephone: Facsimile: Attorneys for Appellant

2 TABLE OF CONTENTS Index of Authorities... iv Issues Presented by Eby s Appeal... xi Issues Presented by LAN/STV s Cross-Appeal...xii Response to LAN/STV s Statement of Facts and Procedural Background... 1 Eby s Arguments in Reply... 4 I. The Trial Court Erred by Failing to Disregard the Findings That Eby Was Negligent and Was Responsible for 15% of the Damages in Question, Because Those Findings Are Immaterial to LAN/STV s Negligent Misrepresentation and the Resulting Damages II. The Trial Court Erred by Failing to Disregard the Findings that DART Was Negligent and Was Responsible for 40% of the Damages in Question... 9 A. By Not Disregarding the Findings Relating to DART, the Trial Court Impermissibly Allowed LAN/STV to Receive More Than One Credit for the Eby-DART Settlement... 9 B. The Trial Court Also Should Have Disregarded the Findings Relating to DART Because There Was No Legal or Factual Basis for Submitting Questions Regarding DART s Negligence or Percentage of Responsibility III. The Trial Court Erred by Failing to Disregard the Finding that LAN/STV Was Responsible for 45% of the Damages in Question, Because That Finding Is Immaterial to and Inconsistent With the Previous Liability and Damage Findings Against LAN/STV Response to LAN/STV s Cross-Appeal Summary of the Argument Argument I. LAN/STV Is Not Derivatively Immune From Liability for Negligent Misrepresentation and the Resulting Damages A. This Court Correctly Held in Eby I that DART Would be Liable to Eby If It Had Performed the Function of LAN/STV, and Thus Properly Rejected LAN/STV s Defense of Derivative Immunity i

3 B. In Eby I, This Court Correctly Rejected the Same Erroneous Interpretation of the Derivative Immunity Statute that LAN/STV Again Asserts C. This Court s Decision in Reunion Hotel/Tower Is Entirely Consistent With Eby I II. III. Eby Proved the Proper Measure of Negligent Misrepresentation Damages, and the Evidence Amply Supports the Jury s $5 Million Award The Economic Loss Rule Does Not Bar Eby From Recovering the Negligent Misrepresentation Damages Awarded by the Jury A. In Eby I, LAN/STV Abandoned Its Contention that the Economic Loss Rule Bars Eby s Negligent Misrepresentation Claim B. Texas Has Long Recognized that Third Parties (Like Eby) May Recover Economic Damages From Professionals (Like LAN/STV) Based on the Tort of Negligent Misrepresentation C. LAN/STV s Negligence, Contort, and Out-of-State Cases Do Not Support the Application of the Economic Loss Rule to Eby s Negligent Misrepresentation Claim IV. The Jury s Award of Negligent Misrepresentation Damages Indisputably Gives LAN/STV a Full Credit for the Entire Eby-DART Settlement, and LAN/STV Is Not Entitled to Another Credit for the Same Settlement V. The Evidence Supports the Jury s Finding in Question No. 1 that LAN/STV Made a Negligent Misrepresentation on Which Eby Justifiably Relied A. LAN/STV Supplied False Information for the Guidance of Eby and Other Contractors in Their Business B. Eby Justifiably Relied on LAN/STV s Representations Prayer Certificate of Service Appendix: Martin K. Eby Constr. Co. v. LAN/STV, 205 S.W.3d 16 (Tex. App. -- Dallas 2006, pet. denied)... tab 1 TEX. TRANSP. CODE tab 2 ii

4 Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464 (5th Cir. 2002)... tab 3 RESTATEMENT (SECOND) OF TORTS 552, 552B (1977)... tab 4 Excerpts from Defendant s Motion for Summary Judgment (1 CR )... tab 5 Excerpts from July 1, 2009 hearing on Motion for Judgment (1 Supp. RR 30-33)... tab 6 Bar Chart of Eby s Damages: Value Provided Less Value Received (PX 1516)... tab 7 iii

5 INDEX OF AUTHORITIES Cases A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973) Airborne Freight Corp. v. C.R. Lee Enters., Inc., 847 S.W.2d 289 (Tex. App. -- El Paso 1992, writ denied) B.T. Healthcare, Inc. v. Honeycutt, 196 S.W.3d 296 (Tex. App. -- Amarillo 2006, no pet.) Baylor Univ. v. Sonnichsen, 221 S.W.3d 632 (Tex. 2007) Beeman v. Worrell, 612 S.W.2d 953 (Tex. Civ. App. -- Dallas 1981, no writ) Bellows v. San Miguel, No CV, 2002 WL (Tex. App. -- Houston [14th Dist.] May 2, 2002, pet. denied) Bernard Johnson, Inc. v. Continental Constructors, Inc., 630 S.W.2d 365 (Tex. App. -- Austin 1982, writ ref d n.r.e.)...47, 48 Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa. 2005)...52, 53, 60 Block v. Mora, S.W.3d, No CV, 2009 WL (Tex. App. -- Amarillo Jan. 7, 2009, pet. dism d)...6, 7 Board of Regents of Univ. of Tex. v. S & G Constr. Co., 529 S.W.2d 90 (Tex. Civ. App. -- Austin 1975, writ ref d n.r.e.)...25, 27 Bradford v. Vento, 48 S.W.3d 749 (Tex. 2001) Briscoe v. Goodmark Corp., 102 S.W.3d 714 (Tex. 2003) Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455 (Tex. App. -- Dallas 2006, pet. denied) iv

6 City of Baytown v. Bayshore Constructors, Inc., 615 S.W.2d 792 (Tex. Civ. App. -- Houston [1st Dist.] 1980, writ ref d n.r.e.) City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) Cook Consultants, Inc. v. Larson, 700 S.W.2d 231 (Tex. App. -- Dallas 1985, writ ref d n.r.e.)...42, 49, 55, 60 D.S.A., Inc. v. Hillsboro Independent School District, 973 S.W.2d 662 (Tex. 1998)...50, 51 Davidson and Jones, Inc. v. County of New Hanover, 255 S.E.2d 580 (N.C. Ct. App. 1979) Ervin v. Mann Frankfort Stein & Lipp CPAs, L.L.P., 234 S.W.3d 172 (Tex. App. -- San Antonio 2007, no pet.) Esty v. Beal Bank S.S.B., 298 S.W.3d 280 (Tex. App. -- Dallas 2009, no pet.) Federal Land Bank Ass n of Tyler v. Sloane, 825 S.W.2d 439 (Tex. 1991)...28, 34, 41 Federal Sign v. Texas Southern Univ., 951 S.W.2d 401 (Tex. 1997) First Nat l Bank of Durant v. Trans Terra Corp. Int l, 142 F.3d 802 (5th Cir. 1998) Forte Bros. v. National Amusements, Inc., 525 A.2d 1301 (R.I. 1987)...49, 69 Galbraith Engineering Consultants, Inc. v. Pochucha, 290 S.W.3d 863 (Tex. 2009) Great Am. Mortgage Investors v. Louisville Title Ins. Co., 597 S.W.2d 425 (Tex. Civ. App. -- Fort Worth 1980, writ ref d n.r.e.) Greenstein, Logan & Co. v. Burgess Mktg., Inc., 744 S.W.2d 170 (Tex. App. -- Waco 1987, writ denied)... 7 Guardian Constr. Co. v. Tetra Tech Richardson, Inc., 583 A.2d 1378 (Del. Super. Ct. 1990)...53, 60 v

7 Gulf States Utils. Co. v. Low, 79 S.W.3d 561 (Tex. 2002) Hart v. Moore, 952 S.W.2d 90 (Tex. App.--Amarillo 1997, pet. denied) Hollerbach v. United States, 233 U.S. 165 (1914) Howell v. Fisher, 272 S.E.2d 19 (N.C. Ct. App. 1980) Hycel, Inc. v. Wittstruck, 690 S.W.2d 914 (Tex. App. -- Waco 1985, writ dism d) Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661 (Tex. 1999) I.O.I. Sys., Inc. v. City of Cleveland, 615 S.W.2d 786 (Tex. Civ. App. -- Houston [1st Dist.] 1980, writ ref d n.r.e.) IT Corp. v. Motco Site Trust Fund, 903 F. Supp (S.D. Tex. 1994)...27, 52 Jackson v. Dole Fresh Fruit Co., 921 F. Supp. 454 (S.D. Tex. 1996) Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986) Jim s Excavating Service, Inc. v. HKM Associates, 878 P.2d 248 (Mont. 1994) John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d 428 (Tenn. 1991) Juarez v. Chevron USA, Inc., 911 F. Supp. 257 (S.D. Tex. 1995) Kerby v. Abilene Christian College, 503 S.W.2d 526 (Tex. 1973)... 7 Kleiner v. Eubank, 358 S.W.2d 902 (Tex. Civ. App. -- Austin 1962, writ ref d n.r.e.) vi

8 Lamajak, Inc. v. Frazin, 230 S.W.3d 786 (Tex. App.--Dallas 2007, no pet.) Lee v. Mitchell, 23 S.W.3d 209 (Tex. App. -- Dallas 2000, pet. denied) Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482 (Tex. 1998) Lonergan v. San Antonio Loan & Trust Co., 104 S.W (Tex. 1907) Lutheran Bhd. v. Kidder Peabody & Co., 829 S.W.2d 300 (Tex. App. -- Texarkana 1992), writ granted w.r.m., 840 S.W.2d 384 (Tex. 1992) Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464 (5th Cir. 2004)...2, 25, 26, 37 Martin K. Eby Constr. Co. v. LAN/STV, 205 S.W.3d 16 (Tex. App. -- Dallas 2006, pet. denied)...passim MasTec N. Am., Inc. v. El Paso Field Servs., L.P., S.W.3d, No CV, 2010 WL (Tex. App. -- Houston [1st Dist.] May 10, 2010, no pet. h.) McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787 (Tex. 1999)...42, 49, 55, 69, 70 McMahan v. Greenwood, 108 S.W.3d 467 (Tex. App. -- Houston [14th Dist.] 2003, pet. denied) Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55 (Tex. 2008) Northeast Texas Motor Lines, Inc. v. Hodges, 158 S.W.2d 487 (Tex. 1942)...9, 15 Nota Construction Corp. v. Keyes Associates, Inc., 694 N.E.2d 401 (Mass. App. Ct. 1998)...53, 60 Owen v. Dodd, 431 F. Supp (N.D. Miss. 1977) Plano Surgery Ctr. v. New You Weight Mgmt. Ctr., 265 S.W.3d 496 (Tex. App. -- Dallas 2008, no pet.) vii

9 Pleasant v. Bradford, 260 S.W.3d 546 (Tex. App. -- Austin 2008, pet. denied)...42, 68 Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575 (Ky. 2004) Reunion Hotel/Tower Joint Venture v. Dallas Area Rapid Transit, 250 S.W.3d 203 (Tex. App. -- Dallas 2008, no pet.)...passim Roberts v. Williamson, 111 S.W.3d 113 (Tex. 2003)...18, 19 Rogers v. Ricane Enters. Inc., 772 S.W.2d 76 (Tex. 1989) Seay v. Hall, 677 S.W.2d 19 (Tex. 1984), superseded by statute on other grounds, TEX. PROB. CODE 5A Shatterproof Glass Corp. v. James, 466 S.W.2d 873 (Tex. Civ. App. -- Fort Worth 1971, writ ref d n.r.e.)...42, 49 Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.3d 493 (Tex. 1991)...44, 45 Stack v. Richman, 286 S.W.3d 44 (Tex. App. -- Dallas 2009, pet. denied) Steiner v. Southmark Corp., 734 F. Supp. 269 (N.D. Tex. 1990) Sterling Chemicals, Inc. v. Texaco Inc., 259 S.W.3d 793 (Tex. App. -- Houston [1st Dist.] 2007, pet. denied)...50, 51 Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85 (S.C. 1995) Trans-Gulf Corp. v. Performance Aircraft Services, Inc., 82 S.W.3d 691 (Tex. App.--Eastland 2002, no pet.) Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160 (Tex. 1982)...13, 57 United States for Use of M-CO Constr., Inc. v. Shipco General, Inc., 814 F.2d 1011 (5th Cir. 1987) viii

10 Young v. Thota, 271 S.W.3d 822 (Tex. App. -- Fort Worth 2008, pet. filed)...6, 7, 8 Statutes and Rules 22 TEX. ADMIN. CODE , 62, TEX. ADMIN. CODE , 62, 65 TEX. CIV. PRAC. & REM. CODE TEX. CIV. PRAC. & REM. CODE TEX. CIV. PRAC. & REM. CODE TEX. CIV. PRAC. & REM. CODE (b)...xiv, 56, 58 TEX. CIV. PRAC. & REM. CODE , 10, 14, 15, 18 TEX. CIV. PRAC. & REM. CODE (1) TEX. LOC. GOV T CODE (2) TEX. LOC. GOV T CODE, TEX. R. APP. P. 33.1(a)(1) TEX. R. APP. P. 38.1(g)... 1 TEX. R. APP. P. 38.1(i)...27, 66 TEX. R. APP. P. 43.2(b)...9, 15 TEX. REV. CIV. STAT. ANN. art. 6550d...xii, 23, 32, 33 TEX. TRANSP. CODE (d)...passim Other Authorities Annotation, Tort Liability of Project Architect for Economic Damages Suffered by Contractor, 65 A.L.R.3d 249 (1975) RESTATEMENT (SECOND) OF TORTS 552 (1977)...xiii, 21, 41, 43, 61 RESTATEMENT (SECOND) OF TORTS 552A (1977)... 9 ix

11 RESTATEMENT (SECOND) OF TORTS 552B (1977)...passim TEX. PATTERN JURY CHARGES -- MALPRACTICE, PREMISES & PRODUCTS PJC 84.4 (2008) x

12 ISSUES PRESENTED BY EBY S APPEAL * Although the jury determined that LAN/STV s negligent misrepresentation to Eby proximately caused Eby $5,000,000 in damages, the trial court reduced that award by 55% as a result of the jury s answers to proportionate responsibility questions to which Eby had objected and had moved the court to disregard. The resulting judgment gives rise to the following issues: 1. Did the trial court err by failing to disregard the findings that Eby was negligent and was responsible for 15% of the damages in question, when (a) those findings are immaterial to the jury s specific finding that LAN/STV was responsible for $5,000,000 in damages proximately caused by its negligent misrepresentation, and (b) under Texas law, negligence on the part of a plaintiff that merely adds to the loss caused by the defendant s conduct will not serve to reduce the damages recoverable from the defendant? 2. Did the trial court err by failing to disregard the findings that DART was negligent and was responsible for 40% of the damages in question, when (a) those findings are immaterial to the jury s specific finding that LAN/STV was responsible for $5,000,000 in damages proximately caused by its negligent misrepresentation, (b) the $5,000,000 damages award already gave LAN/STV a full dollar-for-dollar credit for the settlement between Eby and DART, and (c) there was no legal or factual basis for * These are the same issues presented in Eby s opening brief. Eby repeats them here for the Court s convenience. xi

13 submitting questions regarding DART s purported negligence or percentage of responsibility? 3. Did the trial court err by failing to disregard the finding that LAN/STV was responsible for 45% of the damages in question, when (a) that finding is immaterial in light of the jury s more specific finding that LAN/STV was responsible for all of the $5,000,000 in negligent misrepresentation damages, and (b) under Texas law, the defendant s percentage of responsibility cannot be applied to reduce a damages award that (as here) has already been reduced by the full amount of a third-party settlement? ISSUES PRESENTED BY LAN/STV S CROSS-APPEAL 1. Did the trial court correctly reject LAN/STV s argument that it is allegedly not liable to Eby for negligent misrepresentation based on the derivative immunity provisions in TEX. TRANSP. CODE (d) and TEX. REV. CIV. STAT. ANN. art. 6550d, when: (a) (b) (c) this Court squarely rejected this same argument nearly four years ago in the earlier appeal of this same case, and that decision is now the law of the case; this Court (and the trial court) correctly interpreted and applied section (d) and held that DART would be liable to Eby if it had performed the function of LAN/STV and that LAN/STV is therefore liable to Eby to the same extent; this Court (and the trial court) properly rejected the same erroneous interpretation of the derivative immunity statute that LAN/STV continues to urge; and (d) this Court s later opinion in Reunion Hotel/Tower Joint Venture v. Dallas Area Rapid Transit, 250 S.W.3d 203 (Tex. App. -- Dallas 2008, no pet.), is entirely consistent with its decision in the first appeal of this case? xii

14 2. Considering the evidence in the light most favorable to the verdict, is there sufficient evidence to support the jury s finding in Question No. 2 that $5,000,000 in damages were proximately caused by the negligent misrepresentation of LAN/STV, when: (a) Eby s proof precisely tracked the measure for negligent misrepresentation damages recognized by Texas law and submitted without objection in Question No namely, [t]he difference, if any, between the value of what Eby gave in the transaction and the value of what it received in the transaction ; (b) (c) Eby adduced evidence to support a damages award of more than $13,000,000 in accordance with Question No. 2; and Eby proved out-of-pocket or reliance damages, not benefit-of-thebargain damages, and presented evidence that it spent over $40,000,000 in costs on the project and was paid only $30,783, by DART? 3. Did the trial court correctly reject the application of the economic loss rule to Eby s claim for negligent misrepresentation, when: (a) (b) LAN/STV abandoned this same argument in the earlier appeal of this same case and expressly conceded the issue even though it was ripe for appellate review and presented a pure question of law; and, in any event, the Texas Supreme Court has adopted sections 552 and 552B of the RESTATEMENT (SECOND) OF TORTS, Texas courts have long recognized that third parties (like Eby) may recover economic damages from professionals (like LAN/STV) based on the tort of negligent misrepresentation, and no Texas court has ever declined to apply this recognized theory of liability in a case seeking to recover out-of-pocket or reliance damages from a design professional or any other professional? 4. Did the trial court correctly reject LAN/STV s request for yet another settlement credit in the amount of $4,700,000, when: xiii

15 (a) (b) (c) (d) Question No. 2 required the jury to subtract the value of what [Eby] received in the transaction, and a court must presume that the jury followed the instructions given to it; the parties provided the jury with only one undisputed number to subtract -- $30,783, representing the value of what [Eby] received in the transaction, and that figure indisputably included the $4,700,000 settlement that Eby received from DART (as well as all other payments Eby received from DART); LAN/STV repeatedly admitted before, during, and after the trial that Eby s damages model subtracted out the $4,700,000 Eby-DART settlement; and interpreting TEX. CIV. PRAC. & REM. CODE (b) to require another $4,700,000 settlement credit would lead to absurd consequences? 5. Considering the evidence in the light most favorable to the verdict, is there sufficient evidence to support the jury s finding in Question No. 1 that LAN/STV supplied false information on which Eby justifiably relied, when: (a) (b) (c) Eby proved that LAN/STV s plans and drawings contained multiple errors and misstatements of existing fact; neither the evidence nor the law supports LAN/STV s contention that its plans are merely non-actionable opinions ; the evidence supports the jury s finding that Eby justifiably relied on LAN/STV s representations; and (d) LAN/STV has waived its contention that a few so-called disclaimers vitiate Eby s reliance on its plans and drawings, and in any event, the boilerplate and inconspicuous statements that LAN/STV now invokes do not negate Eby s reliance? xiv

16 RESPONSE TO LAN/STV S STATEMENT OF FACTS AND PROCEDURAL BACKGROUND When the evidence is viewed in the light most favorable to the jury s verdict, as is required, this case presents a far different story than the one-sided version LAN/STV tries to describe. (See LAN/STV Br. at 1-7) On the one hand, LAN/STV does not contradict or otherwise challenge the facts stated in Eby s opening brief, and those facts therefore must be accepted as true. See TEX. R. APP. P. 38.1(g). On the other hand, LAN/STV s one-sided Statement of Facts and Procedural Background not only ignores the applicable standard of review, it contains at least six misstatements that are material to both Eby s reply brief and its cross-appellee s brief: (1) In an apparent effort to blame Eby for the damages at issue, LAN/STV claims that Eby s bid of approximately $25 million was so much lower than the engineer s estimate of approximately $30.2 million that DART gave Eby an opportunity to verify its bid amount. (LAN/STV Br. at 2 & n.1) In fact, DART did not tell Eby the amount of the engineer s bid or even whether it was higher or lower than Eby s bid. (4 RR 141) DART said only that there was a disparity, and that revelation d[id] not cause a concern to Eby s president because he knew: (1) Eby s own bid was within four percent of the next highest bid (4 RR 139, ; PX 301, 1507); (2) Eby had previously built two other DART light rail projects and was using real-time prices with real-time experience (4 RR , 143); and (3) an engineer s estimate is expected to be higher than the lowest bid or else there could be a funding issue that would jeopardize the project going forward (4 RR 142). 1

17 (2) LAN/STV contends that DART decided it wanted a number of design changes to the plans and specifications prepared by LAN/STV and others (LAN/STV Br. at 3), but it fails to acknowledge that an enormous number of the changes was necessitated not by DART s desires but by design deficiencies for which LAN/STV was responsible (PX 614 at p.2; 5 RR ; 7 RR 29; see PX 287, 448, 506, 538, 549, 551, 552, 564, 585). Among other mistakes, LAN/STV s plans and specifications supplied false information about the bridge structures, the locations of manholes and utility lines, the subsurface soil conditions, and the components of an existing retaining wall. (See, e.g., 4 RR 19, 25-27, 40-41, 45-47, 56-58, , 175; 5 RR 18, 21-22) In comparison to a normal construction project, in which 10 percent of the architect s or engineer s drawings are typically changed during the construction phase, 80 percent of LAN/STV s drawings had to be changed in this project. (4 RR 71-72; PX 6) (3) Eby did not sue DART for a traditional negligent misrepresentation tort claim, as LAN/STV contends. (LAN/STV Br. at 3) It sued DART for breach of contract and misrepresentation (1 CR ), and the Fifth Circuit Court of Appeals accurately construed the latter claim to be just a subset of [Eby s] breach-of-contract claim. Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 472 (5th Cir. 2004) [App. tab 3]. Thus, Eby brought (and could only bring) a contract claim against DART; and it brought (and could only bring) a tort claim against LAN/STV. (4) Contrary to LAN/STV s assertion, this lawsuit was not abated until the administrative adjudication against DART was completed, and LAN/STV s record cites do not show otherwise. (LAN/STV Br. at 3, citing 1 CR 7-11 & PX 1505) 2

18 Independently of its suit against DART, Eby concurrently filed this lawsuit against LAN/STV, successfully appealed the summary judgment against it, and actively litigated the case after this Court remanded it for further proceedings. Martin K. Eby Constr. Co. v. LAN/STV [hereinafter Eby I ], 205 S.W.3d 16 (Tex. App. -- Dallas 2006, pet. denied) [App. tab 1]. (5) LAN/STV erroneously suggests that Eby s damages model sought lost profits, and was completely due to inaccuracies in plans and delays caused by plan changes and other factors. (LAN/STV Br. at 4) More accurately, Eby s damages model sought out-of-pocket or reliance damages measured by the difference between what Eby gave and what it received in the transaction with DART, and its president explained that Eby would not have bid on the project or entered into the contract with DART in the first place had it known of the extent of false information that LAN/STV had supplied in the plans and specifications. (4 RR , , ) (6) LAN/STV accuses the trial court of failing to grant its request to apply a $4.7 million settlement credit to the jury award. (LAN/STV Br. at 5) But LAN/STV admitted in the court below that Eby s damages model already included a reduction for all of the amounts Eby received from DART (i.e., $30,783,122.60), including the $4,700,000 settlement, and that the jury was told to take those payments into account in awarding damages. (1 CR [App. tab 5]; 4 RR ; 1 Supp. RR [App. tab 6]) Although the trial court properly refused to grant LAN/STV a second dollar-fordollar credit for the Eby-DART settlement, it erroneously gave LAN/STV an additional $2,000,000 credit attributable to DART when it reduced the jury s $5,000,000 damages 3

19 award by a percentage that directly correlated to the percentage of responsibility assigned to DART. If anything, the judgment must be increased, not further reduced. EBY S ARGUMENTS IN REPLY This Court need not be detained by LAN/STV s cross-appeal, which primarily (1) reurges the same interpretation of the derivative immunity statute that the Court rejected in the first appeal of this case; (2) recycles the same economic loss rule argument that LAN/STV abandoned in the first appeal; and (3) repeats some of its same jury arguments that were rejected at trial based on overwhelming evidence to the contrary. Instead, the Court should focus on the more serious and novel issues in Eby s appeal, which demonstrates how the trial court thwarted the jury s intent to make Eby whole when the court reduced the $5,000,000 damages award using immaterial and insupportable findings of proportionate responsibility. I. The Trial Court Erred by Failing to Disregard the Findings That Eby Was Negligent and Was Responsible for 15% of the Damages in Question, Because Those Findings Are Immaterial to LAN/STV s Negligent Misrepresentation and the Resulting Damages. Eby demonstrated in its opening brief that the jury s findings of negligence and 15% responsibility on the part of Eby must be disregarded because (1) they are immaterial to the jury s more specific findings in Question Nos. 1 and 2 that LAN/STV was responsible for $5,000,000 in damages proximately caused by its negligent misrepresentation, and (2) they suggest that Eby may have added to or enhanced the injuries caused by LAN/STV s conduct, but a plaintiff s injury-enhancing conduct will not serve to proportionately reduce the damages attributable to the injury-causing conduct 4

20 of the defendant. (Eby Br. at 7-12) LAN/STV s lengthy response to this argument is an exercise in obfuscation and avoidance. (See LAN/STV Br. at 51-64) It obfuscates Eby s true argument about the relationship between the jury s answers, and it fails to come to grips with how the trial court frustrated the jury s intent to make Eby whole for the damages it determined were proximately caused by the negligent misrepresentation of LAN/STV (and only LAN/STV). Immaterial findings: In an effort to show that the jury s answers to Question Nos. 3 and 6(b) were not immaterial, LAN/STV initially expends six pages mischaracterizing Eby s argument. (Id. at 51-56) Contrary to LAN/STV s contention (id. at 52, 55-56), Eby does not claim -- and need not show -- that there was a defect in the form of Question No. 3, which asked whether any negligence on the part of Eby was a proximate cause of the damages in question. (1 CR 148) Nor does Eby claim that the answers to Question Nos. 3 and 6(b) are immaterial merely because of the way the jury questions were worded. (LAN/STV Br. at 53) Rather, it is the combination of the uniquelyworded language and the resulting answers to Question Nos. 1 and 2 that prevent the jury s findings in Question Nos. 3 and 6(b) from having any legal effect. As LAN/STV s own authorities confirm, that is the essence of immateriality. Injury-causing vs. injury-enhancing: The fundamental flaw in LAN/STV s response is its failure to appreciate the distinction between injury-causing conduct, which goes to the proximate cause of the original incident, and injury-enhancing conduct, which increases or adds to the extent of the loss but does not serve to proportionately reduce the recoverable damages. (See Eby Br. at 10-11) As LAN/STV itself recognized at trial, 5

21 Question No. 2 focused on the injury-causing conduct by limit[ing] the alleged damages that the jury can find to just those proximately caused by LAN/STV and its negligent misrepresentation. (7 RR 105) Although Eby offered evidence that it sustained over $13,800,000 in damages caused from building the DART project (4 RR , ; PX 604, 639, 1516), the jury determined in Question No. 2 that only $5,000,000 in damages were proximately caused by the negligent misrepresentation... of LAN/STV (1 CR 147). In contrast to Question No. 2, Question No. 3 focused on the injuryenhancing conduct of Eby, and the jury found that Eby s negligence was a proximate cause of the damages in question. (1 CR 148) But under Texas law, that finding cannot be used to proportionately reduce LAN/STV s responsibility for its own negligent misrepresentation that proximately caused Eby $5,000,000 in damages. See, e.g., Block v. Mora, S.W.3d, No CV, 2009 WL 35421, at *4 (Tex. App. -- Amarillo Jan. 7, 2009, pet. dism d); Young v. Thota, 271 S.W.3d 822, (Tex. App. -- Fort Worth 2008, pet. filed). LAN/STV cannot avoid this result by arguing that the damages in question that were the subject of Question No. 3 are the same damages the jury had just found in Question 2. (LAN/STV Br. at 55) That simply cannot be so. Given Question No. 2 s requirement of a specific causal link between the $5,000,000 damages award and LAN/STV s negligent misrepresentation, it makes no sense to say that the negligence assessed against Eby in Question No. 3 also caused or contributed to cause those damages -- i.e., the amount specifically found to be proximately caused by the negligent misrepresentation... of LAN/STV. (1 CR 147) Moreover, as LAN/STV s own record 6

22 citations confirm (LAN/STV Br. at 58-59), any conduct on the part of Eby that could be considered negligent occurred after LAN/STV made negligent misrepresentations in the plans and specifications on which Eby relied in bidding on the project and entering into the contract with DART. But a plaintiff s subsequent negligence that might have increased [its] damages, as here, cannot serve to proportionately reduce the plaintiff s damages because it is merely injury-enhancing rather than injury-causing conduct. Young, 271 S.W.3d at 833 (emphasis in original). And that is true irrespective of the trial court s instruction that there may be more than one proximate cause of an event (LAN/STV Br. at 58-59; 1 CR 145), because here no one contended that Eby caused or contributed to cause LAN/STV s negligent misrepresentations. See Greenstein, Logan & Co. v. Burgess Mktg., Inc., 744 S.W.2d 170, 190 (Tex. App. -- Waco 1987, writ denied) (audit client s alleged negligence did not proximately contribute to accountant s negligence in performing audits). Nor can LAN/STV avoid the logic of Block, Young, and Kerby v. Abilene Christian College, 503 S.W.2d 526 (Tex. 1973), by arguing that this is not a simple negligence case and that negligent misrepresentation claims in the context of construction litigation mean something other than ordinary negligence claims in personal injury litigation. (LAN/STV Br. at 60-61) LAN/STV s observations may be true, but having urged the court below to treat this as a simple negligence case by submitting proportionate responsibility questions and applying proportionate responsibility principles, LAN/STV must now accept the rationale of Block, Young, and Kerby. As in those cases, there was only one tortious act in this case that proximately caused the 7

23 original occurrence or injury -- LAN/STV s negligent misrepresentation, made months before Eby even bid, on which Eby relied to its detriment. 2 In contrast, any negligence on Eby s part -- for example, by allegedly not correctly follow[ing] the change order process as outlined in its contract with DART (id. at 62) -- occurred later and merely increased or added to the extent of Eby s total damages. But such injury-enhancing conduct is legally immaterial to the jury s finding that LAN/STV, and only LAN/STV, was responsible for $5,000,000 in damages caused by its negligent misrepresentations. LAN/STV further obfuscates these issues with its cursory references to mitigation, and the role of contributory negligence in negligent misrepresentation cases. (Id. at 60, 63) These references only reinforce Eby s position: It may well be true, as LAN/STV suggests, that a mitigation instruction would be warranted when a plaintiff s negligence only increase[d] the injury rather than cause[d] the injury. (Id. at 60) Although LAN/STV requested such an instruction (7 RR 105), it failed to meet its burden to show the extent to which the damages were increased by the failure to mitigate, Young, 271 S.W.3d at 830; it has not appealed the trial court s refusal to give the instruction; and it was LAN/STV s burden to ask for a new trial on that basis, not Eby s (LAN/STV Br. at 60 n.24). Eby s argument would not do away with a contributory negligence defense in all misrepresentation cases. (Id. at 63) Putting aside the fact that contributory negligence is no longer a defense in Texas, if Eby had actually been negligent in relying upon LAN/STV s negligent misrepresentations -- for 2 Contrary to LAN/STV s unsupported assertion, there was no dispute that Eby would not have bid on the contract if it knew of the design inaccuracies for which LAN/STV was responsible. (LAN/STV Br. at 62) That testimony was uncontradicted. (See 4 RR ) LAN/STV also misses the point in arguing that [t]he plans and specifications were created as part of a collaborative process involving various subcontractors and government entities. (LAN/STV Br. at 61) There is no evidence that any such entities were negligent, and more to the point, LAN/STV s reference to these third parties has no bearing on the question whether the jury s findings relating to Eby may be used to reduce the damages awarded against LAN/STV. 8

24 example, by conducting pre-bid site inspections that would have revealed the errors in LAN/STV s plans -- then its negligence might well have been injurycausing. See RESTATEMENT (SECOND) OF TORTS 552A (1977). But there is no evidence of any such pre-bid negligence on Eby s part; indeed, it was not permitted to even enter onto the site for any pre-bid inspection. (4 RR 89; 5 RR 7, 44) Finally, LAN/STV offers no support for its conclusion that this Court would have to remand the case for a new trial rather than modify the judgment in accordance with TEX. R. APP. P. 43.2(b) if it were to disregard the findings of negligence and 15% responsibility by Eby. (LAN/STV Br. at 63-64) Neither LAN/STV nor Eby has requested a remand for another trial, and there is no reason this Court cannot render the $5,000,000 judgment the trial court should have rendered. Indeed, as the party who invited the erroneous jury questions about Eby (over Eby s objection), LAN/STV must bear the consequences by assuming responsibility for all (or at least the majority) of the 15% that the jury assigned to Eby. See Northeast Texas Motor Lines, Inc. v. Hodges, 158 S.W.2d 487, 458 (Tex. 1942) (a party cannot benefit from the error it invited). LAN/STV thus will become liable for more than 50% of the damages found by the jury, thereby making it responsible for paying the entire amount awarded. See TEX. CIV. PRAC. & REM. CODE (b)(1). II. The Trial Court Erred by Failing to Disregard the Findings that DART Was Negligent and Was Responsible for 40% of the Damages in Question. A. By Not Disregarding the Findings Relating to DART, the Trial Court Impermissibly Allowed LAN/STV to Receive More Than One Credit for the Eby-DART Settlement. In an earlier section of its brief, LAN/STV concedes that it would not be entitled to the benefit of both a full dollar-for-dollar credit for the Eby-DART settlement and a 9

25 reduction in the amount of damages to be recovered based on the percentage of responsibility assigned to it (and, correspondingly, to DART). (LAN/STV Br. at 39 n.19) But, as Eby demonstrated on pages of its opening brief, that is precisely what the trial court gave to LAN/STV when it reduced the jury s $5,000,000 award by 55%. LAN/STV s effort to justify this erroneous result (1) ignores its own admissions about how the DART settlement should be (and was) handled; (2) mischaracterizes the meaning and effect of the trial court s damages instruction, which required a reduction for the value of what [Eby] received in the transaction ; and (3) is based on a circular reading and an absurd application of TEX. CIV. PRAC. & REM. CODE (a). LAN/STV s admissions. LAN/STV immediately begins on the wrong foot by suggesting that it was Eby who was responsible for the odd situation and unusual approach of putting the Eby-DART settlement into evidence and inducing the jury to reduce damages by the amount of the settlement. (LAN/STV Br. at 64-65) In fact, it was LAN/STV who first raised the settlement credit issue in its motion for summary judgment, when it expressly acknowledged that $30,783, represented all the sums that Eby had received from DART; that the Eby-DART settlement of $4,700,000 was included in the $30,783, figure as an integral part of Eby s damages model; and that Eby s damages model thus gave LAN/STV a full credit for the Eby-DART settlement. (1 CR [App. tab 5]) It was also LAN/STV who included the Eby-DART settlement agreement on its exhibit list and had that settlement agreement admitted into evidence before the trial began. (2 RR 46-47; see DX 2059) It was LAN/STV who specifically advised the jury during opening statements that Eby sued DART for additional damages 10

26 and they settled for 4.7 [million dollars], and then argued that the $4.7 million settlement, on top of the $2,325,000 paid by DART for changes, supposedly made Eby whole. (3 RR 27, 35-36) And it was LAN/STV who repeatedly reminded the jury throughout the trial that DART paid Eby a $4,700,000 settlement (4 RR 217, 225; 7 RR 33-34, 43, 60, 88, 142, 159) and that the value that Eby received from DART included that settlement (4 RR ; 7 RR 142). Eby agreed with each of these points (except for the notion that DART s payments had made it whole), and it confirmed before trial that its damages model gives LAN/STV a dollar-for-dollar credit for all sums paid by DART to settle the administrative action. (1 CR 68-69) Likewise, during trial, Eby told the jury that whatever compensation was derived from our prior involvement in a lawsuit with DART has been credited fully... against any amounts that are claimed here (2 RR 62), and it consistently and repeatedly told the jury to deduct one number -- $30,783, from the value of what Eby claimed to have given in the transaction ($44,608,684.11) to arrive at its claimed damages ($13,825,561.51) (see 4 RR 192, 196, 226; PX 604, 639, 1516 [App. tab 7]). Significantly, LAN/STV s trial counsel also elicited an acknowledgement on cross-examination that Eby received almost $31 million for the value of this project, including the $4,700,000 settlement (4 RR ); and he admitted after the trial that Eby had included the DART settlement in its damages model and that LAN/STV absolutely wanted that evidence admitted to support its defense that Eby had been made whole (1 Supp. RR [App. tab 6]). In short, the evidence of the value Eby received in the transaction with DART was uncontroverted, it indisputably 11

27 included the $4,700,000 settlement, and the jury was not entitled to disregard it. City of Keller v. Wilson, 168 S.W.3d 802, (Tex. 2005). 3 Meaning and effect of the jury instruction. LAN/STV raises another false issue when it complains that the jury was not told in the charge what to do with the settlement. (LAN/STV Br. at 65) In fact, the jury did not need to be told what to do with the settlement because the instruction that was given in Question No. 2, coupled with the uncontroverted proof, left no doubt what the jury had to do -- namely, deduct the value of what [Eby] received in the transaction (i.e., the undisputed figure of $30,783,122.60, which included the $4,700,000 settlement) -- from whatever value it determined Eby gave in the transaction. (1 CR 147) The language of this instruction -- to which LAN/STV did not object (7 RR ) -- tracked the measure of damages for a negligent misrepresentation claim; it more than satisfied the goal of submit[ing] to the jury the issues for decision logically, simply, clearly, fairly, correctly, and completely, Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664 (Tex. 1999); and the jury must be presumed to have followed the instruction and credited the conclusive (and only) 3 LAN/STV sets up a semantic strawman when it argues that it was far from undisputed that DART paid all of that money [of roughly $30 million] under the initial contract. (LAN/STV Br. at 66) Contrary to LAN/STV s characterization, Eby has never contended -- and it did not attempt to prove -- that the $30,783, it received from DART, including the $4,700,000 settlement, was paid under the initial contract. (Id. at 65, citing Eby Br. at 14) In fact, as Eby stated on page 14 of its opening brief (and as the uncontroverted evidence showed), the figure of $30,783, encompassed all the amounts DART paid Eby under the initial contract, all the amounts DART paid Eby in supplemental agreements or change orders, and (most importantly for present purposes) all the amounts DART paid Eby in their settlement, including the direct settlement payment of $4,700,000. (Eby Br. at 14; see 4 RR ) 12

28 evidence of the value Eby received in the transaction. Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 167 (Tex. 1982). 4 There is similarly no merit to LAN/STV s related -- and internally inconsistent -- suggestion that Eby should have asked for a specific instruction telling the jury to subtract the value of the Eby-DART settlement from its damages calculation or to NOT deduct the settlement from DART. (LAN/STV Br. at 66, emphasis in original) 5 Putting aside the fact that it was LAN/STV s burden to request another instruction if it believed the damages measure in Question No. 2 was inadequate to ensure a settlement credit, either one of the instructions LAN/STV now proposes would have served only to confuse -- or even mislead -- the jury about what it should or should not have included in the value of what [Eby] received in the transaction. Indeed, given the potential ambiguity as to what amounts should be included in or excluded from the settlement -- i.e., the entire payment of $4,700,000, the portion of that payment attributable to the original contract 4 LAN/STV s argument that the word transaction in Question No. 2 was limited to the original contract and was not defined in the charge to include the settlement (LAN/STV Br. at 66) is specious. To begin with, it is inconsistent with LAN/STV s earlier position that the transaction at issue included the original contract and the subsequent settlement (see 1 CR ; 7 RR 142, 157; 1 Supp. RR 28-29), as well as its own acknowledgement during trial that DART paid [Eby] 30-something million dollars to construct the NW-1A project (4 RR 226). In any event, both Eby and LAN/STV gave the jury only one figure relating to the value of what [Eby] received in the transaction -- $30,783, and that figure indisputably included the settlement. (4 RR 192, ; PX 639, 1526) 5 LAN/STV is also wrong in claiming that Eby somehow knew that the trial court would likely following the proportionate responsibility statute when rendering its judgment -- presumably by deducting the settlement from the verdict. (Id. at 66-67) This revisionist history ignores the pre-trial summary judgment briefing, in which (1) DART acknowledged that Eby s damages model built in a credit for the Eby-DART settlement, (2) Eby agreed with this point, and (3) the trial court did not require Eby to employ any other method of accounting for the settlement. (1 CR 68-69, ) 13

29 amounts that DART had withheld from Eby, or (as LAN/STV argued after the trial) the additional $2,300,000 that DART paid Eby for all the change orders and equitable adjustments (1 Supp. RR 28-29; 1 CR 179) -- LAN/STV s suggested instructions would have led to the very guessing and specula[tion] that LAN/STV postulates. (LAN/STV Br. at 67) In contrast, the clear instruction that was given -- coupled with the uncontroverted proof -- eliminated any guessing or speculation that the jury in fact did fully account for the Eby-DART settlement (and every other payment Eby received from DART), no matter how those payments were characterized. Application of section (a). As demonstrated in Eby s opening brief (Eby Br. at 15-16), the trial court impermissibly gave LAN/STV the benefit of both a dollarfor-dollar settlement credit and an additional reduction attributable to the settling party when it further reduced the jury s award based on the 40% responsibility assigned to DART. Although LAN/STV does not dispute the mathematical logic of Eby s argument, it contends that this result is defensible under TEX. CIV. PRAC. & REM. CODE (a), which limits a defendant s liability to the percentage of its responsibility found by the jury if such percentage is less than 50%. (LAN/STV Br. at 67) LAN/STV s reliance on section (a) is circular because it depends on LAN/STV s own erroneous conclusion that [t]he trial court did not apply a double settlement credit. (Id.) The 45% assigned to LAN/STV was a direct result of the 40% assigned to DART. But if the latter finding is disregarded -- as it must be to avoid giving LAN/STV the benefit of both a full dollar-for-dollar credit for the DART settlement and another reduction based on the 40% responsibility assigned to DART -- then the percentage of LAN/STV s responsibility will 14

30 necessarily exceed 50%. Thus, section (b)(1) will apply instead of section (a), and LAN/STV will be liable for all of the $5,000,000 award (or 85% of it if the 15% assigned to Eby is not disregarded). Either way, the judgment must be modified to increase Eby s recovery. 6 B. The Trial Court Also Should Have Disregarded the Findings Relating to DART Because There Was No Legal or Factual Basis for Submitting Questions Regarding DART s Negligence or Percentage of Responsibility. LAN/STV has no legitimate response to Eby s additional reason why the negligence and proportionate responsibility findings against DART must be disregarded -- that DART could not be liable to either LAN/STV or Eby, as a matter of law or fact, for committing negligence. In its opening brief, Eby demonstrated that DART could not be liable for negligence as a matter of law (Eby Br. at 17-18), and LAN/STV s response simply misses the point of that argument. Eby further demonstrated the lack of any evidence that DART actually breached any standard of care (id. at 18-19), and LAN/STV s response offers nothing that would show otherwise. No claim as a matter of law: Citing the Texas Supreme Court s recent opinion in Galbraith Engineering Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 869 n.6 (Tex. 2009), LAN/STV argues that DART was properly submitted as a responsible third 6 For the same reason discussed above in Part I, LAN/STV is wrong in concluding that this Court would have to remand the case for a new trial rather than modify the judgment in accordance with TEX. R. APP. P. 43.2(b) if the findings against DART are disregarded. (Br. at 68 n.26) Neither Eby nor LAN/STV has requested a remand for another trial, and as the party who invited the erroneous jury questions about DART (over Eby s objection), LAN/STV must bear the consequences by assuming responsibility for all (or at least a majority) of the 40% that the jury assigned to DART. See Northeast Texas Motor Lines, 158 S.W.2d at

31 party because the proportionate responsibility statute does not turn on whether the plaintiff or defendant could actually recover against such party. (LAN/STV Br. at 68-69) But DART was not designated or submitted as a responsible third party because it was actually a settling person. Compare TEX. CIV. PRAC. & REM. CODE (5) (definition of settling person) with id , (6) (designation and definition of responsible third party). Further, the relevant inquiry is not whether Eby or LAN/STV could actually recover from DART; the inquiry is whether, under section (a), DART s acts or omissions were negligent or violate[d] an applicable legal standard in tort. Id (a). The answer is demonstrably no. Indeed, apparently agreeing with Eby s position, LAN/STV now concedes that the doctrines of sovereign immunity and the economic loss rule apply to bar a tort claim against DART. (LAN/STV Br. at 69 n.27) 7 Because DART thus could not have violated any tort duty as a matter of law, Question Nos. 4 and 6(c) should not have been submitted and the answers must be disregarded. No evidence: LAN/STV does not dispute that a question about DART s percentage of responsibility could not properly be submitted to the jury without sufficient evidence that any negligence on DART s part caused Eby s injury. See TEX. CIV. PRAC. & REM. CODE (b) ( This section does not allow a submission to the jury of a 7 LAN/STV also asserts that these same two doctrines would bar Eby s tort claim against LAN/STV (id.), but as demonstrated below in Eby s response to the cross-appeal, LAN/STV is wrong on both counts. As Eby s response demonstrates, LAN/STV ignores the critical distinction between Eby s claim against LAN/STV (which lies solely in tort) and the claim that Eby could assert against DART (which would lie solely in contract). 16

32 question regarding conduct by any person without sufficient evidence to support the submission. ); see also B.T. Healthcare, Inc. v. Honeycutt, 196 S.W.3d 296, 300 (Tex. App. -- Amarillo 2006, no pet.). Nevertheless, LAN/STV fails to identify any evidence proving that DART was negligent in connection with the NW-1A project (even assuming it could be liable for such a claim). Instead, just as Eby anticipated in its opening brief (Eby Br. at 18), LAN/STV argues only that DART was responsible for assembling the plan documents, that the plans went through DART s quality assurance program, and that DART pushed LAN/STV to move fast and made design changes after the bid was awarded (LAN/STV Br. at 69-70). These observations are largely truisms, but they ignore the fact that LAN/STV had complete and comprehensive responsibility for the overall design (4 RR 5-8; PX 103), it sealed the design documents (5 RR 138), and it thus bore the ultimate responsibility for them. See 22 TEX. ADMIN. CODE 1.101, More importantly, LAN/STV offered no evidence -- from an expert, another project owner, or otherwise -- of what standard of care would govern DART s conduct or how DART supposedly did or failed to do something that a person of ordinary prudence would have done or not done under the same or similar circumstances, as required to support the jury s answer to Question No. 4. (1 CR 145, 149) 8 Because there is no evidence whatsoever that DART was negligent (and LAN/STV identifies no such evidence in its brief), the jury s findings 8 Indeed, LAN/STV s counsel acknowledged in closing argument that I personally don t believe that anyone in this transaction was negligent. (7 RR 156) 17

33 relating to DART should have been disregarded, and the judgment must be modified to award Eby the entire $5,000,000 found by the jury. III. The Trial Court Erred by Failing to Disregard the Finding that LAN/STV Was Responsible for 45% of the Damages in Question, Because That Finding Is Immaterial to and Inconsistent With the Previous Liability and Damage Findings Against LAN/STV. Because the 45% responsibility assigned to LAN/STV directly correlates to the percentages of responsibility assigned to Eby and DART, LAN/STV s effort to sustain the 45% finding fails for many of the same reasons discussed above. For example, LAN/STV again asks this Court not to inquir[e] into Eby s damage model (LAN/STV Br. at 71), notwithstanding the court s instruction in Question No. 2, the uncontroverted proof of the value Eby received from DART, and LAN/STV s own admissions that Eby s damages model fully accounted for its settlement with DART. Similarly, LAN/STV s reliance on TEX. CIV. PRAC. & REM. CODE only begs the question, because the 45% responsibility assigned to LAN/STV cannot stand if the 40% assigned to DART is disregarded, as it must be. And LAN/STV still cannot explain how it logically can be liable for only 45% of the same negligent misrepresentation damages for which the jury determined that it was 100% responsible. There is no explanation, and yet that is precisely the effect of the judgment below. LAN/STV only confuses the relevant issue when it addresses the analogous case of Roberts v. Williamson, 111 S.W.3d 113 (Tex. 2003). Initially, LAN/STV concedes that, under Roberts, a defendant does not get both a settlement credit and the application of its proportionate responsibility. (LAN/STV Br. at 70) That is indeed what 18

34 Roberts holds, and it confirms that the court below erred by applying the 45% proportionate responsibility finding to a $5,000,000 award that indisputably had already taken into account the full settlement payment from DART to Eby. But LAN/STV then resorts to obfuscation when it asserts that Roberts only held that section does not provide for a settlement credit to be subtracted from the defendant s percentage of liability. (Id. at 71) Whatever that statement may mean (and even putting aside the question of how one can subtract a dollar amount from a percentage), that is not what Roberts held. Roberts simply holds -- in language that fully applies here -- that section does not permit a court to first reduce a plaintiff s damages award by the amount of a settlement payment and then multiply that net figure by the percentage of responsibility assigned to the defendant. Roberts, 111 S.W.3d at In Roberts, as in this case, such a computation results in a far greater settlement credit than the law will allow. In sum, for all of these reasons, the trial court erred by using the proportionate responsibility findings to further reduce the $5,000,000 in damages awarded by the jury. The judgment therefore should be modified to award Eby the full $5,000,000. RESPONSE TO LAN/STV S CROSS-APPEAL SUMMARY OF THE ARGUMENT LAN/STV s cross-appeal largely recycles the same arguments regarding derivative immunity and the economic loss rule that were either rejected by this Court or abandoned by LAN/STV in the first appeal of this case. In addition, LAN/STV fails to accurately review the evidence in its challenges to the jury s findings regarding liability 19

35 and damages, and it disingenuously asks this Court to give it a second dollar-for-dollar credit for the $4,700,000 settlement between Eby and DART. These arguments should be rejected. Derivative governmental immunity. Just as this Court correctly decided four years ago in this same case, LAN/STV is not entitled to derivative immunity. Because DART would be liable to Eby if it had performed the function of LAN/STV, LAN/STV is therefore liable to Eby to the same extent. LAN/STV continues to urge the same erroneous interpretation of the derivative immunity statute and even asks this Court to overrule its decision in the first appeal of this case. LAN/STV s arguments, however, are foreclosed by the law of the case doctrine and are inconsistent with the language of the derivative immunity statute. This Court s later opinion in Reunion Hotel/Tower is consistent with its decision in the first appeal of this case, and it does not compel a different result. Evidence of damages. The evidence amply supports the jury s award of $5,000,000 in negligent misrepresentation damages. Contrary to LAN/STV s contention that Eby proved the wrong measure of damages, Eby s proof precisely tracked the measure of damages for negligent misrepresentation recognized in Texas and submitted in Question No the difference between the value of what Eby gave in the transaction and the value of what it received. The evidence demonstrates that Eby (1) properly proved its out-of-pocket or reliance damages -- not benefit-of-the-bargain damages -- and (2) adduced evidence that it expended over $40,000,000 in costs on the 20

36 project and was paid only $30,783, The jury s award of $5,000,000 is well below the damages award that the evidence would have supported. Economic loss rule. LAN/STV intentionally abandoned its economic loss rule argument in the first appeal of this case, even though that argument presented a purely legal issue that was ripe for appellate review. And even if that argument had not been abandoned, it is meritless because the Texas Supreme Court has adopted sections 552 and 552B of the RESTATEMENT (SECOND) OF TORTS allowing the recovery of economic damages in negligent misrepresentation cases. Further, Texas courts have long recognized that third parties (like Eby) may recover purely economic damages from professionals (like LAN/STV) based on the tort of negligent misrepresentation, and no Texas court has ever declined to apply this recognized theory of liability in a case seeking to recover out-of-pocket or reliance damages. There is no basis for creating a special rule that protects only design professionals, and the negligence, contort, and out-of-state cases cited by LAN/STV do not support its effort to use the economic loss rule as a bar to Eby s negligent misrepresentation claim and damages. Settlement credit. LAN/STV s bold request for a second dollar-for-dollar settlement credit in the amount of $4,700,000 ignores Question No. 2, which specifically required the jury to subtract the value of what [Eby] received in the transaction ; it ignores the undisputed evidence that $30,783, represented the value of what [Eby] received in the transaction ; it ignores that such figure included the $4,700,000 settlement that Eby received from DART; and it ignores LAN/STV s repeated admissions that Eby s damages model already subtracted out the $4,700,000 settlement. 21

37 Accordingly, the trial court correctly denied LAN/STV s request to subtract the $4,700,000 credit a second time in order to mathematically reduce the judgment against it to zero. Evidence of liability. LAN/STV again ignores the standard of review and the record in arguing that the evidence was legally insufficient to support the jury s finding in Question No. 1 that it made a negligent misrepresentation on which Eby justifiably relied. Eby adduced ample evidence that LAN/STV s plans and drawings contained multiple errors and misstatements of existing fact, and thus supplied false information for the guidance of others in their business. Neither the evidence nor the law supports LAN/STV s contention that its plans are merely non-actionable opinions. The evidence also demonstrates that Eby justifiably relied on LAN/STV s representations. LAN/STV s effort to cherry-pick a few so-called disclaimers that are inconspicuously buried within its plans has been waived, and in any event, the disclaimers on which LAN/STV relies do not as a matter of law or fact vitiate Eby s reliance on the representations. ARGUMENT I. LAN/STV Is Not Derivatively Immune From Liability for Negligent Misrepresentation and the Resulting Damages. In its first (and apparently best) cross-appeal point, LAN/STV urges the same argument that this Court squarely rejected nearly four years ago in this same case -- that LAN/STV is allegedly not liable to Eby for negligent misrepresentation based on the derivative immunity provisions in TEX. TRANSP. CODE (d) and TEX. REV. CIV. 22

38 STAT. ANN. art. 6550d. See Eby I, 205 S.W.3d at 21 (rejecting LAN/STV s interpretation of section (d) and holding that LAN/STV cannot establish its defense of derivative governmental immunity as a matter of law) [App. tab 1]. This Court s decision in Eby I is now the law of the case, see, e.g., Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex. 2003), and LAN/STV offers no reason why the Court should rule any differently in this appeal. Contrary to LAN/STV s protestations (LAN/STV Br. at 8 n.3, 15-18), this Court s more recent opinion in Reunion Hotel/Tower Joint Venture v. Dallas Area Rapid Transit, 250 S.W.3d 203 (Tex. App. -- Dallas 2008, no pet.), is perfectly consistent with Eby I, and the fact that the present appeal is from a jury verdict in favor of Eby rather than a summary judgment in favor of LAN/STV (as was the case in Eby I) makes no difference to the interpretation and application of section (d). Although LAN/STV s derivative immunity defense can be summarily rejected based on the law of the case doctrine, Eby recognizes that the doctrine does not always bar reconsideration of the same issue in a second appeal. Briscoe, 102 S.W.3d at 716. Thus, the following discussion is included to confirm that the Eby I Court: (1) correctly interpreted and applied section (d); (2) correctly rejected the same erroneous interpretation of section (d) that LAN/STV continues to urge; and (3) reached a result that is entirely consistent with the Court s later decision in Reunion Hotel/Tower. A. This Court Correctly Held in Eby I that DART Would be Liable to Eby If It Had Performed the Function of LAN/STV, and Thus Properly Rejected LAN/STV s Defense of Derivative Immunity. In analyzing LAN/STV s defense of derivative immunity under section (d) of the Transportation Code (and the substantively identical provision in article 6550d), 23

39 this Court in Eby I properly began by look[ing] at the plain and common meaning of the statute s words. Eby I, 205 S.W.3d at 19 (citing Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484 (Tex. 1998)). Here, the critical words of the statute focus on whether the authority or entity -- here, DART -- would be liable if the authority or entity itself were performing the function of the independent contractor -- here, preparing and providing plans, drawings, and specifications. TEX. TRANSP. CODE (d) [App. tab 2]. If DART itself would be liable for performing the function at issue, then LAN/STV is liable for damages to the same extent. Id. Thus, as this Court correctly recognized in Eby I, the question that must be answered under section (d) is whether and to what extent DART would be liable for damages to Eby if DART itself had performed the function of preparing plans, drawings, and specifications, or whether DART instead would be immune. Eby I, 205 S.W.3d at Under Texas law, the answer to this question is that DART would be liable for damages, and would not be immune, if it had prepared and provided inaccurate plans and drawings to Eby. It is well-established that [t]he failure of an owner to provide correct or adequate plans and specifications as are necessary to carry out the work required by a 9 LAN/STV erroneously suggests that the statutory inquiry is different now that the case has been tried. (LAN/STV Br. at 8 n.3; see id. at 15-16) To the contrary, Eby has now tried the same negligent misrepresentation claim against LAN/STV that it was asserting at the time of Eby I. Moreover, section (d) requires the Court to answer a hypothetical question of whether and to what extent DART would be liable if [DART] itself were performing the function of LAN/STV. TEX. TRANSP. CODE (d) (emphasis added). That inquiry does not call for impermissible speculation, as LAN/STV describes it (LAN/STV Br. at 16), but instead is mandated by the legislature s use of the word if. 24

40 contract constitutes a breach of the contract and the contractor is entitled to recover its damages resulting from the breach. City of Baytown v. Bayshore Constructors, Inc., 615 S.W.2d 792, 793 (Tex. Civ. App. -- Houston [1st Dist.] 1980, writ ref d n.r.e.). And when that owner is a government entity, like DART, it will be liable for breaching that contract just like any other private party to a contract. See, e.g., Federal Sign v. Texas Southern Univ., 951 S.W.2d 401, (Tex. 1997) ( [W]hen the State contracts, the State is liable on contracts made for its benefit as if it were a private person. Consequently, when the state contracts with private citizens it waives immunity from liability. ) (emphasis in original; internal citation omitted); Board of Regents of Univ. of Tex. v. S & G Constr. Co., 529 S.W.2d 90, 95, 97 (Tex. Civ. App. -- Austin 1975, writ ref d n.r.e.) (contractor could recover damages in breach of contract claim as a result of government entity s failure to provide adequate construction plans). That DART (and thus LAN/STV) would be liable and not immune for performing the function at issue is confirmed by a Fifth Circuit Court of Appeals opinion involving the same construction project at issue in this case. In Martin K. Eby Construction Co. v. Dallas Area Rapid Transit, 369 F.3d 464 (5th Cir. 2004) [App. tab 3], Eby sued DART for breach of contract and misrepresentation, alleging that DART had provided deficient and inaccurate bid materials on which Eby had relied to its detriment in developing its bid price. Id. at , 471. The district court dismissed the breach-of-contract claim for failure to exhaust administrative remedies and the misrepresentation claim as barred by governmental immunity. Id. at 467. The Fifth Circuit held that the district court erred in its immunity ruling. Analyzing Eby s misrepresentation claim against DART to 25

41 determine if it was in the nature of a tort (and thus barred by governmental immunity) or was actually quasi-contractual (and thus not barred by governmental immunity), the court determined that the claim was just a subset of [Eby s] breach-of-contract claim. Id. at Accordingly, the court concluded that Eby s misrepresentation claim could properly be brought against DART and that the district court erred in dismissing this claim as a tort claim barred by governmental immunity. Id. at As this Court correctly held in Eby I, the Fifth Circuit s decision confirms that DART would be liable to Eby for breach of contract for providing defective bid materials (subject only to the exhaustion of DART s administrative process). Eby I, 205 S.W.3d at Because DART therefore would be liable and not immune if it had performed that function, it necessarily follows under section (d) that LAN/STV is liable for damages to the same extent for having actually performed that function. Id. at 20 ( [I]f DART is not immune from liability for performance of those functions, and LAN/STV derives its immunity from DART, LAN/STV is not immune from liability for performance of those same functions. ). Thus, LAN/STV did not establish as a matter of law its affirmative defense of derivative governmental immunity from liability. Id. at 21. Finally, although LAN/STV does not specifically argue otherwise, section (d) has no effect on the type or amount of compensatory damages that Eby is 10 The Fifth Circuit nonetheless affirmed the dismissal of the misrepresentation claim on the ground that it (along with the breach-of-contract claim) had to be exhausted under DART s administrative dispute resolution process. Id. 26

42 entitled to recover from LAN/STV in this case. 11 If DART had been performing the function at issue and had provided defective plans to a contractor, it would be liable for the contractor s additional costs incurred as a result of delay and having to perform additional work or incur added difficulty because of [the] breach. S & G Constr. Co., 529 S.W.2d at 96. In such circumstances, a contractor may claim rescission of the contract and recover restitution -- i.e., the full value of the work done or the reasonable [market] value of the labor and materials [it] has put into the building. United States for Use of M-CO Constr., Inc. v. Shipco General, Inc., 814 F.2d 1011, 1015 (5th Cir. 1987) (alterations in original) (quoting Beeman v. Worrell, 612 S.W.2d 953, 957 (Tex. Civ. App. -- Dallas 1981, no writ)); see also IT Corp. v. Motco Site Trust Fund, 903 F. Supp. 1106, (S.D. Tex. 1994) (under Texas law, contractor can sue breaching owner for restitution or quantum meruit and recover the reasonable value of [its] work at the site); Kleiner v. Eubank, 358 S.W.2d 902, 905 (Tex. Civ. App. -- Austin 1962, writ ref d n.r.e.) ( [W]here an owner wrongfully interferes with a contractor... the contractor 11 Rather than focus on the type of damages that are actually recoverable from LAN/STV or would hypothetically be recoverable from DART, LAN/STV takes the position that it is entitled to absolute immunity from any liability or damages. On the last page of its immunity argument, however, LAN/STV questions what damages limitation would be applied to DART -- [t]he contractual one found in section of the Local Government Code or the tort caps found in section of the Tort Claim Act? -- and then concludes with an alternative request for a $100,000 cap on its own damages. (LAN/STV Br. at 18) LAN/STV s rhetorical question and its alternate request fail to comply with even the most minimal briefing requirements, see TEX. R. APP. P. 38.1(i), and in any event, LAN/STV raises a false issue. Even if the recently enacted Local Government Code provisions were to apply retroactively, they would impose no limitation if DART had been performing the function at issue. See TEX. LOC. GOV T CODE (2) (applying only when services are provided to -- not by -- the government entity); id (a)(1), (b)(1) (allowing recovery from government entity of compensation for increased costs resulting from owner s delay). Nor would any part of the Tort Claims Act apply, because DART s liability would lie in contract. 27

43 may treat the contract as rescinded and recover under quantum meruit the full value of the work done. ). These types of damages for rescission, restitution, and quantum meruit are virtually identical to the damages Eby sought and recovered from LAN/STV in Question No. 2. Like a contractual-based remedy, the remedy for negligent misrepresentation that Eby asserted and recovered against LAN/STV is similarly measured by the difference between (1) the value of what Eby provided in the DART project, and (2) the value of what Eby received from DART. See Federal Land Bank Ass n of Tyler v. Sloane, 825 S.W.2d 439, (Tex. 1991) (adopting RESTATEMENT (SECOND) OF TORTS 552B test for economic damages in a negligent misrepresentation case). Because DART -- if it were performing the function of LAN/STV -- thus would be liable to Eby for the same measure of damages that Eby sought from LAN/STV, it necessarily follows that LAN/STV is liable for damages to Eby to the same extent. TEX. TRANSP. CODE (d). In short, section (d) has no effect on LAN/STV s liability for damages in this case. B. In Eby I, This Court Correctly Rejected the Same Erroneous Interpretation of the Derivative Immunity Statute that LAN/STV Again Asserts. In the face of the Eby I Court s correct interpretation and application of section (d), LAN/STV continues to urge its same flawed analysis, which runs like this: Eby sued LAN/STV and went to the jury on a claim of negligent misrepresentation. If Eby had asserted the same negligent misrepresentation claim against DART, would DART be immune from liability? 28

44 Yes, because negligent misrepresentation is a tort and government entities are immune from tort liability in cases not governed by the Texas Tort Claims Act. Because DART therefore is immune from a negligent misrepresentation claim, so too is LAN/STV under section (d). (LAN/STV Br. at 8, 12, 14, 15, 18) This overly simplistic and tautological analysis misreads the statute, answers the wrong question, and produces an illogical result. As this Court correctly recognized in Eby I, the fundamental flaw in LAN/STV s interpretation is that section (d) does not predicate an independent contractor s liability to a plaintiff on whether the government authority would be liable for the same claim the plaintiff asserted against the independent contractor. Eby I, 205 S.W.3d at 20. Rather than focus on the particular claim being asserted, the legislature instead focused on a different (and necessarily hypothetical) question -- whether the government authority would be liable if the authority or entity itself were performing the function of the independent contractor. TEX. TRANSP. CODE (d) (emphasis added). Because the existence of liability (or immunity) thus turns on an analysis of the function performed [and] not simply the characterization of the claim, Eby I, 205 S.W.3d at 20, the question that must be answered in the context of this case is whether DART would be liable to Eby for damages if [DART] itself were performing the function of preparing the plans, drawings, and specifications included in the bid materials. As discussed above in Part I(A), the answer to this question is unequivocally yes. Accordingly, LAN/STV is liable for damages to the same extent that DART would be. For LAN/STV s interpretation to make any sense, section (d) would have to state: 29

45 [A]n independent contractor... is liable for a claim only to the extent that the authority or entity would be liable for the same claim if the authority or entity itself were performing the function. But section (d) actually states: [A]n independent contractor... is liable for damages only to the extent that the authority or entity would be liable if the authority or entity itself were performing the function. TEX. TRANSP. CODE (d). By effectively reading the words claim or same claim into the statute, LAN/STV violates the fundamental principle that courts may not add language to a law where the legislature has refrained. Seay v. Hall, 677 S.W.2d 19, 25 (Tex. 1984), superseded by statute on other grounds, TEX. PROB. CODE 5A. For similar reasons, LAN/STV misreads the statutory phrase only to the extent. (LAN/STV Br. at 10-12, 16) That phrase does not, as LAN/STV asserts, encompass[] not only damages but also claims. (Id. at 16, emphasis added) Rather, as this Court correctly held in Eby I, the phrase only to the extent means that the damages available against an independent contractor are limited to those damages for which the government entity would be liable if it were performing the function of the independent contractor. Eby I, 205 S.W.3d at (emphasis added). Thus, the only to the extent language requires an analysis of the government entity s potential liability and its potential damages exposure if it had been performing the function at issue. If it would be immune from liability had it performed the function itself, the independent contractor likewise would be immune. If the government entity would be liable for performing the function but would be entitled to a cap on the recoverable damages (for example, under the Texas Tort Claims Act), the independent contractor likewise would be entitled to the same cap. 30

46 And if, as in this case, the government entity would be liable and subject to actual damages for performing the function, the independent contractor would be as well. Notably, none of these examples turns on the characterization of the claim -- a word that is nowhere found in the statute. In the final analysis, LAN/STV s same claim approach is not only at odds with the statutory language, it is also illogical and unworkable. A contractor in the position of Eby can only bring a tort claim for negligent misrepresentation against an architect and engineer like LAN/STV, given the absence of any contract between them. In contrast, a contractor like Eby ordinarily cannot bring a tort claim for negligent misrepresentation against an owner like DART, given the existence of a contract between them. See Airborne Freight Corp. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 295 (Tex. App. -- El Paso 1992, writ denied) (negligent misrepresentation is not usually available where a contract was actually in force between the parties ). LAN/STV s same claim test thus sets up an artificial and self-fulfilling exercise that requires a comparison of DART s liability under a hypothetical tort claim that could not be asserted, with LAN/STV s liability under the actual tort claim that was asserted. In contrast, the words of the statute avoid such an illogical comparison by focusing not on the particular claims asserted but instead on whether the government authority would be liable for damages if the authority or entity itself were performing the function. TEX. TRANSP. CODE (d). Eby I was correct in so holding, and there is no reason to reconsider it. 31

47 C. This Court s Decision in Reunion Hotel/Tower Is Entirely Consistent With Eby I. According to LAN/STV, this Court s decision in Reunion Hotel/Tower somehow validates LAN/STV s erroneous interpretation of section (d) and article 6550d, creates a conflict with Eby I, and requires this Court to now overrule or disavow Eby I. (LAN/STV Br. at 12-18, citing Reunion Hotel/Tower, 250 S.W.3d at ) Putting aside the jurisprudential obstacles confronting this bold request -- stare decisis and the law of the case, to name just two -- LAN/STV s comparison of Reunion Hotel/Tower and Eby I is misguided from the start. Reunion Hotel/Tower is factually distinguishable from this case; the Court was not called upon there to interpret the derivative immunity statute; and it reached a result that is entirely consistent with the analytical framework established by Eby I. In Reunion Hotel/Tower, Reunion sued both DART and DART s independent contractor, NEOSHO, for water damage to its property that allegedly arose from a public works project and the installation of an electric sump pump. 250 S.W.3d at 206. Reunion had no contractual relationship with either DART or NEOSHO; accordingly, it asserted identical claims against both parties for negligence, inverse condemnation, and violations of the Texas Tort Claims Act, the Texas Water Code, and the Texas Transportation Code. Id. On summary judgment, the trial court dismissed all of Reunion s claims against DART and all but the negligence claim against NEOSHO. Id. At trial, the jury found that the negligence of both Reunion and NEOSHO caused the property damage, but further found (in a question tracking the Texas Tort Claims Act) 32

48 that the property damage did not arise from the operation of the sump pump. Id. (citing TEX. CIV. PRAC. & REM. CODE (1) (imposing liability on governmental unit for property damage caused by negligence in the operation of motor-driven equipment)). Based on the latter finding, the trial court rendered a take-nothing judgment against Reunion. Id. This Court affirmed, rejecting Reunion s initial contention that the jury s finding regarding the sump pump was irrelevant because NEOSHO is not entitled to sovereign immunity and Reunion s property was damaged for public use without adequate compensation. Id. Quoting section (d) and article 6550d, the Court held that, as a result of the jury s finding that the property damage did not arise from the use of a motor-driven sump pump, DART would not have been liable for the property damage under the Texas Tort Claims Act if it had been performing the function of operating the sump pump, and therefore, neither is NEOSHO. Id. at 207. The inverse condemnation claim failed as well based on the legal doctrine that such claims cannot be based on mere negligence. Id. Contrary to LAN/STV s contention, Reunion Hotel/Tower and Eby I do not conflict in any way -- they both apply section (d) in the same manner, but arrive at different results because of the factual distinctions between the two cases. In Reunion Hotel/Tower, the Court inquired about the extent that DART would be liable if it performed the work [of the independent contractor] itself. Id. at 207 (emphasis added). The answer to this function-oriented question was that DART would not have been liable because the jury had answered no to the one applicable exception to 33

49 governmental immunity under the Texas Tort Claims Act. Id. Similarly, in Eby I, this Court inquired about the extent to which DART would have been liable if it had performed the function of LAN/STV, but reached a different result because DART could be liable for breach of contract had it performed LAN/STV s function. Eby I, 205 S.W.3d at That result was correct then, and it remains correct now because LAN/STV -- unlike NEOSHO -- did not request or obtain any jury findings that would have similarly negated DART s potential liability for damages if DART had performed the function at issue in this case. In short, Reunion Hotel/Tower is perfectly consistent with Eby I, and provides no basis for this Court to overrule, disavow, or otherwise avoid the law of the case established by Eby I. II. Eby Proved the Proper Measure of Negligent Misrepresentation Damages, and the Evidence Amply Supports the Jury s $5 Million Award. Equally meritless is LAN/STV s next contention -- that no evidence supports the jury s award of $5,000,000 in damages. (LAN/STV Br. at 18-24) Contrary to LAN/STV s initial assertion that Eby proved the wrong measure of damages (id. at 18-19), Eby s damages model tracked precisely the measure of damages for negligent misrepresentation recognized in Texas and submitted in Question No namely, [t]he difference, if any, between the value of what Eby gave in the transaction and the value of what it received in the transaction. (1 CR 147) See Sloane, 825 S.W.2d at 442 (measuring damages for negligent misrepresentation by the difference between the value of what [the plaintiff] has received in the transaction and its purchase price or other value given for it ) (quoting RESTATEMENT (SECOND) OF TORTS 552B(1)(a) (1977)); TEX. 34

50 PATTERN JURY CHARGES -- MALPRACTICE, PREMISES & PRODUCTS PJC 84.4 (2008) (same). LAN/STV admits that this jury question was properly worded. (LAN/STV Br. at 20 n.11) As a result, the evidence must be reviewed in light of the charge submitted, Bradford v. Vento, 48 S.W.3d 749, 754 (Tex. 2001), and it amply supports the award of $5,000,000 in damages. Eby adduced evidence that specifically tracked the measure of damages required by Question No. 2. In particular, Eby presented a damages model that calculated the value of the work that Eby claimed it provided to complete the NW-1A project ($44,608,684.11) and then subtracted from that amount the value of all the payments Eby received from DART under the initial contract, the supplemental agreements, the unilateral modifications, and the settlement ($30,783,122.60). (PX 604, 639, 1516; 4 RR , ) This evidence demonstrably supported a damages award of up to $13,825, (PX 639, 1516) Because the jury awarded only $5,000,000, LAN/STV s legal sufficiency challenge should be rejected for this reason alone. LAN/STV is similarly misguided when it asserts that Eby proved only benefit-ofthe-bargain damages and presented no evidence of out-of-pocket damages. (LAN/STV Br. at 20) LAN/STV acknowledges, as it must, that an out of pocket model measures the difference between the value of what was given or parted with versus the value of what was received. (Id. at 19) It notes that out-of-pocket damages are similar to reliance damages, which reimburse one for expenditures made towards the execution of the contract to restore the status quo before the contract. (Id. at n.10) And it recognizes that benefit-of-the-bargain damages, in contrast, are measured by the 35

51 difference between the value that was represented and the value actually received. (Id. at 20) These descriptions confirm that Eby properly proved out-of-pocket, reliance, or negligent misrepresentation damages -- not benefit-of-the-bargain damages. As LAN/STV s chart on page 21 demonstrates, Eby expended $38,333, in cost[s] for expense[s] associated with labor, material, equipment, and subcontracts on the NW-1A project, as well as an additional $2,911, in overhead that was allocated to the project. (LAN/STV Br. at 21; see PX 639; see also 4 RR 194; PX 601) LAN/STV s own expert did not question the fact that Eby actually incurred those costs. (7 RR 95) Given the parties acknowledgement that DART paid Eby a total of $30,783, for the project (see, e.g., PX 604, 639, 1516; 4 RR ; 7 RR ; 1 Supp. RR 30-32; 1 CR 68-69, ), the evidence of these expenditures by Eby is alone sufficient to support an award of up to $10,461, [$38,333, $2,911, $30,783,122.60] in out-of-pocket damages. Because the jury s award of $5,000,000 is well below that amount, it is supported by legally sufficient evidence and must be upheld. See Gulf States Utils. Co. v. Low, 79 S.W.3d 561, 566 (Tex. 2002) ( In determining damages, the jury has discretion to award damages within the range of evidence presented at trial. ); Lamajak, Inc. v. Frazin, 230 S.W.3d 786, 796 (Tex. App.-- Dallas 2007, no pet.) (same). Apart from this evidence, other testimony -- which LAN/STV conveniently ignores -- also supports the award of $5,000,000 in out-of-pocket/reliance/negligent misrepresentation damages to Eby. For example, James Grier, the CEO and chairman of Eby (5 RR 57), testified that Eby was losing about a million dollars a month on the 36

52 [NW-1A] project and ended up paying about $16-$18 million out of its own pocket to complete the project (5 RR 60, 62). Eby s president, Richard Bean, similarly testified that, after just six months on the project, Eby had already lost $4,000,000 to $5,000,000 sometimes at the rate of a million dollars a month. (4 RR 176) And even LAN/STV s expert, Bradford Bright, conceded that there was about [$]12.3 million in costs that [Eby] incurred above [its] estimate. (7 RR 59; see DX 2238 at p.28) Instead of crediting this evidence, as is required under a legal sufficiency review, LAN/STV raises a false issue by focusing on two columns from Eby s damages calculation in PX 639 regarding profit and commission, and arguing that those two columns demonstrate that Eby sought to recover expectancy damages based on the benefit of the bargain. (See LAN/STV Br. at 22-24) 12 Although LAN/STV is wrong, the Court need not even address this issue because the jury declined to award Eby the full $13,825, in damages that it sought -- a figure that might have included Eby s calculation of $2,894, in profit and $469, in commission. (See LAN/STV Br. at 21, citing PX 639) Instead, the jury awarded Eby only $5,000, a figure that is amply supported by the evidence relating solely to Eby s out-of-pocket costs. 12 LAN/STV only adds to the confusion when it erroneously claims that Eby s damages against LAN/STV incorporate benefit-of-the-bargain damages because Eby took the damages it did not recover from DART -- with whom it had a contract -- and simply added to those damages for its total damages against LAN/STV. (Id. at 23 n.13) To the contrary: in Eby s earlier breach-of-contract action against DART, it sought rescission of the agreement and compensation on a quantum meruit basis -- not benefit-of-the-bargain damages. Martin K. Eby Constr., 369 F.3d at ; see also Hart v. Moore, 952 S.W.2d 90, 97 (Tex. App.--Amarillo 1997, pet. denied) (reliance damages for breach of contract are similar to out-of-pocket recovery for misrepresentations and reimburse one for expenditures made towards the execution of the contract in order to restore the status quo before the contract ). 37

53 In any event, LAN/STV is mistaken when it argues that Eby s proof was based on what it would recover if it had a contract. (LAN/STV Br. at 23) As Bean unequivocally testified, Eby was not asking to be awarded... the profit that [it] had hoped to make on [its] contract with DART. (4 RR 195) Nor did Eby adduce evidence regarding the value as represented, as would be required to support benefit-of-thebargain damages. Rather, in calculating the value of what Eby gave in the transaction under Question No. 2, Bean properly included the value of the work as it would be determined in the marketplace on public works projects, that weren t part of a fixed price contract, using a cost plus or force account basis. (4 RR ) In making this determination, Bean included built-in profit and commission for the cost associated with subcontract work as small and severable components (less than 8%) of the $44,608, in value Eby claimed to have provided. (4 RR 191, ; see PX 639) Indeed, LAN/STV admits that the far left bar in PX 1516 showed the total amount of money Eby spent in completing the project (LAN/STV Br. at 21 n.12, emphasis added) -- and that figure is $44,608, (PX 1516 [App. tab 7]). Thus, even if the jury had awarded Eby the entire $13,825, it was seeking, that figure would have properly measured Eby s out-of-pocket damages -- the difference between the value of that which was parted with and the value of that which was received, Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007) -- not benefit-of-the-bargain damages. 38

54 III. The Economic Loss Rule Does Not Bar Eby From Recovering the Negligent Misrepresentation Damages Awarded by the Jury. LAN/STV s reliance on the economic loss rule is procedurally barred and substantively erroneous. LAN/STV abandoned this argument in the first appeal of this case, and in any event, the rule is inapplicable to the tort of negligent misrepresentation. A. In Eby I, LAN/STV Abandoned Its Contention that the Economic Loss Rule Bars Eby s Negligent Misrepresentation Claim. To begin with, LAN/STV long ago abandoned its contention that the economic loss rule bars Eby from recovering on its negligent misrepresentation claim. In October 2003, two months after Eby filed this lawsuit, LAN/STV moved for summary judgment on two legal grounds, arguing that Eby s negligent misrepresentation claim was barred by both derivative immunity and the economic loss rule. Eby I, 205 S.W.3d at 17. In March 2005, the trial court granted LAN/STV s motion without specifying the ground for its ruling. (1 CR 19-23) In appealing the summary judgment, Eby was therefore required to challenge both of LAN/STV s grounds, and it included in its Appellant s brief an extensive argument demonstrating why the economic loss rule did not affect its claim for negligent misrepresentation. (1 CR 75-76, 79-90) See Rogers v. Ricane Enters. Inc., 772 S.W.2d 76, 79 (Tex. 1989) ( When a trial court s order granting summary judgment does not specify the ground or grounds relied on for the ruling, summary judgment will be affirmed on appeal if any of the theories advanced are meritorious. ). Although the economic loss rule presented a purely legal issue that was ripe for appellate review, LAN/STV did not attempt to support the trial court s summary judgment based on the rule. Instead, in its Appellee s brief, LAN/STV effectively agreed 39

55 with Eby s argument, conceding that LAN/STV does not dispute Eby s arguments concerning the economic loss rule as a proper basis for the trial court s summary judgment. (1 CR 92, 95) In its opinion in Eby I, this Court noted that LAN/STV concedes that the only ground upon which summary judgment could have been granted was derivative governmental immunity from liability. Eby I, 205 S.W.3d at 17. As a result, the Court did not address the merits of the economic loss rule in Eby I. Having intentionally abandoned this legal defense when it was ripe for appellate adjudication in 2005, LAN/STV may not resurrect the same argument now. For this reason alone, the Court should overrule LAN/STV s abandoned argument about the economic loss rule. B. Texas Has Long Recognized that Third Parties (Like Eby) May Recover Economic Damages From Professionals (Like LAN/STV) Based on the Tort of Negligent Misrepresentation. Apart from its abandonment of this issue, LAN/STV s reliance on the economic loss rule is substantively meritless. LAN/STV ignores the legion of Texas negligent misrepresentation cases allowing the recovery of economic damages from professionals (like LAN/STV) who have negligently supplied false or misleading information to parties with whom they have no contractual relationship (like Eby). No Texas court has ever rejected this recognized theory of liability in a case seeking to recover reliance or out-ofpocket damages against a design professional (or any other professional), and LAN/STV cites no Texas case that has done so. Nonetheless, LAN/STV asks this Court to create a special rule protecting design professionals -- and only design professionals -- from negligent misrepresentation claims. The Court should reject this invitation. 40

56 In Sloane, the Texas Supreme Court specifically approved section 552 of the RESTATEMENT (SECOND) OF TORTS, which sets forth the elements of the tort of negligent misrepresentation: One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. RESTATEMENT (SECOND) OF TORTS 552 (1977) [App. tab 4]; see Sloane, 825 S.W.2d at 442. Importantly, the Sloane Court also approved the economic damages measure that the Restatement provides for this tort, calculated as the difference between the value of what [the plaintiff] has received in the transaction and its purchase price or other value given for it. Id. (quoting RESTATEMENT (SECOND) OF TORTS 552B(1)(a) (1977)). Eby s claim for the economic losses it sustained as a result of relying on LAN/STV s inaccurate plans and drawings is identical to, and supported by, the measure adopted by the Texas Supreme Court and section 552B of the Restatement. To hold that purely economic losses may not be recovered for negligent misrepresentation, as LAN/STV now urges, would require this Court to overrule Sloane and to effectively eliminate this tort in Texas. By the very nature of a negligent misrepresentation claim, economic or pecuniary losses are the only damages that are recoverable. Eby s negligent misrepresentation claim is also consistent with a multitude of other cases in Texas, decided before and after Sloane, holding that a provider of professional services has an independent tort duty, apart from any contractual or general 41

57 negligence duty, to supply correct and complete information to third parties who rely on the information provided. For example, Texas courts have concluded that, even without contractual privity, third parties may assert a claim for negligent misrepresentation to recover economic losses against a wide variety of professionals, including: attorneys, see McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999); McMahan v. Greenwood, 108 S.W.3d 467, (Tex. App. -- Houston [14th Dist.] 2003, pet. denied); accord First Nat l Bank of Durant v. Trans Terra Corp. Int l, 142 F.3d 802, (5th Cir. 1998) (applying Texas law); surveyors, see Cook Consultants, Inc. v. Larson, 700 S.W.2d 231, (Tex. App. -- Dallas 1985, writ ref d n.r.e.); accountants and auditors, see Ervin v. Mann Frankfort Stein & Lipp CPAs, L.L.P., 234 S.W.3d 172, (Tex. App. -- San Antonio 2007, no pet.); Shatterproof Glass Corp. v. James, 466 S.W.2d 873, 880 (Tex. Civ. App. -- Fort Worth 1971, writ ref d n.r.e.); accord Steiner v. Southmark Corp., 734 F. Supp. 269, (N.D. Tex. 1990) (applying Texas law); real estate agents and brokers, see Pleasant v. Bradford, 260 S.W.3d 546, (Tex. App. -- Austin 2008, pet. denied); securities placement agents, see Lutheran Bhd. v. Kidder Peabody & Co., 829 S.W.2d 300, 309 (Tex. App. -- Texarkana 1992), writ granted w.r.m., 840 S.W.2d 384 (Tex. 1992); and title insurers, see Great Am. Mortgage Investors v. Louisville Title Ins. Co., 597 S.W.2d 425, (Tex. Civ. App. -- Fort Worth 1980, writ ref d n.r.e.). None of these cases -- nor the present case -- is affected by the economic loss rule. No Texas court has ever suggested that design professionals like LAN/STV hold some special status, not afforded to other professionals, that would somehow shield them from a negligent misrepresentation claim and the resulting economic damages. Indeed, using hypothetical facts that are virtually identical to those in this case, section 552 of the 42

58 Restatement illustrates that a design professional s provision of false information to a contractor presents a paradigm for applying the tort of negligent misrepresentation: The City of A is about to ask for bids for work on a sewer tunnel. It hires B Company, a firm of engineers, to make boring tests and provide a report showing the rock and soil conditions to be encountered. It notifies B Company that the report will be made available to bidders as a basis for their bids and that it is expected to be used by the successful bidder in doing the work. Without knowing the identity of any of the contractors bidding on the work, B Company negligently prepares and delivers to the City an inaccurate report, containing false and misleading information. On the basis of the report C makes a successful bid, and also on the basis of the report D, a subcontractor, contracts with C to do a part of the work. By reason of the inaccuracy of the report, C and D suffer pecuniary loss in performing their contracts. B Company is subject to liability [for negligent misrepresentation] to C and D. RESTATEMENT (SECOND) OF TORTS 552 cmt. h, illus. 9 [App. tab 4]. Tellingly, LAN/STV does not address or even acknowledge this illustration. Instead, it asks this Court to effectively sit as a legislature and enact a special rule in Texas that protects only architects and engineers from the tort of negligent misrepresentation. LAN/STV s request is both insupportable and inappropriate. C. LAN/STV s Negligence, Contort, and Out-of-State Cases Do Not Support the Application of the Economic Loss Rule to Eby s Negligent Misrepresentation Claim. Under LAN/STV s misguided view of the law, Eby cannot assert any viable cause of action against LAN/STV. On the one hand, LAN/STV argues that Eby cannot bring a tort claim against it because Eby s claim supposedly sounds in contract alone. (LAN/STV Br. at 26; see also id. at 27, 38) Yet, in the very next breath, LAN/STV acknowledges that Eby has no breach-of-contract claim against it because no contract exists between them. (Id. at 26) LAN/STV cannot have it both ways. As a matter of 43

59 law, the tort of negligent misrepresentation permits Eby to recover the economic losses caused by its reliance on LAN/STV s inaccurate plans and drawings. Pigeonholing its argument under the label of the economic loss rule, LAN/STV relies on a scattershot of legal doctrines and inapposite cases involving (1) parties who are in contractual privity, (2) ordinary negligence cases, (3) plaintiffs who impermissibly seek to recover benefit-of-the-bargain damages for negligent misrepresentation, and (4) breach-of-contract claims between owners and contractors that turn on the particular terms of the parties contract. (See id. at 24-39) These cases are readily distinguishable, and none of them supports the imposition of a special rule protecting design professionals from a negligent misrepresentation claim seeking to recover out-of-pocket or reliance damages. Parties in contractual privity. LAN/STV begins its argument on the wrong foot by relying on cases in which there was contractual privity between the plaintiff and the defendant, and thus resulted in a holding that the plaintiff s alleged tort claim for negligence sounded only in contract. (See id. at 25-26) For example, in Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.3d 493 (Tex. 1991), the Texas Supreme Court considered whether a cause of action for negligence is stated by an allegation that a telephone company negligently failed to perform its contract [with the plaintiff] to publish a Yellow Pages advertisement. Id. at 493. Because the telephone company s duty to publish the advertisement arose solely from the contract and because the plaintiff clearly sought to recover the benefit of his bargain with the telephone company, the Court held that the telephone company s failure to publish the 44

60 advertisement was not a tort and sounded solely in contract. Id. at 495; see also Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 57, 61 (Tex. 2008) (claim by hospital against defendant that contracted to re-roof hospital sounded in contract, not negligence); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, (Tex. 1986) (defendant s gross negligence in breaching its contract with the plaintiff will not support an award of exemplary damages). Based on these same inapposite principles, LAN/STV also relies on a trio of cases from this Court that likewise preclude a plaintiff from asserting a claim for negligent misrepresentation under certain circumstances. But like DeLanney, Medical City, and Jim Walter Homes, each of these three cases involved contracts between the plaintiffs and the defendants, and plaintiffs who sought to recover contract-based damages in tort for the breach of that contract. See Esty v. Beal Bank S.S.B., 298 S.W.3d 280, (Tex. App. -- Dallas 2009, no pet.) (affirming summary judgment on plaintiff s negligent misrepresentation claim when all of the alleged misrepresentations ar[o]se under the contract between the parties and f[e]ll within the pleaded breach of contract claim, and the plaintiff claimed he was entitled to lost profits,... not out-of-pocket damages ); Plano Surgery Ctr. v. New You Weight Mgmt. Ctr., 265 S.W.3d 496, 503 (Tex. App. -- Dallas 2008, no pet.) (concluding that any injury plaintiff suffered from a representation that it would be compensated under the profit-sharing agreement was not independent of its damages for breach of that contract ); Cessna Aircraft Co. v. Aircraft Network, L.L.C., 213 S.W.3d 455, 467 (Tex. App. -- Dallas 2006, pet. denied) (no evidence supported the submission of a negligent misrepresentation claim when that claim and the 45

61 plaintiff s breach-of-contract claim were both based on the same factual scenario that Cessna promised to reimburse [plaintiff] for substitute transportation and the plaintiff sustained damages when Cessna breached its promise ). In stark contrast to the parties in each of these cases, Eby has no contract with LAN/STV and cannot assert a breach-of-contract claim against LAN/STV. (LAN/STV Br. at 26) Absent any contractual relationship between Eby and LAN/STV, there is no basis to claim that Eby s injury is only economic loss to the subject of the contract or that its damages are entirely contractual in nature. See Jackson v. Dole Fresh Fruit Co., 921 F. Supp. 454, (S.D. Tex. 1996) (economic loss rule is inapplicable when no contract exists between the defendant and the plaintiff); Juarez v. Chevron USA, Inc., 911 F. Supp. 257, 260 (S.D. Tex. 1995) (declining to apply the economic loss doctrine in the absence of contractual privity between the defendants and plaintiffs). While LAN/STV s line of cases might confirm that Eby s only claim against DART would lie in contract, those cases do not apply to Eby s tort claim against LAN/STV, especially given that LAN/STV s negligent misrepresentations preceded Eby s contract with DART and induced Eby to enter into that contract. The result LAN/STV advocates is not only unsupported, it is particularly perverse in this case given the undisputed evidence that Eby never would have bid on the project in the first place -- let alone executed the contract with DART -- had it known of the false information contained in LAN/STV s plans and drawings. (4 RR ) Ordinary negligence cases. LAN/STV only compounds its error and creates further confusion when it relies on cases involving claims for ordinary negligence -- not 46

62 negligent misrepresentation -- to argue that [n]o case in Texas supports the imposition of... a common-law negligence duty owed by a design professional to a contractor with whom it has no privity and a design professional owes no tort duty based in negligence to a contractor. (LAN/STV Br. at 29-30, emphasis added) Putting aside the fact that the issue in LAN/STV s principal case -- Bernard Johnson, Inc. v. Continental Constructors, Inc., 630 S.W.2d 365, 368 n.2 (Tex. App. -- Austin 1982, writ ref d n.r.e.) -- was one not of liability but venue, LAN/STV s reliance on Bernard Johnson is misplaced. In contrast to this case, Bernard Johnson involved a contractor s allegations of ordinary negligence against an architect arising from the architect s fail[ure] to properly administer a bulkhead project during the construction phase pursuant to its express contract with the Texas Parks and Wildlife Department. Id. at & n.2 (emphasis added). Because the contractor could not maintain its action against the architect without proving at trial the contents of the bulkhead contract and the resulting duty said to be placed upon [the architect] therein, the court concluded that the contractor was not owed a duty by the architect and could not assert a negligence claim for its economic injury. Id. at But see id. at 376 (Phillips, J., dissenting) (disagreeing with the majority s opinion because the cases where a duty [against an architect] has been upheld are the better reasoned cases ); I.O.I. Sys., Inc. v. City of Cleveland, 615 S.W.2d 786, 790 (Tex. Civ. App. -- Houston [1st Dist.] 1980, writ ref d n.r.e.) (assuming that a duty of reasonable care and skill may run from an architect/engineer to a contractor). Nonetheless, in so holding, Bernard Johnson expressly distinguished the negligence claims asserted by the contractor from a claim for negligent misrepresentation under 47

63 section 552 of the Restatement (which was not asserted), and observed that the duty in a negligent misrepresentation case is demonstrably one originating in the common law when a party furnishes business information to persons who may foreseeably rely upon the information. Bernard Johnson, 630 S.W.2d at 370 n Thus, whatever validity LAN/STV s argument may have in some other case, it applies (if at all) only to Eby s alternative claim that LAN/STV, in its capacity as the construction manager of the NW-1A project, was negligent and failed to act with reasonable care in manag[ing] the construction activities on the Project and administer[ing] the Contract between DART and Eby. (1 CR 30) Eby, however, voluntarily elected not to submit this negligence claim to the jury (5 RR 72), and it does not appeal from the trial court s directed verdict dismissing that claim (5 RR 73). Consequently, whether Eby can assert a claim against LAN/STV for its negligence in managing and administering the project is not at issue, nor is it germane to whether Eby can assert a claim for the different tort of negligent misrepresentation against LAN/STV. Indeed, as the Texas Supreme Court has recognized, liability for negligent misrepresentation is not based on the breach of duty a professional owes his or her 13 In addition to Bernard Johnson, LAN/STV cites other cases applying the economic loss rule to bar ordinary negligence claims, typically in the products liability context, between parties who are not in privity. (See LAN/STV Br. at 25 n.14) Critically, however, in the only cited case that specifically considered a claim for negligent misrepresentation -- Trans-Gulf Corp. v. Performance Aircraft Services, Inc., 82 S.W.3d 691 (Tex. App.--Eastland 2002, no pet.) -- the court did not apply the economic loss rule to bar the plaintiff s negligent misrepresentation claim. To the contrary, after applying the economic loss rule to affirm the trial court s summary judgment dismissing the plaintiff s negligence claim, the court affirmed the dismissal of the negligent misrepresentation claim on the separate ground that the plaintiff was not within the limited group of persons who can assert a claim for negligent misrepresentation. Id. at

64 clients or others in privity. McCamish, 991 S.W.2d at 792. Rather, it is based on an independent duty to the nonclient based on the professional s manifest awareness of the nonclient s reliance on the misrepresentation and the professional s intention that the nonclient so rely. Id. (emphasis added); see also Cook Consultants, 700 S.W.2d at 236 (surveyor hired by a home builder owed a duty to subsequent purchasers to exercise reasonable care and competence in supplying correct information ); Shatterproof Glass, 466 S.W.2d at 876, 880 (accountants who prepared audit reports for corporations owed a duty to exercise reasonable care and supply correct information to third parties who rely upon those financial statements). 14 Thus, Eby did not need to prov[e] the contents of the contract documents to prevail on its claim for negligent misrepresentation (LAN/STV Br. at 27), although Eby did refer to the contract between LAN/STV and DART to refute LAN/STV s repeated suggestion that other entities were supposedly responsible for the defective plans and drawings supplied to Eby (4 RR 5-8; see 3 RR 25, 36, 155, 160; 4 RR 105; 5 RR ; 6 RR 35-36, 60; 7 RR , 152, 154). In short, LAN/STV owed a common-law duty to Eby under section 552 and Sloane; Eby s negligent misrepresentation claim does not sound in contract; and the economic loss rule does not bar Eby from asserting a negligent misrepresentation claim and recovering economic damages against LAN/STV. 14 Accord Owen v. Dodd, 431 F. Supp. 1239, 1242 (N.D. Miss. 1977) ( [A]n architect s duty to use ordinary and reasonable skill in the preparation of plans and specifications extends to the owner s general contractor who relies upon those plans and is proximately economically injured as a result. ); Forte Bros. v. National Amusements, Inc., 525 A.2d 1301, 1303 (R.I. 1987) (architect, in performance of its contract with the owner, owes duty of care to contractors who share economic relationship and community of interest with architect on construction project). 49

65 Benefit-of-the-bargain damages. LAN/STV further confuses the issue when it relies on tort cases in which the plaintiff improperly sought to recover only benefit-ofthe-bargain damages. For example, in D.S.A., Inc. v. Hillsboro Independent School District, 973 S.W.2d 662 (Tex. 1998), the Texas Supreme Court never mentioned the economic loss doctrine, but instead concluded that the plaintiff did not meet its burden at trial of proving the independent injury required under section 552 of the Restatement. Id. at 664. Because the plaintiff asked for the benefit of its bargain -- a measure of damages that expressly is not available for a claim of negligent misrepresentation -- the Court held that the plaintiff was not entitled to any recovery under the theory of negligent misrepresentation. Id. at The court of appeals reached a similar conclusion in Sterling Chemicals, Inc. v. Texaco Inc., 259 S.W.3d 793 (Tex. App. -- Houston [1st Dist.] 2007, pet. denied). Relying on D.S.A., the court recognized that if a negligent misrepresentation claim only seeks benefit of the bargain damages, instead of those [economic] damages permitted for negligent misrepresentation, (1) a plaintiff cannot establish an independent injury that is distinct from the economic losses recoverable under a breach of contract claim and (2) the economic loss rule bars any recovery of these damages under the negligent misrepresentation claim. Id. at 798 (emphasis added). Consequently, because the plaintiff had sought damages only for the benefit of the bargain (i.e., lost profits and sales ) -- and not reliance damages available under section 552 (i.e., out-of-pocket expenditures made by one party ) -- the court held that the plaintiff was not entitled to any recovery of damages under its negligent misrepresentation theory. Id. 50

66 In contrast to the plaintiffs in D.S.A. and Sterling Chemicals, and as discussed above in Part II, Eby did not seek and was not awarded any benefit-of-the-bargain damages from LAN/STV (or DART, for that matter). Rather, Eby sought and was awarded its reliance or out-of-pocket damages, as measured by the difference between the value of what it gave and what it received in the transaction with DART. (1 CR 147) See Sterling Chems., 259 S.W.3d at 798 (reliance damages, in contrast to benefit-of-thebargain damages, include a party s expenditures for labor and materials and other costs and are the type of [economic] damages permitted for negligent misrepresentation ). Because the Texas Supreme Court specifically adopted this measure of damages in Sloane, the economic loss rule in no way prohibits or affects Eby s right to recover these damages from LAN/STV under a negligent misrepresentation theory. Cases involving owner liability for breach of contract. LAN/STV raises another false issue when it relies on cases involving suits by a contractor against the owner for damages arising out of inaccurate plans and specifications. (LAN/STV Br. at & n.17, emphasis added) Whether a contractor can recover from an owner under a breachof-contract theory pursuant to the particular terms of the contract at issue is legally and factually irrelevant to whether a contractor may recover from a design professional with whom it has no privity under a negligent misrepresentation theory. In any event, modern cases have distinguished Lonergan v. San Antonio Loan & Trust Co., 104 S.W (Tex. 1907) and its progeny, and hold that a contractor is not precluded from recovering against an owner under a breach-of-contract theory for defective specifications, notwithstanding lump-sum and pre-bid investigation provisions 51

67 in the contract, if the owner was in a better position to know whether its specifications were sufficient for the intended scope of work and the contract evidences that the owner made positive assurances concerning the reliability of those specifications. MasTec N. Am., Inc. v. El Paso Field Servs., L.P., S.W.3d, No CV, 2010 WL , at *23 (Tex. App. -- Houston [1st Dist.] May 10, 2010, no pet. h.); see Hollerbach v. United States, 233 U.S. 165, 172 (1914) (contractor was not precluded from recovering his additional expenses from owner when he discovered, during construction, deficiencies in owner-provided specifications); IT Corp., 903 F. Supp. at (contractor is not required to bear the risk that the bid documents misrepresent the nature and amount of the work to be performed). Cases from other jurisdictions regarding the nature of construction litigation. Finally, although LAN/STV cherry picks a handful of cases from other jurisdictions that do not allow a contractor to assert a claim for negligence or negligent misrepresentation against a design professional for economic losses (see LAN/STV Br. at 32-33, & n.15), the majority of jurisdictions have rejected this approach. For example, based on facts virtually identical to those here, the Pennsylvania Supreme Court held that a building contractor may maintain a negligent misrepresentation claim against an architect for alleged misrepresentations in the architect s plans for a public construction contract, where there was no privity of contract between the architect and the contractor, but the contractor reasonably relied upon the misrepresentations in submitting its winning bid and consequently suffered purely economic damages as a result of that reliance. Bilt-Rite Contractors, Inc. v. The 52

68 Architectural Studio, 866 A.2d 270, 272, 285 (Pa. 2005). Similarly, in Jim s Excavating Service, Inc. v. HKM Associates, 878 P.2d 248, (Mont. 1994), the Montana Supreme Court rejected the economic loss rule and held that, under section 552 of the Restatement, a third party contractor may successfully recover for purely economic loss against a project engineer or architect when the design professional knew or should have foreseen that the particular plaintiff or an identifiable class of plaintiffs were at risk in relying on the information supplied. And in Nota Construction Corp. v. Keyes Associates, Inc., 694 N.E.2d 401, (Mass. App. Ct. 1998), the court recognized an exception to the economic loss rule that permits recovery for economic losses resulting from negligent misrepresentation, and held that the rule did not bar a contractor s claim for negligent misrepresentation against an architectural firm. 15 The correct conclusions reached by these courts are not affected by the specific nature of construction litigation. (LAN/STV Br. at 33) Nor do the provisions of the 15 See also Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575, , 582 (Ky. 2004) (contractor could maintain claim for negligent misrepresentation and recover economic loss from construction manager who supplied faulty information to contractor); John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d 428, (Tenn. 1991) (same); Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85, (S.C. 1995) (economic loss rule did not bar contractor from maintaining a suit in tort for purely economic losses against engineer of construction project, because engineer owed contractor duty to not negligently design or supervise the project); A.R. Moyer, Inc. v. Graham, 285 So.2d 397, (Fla. 1973) ( The contractor hired by the client to build the structure, although not in privity with the architect, may recover from the architect [in tort] any extra costs resulting from the architect s negligent plans. ); Guardian Constr. Co. v. Tetra Tech Richardson, Inc., 583 A.2d 1378, 1386 (Del. Super. Ct. 1990) (contractor could assert claims for negligent misrepresentation and negligence against design engineer despite seeking purely economic damages ); Howell v. Fisher, 272 S.E.2d 19, (N.C. Ct. App. 1980) (corporate shareholders may recover economic loss caused by relying on engineer s soil testing report that contained negligent misrepresentations); see generally Annotation, Tort Liability of Project Architect for Economic Damages Suffered by Contractor, 65 A.L.R.3d 249 (1975). 53

69 contract between the owner and the architect-engineer or the contract between the owner and the contractor have any bearing on whether a contractor like Eby can maintain a claim for negligent misrepresentation against an architect-engineer like LAN/STV. Indeed, although LAN/STV focuses on one specifically negotiated provision in the DART-LAN/STV contract that gives DART the right to recover damages from LAN/STV caused by LAN/STV s performance under the contract (id. at 34, citing DX 2054 at Ex. F, p.3), that provision does not address, affect, or negate Eby s commonlaw right to recover damages from LAN/STV. And although LAN/STV now second guesses Eby for failing to negotiate with [DART] for an assignment of [DART s] rights against [LAN/STV] (LAN/STV Br. at 35), Eby did not need any such assignment because it could sue LAN/STV directly based on the tort of negligent misrepresentation. In any event, LAN/STV also could have negotiated with DART for more favorable terms, including an agreement requiring DART to indemnify LAN/STV against claims brought by third-party contractors. But LAN/STV chose not to do so, and its contract with DART affords it no protection from Eby s negligent misrepresentation claim. For similar reasons, the truism that the DART-Eby contract contains no provision granting Eby the right to recover damages from LAN/STV (id.) is of no moment. Nothing in the Eby-DART contract even addresses that issue, much less prohibits Eby from recovering damages from LAN/STV. (See DX 2005) In any event, Eby does not need DART s permission to recover damages from LAN/STV, and even if it did, DART unequivocally granted such permission when it made clear in the settlement agreement with Eby that the parties were not settling or satisfying any of Eby s claims against 54

70 LAN/STV. (DX 2059 at p.3, 3; see 7 RR 81-82) And there is no merit to LAN/STV s related suggestion that Eby is trying to create a cause of action against LAN/STV because it chose to settle for less than its full damages from DART. (LAN/STV Br. at 35) To the contrary, Eby asserted its claim for negligent misrepresentation against LAN/STV in August 2003 (1 CR 7-11) -- five years before Eby settled with DART in August 2008 (DX 2059). In the final analysis, there is no basis for LAN/STV s overstatement that contracts and contract law should alone determine the parties rights and obligations in the construction context. (LAN/STV Br. at 36) Although LAN/STV myopically focuses on the allocation of risk in such contracts (id.), it ignores the fact that in virtually every Texas case recognizing the tort of negligent misrepresentation, the defendant-professional was performing under a contract with its client but nonetheless was held to owe a common-law duty of care to supply correct information to non-clients who rely on such information. See, e.g., McCamish, 991 S.W.2d at 792 (the theory of negligent misrepresentation permits non-clients who are not parties to a contract for professional services to recover from the contracting attorneys); Cook Consultants, 700 S.W.2d at 236 ( [W]e hold that [the surveyor] reasonably could have foreseen that [a subsequent purchaser] might sustain economic loss proximately caused by the negligent performance of its contractual duty accurately to survey the property and that public policy dictates imposition of a duty of care. ). Enforcing a claim for negligent misrepresentation is especially appropriate in this case because Eby would not have bid on the project or entered into the contract with 55

71 DART in the first place had it known of the false information LAN/STV supplied in the plans and drawings. (4 RR ) It makes no sense to provide LAN/STV with blanket protection and restrict Eby to suing only DART on a contract, when it was LAN/STV that tortiously induced Eby to enter into that contract. IV. The Jury s Award of Negligent Misrepresentation Damages Indisputably Gives LAN/STV a Full Credit for the Entire Eby-DART Settlement, and LAN/STV Is Not Entitled to Another Credit for the Same Settlement. Not content with having received an impermissible second settlement credit (see Part II(A) to Reply, above), LAN/STV asks this Court to grant it yet a third credit for the same Eby-DART settlement in order to mathematically reduce the judgment against it to zero. (LAN/STV Br. at 39-43) The trial court, however, expressly rejected this same request (1 Supp. RR 32-33), and its ruling must be affirmed. LAN/STV s request is at odds with its own admissions that, based on the evidence and the court s instructions, the jury was required to deduct the full settlement. It cannot now escape those admissions by invoking TEX. CIV. PRAC. & REM. CODE (b) or the one satisfaction rule. (LAN/STV Br. at 42-43) As discussed in greater detail above in Part II(A) of Eby s reply, LAN/STV consistently admitted in the court below that Eby s damages model subtracted out the entire $30,783, in payments that Eby received from DART, and that this figure included the $4,700,000 settlement. (1 CR [App. tab 5]; 4 RR ; 1 Supp. RR [App. tab 6]) LAN/STV also cannot deny that the instruction in Question No. 2 required the jury to subtract the value of what [Eby] received in the transaction -- i.e., the uncontroverted $30,783, figure put before the jury (PX 604, 639, 1516; 56

72 4 RR ) -- in arriving at a damages award (1 Supp. RR 30-33). And LAN/STV acknowledges that [a] court must presume that the jury followed the instructions given to it. (LAN/STV Br. at 42, citing Turner, Collie & Braden, 642 S.W.2d at 167). Although these admissions alone should be fatal to LAN/STV s request for yet another settlement credit, LAN/STV nonetheless asks this Court to blind itself to the uncontroverted evidence and the jury instruction and instead to mechanically apply section (b). (LAN/STV Br. at 42 [ The statute simply says that a court shall further reduce the plaintiff s amount of damages by the amount of any settlements. ]) For at least two reasons, section (b) cannot be applied in such a draconian fashion. First, although the settlement credit required by section (b) is ordinarily taken into account after a verdict, nothing in the statute prevents a settlement from being credited before the verdict. Thus, consistent with the intent behind section (b), the court below did reduce Eby s damages by the amount of the Eby-DART settlement when it: (1) admitted into evidence the settlement agreement and the uncontroverted documents showing the total value Eby received from DART (which indisputably included the full settlement); (2) submitted without objection a damages instruction that required the jury to subtract the value of what Eby received from the value of what Eby claimed to have given in the transaction with DART; and (3) obtained an answer from the jury that presumptively followed this instruction. To be sure, this methodology is not the customary way of giving credit for a settlement, but it is entirely consistent with both LAN/STV s pre-trial request (1 CR ) and the unique measure of damages for negligent misrepresentation, which requires a reduction for the value of what the plaintiff 57

73 has received in the transaction. See RESTATEMENT (SECOND) OF TORTS 552B(1)(a) [App. tab 4]. 16 Second, even if the literal language of section (b) cannot be read to allow a pre-verdict reduction for a settlement, the statute still cannot be applied in the mechanical manner that LAN/STV urges. This Court has made clear that where the application of [a] statute s plain language would lead to absurd consequences that the legislative body could not possibly have intended, we do not apply the statutory language literally. Lee v. Mitchell, 23 S.W.3d 209, 212 (Tex. App. -- Dallas 2000, pet. denied). Here, the legislature could not possibly have intended that a trial court must automatically reduce a verdict by the amount of a settlement when, as in this case, the plaintiff (at the request and with the knowledge of the defendant) has already reduced its claim for damages by the amount of the same settlement and has requested the jury to do exactly the same. The outcome LAN/STV urges is not only absurd, it is manifestly unjust -- and section (b) cannot be applied in a fashion that would allow it. There is also no merit to LAN/STV s related argument that it is entitled to a settlement credit under the one satisfaction rule, which limits a plaintiff to only one 16 LAN/STV s request for more than one settlement credit finds no support in Bellows v. San Miguel, No CV, 2002 WL , at *16 (Tex. App. -- Houston [14th Dist.] May 2, 2002, pet. denied) (not designated for publication). (See LAN/STV Br. at 42) In contrast to Eby, the plaintiff in Bellows did not account for the pre-trial settlement of $215,000 in her damages model, and the court s instruction on economic damages did not require the jury to do so. Thus, in contending that the jury had allowed credit for the... settlement in its $215,000 economic damages award, the plaintiff had to rely on a different jury question in which the jury had apportioned 50% fault each to the defendant and a settling defendant. Bellows, 2002 WL , at *16. The court rejected the plaintiff s argument, primarily because she had not complain[ed] to the trial court about the jury s awarding her $215,000 in economic damages rather than $430,000. Id. 58

74 recovery... for an injury. (LAN/STV Br. at 43) LAN/STV s central theme at trial was that Eby had already been made whole for its claimed injuries as a result of all the payments it received from DART, including the $4,700,000 settlement, and that Eby therefore should recover nothing more from LAN/STV. (2 RR 6; 3 RR 27, 35-36; 7 RR 142; see also 2 RR 88; 3 RR 29-34, 39; 4 RR ; 7 RR 157, ) The jury, however, flatly rejected this argument by finding that Eby had sustained $5,000,000 in damages from LAN/STV s negligent misrepresentations, above and beyond the value of what Eby had already received from DART. (1 CR 147) LAN/STV cannot now use the one satisfaction rule to obtain the same relief from this Court that the jury refused to give it at trial. The rule limits a plaintiff to one satisfaction -- not a partial satisfaction -- and LAN/STV s effort to obtain such an outcome must be rejected. V. The Evidence Supports the Jury s Finding in Question No. 1 that LAN/STV Made a Negligent Misrepresentation on Which Eby Justifiably Relied. Although LAN/STV pays lip service to the standard for reviewing the legal sufficiency of the evidence (LAN/STV Br. at 7-8), it ignores that standard when it argues that no evidence supports the jury s finding in Question No. 1 that LAN/STV made a negligent misrepresentation (id. at 43). Rather than address the evidence, LAN/STV presents what amounts to jury arguments regarding opinions, disclaimers, and expectations -- some of which was never asserted at trial, some of which raises false issues, and all of which ignores the evidence. As discussed below, the evidence amply supports the two elements of negligent misrepresentation that LAN/STV now challenges. 59

75 A. LAN/STV Supplied False Information for the Guidance of Eby and Other Contractors in Their Business. LAN/STV s initial contention -- that its plans did not supply false information (id. at 44) -- is at odds with both the law and the evidence. Relying on nothing more than its own ipse dixit, LAN/STV asserts that its plans are merely opinions and not misstatements of an existing fact. (Id.) Tellingly, LAN/STV does not cite a single case from any jurisdiction holding that the plans and drawings of a design professional are merely inactionable opinions. In analogous circumstances, this Court has held that a negligently prepared survey supplies false information within the meaning of Restatement section 552 and is sufficient to impose liability on the surveyor for negligent misrepresentation. See Cook Consultants, 700 S.W.2d at Similarly, in the construction context, numerous courts have concluded that design professionals are in the business of supplying information and thus may be liable under the tort of negligent misrepresentation for preparing inaccurate plans and drawings. See, e.g., Bilt-Rite, 866 A.2d at (recognizing that architects and design professionals are in the business of supplying information that third parties use and rely upon); Nota Constr. Corp., 694 N.E.2d at (rejecting argument that design professionals cannot be held liable for negligent misrepresentation because they are not in the business of supplying specific information to others to induce action ); Guardian Constr. Co., 583 A.2d at 1386 (design engineer who miscalculated tidal heights and project benchmarks was responsible under section 552 for communicat[ing] incorrect information for the guidance of the 60

76 contractor in calculating its project bid); see also RESTATEMENT (SECOND) OF TORTS 552 cmt. h, illus. 9 [App. tab 4]. Moreover, certain opinions may give rise to a claim for negligent misrepresentation, id. 552 cmt. b, and Question No. 1 (which LAN/STV did not challenge as to form) did not require Eby to prove a misstatement of an existing fact (see 1 CR 146; 7 RR 104). In any event, the evidence belies LAN/STV s contention that its plans and drawings are merely non-actionable opinions. This case did not involve subjective opinions (about aesthetics, appearance, or the like) that would be open to reasonable professional debate. Rather, this case involved a design process that was so fundamentally flawed that it resulted in plans and drawings with multiple misstatements of existing fact. (See, e.g., PX 606, 613, 621, 624) For example: The bridges could not be built as designed because there were a series of errors in the information about the bridge structure. (4 RR 25-26; see PX 212, 347, 348) As a result, the design for every bridge had to be changed after Eby bid on the project, resulting in over 100 drawings having to be replaced. (4 RR 26-27; 6 RR 14-17; see PX 122, 123, 124, 125, 263, 432, 448) Eby was not able to install the utility lines as shown in the LAN/STV bid documents because they failed to show a series of horizontal steel straps below the ground that h[e]ld the retaining wall in place. (4 RR 17-22; see PX 107, ; PX 116 at ; PX 306, 329, 1509B, 1509D, 1509F) Although LAN/STV knew about the wall straps and was warned by a DART project manager about the need to resolve the conflict with the wall straps (3 RR ; 4 RR 22-25; see PX 75 at ; PX 659 at 00019), LAN/STV did not heed that warning, its drawings did not show the anchoring devices for the wall, and its erroneous depiction of the wall created a major breakdown in the design (4 RR 24-25; 5 RR 21-22). There were approximately 25 times that the utility lines were mislocated in one area alone. (4 RR 40-41; see PX 1513) [M]any utilities... weren t actually where they were designated on the bid documents, some... were in different locations, and some... were there that weren t shown. (4 RR 61

77 175) Although mislocated utilities are normally the exception on a project, [o]n this job it was the rule, and the exception was when they were located as shown on the drawings. (Id.; see also 4 RR 50) A manhole that was supposed to tie into a storm sewer pipe was not located where LAN/STV s drawings depicted it to be, and instead was found 147 feet away. (4 RR 41-47; see PX 135A, 140, 346, 1513, 1513A; PX 144 at ) This was a huge error. (4 RR 48) Eby ran into conditions where the site was different than what... was shown or represented on the drawings as a result of a lot of errors in the location of existing structures and utilities. (5 RR 18; see 5 RR 27-28; PX 47 at ; PX 116 at ; PX 142, 147, 373, 387, 468, 1521B, 1521C) Eby was not able to install all of the straight shaft drilled piers as reflected in the bid documents because it encountered rubble and construction debris that would not support the piers and that required about half of the 58 foundations to be changed. (4 RR 51-68; see PX 369, 1000D, 1003A, 1003B, 1003C, 1003D, 1510C, 1511A, 1511B) LAN/STV provided inaccurate information about the soil conditions, which (as LAN/STV knew) had been part of a dump site. (Id.; see PX 131B) During the construction phase, DART was forced to issue multiple change orders as a result of design deficienc[ies] -- a term that refers to a design defect in the drawings that were prepared by LAN/STV. (5 RR ; 7 RR 29; PX 614; see, e.g., PX 116 at , ; PX 126, 287, 448, 506, 538; PX 547 at ; PX 549, 551, 552, 564, 585) LAN/STV s quality control manager, Gary Zipen (3 RR 52-53; PX 12), performed a surveillance (or mini-audit) of eleven drawings and [f]ound numerous errors with both the drawings and the calculations (3 RR 76-80; PX 117). LAN/STV did not correct all of these errors before submitting the drawings to DART for distribution to the contractors who were bidding on the project. (3 RR 83-84, ; see PX 166). By sealing the plans and drawings as an architect and engineer (5 RR 138; PX 87A, 87G), LAN/STV was communicating that the documents may be used for construction and that it was tak[ing] full professional responsibility for that work. See 22 TEX. ADMIN. CODE (setting forth the purpose of the seal as to architects); id (setting forth the purpose of the seal as to professional engineers). 62

78 In short, major portions of the project were not buildable as depicted in LAN/STV s plans and drawings at the time Eby signed the contract with DART, and virtually every milestone could not be built on the schedule required. (4 RR 35-36, 68, 70, ) Not surprisingly, shortly after Eby received the notice to proceed in June 2002, it was presented with an overwhelming magnitude of changes in design from LAN/STV and an extraordinary number of new drawings. (5 RR 16-17; see PX 676) Any or all of this evidence is more than sufficient to support the jury s finding that LAN/STV supplied false information for the guidance of others in their business. 17 LAN/STV further confuses the issue -- and ultimately misses the point of this lawsuit -- when it argues that this case is really about Eby s unmet expectations, not misrepresentations. (LAN/STV Br. at 45-47) The jury obviously rejected this argument, but more importantly, the question whether Eby had unmet expectations has nothing to do with any of the four elements of a claim for negligent misrepresentation. (Id. at 43) This was not a project that required more changes than Eby expected merely because DART changed its mind. (Id. at 46) Rather, this was a project that had to be largely redesigned because of the numerous mistakes in LAN/STV s plans and drawings. Thus, although LAN/STV recites the testimony of Diane Gollhofer, DART s vice president of construction management, that she typically expects to have changes in 10 to 13% of the 17 Although LAN/STV briefly discusses a litany of [so-called] disclaimers that are buried within its plans (LAN/STV Br. at 45) -- a discussion it later repeats in its argument regarding Eby s justifiable reliance (id. at 47) -- the alleged disclaimers have nothing to do with whether LAN/STV supplied false information and are therefore fully addressed in Part V(B) below. 63

79 drawings in a design/bid/build project (id. at 45-46, citing 5 RR 169), LAN/STV ignores the more relevant evidence that of the 600 drawings it prepared for the NW-1A project, 490 of them (approximately 80%) had to be changed (4 RR 71; PX 6, 676). Nor can LAN/STV remove this case from the scope of Restatement section 552 by repeating the words expected or expectations. (LAN/STV Br. at 46-47; 4 RR 81) Just as the borrower in Sloane expected that the bank would make a loan and the purchaser in Cook Consultants expected that the survey would accurately depict the property boundaries, Eby expected that the plans and drawings of LAN/STV would be accurate and buildable. LAN/STV thus raises false issues when it recycles the argument that contract law controls, that Eby s contract with DART provides solutions if Eby encounters problems, and that [i]f Eby is dissatisfied with the contractual procedures, or DART s performance of its contractual obligations, Eby can sue DART on that contract. (LAN/STV Br. at 47) These observations ignore the uncontroverted evidence that Eby would not have bid on the project or entered into the contract in the first place had it known that the plans were so riddled with false information as to be wholly unreliable. (4 RR ) B. Eby Justifiably Relied on LAN/STV s Representations. LAN/STV s final contention -- that no evidence supports the jury s finding in Question No. 1 that Eby justifiably relied on LAN/STV s negligent misrepresentation (LAN/STV Br. at 47-49) -- is equally meritless. As an initial matter, LAN/STV ignores all of the evidence demonstrating that, in submitting its bid to build the NW-1A project and entering into the contract with DART, Eby actually and justifiably relied on 64

80 LAN/STV s plans and drawings in the bid documents. Indeed, the evidence was undisputed that: it is customary and ordinary that a contractor relies on the accuracy and completeness of the information in bid documents (4 RR 105); as the architect and engineer, LAN/STV signed and sealed the plans and drawings (PX 87A, 87G; see 3 RR 153; 5 RR 138), thereby indicating that the documents may be used for construction, that the work was done by LAN/STV or performed under [its] direct supervision, and that it was tak[ing] full professional responsibility for that work, see 22 TEX. ADMIN. CODE 1.101; id (b); Eby relied on the contract drawings and submitted a bid price based on what it saw in the design prepared by LAN/STV and on its belief that the drawings were complete and accurate (4 RR ; 5 RR 6-7; see 3 RR 124; PX 613 at p.5; PX 621 at p.5); and Eby would not have submitted its bid or entered into the contract were it not for the bid documents that turned out to be unbuildable (4 RR ). This and other evidence amply supports the jury s finding in Question No. 1 that Eby justifiably relied on a negligent misrepresentation by LAN/STV. (1 CR 146) Rather than credit this evidence, as is required under a legal sufficiency review, LAN/STV instead argues that Eby could not have justifiably relied on the plans and drawings because they supposedly contained so-called disclaimers. (LAN/STV Br. at 47-48) For at least four reasons, this argument is unavailing. First, LAN/STV has waived this argument because it never identified or relied on any of the purported disclaimers in moving for directed verdict (5 RR 71-76; 7 RR ), in objecting to the jury charge (7 RR ), in opposing Eby s motion for judgment (1 CR ), in moving for a new trial (1 CR ), or in moving to disregard certain jury findings and to modify, correct, or reform the judgment (1 CR

81 300, ). Because LAN/STV did not preserve this complaint below, it may not raise it for the first time on appeal. See TEX. R. APP. P. 33.1(a)(1). Second, LAN/STV has also waived this issue by failing to cite a single authority, as required by TEX. R. APP. P. 38.1(i), supporting its contention that boilerplate statements (such as the ones it invokes) vitiate a plaintiff s reliance on a negligent misrepresentation as a matter of law. Third, with one minor exception (discussed below) relating to the location of certain utilities, LAN/STV never pointed out to the jury or questioned witnesses about any of these purported disclaimers. Nor did LAN/STV adduce any evidence that Eby was aware of any of these disclaimers at the time it relied on LAN/STV s plans and drawings. Indeed, the so-called disclaimers amount to nothing more than a few boilerplate and inconspicuous statements that are buried within two exhibits: (1) a 621- page compilation of the plans and drawings for the NW-1A project (PX 87G), and (2) the 567-page contract with attachments between Eby and DART (DX 2005). (See LAN/STV Br. at 45, [citing statements from PX 87G and DX 2005]) Fourth, the statements do not relate to many of the negligent misrepresentations Eby proved at trial (e.g., the bridge design, the steel straps in the retaining wall, and the location of a visible manhole), and under Question No. 1, Eby was required to establish only a single negligent misrepresentation on which it relied. (1 CR 146) Although LAN/STV tries to create the illusion that the disclaimers were extensive and somehow precluded Eby from relying on any of the plans and drawings (LAN/STV Br. at 47-48), 66

82 an accurate review of what the disclaimers actually say demonstrates that they have no such effect. For example: LAN/STV asserts that the drawings themselves expressly charge Eby that their accuracy cannot be guaranteed. (Id. at 47, citing PX 87G at 8041, 8191, 8594) In fact, there is no such broad statement. Rather, the non-guarantee that LAN/STV purports to quote is limited to a narrow scope of utility information that was based on records... collected from both public and private sources (as opposed to other utility information that was based on [actual] field measurements and field data ). (PX 87G at 8041, 8191, 8594) In preparing the plans and drawings, LAN/STV conducted field surveys and many of the utilities that it mislocated were both visible and measurable. (See, e.g., 4 RR 45-47; 5 RR 122; PX 1513) LAN/STV implies that all of the information is intended only as a guide for pricing and does not represent a final design. (LAN/STV Br. at 47, citing PX 87G at 8513, , 8525, ) But the statement that LAN/STV selectively quotes refers only to the fire standpipe shown on these drawings -- a component of the design that was not at issue -- and it merely provides that the fire standpipe shown on these drawings is a schematic plan intended for the contractors information only as a guide for pricing and does not represent a final design. (PX 87G at 8513, , 8525) LAN/STV relies on a provision of the Eby-DART contract to claim that the contractor must conduct a site investigation prior to beginning work. (LAN/STV Br. at 47, citing DX 2005 at 103 (emphasis added)) But at the time Eby entered into the contract with DART in April 2002 (DX 2005) and began work in June 2002, its reliance was already complete because it had submitted its bid in February 2002 based on LAN/STV s plans and drawings (PX 199). Importantly, Eby and the other bidders were not allowed to conduct a meaningful site investigation prior to submitting their bids. Because of insurance issues and the presence of live rail lines, the bidders were only permitted to take a bus tour of the area during the bidding process and were not allowed to get off the bus or enter the site. (4 RR 89; 5 RR 7, 44) LAN/STV raises a false issue when it contends that Eby was responsible for verifying the location of utilities prior to construction. (LAN/STV Br. at 47) Although Eby may have been responsible for verifying (or confirming) the actual location of the utilities before beginning the actual work (4 RR ), LAN/STV was responsible for locating, surveying, and identifying those utilities in the first instance as part of the pre-bidding process (4 RR 43-44, 46, 67

83 49; 6 RR 69). Unlike LAN/STV, Eby was not provided access to the site to do so. (4 RR 89; 5 RR 7, 44) In short, inconspicuous and boilerplate statements like the ones LAN/STV cites cannot as a matter of law vitiate Eby s reliance on LAN/STV s plans and drawings or otherwise immunize LAN/STV from the consequences of affirmatively supplying false information. 18 The purported disclaimers are particularly ineffective here because (1) there is no evidence that the statements were ever specifically discussed or negotiated with Eby, (2) Eby did not sign any document expressly disclaiming its reliance on LAN/STV s plans and drawings, and (3) Eby and the other contractors were entitled to rely on the plans and drawings in submitting their bids and had no right or ability to conduct on-site inspections to confirm the accuracy of LAN/STV s plans and drawings before bidding. 18 The case law confirms that the presence of a disclaimer does not preclude a plaintiff from justifiably relying on a misrepresentation. See Stack v. Richman, 286 S.W.3d 44, 50 (Tex. App. -- Dallas 2009, pet. denied) (fact issue existed as to whether express disclaimer, which advised purchasers that the information regarding the size of the property was not guaranteed, negated the purchaser s justifiable reliance on the alleged misrepresentations when the evidence demonstrated that a disclaimer did not appear with every representation of the lot s size ); Pleasant, 260 S.W.3d at 551, (evidence was legally and factually sufficient for jury to conclude that purchasers relied on realtor s representation of the square footage of a house even though the purchasers signed a disclaimer form advising them to verify all information and stating that they have not relied upon any statement given to [them] by the REALTOR ); Hycel, Inc. v. Wittstruck, 690 S.W.2d 914, 922 (Tex. App. -- Waco 1985, writ dism d) (disclaimer in product brochure that [a]ll illustrations and specifications contained in this folder are based on the latest information available was ineffective and could not insulate manufacturer from liability for misrepresentations contained in brochure); accord Davidson and Jones, Inc. v. County of New Hanover, 255 S.E.2d 580, 585 (N.C. Ct. App. 1979) (agreement between county and contractor that contractor was to rely entirely on its own judgment in submitting its bid and was to conduct a site inspection to have a complete understanding of all existing conditions relating to the work did not render engineering firm immune from liability for negligent misrepresentations contained in the soil condition report). 68

84 Finally, LAN/STV cannot negate Eby s reliance by proclaiming that the parties were in an adversarial relationship (LAN/STV Br. at 48) -- another contention that LAN/STV raises for the first time on appeal. Tellingly, LAN/STV cites no evidence to support this characterization of the parties relationship at the bidding stage. It ignores the evidence that Eby had previously worked with LAN/STV to build another portion of the DART light rail line in Plano without incident. (4 RR ) And it ignores common sense because all the parties to the project -- the owner (DART), the design professional (LAN/STV), and the bidding contractors (including Eby) -- had a shared hope and expectation that the plans and specifications would communicate accurate and complete information. 19 See Forte Bros., 525 A.2d at For these reasons, LAN/STV s reliance on McCamish is misplaced because the Texas Supreme Court in that case recognized that a borrower could justifiably rely on the representations of a lender s attorneys, particularly where the professional invites reliance by a nonclient. McCamish, 991 S.W.2d at Although the Court further noted that a third party s reliance on an opposing attorney s representations is not justified when the representation takes place in an adversarial context (such as litigation), the Court concluded that the characterization of the inter-party relationship should be guided, at least in part, by the extent to which the interests of the client and the 19 To be sure, the relationship between Eby and LAN/STV became adversarial during the construction phase after Eby uncovered and reported numerous flaws and errors in LAN/STV s plans and drawings. (E.g., 3 RR 94-96) Although this may explain LAN/STV s internal memo scheming to get rid of Eby and to make it obvious who the bad guy is if this ever goes to court (PX 310; 4 RR ), it does not excuse LAN/STV from supplying correct information during the bidding process or preclude Eby from relying on that information. 69

85 third party are consistent with each other. Id. at 794. Here, the interests of DART, Eby, and LAN/STV were aligned at the bidding stage -- each of them had a common goal of having accurate plans and specifications that would enable the project to be efficiently built in accordance with those plans and specifications. LAN/STV s challenges to the sufficiency of the evidence have not merit and should be rejected. PRAYER For the reasons set forth above and in its opening brief, Appellant Martin K. Eby Construction Company, Inc. respectfully prays that the Court: (1) overrule the points of error urged by LAN/STV in its cross-appeal; (2) modify the judgment to award Eby the full $5,000,000 in damages found by the jury; and (3) remand the case to the trial court to recalculate the prejudgment interest on such sum. Eby further prays for such other relief to which it is entitled. 70

86 Respectfully submitted, /s/ Jeffrey S. Levinger Daniel J. Davis State Bar No Davis Law Firm 1930 Bryan Tower 2001 Bryan Street Dallas, Texas Telephone: Facsimile: Jeffrey A. Ford State Bar No Ford, Nassen & Baldwin P.C N. Central Expwy., #1600, LB65 Dallas, Texas Telephone: Facsimile: Jeffrey S. Levinger State Bar No Brett Kutnick State Bar No Hankinson Levinger LLP 750 N. St. Paul St., Suite 1800 Dallas, Texas Telephone: Facsimile: Attorneys for Appellant CERTIFICATE OF SERVICE The undersigned certifies that a copy of this Appellant s Reply and Cross- Appellee s Brief was served upon the following counsel for Appellee on this 24th day of June, 2010: James W. Grau Scott A. Whisler Grau Koen, P.C North Haskell Avenue Suite 2000 Dallas, Texas (by hand-delivery) Thomas C. Wright Wanda McKee Fowler Bradley W. Snead Wright Brown & Close Three Riverway, Suite 600 Houston, Texas (by Federal Express) /s/ Brett Kutnick Brett Kutnick 71

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