                                                                                 ACCEPTED
                                                                             03-14-00131-CV
                                                                                     7874643
                                                                  THIRD COURT OF APPEALS
                                                                             AUSTIN, TEXAS
                                                                       11/17/2015 5:18:59 PM
                                                                           JEFFREY D. KYLE
                                                                                      CLERK
                        NO. 03-14-00131-CV

                   THIRD COURT OF APPEALS                   FILED IN
                                                     3rd COURT OF APPEALS
                        AUSTIN, TEXAS                     AUSTIN, TEXAS
                                                     11/17/2015 5:18:59 PM
                 ZBRANEK CUSTOM HOMES, LTD.              JEFFREY D. KYLE
                                                              Clerk
                                              Appellant
                                v.

              JOE ALLBAUGH AND DIANE ALLBAUGH

                                              Appellees


            Appealed from the 419th Judicial District Court of
                         Travis County, Texas
__________________________________________________________________

         APPELLANT ZBRANEK CUSTOM HOMES, LTD.’S
                 MOTION FOR REHEARING

__________________________________________________________________

                              David E. Chamberlain
                              Tim Poteet
                              Erin Westendorf-Boyd
                              CHAMBERLAIN ♦ McHANEY
                              301 Congress Avenue, 21st Floor
                              Austin, Texas 78701
                              (512) 474-9124
                              (512) 474-8582 (Facsimile)
                              dchamberlain@chmc-law.com
                              tpoteet@chmc-law.com
                              ewestendorf@chmc-law.com

                              ATTORNEYS FOR APPELLANT




                                 1
                                          TABLE OF CONTENTS

Index of Authorities .................................................................................................3

Causation Evidence Was Insufficient to Support Finding ......................................6

Damages Evidence Was Insufficient to Support Award .......................................10

Contractual Waiver of Rights Should Apply to Bar Recovery ............................15

The “As Is” Clause Should Apply to Bar Recovery ..............................................20

Prayer ....................................................................................................................22




                                                              2
                                      INDEX OF AUTHORITIES

Cases

Ace Prop. & Cas. Ins. Co. v. Prime Tempus, Inc.
No. 03-06-00236-CV, 2009 WL 2902713 (Tex. App.
—Austin 2009, no pet.) ......................................................................................... 20

Atl. Mut. Ins. Co. v. Crow Design Centers
148 S.W.3d 743 (Tex. App.—Dallas 2004, no pet.) ............................................ 18

City of Keller v. Wilson
168 S.W.3d 802 (Tex. 2005) ................................................................. 9, 10, 13, 14

Cooper Tire & Rubber Co. v. Mendez
204 S.W.3d 797 (Tex. 2006)................................................................................. 13

Crisp v. Security Nat’l Ins. Co.
369 S.W.2d 326 (Tex. 1963) ........................................................................... 10, 11

Daubert v. Merrell Dow Pharms., Inc.
509 U.S. 579 (1993) ................................................................................................ 6

Edgar v. Stanolind Oil & Gas Co.
90 S.W.2d 656 (Tex. Civ. App.—Austin 1935, writ ref’d) .................................. 16

E.I. du Pont de Nemours & Co. v. Robinson
923 S.W.2d 549 (Tex. 1995)................................................................................... 6

Gharda USA, Inc. v. Control Solutions, Inc.
464 S.W.3d 338 (Tex. 2015) ................................................................. 6, 7, 8, 9, 10

Gulf States Utilities Co. v. Low
79 S.W.3d 561 (Tex. 2002) ................................................................................... 11

Helena Chem. Co. v. Wilkins
47 S.W.3d 486 (Tex. 2001) ................................................................................... 12

Highland v. City of Galveston
54 Tex. 527 (1881) ................................................................................................ 16

                                                           3
Income Apartment Investors, L.P. v. Bldg. Diagnostics, Ltd.
No. 03-97-00656-CV, 1998 WL 476777 (Tex. App.—Austin 1998,
no pet.)................................................................................................................... 21

Liberty Sign Co. v. Newsom
426 S.W.2d 210 (Tex. 1968) ................................................................................. 20

MAN Engines & Components, Inc. v. Shows
434 S.W.3d 132 (Tex. 2014) ........................................................................... 19, 22

New Texas Auto Auction Services, L.P. v. De Hernandez
249 S.W.3d 400 (Tex. 2008) ................................................................................. 19

Prudential Ins. Co. of Amer. v. Jefferson Assocs., Ltd.
896 S.W.2d 156 (Tex. 1995)........................................................................... 18, 21

Redman Homes v. Ivy
920 S.W.2d 664 (Tex. 1996) ................................................................................. 11

State v. Vaughan
319 S.W.2d 349 (Tex. Civ. App.—Austin 1958, no writ) .................................... 16

Trinity Universal Ins. Co. v. Bill Cox Constr. Inc.
75 S.W.3d 6 (Tex. App.—San Antonio 2001, no pet.)......................................... 17

TX. C.C., Inc. v. Wilson/Barnes Gen. Contractors, Inc.
233 S.W.3d 562 (Tex. App.—Dallas 2007, pet. denied) ...................................... 17

TXI Transp. Co. v. Hughes
306 S.W.3d 230 (Tex. 2010) ................................................................................... 6

Walker Eng’g, Inc. v. Bracebridge Corp.
102 S.W.3d 837 (Tex. App.—Dallas 2003, pet. denied) ...................................... 17

Wal-Mart Stores, Inc. v. Merrell
313 S.W.3d 837 (Tex. 2010) ................................................................................... 6

Welwood v. Cypress Creek Estates, Inc.
205 S.W.3d 722 (Tex. App.—Dallas 2006, no pet.) ...................................... 18, 20

                                                               4
Whirlpool Corp. v. Camacho
298 S.W.3d 631 (Tex. 2009) ................................................................................... 6

Rules

Tex. R. App. P. 9.4(e) ........................................................................................... 24

Tex. R. App. P. 9.4(i)(1) ....................................................................................... 24

Tex. R. App. P. 9.4(i)(2)(D) ................................................................................. 24

Tex. R. App. P. 49 ................................................................................................... 6

Tex. R. Evid. 702 .................................................................................................. 12




                                                            5
TO THE HONORABLE COURT OF APPEALS:

      Appellant Zbranek Custom Homes, Ltd., respectfully asks the Court to

withdraw its opinion and decision of November 3, 2015, and to reconsider

Zbranek’s appeal, pursuant to Tex. R. App. P. 49. Zbranek relies on the following

points for rehearing:

             Causation Evidence Was Insufficient to Support Finding

      1.     Zbranek contends that the evidence was legally, or, in the alternative,

factually, insufficient to prove its acts or omissions relating to the subject fireplace

caused the fire. The Court rejects this contention, holding that causation in general

is a fact question. Slip op. at 11. However, the opinion does not cite or analyze the

Allbaughs’ expert evidence under the rules and reasoning in Daubert v. Merrell

Dow Pharms., Inc., 509 U.S. 579 (1993), E.I. du Pont de Nemours & Co. v.

Robinson, 923 S.W.2d 549 (Tex. 1995), and their progeny, that set out current

standards for evaluating expert testimony and its relation to sufficiency of evidence

review.1

      Moreover, the Court’s opinion does not fairly state Zbranek’s arguments in

its analysis. The Court states that “While Zbranek correctly notes that the

Allbaughs’ experts did not testify about what the actual temperatures were at the

specific locations where the fire started, there was nonetheless sufficient evidence
1
  Zbranek cited, e.g., Whirlpool Corp. v. Camacho, 298 S.W.3d 631 (Tex. 2009); TXI Transp.
Co. v. Hughes, 306 S.W.3d 230 (Tex. 2010); Wal-Mart Stores, Inc. v. Merrell, 313 S.W.3d 837
(Tex. 2010); and Gharda USA, Inc. v. Control Solutions, Inc., 464 S.W.3d 338 (Tex. 2015).


                                            6
from which a reasonable fact finder could infer that faulty construction of the

fireplace caused the home fire.” Id. at 12. Respectfully, it is Zbranek’s specific

contention that the Allbaughs offered no facts to prove that the temperatures were

sufficient to cause the fire at the locations where the Allbaughs contend the fire

started.

       Instead the Allbaughs’ experts offered only conclusory assertions that the

temperatures at those locations were sufficient. Their opinion testimony was based

on no testing or calculations or other reliable basis, and amounted to only

speculation based on generic information that left an analytical gap between the

conclusions offered and the facts purporting to support them. The Texas Supreme

Court has consistently reversed judgments based on similarly insufficient expert

evidence, most recently in Gharda USA, Inc. v. Control Solutions, Inc., 464

S.W.3d 338 (Tex. 2015), a fire loss case having issues very similar to those here.

       In Gharda USA, the court considered whether interdependent opinion

testimony of four experts was reliable, and held that the testimony of all four

experts was unreliable because the individual opinion testimony of at least two

experts was unreliable and the remaining two experts based their opinions on the

first two experts' unreliable opinions. 464 S.W.3d at 342. Because all of the

plaintiffs' expert testimony was unreliable, there was no evidence of an essential

element of the plaintiffs' claims, and the court rendered judgment that the claimant



                                         7
take nothing. Id. Zbranek believes the same reasoning should apply here and have

the same result.

      Zbranek agrees that the Allbaughs’ experts did not connect the dots, but

respectfully disagrees that the jury was entitled to infer causation from their

testimony. See Gharda, 464 S.W.3d at 353 (jury prohibited from inferring

causation based on circumstantial evidence and unreliable expert opinion

testimony). The Allbaughs offered only theories and assumptions, and presented

no calculations, research, or tests to determine whether there was sufficient heat to

start a fire in the way they conjectured. The testimony has analytical gaps and “is

connected to existing data only by the ipse dixit of the expert.” See id. at 351. Their

conclusory testimony was unsupported, unreliable and constituted no evidence,

like that of the experts in Gharda USA. See id. at 350-52.

      Further, the Allbaughs’ experts did not provide competent and sufficient

testimony ruling out all other possible causes. In particular, Zbranek quoted

testimony from the Allbaughs’ expert electrical engineer Mark Goodson that he

could not rule out an electrical cause for the fire. RR 4:58, lines 17-25; RR 4:59,

lines 1-3; 4:60, lines 21-25; 4:61, lines 1-4; 4:63, lines 1-10; 4:67, lines 21-24; 4:

74, lines 21-25; 4:76, lines 4-6. The Allbaughs’ causation expert, Michael Chaney

is not an electrical engineer or even an electrician, and he deferred to Goodson’s

opinion on all electrical issues. RR 6:217, lines 7-25; 6:218, lines 1-6. The



                                          8
Allbaughs did not offer competent testimony of any other qualified witness to rule

out electrical causes. “No evidence” review cannot disregard evidence that a

witness is unqualified to give an opinion. See City of Keller v. Wilson, 168 S.W.3d

802, 813 (Tex. 2005).

         Expert evidence that fails to meet reliability standards is not only

inadmissible but also incompetent. Id. An appellate court conducting a no-evidence

review cannot consider only an expert's bare opinion, but must also consider

contrary evidence showing it has no scientific basis. Id. Such is the case here, as

Goodson’s specific testimony negated any conclusory assertions of any other

expert of the Allbaughs. Evidence that might be “some evidence” when considered

in isolation is nevertheless rendered “no evidence” when contrary evidence shows

it to be incompetent. Id. The Court appears to have disregarded Goodson’s

testimony that he could not rule out an electrical cause for the fire.

         In addition, testimony that there “may have been a ‘false chimney’” into

which hot flue gases “may have escaped,” is equivocal, conclusory and

unsupported testimony, and as such is legally insufficient.2 See Gharda USA, 464

S.W.3d at 350 (stating “reliable expert testimony must be based on a probability

standard, rather than on mere possibility” and holding “possibility” testimony

legally insufficient).


2
    Emphasis added.


                                           9
      Applying the controlling principles in Gharda USA and City of Keller, the

Allbaughs’ experts’ causation opinions were incompetent and conclusory.

Consequently, they were legally (or factually) insufficient. Zbranek respectfully

requests the Court to reconsider the evaluation of the Allbaughs’ experts’

testimony, particularly in light of the Texas Supreme Court’s analysis of the

testimony of four experts in Gharda USA, which that court found legally

insufficient. For the same essential reasons, the Allbaughs’ expert evidence was

legally or, in the alternative, factually, insufficient to support the causation finding

and judgment.

              Damages Evidence Was Insufficient to Support Award

      2.     Zbranek respectfully asks the Court to reconsider Zbranek’s

contention that the evidence of the replacement cost of the property damaged in the

subject fire was legally or, in the alternative, factually, insufficient to support the

damages awarded to the Allbaughs. There was no other competent or sufficient

evidence. The Court’s opinion holds that evidence of replacement cost is sufficient,

stating that “replacement cost is one of the factors that fact-finders may consider in

making the determination of actual value,” citing Crisp v. Security Nat’l Ins. Co.,

369 S.W.2d 326, 329 (Tex. 1963). Slip op. at 13. The Court also stated “Zbranek

has cited no authority for the proposition that the plaintiff must present evidence on

all of these factors or on any more than one of them, and we decline to broaden the



                                          10
holding of Crisp to so require.” Id. Respectfully, Zbranek believes it did submit

authority that the Allbaughs were required to present evidence of value beyond

replacement cost and that no extension of Crisp is required to hold that the

Allbaughs’ evidence was legally or factually insufficient.

      Specifically, Zbranek cited the statement in Crisp that, for recovery of actual

value, “replacement costs do not afford a fair test.” 369 S.W.2d at 328. Zbranek

also cited Gulf States Utilities Co. v. Low, 79 S.W.3d 561, 566 (Tex. 2002) (stating

“replacement cost is rarely, if ever, the appropriate measure for such personal

property”) and Redman Homes v. Ivy, 920 S.W.2d 664, 669 (Tex. 1996), where the

court noted that the owner’s estimate of lost property’s value is probative if based

on the owner’s estimate of market value and not some intrinsic value or other value

such as replacement cost. Id. at 669. These authorities show that replacement costs

alone do not afford a basis from which a fact-finder may determine actual value of

damaged personal property, and an award of damages for replacement cost results

in a windfall recovery. See Appellant’s Brief at 43-44.

      In fact, the Gulf States court cited Crisp as support for the statement “[i]n

some situations, replacement value does not properly measure damages because it

may represent an economic gain to the plaintiff (citations omitted). This may be

true for household goods, clothing, and personal effects.” 79 S.W.3d at 566 (citing

Crisp, 369 S.W.2d at 328). That is Zbranek’s contention. Crisp held that fact



                                         11
finders may consider original cost; cost of replacement; opinions of qualified

witnesses, including owner; and use to which property was put in making actual-

value determination. See Crisp, 369 S.W.2d at 329, 330-31. Crisp and the other

authorities cited indicate that evidence of replacement cost should be presented in

conjunction with other evidence that provides a basis for the fact-finder to decide

the actual value of the property to the owner at the time of the damage. Zbranek

respectfully submits based on the foregoing authorities that no extension of Texas

law is necessary to hold that evidence of replacement cost alone for lost personal

property having no market value is, legally or factually, insufficient.

      In addition to its contention that even proper replacement cost evidence

alone could not be sufficient, Zbranek contends the Allbaughs’ evidence did not

constitute proper evidence of replacement cost or of any other value. The

Allbaughs’ retained witness, Sandra Garber was not competent to testify as an

expert under Tex. R. Evid. 702. That she has a library degree and looks up

“replacement cost” prices on the internet for her employer, as the record indicates,

is insufficient to render her a qualified and competent witness under Texas law. In

deciding if an expert is qualified, trial courts “must ensure that those who purport

to be experts truly have expertise concerning the actual subject about which they

are offering an opinion.” Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 499 (Tex.

2001). Admission of expert testimony that does not meet the reliability



                                          12
requirement is an abuse of discretion. Cooper Tire & Rubber Co. v. Mendez, 204

S.W.3d 797, 800 (Tex. 2006). Looking up information on the internet and putting

it in a report may be what Ms. Garber’s job entails, but merely doing that should

not be sufficient to make anyone an expert on the actual value of property to the

Allbaughs. Without the internet, Ms. Garber would have had no opinion at all.

Information consisting of prices found on the internet for purportedly similar

property should not be competent or sufficient expert evidence of replacement

costs for the property. Finally, the Allbaughs’ own testimony, which the Court

charitably describes as “cursory,” was legally (or factually) insufficient to assist

the jury in finding a dollar value for the lost property and to support the finding the

jury did make. See slip op. at 13. When the evidence offered to prove a vital fact is

no more than a mere scintilla, there is no evidence. City of Keller, 168 S.W.3d at

810.

       That the jury entered dollar values in the verdict form does not change the

fact that they were provided only improper, incompetent and insufficient

replacement cost information, which information permitted to them to do nothing

other than speculate about the actual value of the property to the Allbaughs.

Zbranek acknowledges, as the Court states, that a jury has discretion to determine

damages within the range of evidence presented at trial, but there was no range of

evidence in this case. The Court states that the difference between the damages the



                                          13
Allbaughs requested and the amount the jury awarded may be explained by the

jury’s taking into account factors such as depreciation of the property, but the

Court also notes that the Allbaughs’ damages expert testified that replacement-

value estimates do not take into account depreciation, age, or condition. Slip op. at

13-14. There was no actual evidence to enable the jury to assess depreciation. The

Allbaughs only testified that the items were in “great condition” and they planned

use the item “for a long time,” which testimony gave the jury no basis to determine

depreciation or any other component of “actual value” as defined by the charge and

Texas law. The Allbaughs’ own testimony was legally (or factually) insufficient to

constitute an opinion about the property’s value. See City of Keller, 168 S.W.3d at

810.

       In summary, Zbranek did cite authority to support its argument that evidence

of replacement cost alone was not sufficient to establish “actual damages” under

Texas law; the only evidence of replacement value was offered by an unqualified

witness and was unreliable and legally or factually insufficient; and the Allbaughs’

testimony was legally or factually insufficient. The evidence allowed the jury to

consider only improper information of replacement value and otherwise to

speculate on the actual value of the property to the Allbaughs. The jury’s damage

award is based on legally insufficient evidence, or alternatively factually

insufficient evidence.



                                         14
              Contractual Waiver of Rights Should Apply to Bar Recovery

         3.      Zbranek contends that the waiver of rights in the construction contract

between property owner Bella Cima Development and Zbranek applies to the

Allbaughs because, among other reasons, (1) there is no dispute that the waiver

would have applied to a similar claim for insured losses by Bella Cima arising

from the subject fire, and (2) the Allbaughs as lessees of the house built by

Zbranek and owned by Bella Cima should not have greater rights against Zbranek

relating to insured loss involving the house than Bella Cima could have.3 The

Court declined to address Zbranek’s argument that the Allbaughs as lessees of

Bella Cima “could not have better rights than their lessor” against Zbranek,

referring to this as a “bare assertion (unsupported by any relevant legal authority).”

Slip op. at 8, n. 4. The Court’s opinion further states “[w]e will not address this

argument because we have already determined that a builder may owe a duty to

non-parties to a construction contract, and Zbranek has cited no authority

supporting its contention that this general duty should not apply to lessees.” Id.

         Zbranek believes it did present relevant authority that warrants the Court’s

consideration as explained below. Zbranek respectfully disagrees with the Court’s

separate determination that Zbranek owed a duty to the Allbaughs, but this

determination alone should not be dispositive, because, regardless of any duty, the


3
    Of course, Bella Cima Development did not assert a claim.


                                                15
Allbaughs should be bound by Bella Cima’s waiver of rights to the extent of

claims for losses covered by insurance relating to the subject house. Moreover,

Zbranek has not argued that a common law duty of care generally cannot apply to

a lessee as the Court’s footnote indicates; instead Zbranek argues that these lessees,

the Allbaughs, cannot recover for insured losses due to the waiver of rights in the

construction contract between the Allbaughs’ lessor, Bella Cima and Zbranek.

          Zbranek respectfully requests that the Court reconsider the authorities it

submitted and its argument that the waiver of rights applies to the Allbaughs as

lessees of Bella Cima. First, Zbranek cited authority to support the argument that

the Allbaughs as lessees cannot have greater rights than would their lessor Bella

Cima. Zbranek cited cases involving rights of lessees, including (1) Highland v.

City of Galveston, 54 Tex. 527, 533 (1881), which states “Had the plaintiff

occupying the premises as tenant or lessee of the owner any other or greater right

to recover damages than the lot owner would have had, had he himself been the

occupant? In our opinion this question must be answered in the negative;” (2) State

v. Vaughan, 319 S.W.2d 349, 354 (Tex. Civ. App.—Austin 1958, no writ), which

states “All individuals hold property subject to the right of the State (and other

entities) to condemn the same and of course tenants who occupy the property have

no greater right than the owners” (emphasis added);4 and (3) Edgar v. Stanolind


4
    See Appellant’s Brief at 23.


                                          16
Oil & Gas Co., 90 S.W.2d 656, 657 (Tex. Civ. App.—Austin 1935, writ refused)

(holding “Edgar could secure no greater right under the law than that vested in his

lessors.”)5

         Second, though the Court determined that “a builder may owe a duty to non-

parties to a construction contract,” the waiver of rights should encompass rights

arising from such a duty, including tort claims. Texas courts routinely enforce

contractual pre-loss waivers of rights that preclude insurance subrogation claims

based on alleged torts. See, e.g., TX. C.C., Inc. v. Wilson/Barnes Gen. Contractors,

Inc., 233 S.W.3d 562, 567-568 (Tex. App.—Dallas 2007, pet. denied) (applying

waiver provision in contract to bar subrogation claim for negligence, breach of

contract, and warranty arising from fire loss); Walker Eng’g, Inc. v. Bracebridge

Corp., 102 S.W.3d 837, 841 (Tex. App.—Dallas 2003, pet. denied) (holding

contractual waiver of claims for insured losses barred negligence claims arising

from electrical work that caused water pipe leak and flooding in building); Trinity

Universal Ins. Co. v. Bill Cox Constr. Inc., 75 S.W.3d 6, 8 (Tex. App.—San

Antonio 2001, no pet.) (holding contractual waiver barred subrogating insurer’s

negligence claim arising from fire loss). Under these authorities, a waiver of rights

would apply to any tort claim for fire loss covered by insurance that hypothetically




5
    Appellants’ Reply Brief at 16.


                                         17
would be asserted by Bella Cima or its subrogee insurer, so the existence of a tort

claim for property damage does not of itself preclude application of the waiver.

       Third, Bella Cima’s waiver of rights for insured loss should apply to its

lessee, the Allbaughs. It is undisputed that the only damages awarded were paid by

the Allbaughs’ insurer. Zbranek cited authorities supporting its contention that

Bella Cima’s waiver may apply to the Allbaughs who by means of the lease were

in vertical privity with Bella Cima as to the house. In addition to the cases cited

above relating to rights of lessees, Zbranek cited Prudential Ins. Co. of Amer. v.

Jefferson Assocs., Ltd., 896 S.W.2d 156 (Tex. 1995) and Welwood v. Cypress

Creek Estates, Inc., 205 S.W.3d 722 (Tex. App.—Dallas 2006, no pet.). In

Welwood, the court observed that in according to the Jefferson court’s holding a

secondary purchaser of the property at issue acquired no better rights than the

primary purchaser and was bound by an “as is” clause in the agreement between

primary purchaser and seller. See Welwood, 205 S.W.3d at 727-28 (enforcing “as

is” clause against subsequent purchaser aligned with original purchaser). Zbranek

believes the reasoning in those cases supports Zbranek’s contentions and warrants

the Court’s consideration.6


6
  The court cites Atl. Mut. Ins. Co. v. Crow Design Centers, 148 S.W.3d 743, 744-45 (Tex.
App.—Dallas 2004, no pet.), in which the court reversed a summary judgment based on a waiver
of rights in a lease because there was no evidence for purposes of summary judgment of any
contractual relationship between the appellee and the parties to the lease. The record in this case
establishes the privity relationship between Zbranek and Bella Cima, and Bella Cima and the
Allbaughs.


                                                18
      Mid-Continent also cited MAN Engines & Components, Inc. v. Shows, 434

S.W.3d 132 (Tex. 2014), which involves an analogous principle. There the court

observed, in the context of an implied warranty claim arising out of a sale of used

yacht engines, that as a matter of Texas common law “[w]hen a manufacturer

disclaims implied warranties, such express language necessarily applies

downstream to subsequent purchasers, as Buyer # 2 cannot tenably boast a greater

warranty than that given to Buyer # 1.” Id. at 133-34. The court reiterated:

      . . . [A] downstream purchaser cannot obtain a greater warranty than
      that given to the original purchaser, so if the manufacturer at the point
      of original sale makes a valid disclaimer of implied warranties, that
      disclaimer extends to subsequent purchasers.

Id. at 140. While the warranty at issue in MAN Engines arises from the UCC,

issues of privity were left to the courts to determine under the common law. Id. at

137. Therefore the Texas Supreme Court’s privity analysis in MAN Engines

regarding warranty disclaimers, and its holding that a disclaimer made to the initial

buyer is binding on any subsequent buyer, are relevant by analogy to the question

whether contractual waivers of rights are binding on parties in vertical privity with

one of the original contracting parties. Similarly, the court in New Texas Auto

Auction Services, L.P. v. De Hernandez, 249 S.W.3d 400 (Tex. 2008), held that an

auctioneer could not be liable to downstream purchasers for negligence in the sale

of a product because the auctioneer had no duty to downstream purchasers, and

additionally because the vehicle was sold “as is.” Id. at 407. In each of these

                                         19
instances, terms of agreement were held to apply to downstream parties. These

authorities also support Zbranek’s arguments.

       Because the Allbaughs’ rights in the property as lessees derived directly

from Bella Cima as lessor, and Bella Cima could not recover from Zbranek for

insured losses due to its waiver of rights, Bella Cima’s lessees the Allbaughs

likewise should not be able to recover from Zbranek for insured losses. See, e.g.,

Welwood, 205 S.W.3d at 726-27.7 Zbranek believes the “successors and assigns”

terms in the construction contract are sufficient to express the parties’ intent that

the waiver of subrogation apply to the Allbaughs as lessees of Bella Cima,

according to the reasoning in Liberty Sign Co. v. Newsom, 426 S.W.2d 210, 214

(Tex. 1968) (holding the term “lessee” included “anyone holding through or under

[lessee].”) Zbranek respectfully submits that these authorities are relevant to the

issues and its argument warrants the Court’s consideration.

                  The “As Is” Clause Should Apply to Bar Recovery

       4.     The Court holds that Zbranek may not rely on the “as is” clause in the

Allbaughs’ lease with Bella Cima because it is not a party to the lease and, as a

general rule, may not enforce its terms. Slip op. at 10. The Court also states that

Zbranek did not cite any applicable authority that an “as is” clause in a lease

7
 The Allbaughs’ rights in the property as lessees of Bella Cima derive from Bella Cima’s rights.
This fact, among others, materially distinguishes this case from Ace Prop. & Cas. Ins. Co. v.
Prime Tempus, Inc., No. 03-06-00236-CV, 2009 WL 2902713, at *4 (Tex. App.—Austin 2009,
no pet.) (mem. op.).


                                              20
precludes a lessee’s causes of action against the manufacturer or builder of the

thing leased. Id. Zbranek respectfully submits that it cited authority to support its

contention that the “as is” clause in the Bella Cima-Allbaugh lease precludes the

Allbaughs’ claims against Zbranek because it removes the element of causation for

any loss. See Jefferson, 896 S.W.2d at 161. The court in Jefferson enforced an “as

is” term in a contract for sale of real property in favor of the seller and against both

the purchaser and the separate entity to which the purchaser subsequently sold the

property. Id. Under Jefferson, an “as is” clause negates the element of causation

because, by agreeing to purchase something “as is,” a buyer agrees to make his

own appraisal of the bargain and to accept the risk that he may be wrong. Id.

      This Court, referring to Jefferson as “the leading case on the protection of

‘as is’ clauses,” enforced an “as is” clause in the sale of an apartment building in

favor of a non-party. See Income Apartment Investors, L.P. v. Bldg. Diagnostics,

Ltd., No. 03-97-00656-CV, 1998 WL 476777 (Tex. App.—Austin 1998, no pet.).

The Court expressly rejected the argument that the defendant could not benefit

from the “as is” clause in the sale contract because it was not a party to the

contract. Id. at *3. Though Zbranek cited Jefferson and Income Apartment

Investors, the Court’s opinion does not refer to either case. The Allbaugh’s claims

arose from a condition of property that they expressly accepted “as is” in the lease

with Bella Cima. Zbranek argues under those authorities that the “as is” clause



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would have defeated the element of causation if the Allbaughs had sued Bella

Cima, the lessor of the house, and there is no reason for a different result in a claim

against the builder of the house with which Bella Cima contracted. In addition,

Zbranek pointed out the Texas Supreme Court’s opinion which asked the question

whether an upstream manufacturer could benefit from an “as is” clause in a

downstream sale to which it was not a party. See MAN Engines & Components,

434 S.W.3d at 140. The court did not answer the question for procedural reasons,

id. at 141, but Zbranek believes that this Court should address it, and hold that the

purchaser or lessor or claimant who takes under a contract with an “as is” clause

cannot “leap frog” over the immediate seller or lessor and sue a party in vertical

privity.

       WHEREFORE, PREMISES CONSIDERED, Appellant Zbranek Custom

Homes, Ltd., respectfully prays that the Court reconsider its appeal for the reasons

set out above, and those in the previously filed briefs, reverse the judgment of the

trial court, and render judgment that the Allbaughs and Chubb Insurance Company

take nothing. In the alternative, Appellant Zbranek Custom Homes, Ltd., asks the

Court to reverse the judgment of the trial court and remand this case for a new trial

on all issues. Appellant Zbranek Custom Homes, Ltd., respectfully prays for all

other and further relief to which it may be entitled at law or in equity.




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Respectfully submitted,

CHAMBERLAIN ♦ McHANEY
301 Congress Avenue, 21st Floor
Austin, Texas 78701
(512) 474-9124
(512) 474-8582 (fax)
tpoteet@chamberlainmchaney.com
dchamberlain@chamberlainmchaney.com
ewestendorf@chamberlainmchaney.com

By:    /s/ Tim Poteet
       Tim Poteet
       State Bar No. 16170300
       David E. Chamberlain
       State Bar No. 04059800
       Erin Westendorf-Boyd
       State Bar No. 24042142

ATTORNEYS FOR APPELLANT




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                     CERTIFICATE OF COMPLIANCE

This document complies with the typeface requirements of Tex. R. App. P. 9.4(e)
because it has been prepared in a conventional typeface no smaller than 14-point
for text and 12-point for footnotes. This document also complies with the word-
count limitations of Tex. R. App. P. 9.4(i)(2)(D) and contains 4,453 words,
excepting the portions listed in Tex. R. App. P. 9.4(i)(1).

                                    By:     /s/ Tim Poteet
                                            TIM POTEET
                                            State Bar No. 16170300




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                        CERTIFICATE OF SERVICE

      I hereby certify by my signature below that a true and correct copy of the
foregoing has been forwarded to counsel of record as indicated via Electronic
Court Filing, this 17th day of November, 2015:

Suzanne Radcliff
Cozen O’Connor
1717 Main Street, Suite 3400
Dallas, Texas 75201-7335
214/462-3011 Telephone
214/462-3299 Facsimile
(972) 803-1753
(972) 803-3531




                                    By:     /s/ Tim Poteet
                                            TIM POTEET
                                            State Bar No. 16170300




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