     Case: 10-40471     Document: 00511565376         Page: 1     Date Filed: 08/08/2011




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                           August 8, 2011

                                       No. 10-40471                        Lyle W. Cayce
                                                                                Clerk

UTILITIES OPTIMIZATION GROUP, L.L.C.,

                                                  Plaintiff-Appellee
v.

TIN, INC., doing business as Temple-Inland,

                                                  Defendant-Appellant



                   Appeal from the United States District Court
                         for the Eastern District of Texas
                               USDC No. 1:08-CV-68


Before REAVLEY, GARZA, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
        Defendant-Appellant TIN, Inc. d/b/a Temple-Inland (“Temple-Inland”), a
paper mill, hired Plaintiff-Appellee Utilities Optimization Group, L.L.C. (“UO
Group”) to work as a contractor on two large projects involving paper machines.
After the projects were complete, the parties disagreed with regard to the
amount of payment Temple-Inland owed UO Group under the governing
contracts. UO Group sued Temple-Inland for breach of contract. Following a
trial, the jury awarded damages to UO Group. Temple-Inland sought a post-

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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verdict judgment as a matter of law, which the district court denied. Temple-
Inland appeals. For the following reasons, we REVERSE the denial of the
motion for a judgment as a matter of law and RENDER judgment in favor of
Temple-Inland.
                                        I
      Temple-Inland manufactures paper products. UO Group is a construction
firm specializing in the fabrication, construction, and service of paper machines.
Temple-Inland invited bids for two pump and installation projects, the “No. 1
Paper Machine Project” and “No. 2 Paper Machine Project.” For each, Temple-
Inland published a Request for Quotation instructing prospective contractors to
submit their bids on a time and material not-to-exceed pricing basis. UO Group
made a bid for each project, and Temple-Inland accepted both bids.                In
accordance with Temple-Inland’s request, the pricing in UO Group’s bids was on
a not-to-exceed basis. Temple-Inland issued purchase orders for the projects,
authorizing UO Group to begin work. Both the Requests for Quotation and the
Purchase Orders required contractors to acquire a signed “Field Change
Order/Authorization Form” prior to implementing any change in the scope or
value of the work originally agreed to by the parties. The Purchase Orders
further instructed that such “APPROVALS SHALL BE COORDINATED
THROUGH       THE     TEMPLE-INLAND           PROJECT      REPRESENTATIVE
IDENTIFIED ON THIS PURCHASE ORDER,” and each Purchase Order
identified Steve Hospodar (“Hospodar”) as the Project Manager and Temple-
Inland’s representative for the project.      Both Purchase Orders expressly
incorporated the terms of a Purchase of Services Contract, an umbrella
agreement between Temple-Inland and UO Group “intended to apply to any
services that have been requested by Temple-Inland and accepted by [UO
Group].” The Purchase of Services Contract states: “No change order shall be
binding upon Temple-Inland unless approved in writing by Temple-Inland prior

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to commencement of the work indicated by such change order.” The contract
further explains that any waiver of terms must be in writing:
      No claim or right arising out of a breach by Contractor of any or all
      of the terms and conditions of this purchase of services contract can
      be discharged in whole or in part by a waiver, renunciation, or
      failure to enforce such claim or right unless Temple-Inland
      expressly consents thereto in a separate writing.

The parties do not dispute that the Purchase of Services Contract, Purchase
Orders, UO Group’s bid proposals, and Temple-Inland’s Requests for Bids form
the basic contractual framework governing the relationship between Temple-
Inland and UO Group. Prior to beginning work on Paper Machines No. 1 and 2,
all contractors were required to attend a contractor orientation during which
they were shown a PowerPoint presentation stating that “Owner’s Rep
[Hospodar] will not be authorized to approve changes in scope of work until he
has the approval of Maintenance Manger-Bob Dansby,” and that “[a]ny work
performed without authorization is done strictly at liability to the contractor.”
      Due to various delays and unexpected complications, UO Group’s work on
the projects greatly exceeded both the time and the cost originally expected.
According to testimony by UO Group’s foreman Ben Snyder, on multiple
occasions Hospodar either requested changes in the scope of the work or
acquiesced to changes in the scope of the work. According to Snyder, when he
brought to Hospodar’s attention that these instances would be changes in the
scope of the work, Hospodar repeatedly encouraged Snyder to move forward with
the job and promised he would “take care of it.” In accordance with the terms
of the contracts, UO Group had each of its time sheets signed by Hospodar.
Hospodar continued to sign time sheets, even after the work UO Group was
performing had exceeded the scope of what the parties had originally agreed
upon. Neither UO Group nor Hospodar, however, ever filed the required written
change authorization forms. When UO Group finally submitted its invoices,

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Temple-Inland refused to pay any amount beyond the not-to-exceed price of each
contract, minus alleged deductions for work ultimately completed by other
contractors.
      Based on diversity of citizenship, UO Group sued Temple-Inland in the
district court for breach of contract. The case was tried before a jury. Before the
case was submitted to the jury, Temple-Inland filed a motion for judgment as a
matter of law. The district court denied the motion. The jury found that
Hospodar had the authority to waive the written change order requirement, that
he in fact had done so, and that Temple-Inland was liable for payment related
to the extra work. Temple-Inland filed a post-judgment motion for judgment as
a matter of law, which was also denied. The court ordered Temple-Inland to pay
$172,031.31 in damages for breach of contract related to Paper Machine No. 1
and $83,568.19 for breach of contract related to Paper Machine No. 2, as well as
pre- and post-judgment interest. This appeal follows.
                                        II
      Temple-Inland argues that the district court erred by denying its motion
for judgment as a matter of law on the basis of UO Group’s lack of evidence that
Hospodar had actual or apparent authority to waive the contractual requirement
of a written change order. “A motion for judgment as a matter of law should be
granted if ‘there is no legally sufficient evidentiary basis for a reasonable jury
to find for a party.’” Pineda v. United Parcel Serv., Inc., 360 F.3d 483, 486 (5th
Cir. 2004) (quoting FED. R. CIV. P. 50(a)). A district court should “grant a motion
for judgment as a matter of law only when the facts and inferences point so
strongly in favor of the movant that a rational jury could not reach a contrary
verdict.” Id. (internal quotation marks and citation omitted). “A motion for
judgment as a matter of law . . . in an action tried by jury is a challenge to the
legal sufficiency of the evidence supporting the jury’s verdict.” SMI Owen Steel
Co. v. Marsh USA, Inc., 520 F.3d 432, 437 (5th Cir. 2008) (per curiam) (internal

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quotation marks and citation omitted). Although we review the district court’s
denial of the motion de novo, “our standard of review with respect to a jury
verdict is especially deferential.” Id. (internal quotation marks and citations
omitted).
      UO Group points to a number of pieces of evidence that, it argues,
permitted a reasonable jury to conclude the Hospodar had actual or apparent
authority to waive the written change order requirement.           It notes that
Hospodar was the designated “Project Manager” for the paper machine projects;
that Hospodar’s testimony suggested that he may have, on other jobs, failed to
obtain written change orders and had never been disciplined by Temple-Inland;
that Hospodar was the Project Manager for a previous Temple-Inland project
involving UO Group, that the contract for that project had a written change
order requirement, but that Hospodar had authorized changes in the scope of
work without written change orders. When UO Group billed Temple-Inland for
the extra work on the prior project, Temple-Inland paid for it. UO Group also
introduced files relating to other Temple-Inland jobs—not involving UO Group—
on which Hospodar had served as Project Manager. The files did not show
written change orders on those jobs, either—although it was disputed whether
the absence of the orders meant that none had been filed. Finally, UO Group
argues that Hospodar, with Temple-Inland’s knowledge, took actions that
changed the scope of the contract without a written change order. For example,
Hospodar hired an additional contractor to assist UO Group, reducing the scope
of the work UO Group would perform.
      “Absent actual or apparent authority, an agent cannot bind a principal.”
Tex. Cityview Care Ctr., L.P. v. Fryer, 227 S.W.3d 345, 352 (Tex. App.—Fort
Worth 2007) (citing Lifshutz v. Lifshutz, 199 S.W.3d 9, 22 (Tex. App.—San
Antonio 2006, pets. denied)). “Texas law does not presume agency, and the party
who alleges it has the burden of proving it.” IRA Res., Inc. v. Griego, 221 S.W.3d

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592, 597 (Tex. 2007) (per curiam) (citing Buchoz v. Klein, 184 S.W.2d 271, 271
(Tex. 1944)). “Actual authority includes both express and implied authority and
usually denotes the authority a principal (1) intentionally confers upon an agent,
(2) intentionally allows the agent to believe he possesses, or (3) by want of due
care allows the agent to believe he possesses.” Tex. Cityview, 227 S.W.3d at 352
(citing 2616 S. Loop L.L.C. v. Health Source Home Care, Inc., 201 S.W.3d 349,
356 (Tex. App.—Houston [14th Dist.] 2006, no pet.); Lifshutz, 199 S.W.3d at
22). “The extent of an agent’s authority is determined in light of all surrounding
circumstances, including, inter alia, the parties’ relations to one another, the
undertaking in which the parties are engaged, and the general usages and
practices of those engaged in such undertakings.”           Karl Rove & Co. v.
Thornburgh, 39 F.3d 1273, 1297 (5th Cir. 1994).
      “Apparent authority,” in contrast, “is based on estoppel, arising ‘either
from a principal knowingly permitting an agent to hold [himself] out as having
authority or by a principal’s actions which lack such ordinary care as to clothe
an agent with the indicia of authority, thus leading a reasonably prudent person
to believe that the agent has the authority [he] purports to exercise.’” Gaines v.
Kelly, 235 S.W.3d 179, 182 (Tex. 2007) (quoting Baptist Mem’l Hosp. Sys. v.
Sampson, 969 S.W.2d 945, 948 (Tex. 1998)). Three elements must be proven to
establish apparent authority: “(1) a reasonable belief in the agent’s authority; (2)
generated by some holding out or neglect of the principal; and (3) justifiable
reliance on the authority.” 2616 S. Loop L.L.C., 201 S.W.3d at 356 (citing Garza
v. Williams Bros. Constr. Co., 879 S.W.2d 290, 294 (Tex. App.—Houston [14th
Dist.] 1994, no writ)).
      Key to the tests for both actual and apparent authority is the need for
some action or omission by the principal, not merely the agent. “An agent’s
authority . . . depends on some communication by the principal either to the
agent ([to establish] actual . . . authority) or to the third party ([to establish]

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apparent . . . authority).” Gaines, 235 S.W.3d at182 (citing Hester Int’l Corp. v.
Fed. Republic of Nigeria, 879 F.2d 170, 181 (5th Cir. 1989)). Hospodar’s own
actions toward UO Group cannot establish actual authority—express or
implied—because they are not the actions of the principal. UO Group has not
identified any statements by Temple-Inland itself that would have allowed
Hospodar to believe he had authority to waive the written change order
requirements—particularly in light of the clear contractual language to the
contrary. While UO Group makes much of the Project Manager’s contractual
authority to “coordinate” changes, the language referring to coordination appears
alongside the written change order requirements themselves. Any fair reading
of the contracts would conclude that a project manager’s coordination authority
was not intended as a substitute for a written change order.
      Similarly, the acts of the agent alone cannot create apparent authority.
See Gaines, 235 S.W.3d at 183. Even if Hospodar did hold himself forth as
having the authority to waive the written change order requirement, a finding
of apparent authority would require that Temple-Inland itself either knowingly
allowed him to do so, or failed to exercise ordinary care in such a way that would
cause a reasonably prudent person to misapprehend the scope of Hospodar’s
authority. The evidence of either knowledge or lack of ordinary care, however,
is scant.   Temple-Inland, through its contractual provisions and later its
PowerPoint presentation, made clear that formal approval was required for
changes in the scope of the work. “Apparent authority is not available where
the other party has notice of the limitations of the agent’s power.” Streetman,
v. Benchmark Bank, 890 S.W.2d 212, 216 (Tex. App.—Eastland 1994, writ
denied) (citation omitted).   Moreover, while Temple-Inland administrative
manager Sherry Stinnett did testify that she sometimes declined to enforce the
written change order requirement for small, inexpensive changes in scope, such
testimony by no means shows either an intent by UO Group to allow project

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managers to waive the requirement in all settings, or a lack of ordinary care
with regard to large deviations in scope, such as those here.
      We cannot agree, therefore, that UO Group presented sufficient evidence
for a reasonable jury to conclude that Hospodar had either actual or apparent
authority to waive the binding requirement that changes in the scope of UO
Group’s work were to be accompanied by written change orders. There is
moreover no evidence that any other purported agent of UO Group waived the
written change order requirement. UO Group therefore improperly exceeded the
scope of the work it had been contracted to perform, without following the
appropriate procedures to receive authorization for those changes in scope.
Because the scope of work was never changed, UO Group was not free to bill for
any extra work and accordingly was bound to the original not-to-exceed price.
                                       III
      Based on the foregoing, the district court’s denial of Temple-Inland’s Post-
Verdict Motion for Judgment as a Matter of Law is REVERSED and the district
court’s judgment is VACATED. The district court’s award of attorney’s fees to
UO Group is likewise VACATED. A take-nothing judgment is RENDERED in
favor of Temple-Inland.




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