                                                                            ACCEPTED
                                                                        06-17-00075-CV
                                                              SIXTH COURT OF APPEALS
                                                                    TEXARKANA, TEXAS
                                                                       1/4/2018 3:36 PM
                                                                       DEBBIE AUTREY
                                                                                 CLERK

                      No. 06-17-00075-CV
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
                                                     FILED IN
                   In the Sixth Court of Appeals
                                              6th COURT OF APPEALS
                                                TEXARKANA, TEXAS
                        at Texarkana, Texas   1/5/2018 1:30:00 PM
                                                  DEBBIE AUTREY
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
                                                      Clerk



              The City of Wolfe City, Texas, Appellant,

                                 v.

      American Safety Casualty Insurance Company, Appellee.




            Amended Reply Brief of Appellant
                the City of Wolfe City, Texas
__________________________________________________________________


                                      Daniel W. Ray
                                      Texas Bar No. 24046685
                                      SCOTT, RAY & SULLIVAN,
                                      PLLC
                                      2608 Stonewall Street
                                      Post Office Box 1353
                                      Greenville, Texas 75403-1353
                                      Tel. (903) 454-0044
                                      Fax (903) 454-1514
                                      Daniel@scottraylaw.com
                                      ATTORNEY FOR APPELLANT,
                                      THE CITY OF WOLFE CITY,
                                      TEXAS
                                  TABLE OF CONTENTS

   Table of Contents ............................................................................ 2

   Index of Authorities ........................................................................ 4

   Arguments ....................................................................................... 5

   1. The City does not have the burden to prove ASCIC’s defense of
      “Design Defect” under the no-evidence MSJ standard. ............. 5

      A. The correct no-evidence MSJ standard. ................................. 5

      B. The City carried its burden under the correct standard. ...... 6

      C. ASCIC attempts to modify the no-evidence MSJ standard. .. 7

   2. ASCIC failed to prove the design-defect defense in its traditional
      MSJ. ............................................................................................. 9

      A. The standard of proof for a design-defect defense. .............. 10

      B. ASCIC’s evidence of a design-defect falls short of the
      standard..................................................................................... 10

   3. The terms of the bond, and the contract it secures, controls
      ASCIC’s liability. ...................................................................... 11

      A. The AMR system was not an acceptable punch list item. .. 11

      B. ASCIC was responsible as a surety for punch list items. .... 12

      C. Change Order No. 2 was not a confirmation of substantial
      completion. ................................................................................ 13

   4. The City could not have objected to the certificate of substantial
      completion within the contractual time-frame because Hayter
      acted fraudulently or in bad faith. ........................................... 14

   5. The Trial Court contemplated that additional evidence would be
      discovered after the hearing on ASCIC’s motions for summary
      judgment. .................................................................................. 16


Appellant’s Amended Reply Brief                                                                    Page 2
   Conclusion ..................................................................................... 17

   Certificate of Compliance.............................................................. 19

   Certificate of Service ..................................................................... 19




Appellant’s Amended Reply Brief                                                                 Page 3
                                INDEX OF AUTHORITIES

                                                CASES

   Barraza v. Eureka Co., 25 S.W.3d 225 (Tex. App.—El Paso 2000, pet.
      denied) ......................................................................................... 9

   Bayshore Constructors, Inc. v. S. Montgomery County Mun. Util.
     Dist.543 S.W.2d 898, 901 02 (Tex. Civ. App.—Beaumont 1976),
     writ ref'd n.r.e. (Mar. 30, 1977) ................................................. 12
   Blackard v. Fairview Farms Land Co., Ltd., 346 S.W.3d 861 (Tex.
      App.—Dallas 2011, no pet.)......................................................... 5

   City of Hous. v. Clear Creek Basin Auth., 589 S.W.2d 671 (Tex.1979)
      ..................................................................................................... 9

   Foreman v. Whitty, 392 S.W.3d 265 (Tex. App.—San Antonio 2012,
      no pet.) ........................................................................................ 9

   Maguire Oil Co. v. City of Hous., 69 S.W.3d 350 (Tex. App.—
      Texarkana 2002, pet. denied) .................................................... 6

   Montgomery v. Kennedy, 669 S.W.2d 309 (Tex. 1984) .................. 9


                                                RULES

   Tex. R. Civ. P. 166a(i) ..................................................................... 5



                                  OTHER AUTHORITIES

   4A Bruner & O'Connor Construction Law § 12:46. .................. 8, 10




Appellant’s Amended Reply Brief                                                                       Page 4
                               Arguments

     To be as brief as possible, the City incorporates in this reply all the

arguments put forth in the City’s Brief. The City further shows this Court

the following:

1.   The City does not have the burden to prove ASCIC’s defense of
“Design-Defect” under the no-evidence MSJ standard.

     In its effort to skirt liability on the performance bond, the recurring

theme of American Safety Casualty Insurance Company’s (“ASCIC” or

“Appellee”) brief is to suggest that McKinney & McMillen (“M&M”), the

general contractor, is not liable because of an alleged “Design-Defect” in

the fixed-based automatic meter-reading collection system (“AMR

system”). In doing so, ASCIC improperly shifts to the City the burden to

prove ASCIC’s defense of a design defect.

     A.    The correct no-evidence MSJ standard.

     The no-evidence MSJ standard states that a “court must grant the

motion unless the respondent produces summary judgment evidence

raising a genuine issue of material fact.” Tex. R. Civ. P. 166a(i). Courts

have interpreted this standard to require the nonmovant to produce only

more than a ‘scintilla of evidence,” and the evidence must be read “in a

light most favorable to the nonmovant”—here the City. See Blackard v.


Appellant’s Amended Reply Brief                                     Page 5
Fairview Farms Land Co., Ltd., 346 S.W.3d 861, 868 (Tex. App.—Dallas

2011, no pet.). “More than a scintilla of evidence exists when the evidence

would enable reasonable and fair-minded people to reach different

conclusions.” Id. Further, the nonmovant is only required to present

evidence on the elements on the elements the movant challenges. See

Maguire Oil Co. v. City of Hous., 69 S.W.3d 350, 357 (Tex. App.—

Texarkana 2002, pet. denied). The only element ASCIC challenged in its

no-evidence motion is whether M&M defaulted. (1CR327) (“an essential

element of the City’s bond claim is that the City must show that the

contractor, M&M, failed to fulfill its duty of performance under the

construction contract”).

     B.    The City carried its burden under the correct standard.

     To survive the no-evidence MSJ, the City needed to provide only

“more than a scintilla of evidence” that M&M defaulted on the

Construction contract. The City met this requirement when it provided

evidence of M&M’s responsibilities under the Contract and M&M’s

failure to comply with those terms. (1CR668.) M&M failed to comply with

the terms of the Contract when it did not deliver a fully functional system

(1) as admitted by George McKinney, a representative of M&M, in his



Appellant’s Amended Reply Brief                                     Page 6
deposition (1CR697, 706); (2) as admitted to by M&M when it admitted

it stopped work before this lawsuit was filed (1CR710-6); and (3) as

admitted to by M&M in its response to Wolfe City’s Demand for Contract

Performance when it refused to continue working on the project.

(1CR724.) This put M&M in default of the construction contract, which

makes ASCIC liable under the performance bond. Because there is more

than a scintilla of evidence that M&M was in default, the no-evidence

MSJ was erroneous. (See Appellant’s Br. at 27-30.)

     C.    ASCIC attempts to modify the no-evidence MSJ standard.

     Because the City provided sufficient evidence to surpass the “more

than a scintilla” threshold when the evidence is viewed in a “light most

favorable to the nonmovant,” ASCIC attempts to shift to the City the

burden to prove that the City’s problems were NOT due to a design-

defect. Thus, ASCIC attempts to modify the no-evidence MSJ standard.

     ASCIC asserts: “M&M’s responsibility is solely for construction or

installation defects. If the City’s problems arose from a design defect in

Zenner’s or Datamatic’s components, then M&M did not default on the

construction contract.” (Appellee Br. at 16.) Further, “M&M could not

have defaulted on the construction contract if the City’s problems



Appellant’s Amended Reply Brief                                    Page 7
resulted from a design defect rather than a construction or installation

defect.” (Id. at 22.)

      After shifting the burden of proof for a no-evidence MSJ, ASCIC

then claims that the City falls short: “[t]hus, for the City to raise a

genuine fact issue on ASCIC’s ‘no evidence’ motion, it had to offer some

evidence that the City’s failure to receive a fully functional system

resulted from M&M’s default, and not from a defect in the Datamatic

components that Hayter specified for the system.” (Id. at 25) (emphasis

added.)

      Existence of a design defect is a defense, which is ASCIC’s burden

to prove. “[A] surety is entitled to the protection of the principal's

‘contract defenses.’ One such defense is the owner's control over

preparation and issuance of detailed design documents with design

inadequacies.” 4A Bruner & O'Connor Construction Law § 12:46. In

short, existence of a design defect is a contract defense belonging to

M&M. ASCIC can urge that defense, but also has the burden of proof on

the defense.

      Because ASCIC carries the burden of proof for this defense, it

cannot shift this burden to the City in a no-evidence MSJ. It is not proper



Appellant’s Amended Reply Brief                                     Page 8
in a no-evidence MSJ to raise a legal issue on which the movant has the

burden of proof. A movant cannot file a no-evidence motion for summary

judgment on a claim or defense on which he has the burden of proof at

trial. Foreman v. Whitty, 392 S.W.3d 265, 279 (Tex. App.—San Antonio

2012, no pet.); See also, e.g., Barraza v. Eureka Co., 25 S.W.3d 225, 231

(Tex. App.—El Paso 2000, pet. denied) (party may not urge no-evidence

summary judgment on claims or defenses on which it has burden of

proof).

      In sum, the City met the actual no-evidence threshold and was not

required to meet the threshold of providing evidence to disprove ASCIC’s

design-defect defense.

2.   ASCIC failed to prove the design-defect defense in its traditional
MSJ.

      The burden that ASCIC attempts to require of the City in the no-

evidence MSJ is a burden ASCIC itself does not meet in its traditional

MSJ. “Defendants moving for summary judgment must expressly present

and conclusively prove all essential elements of their defense as a matter

of law; there can be no genuine issues of material fact.” Montgomery v.

Kennedy, 669 S.W.2d 309, 310-11 (Tex. 1984) (citing City of Houston v.

Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979)).


Appellant’s Amended Reply Brief                                    Page 9
     A.    The standard of proof for a design-defect defense.

     Bruner & O’Connor’s treatise on Construction Law sets forth the

standard ASCIC must prove for its design-defect defense:

    “[W]here the owner issues detailed design documents found to be
    defective, fails to disclose critical information to the contractor, or
    maintains control over the contractor's construction methods, the
    contractor's nonperformance will be excused.”
4A Bruner & O'Connor Construction Law § 12:46 (emphasis added).

ASCIC cites the same treatise in putting forth its design-defect defense.

(Appellee Br. at 23.) For ASCIC to claim the design-defect defense, it had

the burden to prove that detailed design documents provided by the City

or its agent are defective and, thus, are the cause of the nonfunctioning

AMR system.

     B.   ASCIC’s evidence of a design-defect falls short of the
standard.

     ASCIC’s evidence of an alleged design defect amounts to the City

selecting the type of water meter and requiring it to be supplied by an

experienced qualified vendor—none of which comprise “detailed design

documents that have been found to be defective.” ASCIC offered evidence

that the Engineer specified the type of meters for the project. (1CR328.)

The contractor could use one of five brands of water meters: Master

Meter, Itron, Neptune, Badger, or Infinity. (Appellee Br. at 3, citing


Appellant’s Amended Reply Brief                                   Page 10
1CR135.) ASCIC further points to evidence that the engineer required

the AMR system to be “supplied by an experienced, qualified, vendor.”

(Id.) That is where the evidence stops. ASCIC did not present any

evidence of “detailed design documents that were found to be defective.”

Because ASCIC did not conclusively its design-defect defense, it was

error to grant ASCIC’s traditional MSJ.

3.     The terms of the bond, and the contract it secures, controls ASCIC’s
liability.

      ASCIC attempts to convince this Court that freedom of contract

does not exist and it is entitled to rely on a certificate of substantial

completion, regardless of how it was obtained and regardless of the terms

of the contract.

      A. The AMR system was not an acceptable punch list item.

      ASCIC’s erroneously argues that the AMR System was a punch list

item. However, the Contract explicitly states that the punch list must not

contain any major deficiencies. CR 411-12, 585. In this case, the entire

purpose of the AMR System was so that the City could read the meters

remotely, but this could not occur because the AMR System was not

functional, as indicated on the punch list. See CR 412-13. Because the

AMR System could not fulfil its intended purpose and was a major


Appellant’s Amended Reply Brief                                   Page 11
component of the overall project, it follows that the indication of the AMR

System on the punch list as a deficiency was contrary to the explicit terms

of the Contract and therefore not an actual punch list item pursuant to

the terms of the Contract. Nevertheless, pursuant to the Contract, ASCIC

was responsible for deficient items which were not corrected within 30

days after being noted on the punch list.

      B. ASCIC was responsible as a surety for punch list items.

      A surety can be responsible for punch list items. Indeed, in

Bayshore Constructors, the contract specified that “[t]he Contractor shall

remedy any defects in the work and pay for any damage to other work

resulting therefrom, which shall appear within a period of one (1) year

from the date of final acceptance of the work unless a longer period is

specified.” Bayshore Constructors, Inc. v. S. Montgomery County Mun.

Util. Dist., 543 S.W.2d 898, 902 (Tex. Civ. App.—Beaumont 1976, writ

ref'd n.r.e.). The Court interpreted the contract, and the bond, to include

the one year warranty period. Id.

      In this case, the Contract specified that all punch list items shall be

remedied within 30 days from the date of the certificate of substantial

completion. CR 418-19. Even though completion of the punch list items



Appellant’s Amended Reply Brief                                     Page 12
did not occur, ASCIC argues that it should not be responsible for punch

list items because the City is provided a remedy through warranty.

ASCIC’s argument is in opposition with Bayshore Constructors, which

held a performance bond open under a one year warranty period.

Furthermore, in this case, the contract reinstituted liquidated damages

in the event the punch list items were not remedied within the allotted

time-frame. CR 418-19. In other words, there was no warranty period if

the punch list items were not remedied within 30 days, and it follows that

ASCIC contemplated liability under the terms of the contract beyond the

issuance of substantial completion when it issued the bond. Therefore,

because liquidated damages were reinstituted after the issuance of

substantial completion, ASCIC argument, that punch list items should

be covered under warranty, fails.

     C. Change Order No. 2 was not a confirmation of substantial
        completion.

     ASCIC also erroneously argues that the City confirmed substantial

completion through Change Order No. 2. ASCIC’s argument is erroneous

because the date contained on Change Order No. 2 was an estimated

completion date. Change orders are a routine practice in the construction

industry because the scope of any given project typically changes over the


Appellant’s Amended Reply Brief                                  Page 13
life of the project. It follows that if a project is to change in scope, the time

of completion will also change, hence the necessity to input a date of

substantial completion (time of performance) on the change order. For

instance, in this case, Change Order No. 1 contained the date of October

13, 2012. Change Order No. 1 did not confirm that the project was

completed on October 13, 2012, it merely adjusted the time of

performance based on the change of scope. See CR 1464-65. If the date

on Change Order No. 1 was merely a time of performance, then it follows

that Change Order No. 2, which contained a different date, merely

adjusted the time of performance from October 13, 2012 to March 21,

2013 to account for the change of scope in the project. Even if Change

Order No. 2 constitutes an agreement that confirmed substantial

completion, the City is excused because it was obtain fraudulently or in

bad faith.

4.   The City could not have objected to the certificate of substantial
completion within the contractual time-frame because Hayter acted
fraudulently or in bad faith.

      ASCIC argues that the City did not comply with the requirements

to contest Hayter’s certificate of substantial completion. ASCIC further

argues that the City offered no summary judgment evidence that Hayter



Appellant’s Amended Reply Brief                                         Page 14
acted fraudulently or in bad faith. Simply, the former fails because of the

latter fails. The evidence was very clear from the engineer’s deposition

that he acted intentionally in opposition with the terms of the Contract

and in opposition with his duties as a professional engineer to the

detriment of the City. CR 415-17, 531, 537-40. ASCIC attempts to

downplay his actions as mere negligent acts within an engineer’s

discretion. However, as noted by the City’s expert, Hayter’s actions were

contrary to that of a licensed professional engineer in Texas. See CR

1462-64. Even if the testimony of the City’s expert is not admissible as

newly discovered evidence, ASCIC cannot deny that Hayter’s actions

were intentional conduct to the detriment of the City, which meets the

requirements for gross negligence, gross mistake, and/or bad faith.

     It follows that since the evidentiary standard for summary

judgment indicates that Hayter acted in bad faith to the City’s detriment,

the City would have never known whether to contest Hayter’s certificate

of substantial completion within the contractual time frame. Hayter’s

admission of its actions certainly were not volunteered within 30 days

after substantial completion. Indeed, only through the deposition of Mike

Tibbets did the City confirm the scope of the engineer’s betrayal. See CR



Appellant’s Amended Reply Brief                                   Page 15
760-61. Further, it is pointless for ASCIC to argue that the City did not

contest Hayter’s issuance of the certificate of substantial completion. If

this Court holds the substantial completion valid, there is no need to

consider this point, and if this Court holds the certificate invalid due to

fraud, gross mistake, or bad faith, as the City contends, then ASCIC’s

argument collapses because there would have been no valid certificate for

the City to contest.

5.    The Trial Court contemplated that additional evidence would be
discovered after the hearing on ASCIC’s motions for summary judgment.

     Although the issue of newly discovered evidence has been debated

at great length between Appellant and Appellee, when considering

whether the Trial Court abused its discretion in denying the City’s

Motion for Reconsideration, it is important to note that the Trail Court

contemplated that there would be newly discovered evidence after

ASCIC’s hearing on its motions for summary judgment. The morning of

and prior to the hearing, the Trial Court signed an agreed order, which

extended the discovery deadline. CR 780-81. The principle reason for this

order was to extend deadlines due to the addition of Hayter as a named

defendant only 11 days prior to ASCIC’s hearing.




Appellant’s Amended Reply Brief                                   Page 16
                                   Conclusion

     In its no-evidence MSJ, ASCIC improperly attempted to increase

the no-evidence MSJ threshold (which the City met) by shifting to the

City the burden to prove ASCIC’s “Design-Defect” defense and then

claiming that the City falls short of the shifted burden. In its traditional

MSJ, ASCIC fell short of the standard to conclusively prove its “Design-

Defect” defense.

     Further, ASCIC should be held accountable to the terms of its bond

and the contract that it secured. Even though the AMR System was not

a contractual punch list item, the Contract explicitly required contract

damages to be reinstated if any deficiency on the punch list was not

corrected within 30 days. In addition, ASCIC’s argument that Change

Order No. 2 confirmed substantial completion is erroneous and against

industry practice because the change in date simply noted a change in

time of performance. The City did not agree to actual substantial

completion via Change Order No. 2, and it could not have contested

Hayter’s certificate of substantial completion because it had no

knowledge of Hayter’s bad faith and/or fraudulent actions until the

deposition of its engineer. Because bad faith or fraudulent actions are



Appellant’s Amended Reply Brief                                    Page 17
frequently denied until the bitter end, the Trial Court should have

contemplated that newly discovered evidence would be forthcoming,

especially since it signed an order extending the discovery period the very

morning of ASCIC’s hearing on its motions for summary judgment.




                                  Respectfully Submitted,


                                  /s/ Daniel W. Ray_____________
                                  Daniel W. Ray
                                  Texas Bar No. 24046685
                                  Daniel@scottraylaw.com
                                  Scott, Ray & Sullivan, PLLC
                                  P.O. Box 1353
                                  2608 Stonewall Street
                                  Greenville, Texas 75403
                                  Tel: (903) 454-0044
                                  Fax: (903) 454-1514
                                  ATTORNEY FOR APPELLANT THE
                                  CITY OF WOLFE CITY, TEXAS




Appellant’s Amended Reply Brief                                   Page 18
                   CERTIFICATE OF COMPLIANCE

     This brief was prepared using Microsoft Word in Century font with
14-point type. This brief contains 2,717 words, not counting the sections
excluded by Tex. R. App. P. 9.4(i)(1).



                                   /s/ Daniel W. Ray_____________
                                   Daniel W. Ray

                      CERTIFICATE OF SERVICE

     On January 4, 2018, a copy of this brief was served through
efileTexas.gov on all counsel, as indicated below:

James D. Cupples
Texas Bar No. 05252300
CUPPLES & ASSOCIATES, PLLC
700 Gemini Street #200
Houston, Texas 77058
Tel. (281) 218-8888
Fax (281) 218-8788
Cupplesjd@comcast.net


Byron C. Keeling
State Bar No. 11157980
KEELING & DOWNES, P.C.
bck@keelingdownes.com
1500 McGowen, Suite 220
Houston, Texas 77004
Tel (832) 214-9900
Fax (832) 214-9908
                                   /s/ Daniel W. Ray_____________
                                   Daniel W. Ray


Appellant’s Amended Reply Brief                                  Page 19
