                                                               FILED
                                                               15-0512
                                                               12/1/2015 11:01:00 AM
                                                               tex-8028409
                                                               SUPREME COURT OF TEXAS
                                                               BLAKE A. HAWTHORNE, CLERK

                           NO. 15-0512
           IN THE SUPREME COURT OF TEXAS



TERRACON CONSULTANTS, INC., f/k/a HBC ENBGINEERING, INC.,
                      Petitioner

                                 Vs.

                   USA WALNUT CREEK, DST,
                         Respondent



              On appeal from the Thirteenth Court of Appeals
                           Corpus Christi, Texas
  Trial Court No. D-1-GN-13-000656; Court of Appeals No. 13-13-00194



          RESPONSE TO PETITION FOR REVIEW


                          Joseph G. Chumlea
                          SBN 04241500
                          jchumlea@shackelfordlaw.net
                          Mark S. McQuality
                          SBN 13849500
                          mmcquality@shackelfordlaw.net

                    SHACKELFORD, MELTON, MCKINLEY & NORTON, LLP
                    9201 North Central Expressway, Fourth Floor
                    Dallas, Texas 75231
                    Telephone: 214/780-1436
                    Facsimile: 214/780-1401

                    Attorneys for USA Walnut Creek, DST

                                 -1-
                       TABLE OF CONTENTS



Index of Authorities………………………………………………………..ii

Statement of Facts………………………………………………………….1

Summary of the Argument…………………………………………………4

Argument and Authorities………………………………………………….5

   The court of appeals correctly applied the standard of review
   by addressing the duty issue that Terracon’s Motion raised, i.e.,
   whether the recognized duty not to injure the property of a third
   party while performing a contract was qualified in this case
   under the rationale of the Vernooy case…………………………….5

   The court of appeals correctly determined that Walnut Creek
   submitted evidence showing Terracon owed a duty not to injure
   its property. Case law supports this ruling and demonstrates
   that Walnut Creek’s status as a subsequent owner has no
   bearing on the scope of Terracon’s recognized duty………………10

Request for Relief…………………………………………………………14

Word Count Certificate…………………………………………………...14

Certificate of Service……………………………………………………...15




                                    i
                                       INDEX OF AUTHORITIES

Cases

Black+Vernooy Architects v. Smith,
  346 S.W.3d 877 (Tex. App. – Austin, 2011, pet. denied) (en banc)...3,4,5,6,7,8,9

Chapman Custom Homes, Inc. v. Dallas Plumbing Co.,
  445 S.W.3d 716 (Tex. 2014)………………………………………………...7, 11

City of Alton v. Sharyland Water Supply Corp.,
   402 S.W.3d 867 (Tex. App. - Corpus Christi 2013, pet. denied) ................. 11, 12

Goose Creek Consol. Indep. Sch. Dist. v. Jarrar’s Plumbing,
  74 S.W.3d 486, 494 (Tex. App. – Texarkana 2002, pet. denied)…………..11, 12

Gupta v. Ritter Homes, Inc.,
  633 S.W.2d 626 Tex. App. – Houston [14th Dist.] 1982, aff'd in part,
  rev’d in part on other grounds, 646 S.W.2d 168 (Tex. 1983)……………..11, 12

Gupta v. Ritter Homes, Inc., 646 S.W.2d 168 (Tex. 1983)………………………13

Humber v. Morton,
  426 S.W.2d 554 (Tex.1968) ................................................................................13

Sharyland Water Supply Corp. v. Alton, 354 S.W.3d 407 (Tex. 2011)……………7

Thompson v. Espey Huston & Assoc.,
  899 S.W.2d 415 (Tex. App. – Austin 1995, no writ)………………………11, 12

Zbranek Custom Homes, Ltd. v. Allbaugh,
  No. 03-14-00131-CV, 2015 WL 6831336 (Tex. App. – Austin
  November 3, 2015, no pet.) .......................................................................... 11, 12




                                                      ii
                            STATEMENT OF FACTS

      1.     This case involves significant foundation and other defects at “The

Reserve At Walnut Creek Apartments” (the Project). The Project consists of

twelve residential buildings with 284 individual units, located on 14 acres in

Austin. (CR 282, 664.) Walnut Creek, DST (Walnut Creek) purchased the Project

from Creekstone Walnut, L.P. in 2005. (CR 868-75.)

      2.     Creekstone Walnut, LP contracted with its affiliated entity,

Creekstone Builders, Inc., to construct the Project in 2001. (CR 437-38, and 467-

78.) Creekstone Builders, Inc. subcontracted with Terracon (then known as HBC

Engineering, Inc.) to perform: (a) geotechnical engineering, including

recommendations for site and subgrade preparation, and for foundation design and

construction (CR 338-349); and, (b) materials-inspection and testing services for

the Project under two contracts, including construction materials inspection-and-

testing services and compaction tests on earthwork (CR 397-429).

      3.     Walnut Creek’s engineering expert identified numerous acts of

negligence committed by Terracon in its work which caused the physical property

damage to Walnut Creek’s buildings. (CR 635-649 and 651-708). The evidence

proving Terracon’s negligence and the resulting damage it caused is described in

detail in the court of appeals’ Memorandum Opinion at pages 3, at n. 4, and 12-17.


                                          1
      4.     The physical damage to the buildings was not disputed by Terracon.

(CR 712-28 and pp. 734-95; see also Holt Engineering report, CR 797-807.) A

construction expert testified that the reasonable and necessary cost to repair the

damage to the buildings was approximately $6 million. (CR 836-66.)

      5.     Contrary to Terracon’s unsupported statement, Walnut Creek did not

sue the subcontractor, Terracon, “to recover for negligent performance of the

subcontractor’s contractual obligations owed to the builder, Creekstone.” Pet. for

Rev., p. 1 (emphasis in original). Instead, Walnut Creek’s pleadings stated it was

suing Terracon for breaching negligence duties owed to Walnut Creek:

      “Terracon, by its actions described hereinabove, breached the duties it
      owed to Plaintiff [Walnut Creek] and proximately caused Plaintiff to
      suffer substantial property damage, direct damages and consequential
      damages, for all of which Plaintiff sues.”
      (CR 195.)


      6.     Also, contrary to Terracon’s unsupported statements, the trial court’s

order granting summary judgment and the Final Judgment do not articulate or

express any conclusions about Terracon’s duties under its subcontract with the

builder, or its reasons for entering the take-nothing judgment against Walnut

Creek. Pet. for Rev., p. 2; see CR 876.

      7.     Finally, Terracon misstates (and, instead, argues) that the court of

appeals “concluded that the trial court erred …because subcontractors owe a duty
                                          2
to use reasonable care under negligence law when performing construction-related

contracts, and that this duty is owed to future purchasers. Memo. Op. at 9-11.”

Pet. for Rev., p. 3. Terracon also misstates that, per the court of appeals’ opinion,

“by virtue of the builder-subcontractor agreement, a tort duty arose, and that duty

is owed to future purchasers of the property although the future purchasers were

not privy to the original contract. See Memo. Op. at 9-11.” (Id.) The cited

discussion (at Memo. Op. pp. 9-11) states nothing of the kind. Instead, the named

pages discuss the Black+Vernooy Architects v. Smith case, the distinctions between

the facts, legal claims and holding in that case versus the facts and claims in this

case, and focus on Terracon’s duty not to injure Walnut Creek’s property in

performing its contract with the builder. Memo. Op. pp. 9-11, citing

Black+Vernooy Architects v. Smith, 346 S.W.3d 877 (Tex. App. – Austin, 2011,

pet. denied) (en banc).




                                           3
                       SUMMARY OF THE ARGUMENT

      Procedurally, the court of appeals correctly addressed the duty issue raised

by Terracon’s motion for summary judgment, i.e., whether the duty not to injure a

third party’s property in performing a contract was qualified in this case by the

“no-right-to-control-construction” issue under the Vernooy case. (In Vernooy the

architect did not design the faulty balcony that injured the plaintiff or control its

construction, whereas, Terracon designed the soil parameters for the foundations

which caused damage to Walnut Creek’s property.) Terracon’s Petition for

Review omits this significant detail. By properly applying the summary-judgment

standard of review to the issue presented by the motion, the court of appeals fully

addressed the duty question that Terracon’s motion actually raised.

      Substantively, the court of appeals correctly applied negligence law to

Terracon’s no-evidence motion on the tort-duty issue. The court of appeals

determined Walnut Creek proved that Terracon’s negligence in performing its

contract with the builder caused damage to Walnut Creek’s property. Terracon’s

motion for summary judgment admitted the existence of its duty not to negligently

damage the property of a third party in performing its contract obligations. Walnut

Creek, as the owner of property damaged by Terracon’s negligence, is plainly

within the scope of persons who are protected by this admitted duty. Accordingly,

the Petition for Review should be denied.


                                           4
                       ARGUMENT AND AUTHORITIES

      1. The court of appeals correctly applied the standard of review by
         addressing the duty issue that Terracon’s Motion raised, i.e.,
         whether the recognized duty not to injure the property of a third
         party while performing a contract was qualified in this case
         under the rationale of the Vernooy case.

      There was no “strange analytical path” to the court of appeals’ reasoning, as

Terracon argues. The court of appeals analyzed the duty issue as presented in

Terracon’s motion for summary judgment (the Motion) under the proper standard

of review. While Terracon’s Petition for Review identifies isolated statements

from the Motion where it mentioned the duty owed in this case – thereby

suggesting it had raised a broad no-evidence duty challenge in the trial court – it

does not put any of those statements in context. Upon examination, all the

statements are from those pages of the Motion where Terracon admitted its duty

not to injure a third person’s property while performing its contract, but,

nevertheless, sought to qualify that duty in this case by claiming there was no

evidence it controlled the construction, per the rationale of the Vernooy case. (CR

243-245; Black+Vernooy Architects v. Smith, 346 S.W.3d 877, 885 (Tex. App. –

Austin 2011, pet. denied) (en banc).) And that is precisely how the court of

appeals analyzed the case – it noted the admitted duty not to injure a third party’s

property and proceeded to evaluate whether Terracon’s conduct resembled that of

the architect’s in Vernooy. It determined there was no resemblance because


                                          5
Terracon actually designed the faulty foundation soil parameters which

subsequently caused damage to Walnut Creek’s property, whereas the architect in

Vernooy did not design the faulty balcony that injured the plaintiff, and, otherwise,

did not control the conduct of those who built it. See Memo. Op. at pp. 9-10.

      Terracon’s Petition for Review paints with a broad brush, but with very thin

material. It first argues that a plaintiff responding to a no-evidence motion for

summary judgment “must present some evidence that the defendant owed the

plaintiff a duty, the duty was breached, and damages were caused by the breach.”

Pet. for Rev., p. 5. But the court of appeals’ decision identifies and describes how

Walnut Creek proved Terracon negligently performed its engineering services for

the builder and, in so doing, damaged Walnut Creek’s property which caused

Walnut Creek to suffer financial injury. Terracon’s Petition for Review next

argues that the court of appeals did not fully address the question of whether it

owed Walnut Creek a duty. But the Memorandum Opinion devotes over five

pages explaining the law on tort duty in the context of contractual performance and

discussing (and distinguishing) the limited qualifier to this duty under the Vernooy

case that Terracon raised in its Motion. Memo. Op. pp. 6-11. The court’s decision

also devoted over eight pages discussing the evidence proving that Terracon

breached its duty and caused financial injury to Walnut Creek (which Terracon’s

Petition for Review does not challenge). Id., pp. 11-19.


                                          6
      The court of appeals’ Memorandum Opinion begins with a discussion of the

applicable law on the tort duty that may arise from contractual performance.

Memo. Op. p. 6. Citing the decisions in Sharyland Water Supply Corp. v. Alton

and Chapman Custom Homes, Inc. v. Dallas Plumbing Co., the court of appeals

correctly observed that “a common law duty also exists to use reasonable care in

performing the terms of the contract without injuring property that belongs to non-

contracting parties.” Memo. Op., p. 6, citing Sharyland Water Supply Corp. v.

Alton, 354 S.W.3d 407 (Tex. 2011), and Chapman Custom Homes, Inc. v. Dallas

Plumbing Co., 445 S.W.3d 716 (Tex. 2014).

      Turning to the Motion in this case, the court observed that Terracon

recognized and admitted this same duty, but sought to qualify it under the Vernooy

case because “[a] duty created by contract does not inure to the benefit of the

public at large.” Memo. Op., p. 8, citing Vernooy, 346 S.W.3d at 885. The court

noted that, “[r]elying on Vernooy, Terracon argued that it owed no contractual or

common law duty to appellant because, as in Vernooy, it ‘had no right to control

the construction in this case and in fact, the construction was controlled by the

[builder parties] who were both general contractor and owner.’” Memo. Op. p. 8.

      Terracon’s Motion, indeed, was specific about the duty being challenged. It

devoted more than two-and-one-half pages presenting and explaining in detail the

duty element it was challenging (compared to the two sentences challenging the


                                          7
breach and causation/damages elements). (CR 243-245 ¶¶ 10-14.) Terracon

argued that while it owed a duty to exercise reasonable care not to injure others’

property by the performance of its contracts with the builder, its duty was qualified

under the circumstances in this case because there was no evidence it controlled

the construction so as to impose a duty to all users of the property under the

rationale of the Vernooy case. (CR 243-245 ¶¶ 11-14.) Terracon explained:

      “While the Smith [i.e., Vernooy] plaintiffs argued that foreseeability
      and the likelihood of injury weighed in favor of the creation of a duty,
      the Austin Court [in Vernooy] held that the ‘right to control’
      considerations weighed against the creation of a duty. As in [Vernooy],
      Terracon had no right to control the construction in this case and in fact,
      the construction was controlled by the Creekstone Defendants who
      were both general contractor and owner. Under such circumstances,
      the consequences of placing a burden on professionals owed to third
      parties would be significant and unwarranted.        …The Plaintiff has
      asked Terracon to be held to a similar standard in this matter, and such
      a duty is not recognized by Texas law.” (Id. at ¶ 14, CR 245 (emphasis
      added).)



      Terracon’s Motion then specified that “[a] tort duty in favor of Plaintiff in

this matter under these circumstances has not been recognized by Texas law.” (Id.

(emphasis added).) Terracon’s Motion plainly specified that “such a duty” and

“under these circumstances” meant the right-of-control issue under Vernooy. (Id.)


                                          8
      As the court of appeals observed, Walnut Creek replied to the Motion by

arguing that Terracon owed an independent tort duty to use reasonable care to not

injure its property even though Terracon was not contractually obligated to Walnut

Creek. (Memo. Op., p. 9.) Walnut Creek responded with evidence showing that,

unlike the architect in Vernooy, Terracon actually designed the faulty soil

requirements for the buildings’ foundations; that it owed a duty not to thereby

injure the property of third parties such as Walnut Creek; and that Terracon’s

negligent design caused damage to Walnut Creek’s apartment buildings. (CR 282-

307, specifically, e.g., CR 295-301.)

      The court of appeals properly concluded: “appellant is not suing Terracon

for failing to supervise a third-party builder as did the plaintiffs in Vernooy.

Appellant is alleging that Terracon committed negligence in its performance of its

duties under Terracon’s contract with the Creekstone Defendants. So, whether

Terracon controlled the construction of the buildings has no bearing on whether it

negligently designed or created the defects which have damaged appellant’s

apartment complex because appellant is alleging that Terracon itself has committed

a negligent act or omission.” Memo. Op. at pp. 10-11. The court of appeals also

correctly determined that Walnut Creek offered evidence demonstrating that

Terracon had designed the engineered soil requirements for the failing apartment

buildings and had an independent duty not to injure anyone’s property by its actual


                                           9
conduct, thereby proving Terracon’s negligence and that the qualified duty-rule in

Vernooy was not applicable. The Petition for Review should be denied.

      2. The court of appeals correctly determined that Walnut Creek
         submitted evidence showing Terracon owed a duty not to injure
         its property. Case law supports this ruling and demonstrates that
         Walnut Creek’s status as a subsequent owner has no bearing on
         the scope of Terracon’s recognized duty.

      Terracon admitted that under Texas law “a contract can be the basis for

imposing a duty recognized in tort,” and, “[a] party is under a duty to act with

reasonable skill and diligence in performing the contract so as not to injure a

person or property by its performance[.]” (CR 243; Memo. Op., p. 8.) The court

of appeals credited Walnut Creek, as the non-movant, with the evidence submitted

in its Response which proved Terracon had performed numerous negligent acts

related to the design and construction of the foundations under its contracts with

the Creekstone Defendants, and damage had occurred to multiple buildings due to

those acts and omissions. (Memo. Op., p. 9.)

      The existence and scope of this duty as applicable to Terracon is beyond

question. Nevertheless, Terracon incorrectly claims the court of appeals imposed a

new common-law duty not previously recognized by Texas law. This argument

has no support in the facts or law.

      This is the scope of persons who are protected by the duty which Terracon

admits exists in this case:


                                          10
 “the negligent performance of a contract that proximately injures a non-

    contracting party’s property or person states a negligence claim,”

    Chapman, 445 S.W.3d at 717 (emphasis added);

 “One who undertakes to perform a contract assumes a duty to all persons to

    take reasonable care not to injure them or their property in the performance

    of that contract, and one who is not privy to the contract may assert a claim

    for negligence for a breach of that duty.” City of Alton v. Sharyland Water

    Supply Corp., 402 S.W.3d 867, 880 (Tex. App. – Corpus Christi 2013, pet.

    denied) (emphasis added; herein, “Sharyland II”) (quoting Goose Creek

    Consol. Indep. Sch. Dist. v. Jarrar’s Plumbing, 74 S.W.3d 486, 494 (Tex.

    App. – Texarkana 2002, pet. denied), citing Thompson v. Espey Huston &

    Assoc., 899 S.W.2d 415, 421 (Tex. App. – Austin 1995, no writ))

    A builder owes a duty to renters of a home whose personal property was

    damaged due to a defective fireplace built by defendant under its contract

    with the owner of the home. Zbranek Custom Homes, Ltd. v. Allbaugh, No.

    03-14-00131-CV, 2015 WL 6831336 (Tex. App. – Austin November 3,

    2015, no pet.)(mem. op.), citing Gupta v. Ritter Homes, Inc., 633 S.W.2d

    626, 628 (Tex. App. – Houston [14th Dist.] 1982, aff’d in part, rev’d in part

    on other grounds, 646 S.W.2d 168 (Tex. 1983) (builder owes duty of

    ordinary care in construction of home, duty is not limited to first purchaser

                                       11
      of home but extends to subsequent purchasers, and privity of contract is not

      required).

      The tort duty described in Chapman, Sharyland II, Goose Creek, Zbranek,

and Gupta is not limited to only “contracting parties,” or “all existing persons,” or

to “persons who owned the property when the contract performance occurred.”

The duty extends to “a non-contracting party” (Chapman); to “all persons” who are

injured in their person or property by the contractor’s negligence (Sharyland II and

Goose Creek); and to “renters” and “subsequent purchasers” (Zbranek and Gupta).

Accordingly, Walnut Creek produced evidence proving it falls within the class of

“non-contracting parties,” “subsequent purchaser,” and “all persons …injure[d]” in

“their property in the performance of [Terracon’s] contract,” to whom, as a matter

of law, Terracon owed a duty under the rationale of the Chapman, Sharyland II,

Goose Creek, Zbranek and Gupta cases.

      Walnut Creek’s proof showed the existence of latent defects in Terracon’s

soils-engineering services. These latent defects were literally buried in the ground

and the evidence showed they did not become manifest until the buildings started

to move and crack several years later, causing physical damage after Walnut Creek

had purchased and owned the apartment Project. In the context of who foreseeably

might be harmed by such latent negligent defects, this Court has held: “As between

the builder and owner, it matters not whether there has been an intervening owner.


                                          12
The effect of the latent defect on the subsequent owner is just as great as on the

original buyer and the builder is no more able to justify his improper work as to a

subsequent owner than to the original buyer.” Gupta v. Ritter Homes, Inc., 646

S.W.2d 168, 169 (Tex. 1983) (citing in support Humber v. Morton, 426 S.W.2d

554 (Tex.1968)).

      Terracon produced no authority to support its argument to limit the scope of

duty in this case. Accordingly, the court of appeals properly determined that

Walnut Creek’s evidence established a breach of a recognized tort duty owed by

Terracon in this case, which is neither novel or new, and which includes Walnut

Creek in its capacity as the owner of property damaged by Terracon’s negligence.

                             REQUEST FOR RELIEF

      Walnut Creek DST respectfully requests that Terracon Consultants, Inc.’s

Petition for Review be, in all things, denied.




                                          13
                                        Respectfully submitted,

                                        Shackelford, Melton, McKinley &
                                           Norton, LLP
                                        3333 Lee Parkway, Tenth Floor
                                        Dallas, Texas 75219
                                        Telephone: 214/780-1436
                                        Facsimile: 214/780-1401


                                        By     /s/ Joe Chumlea
                                               JOSEPH G. CHUMLEA
                                               SBN 04241500
                                               jchumlea@shackelfordlaw.net
                                               MARK S. McQUALITY
                                               SBN 13849500
                                               mmcquality@shackelfordlaw.net


                        WORD COUNT CERTIFICATE

      I certify that the total word count for the contents of this Response required

to be included under Rule 9.4(i)(2)(D), TEX. R. APP. PROC., based on the Word

2013 program utility, is 2,885 words.


                                               /s/ Joe Chumlea
                                               JOSEPH G. CHUMLEA




                                          14
                        CERTIFICATE OF SERVICE

      I certify that a true and correct copy of the foregoing document was served

on the following as indicated below on December 1, 2015 via electronic filing:

William S. Rhea
DuBois Bryant & Campbell, LLP
700 Lavaca Street, Suite 1300
Austin, Texas 78701

David M. Medina
The Medina Law Firm
5300 Memorial Dr., Suite 89
Houston, Texas 77007

Timothy A. Hootman
2402 Pease St.
Houston, Texas 77003

                                             /s/ Joe Chumlea
                                             JOSEPH G. CHUMLEA




                                        15
