A $20 million jury award against a client in a breach-of-contract suit is enough to make any lawyer sweat bullets. But Marie Yeates of Vinson & Elkins got that award reversed and rendered, and literal perspiration by defense attorneys in the discovery phase of the case helped substantiate an award of $11 million in fees.

In its 2-1 opinion in Port of Houston of Harris County, Texas v. Zachry Construction Corp., Houston’s 14th Court of Appeals noted that during discovery “two Port attorneys went to an un-airconditioned, metal container facility crammed full of boxes not organized in any manner,” pulled boxes outside one at a time “and sat under a tree in May” to find responsive material. Those conditions helped the appellate court conclude that the port’s attorney fees were reasonable.

The 14th Court noted that the suit between Zachry and the port amounted to an “all-out-war between the parties for . . . three years.” According to the appeals court’s Aug. 9 majority opinion, the background in the case is as follows: A contract dispute arose over the construction of a new wharf at the Bayport Terminal Complex Phase 1A and Zachry sued the Port of Houston in 2006 alleging breach of contract. Zachry argued that the port failed to abide by a “change order” in the contract to build the wharf and, in doing so, added significant delays and costs to Zachry. The port denied the allegations and filed a counterclaim for attorney fees.

After a three-month trial, a jury found that the port had breached the contract. The trial court entered a final judgment awarding Zachry nearly $20 million in damages, including pre- and post-judgment interest.

The port appealed to the 14th Court, arguing that the evidence was legally and factually insufficient to support the jury’s verdict. In its majority opinion, the 14th Court found, among other things, that a “no-damages-for-delay” clause in the construction contract between the parties precluded Zachry from recovering for breach-of-contract claims.

“In June 2004, Zachry unambiguously agreed that it would perform the contract without the benefit of delay damages, even if the delay was caused by the Port’s breach of contract, negligence, or other fault. Zachry faced significant delays; delays it alleged — and the jury agreed — were caused by the Port’s breach of contract,” wrote 14th Court Justice Sharon McCally, joined by Justice Bill Boyce.

“We cannot rewrite the provision without depriving the Port of the benefit of the bargain the parties reached in June 2004,” McCally wrote. “Therefore, we conclude that the no-damages-for-delay clause in the parties’ contract precludes Zachry’s recovery of damages.”

Justice Tracy Christopher dissented in part, disagreeing with the majority’s conclusion that the documents at issue were “unambiguous.”

Attorney Fees

The 14th Court majority also wrote that the port’s attorneys were entitled to a judgment on attorney fees. The jury had determined that reasonable attorney fees for the port were $10.5 million for defending the case at trial and $90,000 for its intermediate appeal. The jury also had determined that reasonable attorney fees for Zachry were $80,000 for trial and $3,750 for an appeal to the 14th Court.

The 14th Court discussed the disparate fee amounts and the jury’s answer to fee questions regarding both sides. The appeals court noted that the contract between the parties made Zachry liable for the port’s attorney fees if Zachry brought a claim and did “not prevail with respect to such claim.” The 14th Court therefore reviewed the port’s attorney fees for reasonableness only.

The 14th Court noted that, at trial, Zachry’s trial expert questioned the reasonableness and necessity of the fees incurred by the port. The jury heard that the port fees were two-and-a-half times more than Zachry’s in October 2008, which “raised red flags,” according to Zachry’s attorney fee expert. However, the port’s fee expert explained that the primary difference related to the review of documents and that he was satisfied that the work the port lawyers performed in reviewing documents “was fair and reasonable and necessary,” the appeals court wrote.

“We conclude that the evidence is factually sufficient to support the fee award [for the port's lawyers] in this case, though the evidence would also have supported far less. The most significant concern about this award is the relationship between the fee awarded and the amount in controversy, particularly compared with the fees incurred by Zachry,” the 14th Court majority noted.

But testimony in the case provided sufficient evidence “to support this discrepancy,” specifically because of the port’s attorneys’ pursuit and review of documents produced in the case. Zachry asked the port’s attorneys “to come out to the site facility and review documents there,” the 14th Court majority wrote.

“We conclude that the evidence is factually sufficient to support the jury’s findings on attorney’s fees.”

Yeates of Houston, who represents the port on appeal, is pleased with the 14th Court’s decision.

“Vinson & Elkins has represented the port for a long time. And we felt strongly about this case. The way Zachry was attempting to interpret those provisions [in the construction contract] was wrong,” Yeates says.

Robin Gibbs and Jenny Greer, partners in Houston’s Gibbs & Bruns who represented Zachry on appeal, each did not return a telephone call seeking comment.

Yeates notes that Texas contract law allows plaintiffs to recover fees from defendants if the plaintiff prevails in a breach-of-contract case. Yet a standard provision in all of the port’s contracts allows the port to recover attorney fees if it is sued and ultimately prevails, Yeates says. She notes that the trial court correctly submitted the question of both sides’ reasonable attorney fees to the jury so there would be a factual basis for appeal.

Karen White, a former V&E partner who supervised the defense’s discovery portion of Zachry, testified at trial about the reasonableness of the port’s attorney fees. “This was crunch time. My recollection was both sides had a deadline of producing documents in pretty short order,” she says in an interview, noting that document review usually occurs in a law firm conference room rather than a hot storage facility. “That seemed the most efficient for us if we wanted their documents and based on the information we were given on what was in there.”

Presenting the trial court with the uncomfortable conditions V&E lawyers worked under ultimately helped the 14th Court determine that the fees the port requested were reasonable, says White, now a Houston solo.

“Every case is going to be different, not only because of the issues but how the information is presented,” White says. “Sometimes you fight harder to get information than others.”

Reasonableness of attorney fees