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FILED

17-0778
9/22/2017 7:10 PM
tex-19687946
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK

NO. 17-0778

IN THE SUPREME COURT OF TEXAS

CITY OF EDINBURG, TEXAS,
Petitioner,
v.
IOC COMPANY, LLC,
Respondent.

ON PETITION FOR REVIEW TO THE COURT OF APPEALS
FOR THE THIRTEENTH DISTRICT

PETITION FOR REVIEW OF CITY OF EDINBURG, TEXAS

Gerald Castillo
State Bar No. 24012399

Gonzalez Castillo, L.L.P.
1317 E. Quebec Avenue
McAllen, Texas 78503
(956) 618-0115 (Telephone)
(956) 618-0445 (Facsimile)
Email: law@valleyfirm.com

Ricardo Palacios
State Bar No. 24010990
Criselda Palacios
State Bar No. 24067812
Palacios Garza & Thompson, P.C.
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507 (Telephone)
(956) 318-0575
Emails: rpalacios@pgtlawfirm.com
and cpalacios@pgtlawfirm.com

Attorneys for Petitioner
City of Edinburg, Texas

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Identity of Parties and Counsel

Pursuant to Rule 53.2(a), Texas Rules of Appellate Procedure, the following

is a list of all parties and counsel involved in this case. This list is included so that

the Justices of this Court may evaluate possible disqualification or recusal from

participation in the decision of this case:

Appellee/Petitioner City of Edinburg, Texas:

Gerald Castillo
State Bar No. 24012399

Gonzalez Castillo L.L.P.
1317 E. Quebec Avenue
McAllen, Texas 78503
(956) 618-0115 (Telephone)
(956) 618-0445 (Facsimile)
Email: law@valleyfirm.com

Ricardo Palacios
State Bar No. 24010990
Criselda Palacios
State Bar No. 24067812

Palacios Garza & Thompson, P.C.
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507 (Telephone)
(956) 318-0575
Emails: rpalacios@pgtlawfirm.com
and cpalacios@pgtlawfirm.com

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Appellant/Respondent IOC Company, LLC:

Ricardo Pumarejo Jr.
State Bar No. 24056168

Pumarejo Law
4801 Safe Hen Dr.
Austin, Texas 78727
(512) 731-7869 (Telephone)
(512) 387-2556 (Facsimile)
Ricardo@pumarejolaw.com

Michael McGurk
State Bar No. 00797746

Walsh McGurk Cordova Nixon, PLLC
4900-B N. 10th Street
McAllen, Texas 78504
(956) 632-5030 (Telephone)
(956) 630-5199 (Facsimile)
Mmcgurk@wmcnlaw.com

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Table of Contents
Identity of Parties and Counsel ................................................................................ iii
Table of Contents .......................................................................................................v

Table of Authorities ................................................................................................ vii

Statement of the Case.................................................................................................1
Exhibits ......................................................................................................................3
Statement of Jurisdiction............................................................................................4

Issues Presented .........................................................................................................4

Statement of Facts ......................................................................................................5
Summary of the Argument.........................................................................................6

Argument....................................................................................................................9
A. The Texas Arbitration Act requires that the Award be vacated............9

B. The Thirteenth Court of Appeals erred in concluding that
Petitioner failed to meet its burden to vacate the Arbitration
Award because the Arbitrator exceeded his powers in violation
of §171.088(a)(3)(A) and the award was obtained by undue
means in violation of §171.088(a)(1) since the Arbitrator
ignored governmental immunity ...........................................................9

C. The Thirteenth Court of Appeals erred in concluding that
Petitioner failed to meet its burden to vacate the Arbitration
Award because the Arbitrator exceeded his powers since the
Arbitrator ignored and re-wrote the contract and ignored the
essence of the contract........................................................................ 11

1. The Court of Appeals erred because the Arbitrator's
Award does not draw its’ essence from the contract since
the Arbitrator ignored the plain language of the contract
that Petitioner would not be liable for the acts or neglect
of the utility providers .............................................................. 13

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D. The trial court did not err in vacating the Arbitrator’s Award
because the Award was obtained by undue means in violation
of §171.088(a)(1), since the Arbitrator acted in bad faith by
flagrantly disregarding statutory provisions and unambiguous
contractual terms ................................................................................ 16

1. The Court of Appeals erred because the Arbitrator
disregarded unambiguous statutory provisions under
Texas Government Code §271.153(a)(1) and Texas
Utilities Code §54.203 and the contract terms which is
bad faith and in violation of §171.088(a)(1) ............................ 17

2. The Court of Appeals erred because the Arbitrator
disregarded unambiguous contractual provisions which
implies bad faith in violation of §171.088(a)(1) ...................... 20

E. In the alternative, the Arbitrator’s Award for the Sugar Road
project should be modified because Respondent cannot recover
for delays that are not owner caused ...................................................23
Conclusion ...............................................................................................................24

Certificate of Compliance ........................................................................................26

Certificate of Service ...............................................................................................26
Appendix ................................................................................................................. 27

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Table of Authorities

Cases
Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc.,
294 S.W.3d 818 (Tex. App.--Dallas 2009, no pet.).........................................12

Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co.,
918 F.2d 1215, 1219 n. 3 (5th Cir.1990) ..........................................................12

Black v. Shor,
443 S.W.3d 154, 169 (Tex. App.—Corpus Christi 2013, pet. denied) ...........17

City of Weslaco v. Borne,
210 S.W.3d 782, 789 (Tex. App.—Corpus Christi 2006, pet. denied) ...........10

Executone Info. Sys., Inc. v. Davis,
26 F.3d 1314, 1325 (5th Cir. 1994) ..................................................................12

Good Times Stores, Inc.v. Macias,
355 S.W.3d 240 (Tex. App.—El Paso 2011, pet. denied)...............................16
Las Palmas Medical Center v. Moore,
349 S.W.3d 57, 70 (Tex. App.—El Paso 2010, pet. denied)...........................16
Major Leage Baseball Players Ass’n v. Garvey,
121 S. Ct. 1724, 1728 (2001)...........................................................................12
Nafta Traders, Inc. v. Quinn,
339 S.W.3d 84, 93 (Tex. 2011) .......................................................................12

Reata Const. Corp. v. City of Dallas,
197 S.W.3d 371, 374 (Tex. 2006) .....................................................................9
Tooke v. City of Mexia,
197 S.W.3d 325, 332 (Tex. 2006) ...................................................................11

United Steelworkers of Am. v. Enter. Wheel & Car Corp.,
80 S. Ct. 1358, 1361 (1960).............................................................................12

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Werline v. E. Texas Salt Water Disposal Co., Inc.,
209 S.W.3d 888, 901 (Tex. App.—Texarkana 2006), aff'd, 307 S.W.3d 267
(Tex. 2010).......................................................................................................17
Zachry Const. Corp. v. Port of Houston Auth. of Harris County,
449 S.W.3d 98, 103–04, 110–14 (Tex. 2014) ...................................... 8, 10, 17

Statutes
Tex. Util. Code Ann. §54.203 ....................................................................... 8, 14, 17

Tex. Civ. Prac. & Rem. Code §171.088 ....................................... 4, 9, 11, 16, 17, 20
Tex. Civ. Prac. & Rem. Code §171.091 ..................................................................23

Tex. Loc. Gov't Code Ann., Chapter 271 ........................................................... 6, 10

Tex. Loc. Gov't Code Ann. §271.151 ..................................................................... 10
Tex. Loc. Gov't Code Ann. §271.152 ..................................................................... 10

Tex. Loc. Code Ann. §271.153 ..................... 6, 7, 8, 9, 10, 13, 14, 17, 19, 21, 23, 24

viii
NO. 17-0778

IN THE SUPREME COURT OF TEXAS

CITY OF EDINBURG, TEXAS,
Petitioner,
v.
IOC COMPANY, LLC,
Respondent.

ON PETITION FOR REVIEW TO THE COURT OF
APPEALS FOR THE THIRTEENTH DISTRICT

PETITION FOR REVIEW OF CITY OF EDINBURG, TEXAS

To the Honorable Supreme Court of Texas:

Petitioner and Appellee City of Edinburg, Texas (“COE”) files this petition

for review, pursuant to Rule 53, Texas Rules of Appellate Procedure.

Statement of the Case

(1) Appellant/Respondents IOC Company, LLC (“IOC”) is a highway

and road contractor and City of Edinburg, Texas (“COE”), a municipality. IOC

and COE entered into a formal contract entitled ‘Pacing and Training

Improvements for Canton Road.’ (Canton Road project) (1C.R.:50).

Subsequently, on or about June 2, 2009, IOC and COE entered in a formal contract

entitled ‘Paving and Drainage Improvements for Sugar Road.’ (Sugar Road
project) (1C.R.:57). Pursuant to both contracts, Respondent initiated Arbitration

by making a written demand for Arbitration to the Petitioner with the American

Arbitration Association. (3C.R.:117). Respondent’s only claim arises from

alleged delays and inefficiencies as a result of Petitioner’s failure to relocate utility

lines, owned by others, namely AT&T, on the Canton Road project and the Sugar

Road project. (3C.R.:118).

(2) Arbitrator, William K. Andrews, issued and signed the Final Award of

Arbitrator. (Ex. 1).

(3) The Arbitration Award was for a total sum of $1,362,630 for the

Canton Road project and $673,092 for the Sugar Road project, plus attorney fees.

(3C.R.:117-124.) (Ex. 1).

(4) On August 25, 2014, Petitioner’s filed its Amended

Petition/Application to Vacate Arbitration Award. (Ex. 2).

(5) Judge Mario Ramirez is the Presiding Judge of the 332nd Judicial

District Court of Hidalgo County, Texas.

(6) The Trial Court granted Petitioner’s Amended Petition/Application to

Vacate Arbitration Award. (Ex. 3).

(7) Appellant and COE were the parties in the Court of Appeals.

(8) The Court of Appeals for the Thirteenth District of Texas heard the

appeal in this case.

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(9) Justices Nelda V. Rodriguez, Gina M. Benavides, and Nora Longoria

were on the panel that heard the appeal in this case. Justice Gina M. Benavides

was the author of the opinion for the Court. There were no separate opinions.

(10) The citation for the opinion by the Court is IOC Co., LLC v. City of

Edinburg, No. 13-16-00117-CV, 2017 Tex. App. LEXIS 6804 (App.—Corpus

Christi July 20, 2017). (Ex. 4).

(11) The Court of Appeals reversed the trial court’s orders: (1) granting the

COE’s Motion to Vacate the Arbitration Award; and (2) denying IOC’s motion to

confirm the arbitration award. The Court of Appeals rendered a judgment: (1)

denying the COE’s Motion to Vacate the Arbitration Award; and (2) granting

IOC’s Motion to Confirm the Arbitration Award. The Court of Appeals denied

COE’s Motion for Rehearing on August 10, 2017. (Exs. 4 & 5).

Exhibits

Pursuant to Rule 53.2(k), the following documents are attached to this

petition as exhibits:

(1) American Arbitration Association: Final Award of Arbitrator
(Reasoned);

(2) Amended Petition/Application to Vacate Arbitration Award #70 441
Y 00190 12;

(3) Order Granting Amended Petition/Application to Vacate Arbitration
Award #70 441 Y 00190 12;

(4) Opinion and Judgment of the Court of Appeals;
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(5) Letter denying Motion for Rehearing.

Statement of Jurisdiction

The Court has jurisdiction over this petition for review under TEX. GOV’T

CODE § 22.001(a) because the appeal presents a question of law that is important to

the jurisprudence of the State. The opinion by Supreme Court of Texas will have a

significant effect on contract law in which contractors and municipalities do

business.

Issues Presented

(1) The Supreme Court of Texas should reverse the judgment of the Court

of Appeals and render judgment for COE because the Arbitrator exceeded his

powers in violation of §171.088(a)(3)(A) and the award was obtained by undue

means in violation of §171.088(a)(1) since the Arbitrator ignored governmental

immunity.

(2) The Supreme Court of Texas should reverse the judgment of the Court

of Appeals because the Arbitrator exceeded his powers since the Arbitrator ignored

and re-wrote the contract and ignored the essence of the contract.

(3) The Supreme Court of Texas should reverse the judgment of the Court

of Appeals because the Award was obtained by undue means in violation of

§171.088(a)(1), since the Arbitrator acted in bad faith by flagrantly disregarding

statutory provisions and unambiguous contractual terms.

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(4) The Supreme Court of Texas, in the alternative to reversing the

judgment of the Court of Appeals, should modify the Arbitrator’s Award for the

Sugar Road project to $191,090.82 pursuant to Tex. Civ. Prac. & Rem. Code Ann.

§179.091 because Respondent cannot recover for delays that are not owner caused.

Statement of Facts

The underlying dispute arise from two (2) road construction and

improvement projects between Respondent, IOC Company, LLC (IOC), and

Petitioner, City of Edinburg, Texas (“COE”). On or about April 1, 2008, COE and

IOC entered into a formal contract entitled ‘Paving and Training Improvements for

Canton Road.’ (Canton Road project) (1C.R.:50). On or about June 2, 2009, COE

and IOC entered into a formal contract entitled ‘Paving and Drainage

Improvements for Sugar Road.’ (Sugar Road project) (1C.R.57).

Pursuant to both contracts, Respondent initiated Arbitration by making a

written demand for Arbitration to the Petitioner with the American Arbitration

Association. (3C.R.:117). Respondent’s only claim arises from alleged delays and

inefficiencies as a result of Petitioner’s failure to relocate utility lines, owned by

others, namely AT&T, on the Canton Road project and the Sugar Road project.

(3C.R.:118). Respondent admitted that it was paid for every unit of work

completed, as well as every amendment and/or change order. On July 18, 2014, an

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Arbitration Award was issued by Arbitrator, William Andrews. The Arbitration

Award was for a total sum of $1,362,630 for the Canton Road project and

$673,093 for the Sugar Road project, plus attorney fees. (3C.R.:117-124).

On August 14, 2014, Petitioner filed its Petition/Application to Vacate the

Arbitration Award. (1C.R.:12-40).

On February 11, 2016, the Trial Court granted COE’s requested relief.

Subsequently, Respondent’s appealed the Trial Court’s judgment to the Thirteenth

Court of Appeals where the Trial Court’s orders were reversed and rendered a

judgment for Respondents on July 20, 2017.

Summary of the Argument

(1) The Court of Appeals erred in reversing the Trial Court’s granting of

vacating the Arbitrator’s Award because the Arbitrator exceeded his authority and

acted by undue means. The Texas Arbitration Act (“TAA”) identifies specific

grounds for vacating an Arbitration Award. Two (2) grounds applicable in this

case are: (1) that the Arbitrator exceeded his authority, and (2) that the Arbitration

Award was obtained by undue means, are applicable here.

(2) The Court did not err in vacating the Arbitrator’s Award because the

Arbitrator exceeded his power by issuing an Arbitration Award that strays from the

clear contractual provisions and §271.153(a)(1) of the Local Government Code. In

line with the protections afforded to COE under Chapter 271, the contract

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contained several provisions that informed Respondent that the utility lines that

were known and/or unknown to exist were owned by others. Despite the ample

evidence in the record that Respondent’s alleged damages were caused by others,

and not COE, the Arbitrator nonetheless issued an Arbitration Award for damages

caused by others.

(3) In addition, the Arbitrator ignored clear contractual provisions,

contained in both the Canton Road project and Sugar Road project that dictated the

manner in which requests for additional compensation, including delays, must be

requested. The contracts go on to state that failure to adhere to this process is

waiver of any right to additional compensation. The record reflects that not only

did Respondent failed to submit a written change order for additional

compensation pursuant to the contract but additionally failed to quantify its losses

at the time of the Final Hearing due to the alleged delays.

(4) Thus, the Trial Court’s vacatur of the Arbitration Award was proper

because the Arbitrator exceeded his power in issuing an Arbitration Award that

strays from the clear contractual provisions and Texas statutes.

(5) By the same token, the Arbitrator acted by other undue means since

the Arbitrator acted in bad faith by disregarding §271.153 of the Local

Government Code and unambiguous contractual provisions.

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(6) The Arbitrator disregarded controlling and unambiguous statutory

provisions under Texas Government Code §271.153(a)(1) and Texas Utilities Code

§54.203 and the contract terms, which is bad faith. The Texas Government Code

and Zachry clearly limit a city’s liability to “owner caused” delays. The record

clearly shows that the Respondent and Respondent’s expert, Jens Baker,

recognized that the alleged delays encountered by Respondent were caused by

others.

(7) Similarly, the contractual provision contained within the Sugar Road

project and Canton Road project clearly state that delays caused by others, namely

utility companies such as AT&T and Texas Gas, are not the responsibility of COE.

(8) Despite the overwhelming evidence on the record the Arbitrator

issued the Arbitration Award to Respondent for damages that were not “owner

caused.” Thus, once again the Arbitrator disregarded controlling law and

contractual provisions, which resulted in a decision that is arbitrary, capricious,

and issued in bad faith.

(8) In the alternative, COE requests that the Arbitration Award be

modified to reflect only those damages that Respondent is allowed to recover

under §271.153(a)(1).

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Argument

A. The Texas Arbitration Act requires that the award be vacated.

The Texas Arbitration Act (“TAA”) identifies specific grounds for vacating

an arbitration award. Tex. Civ. Prac. & Rem. Code § 171.088. Two (2) of those

grounds are applicable here. Consequently, the question before this Court is

whether the award should be vacated because:

(i) it was “obtained by ... other undue means;”
(ii) “the arbitrator exceeded [his] powers.” Or
(iii) in the alternative, should modify the Sugar Road Project Arbitration
Award

B. The Thirteenth Court of Appeals erred in concluding that Petitioner
failed to meet its burden to vacate the Arbitration Award because the
Arbitrator exceeded his powers in violation of §171.088(a)(3)(A) and the
award was obtained by undue means in violation of §171.088(a)(1) since
the Arbitrator ignored governmental immunity.

The law is clear that a party cannot recover damages from a local

government entity for delays that are not “owner caused.” Tex. Gov’t Code Ann.

§271.153(a)(1). Respondent’s primary reason for seeking recovery is for the

delays due to the relocation of utility lines not owned by Petitioner. Rather, they

are owned by entities such as AT&T and Texas Gas. This established law makes

clear that COE cannot be held responsible for delays caused by others. Despite the

controlling statute, the Arbitrator awarded damages to Respondent.

A municipality is entitled to sovereign immunity. Reata Const. Corp. v. City

of Dallas, 197 S.W.3d 371, 374 (Tex. 2006); Tex. Loc. Gov't Code Ann. §

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271.151(3)(A). Sovereign immunity protects municipalities in two (2) ways: (1)

immunity from suit, which bars suit against a governmental entity altogether; and

(2) immunity from liability, which bars enforcement of a judgment against a

governmental entity. City of Weslaco v. Borne, 210 S.W.3d 782, 789 (Tex. App.—

Corpus Christi 2006, pet. denied). Immunity from suit remains unless the

Legislature has waived or abrogated sovereign immunity. Id. Texas Local

Government Code, Chapter 271, waives immunity from contract suits for local

governmental entities. Zachry Const. Corp. v. Port of Houston Auth. of Harris

County, 449 S.W.3d 98, 106 (Tex. 2014) (The Port of Houston Authority, owner of

a wharf, contracted with Zachry Construction Corporation to build a wharf.).

Specifically, § 271.152 of the Act states:

“A local governmental entity that is authorized by statute or the constitution
to enter into a contract and that enters into a contract subject to this sub-
chapter waives sovereign immunity to suit for the purpose of adjudicating a
claim for breach of the contract, subject to the terms and conditions of this
sub-chapter.” Id.

The Texas Supreme Court in Zachry held that §271.152 uses §271.153 to

further define to what extent immunity has been waived. Id. at 110. The Texas

Supreme Court further held that §271.153(a)(1) a municipalities immunity is

waived to the extent that claimant’s damages arise from “owner caused” delays.

Id. at 103–04, 110–14.

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To allow Respondent to recover the Arbitration Award would ignore the

pragmatic purpose of governmental immunity: “to shield the public from the costs

and consequences of improvident actions of their governments.” Tooke v. City of

Mexia, 197 S.W.3d 325, 332 (Tex. 2006). Petitioner and their respective taxpayers

should be shielded from the costs of a claim that has not and cannot allege any

wrongdoing or establish any liabilities on the part of COE.

It is clear from the record that Respondent and the Arbitrator were aware

that the delays arising from the utility lines were not “owner caused.” Rather, the

delays were caused by others. 3C.R.:817 at (Pg. 183, Ln. 24-Pg. 184, Ln. 5; Pg.

184, Ln. 23-Pg. 184, Ln. 25); 3C.R.: 819 at (Pg. 189, Ln. 20-25); 3C.R.: 820 at

(Pg. 196, Ln. 4-23); 3C.R.: 825 at (Pg. 213, Ln. 19-Pg. 214, Ln. 11). The

Arbitrator actions clearly reflect that he exceeded his authority and acted in bad

faith.

C. The Thirteenth Court of Appeals erred in concluding that Petitioner
failed to meet its burden to vacate the Arbitration Award because the
Arbitrator exceeded his powers since the Arbitrator ignored and re-
wrote the contract and ignored the essence of the contract.

Vacatur is appropriate because the Arbitrator ignored the re-wrote the

explicit terms of the parties’ contractual obligations. An arbitration award must be

vacated when arbitrators have exceeded their powers. TEX. CIV. PRAC. & REM.

CODE §171.088 (a)(3)(A); Townes Telecomms., Inc. v. Travis, Wolff & Co.,

L.L.C., 291 S.W.3d 490, 493-94 (Tex. App. – Dallas 2009, pet. denied. Arbitrators
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exceed their powers, and may render their awards unenforceable, when they stray

from interpretation and application of the parties’ contract. Id. (quoting Major

Leage Baseball Players Ass’n v. Garvey, 121 S. Ct. 1724, 1728 (2001) (per

curiam) (in turn quoting United Steelworkers of Am. v. Enter. Wheel & Car Corp.,

80 S. Ct. 1358, 1361 (1960))); Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 93

(Tex. 2011).

When analyzing whether an arbitrator has exceeded his authority, Texas

Courts have held that in order “to draw its essence from the contract, the

arbitrator’s award ‘must have a basis that is at least rationally inferable, if not

obviously drawn, from the letter of purpose of the…agreement…[T]he award

must, in some logical way, be derived from the wording or purpose of the

contract.’” Id. (quoting Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1325 (5th

Cir. 1994)).

To determine whether an arbitration award is beyond the scope of the

arbitrator’s powers, the Court’s look only at the result. Id. “The single question is

whether the award, however arrived at, is rationally inferable from the contract.”

Id. (quoting Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d

1215, 1219 n. 3 (5th Cir.1990)); Ancor Holdings, LLC v. Peterson, Goldman &

Villani, Inc., 294 S.W.3d 818, 829 (Tex. App.—Dallas 2009, no pet.) (“The award

must be derived in some way from the wording and purpose of the contract, and

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we look to the result reached to determine whether the award is rationally inferable

from the contract.”).

1. The Court of Appeals erred because the Arbitrator's Award does not
draw its’ essence from the contract since the Arbitrator ignored the
plain language of the contract that Petitioner would not be liable for the
acts or neglect of the utility providers.

The essence of the Sugar Road project contract is a road improvement

project between a local government and a contractor that encapsulates the

immunity afforded to Petitioner under the TEXAS LOCAL GOVERNMENT

CODE §271.153. The terms of the contract were written in such a way to conform

with the immunity afforded to the Petitioner as it relates to delays caused by others

pursuant to Texas Local Government Code §271.153.

There are four (4) Articles, 4.3, 4.4, 7.1, and 12.1(D), contained in the Sugar

Road project contract that clearly address to whom the duty and responsibility of

re-locating the utility lines belongs.

Under the plain language of the parties’ Contracts under Article 12.1(D), the

parties expressly agreed that:

“In no event will owner [COE] be liable to contractor [IOC]…, for any

increase in the contract price or other damages arising out or resulting from the

following:

1. Delays caused by or within the control of Contractor; or

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2. Delays beyond the control of both Owner and Contractor, including
but not limited to fires, floods, epidemics, abnormal weather
conditions, acts of God, or acts or neglect by those performing other
work including [utility owners].” (3C.R.:337).

These contractual provisions were written in this way because Texas law is

clear that rewards to claimants arising from a breach of contract are limited against

local government entity to those that directly result from “owner caused” delays.

TEXAS GOVERNMENT CODE §271.153(a)(1). The Texas Utilities Code

§54.203 clearly states that the telecommunications utility is responsible for

relocating its utility lines upon notice by a city. This well-established law makes

clear that COE cannot be held responsible for the delays caused by others. The

evidence shows that Respondent had complete knowledge and understanding that

the utility lines were owned by others. Respondent admits that the movement or

re-location of either the communication manholes, the abandoned manhole, or the

Texas Gas lines (3) were the responsibility of either AT&T and/or Texas Gas, and

not COE. 3C.R.:817 at (Pg. 183, Ln. 24 - Pg. 184, Ln. 5; Pg. 184, Ln. 23-Pg. 184,

Ln. 25); 3C.R.: 819 at (Pg. 189, Ln. 20- 25); 3C.R.: 820 at (Pg. 196, Ln. 4-23);

3C.R.: 825 at (Pg. 213, Ln. 19-Pg. 214, Ln. 11).

Respondent contended that it encountered unknown encumbrances while

completing its work on the Sugar Road project, which caused delays and

inefficiencies. (3C.R.: 781) (Pg. 38, Ln. 2-Pg. 39, Ln. 19). The contract under

Article 4.3 informs Respondent that the “contract documents provided to
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Contractor with respect to underground utilities...are based on information and data

furnished to [COE] and [COE’s] Engineer by the owners of such underground

utilities or by others.” (3C.R.:312-313). Further, per Article 4.3(A), Respondent’s

bid should have accounted for the unknown encumbrances. 3C.R.:312-313.

Therefore, Respondent cannot now claim additional compensation for the

unknown encumbrances due to utility lines owned by others. It was the

responsibility of other entities, and not Petitioner to complete this work. Despite

the contract terms, the Arbitrator clearly ignored these contractual provisions by

stating that “[t]he City failed to timely, reasonably, and properly manage the

removal of obstacles, conflicts, and obstructions in the areas in which IOC was to

perform the scope of work under the Sugar Road project contract. COE had the

duty and responsibility to manage the removal of these in areas which IOC was to

perform the scope of work.” (3C.R.:119); (3C.R.: 121).

As illustrated in the preceding paragraphs, the evidence overwhelmingly

shows that the essence of the contract was to have the utility owners re-locate their

own utility lines. Thus, the Arbitration Award is not derived from the wording or

purpose of the contract because the Arbitrator awarded damages for delays that

were not owner caused.

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D. The Trial Court did not err in vacating the Arbitrator’s Award because
the Award was obtained by undue means in violation of §171.088(a)(1),
since the Arbitrator acted in bad faith by flagrantly disregarding
statutory provisions and unambiguous contractual terms.

The Trial Court did not err in vacating the Arbitration Award because it was

obtained by “undue means” since the Arbitrator acted in bad faith in violation of

Tex. Civ. Prac. & Rem. Code §171.088(a)(1). First, the Arbitrator flagrantly

disregarded well established statutes that limit the award against local

governments. Second, the Arbitrator disregarded unambiguous contractual

provisions, including but not limited to, provisions regarding requests for

additional compensation, change orders, and differing site conditions. Thus, the

Trial Court correctly granted Petitioner’s Motion to Vacate because the Arbitrator

disregarded statutory authority and unambiguous contractual provisions, which

resulted in a decision that is arbitrary and capricious and implies bad faith.

Pursuant to §171.088(a)(1), a court may vacate an arbitration award if the

award was obtained by fraud, corruption, or other undue means. Tex. Civ. Prac. &

Rem. Code §171.088(a)(1). The Texas Arbitration Act does not define “other

undue means.” Las Palmas Medical Center v. Moore, 349 S.W.3d 57, 70 (Tex.

App.—El Paso 2010, pet. denied). Texas Courts have defined undue means to be

actions that are immoral, illegal, or bad-faith conduct. Good Times Stores, Inc. v.

Macias, 355 S.W.3d 240 (Tex. App.—El Paso 2011, pet. denied).

16
A gross mistake is a mistake that implies bad faith or a failure to exercise

honest judgment and results in a decision that is arbitrary and capricious. Black v.

Shor, 443 S.W.3d 154, 169 (Tex. App.—Corpus Christi 2013, pet. denied). A

gross mistake is shown when the arbitrator disregards and fails to apply the plain

terms of a contract and controlling law. Werline v. E. Texas Salt Water Disposal

Co., Inc., 209 S.W.3d 888, 901 (Tex. App.—Texarkana 2006), aff'd, 307 S.W.3d

267 (Tex. 2010). Such egregious conduct warrants the inference that the arbitrator

acted in bad faith or failed to exercise honest judgment. Id. The questions to be

answered by the Court is merely whether the Arbitrator erred so egregiously that

bad faith can be inferred. Id.

It is obvious from the record that the Arbitrator disregarded the specific

mandates of the law and the plain terms of the contract. This egregious conduct

warrants the inference that the Arbitrator acted on bad faith. Thus, vacatur of the

Arbitration Award is required.

1. The Court of Appeals erred because the Arbitrator disregarded
unambiguous statutory provisions under Texas Government Code
§271.153(a)(1) and Texas Utilities Code §54.203 and the contract terms
which is bad faith and in violation of §171.088(a)(1).

As outlined previously in this Petition, the law is clear that a party cannot

recover damages from a local government entity for delays that are not “owner

caused” pursuant to the Texas Local Government Code §271.153(a)(1). The Texas

Supreme Court reiterated in Zachry that a claimant cannot recover for delays that

17
are not “owner caused.” In contravention of well-established Texas law, the

Arbitrator ignored the law and issued Respondent an Arbitration Award for delays

that were not caused by COE. Thus, Arbitrator, William Andrews, erred so

egregiously that bad faith can be inferred.

The majority, if not all, of IOC’s claimed encumbrances were delays or

inefficiencies caused by other entities, namely AT&T and Texas Gas. The same

argument for the Canton Road project applies to the Sugar Road project with

respect to COE’s liability for the actions of others. Despite this well-established

precedent and the testimony from Respondent’s own expert, the Arbitrator ignored

the statute.

At the Final Hearing on the Sugar Road project, Respondent’s own expert,

Jens Baker, testified that IOC complained that the delays were primarily caused by

AT&T. 3C.R.:813. Mr. Baker, further testified that he identified 384 days of

delays on the job, 174 of which were attributable to the late start and manhole

issues of AT&T, and 101 days, which were attributable to Texas Gas changes.

3C.R.:844 (P. 289, L. 6-25). He also testified that he could portion those damages

attributable to third parties versus those directly caused by COE. 3C.R.:844 (P.

290, L.1-P.291, L. 24). Thus, in essence, Respondent’s retained expert testified

that 71.61%, or 275 delay days out of the 384 alleged delay days, of Respondent’s

damages were not directly caused by COE.

18
Despite Respondent’s expert own admission that the delays were caused by

others, the record shows Arbitrator, William Andrews, clearly ignored §271.153.

The Arbitrator’s Award states “§271.153, Local Government Code, does not bar

IOC’s claim for additional compensation arising out of the Canton Road project.”

3C.R.:120.

Despite the clear statutory language and Texas Supreme Court precedent,

that a city cannot be liable for damages caused by others, the Arbitrator awarded

damages to Respondent. The Court’s record further reflects that Arbitrator,

William Andrews, flagrantly disregarded §271.153 and based his Final Award of

Arbitrator on the premise that “[t]he City’s material breaches are not excused

based on the failure of any third party to remove or re-locate their lines or utilities

that constitute obstacles, conflicts, and obstructions as described above.”

3C.R.:120-121.

The result of the Arbitration Award, in this case, disregards what otherwise

has been a well settled principal between municipalities and contractors. The

Arbitrator did not merely make a mistake of law in this case, but his actions are so

contrary to well-established law that it would change the manner in which

contractors and municipalities do business, and moot Texas Law with respect to

the adjudication of awards against municipalities. The disregard of the law and

Texas Supreme Court precedent is bad faith.

19
It is clear from the record the Arbitrator acted in bad faith because despite

the overwhelming evidence that the delays were caused by others nonetheless

awarded damages to Respondent. Thus, the Arbitrator disregarded statutory

authority and contractual provisions which resulted in a decision that is arbitrary

and capricious and issued in bad faith.

2. The Court of Appeals erred because the Arbitrator disregarded
unambiguous contractual provisions which implies bad faith in violation
of §171.088(a)(1).

The Arbitrator disregarded clear contractual provision contained within the

Sugar Road project contract and Canton Road project contract. The Sugar Road

project contract clearly outlines that COE is not liable for damages caused by

others. The Canton Road project contract clearly outlined the manner in which

Respondent was required to request additional compensation and failure to follow

the terms was waiver of future claims for additional compensation. Thus, the

Arbitrator failed to apply the plain language of the contract, which implies bad

faith.

As stated previously, the Sugar Road project contract contains four (4)

Articles, 4.3(B), 4.4, 7.1, and 12.1(D), that clearly state that the duty and

responsibility of re-locating the utility lines belonged to the utility owners. They

also contemplate that unknown encumbrances could be encountered during the

road improvement projects.

20
Based on the articles in the Sugar Road project contract, COE is precluded

from liability resulting for damages or increased contract time due to the work of

others in line with §271.153. At the Arbitration Hearing, Respondent complained

that the alleged delays were caused by utility lines, man holes, and utility poles

owned by AT&T and Texas Gas. Even further, as indicated previously,

Respondent concedes that the re-location of the utility encumbrances were either

the responsibility of AT&T and/or Texas Gas service. 3C.R.:817-820; 3C.R.:825.

Therefore, COE cannot be held responsible, even if these issues caused delays

and/or inefficiency damages. Based on the evidence, Petitioner was not

responsible for re-locating the utility lines but only bore the responsibility to notify

AT&T that the lines needed to be re-located. Respondent did not proffer any

evidence or argument that Petitioner did not notify AT&T to re-locate its utility

lines.

Further, the contract terms of both the Sugar Road project and Canton Road

project clearly outlined the manner in which a contractor should have used to

collect additional compensation. With regard to the Sugar Road project,

Respondent claimed that COE delayed in re-locating the traffic switch at the Sugar

Road and Owassa Road intersection. Therefore, it was owed additional

compensation. To request additional compensation, Respondent was required to

comply with Special Provision 20 of the Sugar Road project contract. Special

21
Provision 20 required that Respondent: (1) provide the Petitioner with written

notice, (2) obtain a change order agreed upon by COE, Contractor, and COE’s

Engineer, and (3) after the work was completed, file a claim for extra

compensation within ten (10) days. 3C.R.: 286-287.

Respondent admitted that it had not at the time of the Final Hearing, and still

had not, quantified the amount of delay or inefficiency damage related to the traffic

switch. 3C.R.: 822-823 (Pg. 204, Ln. 21-Pg. 205, Ln. 24).

With regard to the Canton Road project, Special Provision and General

Provision 18 controls the request for additional compensation by the contractor.

Special Provision 18 states in part: “in cases where the contractor deems extra

compensation is due him for materials not clearly covered in the contract, or not

ordered by the engineer as an extra item, the contractor shall notify the engineer in

writing of his intention to make a claim for such extra compensation before he

begins the work.”

As described in the previous section of this Petition, the amount of materials

used and paid for by Respondent, as well as the equipment used and paid for by

Respondent to construct the Canton Road project, was information available to

Respondent during the project time frame. Despite having the requirement under

Section 18 of the Special Provisions to submit any request for extra compensation

within a specified time period, Respondent failed to do this and, by contract, its’

22
alleged damages have been waived. Even further, as stated previously, IOC had all

of the information available, including the information regarding the alleged

“known” encumbrances prior to beginning their work on the Canton Road project.

They chose not to submit an alternate sequence of construction and they chose not

to submit a request for additional compensation prior to commencing the project.

After completing the construction of the roadway, IOC chose not to make a

detailed request with a specified amount or, in fact, any request at all prior to the

completion and closing out of the project. For these reasons, IOC’s request for

additional compensation and damages fails.

E. In the alternative, the Arbitrator’s Award for the Sugar Road project
should be modified because Respondent cannot recover for delays that
are not owner caused.

COE maintains that IOC cannot recover any damages arising from the Sugar

Road project because the damages are not “owner caused” and the award

represents consequential damages not recoverable under the Texas Government

Code §271.153. However, should this Court find that the Arbitration Award is

proper, then COE requests that the Arbitration Award be modified under §171.091.

The Arbitrator’s Award of $673,092 in damages must be reduced to $191,090.82

for the reasons show below.

23
Texas law is clear that a party cannot recover damages from a local

government entity for delays that are not “owner caused.” Texas Government

Code §271.153(a)(1).

Respondent’s expert, Jens Baker, testimony during the Final Hearing on the

Sugar Road project further substantiates our position that IOC’s complaints of

delays were primarily caused by others, namely AT&T. 3C.R.:813 (Pg. 238, Lns.

8-14). Mr. Baker testified that he identified 384 days of delays on the job of which

275 days were caused by others, specifically, AT&T and Texas Gas. 3C.R.:844

(Pg. 89, Lns. 6-25). He further testified that he could portion those damages

attributable to third parties versus those directly caused by COE. 3C.R.:844 (Pg.

290, Ln. 1 –Pg. 291, Ln. 24). Thus, in essence, Respondent admitted that 71.61%

or 275 days out of the 384 alleged delay days were not directly caused by COE.

Therefore, since 28.39% of the delays days or 109 days were allegedly

caused by COE, the Arbitration Award must be reduced to $191,090.82. Thus, the

modification award would conform to §271.153(a)(1) of the local government code

because $191,090.82 represents “owner caused” delays.

Conclusion

This Court should grant the petition for review, reverse the judgment of the

Court of Appeals and affirm the ruling of the trial court vacating the subject

Arbitration Award. In the alternative, the Arbitrator’s Award for the Sugar Road

24
project should be modified to $191,090.82 because the Respondent cannot recover

for delays that are not owner caused.

Respectfully submitted,

GONZALEZ CASTILLO, LLP

By: /s/Gerald E. Castillo
Gerald E. Castillo
State Bar No. 24012399

1317 E. Quebec Avenue
McAllen, Texas 78503
(956) 618-0115 (Telephone)
(956) 618-0455 (Facsimile)
Email: law@valleyfirm.com

Ricardo Palacios
State Bar No. 24010990
Criselda Palacios
State Bar No. 24067812

Palacios Garza & Thompson, P.C.
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507 (Telephone)
(956) 318-0575
Emails: rpalacios@pgtlawfirm.com
and cpalacios@pgtlawfirm.com

Attorneys for Petitioner
City of Edinburg, Texas

25
Certificate of Compliance

Pursuant to Rule 9.4(i)(3), I certify that this Petition of Review, beginning
with the Statement of facts, and ending after the Conclusion, contains 4469 words,
as measured by a computer program used to prepare the Motion.

/s/Gerald E. Castillo
Gerald E. Castillo

Certificate of Service
This will certify that a true and correct copy of this document has been
forwarded to all counsel of record pursuant to the Texas Rules of Appellate
Procedure on the 22nd day of September 2017.
Ricardo Pumarejo, Jr. Via E-Service
Pumarejo Law
4801 Sage Hen Dr.
Austin, Texas 78727
Counsel for Respondents

Michael McGurk Via E-Service
Walsh McGurk Cordova Nixon, PLLC
4900-B N. 10th Street
McAllen, Texas 78504
Counsel for Respondents

Gerald E. Castillo Via E-Service
Gonzalez Castillo, LLP
1317 E. Quebec Avenue
McAllen, Texas 78503

Ricardo Palacios
Palacios Garza & Thompson, P.C.
2724 West Canton Road
Edinburg, Texas 78539
Counsel for Petitioner

/s/Gerald E. Castillo
Gerald E. Castillo

26
NO. 17-0778

IN THE SUPREME COURT OF TEXAS

CITY OF EDINBURG, TEXAS,
Petitioner,
v.
IOC COMPANY, LLC,
Respondent.

PETITIONER’S APPENDIX

1. American Arbitration Association: Final Award of Arbitrator (Reasoned);

2. Amended Petition/Application to Vacate Arbitration Award #70 441 Y
00190 12;

3. Order Granting Amended Petition/Application to Vacate Arbitration Award
#70 441 Y 00190 12;

4. Opinion and Judgment of the Court of Appeals; and

5. Letter denying Motion for Rehearing.

27
Exhibit ''1"
AMERICAN ARBITRATION ASSOCIATION
Construction Industry Arbitration Tribunal

IOC Company, LLC, )
Claimant, )
) AAA Case Number:
v. ) 70 441 y 00190 12
)
City of Edinburg, Texas, )
Respondent. )

FINAL AWARD OF ARBITRATOR (REASONED)

I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance
with the arbitration agreement entered into between the above-named parties, and
having been duly sworn, and having duly heard the proofs and allegations of the
Parties, hereby AWARD as follows:

Introduction

The parties to this proceeding are 100 Company, LLC f'IOC"), a highway and road
contractor, and City of Edinburg, Texas ("City"), a municipality. IOC and the City
agreed to my appointment as the arbitrator in this proceeding and made no objections to
my continued service as arbitrator after I made disclosures.

The claims and disputes the parties are arbitrating, arise out of two projects but
involve similar facts, agreements and scopes of work. In addition, the witnesses
testifying about the claims and disputes arising out of both projects were identical.
Previously, the parties agreed to consolidate these claims and disputes and present
them to me for resolution.

I conducted bifurcated hearings with respect to each project. I heard the claims
and disputes arising out of the Canton Road Project first at the evidentiary hearing
devoted to that project held on February 17 and 18, 2014 which, by consent of the
parties, was held open until the establishment of the post hearing submission schedule
set forth in the Order Regarding Post Hearing Briefing Schedule.· Next, I heard the
claims and disputes arising out of the Sugar Road Project at the evidentiary hearing
held on Aprill6 and 17, 2014. The hearings were declared closed on June 18, 2014.

The post hearing briefing schedule required the submission of briefs and closing
statements, replies and attorneys' fees affidavits for both projects.

In accordance with the post hearing submission schedule as set forth in the above
described Order and discussions memorialized in the hearing transcript, I am now
rendering this Final Award with respect to the claims and disputes arising out of both
projects.

The Claims, Defenses and Disputes: Canton Road Project

roo and the City entered into an agreement dated Aprill, 2008 under which roo
agreed to perform paving, drainage improvements and expansion of a portion of Canton
Road for the City in accordance with the plans, specifications and information the City
furnished to roc.

roo seeks recovery of damages in the form of additional compensation due to the
City's claimed breach of contract, essentially consisting of delays, interferences and
disruptions it alleges the City caused it to suffer. roo also seeks recovery of attorneys'
fees, prejudgment interest and reimbursement of arbitrator compensation and costs.

The City contests IOC's legal entitlement to recovery of damages and argues IOC's
claims are barred or excluded by the parties' agreement and § 271.153, Local
Government Code. The City strongly denies it was responsible for owner-caused delays
that increased rOO's cost to perform the work for this project. In particular, the City
argues the City was not responsible for relocating utility lines, encumbrances and
obstructions that hindered, delayed or disrupted IOC's ability to timely, efficiently and
in a linear, logical and sequential manner perform the required scope of work in
accordance with its construction plan. The City further argues any delays roo suffered
were caused by third parties over whom it had no control or responsibility.

The Claims, Defenses and Disputes: Sugar Road Project

Similarly, IOC and the City entered into an agreement dated June 2, 2009 under
which roo agreed to perform paving, drainage improvements and expansion and
widening of a portion of Sugar Road for the City in accordance with the plans,
specifications and information the City furnished to IOC.

Essentially, IOC's claim and the types of damages it seeks mirror those described
for the Canton Road Project. The same generally holds true for the City's defenses
although the City emphasizes several provisions in the Canton Road Agreement which
it asserts preclude IOC's claim and damages.

Findings Regarding the Canton Road Project

Based on the evidence presented to me, the Canton Road Agreement and the law of
the State of Texas, I find the City materially breached this Agreement without excuse
and is liable to roc for damages in the form of additional compensation arising from

2
City-caused delays, disruptions and interferences. I further find IOC did not materially
breach the Agreement. I discuss the facts and reasons in support of these findings
below.

The evidence concerning IOC's efforts to perform the scope of work for the Canton
Road Project and the numerous, serious and costly City-caused delays, interferences
and disruptions it suffered in those efforts is compelling and supports my finding the
City materially breached the Agreement.

This evidence established the following facts and supports the following reasons
for my entering an award in IOC's favor on its claim arising out of the Canton Road
Project:

1. The City failed to timely and properly provide IOC with the lands necessary
for it to perform the scope of work under the Canton Road Agreement.

2. The City failed to provide IOC timely and proper access to the areas in
which it was to perform the scope of work under the Canton Road
Agreement.

3. The City failed to provide IOC with unhindered and unobstructed access to
the areas in which it was to perform the scope of work under the Canton
Road Agreement.

4. 'rhe City failed to timely, reasonably and properly manage the removal of
obstacles, conflicts and obstructions in the areas in which roc was to
perform the scope of work under the Canton Road Agreement. 'l'he City had
the duty and responsibility to manage the removal of these in the areas in
which roc was to perform the scope of work.

5. The City's preceding failures delayed IOC's ability to timely and efficiently
perform the scope of work under the Canton Road Agreement.

6. The City is responsible for owner~caused delays to IOC's ability to timely
and efficiently perform the scope of work under the Canton Road
Agreement.

7, The City's preceding failures disrupted and interfered with IOC's ability to
timely and efficiently perform the scope of work under the Canton Road
Agt·eement.

8. The number and quality of the utility lines (underground and above
ground), power poles, splicing operations, gas lines and meters and

3
manholes which singularly and cumulatively delayed and disrupted IOC's
work performance are significant and compelling. These are City-caused
delays, disruptions and interferences.

9. The City also failed to timely acquire permits and easements from the local
drainage and irrigation districts which also delayed and disrupted IOC's
work performance. These, too, are City-caused delays, disruptions and
interferences.

10. As a result of the City-caused delays and the City's material breach of the
Agreement, roc suffered increased costs in the amount of $1,362,630 to
perform the scope of work under the Canton Road Agreement. These costs
consist of labor costs in the sum of $480,682, equipment costs in the sum of
$475,639, material escalation costs in the sum of $200,075, extended field
costs in the sum of $28,500 and mark-up of $177,734.

11. The City is liable to IOC for the increased costs totaling $1,362,630 (set
forth in the preceding subparagraph) as additional compensation.

12. The City is also liable to IOC for IOC's reasonable attorneys' fees in the sum
of $158,000.

13. § 271.153, Local Government Code, does not bar rOC's claim for additional
compensation arising out of the Canton Road Project.

14. Special Provision 18 of the Canton Road Agreement is not applicable to the
claim asserted by IOC; roc did not breach or violate this provision.
Therefore, Special Provision 18 does not bar or preclude rOC's claim.

15. roc did not waive its claim for damages.
16. Because the City materially breached the Agreement, it cannot rely on
procedural rights, including notice provisions, in the Agreement. Indeed, by
its breach, the City relinquished its contractual procedural rights regarding
notice, change orders and claims by IOC for additional compensation.

17. By its failures and conduct as described above, the City wrongfully
prevented roc from timely and efficiently performing its work.

18. IOC's further performance under the Agreement was excused by the City's
prior material breaches.

19. The City's material breaches are not excused based on the failure of any
4
third party to remove or relocate their lines or utilities that constitute
obstacles, conflicts and obstructions as described above.

20. The delays IOC experienced were City-caused and compensable to IOC.

Findings Regarding the Sugar Road Project

IOC's fared no better on the Sugar Road Project in terms of the delays,
interferences and disruptions it suffered at the hands of the City. Once again, the
evidence, the Sugar Road Agreement and the law of the State of Texas compel me to find
the City materially breached the Sugar Road Agreement without excuse and is liable to
IOC for damages in the form of additional compensation arising from City-caused delays.
roc did not materially breach the Agreement. As before, I discuss the facts and reasons
in support of these findings below.

The evidence of IOC's efforts to perform the scope of work for the Sugar Road
Project and the numerous, serious and costly City caused delays, interferences and
disruptions it suffered in those efforts is similarly compelling and supports my finding
the City materially breached the Sugar Road Agreement.

Again, this evidence supports the following facts and reasons for my entering an
award in rOC's favor on its claim arising out of the Sugar Road Project:

1. The City failed to timely and properly provide IOC with the lands necessary
for it to perform the scope of work under the Sugar Road Agreement.

2. The City failed to provide rOC timely and proper access to the areas in
which it was to perform the scope of work under the Sugar Road Agreement.

3. The City failed to provide rOC with unhindered and unobstructed access to
the areas in which it was to perform the scope of work under the Sugar Road
Agreement.

4. The City failed to timely, reasonably and properly manage the removal of
obstacles, conflicts and obstructions in the areas in which roc was to
perform the scope of work under the Sugar Road Agreement. The City had
the duty and responsibility to manage the removal of these in the areas in
which IOC was to perform the scope of work.

5, 'rhe City's preceding failures delayed rOC's ability to timely and efficiently
perform the scope of work under the Sugar Road Agreement.

6. The City is responsible for owner-caused delays to IOC's ability to timely

5
and efficiently perform the scope of work under the Sugar Road Agreement.

7. The City's preceding failures disrupted and interfered with IOC's ability to
timely and efficiently perform the scope of work under the Sugar Road
Agreement.

8. The number and quality of the gas lines, manholes, utility poles, and
subgrade access problems delayed and disrupted IOC's work performance
are significant and compelling. In addition, the City stopped IOC's
performance of work in one area south of Owassa Street which further
delayed and disrupted IOC's work. These are City-caused delays,
disruptions and interferences.

9. As a result of the City-caused delays and the City's material breach of the
Sugar Road Agreement, 100 suffered increased costs in the amount of
$673,092 to perform the scope of work under the Sugar Road Agreement.
These costs consist of labor costs in the sum of $219,191, equipment costs in
the sum of $290,944, material costs in the sum of $60,163, extended field
costs in the sum of $15,000 and mark-up in the sum of $87,794.

10. The City is liable to IOC for the increased costs set forth in the preceding
subparagraph in the sum of $673,093 (as set forth in the preceding
subparagraph) as additional compensation, none of which is barred by §
271.153, Local Government Code.

11. The City is also liable to IOC for IOC's reasonable attorneys' fees in the sum
of $127,827.

12. § 271.153, Local Government Code, does not bar IOC's claim for additional
compensation asserted by IOC against the City arising out of the Sugar
Road Project nor does it bar the damages I am awarding IOC in the amount
of $673,093.

13. roc did not waive its claim for damages.
14. Because the City materially breached the Sugar Road Agreement, it cannot
rely on procedural rights, including notice provisions, in this agreement.
Indeed, by its breach, the City relinquished its contractual procedural rights
regarding notice, change orders and claims by roc for additional
compensation.

15. By its failures and conduct as described above, the City wrongfully
prevented roc from timely and efficiently performing the scope of work

6
under the Sugar Road Agreement.

16. IOC's further performance under the Agreement was excused by the City's
prior material breaches.

17. The City's material breaches are not excused based on the failure of any
third party to remove or relocate their lines or utilities that constitute
obstacles, conflicts and obstructions as described above.

18. Art. 12.1(D) of the Sugar Road Agreement does not bar IOC's claims or
damages. Neither Special Provision 18 or 20 preclude IOC''s claims or
damages.

19. Art. 14.8A of the Sugar Road Agreement does not bar IOC's claim or
damages.

20. The delays IOC experienced were City-caused and compensable to IOC.

Award

1. For the Canton Road Pmject:

a. The City shall pay IOC the sum of $1,362,630, the components
of which are set forth in finding number 10 under the Findings
Regarding the Canton Road Project set forth above; and

b. The City shall pay IOC reasonable attorneys' fees of $158,000.

2. For the Sugar Road Project:

a. The City shall pay IOC the sum of $$673,092, the components
of which are set forth in finding number 9 under the Findings
Regarding the Sugar Road Project set forth above; ; and

b. The City shall pay IOC reasonable attorneys' fees of $127,827.

3. The administrative fees and expenses of the American Arbitration
Association totaling $11,450 shall be borne by the City and the
compensation and expenses of the arbitrator totaling $28,911.48 shall
be borne by the City. Therefore, the City shall reimburse IOC the
sum of $25,905.7 4, representing that portion of said fees and expenses
in excess of the apportioned costs previously incurred by IOC.

7
The above sums are to be paid on or before 30 days from the date of this Award.

Arbitration. All claims not expressly gra;ed are denied. . d
This Award is in full settlement of all claims and counterclaims submitted to this

Dated: July 18, 2014 · {-i)J!L_}!: 1__../c_
William K. Andrews, Arbitrator

8
Exhibit ''2"
Electronically Filed
8/25/2014 2:39:22 PM
Hidalgo County District Clerks
Reviewed By: Jassia De La Paz

CAUSE NO. C-6852-14-F

CITY OF EDINBURG, TEXAS § IN THE DISTRICT COURT
§
v. § 332nd JUDICIAL DISTRICT
§
IOC COMPANY; L.L.C. § HIDALGO COUNTY, TEXAS

AMENDED PETITION/APPLICATION TO VACATE
ARBITRATION AWARD #70 441 Y 00190 12

TO THE HONORABLE COURT:

NOW COMES, City of Edinburg, and files this Amended Petition/Application to Vacate an

Arbitration Award pursuant to §§171.088(a)(1), 171.088(a)(3)(A), and 171.091 of the TEXAS

CIVIL PRACTICE& REMEDIES CODE and pursuantto Texas Common Law and would respectfully show

the Court the following:

I.
PARTIES

City of Edinburg, Texas is a Texas Municipality.

IOC Company, L.L.C. is a Texas corporation organized and existing under the laws of the

State ofTexas and is authorized to do business in the State ofTexas. IOC Company, L.L.C. may

be served with Citation in this action by Service of Citation to: Jesus Garcia, Jr., TUCKER,

BARNES, GARCIA & DE LA GARZA, P.C., JP Morgan Chase Building, 712 Main, Suite 1600,

Houston, Texas 77002-3297.

II.
VENUE

This Petition is filed as an initial application in Hidalgo County, the county in which the hearing

before the arbitrator was held.
Electronically Filed
8/25/2014 2:39:22 PM
Hidalgo County District Clerks
Reviewed By: Jassia De La Paz

Ill.
REQUIREMENTS FOR A PETITION TO VACATE ARBITRATION AWARD

A Petition to Vacate an Arbitration Award must comply with the requirements set forth

by the Texas Civil Practice and Remedies Code §171.085(a) so that City of Edinburg must:

(1) Show the jurisdiction of the court;

(2) Attach a copy of the Agreement to Arbitrate;

(3) Define the issue subject to arbitration between the parties under the
Agreement;

(4) Specify the status of the Arbitration before the arbitrator; and

(5) Show the need for the Court Order sought by the applicant.

IV.
JURISDICTION

The amount in controversy is with the jurisdictional limits of the District Court.

v.
AGREEMENT TO ARBITRATE

On or about April1, 2008, the City of Edinburg and IOC Company, L.L.C. entered into a

formal contract entitled 'Paving and Training Improvements for Canton Road' (Canton Road

Project). The Parties' Agreement is attached hereto as Exhibit "A" and incorporated by reference

as if set forth fully and at length. In Section 36 of the Agreement, the parties agreed to arbitrate

any dispute concerning the contract pursuant to the rules of the American Arbitration

Association.

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In addition, on or about June 2, 2009, the City of Edinburg and IOC Company, L.L.C.

entered into a formal contract entitled 'Paving and Drainage Improvements for Sugar Road'

(Sugar Road Project). The Parties Agreement is attached hereto as Exhibit "B" and incorporated

by reference as if set forth fully and at length.

In paragraph IX of the Agreement, the parties agreed to arbitrate any dispute concerning

the contract in Hidalgo County, Texas.

Pursuant to these agreements, IOC Company, L.L.C. initiated arbitration by making a

written demand for arbitration to the City of Edinburg and with the American Arbitration

Association. A copy of the parties' written agreement is attached as Exhibit "C" and incorporated

by reference.

IV.
ISSUE IN CONTROVERSY

IOC Company, L.L.C. seeks damages as a result of the City of Edinburg's alleged failure

to perform its duties under contracts with IOC for both the Sugar and Canton Road Projects. IOC

Company, L.L.C. claims that during the performance of both projects, the City of Edinburg's

unwillingness and inability to provide right-ofways, easements, and coordinate with third parties

caused significant delays and damages to IOC Company, L.L.C. As such, IOC Company, L.L.C.

filed a Demand for Arbitration asserting claims for breach of contract. The Arbitration Agreement

described above required the parties to arbitrate this controversy.

VII.
STATUS OF THE ARBITRATION

IOC Company, L.L.C. initiated an arbitration proceeding against the City of Edinburg for

two (2) projects referred to as the Canton Road Project and the Sugar Road Project. On July 18,

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2014, an arbitration award was issued by William Andrews, Arbitrator. The arbitration award

was for a total sum $1,362,630 for the Canton Road Project and $673,093 for the Sugar Road

Project, plus attorneys fees. See attached Exhibit "D."

VIII.
NEED FOR COURT ORDER

The City of Edinburg hereby submits that the arbitration award needs to be vacated for

the reasons including, but not limited to the following:

1. The award was obtained by undue means in violation of §171.088(a)(1) of the

Texas Civil Practice and Remedies Code;

2. The arbitrator exceed their powers in violation of 171.088(a)(3)(A) of the Texas

Civil Practice and Remedies Code; and

3. The award violates carefully articulated, fundamental policy in violation of the

Texas Common Law.

The City of Edinburg hereby submits that the arbitration award needs to be vacated as

the award was obtained by "undue means" so far so that the City of Edinburg's rights at the

hearing were affected and deprived them of a fair hearing. In addition, the arbitrator exceeded

his powers in granting of the award. Specifically, the arbitrator failed to honor and recognize

contractually agreed upon provisions between IOC Company, L.L.C. and the City of Edinburg,

including but not limited to, provisions regarding requests for additional compensation, change

orders, differing site conditions, and the responsibility of the City of Edinburg for the actions of

"others." Failure of the arbitrator to honor and recognize contractually agreed upon provisions

deprived the City of Edinburg a fair hearing. Implementing the arbitrator's award in this case

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would stand for the proposition that contractors are not bound by contractually agreed upon

provisions in the handling of construction projects with the City of Edinburg andjor other

municipalities. Thus, the arbitrator exceeded his powers in granting the award.

Further, the City of Edinburg also submits that the arbitration award violates public policy

pursuant to Texas Common Law. Specifically, it is established law, pursuant to Local

Government Code §271-153, that a municipality cannot be adjudicated an award for the

actions of others. The facts of this matter clearly illustrated that the problems that IOC

Company, L.L.C. complained of in the construction project of Canton Road and Sugar Road were

issues caused by others, specifically utility companies such as AT&T and Texas Gas Service.

Despite facts clearly illustrating this, the arbitrator disregarded this fact and issued the award

against the City of Edinburg contrary to established law. The results of such action in this case

would dictate that municipalities and contractors could no longer operate under the basic

principles that the state has mandated. The arbitrator did not merely make a mistake of law

in this case, but his actions are so contrary to established law and public policy that it would

change the manner in which contractors and municipalities do business, and moot Texas law

with respect to the adjudication of awards against municipalities. Therefore, vacating the award

is appropriate pursuant to Texas Civil Practice & Remedies Code §§ 171.088(a)(1),

171.088(a)(3)(A), 171.091 and Texas common law.

WHEREFORE, PREMISES CONSIDERED, the City of Edinburg, Texas, requests that IOC

Company, L.L.C. be cited to appear and answer, and that on final trial, City of Edinburg, Texas,

Movant herein, have the Court enter a Judgment to Vacate the Arbitration Award given in

#70 441 y 00190 12.

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Hidalgo County District Clerks
Reviewed By: Jassia De La Paz

Respectfully submitted,

GONZALEZ CASTILLO, LLP

By: Is/Gerald E. Castillo
Steven Gonzalez
SBN: 08131900
Gerald E. Castillo
SBN: 24012399

1317 E. Quebec Avenue
McAllen, Texas 78503
(956) 618-0115
FAX: (956) 618-0445
law@valle>:firm.com

PALACIOS GARZA & THOMPSON, P.C.

Ricardo Palacios
SBN:24010990
Griselda Palacios
SBN:24067812
2724 West Canton Road
Edinburg, Texas 78539
(956) 318-0507
FAX: (956) 318-0575
rpalacios@pgtlawfirm.com
cpalacios@pgtlawfirm.com

ATIORNEYS FOR RESPONDENT,
CITY OF EDINBURG, TEXAS

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the above and foregoing document has
been forwarded as a courtesy copy to attorney for Defendant via electronic mail, on this 25th day
of August, 2014.

Is/Gerald E. Castillo
Gerald E. Castillo

F:\data\WPDOCS\C\CITY OF EDINBURG\IOC v. COE\Petltlon application to vacate arbitration award 082014 1st amended.sm.wpd

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Exhibit u3"
Electronically Filed
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Hidalgo County District Clerks
Reviewed By: Andrea Lopez

CAUSE NO. C-6852-14-F

CITY OF EDINBURG, TEXAS § IN THE DISTRICT COURT
§
v. § 332nd JUDICIAL DISTRICT
§
IOC COMPANY, L.L.C. § HIDALGO COUNTY, TEXAS

ORDER GRANTING AMENDED PETITION/APPLICATION TO VACATE
ARBITRATION AWARD #70 441 Y 00190 12

On this the 11TH day of FEBRUARY , 2016 came on to be heard

Plaintiff CITY OF EDINBURG,TEXAS' Amended Petition/Application to Vacate Arbitration Award

#70 441 Y 00190 12. The Court, after having heard the argument of counsel and having read

the pleadings on file, finds that the Amended Petition/Application to Vacate Arbitration Award

#70 441 Y 00190 12 should be GRANTED.

IT IS THEREFORE ORDERED that said Plaintiff CITY OF EDINBURG,TEXAS' Amended

Petition/Application to Vacate Arbitration Award #70 441 Y 00190 12 is GRANTED.

SIGNED ON THIS THE 11TH
----

cc: Steven Gonzalez/Gerald E. Castillo, GONZALEZ CASTILLO, LLP, 1317 E. Quebec Ave., McAllen, Texas, FAX:
(956) 618-0445; email: law@valleyfirm.com and gcastillo@valleyfirm.com

Jesus Garcia, Jr., TUCKER, BARNES, GARCIA & DE LA GARZA, P.C., JP Morgan Chase Building, 712 Main,
Suite 1600, Houston, Texas 77002-3297; email: jgarcia@tuckervaughan.com

Gil Peralez, 1416 W. Dove Avenue, McAllen, Texas 78503; email: gpp@peralezfranzlaw.com

Michael A. McGurk, KITTLEMAN THOMAS, PLLC, 4900-B N. 10th St., McAllen, Texas 78504; Email
mmcgurk@ktattorneys.com

TB
Exhibit '' 4"
NUMBER 13-16-00117-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

IOC COMPANY, LLC, Appellant,

v.

CITY OF EDINBURG, TEXAS, Appellee.

On appeal from the 332nd District Court
of Hidalgo County, Texas.

MEMORANDUM OPINION
Before Justices Rodriguez, Benavides, and Longoria
Memorandum Opinion by Justice Benavides

This appeal concerns the trial court’s orders: (1) granting appellee’s, the City of

Edinburg (the City), motion to vacate an adverse arbitration award rendered in favor of

appellant, IOC Company, LLC (IOC); and (2) denying IOC’s motion to confirm the same

arbitration award. By one issue, IOC contends that the trial court erred in vacating rather
than confirming the arbitration award. We reverse and render.

I. BACKGROUND

A. The Parties and the Agreements

IOC is a Texas limited liability company that is in the business of highway and road

construction. The City is a municipality located in Hidalgo County.

On April 1, 2008, IOC and the City entered into an agreement regarding

engineering and architectural construction for paving and drainage improvements for

Canton Road located in the City (the Canton Road Project). The Canton Road Project

agreement contained a section which required “any controversy or claim arising out of or

relating to [the Canton Road Project], or the breach thereof” which could not be resolved

by mutual agreement to be settled by arbitration.

On June 2, 2009, IOC and the City entered into a second, separate agreement

related to engineering and architectural construction for paving and drainage

improvements for Sugar Road located in the City (the Sugar Road Project). The Sugar

Road Project agreement contained separate mediation and arbitration clauses. The

mediation clause called first for a “quick resolution of any and all disputes, if any” under

the contract, and the agreement provided that if the dispute failed to resolve at mediation,

the parties were required to submit the dispute to arbitration.

B. The Arbitration Proceeding and Award

Subsequently, claims and disputes by IOC against the City arose related to both

the Canton Road Project and the Sugar Road Project. Both matters were consolidated

and arbitrated by the same arbitrator, who conducted bifurcated evidentiary hearings for

each contract during the months of February 2014 and April 2014. The hearings were

2
closed on June 18, 2014.

1. The Canton Road Project

According to the record, IOC sought recovery for damages “in the form of

additional compensation due to the City’s claims breach of contract, essentially consisting

of delays, interferences, and disruptions” caused by the City during its work on the Canton

Road Project. IOC also sought recovery of attorneys’ fees, prejudgment interest, and

reimbursement of arbitrator compensation and costs.

In response to IOC’s claims, the City contested IOC’s entitlement to recovery of

damages under section 271.153 of the local government code. See TEX. LOCAL GOV’T

CODE ANN. § 271.153 (West, Westlaw through Ch. 49, 2017 R.S.) (placing limitations on

adjudication awards against local governmental entities for breach of contract). Further,

the arbitrator’s award notes that the City “strongly denie[d] it was responsible for owner-

caused delays” and claimed that it was “not responsible for relocating utility lines,

encumbrances[,] and obstructions that hindered, delayed[,] or disrupted IOC’s ability to

timely, efficiently . . . perform the required scope of work” under the Canton Road Project

construction plan. Further, the City argued that any delays that IOC suffered were

caused by third parties “over whom it had no control or responsibility.”

The arbitrator found that the City materially breached the Canton Road agreement

“without excuse” and was liable to IOC “for damages in the form of additional

compensation arising from City-caused delays, disruptions and interference.” The

arbitrator found that IOC did not materially breach the agreement. To support these

findings, the arbitrator made specific findings that:

3
(1) The City failed to timely and properly provide IOC with the lands
necessary for it to perform the scope of work . . . .

(2) The City failed to provide IOC timely and proper access to the areas
in which it was to perform the scope of work . . . .

(3) The City failed to provide IOC with unhindered and unobstructed
access to the areas in which it was to perform the scope of work . . . .

(4) The City failed to timely, reasonably[,] and properly manage the
removal of obstacles, conflicts[,] and obstructions in the areas in
which IOC was to perform the scope of work . . . . The City had the
duty and responsibility to manage the removal of these in the areas
in which IOC was to perform the scope of work.

(5) The City’s preceding failures delayed IOC’s ability to timely and
efficiently perform the scope of work . . . .

(6) The City is responsible for owner-caused delays to IOC’s ability to
timely and efficiently perform the scope of work . . . .

(7) The City’s preceding failures disrupted and interfered with IOC’s
ability to timely and efficiently perform the scope of work.

(8) The number and quality of the utility lines (underground and above
ground), power poles, splicing operations, gas lines and meters[,]
and manholes which singularly and cumulatively delayed and
disrupted IOC’s work performance are significant and compelling.
These are City-caused delays, disruptions[,] and interferences.

(9) The City also failed to timely acquire permits and easements from
the local drainage and irrigation districts which also delayed and
disrupted IOC’s work performance.

The arbitrator further concluded that section 271.153 of the local government code

was not a bar to IOC’s recovery and found that as a result of the City-caused delays and

the City’s material breach of the Canton Road agreement, IOC incurred damages of

$1,362,630, consisting of $480,682 in labor costs; $475,639 in equipment costs;

$200,075 in material escalation costs; $28,500 in extended field costs; and $177,734 in

mark-up costs. Furthermore, the arbitrator found the City liable for to IOC for $158,000

4
in reasonable attorneys’ fees.

2. The Sugar Road Project

The record shows that the arbitrator found IOC’s claims and damages sought

under the Sugar Road Project agreement “mirror[ed] those described for the Canton Road

Project” agreement. The arbitrator also found that the City asserted the same defenses

as in the Canton Road Project dispute, “although the City emphasize[d] several provisions

in the Canton Road Agreement” to support its defense in the Sugar Road Project dispute.

The arbitrator found that the City materially breached the Sugar Road Project

agreement without excuse and was liable to IOC for damages. The arbitrator further

found that IOC did not materially breach the agreement. To support these general findings

and conclusions, the arbitrator made specific findings that:

(1) The City failed to timely and properly provide IOC with the lands
necessary for it to perform the scope of work . . . .

(2) The City failed to provide IOC timely and proper access to the areas
in which it was to perform the scope of work . . . .

(3) The City failed to provide IOC with unhindered and unobstructed
access to the areas in which it was to perform the scope of work . . .
.

(4) The City failed to timely, reasonably[,] and properly manage the
removal of obstacles, conflicts[,] and obstructions in the areas in
which IOC was to perform the scope of work . . . . The City had the
duty and responsibility to manage the removal of these in the areas
in which IOC was to perform the scope of work.

(5) The City’s preceding failures delayed IOC’s ability to timely and
efficiently perform the scope of work . . . .

5
(6) The City is responsible for owner-caused delays to IOC’s ability to
timely and efficiently perform the scope of work . . . .

(7) The City’s preceding failures disrupted and interfered with IOC’s
ability to timely and efficiently perform the scope of work.

(8) The number and quality of the gas lines, manholes, utility poles, and
subgrade access problems delayed and disrupted IOC’s work
performance are significant and compelling. In addition, the City
stopped IOC’s performance of work in one area south of Owassa
Street which further delayed and disrupted IOC’s work. These are
City-caused delays, disruptions[,] and interferences.

The arbitrator found that section 271.153 of the local government code did not bar

IOC’s claim for additional compensation under the Sugar Road Project agreement, and

that as a result of the City-caused delays and the City’s material breach of the Sugar

Road agreement, found that IOC incurred damages of $673,092, consisting of $219,191

of labor costs; $290,944 of equipment costs; $60,163 of material costs; $15,000 in

extended field cost; and $15,000 in mark-up costs. Furthermore, the arbitrator found the

City liable to IOC for $127,827 in reasonable attorneys’ fees.

Finally, the arbitrator ordered that administrative fees and expenses of the

American Arbitration Association totaling $11,450 shall be borne by the City and the

compensation and expenses of the arbitrator totaling $28,911.48 shall likewise be borne

by the City, requiring the City to reimburse IOC $25,905.74 representing IOC’s portion of

“said fees and expenses in excess of the apportioned costs previously incurred by IOC.”

C. Trial Court Proceedings

On August 14, 2014, the City filed a petition and application to vacate the entire

arbitration award. IOC subsequently answered the City’s petition, moved to deny the

City’s application to vacate, and filed its own petition and motion to confirm the arbitrator’s

6
award and for entry of final judgment.

In its brief in support of vacating the arbitration award, the City argued that the

award should be vacated under the following grounds: (1) under civil practice and

remedies code section 171.088(a)(1), see TEX. CIV. PRAC. & REM. CODE ANN. §

171.088(a)(1) (West, Westlaw through Ch. 49, 2017 R.S.); (2) under civil practice and

remedies code section 171.088(a)(3)(A), see id. § 171.088(a)(3)(A); (3) under civil

practice and remedies code section 171.091, see id. § 171.091 (West, Westlaw through

Ch. 49, 2017 R.S.); and (4) pursuant to Texas common law. In support of its arguments,

the City attached several exhibits to its motion, including, in relevant part: (1) copies of

both contracts at issue; (2) depositions from Isael Posadas, the then-city engineer for the

City, who testified about the Canton Road and Sugar Road Projects; (3) depositions from

Oscar Cuellar, the managing member of IOC, who testified about the Canton Road and

Sugar Road projects; and (4) a transcript of each arbitration proceeding.

On January 27, 2015, the trial court held a hearing on both parties’ motions, and

subsequently granted the City’s motion to vacate and denied IOC’s motion to confirm.

This appeal followed.

II. VACATUR/CONFIRMATION OF ARBITRATION AWARD

By one issue, IOC asserts that the trial court erred in vacating rather than

confirming the arbitration award.

A. Standard of Review

Texas law favors arbitration, and thus, judicial review of an arbitration award is

extraordinarily narrow. E. Tex. Salt Water Disposal Co. v. Werline, 307 S.W.3d 267, 271

(Tex. 2010). We review a trial court's ruling to vacate or confirm an arbitration award de

7
novo, and we review the entire record. O’Grady v. Nat’l Union Fire Ins. Co. of Pittsburgh,

P.A., 506 S.W.3d 121, 124 (Tex. App.—Corpus Christi 2016, pet. denied) (mem. op.).

The Texas Supreme Court has long held that an award of arbitrators upon matters

submitted to them is given the same effect as the judgment of a court of last resort, and

all reasonable presumptions are indulged in favor of the award, and none against it. Id.

at 125 (citation omitted). When a non-prevailing party seeks to vacate an arbitration

award, it bears the burden in the trial court of bringing forth a complete record that

establishes its basis for vacating the award. Id.

B. Discussion

As a preliminary matter, IOC contends that the City based its motion to vacate on

three grounds: (1) under Texas common law; (2) under section 171.088(a)(1) of the civil

practice and remedies code; and (3) under section 171.088(a)(3)(A). IOC further argues

that the City’s first ground in support of vacatur is untenable under the Texas Supreme

Court’s 2016 decision in Hoskins v. Hoskins, which held that under the Texas Arbitration

Act (TAA), section 171.088 provides exclusive grounds for a vacatur of an arbitration

award. 497 S.W.3d 490, 497 (Tex. 2016); see also Hall Street Assocs. v. Mattel, Inc.,

552 U.S. 576, 578 (2008) (holding that statutory grounds for prompt vacatur under the

Federal Arbitration Act (FAA) are exclusive). The City responds to IOC’s argument by

acknowledging the Hoskins opinion, and urges us to affirm the trial court’s vacatur award

solely under sections 171.088(a)(1) and 171.088(a)(3)(A) of the TAA. Accordingly, we

will address each ground in turn and will not address any arguments supporting vacatur

based on common law grounds. See TEX. R. APP. P. 47.1.

8
1. Section 171.088(a)(1)—Other Undue Means

On an application of a party, a trial court shall vacate an arbitration award if “the

award was obtained by corruption, fraud, or other undue means.” See TEX. CIV. PRAC.

& REM. CODE ANN. § 171.088(a)(1). Courts have defined behavior amounting to “undue

means” as that which is “immoral, illegal, or bad-faith conduct.” Las Palmas Med Ctr. v.

Moore, 349 S.W.3d 57, 69 (Tex. App.—El Paso 2010, pet. denied) (citing LeFoumba v.

Legend Classic Homes, Ltd., No. 14-08-00243-CV, 2009 WL 3109875 (Tex. App.—

Houston [14th Dist.] 2009, no pet.) (mem. op.)); see also In re Arbitration Between Trans.

Chem., Ltd. & China Nat’l Machinery Import & Export Corp., 978 F. Supp. 266, 304 (S.D.

Tex. 1997) (defining “undue means” under the FAA as behavior that is “immoral, if not

illegal” or “otherwise in bad faith”). Furthermore, a mere mistake of law is insufficient to

vacate an arbitration award on the basis of undue means. See Las Palmas, 349 S.W.3d

at 69.

The City first argues that the award in this case should be vacated because it was

obtained by “undue means” because the arbitrator: (1) “flagrantly disregarded well[-

]established statutes that limit the award against local governments”; and (2) “disregarded

unambiguous contractual provisions, including but not limited to, provisions regarding

requests for additional compensation, change orders, and differing site conditions.”

The City’s first argument concerns the applicability of section 271.153 of the local

government code to the arbitration award. Section 271.153(a)(1) permits a party, like

IOC, to recover in a breach of contract action against a local governmental entity, like the

City, “the balance due and owed by the local governmental entity under the contract as it

may have been amended, including any amount owed as compensation for the increased

9
cost to perform the work as a direct result of owner-caused delays or acceleration.” TEX.

LOCAL GOV’T CODE ANN. § 271.153(a)(1). The City directs us to testimony from the Sugar

Road Project arbitration proceeding by Jens Baker. Baker testified on behalf of IOC that

he reviewed documentation and interviewed personnel involved in the project to identify

and determine fault for delays and inefficiencies during the contract. Baker explained

that delays in this project were caused by the City, “manhole issues” created by AT&T,

and “unforeseen site conditions” attributed to Texas Gas. Of these delays, Baker

testified at the arbitration proceeding that some of the delays were exclusively attributable

to either the City, AT&T, Texas Gas, or some combination of those parties. After this

testimony, however, IOC’s attorney argued that “the City is responsible for everything,

and they are the ones that have control over Texas Gas and all the utilities.”

After reviewing the entire record in this case, we cannot conclude that the City met

its burden to establish that IOC obtained its award based upon undue means—that is,

conduct amounting to immoral, illegal, or bad-faith conduct. See Las Palmas, 349

S.W.3d at 69. Even if the arbitrator made minor errors or misapplied section 271.153 of

the local government code to the facts of this case, as the City argues, such a mistake of

law is not enough to amount to undue means. See id. Accordingly, we conclude that

the City failed to meet is burden to vacate the arbitration award under section

171.088(a)(1)’s “undue means” provision.

2. Section 171.088(a)(3)(A)—Exceeding Powers

On application of a party, the trial court shall vacate an award if the arbitrator

exceeded his powers. See TEX. CIV. PRAC. & REM. CODE ANN. § 171.088(a)(3)(A). An

arbitrator exceeds his powers when he decides matters not properly before him. In re

10
Guardianship of Cantu de Villarreal, 330 S.W.3d 11, 23 (Tex. App.—Corpus Christi 2010,

no pet.). When determining whether an arbitrator has exceeded his power, any doubts

concerning the scope of what is arbitrable should be resolved in favor of arbitration. Id.

It is only when the arbitrator departs from the agreement and, in effect, dispenses his own

idea of justice that the award may be unenforceable. Id.

The arbitrator in this case derived his authority from both agreements. The

Canton Road Project agreement stated that “any controversy or claim arising out of or

relating to [the Canton Road Project], or the breach thereof” would be submitted to

arbitration; and the Sugar Road Project agreement stated that “any and all disputes”

under the contract that failed to resolve by mediation would be submitted to arbitration.

IOC asserted its claims and disputes under both agreements through arbitration

proceedings. The record does not show that the City disputed IOC’s efforts to do so or

that such claims were not subject to the arbitration clause. Instead, the City argues first

that the arbitrator “ignored the plain language” of the contract, which would entitle the City

to immunity from certain damages under section 271.153 of the local government code.

See TEX. LOCAL GOV’T CODE § 271.153. Secondly, the City argues that the arbitrator

ignored a provision of the Canton Road Project agreement which mandated that the

contractor was to give the City written notice of any extra costs related to the contract.

The record shows that both contracts in this case gave the arbitrator wide and full

authority to decide any and all controversies, claims, or disputes, arising out of the Canton

Road and Sugar Road agreements. Accordingly, IOC’s breach of contract claims and

requests for damages were properly before the arbitrator. Although the arbitrator may

have resolved the disputes in a way that the City finds unfavorable, and the decision may

11
have been reached erroneously based on an alleged mistake of law or fact, this does not

mean that “the arbitrator acted outside the scope of his authority.” See Barton v. Fashion

Glass & Mirror, Ltd., 321 S.W.3d 641, 647 (Tex. App.—Houston [14th Dist.] 2010, no

pet.); see also Framing v. BBL Builders, No. 05-15-01430-CV, 2016 WL 3346041, at *4

(Tex. App.—Dallas 2016, pet. filed) (adopting the holding in Barton with regard to

situations where an arbitrator exceeds his authority). Therefore, we conclude that the

City failed to meet its burden to vacate the arbitration award under section

171.088(a)(3)(A) of the civil practice and remedies code.

3. Modification of the Arbitration Award

In its briefing, the City argues that if this Court were to find that the arbitration award

was proper, then the damages must be reduced pursuant to section 271.153(a)(1) of the

local government code.

Section 171.091 of the civil practice and remedies code contains a provision for

modifying an award and specifies the grounds upon which a modification may be ordered.

See TEX. CIV. PRAC. & REM. CODE ANN. § 171.091 (West, Westlaw through Ch. 49, 2017

R.S.). The City did not file a motion to modify at the trial court, and therefore, such a

request is not properly before this Court for our review. See TEX. R. APP. P. 33.1(a)(1).

4. Summary

Having concluded that the City failed to meet its burden to vacate the arbitration

award in this case under either sections 171.088(a)(1) or 171.088(a)(3)(A), we sustain

IOC’s sole issue on appeal.

12
III. CONCLUSION

We reverse the trial court’s orders: (1) granting the City’s motion to vacate the

arbitration award; and (2) denying IOC’s motion to confirm the arbitration award. We

render judgment: (1) denying the City’s motion to vacate the arbitration award; and (2)

granting IOC’s motion to confirm the arbitration award.

GINA M. BENAVIDES,
Justice

Delivered and filed the
20th day of July, 2017.

13
FILE COPY

NUECES COUNTY COURTHOUSE
CHIEF JUSTICE
901 LEOPARD, 10TH FLOOR
ROGELIO VALDEZ
CORPUS CHRISTI, TEXAS 78401
361-888-0416 (TEL)
JUSTICES
361-888-0794 (FAX)
NELDA V. RODRIGUEZ
DORI CONTRERAS
HIDALGO COUNTY
GINA M. BENAVIDES

Court of Appeals
COURTHOUSE ANNEX III
NORA L. LONGORIA
100 E. CANO, 5TH FLOOR
LETICIA HINOJOSA
EDINBURG, TEXAS 78539
956-318-2405 (TEL)
CLERK
DORIAN E. RAMIREZ Thirteenth District of Texas 956-318-2403 (FAX)

www.txcourts.gov/13thcoa

July 20, 2017

Hon. Criselda Palacios Hon. Gerald E. Castillo
Palacios Garza & Thompson Gonzalez & Palacios, L.L.P.
2724 West Canton Rd 1317 E. Quebec Avenue
Edinburg, TX 78539 McAllen, TX 78503
* DELIVERED VIA E-MAIL * * DELIVERED VIA E-MAIL *

Hon. Jesus Garcia Jr. Hon. Michael A. McGurk
Garcia de la Garza, LLP Kittleman, Thomas & Gonzales
712 Main St., Ste.1600 4900-B North 10th Street
Houston, TX 77002-3297 P.O. Box 1416
* DELIVERED VIA E-MAIL * McAllen, TX 78505
* DELIVERED VIA E-MAIL *
Hon. Steven M. Gonzalez
Gonzalez Palacios L. L. P. Hon. Ricardo Pumarejo Jr.
1317 E. Quebec Avenue Kittleman Thomas, PLLC
McAllen, TX 78503 4900-B N. 10th Street
* DELIVERED VIA E-MAIL * McAllen, TX 78504
* DELIVERED VIA E-MAIL *

Re: Cause No. 13-16-00117-CV
Tr.Ct.No. C-6852-14-F
Style: IOC Company, LLC v. City of Edinburg, Texas

Enclosed please find the opinion and judgment issued by the Court on this date.

Very truly yours,

Dorian E. Ramirez, Clerk

Enc.
cc: 332nd District Court/Hidalgo County (DELIVERED VIA E-MAIL)
Hon. Laura Hinojosa, District Clerk (DELIVERED VIA E-MAIL)
Hon. Missy Medary, Presiding Judge, Fifth Administrative Region (DELIVERED
VIA E-MAIL)
THE THIRTEENTH COURT OF APPEALS

13-16-00117-CV

IOC COMPANY, LLC
v.
CITY OF EDINBURG, TEXAS

On Appeal from the
332nd District Court of Hidalgo County, Texas
Trial Cause No. C-6852-14-F

JUDGMENT

THE THIRTEENTH COURT OF APPEALS, having considered this cause on

appeal, concludes the judgment of the trial court should be reversed and rendered. The

Court orders the judgment of the trial court REVERSED and RENDERS judgment that

the City's motion to vacate the arbitration award is denied and IOC's motion to confirm

the arbitration award is granted. Costs of the appeal are adjudged against appellee.

We further order this decision certified below for observance.

July 20, 2017
Exhibit '~5"
FILE COPY

NUECES COUNTY COURTHOUSE
CHIEF JUSTICE
901 LEOPARD, 10TH FLOOR
ROGELIO VALDEZ
CORPUS CHRISTI, TEXAS 78401
361-888-0416 (TEL)
JUSTICES
361-888-0794 (FAX)
NELDA V. RODRIGUEZ
DORI CONTRERAS
HIDALGO COUNTY
GINA M. BENAVIDES

Court of Appeals
COURTHOUSE ANNEX III
NORA L. LONGORIA
100 E. CANO, 5TH FLOOR
LETICIA HINOJOSA
EDINBURG, TEXAS 78539
956-318-2405 (TEL)
CLERK
DORIAN E. RAMIREZ Thirteenth District of Texas 956-318-2403 (FAX)

www.txcourts.gov/13thcoa

August 10, 2017

Hon. Criselda Palacios Hon. Gerald E. Castillo
Palacios Garza & Thompson Gonzalez & Palacios, L.L.P.
2724 West Canton Rd 1317 E. Quebec Avenue
Edinburg, TX 78539 McAllen, TX 78503
* DELIVERED VIA E-MAIL * * DELIVERED VIA E-MAIL *

Hon. Jesus Garcia Jr. Hon. Michael A. McGurk
Garcia de la Garza, LLP Walsh McGurk Cordova Nixon, PLLC
712 Main St., Ste.1600 4900-B North 10th Street
Houston, TX 77002-3297 P.O. Box 1416
* DELIVERED VIA E-MAIL * McAllen, TX 78505
* DELIVERED VIA E-MAIL *
Hon. Steven M. Gonzalez
Gonzalez Palacios L. L. P. Hon. Ricardo Pumarejo Jr.
1317 E. Quebec Avenue Pumarejo Law
McAllen, TX 78503 4801 Sage Hen Drive
* DELIVERED VIA E-MAIL * Austin, TX 78727
* DELIVERED VIA E-MAIL *

Re: Cause No. 13-16-00117-CV
Tr.Ct.No. C-6852-14-F
Style: IOC Company, LLC v. City of Edinburg, Texas

Appellee’s motion for rehearing in the above cause was this day DENIED by this
Court.

Very truly yours,

Dorian E. Ramirez, Clerk

cc: 332nd District Court/Hidalgo County (DELIVERED VIA E-MAIL)
Hon. Laura Hinojosa, District Clerk (DELIVERED VIA E-MAIL)