ALEXANDRIA, Va.—On May 19^th , the Texas Supreme Court ruled unanimously in favor of Pepper-Lawson Horizon International Group and against Texas Southern University. The American Subcontractors Association supported a friend-of-the-court brief on behalf of Pepper-Lawson last year, seeking an appeal on a decision that held that an entity could not be sued for prompt payment violations because it had not waived sovereign immunity.

This ruling has a profound impact on all contractors doing business with the State of Texas. Specifically, state government entities will no longer be able to unreasonably stonewall contractor claimants. The often-used defense practice of challenging the Court’s jurisdiction to stall the case has now been properly clarified and limited. As of today, if contractors can properly state a claim under the applicable waiver of sovereign immunity statute, then the case can proceed. Further, contractors are no longer required to disprove all of the State’s defenses in order to proceed with their case. This case sets an important precedent for courts across the country as it applies to prompt payment for our subcontractors.

At issue is the construction of a new student house at Texas Southern University. In February 2014, the University and Pepper-Lawson Horizon (“Contractor”) International Group entered into a contract for the work. Shortly after beginning work, the Contractor discovered that a previous building at the worksite had not been fully demolished and those remnants obstructed progress on the Project. Though the University agreed to a cost increase to pay the Contractor to remove the obstructions, it denied the Contractor’s request for additional time. The Contractor’s
progress was further slowed as it encountered other problems and delays, including weather delays, power delays and problems arising out of defective plans, but the University denied all requests for additional time. At completion, the Contractor invoiced the University for claimed balance due, but the University refused to pay. The Contractor sued, asserting that the University had breached the parties' contract by failing to pay and by denying its requests for an equitable time extensions.

The University denied the Contractor’s allegations, arguing that “sovereign immunity has not been waived for [the Contractor’s] claims." It also stated that the Contractor had failed to point to a specific contractual provision that it had breached and that the Prompt Pay Act does not expressly waive sovereign immunity.

The trial court denied the University’s jurisdictional defenses and set the matter for trial. On appeal, however, the Court of Appeals of Texas, First District, Houston, reversed. The appeals court rendered judgment dismissing the case for lack of subject matter jurisdiction. Once the matter reached the Texas Supreme Court on appeal, the Court unanimously rejected the state’s claims in the case, upholding the prompt payment act for contractors in the state.

Brian Carroll, Sanderford & Carroll, P.C., Belton, TX prepared the brief for ASA. ASA’s Subcontractors Legal Defense Fund financed the brief. Contributions to the SLDF may be made online.

The American Subcontractors Association is actively involved in the promotion of legislative action across the nation and has regularly intervened in legal actions that affect the construction industry at large. The fund supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus curiae, or “friend-of-the-court,” briefs in appellate-level cases that would have a significant impact on
subcontractor rights.

Founded in 1966, ASA promotes the rights and interests of subcontractors, specialty contractors and suppliers by building strength in community through education, advocacy, networking and professional growth. ASA adheres to and promotes quality construction, ethical and equitable business practices, safety in the work environment, and best industry practices. For more information about ASA, visit www.asaonline.com, and for more information about the SLDF, visit www.sldf.net.

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