By Michael C. Loulakis and Lauren P. McLaughlin
Even the loopholes are bigger in Texas, it seems. Despite recent legislative changes to tighten the Texas certificate of merit statute, there are relatively easy ways to sidestep the requirement that a complaint against a design professional be accompanied by an affidavit of a professional engineer who has essentially “blessed” negligence allegations. Below we discuss three instances in which engineers were unsuccessful in attempting to use the benefits and protections of the state’s CoM statute.
In the first case, the court found the CoM statute inapplicable because the court found the engineer’s duties in acting as the owner’s representative did not truly invoke its professional engineering skill or knowledge. In the second, we address a scenario in which the engineer sued its owner client for unpaid fees and sought to have the owner’s counterclaim for breach of contract dismissed. The Texas CoM statute, on its face, is inapplicable to fee disputes, so the engineer was likewise unsuccessful. The third case reflects a proverbial trap for the unwary. There, the engineer waited too long to invoke the protections of the statute and was deemed to have waived the right to rely on the statute by participating in the litigation for too long without raising the defense.
Case 1
In a recent case, Costello Inc. and Alex Khoshakhlagh, P.E. v. Briggs Brothers Enterprises Corp., a Texas appeals court ruled that some of a licensed professional engineer’s services as an owner’s representative were not professional services, and as such, the engineer was unable to use the CoM statute as a shield. The appeals court held that the review of payment applications without monitoring design compliance did not require engineering skills.
In Costello, the Fulshear Municipal Utility District awarded a series of grading and paving contracts to Briggs Brothers Enterprises Corp. and retained Costello Inc., a licensed professional engineering firm, to serve as its project representative. Costello provided these services through employee Alex Khoshakhlagh, a licensed professional engineer. BBEC later sued Costello and Khoshakhlagh for tortious interference with its contract. BBEC alleged that the engineers had encouraged BBEC subcontractors to make false nonpayment claims and then urged the district to withhold payment from BBEC and terminate its contract for default.
BBEC’s complaint against the engineers was not accompanied by a CoM. The Texas Civil Practice and Remedies Code section 150.002 requires any claim of negligent professional service to be accompanied by a certificate from an identically licensed professional establishing the applicable standard of care and describing the manner in which the alleged conduct deviated from that standard.
Costello moved to dismiss the complaint due to the omitted CoM. BBEC responded that a certificate was not required as the complaint alleged interference with the contract, not professional negligence. The contractor argued that Costello’s administration of the payment process was not an engineering service. The engineers argued that payment application review was just one aspect of their overall responsibilities as the owner’s representative. However, Costello argued that its role as owner’s representative incorporated its engineering services and therefore required the CoM. The trial court rejected this argument and refused to dismiss the suit. The engineers appealed.
The Texas Court of Appeals noted that the agreement between the district and Costello referenced the owner’s representative as the “principal engineer.” However, the contract expressly called for payment application review and approval but did not mention monitoring for compliance with the plans and specifications. The court held that even if some professional engineering services were required under the agreement, that did not make every act a professional engineering service.
Appellants appear to suggest that, if an engineer provides engineering services to a project, then all the services that he provides on the project constitute the practice of engineering. That view is not supported by section 150.002. Courts have recognized that “section 150.002 does not apply to every claim against a professional engineer or engineering firm.” … “The fact that the defendant (is) an engineering firm and was providing services of some kind (is) not dispositive.”
Instead, the court focused on the allegations of BBEC’s complaint. The contractor had not alleged negligent performance of professional engineering services; rather, it alleged improper interference with the contractual procedures for reviewing and approving payment applications. Additionally, the court found that Costello had not shown that its review of the payment applications implicated their education, training, or experience as engineers. As a result, the court concluded that BBEC’s tortious interference claim did not arise from Costello’s provision of professional engineering services and that BBEC was not required to file a CoM.
In the Costello case, the plaintiff won its argument on appeal that its suit was truly a claim for tortious interference and did not implicate the professional engineering skills of the defendants. In the next case, however, an engineer was unable to rely on the state’s CoM statute in defending an action brought by an owner for breach of contract.
Case 2
In Zachry Engineering Corp. v. Encina Development Group LLC, an appeals court held that the Texas CoM statute does not apply to a breach-of-contract counterclaim asserted by a client that was sued by an engineer to recover unpaid fees. This set of facts is arguably a bit easier to comprehend and justify the ruling, as the statute includes an express carve-out for “any suit or action for the payment of fees arising out of the provision of professional services.”
In Zachry Engineering, an owner hired an engineer to provide services on the owner’s project. While performance was still incomplete, the owner terminated the engineer and refused to pay several of the engineer’s invoices. The engineer sued the owner to recover unpaid fees. In the proceeding giving rise to this appeal, the owner counterclaimed for breach of contract. The engineer moved to dismiss the owner’s counterclaim on the grounds that the owner did not attach a CoM to its counterclaim. The owner responded that it was not required to include a CoM under Texas code, which provides: “This statute does not apply to any suit or action for the payment of fees arising out of the provision of professional services.” Finding subsection h of section 150.002 applicable, the trial court denied the engineer’s motion to dismiss, and the engineer filed an interlocutory appeal.
The Texas Court of Appeals, addressing this question for the first time, held that the fee dispute exemption from the CoM requirement applies to a counterclaim to a design professional’s suit for unpaid fees arising from the provision of professional services. The court pointed out that the statute expressly states it “does not apply to any suit or action for the payment of fees arising out of the provision of professional services.” The statute does not define the terms “suit” or “action.” However, the court determined that the common meaning of those terms was a judicial proceeding in which parties assert claims for relief, rather than discrete “claims” or “causes of action” asserted within a lawsuit. Accordingly, “suit” and “action” are broad, interchangeable terms that encompass counterclaims against a provider of professional services.
The engineer had argued that a CoM was required with a counterclaim because the purpose of the statute was to protect providers of professional services from meritless lawsuits. In response, the court stated that the statute established an unambiguous exception to the CoM requirement. Furthermore, this exception did not defeat the purpose of the statute because the provider’s claim to recover fees may implicate the quality and performance of the provider’s services. The court added that its ruling was supported by the legislature’s 2019 amendments to the CoM statute. That amendments changed “plaintiff” to “claimant,” indicating the legislature’s intent to require a CoM to accompany counterclaims, but the amendment left intact the exemption for any “action or suit” for the payment of fees arising out of the provision of professional services. Although the court stated that the appeal presented an issue of first impression, another court from the Houston district issued a decision in 2023 reaching the same conclusion.
Case 3
Finally, consider the scenario that befell an engineer who ostensibly had every right to rely on the statute but was found to have waived the right to rely on and enforce it. In LaLonde v. Gosnell, the Texas Supreme Court held that an engineer’s engagement in the judicial process, through the completion of discovery and until one month before trial, waived the CoM requirements. The facts in LaLonde arose when Paul and Kim Gosnell contracted with Thomas A. LaLonde d/b/a Lee Engineering Co. to evaluate and stabilize their home’s foundation. The Gosnells alleged Lee’s work made the foundation problems worse, resulting in significant damage. The Gosnells sued Lee but did not contemporaneously file a CoM as required by Texas statute.
Twenty months after the lawsuit was filed, Lee filed its answer, denying the allegations and requesting attorney’s fees but not seeking dismissal due to the failure to file a CoM. The parties agreed to a scheduling order and a trial date. Over the next 18 months, the parties conducted extensive discovery. The parties agreed to a second scheduling order extending the deadlines and continuing the trial date. Shortly after discovery closed, the parties participated in an unsuccessful mediation.
Two days after the failed mediation, with trial scheduled to begin in one month, Lee filed a motion to dismiss based on the failure to file a CoM. The trial court granted the motion and dismissed the case. The Texas Court of Appeals reversed and remanded the case, ruling that Lee impliedly waived the CoM requirement by engaging in litigation. On appeal, the Texas Supreme Court held that an engineer can impliedly waive the CoM requirement by substantially invoking the judicial process. However, a defendant does not necessarily waive its rights under the statute by simply engaging in any litigation. Instead, for litigation to amount to a waiver, it must be so inconsistent with the party’s rights under the statute that waiver can be implied from the conduct.
The court considered various factors, including the delay in seeking dismissal, the extent to which the defendant engaged in discovery, whether the defendant sought affirmative relief, and whether the defendant engaged in alternative dispute resolution. The Texas Supreme Court held that Lee’s conduct showed its intent to litigate rather than assert the statutory right to a dismissal. The court noted Lee waited 1,219 days after the complaint was filed to seek dismissal under the CoM statute. The ruling affirms that the CoM requirement may be waived as the result of a defendant invoking the litigation process.
Takeaways
Affidavit of merit statutes that relate to claims against design professionals are in place in about 15 or more states. These statutes afford a design professional the ability to obtain a very efficient and swift legal dismissal of professional negligence claims against it without incurring unnecessary legal fees. The statutes were enacted to prevent meritless suits by aggrieved parties and require plaintiffs asserting professional negligence against design professionals to provide some measure of expert support for their claims at an early stage of the litigation, rather than merely “hoping” that discovery will reveal a basis for their allegations. While the various affidavit of merit statutes vary in scope and application, it is apparent from the Texas statute that at times there is costly litigation associated with even asserting the CoM defense, on top of the lawsuit itself. Additionally, there are loopholes and exceptions in the statutes in which engineers may find themselves unable to use the CoM defense as a proverbial shield.
This article is published by Civil Engineering Online.
