Monday, March 31, 2014

Promissory Estoppel . . . Wait . . . What??

Promissory estoppel is not just one of those fancy phrases that lawyers use to make themselves feel smart.  It is a complex legal concept that can really screw with a company’s expectations with respect to whether a contract exists.  Personally, I became traumatized by the concept my first year in law school when I got into a shouting match with my Civil Procedure professor over the issue of what “estoppel” meant.  I believe that was also the day I gained my nickname “the Mouth from the South” and became a “free space” on the daily law school bingo game, but I digress.

Promissory estoppel comes into play when one party (we’ll call them the “defendant”) makes promises to another party (yes, that would be the “plaintiff”) on which the plaintiff relies to its detriment.  In these circumstances, we are obviously discussing litigation because it is not typical for anyone to voluntarily admit to the presence of promissory estoppel.  The theory behind promissory estoppel is that the plaintiff would not have taken the action it did unless the defendant made said promise, and it is unfair to the plaintiff for the defendant not to keep the promise.  If you are thinking that this concept sounds a bit dubious when it comes to evidence and damages, you are correct.  There is no actual contract, or the parties would have looked to the contract to determine whether the plaintiff is entitled to relief.  Instead, the plaintiff asks twelve people who couldn’t otherwise get out of jury duty to determine whether it is fair for the plaintiff to have suffered damages based on its reliance on the defendant’s promise and to determine the extent of those damages.  If that doesn’t scare the pants off a rational person, I don’t know what will.

A new case from the Fifth Circuit Court of Appeals illustrates this concept and the perils that can accompany chasing a project.  In MetroplexCore, LLC v. Parsons Transportation, Inc., 2014 WL 80237 (5th Cir. February 28, 2014), the parties initially entered into an agreement in which MetroplexCore would participate in a joint venture with Parsons for Phase I of a transportation project with the Harris County Texas Metropolitan Transit Authority (“Metro”).  The team did not initially win the project, and another company started work on the project.  Several years later, after the initial agreement between Parsons and MetroplexCore expired by its terms, the initial design-builder could not continue with the project, and Parsons was awarded the remainder of the project, which was then dubbed “Phase II”.  Metro based its award from the original solicitation, but the scope of the project had changed, and Parsons did not maintain its original team.  Significantly, although there were apparently some discussions between the parties with respect to Phase II, the end result was that MetroplexCore was not a member of the subsequent team, and MetroplexCore sued. 

MetroplexCore’s initial argument was that it and Parsons had a joint venture relationship, and MetroplexCore was entitled to a share of the profits on the project.  The Court of Appeals rejected this argument because the relationship did not meet the standards in the Texas Business Code for a partnership.  MetroplexCore then argued that it was entitled to relief under the legal theory of promissory estoppel because (according to MetroplexCores’ allegations, which must be taken as fact for the purposes of a summary judgment):  1) Parsons promised that MetroplexCore would continue to be a member of the team performing the work on the project; 2) MetroplexCore relied on that promise; and 3) that reliance is evidenced by the following assertions from MetroplexCore:  a) it retained personnel for longer than it normally would have so that it could maintain its capacity to work on the Project, and b) it divested its investment in a related company that performed work for the initial design-builder to avoid a conflict of interest that might disqualify the team from performing the work.  MetroplexCore’s asserted damages are in the range of $3 to 4 million. 

Because the case has been remanded back to the trial court for a hearing, and MetroplexCore now has the burden of convincing a jury that it is entitled to these damages, we may never know the eventual outcome of the case, but the potential damages to MetroplexCore are instructive and provide a cautionary tale for anyone chasing work.  At a minimum, Parsons is looking at either settlement or the costs of a new trial, all because of MetroplexCore’s allegation that one of its Vice Presidents kept it interested in performing the work and didn’t memorialize the relationship with a contract.  So, to those folks who tell me that they don’t “have time” to enter into a Teaming Agreement before they sign a subcontract (you know who you are), I ask them whether they have the time to sit in a trial court to explain the relationship to a jury.  My guess is that it takes far less time to put it in writing and quit whining.

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