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U.S. Court in Texas Says Settlement Agreement Required Construction Company to Fix All Leaks at Shriners Hospital


HLD, v. 28, n. 3 (March 2000)

U.S. Court in Texas Says Settlement Agreement Required Construction Company to Fix All Leaks at Shriners Hospital

Shriners Hospital for Children ("Shriners") in Galveston, Texas, sued McCarthy Brothers Company ("McCarthy") for water damage that had allegedly resulted from McCarthy's defective building design and construction. The parties reached a settlement agreement providing that McCarthy would "identify the cause of and repair all such leaks to the satisfaction of the Shriners." Pursuant to the agreement, Shriners gave McCarthy "a list of known leaks," and McCarthy subsequently verified the listed leaks, assessed the cause, and supplied a remediation plan. Shriners, however, refused to allow McCarthy to begin repairs, arguing that the settlement agreement bound McCarthy to repair all the leaks giving rise to its original suit and not just the itemized leaks. McCarthy refused to repair leaks not included on the list, and Shriners sued for breach of the settlement agreement. Both parties moved for partial summary judgment.

The U.S. District Court for the Southern District of Texas found that the settlement agreement required that McCarthy fix all leaks existing at the time of the settlement and granted partial summary judgment in favor of Shriners. The court explained that, under Texas law, contract law governs interpretation of settlement agreements, see Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990), that courts accord contract language "plain grammatical meaning" unless such accord would defeat the intent of the parties, and that a contract provision "is ambiguous only if both parties' interpretations are reasonable." See Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 529 (Tex. 1987); D.E.W., Inc. v. Local 93, Laborers' Int'l Union, 957 F.2d 196, 199 (5th Cir. 1992). The court plainly read the settlement agreement provision at issue to provide that McCarthy repair "all such leaks" before any mention of the itemized listing requirement. The court found the wording "such leaks" in the settlement agreement properly referred to previously mentioned leaks giving rise to Shriners' suit; therefore, the court determined that the wording was not ambiguous and that it could not reasonably be interpreted to refer only to the itemized leaks.

In its conclusion, the court admonished McCarthy to "return to reality and begin to look beyond the esoteric ramblings of their specious arguments" to Shriners' purely charitable function. The court stated that not only did the settlement agreement require McCarthy to fix the leaks, but also "the gauze-wrapped, burned bodies" of the "children convalescing at Shriners . . . deserve[d] it . . . ."

Accordingly, the court granted partial summary judgment in favor of Shriners and additionally ordered the parties to explain why the federal district court, rather than the Texas state court that had previously presided over the settlement agreement, was the forum for the instant action and also why the case had not reached settlement.

Shriners Hosp. for Children v. McCarthy Bros. Co., No. G-98-500, 2000 WL 20922 (S.D. Tex. Jan. 7,
2000) (17 pages).

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