Texas High Court Won’t Consider HP Win In Fraud Suit

April 22, 2016 | Law360

Bryan Koenig

The Texas Supreme Court refused Friday to take on a state appellate decision upholding the dismissal of a time-barred fraud lawsuit against Hewlett-Packard Co. from a trio of minority-owned telecommunications companies in a dispute related to a suspended contract with a Dallas public school district.

The state high court offered no explanation in denying the appeal from Lazo Technologies Inc. and two other companies against a state Fifth Court of Appeals District ruling upholding a trial judge’s 2014 decision to toss their lawsuit alleging they were denied payment due under the suspended contract through no fault of their own because HP didn't disclose alleged wrongdoing in the contract and a related whistleblower suit.

In denying the companies’ appeal in January, the appellate court had found HP and its employees named in the suit had “conclusively” shown that the clock started ticking more than four years before the complaint was filed.

The three companies filing suit, which provide telecommunications and technology services, had joined HP in 2003 as a bidding consortium for a telecom contract with the Dallas Independent School District, according to the Fifth District decision. Micro Systems Engineering Inc. was also part of the consortium, which ultimately won the contract.

In 2005, however, news outlets reported that an MSE executive had sent gifts to a top school district official, according to the appellate decision. Contracting officials briefly suspended the contract after the allegations surfaced, and briefly reinstated it before suspending the contract again in 2006.

Lazo Technologies and the other two businesses in the dispute filed suit in 2012, alleging fraud, negligence and civil conspiracy, arguing they were denied payment for their work making internet connections for Dallas schools because of HP’s wrongdoing.

In 2014, HP moved for summary judgment, arguing the companies had filed suit after the expiration of the statute of limitations.

After the judge granted the motion, the companies appealed, arguing that the clock for the statute of limitations began in 2011, when the Federal Communications Commission denied a request for relief from the companies. The FCC supervised the project for which the consortium had won the contract.

In seeking state high court review in February, the companies had pegged the statute of limitations clock to a November 2010 disclosure of a settlement between the U.S. Department of Justice and HP ending a related whistleblower suit. The companies contended they couldn’t have known about the alleged malfeasance sooner because HP never told them about the sealed whistleblower suit first filed in 2005 despite an obligation to do so, arguing that deciding if the withheld knowledge undid the limitations clock was up for a jury.

An attorney for the companies called the high court refusal proof that statute of limitation accrual needs to be taken up by the state legislature.

"Texas case law requires an injured party to sue within a certain period of time when they are 'harmed' even if they do not know they are harmed, cannot identify who harmed them, and even if damages from that harm will not be known until years later, sometimes more than four years after the injury occurs in some cases," Perry J. Cockerell of Adkerson Hauder & Bezney PC said in a statement Friday. "In this case the company involved admitted to tampering with a public contract and went silent for the next seven years after that contract was entered into and did not disclose their involvement to other members of the consortium."

Cockerell argued that Texas law allows perpetrators to keep quiet after causing injury and instead places the full burden on the aggrieved party to find out who harmed them, while requiring they file suit even before actual damages have come to pass.

In addition to Lazo Technologies, the other two parties filing suit are W&R Technology LLC, doing business as Advanced Technology Solutions South, and Eddie Hill, doing business as Hill Professional Services.

A representative for HP did not immediately respond to a press inquiry Friday.

The companies are represented by Perry J. Cockerell of Adkerson Hauder & Bezney PC, Walter Steimel Jr. of The Steimel Law Group and James E. Pennington of the Law Offices of James E. Pennington PC.

HP and its employees are represented by Patricia M. Hamill and Deborah J. Krabbendam of Conrad O'Brien PC, Carrington, Kelli Hinson and Tim Gavin of Carrington Coleman Sloman & Blumenthal LLP, and David J. Levy, Patrick K.A. Elkins and Crystal R. Axelrod of Morgan Lewis & Bockius LLP.

The case is Lazo Technologies Inc. et al. v. Hewlett-Packard Company et al., case number 16-0122 before the Supreme Court of Texas.

— Additional reporting by Adam Sege. Editing by Ben Guilfoy.