GUESSING AS TO YOUR CONSTRUCTION DAMAGES IS NOT THE BEST APPROACH

Posted on August 24, 2019August 24, 2019 by Edward Garber

Arbitrarily guessing as to your construction damages is NOT the best approach. Sure, experts can be costly. No doubt about it. Having an expert versus guessing as to your construction damages caused by another party’s breach of contract is a no brainer. Engage an expert or, at a minimum, be in a position to competently testify as to your damages caused by another party’s breach of contract. Otherwise, the guessing is not going to get you very far as a concrete subcontractor found out in Patrick Concrete Constructors, Inc. v. Layne Christensen Co., 2018 WL 6528485 (W.D. New York 2018) where the subcontractor could not competently support its delay-related damages or change orders and, equally important, could not support that the damages were proximately caused by the general contractor’s breach of the subcontract.

In this case, the concrete subcontractor entered into a subcontract to perform concrete work for a public project. The project was delayed and the general contractor was required to pay liquidated damages to the owner. Not surprisingly, the subcontractor disputed liability for delays and sued the general contractor for all of its delay-related damages “in the form of labor and materials escalation, loss of productivity, procurement and impact costs, field and home office overhead, idle equipment, inability to take on other work, lost profits, and interest.” Patrick Concrete Constructors, 2018 WL at *1.

The general contractor moved for summary judgment as to the plaintiff’s delay-related damages – the subcontractor’s damages were nothing but guesses and the subcontractor could not prove the general contractor was the cause of the subcontractor’s damages.

The portion of the deposition transcript of the subcontractor’s president that may have also been its corporate representative as to damages is telling:

Q: After today’s exercise, do you believe you’re entitled to [$]681,740 under those items [regarding change orders]?

A: No.

Q: What amount [are] you entitled to?

A: I don’t know. I’d have to work it up.

Q: So as of right now, with my one chance to depose you, the person on damages, you can’t give me a figure that you’re actually entitled to?

A: No. We just ripped all these figures apart, so now I got to go back and refigure.

With regard to the amount of damages sought for “extra costs,” Bell [the President of subcontractor] testified as follows:

Q: Okay. Then you have – you total everything here, total of everything except for the Amount Due on Contract and Outstanding Change Order heading. So that [$]915[,000] basically added up everything under Extra Costs Not Submitted all the way down to Extra Equipment?

A: Yes.

Q: You’re asking for [$]915[,000] in this. Do you believe that’s actually what you’re entitled to today?

A: Well, like I said, we were – like you said, we have to do some adjustments here.

Q: Okay. Adjustments downward, correct, sir?

A: Yes.

Q: Can you tell me today what you think you’re actually entitled to?

A: No.

And, there was more. The subcontractor could not locate its original estimate for the job, which is important for any loss of productivity or inefficiency claim – or any claim dealing with added labor and equipment usage. The subcontractor could not identify payroll records, time cards, vendor invoices, or anything to justify the damages it sought. The subcontractor guessed as to labor hours without the back-up substantiating the labor hours and, equally important, could not establish it incurred the guesstimated labor hours caused by the general contractor.

In essence, Plaintiff [subcontractor] concedes that it cannot provide the Court with an “intelligent estimate without speculation or conjecture,” for either category of damages. Because Plaintiff has failed to make a factual showing sufficient to establish that the “extra costs” and “change orders” damages are capable of being proved with reasonable certainty, summary judgment dismissing these claims is appropriate.

***

Here, Plaintiff asserts that Defendant [general contractor] breached the Subcontract by delaying the Project, and that Defendant’s delay caused it to sustain damages. However, Plaintiff has admitted that Defendant was not responsible for all of the delay, and that Plaintiff and its reinforcing bar subcontractor contributed to the delay as well. Because, by Plaintiff’s own admission, it contributed to the damage-causing delays, it is required to allocate the amount of delay and resultant damages between, at a minimum, itself and Defendant.

Patrick Concrete Constructors, 2018 WL at *4.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

Consequential Damages can be Recovered Against Insurer in Breach of Contract

Posted on July 5, 2019August 8, 2019 by Edward Garber

In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.” Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5thDCA 2019) (internal citations and quotation omitted). Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

In Manor House, the trial court entered summary judgment against the insured holding the insured could not seek lost rental income in its breach of contract action against Citizens Property Insurance because the property insurance policy did not provide coverage for lost rent. However, the Fifth District reversed this ruling because the trial court denied the insured the opportunity to prove whether the parties contemplated that the insured, an apartment complex owner, would suffer lost rental income (consequential damages) if the insurer breached its contractual duties.

This ruling is valuable to insureds because Citizens Property Insurance, a creature of statute, cannot be sued for first-party bad faith. However, the Fifth District found that the consequential damages in the form of lost rental income did not require the insured to prove the insurer acted in bad faith, but merely, breached the terms of the policy. This holding can be extended to other breach of contract actions against an insurer when the insured suffered and can prove consequential-type damages caused by the breach.

CONSEQUENTIAL DAMAGES CAN BE RECOVERED AGAINST INSURER IN BREACH OF CONTRACT

Posted on June 1, 2019April 24, 2020 by Edward Garber

In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.” Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5^thDCA 2019) (internal citations and quotation omitted). Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

CONTRACTUAL WAIVER OF CONSEQUENTIAL DAMAGES

Posted on December 1, 2018April 24, 2020 by Edward Garber

Contractual waivers of consequential damages are important, whether they are mutual or one-sided. I believe in specificity in that the types of consequential damages that are waived should be detailed in the waiver of consequential damages provision. Standard form construction agreements provide a good template of the types of consequential damages that the parties are agreeing to waive.

But, what if there is no specificity in the waiver of consequential damages provision? What if the provision just states that the parties mutually agree to waive consequential damages or that one party waives consequential-type damages against the other party? Let me tell you what would happen. The plaintiff will argue that the damages it seeks are general damages and are NOT waived by the waiver of consequential damages provision. The defendant, on the other hand, will argue that the damages are consequential in nature and, therefore, contractually waived. FOR THIS REASON, PARTIES NEED TO APPRECIATE WHAT DAMAGES ARE BEING WAIVED OR LIMITED, AND POTENTIALLY THOSE DAMAGES NOT BEING WAIVED OR LIMITED, WHEN AGREEING TO A WAIVER OF CONSEQUENTIAL DAMAGES PROVISION!

Interestingly, this issue appeared in the recent case, Keystone Airpark Authority v. Pipeline Contractors, Inc., 43 Fla. L. Weekly D2601d (Fla. 1^stDCA 2018). Here, a plaintiff sued a contractor and engineer for defects to an airplane hangar and taxiways. The plaintiff claimed the engineer’s negligence through its failure to supervise the work as contractually required which resulted in defective construction. The plaintiff claimed that the engineer was responsible for the costs to repair the airplane hangar and taxiways. The engineer argued under a waiver of consequential damages provision that read:

“Passero [engineer] shall have no liability for indirect, special, incidental, punitive, or consequential damages of any kind.”

The engineer argued that the damages the plaintiff was seeking due to its failure to supervise was excluded under the waiver of consequential damages provision in the contract. The plaintiff argued that such damages are general damages and not barred. The trial court, as affirmed by the appellate court, held that the damage was barred because the damage was consequential. In doing so, the court examined the definitions of the types of damages:

General damages are ‘those damages which naturally and necessarily flow or result from the injuries alleged. . . . General damages ‘may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself. Stated differently, [g]eneral damages are commonly defined as those damages which are the direct, natural, logical and necessary consequences of the injury.

–

In contrast, special damages are not likely to occur in the usual course of events, but may reasonably be supposed to have been in contemplation of the parties at the time they made the contract. They consist of items of loss which are peculiar to the party against whom the breach was committed and would not be expected to occur regularly to others in similar circumstances. In other words, general damages are awarded only if injury were foreseeable to a reasonable man and . . . special damages are awarded only if actual notice were given to the carrier of the possibility of injury. Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier’s action.

–

[C]onsequential damages do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting. The consequential nature of loss . . . is not based on the damages being unforeseeable by the parties. What makes a loss consequential is that it stems from relationships with third parties, while still reasonably foreseeable at the time of contracting.

Keystone Airpark Authority, supra (internal citations and quotations omitted).

Based on these definitions, the court agreed that the repairs to the hangars and taxiways were not special damages as “[i]t cannot be said that repairs stemming from improperly supervised construction work are unlikely to occur in the usual course of business.” Keystone Airpark Authority, supra. Such damages did not involve special circumstances for which the plaintiff would be required to give the engineer actual notice.

BUT… these damages were CONSEQUENTIAL:

[T]he cost of repair here did not constitute general damages, either, because the damages were not the direct or necessary consequence of Passero’s [engineer] alleged failure to properly supervise the construction work. The contractor could have completed the job correctly without Passero’s supervision. Thus, the need for repair did not arise within the scope of the immediate transaction between Passero and the Airpark. Instead, the need for repair stemmed from loss incurred by the Airpark in its dealing with a third party – the contractor. While these damages ‘were reasonably foreseeable,’ they are consequential and not general or direct damages.

The appellate, however, certified the following question of great public importance:

WHERE A CONTRACT EXPRESSLY REQUIRES A PARTY TO SUPERVISE CONSTRUCTION WORK AND TO DETERMINE THE SUITABILITY OF MATERIALS USED IN THE CONSTRUCTION, BUT THE PARTY FAILS TO PROPERLY SUPERVISE AND INFERIOR MATERIALS ARE USED, ARE THE COSTS TO REPAIR DAMAGE CAUSED BY THE USE OF THE IMPROPER MATERIALS GENERAL, SPECIAL, OR CONSEQUENTIAL DAMAGES?

Thus, there could be a ruling in future from the Florida Supreme Court relating to construction industry, specifically relating to the damages associated with a supervising architect or engineer.

ECONOMIC DAMAGES CANNOT BE BASED ON SPECULATION

Posted on September 22, 2018April 24, 2020 by Edward Garber

Economic damages, unlike non-economic damages (such as those in personal injury disputes), need to rest on a reasonable basis. Economic damages are those routinely seen in a construction dispute. These damages cannot be based on conjecture or guesswork and need to be supported by competent substantial evidence. Otherwise, the economic damages will be deemed too speculative because they are not reasonably quantifiable. I recently discussed a case involving the professional boxer Canelo Alvarez that was sued by a former promoter for unjust enrichment. Although the promoter recovered a jury verdict for unjust enrichment damages against Canelo Alvarez, the verdict was reversed because the methodology utilized by the promoter to demonstrate damages was speculative. This is definitely not what a plaintiff wants to happen after prevailing at the trial level!

Parties are generally involved in civil disputes because of damages. Without damages, there is no lawsuit. Thus, a party’s damages, and the methodology used to calculate the damages, is critical. While economic damages do not need to be demonstrated with mathematical precision, they do need to be supported by competent substantial evidence, i.e., they need to be based on a reasonable degree of certainty.

QUICK NOTE: MITIGATION OF DAMAGES IN CONTRACT CASES

Posted on September 14, 2018April 24, 2020 by Edward Garber

In an earlier article, I discussed an owner’s measure of damages when a contractor breaches the construction contract. This article discussed a case where the contractor elected to walk off a residential renovation job due to a payment dispute when he demanded more money and the owners did not bite. This case also discussed the commonly asserted defense known as mitigation of damages, i.e., the other party failed to properly mitigate their own damages.

In the breach of contract setting, mitigation of damages refers to those damages the other side could have reasonably avoided had he undertaken certain (reasonable) measures. This is known as the doctrine of avoidable consequences.

In contract cases, there is really no “duty to mitigate” because the claimant “is not compelled to undertake any ameliorative efforts”; rather, he is merely prevented from recovering damages he “could have reasonably avoided.” The word “reasonably” is important. The doctrine of avoidable consequences does not allow a trial court to reduce damages “based on what ‘could have been avoided’ through Herculean efforts. It applies only where a claimant fails to undertake measures to avoid damages that are available to him without undue effort or expense.

Forbes v. Prime General Contractors, Inc., 43 Fla.L.Weekly D2094a (Fla. 2d DCA 2018) (internal citations omitted).

Stated differently, (1) what reasonable efforts could the other party have undertaken to avoid damage or further damage and (2) if the other party employed such efforts, what is the quantum of those avoidable damages. Typically, you want these addressed by an expert witness so that there is evidence of reasonable efforts the other side could have undertaken and had these efforts been undertaken their damages would be reduced to “X” or it would have prevented them from incurring “Y” in damages.

CONTRACTOR WALKS OFF JOB. WHAT ARE THE OWNER’S DAMAGES?

Posted on September 14, 2018April 24, 2020 by Edward Garber

What are your damages as the result of a breach of the construction contract? This is an important question, right? It is probably the most important part of your case. If you didn’t have damages, you wouldn’t be in a dispute. So, I repeat, what are your damages as the result of a breach of the construction contract? The below case explains dealing with a contractor that elected to walk off the job mid-construction.

In Forbes v. Prime General Contractors, Inc., 43 Fla.L.Weekly D20194a (Fla. 2d DCA 2018), owners hired a contractor to perform a residential renovation job for $276,000. The owners were to pay the contractor in five draw payments (common for residential jobs) where the third draw payment was due upon the contractor’s completion of the dry-in (as defined in the contract). After the contractor received the first two draw payments totaling $138,000 plus an additional $6,000 for updated architectural plans, the contractor claimed the job doubled in price and demanded that the owners pay the contractor the third draw payment immediately (before it was due) plus an additional $31,450. The contractor refused to continue unless the owners agreed to its terms, and then walked off the job when the owners would not agree to these terms (nor should the owners agree to those terms). At the time the contractor walked off the job, the owners’ home was not habitable due to the construction.

The owners sued the contractor for breach of the construction contract and had two damages methodologies they could employ:

(1) they could deem the contract a total breach, treat the contract as void, suspend their own performance under the contract, and look to be placed in the position they would have been in prior to entering the contract (i.e., had they not hired the contractor); or

(2) they could seek the damages that would place them in the position had the contractor completed the contract. This damages methodology is more common and would result in the owners seeking the difference between the total amount to complete the contract and the amount owed under the original contract. For example, if the owners were all in at $376,000 to complete the contract, the contractor would be liable for $100,000, since the owners were always planning on the original contract amount of $276,000.

In this case, however, the owners chose the less common first damages methodology. The reason being is that the owners could not find another contractor that was reasonably willing to complete the contract. Also, because the home was uninhabitable, the owners were forced to buy another house versus indefinitely renting. This resulted in the owners losing the uninhabitable house to foreclosure and their $45,000 equity in the house. Accordingly, the owners, seeking to be put in the position had they never hired the contractor, sought to recover, among other damages (i) the first two draw payments totaling $138,000 plus the additional $6,000 for updated architectural drawings, (ii) $5,600 in rent, and (iii) $45,000 in lost equity. These were permissible recoverable damages under the first damages methodology:

They [owners] sought to be put in the position they would have occupied had they never contracted with Prime [contractor]. It was clear at trial that the Forbeses [owners] regarded the breach as total; indeed, they were explicit that they were entitled to suspend their own performance under the contract. And the damages they asked the court to award — return of payments made under the contract and the equity in their home at the time of contracting — were of a type that regarded the contract as void and attempted to restore the Forbeses to their precontractual situation.

Forbes, supra.

DOCTRINE OF AVOIDABLE CONSEQUENCES AS AFFIRMATIVE DEFENSE

Posted on January 27, 2018January 27, 2018 by Edward Garber

The doctrine of avoidable consequences is an affirmative defense that can be used in certain property damage lawsuits. This is a defense that does not go to liability, but it goes to damages. This doctrine of avoidable consequences defense holds that a plaintiff cannot recover damages caused by a defendant that the plaintiff could have reasonably avoided. See Media Holdings, LLC v. Orange County, Florida, 43 Fla.L.Weekly D237c (Fla. 5^th DCA 2018). Stated differently, if the plaintiff could have reasonably avoided the consequences of the damages caused by the defendant then the plaintiff cannot recover those damages. However, the defendant needs to prove this defense — the burden is on the defendant to establish this defense (ideally through expert testimony).

For example, in Media Holdings, a party that was putting on a trade show at a convention center caused the fire sprinkler system to be set off causing substantial water damage. The owner of the convention center sued the party. The party argued the doctrine of avoidable consequences, i.e., that the convention center’s damages were caused by or exacerbated by its failure to shut down the sprinkler system as soon as reasonably possible; had the convention center done so, its damages would be much different. This defense was a question of fact. Remember, it is not a defense as to liability because the party did cause the sprinkler system to be set off. Rather, it went directly to the amount of damages the plaintiff was seeking.

CREATIVE AVENUE FOR JUDGMENT CREDITOR TO COLLECT A JUDGMENT

Posted on October 22, 2016November 8, 2024 by Edward Garber

I have a judgment against another entity. Now what? I want to briefly talk about this “now what?” in the context of the recent decision in MYD Marine Distributor, Inc. v. International Paint, Ltd., 41 Fla. L. Weekly D2364a (Fla. 4^th DCA 2016). Although this case is not a construction case, it poses an interesting issue for any entity that has a judgment entered against it (known as the judgment debtor) while it is contemporaneously the plaintiff and pursuing monetary damages in an unrelated case or cases. This case also presents an avenue for any judgment creditor to pursue in the event other post-judgment collection efforts are unsuccessful.

In this case, a judgment creditor received a judgment for $550,000 against the judgment debtor. The judgment creditor proceeded with post-judgment collection activities and recovered only $120,000 from these activities. The judgment debtor at this time was the plaintiff in an unrelated lawsuit. The judgment creditor instituted proceedings supplementary pursuant to Florida Statute s. 56.29 to have the judgment debtor’s pending lawsuit assigned to it. This would allow the judgment creditor to control the pending lawsuit, settle the lawsuit, and, importantly, utilize any proceeds from the lawsuit to reduce the judgment. The trial court allowed this assignment and the appellate court affirmed:

Donovan [judgment creditor] used section 56.29 to initiate proceedings supplementary. Section 56.29(5) provides that a court “may order any property of the judgment debtor, not exempt from execution, in the hands of any person, or any property, debt, or other obligation due to the judgment debtor, to be applied toward the satisfaction of the judgment debt.” A “chose in action” is “property” within the meaning of section 56.29(5). A “chose in action” is a “personal right not reduced into possession, but recoverable by a suit at law. . . . A right to receive or recover a debt, demand, or damages on a cause of action ex contractu or for a tort or omission of a duty.” MYD’s [judgment debtor’s] lawsuit against Lauderdale Marine [unrelated party] was a chose in action subject to the reach of section 56.29(5) proceedings supplementary.

MYD Marine Distributor, supra (internal citations omitted).

BREACH OF A CONSTRUCTION CONTRACT & AN EQUITABLE REMEDY?

Posted on September 2, 2016November 8, 2024 by Edward Garber

In payment or collection-type lawsuits, the party suing for money sometimes asserts a claim for unjust enrichment or quantum meruit as an alternative equitable remedy to a breach of contract claim. Frankly, sometimes a party will do this as a means to throw everything against the wall hoping something, just something, sticks. However, if there is a contract by and between the parties, equitable claims such as unjust enrichment or quantum meruit will invariably fail. They will fail because a party cannot circumvent a contract simply because their recourse may prove better under an equitable theory. It doesn’t work like that! And, it should not!

For example, in Daake v. Decks N Such Marine, Inc., 41 Fla. L. Weekly D1992e (Fla. 1^st DCA 2016), a contractor was hired to construct a seawall and a beach house on two lots. One lot was owned by the homeowners in a personal capacity and the other lot was owned by them in the name of a family trust. The contractor was unpaid and sued the owners for breach of contract and sued the family trust for quantum meruit. The problem was that the family trust was deemed a party to the contract. Because the family trust was a party to the contract, the contractor could NOT recover any damages under an equitable theory such as quantum meruit or unjust enrichment. This was a harsh ruling, but the correct ruling since the contractor was deemed a party to the contract. The contractor was owed money but did not sue the family trust for breach of contract. As a result, the contractor could not recover money by bypassing a breach of contract claim for an equitable quantum meruit claim. A court cannot award damages under an equitable theory when the contractor has an adequate remedy of law—a breach of contract claim. See Daake, supra, (“Quantum meruit is premised upon the absence of an express and enforceable agreement; accordingly, the existence of a valid, written contract between the parties necessarily precludes the doctrine’s application.”).

There are times where pleading alternative theories of liability is important. This includes pleading a breach of contract claim and an alternative equitable claim such as unjust enrichment or quantum meruit. This becomes important if you do NOT know whether a certain party will actually be bound by and deemed a party to the contract, which was the situation in Daake. With that said, in your typical payment / collection-type lawsuit, there is a contract between the parties and the equitable claim will fail and should fail. If parties could bypass the harsh remedy of contractual provisions by suing for unjust enrichment or quantum meruit, believe me, they would. When parties are owed money or lost money on a contract, they typically want to avoid risks they agreed to by virtue of the contract.