The enforcement of liquidated damages is a topic that gets a lot of attention in construction-contract disputes. Some of the most popular posts on this blog include examples of courts refusing to enforce liquidated damages provisions. (Click here for one example and click here for another example.)
One reason a court may refuse to enforce a liquidated damages provision is because the specified daily rate of liquidated damages is “grossly disproportionate” to the actual damages that are expected to be suffered due to the contractor not completing the project on time.
In addition, even if a liquidated damages clause is enforceable, it is possible that an owner can waive the right to claim liquidated damages. Under Florida law, to establish waiver, a party must show an intention to give up a known right. A waiver can be express or implied through conduct.
A federal court recently considered whether a project owner waived its right to seek liquidated damages as a matter of law.
In Lund-Ross Constructors, Inc. v. Vecino Natural Bridge, LLC, a developer and a general contractor entered into an agreement for the construction of a $24-million apartment complex. The contract required the project to be completed by a specific date, and it had a clause assessing liquidated damages “[i]f the completion date is missed for any reason[.]”
After the general contractor failed to complete the project by the required completion date, the owner terminated the contractor for cause. In turn, the contractor recorded a $2.2 million lien on the property and sued the owner to foreclose on the lien. The owner filed a counterclaim against the contractor for the owner’s damages, including the assessment of liquidated damages.
The parties filed cross motions for summary judgment asking the court to decide whether the owner waived its right to recover liquidated damages as a matter of law.
The general contractor argued that the owner waived its right to liquidated damages by delaying progress on the project, extending the project completion deadline, and providing revised plans only after the deadline passed.
The owner contended it did not waive its right to assess liquidated damages because it repeatedly informed the contractor of its intent to assess liquidated damages both orally during construction of the project and in multiple writings before and after the final completion deadline.
The owner also argued that it did not impliedly waive its right to assess liquidated damages because the contractor failed to show any evidence to support the conclusion that there was any owner-caused delay, let alone a significant enough of a delay necessary to find an intentional relinquishment of the owner’s right to liquidated damages.
The owner also specifically noted that the contractor “failed to retain an expert who could conduct the ‘contractually mandated’ critical-path and concurrent-path analysis and provide ‘any admissible evidence on this topic at trial.'” (For more on the importance of performing a critical path analysis for delay claims, click here.)
The court applied Nebraska law to the dispute. The court noted that under Nebraska law, waiver “is a voluntary and intentional relinquishment or abandonment of a known existing legal right or such conduct that warrants an inference of the relinquishment of such right.”
To establish waiver, the contractor would have to show “clear, unequivocal, and decisive action of” the owner “showing such purpose, or acts amounting to estoppel” on the owner’s part. Waiver could be proved by express declarations showing the intent not to exercise a right, or “by so neglecting and failing to act as to induce the belief that it was the intention to waive.”
After considering the parties’ arguments, the court found that the owner was entitled to summary judgment as to the issue of waiver. In other words, the court concluded that as a matter of law, the owner did not waive its right to claim liquidated damages. The court came to that conclusion because the contractor “failed to adduce sufficient evidence to create a triable issue on waiver.”
While the court did not give much reasoning, one could conclude that if the contractor wanted to avoid summary judgment, it may have been prudent for the contractor to offer expert testimony as to the delays that occurred on the project. In particular, had the contractor provided expert testimony evidence showing that there were owner-caused delays to the project, there may have been a genuine issue of material fact regarding whether the owner impliedly waived its right to assess liquidated damages.
Instead, the court was convinced that the contractor failed to provide sufficient evidence that the owner somehow impliedly waived its right to liquidated damages. Thus, the court granted summary judgment to the owner as to the waiver issue and allowed the owner’s liquidated damages claim to proceed to trial.
Bottom Line: Much like any contractual right, an owner’s right to assess liquidated damages can be waived. To prove such a waiver, the contractor should plan on offering evidence of the waiver. Such evidence may include an owner’s express indication that it will not assess liquidated damages while construction is ongoing or after construction is complete. It may also include evidence that the owner caused delays to the project for which it should not be entitled to liquidated damages. Regardless, the outcome of the waiver issue may turn on the specific requirements of the contract as to what is required to show owner-caused delay.
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