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Current Developments in the Commercial Divisions of the
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Posted: April 28, 2014

Damages Limitations Clause Enforceable Even When it Leaves Plaintiff Without a Remedy

On April 14, 2014, Justice Pines of the Suffolk County Commercial Division issued a decision in J. Petrocelli Contracting, Inc. v. The Morganti Group, Inc., 2014 NY Slip Op. 31024(U), dismissing a claim based on construction delays where the parties’ contract excluded such claims.

In J. Petrocelli Contracting, the plaintiff (as subcontractor) entered into a subcontract agreement with the defendant (as construction manager) in connection with a municipal construction project at the Kings County Criminal Court. The subcontract provided that the “Construction Manager shall not be liable to Subcontractor for any damages resulting from delays caused by any entity.” The court noted that such clauses are generally enforceable, unless the plaintiff can meet the “high burden” of establishing that one of four exceptions applies:

A clause which exculpates a contractee from liability to a contractor for damages resulting from delays in the performance of the latter’s work is valid and enforceable and is not contrary to public policy if the clause and the contract of which it is a part satisfy the requirements for the validity of contracts generally. . . . However, even with such a clause, damages may be recovered for: (1) delays caused by the contractee’s bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract. Plaintiffs seeking to invoke one of the exceptions to the enforceability of a no damages for delay clause face a heavy burden.

(Citations omitted) (emphasis added).

The court ruled that the alleged causes for the delay in this case at most showed “inept administration or poor planning, which does not negate application of the no damages for delay provision.” Concluding that the plaintiff’s “allegations regarding the applicability of one or more of the recognized exceptions to the enforcement of the no-damages-for-delay clause are conclusory and consist of bare legal conclusions,” the court granted the defendant’s CPLR 3211(a)(7) motion to dismiss the breach of contract cause of action.

This decision illustrates that contractual limitations on damages may be enforced, even if they have the effect of leaving the plaintiff without a remedy.

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