Second Circuit Court of Appeals Reverses Multi-million Dollar Verdict for Delay Damages on Basis of Erroneous Submission of Question of Contract Interpretation to Jury

Morse/Diesel, Inc. v. Trinity Industries, Inc.; Mosher Steel Co., and Aetna Insurance Co.,
67 F.3d 435, 1995 U.S. App. LEXIS 27614 (2d Cir. Sept. 26, 1995).

Contract provision authorizing compensation for delay, “notwithstanding any other provision . . .” held to override “no-damage-for-delay” provisions in other portions of contract as a matter of law. Trial court erred in submitting question of interpretation to jury. 

Morse/Diesel, Inc. (“Morse/Diesel”) was the general contractor for the construction of the Marriott Marquis Hotel in Manhattan’s Times Square. In August, 1982, Morse/Diesel entered into a subcontract with Mosher Steel Company, a division of Trinity Industries, Inc. (“Trinity”) to fabricate and erect the steel members necessary for hotel construction within 13 months, excluding inclement weather. In fact, the job took 20 months, from January, 1983 until September, 1984. Morse/Diesel sued Trinity and Trinity’s bonding company, Aetna Insurance Company, for damages in the amount of $37 million arising from the cost of an acceleration program designed to recapture the delay, as well as losses suffered by the hotel’s owner, the architect and other subcontractors. Trinity counterclaimed for its own damages arising from additional work and delay in completing the subcontract.

Responsibility for the delay surfaced as the central question in the trial court litigation. Morse/Diesel blamed Trinity, producing evidence of fabrication errors, shipping mishaps, crane failures, and so on. In support of its counterclaim for increased cost and delay, Trinity alleged that the project’s architect, John Portman & Associates, and structural engineer, Weidlinger Associates, made unwarranted demands regarding the installation of certain special steel trusses, known as Vierendeel trusses, and the use of additional bracing during erection. Following six and a half weeks of trial, the jury substantially agreed with Morse/Diesel and awarded the company almost $26 million in damages, to which the court added an additional $27 million in prejudgment interest. Trinity appealed.

On appeal, Trinity argued, inter alia, that the trial court’s treatment of various clauses regarding delay unfairly precluded Trinity from presenting its counterclaim to the jury. Schedule B, paragraph 53, of Trinity’s subcontract provided:

Should the Subcontractor be obstructed or delayed in the commencement, prosecution or completion of the work, without fault on his part, by action or inaction on the part of the Owner, Architect, Engineer or Contract, or by changes in the work, the Subcontractor shall be entitled to include as cost the cost of labor, materials, equipment, supplies and other resultant costs occasioned by such delays and changes notwithstanding any other provision contained in this agreement. (Emphasis added)

However, two other provisions in Trinity’s subcontract contained no-damage-for delay clauses.

Should the subcontract be obstructed or delayed in the commencement, prosecution or completion of the work . . . then he shall be entitled to an extension of time . . . the subcontractor expressly agrees not to make, and hereby waives, any claim for damages, including those resulting from increased supervision, labor or material costs, on account of any delay, obstruction or hindrance for any cause whatsoever . . . and agrees that the sole right and remedy therefor shall be an extension of time.

General Conditions, Article 16-G (emphasis added).

And Article 3.4 of the subcontract provides, in part:

All loss or damage arising from any of the Work through unforeseen or unusual obstructions, difficulties or delays which may be encountered in the prosecution of same or through the action of the elements shall be borne by the Subcontractor.

Against this contractual backdrop, Trinity requested a jury instruction that it could recover damages under paragraph 53 for costs associated with delays caused by others. The trial court denied the request and instructed the jury that Trinity’s “claim for damages on account of delays allegedly caused by Morse/Diesel and its subcontractors” was an “area of ambiguity” in the subcontract, citing Article 16-G of the General Conditions and Article 3.4 of the subcontract. She then noted Trinity’s contention that these two provisions have been negated by paragraph 53. In the face of such apparent ambiguity, Judge Preska instructed that it was the jury’s job to interpret the allegedly ambiguous subcontract.

The Court of Appeals for the Second Circuit held the jury instructions to be fatally because the subcontract contained no ambiguity. The Court initially noted that under New York law, a written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language of the subcontract. It then found that the “notwithstanding” clause of paragraph 53 relieved any tension among the three contract provisions addressing delay. More specifically, the court held that paragraph 53 overrode the otherwise inconsistent clauses of Article 3.4 and Article 16-G of the General Conditions.

Accordingly, the Court held that the district court erred when it submitted the contract’s meaning on this point to the jury. The district court should have construed the contract according to its unambiguous terms, and clearly instructed the jury that Trinity had the right under paragraph 53 to recover any costs occasioned by delays that were not its own fault.

Moreover, the Court proceeded to hold that the error could not be deemed harmless. The jury returned a general verdict. While the jury apparently concluded that Trinity was at fault for much of the delay and resulting acceleration damages, Morse/Diesel did not recover all that it sought. Thus, the Court found it very possible that the jury believed Morse/Diesel was indeed to blame for some of the delay. Finding it impossible to isolate the counterclaim for retrial, the Court found it necessary to reverse the judgment in total and to remand both the complaint and the counterclaim for retrial.

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