Liquidated Damages Clause Bars Separate Recovery for Lost Power Sales Even Though Loss is Many Times Greater Than Liquidated Damage Amount – Correction Damages, However, Are Separately Recoverable

El Dorado Irrigation Dist. v. Traylor Bros., Inc.
No. 03-949, 2006 U.S. Dist. LEXIS 1354 (E.D. Cal. Jan. 4, 2006)

In El Dorado Irrigation Dist. v. Traylor Bros., Inc., No. 03-949, 2006 U.S. Dist. LEXIS 1354 (E.D. Cal. Jan. 4, 2006), the court construed the effect of a liquidated damages clause on plaintiff’s ability to recover other categories of actual damages. The plaintiff sued the defendant contractor, seeking recovery of liquidated damages, loss of power sales, loss of public grant funds, and other damages related to the late completion of the project. The contract contained a liquidated damages clause, which defined the “damages for Contractor delay” at $500 per calendar day.

Plaintiff not only sought to collect $191,000 in liquidated damages, but also argued that other damages related to defendant’s defective work were not precluded by the liquidated damages clause. Finally, plaintiff asserted that the liquidated damages clause was unenforceable as a matter of statutory law because its actual delay losses were disproportionately greater than the liquidated damages.

The court had earlier determined that costs related to remedying defendant’s defective work, even if those costs were time-related in nature, were not covered by the liquidated damages clause. To hold otherwise, the court concluded, would nullify a separate contractual provision that allowed the plaintiff to recover “correction damages.” Loss of power sales and public grant funds, however, did not constitute “correction damages” and thus recovery for such losses was subsumed by the liquidated damages provision. The court noted that in the absence of a specific provision elsewhere in the contract which provided for the recovery of those losses, the liquidated damages provision must prevail.

Plaintiff also argued the liquidated damages provision was unenforceable because it was “manifestly unreasonable” and offended certain California statutes. In particular, plaintiff concluded the provision was manifestly unreasonable because it bore no reasonable relationship to the range of actual damages that the parties could have anticipated from the breach. The loss of power sales was approximately $2.4 million, and the court noted the liquidated damages of $191,000 was relatively small in comparison. However, the court concluded plaintiff failed to provide a compelling reason for the court to look outside the four-corners of the contract and find that a “plainly bargained for” liquidate damages provision would not apply. Accordingly, the court dismissed the claim for loss of power sales.

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