Delaware District Court Reduces Contractor Recovery for Wrongful Termination

Donald M. Durkin Contracting, Inc. v. City of Newark
2008 U.S. App. LEXIS 28987 (D. Del. Apr. 9, 2008)

The Delaware District Court held that a contractor who is improperly terminated is entitled to recover its expectation interest or the unpaid contract price less the amount it would have cost the contractor to complete the job. Other damages which are causally connected to the owner’s breach are recoverable as well, but costs of pre-termination performance or post-termination losses which are not causally connected are not recoverable. Further, the Court affirmed that Delaware follows the “American Rule’ which precludes recovery for attorneys fees incurred in consequence of the owner’s breach.

Following a jury verdict of $11.6 million in favor of the terminated contractor, the City of Newark, Delaware, renewed its motion for judgment of a matter of law on the measure of damages for the contractor’s breach of contract claim. The court reduced the jury award to $630,000, deciding that many of the components of the award were not recoverable under the circumstances of the case.

Under Delaware law, the standard remedy for breach of contract is based upon the “reasonable expectation of the parties.” In the construction context, courts find that this means that a contractor is entitled to receive “the contract price (or so much as remains unpaid) less the amount it would cost the builder to complete the job.” The Court found that the jury award had failed to offset the “cost to complete” against the unpaid contract balance and reduced the award accordingly.

Although, a contractor is also entitled to recover damages for other pre-termination costs resulting from the owner’s breach the District court found that the pre-termination costs awarded by the jury were not a result of the owner’s breach. The pre-termination costs were acknowledged to have been caused by severe weather rather than breach by the owner.

The Court held that the contractor was also entitled to recover any other losses beyond contract price, so long as those losses were caused by the City’s breach. By so holding, the Court recognized that a contractor is permitted to such recovery as necessary to put the contractor in the same position as if the other party had fully performed its contract.

However, the Court held attorney’s fees were not recoverable because Delaware follows the “American Rule” which bars recovery of attorneys’ fees as damages where the contract does not expressly authorize the recovery of such fees.

The Court also held that the contractor was could not recover damages for losses suffered by selling equipment to generate operating revenue. The Court held that the losses from selling equipment was not recoverable because there was no record evidence showing that these operating costs were in fact caused by the City’s breach, rather than alternative causes such as bad weather or , perhaps, trouble attracting new customers. Similarly, the Court also concluded that the contractor was barred from recovering costs and expenses associated with loans and expenses on life insurance policies and repayments of lines of credit as these damages were a combination of operating costs not recoverable with out proof of causation or litigation expenses not recoverable under Delaware law

Thus, the Court granted the City’s motion for judgment as a matter of law and recalculated the damages under Delaware law to which the contractor was entitled to the amount of $630,000.

This entry was posted in Breach of Contract, Payment dispute, Termination and tagged , , , , , . Bookmark the permalink.