U.S. District Court in Pennsylvania Denies GC’s Motion for Summary Judgment, Holding Issue of Fact Existed as to Whether GC’s Conduct During Settlement Discussions Waived Its Right to Rely on Claim Releases Submitted with Monthly Invoices

Lydon-Millwright, Inc. v. Ernest Bock & Sons, Inc.
2013 U.S. Dist. LEXIS 65019 (E.D. Pa. May 7, 2013)

This case arises out of a construction project at the Philadelphia International Airport to install a baggage handling system. Bock was the general contractor. Bock contracted Lydon to install the mechanical portion of the baggage handling system. The parties’ purchase order required Lydon to submit a release of liens and claims with each monthly payment application. Over the course of the project, Lydon submitted 54 payment applications, all of which contained the required release of liens and claims.

Lydon sued Bock for breach of contract and unjust enrichment, alleging that Bock breached its contract with Lydon by causing delays to Lydon’s work. Bock moved for summary judgment on Lydon’s claims based upon the releases that Lydon signed and submitted with its payment applications.

Despite finding that the release language unambiguously relinquished all of Lydon’s claims against Bock, the Court denied Bock’s motion. The Court found a disputed issue of fact as to whether Bock waived its right to rely on the releases. According to the Court, a jury could reasonably find that Bock’s actions in promising to pursue delay claims jointly with Lydon against other entitles involved in the project, and in trying to reach a settlement with Lydon, are inconsistent with an intent to rely on the releases.

The Court relied, in part, on evidence of the parties’ settlement communications. Bock argued that Federal Rule of Evidence 408 precluded the Court from doing so. The Court disagreed. It held that these settlement communications fell outside of Rule 408’s strictures because Lydon offered the evidence of settlement discussions to negate Bock’s reliance on the releases as a defense, not to directly support the underlying breach of contract claim.

The Court noted that “use of compromise evidence is permissible in cases in which the compromise activities result in a waiver of or an estoppel to assert some procedural or substantive right.” Lydon alleged that Bock attempted to settle with Lydon, and that at no time prior to the lawsuit did Bock ever inform Lydon that its releases precluded it from pursuing claims against Bock. The court indicated that it would be an abuse of Rule 408 to allow one party during compromise negotiations to lead his opponent to believe that he will not enforce a limitation and then object when the opponent attempts to prove the waiver of that limitation.

Robert A. Gallagher

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