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November 1st, 2017
construction
LOUISIANA FEDERAL COURT, INTERPRETING A CONSTRUCTION CONTRACT, HOLDS A CONSEQUENTIAL DAMAGES WAIVER MAY NOT BAR A CLAIM FOR LOST PROFITS

In Team Contractors, L.L.C. v. Waypoint Nola, L.L.C., et al., No. CV 16-1131, 2017 WL 4366855 (E.D. La. Sept. 29, 2017), the United States District Court for the Eastern Division of Louisiana concluded that because the contract was ambiguous as to whether the type of lost profits sought in the case were considered “consequential damage” by the terms of the contract, the matter was not ripe for summary judgment as it required it to determine whether the parties intended such damages to fall within the contract’s “consequential damages” waiver.

The case involved the development and construction of a hotel in downtown New Orleans, Louisiana (“the Project”). Waypoint Nola, L.L.C. (“Waypoint”), the owner of the Project, entered into an agreement with HC Architecture (“HCA”) to perform construction administrative services during construction of the hotel (the “HCA Contract”). A dispute arose and Waypoint filed a cross-claim against HCA. In addition to other damages, Waypoint crossclaimed for $554,903.00 in lost profits due to the delayed opening of the hotel.

HCA filed a Motion for Summary Judgment, seeking dismissal of Waypoint’s claim for lost profits on the grounds that the parties’ contract waived “consequential damages”, including Waypoint's claim for lost profits. Waypoint argued that this provision was ambiguous because it did not define what the parties contemplated would be “consequential damages,” which created an issue of fact. The Court agreed. 

The Court explained that the term “consequential damages” is subject to multiple interpretations, and “no two courts or treatises define consequential damages the same way.” The Court also noted that the HCA Contract did not define “consequential damages” within its four corners to include a claim for lost profits, as some standard form contracts do. In light of this, the Court held that the HCA Contract was ambiguous as to whether lost profits of the kind claimed by Waypoint were to be considered consequential, and it would need to determine the intent of the parties to determine whether or not Waypoint was entitled to seek such damages. Because there remained a disputed issue as to the intent of the parties to include such damages in the waiver, the Court denied HCA’s Motion for Summary Judgment.

In light of this decision, parties seeking to limit their exposure to claims for lost profits should ensure that contractual provisions waiving “consequential damages” define the damages considered as “consequential damages.”  This case is a good reminder as to the importance of proper contract drafting. While all parties are hopeful that a dispute will not arise at the time a contract is entered into, taking the time to incorporate detailed definitions for all terms contained in a contract can save litigation over what the intent of the parties was at the time of formation.

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