Jay Jala, LLC v. DDG Construction, Inc., No. 15-3948, 2016 US Dist. LEXIS 150969 (E.D. Pa. Nov. 1, 2016)

Jay Jala, LLC was the owner of a motel construction project in Allentown, Pennsylvania. DDG Construction, Inc. was the contractor. The project was delayed during construction and, four months after the specified completion date, DDG abandoned the project. Jay Jala terminated DDG for default, completed the project, and initiated this action.

The contract provided that the parties “waive Claims against each other for consequential damages arising out of or relating to this Contract.” During litigation, DDG stipulated that it breached the contract but moved for partial summary judgment, arguing that Jay Jala’s damages were consequential, and thus waived.

The question presented by DDG’s motion was: “what distinguishes available direct damages from the consequential damages waived by the contract?” The Court reasoned that the distinction turns on whether the damages represent the loss of DDG’s performance (direct damage), or the loss of something collateral (consequential damage). The Court then undertook to determine which of Jay Jala’s damages “was a separate business arrangement that [Jay Jala] made” and which damages represented something Jay Jala “had to pay in an effort to replace the performance [DDG] failed to provide.”

Utilizing this distinction, the Court granted DDG’s motion with respect to Jay Jala’s damages for: pre-purchased insurance premiums for operation of the completed motel, costs for additional months of advertising the motel, and additional months of furniture, fixtures and equipment leasing expenses. The Court reasoned that under the contract, DDG was not required to cover any of these costs, and thus these losses were not incurred to replace any portion of DDG’s performance. Instead, each related to a separate business arrangement made by Jay Jala, and was therefore covered by the waiver of consequential damages.

But, the Court denied DDG’s motion with respect to three of Jay Jala’s claims. With respect to Jay Jala’s “project completion fee,” the Court understood that term to encompass Jay Jala’s overhead during the period when it acted as its own contractor following DDG’s breach. The Court reasoned that if Jay Jala had hired a replacement contractor, that contractor’s fee, including overhead, would have been recoverable as direct damage. The fact that Jay Jala itself acted as completion contractor did not bar recovery.

Next, the Court held that Jay Jala could recover utility costs it paid during the months following DDG’s breach. The contract expressly required DDG to pay monthly utility costs until completion of the project. Therefore, utility costs were direct damages because Jay Jala’s payment of those costs replaced a portion of DDG’s expected contract performance.

Finally, the Court held that Jay Jala could recover as direct damage the additional months of construction loan interest it paid following DDG’s breach. The Court reasoned that because DDG agreed to construct the project within a specified period of time, it necessarily agreed that Jay Jala should incur only a specified amount of construction loan interest and, therefore, the additional interest was a direct damage.

For ease of reference the Court’s holding is represented in chart form below:

Direct Damage Consequential Damage
Project Completion Fee Additional Months of Motel Insurance Premiums
Utility Costs Contractor had Contractually Agreed to Pay Additional Months of Advertising Costs
Additional Months of Interest on Construction Loan Additional Months of Furniture, Fixtures and Equipment Lease

To view the full text of the court’s decision, courtesy of Lexis®, click here.