The Commercial Division’s decision in Five Star Elec. Corp. v. Silverite Constr. Co. Inc. demonstrates the narrow scope, and strict interpretation, of no-damages for delay provisions in a contract. In Five Star, New York County Supreme Court Justice Robert R. Reed dismissed several claims brought by the Five Star Electric Corp. (Five Star) against Silverite Construction Company Inc. (Silverite). The decision reaffirmed the proposition that no-damages for delay clauses are enforceable and a party challenging such clauses bears a heavy burden to demonstrate that an exception to enforcement applies or that enforcement has been waived based on the parties’ conduct or prior business dealings.
In June 2012, Silverite entered a contract with New York City School Construction Authority (SCA) to construct P.S. 315, a school in Queens (the Project). Later that year, in September 2012, Plaintiff Five Star and Defendant Silverite entered a subcontract under which Five Star was to furnish and install electrical and fire alarm equipment for the Project. Both the contract between Silverite and the SCA and the subcontract between Silverite and Five Star contained “no-damages for delay” clauses, which provided that the parties waived their claims for damages based on delay in performance and that the sole remedy for any such delay would be an extension of the time to perform and completion of the required work. These clauses notwithstanding, when work on the project was ultimately delayed, Five Start filed suit against Silverite, asserting that due to “Silverite’s bad faith, gross negligence and fundamental breach of its obligations under the… [s]ubcontract”, Five Star sustained damages. Specifically, Five Star claimed that Silverite unreasonably delayed “the review/resolution of  requests for information, change orders, field work orders and related… project issues” and generally acted in “bad faith and with willful, malicious and grossly negligent conduct.” Silverite moved to dismiss the action, arguing that Five Star’s claims were clearly barred by the relevant no-damages clauses.
No-Damages for Delay Clauses are Enforceable
Justice Reed first addressed Silverite’s argument that Five Star was collaterally estopped from pursuing its claims based on an earlier decision enforcing a nearly identical no-damages for delay clause in a contract between the parties: Five Star Electric Corp. v. Silverite Const. Co. Inc. (Index No. 654461/2016, Motion Sequence No. 002, 7/30/20, Cohen, J.). In that case, which involved a project for the MTA, Justice Cohen applied binding First Department precedent to hold that the no damages for delay clauses in the relevant contract and subtract had been negotiated between two sophisticated parties and were thus enforceable. Justice Reed ultimately concluded that because Justice Cohen’s earlier decision involved largely the same facts in a case between the same parties, Five Star was “for the most part” barred from relitigating the same issues in this case.
Despite his decision that collateral estoppel applied to the relevant claims, Justice Reed nonetheless went on to address, and reject, Silverite’s arguments regarding the no damages for delay clauses on the merits as well.
For example, Justice Reed was not persuaded by Five Star’s argument that SCA and Silverite waived enforcement of the no-damages for delay provisions in the underlying agreements “because Silverite submitted at least some of Five Star and Silverite’s claims for delay damages to SCA”. In support Five Star relied on Pizzarotti, LLC v FPG Maiden Lane LLC  where “the First Department found, in a Lien Law case, that the waivers in the defendant’s payment applications ‘raised an issue of fact as to whether the waivers released plaintiff’s payment claims.’” The Court in Five Star was not convinced and held that the “no-damages for delay provision b[ound] the parties”. Relying on the Court of Appeal’s decision in Corinno Civetta Constr. Corp. v City of New York  (Corinno Civetta)—which held that “‘[a] clause which exculpates a contractee from liability to a contractor for damages resulting from delays in the performance of the latter’s work is valid and enforceable’ when the underlying contract and the provision satisfy the general requirements for contractual validity”—Justice Reed found that because Five Star did not assert that the relevant contract or subcontract themselves were invalid, the no damages for delay provisions in those agreements were generally enforceable.
Moreover, the Court held that none of the recognized exceptions to the enforcement of a no-damages for delay provision were applicable here. Pursuant to Corinno Civetta, “damages may be recovered for: (1) delays caused by the contractee's bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee's breach of a fundamental obligation of the contract.” Specifically, Justice Reed held that Five Star failed to allege any specific facts in support of its conclusory allegations that “(1) Silverite unreasonably delayed, disrupted, and interfered with Five Star's performance, (2) these disruptions were not contemplated by the subcontract, (3) Silverite did not properly coordinate Five Star's work, (4) Silverite did not ‘promptly review/resolve . . . requests for information, change orders, field work orders and related . . . Project issues,’ (5) Silverite acted in bad faith, willfully, maliciously, and in a grossly negligent manner, and (6) Silverite did not perform ‘numerous fundamental obligations of the . . . Subcontract,” and it therefore had failed to meet its pleading burden to establish that one of the recognized exceptions applied to its claims. Ultimately, the Court concluded that that the “no-damages provision [was] clear on its face, and courts habitually enforce[d] such clauses.”
The decision in Five Star is notable in that it underscores the high bar a plaintiff must meet in order to avoid enforcement of a no delay for damages clause. Generally speaking, courts will enforce such clauses in agreements between sophisticated parties unless the plaintiff can allege specific facts to show that any delay was a result of bad faith, willful, malicious or grossly negligence on the part of the defendant. This case is yet another reminder that sophisticated parties should give careful consideration to the types of delays and disputes that may arise in any project when negotiating such a clause.