Thursday, April 23, 2009

Proper Way to Determine Damages When Project Terminated Prior to Completion

The Eleventh Circuit released an interesting published opinion on April 20, 2009. The case was Sea Byte Inc. v. Hudson Marine Management Services Inc. (08-14069) and case involved a contract to restore an underwater reef. Miller hired Hudson to restore the reef, however, a series of hurricanes expanded the project scope prior to completion of the project. Miller and Hudson filed suits against each other that were transferred to the Southern District of Florida and consolidated.

The Eleventh Circuit held that the contract expired by its own terms due to a "severe weather" provision when the hurricanes increased the scope of the project. Pursuant to the contract, Miller agreed to pay $5,200,000 to Hudson for the repair work. After the hurricane, Hudson requested an additional $2,100,000, however, an agreement was not reached. This led to Hudson stopping his restoration work and led Miller to stop sending payments.

Due to the "severe weather" provision, the Eleventh Circuit affirmed the district court's holding that the contract was not breached by either party. The Eleventh Circuit disagreed with the district court's conclusion as to damages.

The district court correctly held that quantum meruit was not available because under Florida law quantum meruit is not available when an enforceable contract exists. The Eleventh Circuit stated:
Although we agree with the district court’s rejection of quantum meruit damages, we do not agree with its ultimate approach. The court held it could not reevaluate the $900,000 in payments Miller made to Hudson because they were made pursuant to a valid contract. However, this ignores the fact that the parties’ contract affixed a total value to the restoration project: $5,200,000. In our view, there is only one fair and logical way to give effect to that agreement: to determine what percentage of the project’s value Hudson provided under the contract as of September 2, and multiply that percentage by the contract price of $5,200,000. This will tell us whether, considering the $2,698,000 Miller already remitted, Hudson has been overpaid or underpaid.
The Eleventh Circuit cited to a Michigan appellate court for the proposition that the value of the services provided prior to discharge constitutes the percentage of the services that have been completed pursuant to the contract, multiplied y the contract price. The court stated "We generally agree that the best way to assess damages in such a situation is to multiply the total value of the project (as set by the parties) by the percentage of the project completed."

The general approach does not work, however, when different aspects of the project require different kind of labor, equipments and skills. The end result:
In sum, the district court must make a factual finding as to what percentage of the project’s value Hudson provided under the contract, (See Footnote 11) and multiply this percentage by the total contract price of $5,200,000. Then the court may determine whether, considering all payments Miller made to Hudson for the project, Miller underpaid Hudson (in which case Hudson is entitled to damages from Miller) or Miller overpaid Hudson (in which case Miller is entitled to damages from Hudson). Thus, we reverse the district court’s ruling as to the value of Hudson’s pre-hurricane work, and remand for findings consistent with this opinion.
Footnote 11: In making this determination, the court should assess to what extent Hudson completed the project as originally planned - see Footnote 2. Although Miller now complains that Hudson’s original plan was inefficient, this is the plan for which it agreed to pay $5,200,000 and we cannot save Miller from the bargain now.


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