Thursday, August 2, 2012

Federal Court Awards Quantum Meruit Despite Written Contract

The city of Syracuse hired a contractor to construct a parking deck. The relationship fell apart, and Syracuse terminated the contract. The contractor sued the City for breach of contract, claiming that the breach was so material it defeated the purpose of the contract.

At trial, the jury awarded the contractor damages for the following: costs of performance, overhead, minus payments from the owner. The city claimed that the jury's award was improper because there was a written contract and the calculation used by the jury was one of "quantum meruit" (i.e. the value of the work, rather than the amount allocated by the contract itself). This calculation resulted in a higher award for the contractor.

The District Court rejected the City's arguments.  Applying New York law, the Court found that if a contract is wrongfully terminated, then quantum meruit can be used to measure damages.  The court then went further, finding that wrongful failures to make payment or assess delays (and resulting damages) against a contractor can be so material that it results in a "wrongful termination" by the owner. When that happens, damages calculated on the basis of a quantum meruit theory of recovery can be recovered.

In so finding, the Court said that under New York law, “once an agreement has been wrongfully terminated, the non-breaching party may elect to pursue quantum meruit damages. Where a party seeks quantum meruit damages for the premature wrongful termination of a construction contract, courts calculate the damages by considering the actual job costs plus allowance for overhead and profit minus amounts already paid.”

The case can be found at American Underground Engineering, Inc. v. City of Syracuse (N.D.N.Y.  2011).

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