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A Water Authority filed suit against its engineering firm for negligence and breach of contract, alleging that various deficiencies in its services caused the Authority to incur costs of having to dig up and investigate pipelines installed by its contractor.  The Authority also alleged it incurred costs in repairing the contractor’s work, and that all these costs should be borne by the engineer.  The engineer moved for summary judgment on the basis that the complaint alleged only future possible damages that might occur if the pipelines eventually failed, but there were no allegations of any actual damages from current pipeline failure.

The court agreed that as to the tort claim of negligence, the complaint must be dismissed due to the absence of actual damages.  The breach of contract count, however, was permitted to proceed because evidence presented was sufficient to raise an issue of whether the Authority received the benefit of its contractual bargain in that the Authority presented some evidence that the pipeline that was built by the contractor was of lesser quality because of the engineer’s breach of its contractual duties to monitor and inspect the work to ensure installation in conformance with the plans and specifications. Central Brown County Water Authority v. Consoer, Townsend, Envirodyne, 2013 WL 501419 (E.D. Wis. 2013).  Note that another case note about this decision is included in this newsletter on a different aspect of the decision.

Claims by the Authority, that the engineer asserts were speculative, include the Authority’s allegations that “CTE failed to perform its services in accordance with generally accepted professional engineering standards by: (1) failing to require the contractors to perform deflection testing or to properly perform post-construction compaction testing to determine whether the pipeline is deflecting; (2) neglecting to correct the contractors’ failure to install the specified concrete saddle under all of the 47 butterfly valves as opposed to the as-built concrete blocks installed under some of the valves; and (3) failing to ensure the flanged connections for the 48″ butterfly valves, including the gaskets and bolts used, were constructed in accordance with CTE’s plans and specifications so as to prevent leakage in the pipeline over time.”

As to each claim, CTE argued that it did not fail to meet the required standard of care, but that even for purposes of argument it were assumed it did, the complaint must nevertheless be dismissed because the Authority failed to establish that it suffered any injury or damage resulting from the alleged breach.

In rebuttal, the Authority argued that for a finding of breach of contract, it is not necessary to prove actual damages.  Rather, the Authority argued, “the breach itself is the wrong” and proof of liability is complete when the breach is established.   The court, holding that the Authority’s contract claim, as well as its tort claim, would have to be dismissed in the absence of actual damages, rejected this argument.

Having determined that actual damages are required in order for the complaint to survive a motion for summary judgment, the court went on to review the evidence of damages presented.  The court said, “the measure of damages for actions in tort is actual harm to the plaintiff’s person, property or interests.”  CTE argued there was no evidence of damage.  It asserted:

 “The pipeline continues to function without leaks and as intended. As CTE sees it, the Authority has at most produced evidence that it has concerns about the future performance of the pipeline. But the fact that the Authority has concerns is not by itself evidence of damage. CTE argues that a mere showing of the possibility of future harm does not satisfy the actual damage requirement. In CTE’s view, the Authority’s claims are speculative at best and fall far short of constituting evidence of actual damage.”

 The court agreed with this argument, concluding that the Authority failed to produce any evidence that the pipeline shifted or leaked due to the defects alleged in its construction.  Summary judgment for the engineer was therefore appropriate to grant as to the tort claim.

With regard to the breach of contract claim, however, the court found the Authority had presented sufficient evidence to withstand the summary judgment motion because a different standard of proof of damages applies to breach of contract claims.  Specifically, the court explained, “The fundamental idea in allowing damages for breach of contract is to put the plaintiff in as a good a position financially as he would have been in but for the breach.”

Put another the way, the court said, “An injured party is entitled to the benefit of his agreement, which is the net gain he would have realized from the contract but for the failure of the other party to perform.”  Here the court explained the Authority’s allegations this way:

 “[T]he Authority contends, as a result of CTE’s failure to properly perform its duties under the contract, it has a defective pipeline that is likely to develop problems earlier than would have otherwise occurred. The Authority has offered evidence, for example, that without the concrete supports that it claims were called for by the contract, ‘there is a probability that the pipeline will not perform its intended function.’ (Pl.’s PFOF, ECF No. 88, ¶ 162.)

 The Authority has also offered evidence that as a result of the CTE’s failure to insure that proper bolts and gaskets were used in the butterfly valves ‘there is a probability that problems will occur in the pipeline….’

The failure to test for deflection, the Authority contends, leaves it without the assurance that the pipeline was properly constructed that it contracted for. This evidence is sufficient to raise an issue whether the Authority received the benefit of its bargain.

 In other words, the Authority has presented some evidence that the pipeline that was built is of lesser quality because of CTE’s breach of its duties under the contract. If true, the Authority would be entitled to damages that would be determined under the principles set forth above.”

Recovery of the Authority’s costs to investigate the contractor’s work was also found to be recoverable under the breach of contract count of the complaint if proved to the satisfaction of a jury.  The engineer’s motion for summary judgment to bar the claim for those damages was denied.

In a breach of contract action, “the injured party is entitled to damages that flow directly and necessarily from the breach of contract, and that were reasonably foreseeable to or contemplated by the parties at the time the contract was made.” Here, the Authority contended that such cost of investigation and testing was a reasonably foreseeable result of CTE’s alleged breach of the agreement.

Since the court could not conclude as a matter of law on the record before it that such costs would not be recoverable damages if a breach of contract was established, the court denied summary judgment for the engineer on that issue.

 

 

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 15, No. 7 (July 2013).

Copyright 2013, ConstructionRisk, LLC