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Howrey LLP
Defendant
was awarded a subcontract to perform concrete work on plaintiff's
home. Defendant was to complete the job "per specifications."
During the work, defendant claimed to have encountered difficulties
(i.e., inadequate access to the site, improper excavation
and numerous changes to the blueprints) for which he was
not reimbursed. After defendant had worked for nearly a
year on the project, the general contractor ordered defendant
to cease activity and remove his equipment from the jobsite.
Defendant
recorded a mechanic's lien against plaintiff's property.
In response, plaintiff filed a lawsuit against defendant
alleging damages for overpayments, extra costs to complete
defendant's work by another contractor and extra costs to
pay defendant's supplier to release a lien on plaintiff's
property. Defendant counterclaimed, seeking compensatory
and punitive damages for breach of contract and for breach
of the implied covenant of good faith and fair dealing.
The
Supreme Court affirmed the trial court's ruling dismissing
the punitive damage claim on grounds that state law precluded
an independent tort action for breach of the implied covenant
of good faith and fair dealing. Punitive damages cannot
be recovered for breach of contract; only contract damages.
McKie v. Huntley, 620 N.W.2d 599 (S.D. 2000).
The
Supreme Court, however, reversed the trial court's dismissal
of defendant's damage calculations on the basis that such
damages were speculative. Defendant had used a total cost
approach in calculating damages. The Supreme Court found
that once liability and causation were established by a
preponderance of the evidence, the total cost method of
calculating damages "should be applied where the nature
of the particular loss has made it impossible or highly
impracticable to determine damages with a reasonable degree
of accuracy and where the loss is substantiated by reliable
evidence."
The
court further held that there are cases when "the total
cost method is the best and only means of quantifying the
impact of changes on a contractor." The court concluded
that "based on the nature of this construction contract
dispute, with its many reciprocal allegations of delay and
nonperformance," the total cost approach could be a
reasonable approach to calculating damages.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2001 Howrey LLP
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