Maine Supreme Court Holds Equitable Estoppel Bars Owner Claim for Construction Contract Liquidated Damages | Practical Law

Maine Supreme Court Holds Equitable Estoppel Bars Owner Claim for Construction Contract Liquidated Damages | Practical Law

Maine's Supreme Court recently ruled that an equitable estoppel defense barred a commercial real estate owner's claim against a general contractor for construction contract liquidated damages. The court also held that the owner's good faith action in withholding amounts for claimed liquidated damages did not violate the state's prompt payment statutes.

Maine Supreme Court Holds Equitable Estoppel Bars Owner Claim for Construction Contract Liquidated Damages

by Practical Law Real Estate
Published on 09 Jan 2020Maine, USA (National/Federal)
Maine's Supreme Court recently ruled that an equitable estoppel defense barred a commercial real estate owner's claim against a general contractor for construction contract liquidated damages. The court also held that the owner's good faith action in withholding amounts for claimed liquidated damages did not violate the state's prompt payment statutes.
On December 30, 2019, in Fortney & Weygandt, Inc. v. Lewiston Dmep IX, LLC, the Supreme Judicial Court of Maine found that a commercial owner's liquidated damages claim against a general contractor was barred by equitable estoppel. The construction project was not substantially completed by the contracted date but the owner's conduct evidenced a waiver of that obligation. The court also held that the owner was not subject to penalties under the state's prompt payment statutes where the owner withheld amounts from the contractor based on a good faith belief that it was entitled to assess liquidated damages, even though the owner ultimately did not prevail on its liquidated damages claim. (.)

Background

A group of real estate developers (collectively, GBT) entered into a contract with a general contractor (F&W) to construct five retail buildings in Maine. The contract's terms included a date for F&W's substantial completion of each building. If a building was not substantially complete by the contracted date, F&W would owe GBT liquidated damages calculated at a specific per diem rate.
Due to harsh winter weather and delays attributed by the trial court to GBT, none of the five buildings was completed on time. The parties had previously worked together on projects in other states using the same contract form. Even though those projects reached substantial completion after the contracted dates had passed, GBT never before assessed liquidated damages.
GBT issued dozens of change orders on the project that expanded the scope of the project work, some after the substantial completion date. The trial record showed F&W's many attempts to address the delays with GBT by seeking time extension change orders, most of which went unanswered. Instead a GBT employee told F&W representatives several times that GBT would address the time extensions after completion of all five projects by GBT issuing a final no-charge change order extending the completion dates.
GBT ultimately stopped paying F&W without explanation. F&W stopped working two months later after notifying GBT that it was ready and able to resume work if past due invoices were paid and time extension change orders issued. GBT then sent letters attempting to impose liquidated damages based on the original completion dates.
F&W filed three separate actions that were later consolidated alleging breach of contract and prompt payment statutory violations, and seeking enforcement of mechanic's liens. GBT filed counterclaims seeking liquidated damages and damages for breach of contract based on alleged defective or incomplete work. Each party filed multiple motions for summary judgment.
The trial court granted F&W's motion for summary judgment on its breach of contract claims, ruling that as a matter of law F&W was entitled to payment of all unpaid invoices. It also ruled that F&W's work was not defective or incomplete. Ultimately, after a nine-day jury trial and post-trial motions, F&W was granted all the relief it sought, including:
  • A judgment on GBT's counterclaims for liquidated damages, based on a finding that GBT had waived and was equitably estopped from asserting those claims as a result of its misleading statements, conduct, and silence.
  • Recovery of penalties, interest, and attorney fees under the state's prompt payment laws on the full unpaid amount, including the amount retained by GBT for the liquidated damages claim.
  • Attorney fees and costs under the contract, in addition to those based on the prompt payment statutes.
GBT appealed.

Outcome

Equitable Estoppel

The court affirmed the trial court's determination that equitable estoppel barred GBT's claim for liquidated damages. Under Maine law, equitable estoppel:
  • Is an affirmative defense based on the principal that one that has induced another to believe what is untrue may not later assert the truth.
  • Requires a misrepresentation that may arise through a combination of misleading statements, conduct, or silence.
The court found that each element of F&W's affirmative defense of equitable estoppel had been met, even though no evidence was presented that GBT explicitly told F&W that liquidated damages would not be assessed. GBT's misrepresentations did not need to consist solely of an affirmative statement because liquidated damages were inextricably linked to the substantial completion dates. The combination of GBT's misleading statements and its silence regarding those dates amounted to misrepresentations about its intent to assess liquidated damages.

Maine Prompt Payment Law

The court found that there was a good faith basis for GBT withholding the amount of liquidated damages even though it was not ultimately successful on the merits of that claim. As a result, the court remanded to the trial court the recalculation of that part of F&W's award under the state's prompt payment statutes.

Recovery of Attorney Fees

The court affirmed the trial court's ruling that F&W was entitled to its attorney fees and costs under the prompt payment statutes but vacated the portion of the judgment awarding attorney fees under the contract. The court found that the contract unambiguously did not contemplate an award of attorney fees outside of the context of arbitration.

Practical Implications

This case is a reminder that in Maine the course of dealing between contracting parties can work to defeat express terms of a written contract. Informal representations by the owner's agents and the owner's failure to respond to repeated requests while allowing the contractor to continue to work were deemed enough to waive a material unambiguous term of the contract, much to the detriment of the owner.