Appeals Court Overturns Punitive Damages for Breach of Contract in AGC-Supported Lawsuit

In a favorable decision issued March 11, the TN Court of Appeals agreed with AGC of America and AGC of Tennessee that a subcontractor cannot sue a general contractor on one and the same set of facts for not only breach of contract (seeking to recover its purely economic losses) but also in tort for misrepresentation (seeking compensatory and punitive damages).  The court of appeals ruled that the subcontractor’s ability to recover monetary damages was limited by its contract with the general contractor.  As such, the court vacated the lower court’s award of punitive damages because they were not permitted under the contract.

At AGC’s urging, the TN Court of Appeals decided that where the contract was negotiated by sophisticated commercial entities, contract law is sufficient to make wronged parties whole, noting that they can bargain/negotiate exceptional contract remedies, such as liquidated damages, should they see fit.  The case is Commercial Painting Company v. The Weitz Company.

This case grew out of a dispute between a general contractor and a subcontractor over the pace and quality of the subcontractor’s performance. The trial court awarded the subcontractor a total of $8M damages (including $4M in punitive damages) based on both contract and tort theories. AGC got involved because of concerns that the case threatens to erode the foundation on which contracting is based by allowing parties to subvert their contract (governing their rights and responsibilities) and to recover in tort what they could not obtain through their contractual remedies. In general, tort theories can justify an award of punitive damages while contract theories cannot.

AGC’s friend-of-the-court brief argued that the subcontractor should be limited to damages authorized under the contract.  The appellate court agreed and limited the subcontractor to damages contemplated by the parties, and that could be recovered under the parties’ contract, which – in this case – included a broad limitation on liability/damages and waived any damages not specified.

How To Support AGC’s Litigation Program 

The Construction Advocacy Fund of the AGC of America provides the financial resources that the association requires to extend its advocacy into federal and state courtrooms across the country.  In conjunction with the association’s legislative, regulatory and public programs, the association’s litigation program seeks to protect if not enhance the business environment for construction contractors. Without the strong and enduring support that the CAF provides, the program would struggle to match the frequently powerful parties with a vested interest in taking either the law or government policy in the wrong direction. Examples of past cases in AGC’s litigation program:

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