Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_03-cv-00949/USCOURTS-caed-2_03-cv-00949-21/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

EL DORADO IRRIGATION DISTRICT,

a political subdivision of the

State of California,

NO. CIV. S-03-949 LKK/GGH

Plaintiff,

v. O R D E R

TRAYLOR BROS., INC., an 

Indiana corporation,

Defendant.

 /

AND RELATED COUNTER-CLAIMS.

 /

Defendants previously moved for summary adjudication on the

issue of whether certain damages sought by plaintiff were precluded

by the delay damages clause in the contract. The court found that

some of the damage claims (namely the costs for additional

professional services) were at least arguably allowed because there

were other provisions of the contract which suggested that they

were not intended to fall within the delay damages clause. See

Order Filed Oct. 7, 2005. The court found, however, that

Case 2:03-cv-00949-LKK -GGH Document 382 Filed 01/05/06 Page 1 of 12
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plaintiff’s request for damages for loss of public grant funding

was within the scope of the delay damages clause. Accordingly, the

court granted summary judgment to the defendants on the public

grant issue and denied it for the other damages. Id.

In their reply brief defendants raised a new category of

damages, the loss of power sales, and asked that the court grant

summary judgment in their favor on this issue. The court was

unable to consider the question at that time since it was raised

in the reply brief, and thus defendants now move for partial

summary judgment on this issue. 

I.

FACTS

The Contract contains the following liquidated damages

provisions:

PART 18 - LIQUIDATED DAMAGES

A. It is understood and agreed by the parties that

damages for Contractor delay are expensive to litigate

and difficult to ascertain. Therefore, it is agreed

that as and for a separately bargained for liquidated

damage, and not as a penalty, the District [EID] shall

deduct or recover the amount set for the in the Contract

Agreement unless extensions of time granted by Owner

specifically provide for the waiving of liquidated

damages.

8.11 Liquidated Damages/Bonus: If the Project is not

Substantially Completed by Contractor and fully

operational within the Contract Time, or within any

period of extension authorized pursuant to section 8.10

or pursuant to a duly issued Change Order, Contractor

acknowledges and admits that EID will suffer damages and

that it is impracticable and infeasible to fix the

amount of actual damages. Therefore, it is agreed by

and between Contractor and EID that Contractor shall pay

to EID, as fixed and liquidated damages and not as a

penalty, Five Hundred Dollars ($500) for each calendar

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day of delay until the Project is Substantially

Completed and fully operational, and that both

Contractor and Contractor's surety shall be liable for

the total amount thereof, and that EID may deduct said

sums from any moneys due or that may become due to

Contractor. If liquidated damages begin to accrue prior

to the time for final payment, the amount accrued shall

be withheld from any progress payment that would

otherwise be due, in addition to any Project extension.

This liquidated damages provision shall apply to all

delays or any nature whatsoever, save and except only

delays found to be Excusable or Compensable pursuant to

section 8.10, hereinabove, or time extensions granted by

EID.

Agreement between EID and TBI, dated November 1, 1999.

EID has sought to enforce the above-quoted liquidated damages

term and seeks to assess liquidated damages against TBI in the

amount of $191,000.00. Complaint, dated April 7, 2003; EID's

Initial and Supplemented Rule 26 Disclosure Statements Section C.1

(g); Deposition of Mark Korkowski at 216:19-217:4. EID seeks to

recover $2,463,348 for lost power sales for the period of September

8, 2002 to December 10, 2003. EID's August 5, 2005 Supplemented

Rule 26 Disclosure Statements, Section C.1.(k).

TBI alleged as a Sixteenth Affirmative Defense that EID's

complaint is barred by reason of the fact that the applicable

contract documents preclude the recovery sought by EID. Agreement

between EID and TBI, dated November 1, 1999; Answer and

Counterclaim for Declaratory Relief, dated May 12, 2003. 

II.

STANDARDS

Summary adjudication, or partial summary judgment “upon all

or any part of a claim,” is appropriate where there is no genuine

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issue of material fact as to that portion of the claim. Lies v.

Farrell Lines, Inc., 641 F.2d 765, 769 (9th Cir. 1981) (“Rule 56

authorizes a summary adjudication that will often fall short of a

final determination, even of a single claim”) (citations omitted);

Playboy Enters., Inc. v. Welles, Inc., 78 F. Supp. 2d 1066, 1073

(S.D. Cal. 1999), aff’d in part, rev’d in part, on other grounds,

279 F.3d 796 (9th Cir. 2002); E.D. Local Rule 56-260(f). 

Under summary judgment practice, the moving party always

bears the initial responsibility of informing the

district court of the basis for its motion, and

identifying those portions of ‘the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,’ which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.” Id. Indeed, summary

judgment should be entered, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party’s

case, and on which that party will bear the burden of proof at

trial. See id. at 322. “[A] complete failure of proof concerning

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial.” Id. In such a circumstance,

summary judgment should be granted, “so long as whatever is before

the district court demonstrates that the standard for entry of

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summary judgment, as set forth in Rule 56(c), is satisfied.” Id.

at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); See also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Secor Limited, 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. See Fed. R.

Civ. P. 56(e); Matsushita, 475 U.S. at 586 n.11; See also First

Nat'l Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954

(9th Cir. 1998). The opposing party must demonstrate that the fact

in contention is material, i.e., a fact that might affect the

outcome of the suit under the governing law, Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169,

Assoc. of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th

Cir. 1992) (quoting T.W. Elec. Serv., Inc. v. Pacific Elec.

Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987), and that the

dispute is genuine, i.e., the evidence is such that a reasonable

jury could return a verdict for the nonmoving party, Anderson, 477

U.S. 248-49; see also Cline v. Industrial Maintenance Engineering

& Contracting Co., 200 F.3d 1223, 1228 (9th Cir. 1999).

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In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue of

fact conclusively in its favor. It is sufficient that “the claimed

factual dispute be shown to require a jury or judge to resolve the

parties' differing versions of the truth at trial.” First Nat'l

Bank, 391 U.S. at 290; See also T.W. Elec. Serv., 809 F.2d at 631.

Thus, the “purpose of summary judgment is to ‘pierce the pleadings

and to assess the proof in order to see whether there is a genuine

need for trial.’” Matsushita, 475 U.S. at 587 (quoting Fed. R.

Civ. P. 56(e) advisory committee's note on 1963 amendments); see

also International Union of Bricklayers & Allied Craftsman Local

Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir.

1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); See also In re Citric Acid Litigation, 191 F.3d 1090, 1093

(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

655 (1962)(per curiam)); See also Headwaters Forest Defense v.

County of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000).

Nevertheless, inferences are not drawn out of the air, and it is

the opposing party's obligation to produce a factual predicate from

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1 These damages were at issue in the last motion:

1. $1,538,313.00 for MWH’s extended project management

services beyond the intended contractual completion

date.

2. $252,485.00 for EN2’s extended environmental

monitoring services.

3. $1,571,888.00 for HPT’s extended water treatment

services.

4. $1,901.333.00 for loss of public grant funds due to

late completion.

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which the inference may be drawn. See Richards v. Nielsen Freight

Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d

898, 902 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

“must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no ‘genuine issue for trial.’”

Matsushita, 475 U.S. at 587 (citation omitted).

III.

ANALYSIS

The last time the court examined the liquidated damages clause

there were four different categories of damages in question. The

first three1, the court found, fell under the category of the

“corrective work” provision of the contract because they were

damages sought to pay three different sub-contractors whose work

had been extended because they were arguably repairing the

defective work done by TBI. While they could be considered damages

for delay, the court concluded that this broad reading would

“undermine, if not nullify” a separate section of the contract

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which allowed plaintiff to seek recovery of correction damages,

“including compensation for additional professional services”,

under §§ 13.07 and 13.09. Oct. 7, 2005 Order at 17. 

The loss of public grant funding was “more difficult to

categorize” because it was not directly linked to correction work,

nor did it easily fall into the category of professional services.

Id. at 18. The court found that these damages did not fairly fall

under the “direct and indirect costs” of correction work because

such a broad reading would undermine the plain language of the

delay damages clause. Id. at 19. “Thus, where there is not a

provision elsewhere in the contract which provided for recovery of

a loss, the plain language in the liquidated damages clause

prevails.” Id. 

The same analysis applies here for the loss of power sales.

To read them as an indirect cost of “removal and replacement”

instead of just a cost created by delay appears to render

ineffectual the delay damages clause. Plaintiff has not provided

the court with any additional information which would show that the

loss of power sales is somehow more connected to the removal and

replacement than the loss of public grant funding was. 

A. IS THE LIQUIDATED DAMAGES CLAUSE UNENFORCEABLE? 

Plaintiff points the court to § 53069.85 of California

Government Code which provides that: 

The legislative body of a city, county, or district may

include or cause to be included in contracts for public

projects a provision establishing the time within which

the whole or any specified portion of the work

contemplated shall be completed. The legislative body

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2 In fact, there is one case that examined the phrase as used

in that section and the court there held that “while liquidated

damages must fit within the conventions of reason, they are not

necessarily approximations of actual damage suffered.

Correlatively, apportionment of an arguably arbitrary sum could not

qualify as a true aliquot apportionment of damages in any real

sense of the word.” Vrgora v. Los Angeles Unified School Dist.,

152 Cal.App.3d 1178, 1186 (1984).

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may provide that for each day completion is delayed

beyond the specified time, the contractor shall forfeit

and pay to the agency involved a specified sum of money,

which may be deducted from any payments due or to become

due to the contractor. The sum so specified is valid as

liquidated damages unless manifestly unreasonable under

the circumstances existing at the time the contract was

made. 

Plaintiff claims that the meaning of the phrase “manifestly

unreasonable” has not been examined by the courts,2 so it refers

the court to cases which interpret a part of the Civil Code which

addresses liquidated damages in similar terms, but which only

prohibits enforcement of provision which are “unreasonable under

the circumstances” (as opposed to “manifestly unreasonable”). Cal.

Civ. Code § 1671(b). These cases hold that a liquidated damages

provision will be considered unreasonable “if it bears no

reasonable relationship to the range of actual damages that the

parties could have anticipated would flow from a breach.” Ridgley

v. Topa Thrift & Loan Assn., 17 Cal.4th 970, 977 (1998). Quoting

Garrett v. Coast & Southern Fed. Sav. & Loan Assn., 9 Cal.3d 731,

739 (1973), the court found that “the amount set as liquidated

damages ‘must represent the result of a reasonable endeavor by the

parties to estimate a fair average compensation for any loss that

may be sustained.’” Ridgley, 17 Cal.4th at 977. 

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3 With the exception of the page from the contract draft, the

court does not have any other background information. It is not

fully clear that the daily rates set out in the table were designed

for the loss of the power sales. The table sets out different

rates for each month, presumably because the cost of power varies

seasonally, but that is not plain from the contract draft itself.

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The enormity of the damages sought under the category of lost

power sales, roughly $2.4 million (and arguably from the public

grant funding which was another $1.9 million) in comparison to the

relatively small amount under the delay damages clause, $191,000,

gives this argument a certain appeal. The court in Ridgley

emphasized that liquidated damages provisions are to be created and

used primarily in situations where the damages truly would be

extremely difficult or impossible to otherwise ascertain. Id.

Plaintiff claims that the loss of power sales should not fall under

that category because the damages could have been determined.

Indeed, they point to parole evidence which may show that the

parties had at some point included an actual table for the

calculation of lost power sales in the contract.3 The Government

Code section which applies here requires manifest unreasonableness

and yet plaintiff has not shown that the bargain was unreasonable

at the time the contract was entered into. Cal. Gov’t Code 

§ 53069.85. In fact, the court has been given no information on

why the table was removed, or why it was there in the first place.

EID suggests that either the loss of power sales were not to

be included because they were ascertainable, or that TBI “used its

lopsided bargaining power to force an inequitable liquidated

damages measure.” Pl.’s Brief at 8. However, they do not provide

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any reason why the court should believe that TBI had some sort of

bargaining advantage. 

Plaintiff also points the court to Pacific Employers Ins. Co.

v. City of Berkeley for the proposition that if a contractor

abandons a public construction contract that the public entity may

recover its actual damages. 158 Cal.App.3d 145, 155-156 (1984).

It is clear, however, that the court in that case very specifically

held “that the contractor's abandonment of the project after the

date set for completion does not alone render inapplicable the

contract clause providing for liquidated damages for delayed

completion.” Id. (emphasis added). 

While the court recognizes that EID may have lost a

significant amount of funding due to TBI’s alleged error, it has

not provided sufficient additional evidence or reasoning to show

why the court should read outside of the lines of the contract and

find the plainly bargained for liquidated damages clause does not

apply. The very fact that the power sales may have been included

in an earlier version and then removed may very well suggest that

there was no intention to create a separate opportunity for

collection of the power sales outside of the liquidated damages

clause. 

Defendants argue that plaintiff is basically seeking to have

the court reconsider its original order on delay damages. The

enforcability of the liquidated damages clause was not raised on

the first round, likely because EID actually believed the

liquidated damages clause to be valid, and only upon losing did

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4 The questions that plaintiff raises about the remedies for

fraud and/or intentional misconduct do not appear to be at issue

in the present motion. The court is addressing what the remedies

are under contract, not tort. As TBI concedes in their reply, the

damages under a fraud theory are not at issue here and therefore

will not be addressed.

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they reassess the validity. However, defendants argument that the

court found the liquidated damages clause reasonable and

enforceable overstates the court’s finding since the question was

not directly before the court. Therefore, the court will not treat

this as a motion to reconsider.4

IV.

CONCLUSION AND ORDER

While plaintiff’s argument about the enforcability of the

delay damages clause is troubling, they do not meet their burden

by showing the court why it should read outside of the plain

language of the contract. Accordingly, defendants’ motion for

summary adjudication is GRANTED on the damages for lost power

sales. 

IT IS SO ORDERED. 

DATED: January 4, 2006.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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