The HONORABLE LYLE E. STROM, Senior Uni ted States District Judge for the 1 District of Nebraska, sitting by designation.



## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-3043

___________ Information Systems and * Networks Corporation, * * Plaintiff-Appellant * * Appeal from the United States v. * District Court for the Western * District of Missouri City of Kansas City, MO, * * Defendant-Appellee * *

___________ Submitted: April 13, 1998 Filed: June 18, 1998

___________ Before FAGG and HANSEN, Circuit Judges, and STROM, Senior District Judge. 1

___________ STROM, Senior District Judge.The HONORABLE JOHN T. MAUGHNER, Chief Magistrate Judge, Unite d 2 States District Court for the Western District of Missouri, to whom the case wa s referred for final

disposition by consent of the parties pursuant to 28 U.S.C. § 636(c). -2- Information Systems and Networks Corp oration (ISN) appeals from a judgment entered in the district court following a jury verdi ct finding for the City of Kansas City 2 (the City) and awarding damages on its counterclaim. ISN argu es that the district court erred in allowing the

jury to assess damages not recognized under Missouri law. ISN also a sserts that the district court committed reversible error in admitting a certai n damage estimate. For the reasons set forth below, we affirm.
I. BACKGROUND

In May of 1991, ISN entere d into a contract with the City to provide and install an automated access control security system at the Kansas City Internationa l Airpo rt. The contract required that the security system be completely installed an d operational by March 15, 1992. The contract included a liquidated damages clause that pro videdfor varying per day damage amounts if five progression dates (milestones )
we re not met. The contract also contained a default and termination clause whic h provided as follows:

All c osts and charges incurred by the City , together with the cost of completing the work under the contract, will be deducted from any mo nies due or which may become due t o [ISN]. If such expense exceeds the sum which wo uld have been payable under the contract , then [ISN] and the surety shall be liable an d shall p ay to the City the amount of suc h excess.-3-

In late 1991, ISN began having difficulties completing the project and requested an extension. On January 3, 1992, the parties agreed to a change order that extended the contract completion date by thirty days and increased the number of milestones and
co rresponding liquidated damage amounts from five to twelve. For various reasons , ISN f ailed to meet the contract milestones and complete the project by the April 15 , 1992, deadline. On Janua

ry 21, 1993, the City ordered ISN off the job and ultimately termi natedthe contract on March 1, 1993. Subsequently, the City decided not t o co mplete the security system called for in the contract, but instead decided it woul d install a more advanced system.
ISN filed this suit against the City for breach of contract and the City counterclaimed. The case was tried to a jury which found for the City on both ISN's breac h of contract claim and on the City's counterclaim and awarded the City $1,686,63 0 in damages. ISN does not appeal any decision regarding its performance under the contract. It appeals only t he type of damages the jury was allowed to award and the admission of a damage estimate.
II. DISCUSSION
A. Cost to Complete Damages ISN's first argument on appeal is that the dist rict court erred in allowing the City to r ecover "cost to complete" damages. ISN asserts that recovery of non-incurre d completion costs is contrary to Missouri law and to the contract's termination clause. We review the district court's interpretation of Missouri law de novo. Transit Cas. Co. v. Selective Ins. Co. of Southeast , 137 F.3d 540, 543 (8th Cir. 1998). Under Missouri law, it “is well settled where a contractor has partially per formed the work promised, the owner’s damages are the cost of completion.” Stege v

. Hoffman , 822 S.W.2d 517, 520 (Mo. App. 1992). “Where the contractor’s-4-

performance is defective, the owner’s damages are either cost of completion according to the contract terms or the difference in the value of the [project] as constructed and the value it s hould have if constructed according to the specifications.” Id . However, the preferred measure is the cost to complete, which may include not only the cost to complete th e project, but also the cost to repair and replace defective construction

. County Asphalt Paving Co. Inc. v. The 1861 Group, Ltd. , 908 S.W.2d 184 (Mo. App. 1995); Stege , supra . This is true even i f the owner does not complete the work. White River Development Co. v. Meco Systems, Inc. , 8 06 S.W.2d 735 (Mo. Ct. App. 1991). Thus, the district court did not err in its determination that Mi ssouri law allows the City to recover cost to complete damages even if the completion costs are not incurred.
ISN also asserts that the district court misinterpreted the contract. It contends th atthe phrase in the termination clause, "together with the cost of completing th e work," makes cost to com

plete damages a direct subcategory of "all costs incurred by the City." As s uch, the City must incur the cost of completing the project before they can recover those costs as damages. Interpretation of the contract's termination clause is a question of law that we review de novo. Lamb Eng’g & Constr. Co. v. Nebraska Pub. Power Dist. , 103 F.3d 1422 (8th Cir. 1997). The phrase "together with the cost of completing the work" is unambiguous. "Together with" is a conjunctive phrase, meaning that damages under the contrac t are not limited to the incurred costs, but are expanded to also include the costto complete, the form of damages preferred under Missouri law. If the contract was intended to be contrary to law, it would have had to limit the City's damages to the incurred costs only and require the City to finish the project.
With r espect to ISN's remaining arguments regarding the award of cost t o com plete damages, the Court has considered these arguments and finds them to b e without merit.-5-

B. Liquidated Damages.
ISN's a lso argues that the contract's liquidated damages clause constituted a pen alty. Under Missouri law liquidated damages clauses are valid and enforceable , while penalty clauses are invalid. Tao s Constr. Co. v. Penzel Constr. Co. , 750 S.W.2d 522, 5 25 (Mo. App. 1988). The validity of the liquidated damages clause must b e viewe d at the time the contract was executed. Southwest Eng’g Co. v. United States , 341 F.2d 998 (8th Cir. 1965), cert. denied , 382 U.S. 819 (1965).

In order th at a liquidated damages clause be valid: (1) the amount fixed a s damages must be a reasonable forecast f or the harm caused by the breach; and (2) the harmthat is caused by the breach must be of a kind difficult to accurately estimate

. Southwest Eng'g Co. , supra ; Grand Bissell Towers v. John Gagnon Enters., Inc. , 657 S.W.2d 378, 379 (Mo. App. 1983).
IS N contends that the liquidated damages clause's purpose was to offse t potential Federal Aviation Administration (FAA) penalties assessed against the City and any additional costs the City's consulting engineer incurred as resu lt of ISN's failure to comple te the project on schedule. ISN claims that these purposes were imprope r becaus e the amount of the FAA fine and the amount of the consulting engineer' s additio nal costs were easily determinable. ISN also contends that the liquidate d damages clause that provides for a damage amount of $150 0 per day "or FAA imposed penalty, whichever is larger," is penal. The Missouri Cour t of Appeals dealt with these same arguments in Taos , supra , and rejected them. In Taos , a subcontractor was suing the gene ral contractor of a state roads project claiming the liquidated damage s provisionin the subcontract was a penalty. The liquidated damages clause provided that the subcontractor would be liable to the general contractor for the full amount of
an ypenalty assessed by the Missouri Highway and Transportation Commissio n (Commiss ion) plus ten percent for any delays the subcontractor caused. Th e Commission and the contractor agreed that the penalty would be $200 per day. The-6-

sub contractor

caused delay and was assessed liquidated damages that totaled two

thirds of its contract price. The Missouri Court of Appeal s held, first, the $200 per day penalty was a reasonable forecast by the Commission of potential damages, and, even if this was not the case, “in a public works project, the public entity may recove r damages solely upon proof of a violation of the contract.” Taos , 750 S.W.2d at 526, (citing, inter alia , Southwest Eng'g , supra .) Second, the fact that the amount of th e liquidateddamages to the subcontractor was a function of the Commission’s penalty and, therefore, easy to calculate, did not make the clause a penalty. The subcontractor “agreed that it would be liable to [the general] for liquidated damages it caused or to whi ch it contributed.” Id . at 527. Finally, the court recognized that "it is proper for a prime cont ractor to ‘pass on’ to a subcontractor liquidated damages caused by a subcontractor.” Id

.
Inthis case, the amount of liquidated damages was $250 per day for failure to complete certain preliminary milestones, $500 per day for failure to meet certai n inte rmediate milestones, and $1500 per day “or FAA imposed penalty, whichever i s larger,” for failure to complete the project by April 15, 1992. The contract also stated that the liquidated damages “shall not be de ducted as a penalty but shall be considered a liquidation of a reasonable portion of damages that will be incurred by the City should [ISN] fail to complete the work in the time provided in [its] contract." At the time these amounts were negotiated in t he original contract and renegotiated in the change order, the part ies knew there was a possibility that the FAA would assess a $1000 per da y p e nalty against the City for failure to complete the security system on time and knew that the City would have to expend additional funds to supervise the project if it was delayed. Th e exact amount of these costs was difficult to estimate and the partie s agreed in the cont

ract that these amounts were a “reasonable portion” of the damages the City wou ld incur. The fact that the FAA penalty was not imposed is irrelevan t be cause proof of actual damages at the time of the breach is not required in publi c works contracts, Taos , supra , Southwest Engineering , supra , notwithstanding, the City-7-

did present evidence of other actual damages i n this case. Furthermore, the passing on of the FAA fine is clearly analogous to the passing on of the penalty in the Taos case. Finally, in support of its claim that the alternative nature of the “$1500 per day or FAA imposed penalty, whi chever is larger" is penal, ISN relies on Jennings v. First Nationa lBank of Kansas City , 30 S.W.2d 1049 (Mo. App. 1930). The contract i n Jennings was a lease agreement in which the landlord had the right to determine at the time of the breach whether to assess liquidated damages or actual damag es. Id . at 1053. The c ourt found that the parties to the lease had never agreed upon the amount o f probable da

mages and the landlord’s “option to take a sum certain or actual damages and to mak e the election at the time of the breach work[ed] oppressively” and wa s therefore penal in nature. Id

. Jennings is inapposite because here the par ties agreed that damag es would be difficult to ascertain and thus determined the amount of probabl e damages at the time the contract was made.
C. The Ryn Estimate ISN's final argument on appeal is that the district court erred in admitting Exhibit 954, the Ryn estimate, into ev idence. "The admission of evidence is committed to the sound disc retion of the district court." Bevan v. Honeywell, Inc. , 118 F.3d 603, 61 2 (8th Ci r. 1997). We review only for a clear abuse of discretion, "and a ruling o n admissibility will not be reversed on appeal absent a clear and prejudicial abuse o f discreti on." Scheerer v. Hardee’s Food Sys., Inc. , 92 F.3d 702, 706 (8th Cir. 1996)

. Having reviewed the rec ord, we find that the admission of the Ryn estimate was not a clear abuse of discretion.
CONCLUSION

Accordingly, we affirm the district court's judgment.-8-

A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.