2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-20-2008

Wartsila NSD NA Inc v. Hill Intl Inc

Precedential or Non-Precedential: Precedential

Docket No. 06-3595

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Recommended Citation

"Wartsila NSD NA Inc v. Hill Intl Inc" (2008). 2008 Decisions. Paper 934.

http://digitalcommons.law.villanova.edu/thirdcircuit_2008/934
 Hon. Arthur L. Alarcón, Senior Judge, United States Court *

of Appeals for the Ninth Circuit, sitting by designation.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 06-3595

 

WARTSILA NSD NORTH AMERICA, INC.

v.

HILL INTERNATIONAL, INC.,

 Third-Party Plaintiff

v.

JOHN H. CLEGG, ESQUIRE; 

DAPHNE MCNUTT, ESQUIRE;

CHAFFE, MCCALL, PHILLIPS, TOLER & SARPHY, L.L.P.,

 Third-Party Defendants

Hill International, Inc.,

 Appellant

 

On Appeal from the

United States District Court for the District of New Jersey

(D.C. Civil Action No. 99-cv-04565)

(Honorable Joseph H. Rodriguez)

 

Argued April 16, 2008

Before: SLOVITER, JORDAN and ALARCÓN ,

*

Circuit Judges
2

(Filed June 20, 2008 )

 

David L. Braverman (Argued)

Braverman Kaskey

1650 Market Street

One Liberty Place, 21st Floor

Philadelphia, PA 19103

M. Frances Ryan

James I. Downes

Christopher C. Lund

Dechert LLP

2929 Arch Street

18th Floor, Cira Center

Philadelphia, PA 19104

Attorneys for Appellants

Richard E. Brennan 

Michael O. Adelman (Argued)

Drinker, Biddle & Reath

500 Campus Drive

Florham Park, NJ 07932

Attorneys for Appellee

Kathleen O. Barnes

Mark A. Sgarlata

Christopher J. Brasco

Christopher M. Anzidei (Argued)

Watt, Tieder, Hoffar

& Fitzgerald, LLP

8405 Greensboro Drive, Suite 100

McLean, VA 22102

Attorneys for Amicus Curiae - Appellant Construction

Management Association of America, Inc.

____
3

OPINION OF THE COURT

 

ALARCÓN, Circuit Judge.

I

Hill International, Inc. (“Hill”) appeals from the denial of a

post-trial motion it called a “Motion to Mold the Verdict and Enter

Judgment Consistent with the Parties’ Written Contract” (“the

Motion”). Hill was found liable for negligence and breach of its

contract with Wartsila NSD North America, Inc. (“Wartsila”). The

jury awarded Wartsila $2,047,952 in damages.

Hill filed its Motion, requesting that the District Court enter

judgment in favor of Hill consistent with an exculpatory clause in

the Consulting Agreement (“Agreement”). The District Court

denied the Motion. First, the District Court concluded that the

exculpatory clause was unenforceable under Maryland law.

Second, the District Court concluded that the damages awarded by

the jury were direct damages, and therefore not barred by the

exculpatory clause. We will vacate the order denying the Motion

and remand this matter to the District Court for a retrial solely

regarding the damages that are due to Wartsila because of Hill’s

breach of contract.

II

The events underlying this litigation arose out of a contract

entered into by Wartsila and Hill on January 24, 1995. Wartsila, an

engineering and construction company, hired Hill, a construction

consulting firm, to provide consulting services for the construction

of a power plant Wartsila was building in Nejapa, El Salvador

(“Project”).

In July 1994, Wartsila Diesel, Inc., the predecessor to

Wartsila, entered into a contract with Coastal Salvadorian Ltd.

(“Coastal”), wherein Wartsila agreed to design, engineer, procure,

construct, start up, and test a diesel engine power plant in Nejapa,

El Salvador. At the time, Wartsila’s business primarily involved
 Hill refers to this clause as both a limitation of remedies 1

and a limitation of damages clause. Wartsila generally refers to the

clause as an exculpatory clause, as we will, strictly for

convenience and without intending the name to carry any

substantive legal implication. The District Court noted that:

Hill disputed whether the clause is a limitation of remedies

clause or an exculpatory clause; however, it suggests that

because “even broad exculpatory clauses are routinely

enforced under Maryland law,” that it is essentially a

distinction without difference. (Def’s Motion to Mold

Verdict, p.12.) Therefore, the Court will refer to the clause

at issue in this motion as an “exculpatory clause” for ease of

reference and consistency, without reading into that phrase

any special meaning.

4

the sale and maintenance of diesel engines. Wartsila subcontracted

the construction Project to other entities, including Black and

Veatch International (“BVI”). The Project quickly fell behind

schedule, resulting in numerous disputes between Wartsila, BVI,

and Coastal. As a result, Wartsila sought a construction consultant

that could provide advice and management for the Project.

On January 18, 1995, Hill submitted a proposal for the

consulting position. It recommended that Richard LeFebvre, a Hill

senior consultant, be assigned to the Project. Attached to this

proposal was LeFebvre’s resume, which represented that LeFebvre:

(1) had received a B.S. in electrical engineering from Pennsylvania

State University (“Penn State”) in 1966; (2) had earned a B.A. in

business administration from Duquesne University in 1969; (3) had

taken courses in business law at the University of North Florida in

1983; and (4) was registered and licensed as a professional

engineer in Pennsylvania, New York, and Massachusetts. 

On January 24, 1995, Wartsila and Hill entered into a

written consulting agreement (“Agreement”) that incorporated the

January 18, 1995 proposal by reference. Pursuant to the terms of

the Agreement, Hill assigned LeFebvre to work as a senior

consultant on the Project. The Agreement contained an

exculpatory clause, which stated: 1
Wartsila NSD N. Am., Inc. v. Hill Intern., Inc., 436 F. Supp. 2d

690, 694 n.1 (D.N.J. 2006).

5

In no event shall Consultant (Hill) be liable in contract or

tort or otherwise to Company (Wartsila) for any lost,

delayed or diminished profits, revenues, or opportunities,

losses by reason of shutdown or inability to utilize or

complete the Project, or any other incidental, special,

indirect or consequential damages of any kind or nature

whatsoever resulting from Consultant’s performance or

failure to perform services under this Agreement.

J.A. at 66.

LeFebvre was quickly promoted by Wartsila to the position

of Project Manager, and continued to work on the Project as a Hill

employee until May 25, 1995. One of LeFebvre’s responsibilities

was to analyze issues bearing on potential claims and defenses in

contractual disputes between Wartsila and BVI. On June 1, 1995,

with Hill’s approval, Wartsila hired LeFebvre directly as an

independent contractor to provide assistance with construction and

claims management on the Project.

The Project was not completed on time. In May 1996,

Wartsila and BVI entered into arbitration before the American

Arbitration Association. The parties made delay claims against one

another relating to the fact that the Project was not completed on

time, and that Coastal had refused to pay the early completion

bonus. Also, each side claimed that it had been forced to spend

more money than anticipated on the work of the Project due to the

other party’s delays.

In August 1997, the arbitration hearings commenced.

LeFebvre was a key witness in the proceedings due to his extensive

knowledge of the facts underlying the points of contention between

the two parties. At a September 8, 1997 arbitration proceeding,

LeFebvre was questioned about the academic and professional

credentials listed on his resume. Toward the end of the direct

testimony, Wartsila became aware that there were questions
6

regarding LeFebvre’s educational and professional credentials

when counsel for BVI requested that LeFebvre execute a release

for background academic information. Later that day, after the

proceedings adjourned, LeFebvre admitted to Wartsila’s attorneys

that the statements on his resume concerning his business degree

from Duquesne University (“Duquesne”) were not accurate and

that Hill had asked him to overstate the extent of his training at

Duquesne.

The next morning, LeFebvre requested and received a

revised resume from Hill. It omitted any reference to a business

degree from Duquesne or business law courses from the University

of North Florida. It also modified the date on which he claimed to

have received an electrical engineering degree from Penn State.

When the proceedings resumed later that day, BVI’s attorneys

cross examined LeFebvre regarding the inconsistencies between

the two resumes. LeFebvre testified that the revised resume was

accurate and truthful. After BVI’s counsel exposed LeFebvre’s

false testimony, Wartsila began its own investigation. By the

conclusion of that day’s proceedings, Wartsila conceded that it

uncovered no evidence that LeFebvre had ever received an

engineering degree from Penn State or attended any of the schools

listed on his first resume. Wartsila also stated that it found no

evidence LeFebvre had been licensed as a professional engineer in

either New York, Pennsylvania, or Massachusetts.

Wartsila’s counsel withdrew LeFebvre’s testimony in light

of his perjury. The arbitration panel granted Wartsila a short recess

to restructure its case. During that time, the company re-examined

materials prepared by LeFebvre and discovered that he had

improperly altered original “claim support” documents.

Consequently, Wartsila withdrew certain claims. On March 5,

1998, the arbitration panel issued a judgment of $4.65 million in

favor of BVI.

On September 22, 1999, Wartsila filed this action against

Hill to recoup the losses it sustained because Hill furnished a

consultant with a fraudulent resume. In its complaint, Wartsila

attributed the size of the arbitration award to LeFebvre’s false

resume and testimony. Wartsila alleged three causes of action
7

against Hill: (1) negligence; (2) fraud; and (3) breach of contract.

The trial commenced on February 14, 2006.

The jury found no fraud but rendered a verdict for Wartsila

on the negligence and breach of contract claims in the amount of

$2,047,952. Hill then filed its Motion. On June 28, 2008, the

District Court denied Hill’s motion. The District Court held that

the exculpatory clause was unenforceable under Maryland law.

The District Court also found, in the alternative, that the damages

incurred by Wartsila were direct, not consequential, and thus were

not covered by the exculpatory clause. Hill filed a timely appeal of

the District Court’s decision denying the Motion.

III

“We exercise plenary review over the district court's legal

determinations.” Berg Chilling Sys., Inc. v. Hull Corp., 369 F.3d

745, 754 (3d Cir. 2004) (citation omitted). Our standard of review

is plenary with respect to whether the district court applied the

appropriate measure of contract damages in a legal sense. Id.

(citations omitted).

IV

A

Hill contends that the exculpatory clause should be enforced

because it does not fall under any of the exceptions to the

enforcement of exculpatory clauses under Maryland law. We

agree. The District Court erred in determining that the exculpatory

clause was unenforceable.

Under Maryland law, “[i]n the absence of legislation to the

contrary, exculpatory clauses are generally valid, and the public

policy of freedom of contract is best served by enforcing the

provisions of the clause.” Wolf v. Ford, 644 A.2d 522, 525 (Md.

1994). In Wolf, the Court of Appeals of Maryland stated: 

It is quite possible for the parties expressly to agree in

advance that the defendant is under no obligation of care for
 It is arguable whether, even in the absence of the 2

exculpatory clause, the contractual responsibility to provide a

properly credentialed consultant could be the basis for a negligence

claim, but that is not a matter we need to decide on the briefs

before us.

8

the benefit of the plaintiff, and shall not be liable for the

consequences of conduct which would otherwise be

negligent. There is in the ordinary case no public policy

which prevents the parties from contracting as they see fit.

Id. (quoting W. Page Keeton, et al., Prosser and Keeton on the Law

of Torts, § 68 (5th ed. 1984)). Three exceptions have been

identified where the public interest will render an exculpatory

clause unenforceable: (1) when the party protected by the clause

intentionally causes harm or engages in acts of reckless, wanton, or

gross negligence; (2) when the bargaining power of one party to the

contract is so grossly unequal so as to put that party at the mercy of

the other's negligence; and (3) when the transaction involves the

public interest. Wolf, 644 A.2d at 525-26. None of these

exceptions is applicable here.

Although the jury concluded that Hill was negligent, there

was no evidence that Hill engaged in willful misconduct, such as

“intentional harms” or “the more extreme forms of negligence, i.e.,

reckless, wanton, or gross.” Id. at 525. At trial, Wartsila argued

that Hill violated the Agreement by committing fraud. The jury

expressly concluded in its verdict, however, that Hill had not

committed fraud. This finding eviscerates any argument that the

exculpatory clause should be disregarded because of the nature of

Hill’s alleged misconduct.2

No evidence was presented that the Agreement was the

result of undue influence or unequal bargaining power. Hill and

Wartsila are multinational corporations that were represented by

experienced businessmen and attorneys at the time they signed the

Agreement.

We also conclude that the “public interest” exception does
 The District Court’s reliance on Kline is misplaced because 3

it is factually distinguishable. In Kline, the exculpatory clause

provided that “the venturers would not be liable for ‘their actions

in connection with the Joint Venture except in the case of actual

fraud, gross negligence or dishonest conduct.’” Kline, 2000 WL

33799690, at *40. The Kline court found that this provision

referred to tort concepts. Id. The Kline court stated that “if the

parties had intended to exculpate themselves from liability for

future claims of breach of contract, they were required to make that

expressly clear in the exculpatory clause.” Id. Because the parties

in Kline did not make it expressly clear that they intended to

exculpate themselves from liability for future claims of breach of

contract, the court in Kline held that the exculpatory clause did not

limit the defendant's liability for breach of contract. Id. This case

is unlike Kline because Wartsila and Hill made it expressly clear

that they intended to limit their liability for breach of contract. The

exculpatory clause provides that "[i]n no event shall Consultant be

liable in contract or tort or otherwise." J.A. at 6 (emphasis added).

Because Wartsila and Hill made it expressly clear that they

intended to limit their liability for breach of contract, Kline is

distinguishable.

9

not apply to the exculpatory clause. It appears that the District

Court relied on this exception in determining that the exculpatory

clause was unenforceable. In the Order denying the Motion, the

District Court relied on Kline v. Knight, No. 2238, 2000 WL

33799690, at *38 (Md. Ct. Spec. App. Dec. 21, 2000), for the

proposition that “exculpatory clauses do not operate to bar claims

for pure breach of contract.” Wartsila NSD N. Am., Inc. v. Hill 3

Intern., Inc., 436 F. Supp. 2d 690, 694 (D.N.J. 2006). The District

Court explained:

At bottom, and as found by the jury, Hill failed to provide

Wartsila with the very service it contracted to perform.

Despite its language, enforcement of the exculpatory clause

would lead to a repugnant result–one that would allow a

service provider to reap the benefit of a negotiated

agreement in the absence of the bargained-for performance.
10

While the Court is aware that unambiguous written

contracts should be enforced without regard to the

consequences of that enforcement, based on the analysis

above, this Court finds that Maryland law will not allow

such a clause to be enforced.

Id. at 696-97.

In Wolf, the court identified transactions that affect the

public interest as 

those involving:

the performance of a public service obligation, e.g., public

utilities, common carriers, innkeepers, and public

warehousemen. It also includes those transactions, not

readily susceptible to definition or broad categorization, that

are so important to the public good that an exculpatory

clause would be "patently offensive," such that "the

common sense of the entire community would ... pronounce

it" invalid. 

Wolf, 644 A.2d at 526 (internal quotation omitted).

“This standard is a strict one, in keeping with our general

reluctance to invoke the nebulous public interest to disturb private

contracts.” Id. at 526. The contract between Hill and Wartsila did

not involve an essential public service such that the enforcement of

the exculpatory clause would be “patently offensive.” Nor do we

believe that on this record the courts of Maryland would conclude

that construction consulting has the same broad public impact as

other businesses that have been found essential to the public good,

such as innkeepers, public utilities, common carriers, or schools.

See, e.g., Seigneur v. Nat’l Fitness Inst., Inc., 752 A.2d 631, 640

(Md. Ct. Spec. App. 2000) (citations omitted) (“NFI does not

provide an essential public service such that an exculpatory clause

would be ‘patently offensive’ to the citizens of Maryland. The

services offered by a health club are not of great importance or of

practical necessity to the public as a whole . . . . Nor is a health

club anywhere near as socially important as institutions or

businesses such asinnkeepers, public utilities, common carriers, or
11

schools.”).

Finally and significantly, the exculpatory clause did not

deprive Wartsila of the entire benefit of the contract, as the District

Court believed. It did not eliminate all contractual damages but

instead said that certain types of contractual damages would not be

recoverable. In short, the District Court erred in determining that

the exculpatory clause was unenforceable.

B

Hill also maintains that the District Court erred in

determining that the damages awarded by the jury were direct and

not consequential. Hill argues that the damages sought by

Wartsila are barred by the exculpatory clause because they are

“incidental, special, indirect or consequential.” The District Court

erred in determining that all of the damages sought by Wartsila

were direct.

Prior to trial, Hill filed a motion to dismiss, asserting, in

part, that the exculpatory clause precluded Wartsila from

recovering any damages on the breach of contract claim. The

District Court denied the motion to dismiss, but did not resolve the

question whether the exculpatory clause was enforceable. The

District Court explained that because Wartsila brought a claim for

fraud, the Court could not determine at that time whether the

exculpatory clause was enforceable. Somewhat at odds with its

later conclusion, the Court reasoned as follows:

On their face, these provisions clearly operate to bar

plaintiff’s breach of contract claim, since it is not grounded

in negligence and the alleged damages do not flow from

personal injury or property damages. Under Maryland law,

“[i]n the absence of fraud, duress, mistake or some

countervailing public policy, courts should enforce the

terms of unambiguous written contracts without regard to

the consequences of enforcement.” Calomiris v. Woods,

353 Md. 425, 445, 727 A.2d 358, 368 (1999). However,

when the aggrieved party has shown it was deceived into

accepting the contract, contractual limitations on judicial
 The following is the complete list of the revised damages 4

submitted to the jury:

1. AAA Reporting Co. ($2,943.20)

2. Airflow Sciences Corp ($24,263.23)

3. American Arbitration Association ($62,603.63)

4. Baker, Sterchi, Cowden & Rice’s Legal Fees (Kansas)

($60,520.15)

5. W.C. Bakewell (Arbitration) ($1,680.85)

6. Black & Veatch International ($5,500,000.00)

7. Carlton Fields– Florida Law Firm ($4,166.95)

8. Cerquetti, Jeff– Power Plants WDUS ($886.47)

9. Double Tree Hotel Bills ($110,110.27)

10. Eagle Legal Services ($8,172.96)

11. Eduardo Echagarruga ($9,952.76)

12. HDH Construction Consultants ($144,879.75)

13. Michael Hafling (Kansas) ($5,660.55)

14. Huesby & Associates ($57,057.75)

15. A W Hutchinson & Associates, Inc. ($83,959.11)

16. IKON ($3,830.19)

12

remedies will not be enforced . . . [P]laintiff has stated a

claim for fraud. Moreover, plaintiff alleges that defendant’s

fraud induced it to sign Hill’s consulting contract, which

incorporated by reference the assignment of LeFebvre to

Wartsila’s project. Compl. ¶¶ 34-36. Accordingly, the

liability limitations in the contract will not operate at the

dismissal stage to bar plaintiff’s claim for breach of

contract. 

J.A. at 86-87.

The District Court submitted an instruction to the jury that

listed the damages sought by Wartsila. The primary items on this

list included the entire amount of the arbitration award paid to BVI,

Wartsila’s attorneys’ fees incurred in connection with the

arbitration and subsequent litigation, the fees paid to expert

witnesses at the arbitration, the cost of numerous court reporting

services used in arbitration, and Wartsila’s hotel bills and other

expenses relating to arbitration. J.A. at 254-55. The judge 4
17. Johnson, Allison & Hord, P.A. ($16,634.08)

18. Richard LeFebvre ($298,665.90)

19. Robert Maddox ($2,999.39)

20. McGuire, Woods, Battle & Booth, LLP ($6,752.21)

21. Ober, Kaler, Grimes & Shiver ($254,049.46)

22. Juan Radulovic ($4,089.32)

23. Sable, Makroff & Gusky, P.C. ($420.00)

24. URS Greiner ($36,075.51)

25. XACT Duplicating ($1,039.57)

26. XEROX Corporation ($4,917.35)

27. Chaffe McCall’s Legal Bills ($621,976.63)

28. Hill International ($188,917.36)

29. Allen Norton ($1,077.49)

Total: $7,518,502.09

J.A. at 254-55 (previous incorrect calculations omitted).

The percentages referred to pertain to the contributory 5

negligence claim against Wartsila.

13

instructed the jury on damages without differentiating between

direct or consequential damages. In instructing the jury, the judge

stated:

Now, if you are awarding damages, it should be the full

amount of the damages. The percentage question is one of

law that’s taken care of later. So if there is to be a damage

award, you don’t reduce it for the percentages, the Court

does that. It should simply be the total amount.5

Transcript of Record at 102, Wartsila NSD N. Am., Inc. v. Hill

Intern., Inc., 436 F. Supp. 2d 690 (D.N.J. 2006) (No. 266).

Further, the jury verdict form did not ask the jury to distinguish

between damages awarded for breach of contract, fraud, or

negligence, or ask the jury to itemize damages. Question ten of the

jury verdict form states:

If you have answered that Defendant’s negligence, breach

of contract, or fraud was a proximate cause of the damages

sustained by Plaintiff, what amount, if any, would fully and

fairly compensate Plaintiff?
The terms “special damages” and “consequential 6

damages”usually are viewed as synonymous. See 3 Dan B. Dobbs,

Law of Remedies § 12.2(3), at 38 (2d ed. 1993) (“[S]pecial

damages [are] also referred to as consequential damages and the

terms are used interchangeably.”).

14

J.A. at 257.

The jury awarded $2,047,952 in total damages. In its posttrial Motion, Hill argued that because all the damages were

consequential, they were barred by the exculpatory clause. The

District Court denied the motion based on its conclusion that the

damages awarded by the jury were not consequential. The District

Court erred in denying the Motion. Maryland courts hold “that

damages which a plaintiff may recover for breach of contract

include both those which may fairly and reasonably be considered

as arising naturally from the breach (general damages) and those

which may reasonably be supposed to have been in the

contemplation of both parties at the time of making of the contract

(special damages).” Addressograph-Multigraph Corp. v. Zink,

6

329 A.2d 28, 33-34 (Md. 1974). General damages are “damages

that would follow any breach of similar character in the usual

course of events.” 24 Willston on Contracts § 64:12 (4th ed. 2002).

“Consequential damages . . . include those damages that, although

not an invariable result of every breach of this sort, were

reasonably foreseeable or contemplated by the parties at the time

the contract was entered into as a probable result of a breach.” Id.

“These, too, must be proximately caused by the breach, and the

difference is that they do not always follow a breach of this

particular character.” Id.

The Fifth Circuit has addressed the distinction between

general and consequential damages in a factually similar case in

Reynolds Metals Co. v. Westinghouse Elec. Corp., 758 F.2d 1073

(5th Cir. 1985). In Reynolds, Westinghouse Electric Corporation

contracted with Reynolds Metal Company to sell the latter a

transformer. Id. at 1074. The contract price included not just the

machinery, but a “competent” service engineer, provided by

Westinghouse, who would install it. Id. The contract disclaimed
15

liability for “special, indirect, incidental, or consequential

damages.” Id. Westinghouse sent an inexperienced engineer who

failed to install the transformer properly. Id. at 1075. The

equipment later suffered damage, in part as a result of the improper

installation. Id. Reynolds then sued Westinghouse claiming that it

had breached the contract by failing to provide a competent

engineer. Id. at 1076. Reynolds sought compensation to repair the

transformer. A jury found that Westinghouse had breached the

contract, and awarded Reynolds the value of the transformer with

interest. Id. at 1077.

On appeal, Westinghouse objected to the amount of the

damages, noting that a provision of the contract disclaimed liability

for “special indirect, incidental and consequential damages.” Id. at

1078. The Fifth Circuit agreed with Westinghouse. It concluded

that Reynolds was not entitled to the value of the transformer

because that was a consequential damage. Id. at 1080. The Court

stated:

We recognize that it was a foreseeable consequence of

Westinghouse's breach of contract that the alarm system

might fail to detect ground current. It was also foreseeable

that this failure might in turn permit burning within the

transformer to occur unbeknownst to Reynolds and thus

exacerbate the damage done to the transformer if short

circuiting occurred. Such foreseeable damages are

ordinarily recoverable under an expectancy theory, but they

are nevertheless consequential losses and do not reflect the

difference-in-value damages attributable to the original

breach of contract. The proximate cause inquiry submitted

to the jury here therefore cast too broad a net and captured

more than those damages compensable under the contract.

Id. (citations omitted). The Fifth Circuit concluded that the only

damages for which Reynolds could recover was the “fee that would

have been charged Reynolds by a competent and properly prepared

service engineer less the market value of the services that [the

service engineer] provided.” Id.

Here, as part of a service contract, Hill provided Wartsila
16

with a consultant. The jury found that Hill’s actions breached its

contract. As indicated by Reynolds, the amount paid by Wartsila

for LeFebvre’s services, less the actual value, if any, of those

services, constitutes direct damages. All of the remaining items

submitted to the jury in Wartsila’s list of damages, though

foreseeable, are not the type of damages that “would follow any

breach of similar character in the usual course of events.” 24

Willston on Contracts § 64:12 (4th ed. 2002). Rather, some of the

damages submitted to the jury resulted from a long series of

contingent events, each one dependent upon specific decisions

made by Wartsila based upon the facts and interests before it at the

time. Wartsila’s damages are more clearly consequential than

those in Reynolds because, while the damages in Reynolds arose

immediately upon Westinghouse’s breach of contract, Wartsila’s

damages arose years after the alleged breach and only as a result of

numerous intervening acts by Wartsila, including hiring LeFebvre

directly as an employee.

The District Court erred in holding that “the damages

recovered by Wartsila– including: (1) the costs associated with

having the Hill consultant as an integral part of the original

arbitration; and (2) the costs associated with re-arbitrating in an

attempt to repair the damage caused by losing all testimony

associated with the Hill consultant– are direct damages.” Wartsila,

436 F. Supp. 2d at 701. 

The District Court compared the damages awarded to

Wartsila to those at issue in 21st Century Properties Co. v.

Carpenter Insulation & Coatings Co., 694 F. Supp. 148 (D. Md.

1988). In 21st Century Properties, the plaintiffs brought claims of

misrepresentation, breach of contract and breach of express

warranty against the defendant after four of the roofs it had

installed began to leak. The plaintiffs sought to recover the cost of

replacing the defective roof, rather than the cost to repair it. Id. at

152. The defendant argued that the exculpatory clause barred the

plaintiffs from recovering the monetary damages because they were

consequential. Id at 152 n.4. The court, construing Maryland law,

held that “the cost of replacing the allegedly defective roofs which

plaintiffs seek to recover constitutes the direct damage, not

incidental or consequential damages, caused by the wrongs
Since negligence was excluded by the exculpatory clause 7

as the basis for damages, damages characterized as flowing solely

from negligence (which is, again, a matter open to debate, supra n.

2) should not have been allowed in any event.

17

alleged.” Id. (citing Correlli Roofing Co. v. Nat'l Instrument Co.,

214 A.2d 919, 921 (Md. 1965)).

The type of damages sought in 21st Century Properties

differs from the damages sought by Wartsila in this case. In 21st

Century Properties, the parties directly contracted for the

installation of the faulty roofs, which it sought to replace. In the

case at hand, Hill and Wartsila contracted for LeFebvre to provide

consulting services on the Project. LeFebvre only provided

services under that contract from January 24, 1995 through May

25, 1995. On June 1, 1995, Wartsila hired LeFebvre directly, as an

independent contractor, to provide assistance with construction and

claims management on the Project. Further, when Hill supplied

Wartsila with a consultant, it was not inevitable that two and a half

years later, Wartsila was going to engage in arbitration and call

LeFebvre as a key witness. Numerous intervening, contingent

events occurred within those seven years, including: (1) the fact

that the claims between the parties could not be resolved except

through arbitration; (2) the fact that those claims were such that

LeFebvre’s testimony was necessary and would be the centerpiece

of the case; (3) the fact that LeFebvre was employed by Wartsila

and, thus, available to testify; (4) the fact that LeFebvre committed

perjury; and (5) the fact that Wartsila allegedly lost the arbitration

as a result. Whether or not these events can fairly be called a

foreseeable result of the initial breach, they are not inevitable.

The District Court erred in failing to exclude evidence of

“incidental, special, indirect, or consequential” damages. Further,

the Court did not ask the jury to identify which portion of its award

was based on Hill’s breach of contract or its alleged negligence.

7

Thus, we cannot tell from the jury's verdict what portion of its

award of damages was based on direct damages and what amount

was based on consequential damages. In order to give effect to the

exculpatory clause agreed to by these parties, there must be a new
18

trial on the issue of damages.

Conclusion

We vacate the award of damages. We remand for a trial

solely on the amount of damages that should be awarded to

Wartsila. The District Court is instructed to admit only evidence

of direct damages caused by Hill’s breach of contract.