Background
Gamma USA served as curtain-wall and façade subcontractor on a hotel, retail, and theater renovation at a 47-story Times Square tower. Pavarini McGovern was the construction manager and general contractor. The owner’s construction-management agreement imposed $10,000 per day in liquidated damages for missed milestones, capped at $3.6 million, and made that amount the owner’s sole remedy for delay. A separate clause waived consequential damages but did not waive ordinary direct damages.
The subcontract incorporated the management agreement, made Gamma responsible for direct and consequential damages arising from its work, and separately capped liquidated delay damages at $3.6 million. After Gamma sued for nonpayment, Pavarini and the owner entered a liquidating agreement permitting Pavarini to assert the owner’s claims as a pass-through counterclaim. Supreme Court read the documents to cap all recovery on that counterclaim at $3.6 million.
The Court’s Holding
The First Department modified. It agreed that delay damages attributable to Gamma remained subject to the subcontract’s $3.6 million liquidated-damages ceiling and that the owner could not recover consequential damages it had waived. But the court held that neither restriction eliminated the owner’s direct, nondelay damages. Consequential damages are only a subset of contract damages, and language waiving them cannot be enlarged into a waiver of every other remedy.
The pass-through structure did not change the result. The owner could not gain broader rights against Gamma by routing its claim through Pavarini, but it retained whatever direct damages the coordinated agreements allowed. Accordingly, the court dismissed only consequential damages and delay damages above the cap, leaving other direct damages—such as additional construction costs—potentially recoverable.
Key Takeaways
- A liquidated-damages cap tied to delay does not necessarily cap direct damages arising from defective or incomplete work.
- A consequential-damages waiver should be read according to its defined category, not as a blanket waiver of contract remedies.
- Pass-through agreements preserve claims across the privity chain but do not expand the underlying substantive liability.
Why It Matters
The decision matters for New York owners, construction managers, subcontractors, and project lenders because large projects often combine delay provisions, damage waivers, incorporation clauses, and liquidating agreements. Gamma shows that courts will read those provisions together and will resist collapsing distinct damage categories into one ceiling.
Drafting should expressly state whether a cap covers only liquidated delay damages or aggregate liability of every kind. Claims teams should also classify each asserted loss as delay, direct, or consequential and connect it to the governing clause. On troubled projects, that classification can determine whether recovery stops at a negotiated cap or extends to substantial completion and repair costs.