Court Dismisses Delay Claim Against Non-party To Contract

In this column, we have often addressed delay claims—typically in the context of when, if ever, a contractor can assert such a claim in the face of a no-damages-for-delay clause. However, the recent case of Dworkin Construction Corp. v Consolidated Edison Co. of NY, an appellate court reminds us that fundamentally, delay claims are creatures of contract and, therefore, a contract between both the proponent and the target of the delay claim is absolutely necessary to proceed.

Background
Dworkin Construction Corp. was retained by Lush Cosmetics, a makeup retailer and lessee of a property on East 14th Street in Manhattan, to renovate a commercial space and build out a store that would suit Lush’s particular needs. Lush’s needs included the installation of an additional electrical shunt to supply more power for the store. As a part and parcel of this scope of work, Dworkin applied to Con Ed for required approvals, to which Con Ed responded very slowly, resulting in a delay of the completion of the project. As a result of this delay, Dworkin incurred $82,805 in damages—and lost Lush’s business.

Dworkin sued Con Ed for negligence and breach of contract to recover the out of pocket expenses, as well as the claimed $1,068,405 in lost profits resulting from its loss of Lush’s business. In its complaint, it alleged that Con Ed was negligent by failing to exercise reasonable care in the processing of Dworkin’s application. Dworkin, alternatively, alleged that it entered into a contract with Con Ed for Con Ed to reasonably and diligently process its application for the service upgrade, and that Con Ed breached the contract by failing to do so. Con Ed moved to dismiss the lawsuit.

Decision
The motion court granted Con Ed’s motion, holding that even if Con Ed took an extraordinarily long time to process the application, Dworkin could not assert such a claim in the absence of a contract. Dworkin appealed, and the appellate court affirmed. As to the negligence claim, the appellate court held that in addition to Con Ed not having any common-law duty to Dworkin, the negligence claim failed because it sought only economic damages—which, under well settled case law, are limited to breach of contract claims. As to that breach of contract claim, the appellate court found that even though Con Ed provided invoices and a “service determination” listing Dworkin as the customer, Dworkin was not doing the work for its own service but, rather, that of its customer, Lush, for which it was acting as agent. Further, and specifically as to Con Ed, the appellate court also referenced its tariff (its operating authority granted by the Public Service Commission), under which Con Ed has the obligation to provide utility services to all customers equally, and held that Con Ed does not have the legal authority to enter into any agreement which guarantees service within a particular time frame.

Comment
Dealing with utilities can be as frustrating, and bureaucratic, as dealing with government agencies themselves. On top of this, the frustration of delays (and their financial impact on a project) only adds to the madness—particularly when they are not caused through any fault of the contractor (or the subcontractors working under it). However, because the damages relating to a delay are purely economic, courts require an existing contractual relationship between the parties which deals with the issue—which is usually either in the form of setting deadlines with a time of the essence clause (thus putting parties on notice that there could be the assessment of damages if that crucial date passes), or a liquidated damages clause which specifies damages to be awarded in the case of a delay, or a no-damages-for-delay clause. In the absence of such a contractual relationship, courts will not award such damages.

Of course, contractors should be diligent in keeping up with developments on the project—and trying to keep the project moving where it appears that one aspect has stalled. Contractors would also be well advised that where the work will necessarily involve third-parties who can influence the project without liability themselves, they should ask their counsel about what other contractual protections may be available, such as the right to extensions of time, or other exculpations from liability for delay upon the happening of certain events.

About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester and the Hudson Valley, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State/Greater Metropolitan Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series with Mr. Welby.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100