430 F.Supp.3d 443
N.D. Ill.2019Background
- NAR purchased a low-lying Naperville parcel and contracted to sell it to Ozark/O’Reilly conditioned on execution of a construction contract to build a 400,000 sq. ft. distribution center.
- Terracon geotechnical report (incorporated into the construction Specifications) warned the existing fill was variable and recommended excavating (undercutting) the fill and, if necessary, weak native soils to reach suitable bearing strata.
- The Lump Sum Contract (including Specifications) placed construction risk on the contractor (NAR) and expressly required foundation work “in accordance with” the Terracon recommendations.
- NAR performed extensive undercutting, then sought additional payment (~$334,486); O’Reilly refused and withheld funds, asserting also liquidated damages ($2,000/day) for missing the 365-day completion deadline after a permanent certificate of occupancy (CO) was not obtained by the contract date.
- Procedural posture: cross-motions for summary judgment. Court granted defendant’s MSJ on NAR’s breach claim (Counts I & II dismissed), denied NAR’s partial SJ, held liquidated-damages clause unenforceable, and held the indemnity clause did not require first-party indemnification (judgment for NAR on Counterclaim II).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether soil undercutting was “extra work” outside the contract | Undercutting was not required or contract is ambiguous, so NAR is entitled to extra pay | Contract (Specifications + Terracon report) unambiguously required undercutting; no extra pay | Undercutting was within contract scope; defendant entitled to summary judgment on plaintiff’s breach claim for extra work |
| Whether NAR breached by failing to obtain a permanent CO by the contract completion date | Substantial completion could be satisfied by temporary CO/beneficial occupancy; or ambiguity defeats SJ | Contract requires a permanent CO as prerequisite to Date of Substantial Completion | Contract requires a permanent CO, but factual disputes (e.g., whether defendant caused delays) preclude summary judgment on breach |
| Enforceability of the $2,000/day liquidated-damages clause | Clause is a penalty because it does not vary with gravity or actual loss (facility usability) | Per-diem liquidated damages were a reasonable ex-ante estimate and enforceable | Clause is unenforceable as a penalty (invariant to gravity/usability); plaintiff entitled to summary judgment on unenforceability |
| Scope of indemnification clause (first-party indemnity & attorneys’ fees) | Indemnity clause does not apply to first-party claims or is limited to third parties | Broad “any and all” language requires contractor to indemnify defendant, including first-party claims | Indemnity provision, read with other contract provisions (duty to defend, waivers, procedures), does not sensibly apply to first-party claims; plaintiff entitled to summary judgment on Counterclaim II |
Key Cases Cited
- Brant Const. Co., Inc. v. Metropolitan Water Reclamation Dist. of Greater Chicago, 967 F.2d 244 (7th Cir. 1992) (overexcavation specified in contract specifications is not recoverable as extra work)
- Right Field Rooftops, LLC v. Chi. Cubs Baseball Club, LLC, 870 F.3d 682 (7th Cir. 2017) (plain contractual language controls; interpret contract under Illinois law)
- Gallagher v. Lenart, 226 Ill.2d 208 (Ill. 2007) (primary objective of contract construction is to give effect to parties’ intent)
- Central Illinois Light Co. v. Home Ins. Co., 213 Ill.2d 141 (Ill. 2004) (unambiguous contract language given plain meaning)
- Land of Lincoln Goodwill Indus., Inc. v. PNC Fin. Servs. Grp., Inc., 762 F.3d 673 (7th Cir. 2014) (court should give effect to every contract provision and avoid superfluity)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (party seeking summary judgment bears burden of showing no genuine dispute)
- Bethlehem Steel Corp. v. City of Chicago, 350 F.2d 649 (7th Cir. 1965) (per-diem liquidated damages can be enforceable where reasonable ex-ante)
- John Hancock Life Ins. Co. v. Abbott Labs., 863 F.3d 23 (1st Cir. 2017) (liquidated-damages analysis: parties’ intent, reasonableness ex-ante, and uncertainty of damages)
- Energy Plus Consulting, LLC v. Illinois Fuel Co., LLC, 371 F.3d 907 (7th Cir. 2004) (large lump-sum stipulated damages may be penalties)