Winco Foods, LLC v. Crossland Construction Co., Inc.

          ORDER

         This case arises out of the construction of a new WinCo Foods grocery store in Oklahoma City, Oklahoma. The parties have filed cross motions for partial summary judgment on the issue of liquidated damages.

         Summary judgment is warranted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Material facts are those which "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc.. 477 U.S. 242, 248 (1986). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. To determine whether this standard is met, the court views the evidence in the light most favorable to the non-moving party. See Estate of Booker v. Gomez, 745 F.3d 405, 411 (10th Cir. 2014). "[T]he plain language of Rule 56(c) mandates entry of summary judgment. . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett 477 U.S. 317, 322-23 (1986).

         Background

         The background facts are substantially undisputed. On March 31, 2017, WinCo Foods, LLC ("WinCo"), as owner, and Crossland Construction Company, Inc. ("Crossland"), as general contractor, entered into an agreement for the construction of WinCo Store #149 (the "Project") in Oklahoma City. Crossland was required to begin work on the Project on April 3, 2017 and to achieve substantial completion 224 days later. The contract documents contained the following liquidated damages provision:

Further notwithstanding anything to the contrary in the Contract Documents, the Owner and the Contractor recognize that in the event the Contractor fails to achieve Substantial Completion of the Project by the Projected Completion Date (plus any proper extension granted pursuant to a Change Order issued under paragraph 8.3.1), the Owner will incur substantial damages and the extent of such damages shall be incapable of accurate measurement. Nonetheless, the Owner and the Contractor acknowledge that on the date of this Contract, the amount of this Contract, the amount of liquidated damages set forth below represents a good faith estimate as to the actual potential damages that the Owner will incur as a result of late Substantial Completion of the Project. Such liquidated damages shall be the sole and exclusive remedy of the Owner for late completion of the Project, and the Owner hereby expressly waives all other remedies available at law or in equity with respect to losses resulting from late completion. The amount of the liquidated damages calculated hereunder does not include any penalty. This liquidated damages Clause covers delay damages only and the Owner reserves the right to recover from the Contractor all other damages the Owner may incur as a result of any breach of this Contract, including but not limited to direct damages, consequential damages, attorneys' fees and costs. The Owner and the Contractor agree that the Contractor shall pay the Owner, as liquidated damages for delay, the following amount for each day that expires after the Projected Completion Date (plus any proper extension granted pursuant to a Change Order issued under paragraph 8.3.1) until such time as all requirements for Substantial Completion have been satisfied by the Contractor: $5, 000 per day.

WinCo Store No. 149 Supplementary Conditions, § 8.3.3.

         Unforeseen site conditions were discovered almost immediately after work began on the Project and delayed the progress of Crossland's work. Weather events and Crossland's issues with one of its subcontractors also impacted the construction schedule. Additionally, portions of Crossland's concrete work at the storm refuge area of the Project was rejected and had to be fixed. No. extensions of time were granted to Crossland, and the Project was not substantially completed by the projected completion date. WinCo asserts the Project was substantially completed on April 5, 2018; Crossland asserts the Project was substantially completed much earlier. WinCo Store #149 opened for business on April 18, 2018.

         WinCo asserts Crossland owes it $715, 000 in liquidated damages. Crossland contends (1) the liquidated damages provision is void and unenforceable; (2) WinCo did not make a timely claim for liquidated damages; (3) the Project was substantially completed no later than January 8, 2018; and (4) Crossland was entitled to additional time based upon events beyond its control.

         Analysis

         I. Whether the liquidated damages provision is valid and enforceable

         Under Oklahoma law, a contractual, non-penal liquidated damages provision is valid and enforceable when it would be impracticable or extremely difficult to fix the amount of actual damages. See 15 Okla. Stat. § 215(A). Oklahoma courts have set forth the following three criteria by which a valid liquidated damages clause may be distinguished from a penalty: (1) the injury caused by the breach is difficult or impossible to estimate accurately; (2) the parties intended to provide for damages rather than for a penalty; and (3) the sum stipulated is a reasonable pre-breach estimate of the probable loss. See Sun Ridge Inv'rs, Ltd. v. Parker, 956 P.2d 876, 878 (Okla. 1998). "Whether the damages were difficult of ascertainment is to be determined as of the time the contract was entered into and not at the time of the breach." Waggoner v. Johnston, 408 P.2d 761, 769 (Okla. 1965). The burden of establishing that damages would be difficult to ascertain and that the liquidated damages provision does not impose a penalty rests on the party seeking to enforce the liquidated damages provision. See Id. at 768.

         The court concludes the undisputed facts establish the enforceability of the liquidated damages provision - that damages would be difficult to ascertain and that the liquidated damages provision did not impose a penalty. Courts have consistently held that delay damages in construction contracts are inherently difficult to accurately predict. See, e.g., Carr-Gottstein Props., Ltd. P'ship v. Benedict 72 P.3d 308, 311 (Alaska 2003) ("it is generally accepted that injuries caused by construction delays are nearly always difficult to determine.59). In this case, the extent of damages caused by a delay in the completion of the construction of the WinCo grocery store was made more difficult to accurately predict in light of the undisputed facts that WinCo was new to the Oklahoma City grocery store market and that the particular location had never before housed a grocery store.^[1] Further, the parties agreed in the contract documents that the extent of the damages incurred due to a delay "shall be incapable of accurate measurement."

         Additionally, the parties agreed that on the date of the contract, "the amount of liquidated damages ... represents a good faith estimate as to the actual potential damages that [WinCo] will incur as a result of late Substantial Completion of the Project." These parties were experienced and sophisticated commercial entities, and no basis appears for discounting their negotiated agreement. Further, the fact that WinCo may use the same amount for daily liquidated damages in all of its contracts does not, in and of itself, undercut the reasonableness of the estimate of probable losses caused by the delay. See Bowbells Pub. Sch. Dist. No. 14, Bowbells v. Walker, 231 N.W.2d 173, 177 (N.D. 1975); DJ Mfg. Corp. v. U.S., 86 F.3d 1130 (Fed. Cir. 1996). Further, WinCo's evidence, not challenged by Crossland, is that WinCo's average loss per store per day is $12, 000. Fixing the amount of liquidated damages at less than half of the average loss is certainly reasonable.

         Finally, the language of the provision indicates the parties intended to provide for damages rather than for a penalty, specifically stating that the amount of liquidated damages does not include any penalty. WinCo's belief that the liquidated damages clause would have the effect of encouraging prompt performance by Crossland does not turn the provision into a penalty. See Robinson v. United States.261 U.S. 486, 488 (1923) ("In construction contracts a provision giving liquidated damages for each day's delay is an appropriate means of inducing due performance, or of giving compensation, in case of failure to perform.'9). Further, the fact that $5, 000 is likely less than the damages WinCo incurred as a ...