                                                                                                                           Opinions of the United
2008 Decisions                                                                                                             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Precedential or Non-Precedential: Precedential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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                                         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



      *
       Hon. Arthur L. Alarcón, Senior Judge, United States Court
of Appeals for the Ninth Circuit, sitting by designation.
                   (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.
                            ____



                                 2
                   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

                                  3
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
                    1
exculpatory clause, which stated:



       1
          Hill refers to this clause as both a limitation of remedies
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
       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



Wartsila NSD N. Am., Inc. v. Hill Intern., Inc., 436 F. Supp. 2d
690, 694 n.1 (D.N.J. 2006).

                                5
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

                                 6
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

                                 7
       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



       2
         It is arguable whether, even in the absence of the
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
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.” 3 Wartsila NSD N. Am., Inc. v. Hill
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.



       3
         The District Court’s reliance on Kline is misplaced because
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
       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 as innkeepers, public utilities, common carriers, or

                                 10
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

                                  11
       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.4 J.A. at 254-55. The judge



       4
        The following is the complete list of the revised damages
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
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?


        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).
       5
        The percentages referred to pertain to the contributory
negligence claim against Wartsila.

                                13
J.A. at 257.

        The jury awarded $2,047,952 in total damages. In its post-
trial 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).” 6 Addressograph-Multigraph Corp. v. Zink,
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



       6
          The terms “special damages” and “consequential
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
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

                                 15
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

                                  16
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



       7
         Since negligence was excluded by the exculpatory clause
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.

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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.




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