Contract Dispute? Mind Your Methods
This simple mistake can turn a contract dispute into a real headache.
It’s bound to happen — sometimes, business partnerships just implode.
A key to cutting your losses and protecting your company is avoiding one basic mistake: Not fully understanding — and thus, following — your contract.
Liberty Mutual Insurance Co. recently learned that the hard way, losing what had been a six-figure award in its favor. It all boiled down to failing to follow the terms in its contract.
Here’s how it played out, according to the court:
In 2013, the Housing Authority of New Orleans engaged Parkcrest Builders for an $11 million affordable housing project. Liberty was Parkcrest’s surety. But the relationship between the Housing Authority and the builder soured to the point of termination in early 2015, with the project incomplete.
Parkcrest immediately sued for breach of contract; Liberty stepped in as surety to finish the project in Parkcrest’s place.
Then things got interesting. Liberty needed to hire a completion contractor — and it turned right back around and hired Parkcrest. Not surprisingly, the arrangement didn’t last. The housing authority terminated Liberty in June 2016, sending a letter claiming that Liberty had forfeited its right to handle the project and asking it to give up control of the site. Liberty parried with a letter maintaining wrongful termination.
Then, Liberty made its misstep. The parties’ contract said they must try to resolve disputes out of court, following a prescribed process of dealing with each other. But Liberty instead jumped into the ongoing lawsuit between the housing authority and Parkcrest.
After a bench trial, the district court determined that the housing authority had breached the contract by terminating Liberty for convenience after the project was mostly done. Siding with Liberty and Parkcrest, the court eventually awarded them damages plus $526,192.25 in attorney’s fees, and said they owed nothing to the housing authority. (This is a simple summary for our purposes; this Reuters article explains other aspects.)
The housing authority appealed the attorney’s fees. The contract had a prescribed process for submitting claims for costs caused by the termination — including costs for reasonable legal and accounting services needed to make a termination claim. Liberty had not followed this process.
Liberty’s argument, in a nutshell: The housing authority breached the contract first, so we don’t have to follow the contract, either. But the text of the contract includes its own breach: “… all disputes arising under or relating to this contract, including any claims for damages for the alleged breach thereof which are not disposed of by agreement” shall at least attempt resolution out of court.
In February, the 5th U.S. Circuit Court of Appeals sided with the housing authority. The court found that Liberty had breached the contract, and because it didn’t follow the agreed-upon process, the housing authority couldn’t be held liable for the attorney’s fees.
Liberty’s argument would have sounded much differently had the company first followed the conditions of its contract, turning to the courts as a last resort. That step could have made a difference worth six figures, not to mention the years spent seeking resolution in court.
Obviously, contracts — and their interpretation — can be tricky. When business relationships sour, do your due diligence. That often means getting expert advice from a lawyer experienced in business disputes. A bit of upfront work can help you sidestep costly and time-consuming battles in court.
If you’re struggling to resolve a conflict with a business partner, contact the skilled attorneys at Berman North. We specialize in business disputes. Through our personalized, client-focused representation, we will help find the best solution for you.