Federal Court Holds That, Under Louisiana Law, a Contractor Need Not Show a Total Work Stoppage to Recover Extended Home Office Overhead Under Eichleay

by Pepper Hamilton LLP
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Team Contrs., L.L.C. v. Waypoint NOLA, L.L.C., No. 16-1131, 2017 U.S. Dist. LEXIS 162172 (E.D. La. Oct. 2, 2017).

Waypoint NOLA (“Waypoint”) was the owner of a hotel construction project in New Orleans (the “Project”).  Waypoint contracted with Team Contractors (“Team”) to serve as the Project general contractor and HC Architecture (“HCA”) to serve as the Project architect.  HCA, in turn, subcontracted with KLG to prepare the mechanical, electrical, and plumbing (“MEP”) plans.

HCA delivered a complete set of specifications, including KLG’s MEP plans, to Team, and Team began work.  It was later discovered that the MEP plans did not comply with code requirements.  Team was forced to remove and reconstruct the MEP work before proceeding with its work as scheduled.

Team filed suit for breach of contract against Waypoint and for negligence against Waypoint, HCA, and KLG.  Team alleged it experienced delay and incurred damages when it was forced to remove and reconstruct the MEP work.  Its damages included extended home office overhead related to the delay.  Team’s expert used the Eichleay formula to calculate these damages.

In Louisiana, courts apply a three-prong test to determine if a claimant is entitled to recover damages under Eichleay:  First, the contractor must demonstrate that there was an unexcused delay. Second, the contractor must show that it incurred additional overhead expenses.  Third, the contractor must establish that it was required to remain “on standby” during the delay.  To show that it was “on standby,” a contractor must show (1) the delay was of an indefinite duration, (2) the contractor was required to return to work at full speed and immediately during the delay, and (3) most, if not all, of the contract work was suspended.

The Defendants filed a motion for summary judgment, arguing that Team could not recover damages under Eichleay, because there was no suspension or stoppage of the work.  In response, Team presented evidence that there was, at minimum, a “functional” stoppage of “all or most of the work performed” pursuant to the contract.

The District Court determined that Louisiana court decisions had not decided whether a “functional” work stoppage would satisfy Eichleay, and if so, what degree of work stoppage would be sufficient.  As such, the District Court was required to predict how the Louisiana Supreme Court would resolve the issue.  The District Court noted that the Louisiana courts which had decided the application of Eichleay had adopted the doctrine from the federal courts without alteration, and accordingly, federal analyses of this issue should weigh heavily in a prediction of what the Supreme Court of Louisiana would hold.

Because the federal courts applying Eichleay had held that a claimant need not show a total stoppage of work to recover extended overhead damages, the District Court held that it is sufficient, for purposes of establishing standby, if a contractor can demonstrate that work has stopped or significantly slowed.  Because Team had presented evidence of such a functional stoppage, the District Court denied the Defendants’ motion for summary judgment.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

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