A Wartsila diesel generator.

Applying Maryland law, the Third Circuit vacated a judgment on the ground that the jury award violated an "exculpatory clause" in the contract between a construction consulting firm and the builder of a power plant in El Salvador.  Wartsila NSD N. Am., Inc. v. Hill Int’l, Inc., No. 06-3595 (3d Cir. June 20, 2008).

Coastal Salvadorian hired Wartsila NSD North America to design and construct the project.  Wartsila subcontracted work to Black and Veatch International ("BVI").  And, when the construction fell behind schedule, Wartsila hired Hill International to furnish a consultant to rectify the problems.

But the Hill consultant, Richard LeFebvre, lied about his education on the resume he and Hill submitted to Wartsila.  He didn’t, as he claimed, attend buiness law classes at the University of North Florida; receive a business degree from Duquesne University; or earn a B.S. in electrical engineering from Penn State University.

Problems with the project persisted, culminating in a dispute between Wartsila and BVI, which blamed Wartsila.  The fight proceeded to arbitration.  After BVI’s counsel revealed during examination of LeFebvre that he misrepresented his credentials, the panel of arbitrators awarded BVI $4.65 million against Wartsila.

Wartsila sought to recoup its loss in the arbitration from Hill.  But Hill cited the exculpatory clause in the consulting contract.  The clause barred recovery of "incidental, special, indirect or consequential damages of any kind or nature whatsoever arising from Consultant’s performance or failure to perform any services under this Agreement."  The district court held the clause unenforceable under Maryland law, which the parties had chosen to govern the contract.  The jury returned a verdict awarding Wartsila $2,047,952, on which the district court entered judgment.

The Third Circuit vacated and remanded for new trial on damages.  The exculpatory clause, the court held, didn’t run afoul of Maryland law, which enforces such provisions unless (1) the wrongdoer intentionally or recklessly causes harm, (2) the contract resulted from grossly unequal bargaining power, or (3) the transaction involves the public interest.  The court also concluded that the award included non-direct damages (consisting primarily of the costs and other losses that Wartsila sustained in connection with the BVI arbitration).  The court accordingly sent the case back for retrial to determine "direct" damages only.

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