Failure by Injured Party to Take Reasonable Action May Limit Recovery

Construction and Procurement Law News, Q2 2018

Firm Alert

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There are instances where a party’s breach of the construction contract is undisputed. However, the amount of recoverable damages often hinges on the injured party’s own conduct both during and following that breach. The recent Florida Fifth District Court of Appeal case of Penton Business Media Holdings, LLC v. Orange County succinctly articulates this point.

In Penton, landlord Orange County (“County”) leased space in the Orange County Convention Center to tenant Penton Business Media Holdings, LLC (“Penton”) for the purpose of hosting a trade show. The parties’ lease agreement provided that Penton would be liable to the County for any damage to the center caused by Penton or its “employees, agents, or guests.” One of Penton’s exhibitors was required to conduct a pre-show test of a flame effect device before the potentially dangerous demonstration could be shown to the general public. During the pre-show demonstration, the County’s fire safety sprinkler system was activated, causing significant water damage to the leased premises. The County sued Penton in Florida state court seeking to recover all damages incurred by the extensive water damage as permitted by the lease. While there was no dispute that Penton’s exhibitor triggered the sprinkler system, Penton sought to limit or bar the County’s damages by asserting the affirmative defense that these damages were “created or enhanced” by the County’s own failure to shut down the sprinkler system as soon as reasonably possible. The trial court sided with the County and awarded summary judgment on the issues of both liability and damages.

On appeal, the Florida Fifth District affirmed the trial court’s award of summary judgment on the issue of Penton’s breach of the lease, but found that the trial court improperly overlooked the “avoidable consequences” doctrine in awarding judgment to the County on the issue of damages. The court noted that under the “avoidable consequences” doctrine, a party is prevented “from recovering those damages inflicted by a wrongdoer that the injured party could have reasonably avoided.” However, the doctrine does not require a “Herculean effort” by the injured party, and the plaintiff’s recovery should only be reduced by the damages that “it could have avoided had it exercised ordinary and reasonable care.” Because the record below did not conclusively establish that the County exercised ordinary and reasonable care in disconnecting the sprinkler system, the court reasoned that Penton’s affirmative defense that the County’s own conduct created or enhanced the damages sought was not conclusively refuted. As such, the Fifth District reversed and remanded the case back to the trial court for further findings of fact on whether the damages sought by the County could reasonably have been avoided. If the trial court ultimately finds on remand that the County could have (or should have) de-activated the sprinkler system sooner, then the reduction of the recovery sought by the County for the resulting water damage could be significant.

While the Penton case involved a landlord-tenant dispute and does not specifically delve into the conduct of the County in de-activating the sprinkler system, construction professionals must be cognizant of the underlying principle articulated in the Court’s decision or risk limiting its seemingly clear right to recovery. Specifically, the injured party in a construction dispute is not permitted to simply sit back and do nothing following a breach of the contract and/or misconduct of the other party, but has an affirmative obligation – if possible – to timely and reasonably mitigate the damages arising from this wrongful conduct. While an unreasonable (or “Herculean”) effort is not required, the failure to take appropriate and reasonable action in response may limit or completely bar the damages recoverable, even when the other side’s breach is undisputed.