{"id":906139,"date":"2026-09-22T15:51:24","date_gmt":"2026-09-22T21:51:24","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=906139"},"modified":"2026-09-22T15:51:26","modified_gmt":"2026-09-22T21:51:26","slug":"liquidated-damages-consequential-damages-in-pass-through-claims","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/liquidated-damages-consequential-damages-in-pass-through-claims\/","title":{"rendered":"Court Enforces Liquidated Damages Cap and Consequential Damages Waiver in Pass-Through Claim"},"content":{"rendered":"\n

Jeffrey Haber | Freiberger Haber<\/a><\/p>\n\n\n\n

In Gamma USA, Inc. v. Pavarini McGovern, LLC<\/u><\/em><\/a>, 2026 N.Y. Slip Op. 05237 (1st Dept. September 10, 2026), the Appellate Division, First Department, addressed the interplay between pass-through claims<\/a>, liquidating agreements, liquidated damages provisions<\/a>, and consequential damages waivers<\/a> in complex construction disputes. The Court held that a subcontractor could not be exposed, through a pass-through claim, to damages that had been contractually waived or limited under the governing project agreements. At the same time, the Court rejected an expansive reading of those limitations, concluding that direct damages remained recoverable where the contracts did not expressly bar them.<\/p>\n\n\n\n

Gamma<\/em> is notable not only for its treatment of pass-through claims, but also for its application of fundamental principles of contract interpretation. In reading the primary contract and subcontract together, the Court emphasized that negotiated risk-allocation provisions must be enforced according to their plain terms. A liquidated damages clause governing delay damages could not be transformed into a cap on all damages, and a waiver of consequential damages could not be expanded to eliminate direct damages. Gamma<\/em>, therefore, underscores that a liquidating agreement cannot be used to circumvent or reallocate the contractual limitations negotiated by sophisticated parties; rather, the scope of recoverable damages remains a matter of contract interpretation governed by the plain language of the underlying agreements.<\/p>\n\n\n\n

Gamma USA, Inc. v. Pavarini McGovern, LLC<\/strong><\/p>\n\n\n\n

Gamma <\/em>arose from a renovation project involving a 47-story mixed-use tower in Times Square, New York, which included hotel, retail, and theater improvements. Plaintiff served as a subcontractor on the project, while defendant acted as the construction manager and general contractor.<\/p>\n\n\n\n

After disputes emerged during the project, litigation followed. The primary issue in Gamma<\/em> concerned the scope of damages that could be recovered by the defendant, the general contractor. Specifically, defendant asserted a counterclaim against plaintiff as a \u201cpass-through\u201d claim on behalf of the project\u2019s owner, Times Square Hotel Owner, LLC (\u201cOwner\u201d), a non-party to the action.<\/p>\n\n\n\n

The Owner engaged defendant on the project pursuant to a Construction Management Agreement (the \u201cCMA\u201d) in August 2018. Pursuant to Section 3.1.2 of the CMA, if defendant did not meet certain milestones by a specified date, it was required to pay the Owner liquidated damages in the amount of $10,000 per day, not to exceed $3.6 million (the \u201cDelay Provision\u201d). The Delay Provision clarified that such liquidated damages would constitute the Owner\u2019s \u201csole remedy\u201d for delay damages from defendant.<\/p>\n\n\n\n

Separately, Section 25.19 of the CMA provided that defendant and the Owner would waive claims for consequential damages against each other arising under the contract (the \u201cWaiver Provision\u201d). The Waiver Provision clarified that it was not meant to preclude an award of liquidated damages in accordance with the Delay Provision. The parties did not waive other damages (such as direct damages) under the Waiver Provision.<\/p>\n\n\n\n

In August 2018, defendant retained plaintiff to perform curtain wall and facade work pursuant to a trade contract (the \u201cSubcontract\u201d). The Subcontract required plaintiff to complete the work in accordance with the CMA and other contract documents, with time being of the essence. Unlike the Waiver Provision found in the CMA (which waived consequential damages), Section 6.1 of the Subcontract specified that plaintiff would be liable to defendant \u201cfor all direct and consequential damages arising out of . . . this [Subcontract] including any defects in [plaintiff\u2019s] Work\u201d.<\/p>\n\n\n\n

In Section 22.1 (entitled \u201cTimely Completion\u201d), as modified by Exhibit H, Section V(7) of the Subcontract, plaintiff acknowledged that failure to complete the work in a timely manner would \u201cresult in extreme hardship to [the] Owner\u201d and that if plaintiff failed to do so \u201c[the] Owner\u2019s damages for such delays shall be liquidated\u201d in the same manner as specified in the Delay Provision of the CMA, and \u201c[n]otwithstanding the foregoing, [plaintiff\u2019s] liability for liquidated damages\u201d would be capped at $3.6 million (the \u201cLiquidated Damages Cap\u201d). Section 22.2 set forth that the Liquidated Damages Cap would not \u201cin any way limit [defendant\u2019s] right . . . to collect damages for, inter alia, increased cost of construction . . . and any other damages, including direct or consequential damages, to which [defendant] may be entitled to collect by law for breach of this contract.\u201d<\/p>\n\n\n\n

Plaintiff commenced the action against defendant, seeking more than $16 million for nonpayment and breach of the Subcontract. Defendant answered the complaint.<\/p>\n\n\n\n

Several months after the commencement of the action, defendant and the Owner entered a \u201cpass-through\u201d liquidating agreement so that defendant could assert a counterclaim in the lawsuit on the Owner\u2019s behalf (as amended, the \u201cAmended Liquidating Agreement\u201d). The Amended Liquidating Agreement was necessary because the Owner lacked privity to assert its own claim against plaintiff, and the Owner wished to avoid the time and expense of suing defendant (which would then in turn sue plaintiff for indemnification).<\/p>\n\n\n\n

In the Amended Liquidating Agreement, the Owner and defendant acknowledged that the Owner had incurred damages (including consequential damages) on account of plaintiff\u2019s failure to perform work in accordance with the Subcontract (the \u201cOwner Claim\u201d), and that defendant was liable to the Owner for that claim under the CMA. The Owner and defendant also agreed that they had entered the Amended Liquidated Agreement to \u201cliquidate the Owner Claim such that [defendant\u2019s] liability to [the] Owner in connection with the Owner Claim [was] liquidated and limited to the amount, if any, that [was] actually recovered from [plaintiff] on account of the Owner Claim, including, without limitation the consequential damages incurred by [the] Owner as a result of [plaintiff\u2019s] breach. . . .\u201d<\/p>\n\n\n\n

Defendant filed a second amended answer, the operative pleading in the action, asserting an amended counterclaim brought by defendant solely on the Owner\u2019s behalf in accordance with the Amended Liquidating Agreement.<\/p>\n\n\n\n

Plaintiff moved to dismiss the amended counterclaim shortly after it was filed, arguing that the Amended Liquidating Agreement was unenforceable. In the alternative, plaintiff argued that its liability for liquidated damages was capped at $3.6 million under the Liquidated Damages Cap of the Subcontract.<\/p>\n\n\n\n

Supreme Court granted the motion to dismiss the amended counterclaim to the extent it sought damages exceeding the $3.6 million Liquidated Damages Cap. The court found that the amended counterclaim sought damages solely for the Owner\u2019s injuries, not defendant\u2019s injuries. The court also noted that, under the CMA, the Owner had expressly waived its right to recover \u201cany damages\u201d other than liquidated damages from defendant, which included consequential delay damages.<\/p>\n\n\n\n

Thus, Supreme Court held that while defendant would have retained the right to recover consequential damages from plaintiff for its own injuries under the Subcontract (see<\/em>, e.g.<\/em>, Section 6.1 of the Subcontract), the liability for the Owner\u2019s injuries was governed by the Liquidated Damages Cap found in 2.21 of the Subcontract, which capped recoverable damages at $3.6 million. Defendant\u2019s recovery on its amended counterclaim asserted on behalf of the Owner was thus limited to a maximum of $3.6 million with respect to all forms of damages.<\/p>\n\n\n\n

The Court held that Supreme Court \u201ccorrectly read the amended counterclaim \u2014 styled entirely as a pass-through claim by [defendant] on behalf of the Owner \u2014 in determining that there was no independent claim asserted by [defendant] (apart from the liability for its subcontractors to the Owner under the CMA).\u201d[1]<\/u><\/a> The Court pointed to paragraph 194 of the second amended answer in support, which alleged that the \u201cOwner incurred substantial additional costs as a result of [plaintiff\u2019s] breaches, in the form of overhead and supervision, direct work costs charged by separate contractors, additional storage, and labor expenditures.\u201d[2]<\/u><\/a> The Court also pointed to paragraph 196 of the second amended answer, which \u201casserted that \u201c[u]nder the [CMA], [defendant] is responsible for all the acts and omissions of its subcontractors and is liable to [the] Owner for damages incurred due to” the Subcontractor’s breaches of the Subcontract.\u201d[3]<\/u><\/a> From these allegations, the Court concluded that defendant \u201cdid not allege that it incurred additional damages apart from those owing to the Owner on account of the [plaintiff\u2019s] breaches.\u201d[4]<\/u><\/a><\/p>\n\n\n\n

The Court also held that \u201cSupreme Court . . . properly found that it was necessary to interpret both the CMA (between the Owner and [defendant]) and the Subcontract (between [defendant] and [plaintiff]) in determining the scope of recoverable damages on the pass-through counterclaim.\u201d[5]<\/u><\/a> \u201cFirst,\u201d said the Court, Supreme Court \u201ccorrectly found that to the extent [defendant] sought to recover damages from [plaintiff] that the Owner incurred based on [plaintiff\u2019s] delays, that recovery was subject to the Liquidated Damages Cap in the Subcontract.\u201d[6]<\/u><\/a> \u201cThat section,\u201d noted the Court, \u201cexplicitly provide[d] that the Owner\u2019s damages for such delays would be . . . liquidated in the same daily amount specified by the owner in the CMA (i.e., $10,000 per day for each day of the delay) in the proportion that [plaintiff] was the cause of such delay, and that notwithstanding the foregoing, [plaintiff\u2019s] liability for liquidated damages would be capped at $3.6 million.\u201d[7]<\/u><\/a><\/p>\n\n\n\n

\u201cHowever,\u201d said the Court, \u201cthe above limitation [was] applicable only to the Owner\u2019s damages caused by the Subcontractor\u2019s delays.\u201d[8]<\/u><\/a> \u201cThe relevant agreements do not,\u201d explained, \u201crestrict the other damages that [defendant could] recover on behalf of the Owner.\u201d[9]<\/u><\/a> \u201cNotably,\u201d said the Court, \u201cthe first amended counterclaim claim assert[ed] several forms of damages attributable to Owner, not just delay damages. To the extent the damages sought were not delay damages, they should not have been subject to the $3.6 million cap.\u201d[10]<\/u><\/a><\/p>\n\n\n\n

Second, said the Court, \u201cwith respect to other forms of damages recoverable by the Owner, it was necessary to look to the CMA.\u201d[11]<\/u><\/a> \u201cWhile Supreme Court addressed the CMA only in passing,\u201d noted the Court, \u201cthe recognition that the terms of the CMA apply to the pass-through counterclaim [was] important.\u201d[12]<\/u><\/a> The Court explained that  <\/p>\n\n\n\n

\n

the Owner had the ability to assert claims for damages directly against [defendant] for liquidated delay damages and other (nonconsequential) damages under the CMA. However, the Owner instead chose to rely on the Amended Liquidating Agreement to pursue claims against [plaintiff] by way of a pass-through counterclaim asserted by [defendant] against [plaintiff]. This strategic decision did not (and should not) alter or expand the scope of [plaintiff\u2019s] liability for the Owner\u2019s damages under the Subcontract, which expressly incorporated the terms of the CMA.[13]<\/u><\/a><\/p>\n<\/blockquote>\n\n\n\n

The Court noted that \u201c[w]hile Supreme Court properly acknowledged that the CMA applied, the court\u2019s interpretation exceeded the intended scope of the prescribed damages waived in the CMA.\u201d[14]<\/u><\/a> \u201cSpecifically,\u201d said the Court, \u201cSupreme Court concluded that the \u2018Owner expressly waived its rights to recover any damages other than liquidated damages from defendant [General Contractor], including consequential delay damages\u201d in the CMA.\u201d[15]<\/u><\/a> \u201cHowever,\u201d explained the Court, \u201cthe CMA did not waive all damages as between the Owner and the General Contractor, but only claims for \u201cconsequential damages arising of and relating to the Contract.\u201d[16]<\/u><\/a> The Court concluded that \u201c[c]onsequential damages are meant to compensate for indirect losses, and are but a small subset of permissible damages under a contract.\u201d[17]<\/u><\/a> <\/p>\n\n\n\n

Thus, held the Court, \u201cnothing in either the Subcontract or the CMA limit[ed] the Owner\u2019s ability (vis-a -vis the [defendant]) to pursue direct damages from [plaintiff], so long as they [were] not consequential damages or delay damages in excess of the $3.6 million cap.\u201d[18]<\/u><\/a> In so holding, the Court modified Supreme Court\u2019s order to dismiss \u201conly those portions of the counterclaim seeking delay damages in excess of the $3.6 million liquidated damages cap and consequential damages.\u201d[19]<\/u><\/a><\/p>\n\n\n\n

Takeaway<\/strong><\/p>\n\n\n\n

Although Gamma<\/em> arose in the context of a pass-through claim, the decision is fundamentally a contract interpretation case. It concerns the well-established doctrine under New York law permitting a contractor to assert claims on behalf of a party with whom the defendant lacks contractual privity through a liquidating agreement. The central principle is that a pass-through claim is a procedural vehicle for recovery; it does not create new substantive rights or expand existing liability. The Court emphasized that the Owner\u2019s decision to proceed through a liquidating agreement could not alter the scope of damages otherwise available under the governing contracts.<\/p>\n\n\n\n

Starting from that premise, the Court analyzed the CMA and Subcontract together, giving effect to each provision according to its plain language. The Court rejected the notion that the subcontract\u2019s $3.6 million liquidated damages cap restricted all forms of owner damages. By its terms, the provision addressed only delay damages. Consistent with New York\u2019s preference for enforcing negotiated risk-allocation provisions as written, the Court refused to expand the cap beyond the category of damages expressly identified in the contract.<\/p>\n\n\n\n

The Court applied the same interpretive approach to the consequential damages waiver in the CMA. Supreme Court had effectively treated the waiver as eliminating all damages other than liquidated damages. The Court disagreed, emphasizing that the parties waived only consequential damages, not direct damages. Relying on established New York law distinguishing direct damages from consequential damages, the Court declined to enlarge the scope of the waiver beyond what the parties actually negotiated and memorialized in their agreement.<\/p>\n\n\n\n

Viewed through this lens, Gamma<\/em> reinforces several related principles of contract interpretation under New York law. Related agreements forming part of the same transaction must be read together. Damages limitations and waivers are enforced according to their plain terms. Courts will not rewrite contracts by implication, nor will they transform a liquidated damages provision governing one category of loss into a cap on all damages. Likewise, a waiver of consequential damages does not extinguish claims for direct damages absent clear contractual language to that effect.<\/p>\n\n\n\n

The pass-through nature of the claim ultimately reinforced, rather than altered, those principles. Because defendant was asserting only the Owner\u2019s claim, it stood in the owner\u2019s shoes and could recover only those damages the Owner itself could have recovered under the contractual framework. As a result, delay damages remained subject to the $3.6 million liquidated damages cap, consequential damages remained barred by the waiver provision, and direct damages remained recoverable because neither agreement expressly eliminated them. The liquidating agreement provided a mechanism for pursuing the claim, but it could not expand plaintiff\u2019s contractual exposure beyond the limits established by the underlying agreements.<\/p>\n\n\n\n

\n\n\n\n

[1]<\/u><\/a> Slip Op. at *4.<\/p>\n\n\n\n

[2]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[3]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[4]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[5]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[6]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[7]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[8]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[9]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[10]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[11]<\/u><\/a> Id.<\/em> at *5.<\/p>\n\n\n\n

[12]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[13]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[14]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[15]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[16]<\/u><\/a> Id.<\/em> (internal quotation marks omitted).<\/p>\n\n\n\n

[17]<\/u><\/a> Id.<\/em>, citing Bi-Economy Market, Inc. v. Harleysville Ins. Co. of N.Y.<\/em>, 10 N.Y.3d 187, 192-193 (2008); American List Corp. v. U.S. News & World Report<\/em>, 75 N.Y.2d 38, 43 (1989).<\/p>\n\n\n\n

[18]<\/u><\/a> Id.<\/em><\/p>\n\n\n\n

[19]<\/u><\/a> Id.<\/em> at *1.<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.ne<\/a>t.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Jeffrey Haber | Freiberger Haber In Gamma USA, Inc. v. Pavarini McGovern, LLC, 2026 N.Y. Slip Op. 05237 (1st Dept. September 10, 2026), the Appellate Division, First Department, addressed the interplay between pass-through claims, liquidating agreements, liquidated damages provisions, and consequential damages waivers in complex construction disputes. The Court held that a subcontractor could not… Continue reading Court Enforces Liquidated Damages Cap and Consequential Damages Waiver in Pass-Through Claim<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[12180],"tags":[9895,9099,204,9112,10345],"class_list":["post-906139","post","type-post","status-publish","format-standard","hentry","category-construction-disputes","tag-advise-consult","tag-consequential-damages","tag-construction-disputes","tag-liquidated-damages","tag-pass-through-claims","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nCourt Enforces Liquidated Damages Cap and Consequential Damages Waiver in Pass-Through Claim - 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