In the 2020 Regular Session, the Louisiana Legislature attempted to resolve an apparent circuit split among the First and Fourth Circuit Courts of Appeal by codifying the requirements for a public entity to withhold liquidated damages (LDs) on public projects. House Bill 758 was originally intended to allow LDs to be withheld on all public contracts. However, after much debate, the bill was limited to “flood protection” and “integrated coastal protection” projects. The new law, codified at La. R.S. § 38:2211(A)(14) and § 38:2248(C), goes into effect on August 1, 2020. Absent further legislative intervention or a ruling from the Supreme Court, contractors are left with two different standards as to whether a public entity can withhold LDs. And it may ultimately come down to where the project is located.
First Circuit – LDs Can Be Withheld
In Coast 2 Coast v. Parish of St. Tammany decided on June 16, 2020, the contractor entered into a contract with St. Tammany Parish. The agreement provided for $500 per day in LDs, which was later increased to $1,000 per day under a new agreement. The contractor claimed it was owed $95,000 under the contract and the Parish asserted it was owed $95,000 in LDs. The contractor filed a writ of mandamus under La. R.S. § 38:2191 to recover amounts owed under the contract. The Parish challenged the mandamus proceeding and asserted a claim for LDs. At trial, the court awarded the contractor the money owed under the contract and denied the Parish’s claim for LDs in the mandamus proceeding, finding the claims for LDs had to be decided in a separate proceeding.
On appeal, the First Circuit—whose jurisdiction includes the Baton Rouge area and the Northshore—held that the trial court erred in finding the Parish’s claim for LDs must be adjudicated separately. The court reasoned, based on the holding in a decision from the First Circuit rendered in March 2020, that “if a plaintiff elects to use a mandamus proceeding, the trial court must determine in a summary proceeding the sum owed under the parties’ contract, including amount of liquidated damages payable under the contract’s provisions.” Thus, the First Circuit remanded the case to have the trial court determine sum owed under the parties’ contract—including the Parish’s claim for LDs.
The First Circuit’s holding and reasoning allows LDs to be withheld by a public entity. This ruling stands in stark contrast to the Fourth Circuit’s ruling in the Woodrow Wilson case.
Fourth Circuit – LDs Cannot Be Withheld
Contrary to the First Circuit, the Fourth Circuit—whose jurisdiction includes New Orleans—has not allowed LDs to be withheld by a public entity. In the Woodrow Wilson Const. LLC v. Orleans Parish School Board decided in 2018, the contractor entered a contract with the School Board to build a school. When the School Board failed to pay the contractor amounts owed under the contract, the contractor filed a mandamus proceeding. The School Board alleged it owed the contractor nothing because the contractor was liable for LDs. The Fourth Circuit held the School Board was barred from asserting a separate claim for ordinary relief to defeat a mandamus proceeding. The court reasoned that asserting a separate claim for LDs as a means to circumvent a mandamus action would render La. R.S. § 38:2191 meaningless. The court stated that the School Board’s damage claim must be tried in an ordinary proceeding. Furthermore, the observed that a public entity’s separate claim for LDs against a contractor is secondary to the contractor’s right to prompt payment under La. R.S. § 38:2191. Thus, the court awarded the contractor the amounts owed under the contract and denied the assertion by the School Board that it had a right to withhold LDs.
The Fourth Circuit’s holding and reasoning directly conflicts with the more recent First Circuit precedent. Under the Fourth Circuit’s analysis, LDs cannot be withheld once a mandamus proceeding is instituted by a contractor to recover amounts owed under the contract. A public entity must seek recovery in an ordinary proceeding to assert its right to withhold LDs, but it may be forced to pay contract amounts owed regardless of its claim for LDs due to the summary nature of the mandamus proceeding in Louisiana.
Takeaway from the Circuit Split
As reflected in these decisions, there is a clear split between the First and Fourth Circuits regarding whether a public entity can withhold LDs from a contractor who claims entitlement to payment under its contract. The split will likely remain unresolved until further legislative action or a ruling by the Louisiana Supreme Court. In the meantime, contractors working on public projects should be aware of the differing precedent in these jurisdictions.
