A recent North Carolina Court of Appeals (COA) opinion held that even if a contract contains a liquidated damages clause, the party seeking relief must specifically seek liquidated damages pursuant to the clause in its complaint in order to recover liquidated damages. In the unpublished opinion issued 5 December 2017, the COA found that in awarding the plaintiff liquidated damages, the default judgment granted the plaintiff more relief than it was entitled to and was an therefore an irregular judgment. (See Aoun & Cole, Inc. v. Fitzpatrick; COA17-240; Wake County File No. 16 CVS 5386.) The defendant was therefore able to set the judgment aside under Rule 60(b)(6) of the North Carolina Rules of Civil Procedure. The panel, consisting of Judges Davis, Bryant, and Inman, affirmed the trial court’s order striking the award of liquidated damages.
The plaintiff and defendant entered into a contract for construction services to be completed by 3 May 2015. The contract stipulated that the contractor-defendants would agree to pay owner-plaintiff “as liquidated damages, and not as a penalty, the sum of $500 per day that final completion is delayed beyond the completion date identified [in the contract.]” The construction was never completed, and plaintiff filed a complaint in Wake County on 26 April 2016. The complaint sought compensatory damages, attorney fees, costs of litigation, pre and post judgment interest, and special damages.
The plaintiff filed a subsequent affidavit summarizing the grounds for relief (including relief pursuant to a liquidated damages clause). The defendants never appeared in court, and a default judgment was entered on 25 July 2016 where the plaintiff was awarded, among other things, $224,000.00 in liquidated damages. On 3 November 2016, the defendants filed a motion to set aside the default judgment on the grounds that even though the affidavit requested liquidated damages, the trial court erred because they were not specifically requested in the complaint. The trial court agreed and granted the defendants’ request for relief.
Court of Appeals
The COA initially noted that because the original judgment granted the plaintiff more relief than it was entitled to based on plaintiff’s complaint, the judgment was an irregular judgment. Because the judgment was deemed irregular, the defendants were entitled to relief under Rule 60(b)(6) of the North Carolina Rules of Civil Procedure. Further, the COA noted that unless the trial court abused its discretion in granting relief, the decision will not be disturbed on appeal.
Analyzing the decision under Rule 54(c), where a judgment by default must not be different from or exceed the amount prayed for in the demand for judgment, the COA held that the logical interpretation of this rule is that a default judgment can only award the type of relief sought in a party’s complaint. Therefore, even though the plaintiff sought compensatory, special, and other damages, the court found a clear distinction between those types of damages and liquidated damages. And even though the contract was attached to the complaint and an affidavit was also later submitted, there was no clear indication in the complaint itself that liquidated damages were sought.
Judge Inman wrote a separate concurrence to note the distinction between the legal standards in a case where a defendant seeks relief after a default judgment has been entered and where a defendant seeks relief before a default judgment has been entered.
Contact Todd Jones at email@example.com or Caroline Trautman at firstname.lastname@example.org with any questions on the above opinion.