Pass-Through Owner Claims: Liquidated-Damages Caps Limit Only Delay Damages, Not Direct Damages Absent an Express Waiver

I. Introduction

Gamma USA, Inc. v. Pavarini McGovern, LLC (Appellate Division, First Department, Sept. 10, 2026) arises from a large Times Square hotel/retail/theater renovation. The dispute centers on the scope of damages recoverable in a construction “pass-through” claim: the general contractor (Pavarini McGovern, LLC) asserted a counterclaim against its subcontractor (Gamma USA, Inc.) solely on behalf of the project owner (nonparty Times Square Hotel Owner, LLC), pursuant to a post-suit liquidating agreement.

The key issue was whether a $3.6 million liquidated-damages cap in the subcontract restricted all owner damages asserted through the pass-through counterclaim, or only delay damages subject to the liquidated-damages regime.

II. Summary of the Opinion

The First Department modified Supreme Court’s order. It held that the subcontract’s $3.6 million cap limits only delay damages governed by the liquidated-damages provision, and that the owner’s other direct damages are not capped by that provision. However, the court also held that the pass-through counterclaim cannot seek consequential damages, because consequential damages were waived in the owner–general contractor Construction Management Agreement (CMA), which the subcontract incorporated.

Accordingly, the counterclaim was dismissed only to the extent it sought (i) delay damages in excess of $3.6 million and (ii) consequential damages; it could proceed for other direct damages.

III. Analysis

A. Precedents Cited

  • Bi-Economy Market, Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192-193 [2008]
    The court cited this case for the general contract-damages taxonomy distinguishing consequential (indirect) losses from other recoverable damages. In this opinion, that distinction was decisive: Supreme Court treated the CMA as if the owner waived “any damages” beyond liquidated damages, but the First Department corrected that reading by emphasizing that the CMA waived only consequential damages, a limited category.
  • American List Corp. v U.S. News & World Report, 75 NY2d 38, 43 [1989]
    Cited alongside Bi-Economy for the proposition that consequential damages are a subset of contractual damages. The citation supports the court’s core interpretive move: a waiver of consequential damages does not eliminate claims for direct damages, and a court should not expand a waiver beyond its expressed scope.

B. Legal Reasoning

  1. The counterclaim was purely a pass-through for the owner.
    The court agreed with Supreme Court that the pleading alleged damages the owner incurred and did not assert an independent damages case for the general contractor (beyond its contractual liability to the owner for subcontractor performance). This mattered because the recoverable damages had to be measured by what the owner could recover under the contract structure being passed through.
  2. Both contracts—the CMA and the Subcontract—govern the pass-through claim.
    The court treated the pass-through as constrained by the same contract ecosystem the parties created: the subcontract incorporated the CMA’s terms, and the owner’s rights against the general contractor under the CMA could not be expanded by choosing the “pass-through” route via a liquidating agreement.
  3. The $3.6 million Liquidated Damages Cap applies only to delay damages under the liquidated-damages clause.
    The Subcontract’s section 22.1 (as modified) expressly addressed “Owner’s damages for such delays” being liquidated at the CMA’s daily rate and then capped. The First Department read this as a subject-matter-specific limitation: it caps only those damages that are delay damages falling within the liquidated-damages mechanism. Therefore, allegations of other owner-incurred costs (e.g., “overhead and supervision,” “direct work costs charged by separate contractors,” “storage,” “labor expenditures”) were not automatically swept into the delay cap.
  4. Consequential damages remain barred because the CMA waived them, and the subcontract incorporated the CMA.
    Supreme Court erred by reading the CMA as waiving “any damages” other than liquidated delay damages; the waiver was expressly limited to consequential damages. The First Department nevertheless enforced that consequential-damages waiver against the pass-through claim, preventing the owner (through the general contractor) from recovering consequential damages from the subcontractor where the governing contract framework did not permit them.

C. Impact

The decision is practically significant for New York construction litigation because it clarifies three recurring points:

  • No “cap by implication.” A liquidated-damages cap tied to delay does not, without clear drafting, cap all categories of damages. Parties seeking a global cap must say so explicitly.
  • Pass-through does not expand rights. Using a liquidating agreement to route an owner’s claim through a general contractor does not enlarge the owner’s recoverable damages beyond the limits established in the incorporated contract documents.
  • Consequential-damages waivers are enforced as written. Courts will not convert a consequential-damages waiver into a blanket waiver of all non-liquidated damages; but the consequential category itself will be excluded when properly waived.

Going forward, litigants can be expected to fight more intensely over classification of damages as “delay,” “direct,” or “consequential,” because this opinion makes that classification outcome-determinative: delay damages are capped (here, at $3.6 million), consequential damages are waived, and direct damages remain potentially recoverable.

IV. Complex Concepts Simplified

Pass-through claim
A mechanism allowing a party with contractual privity (here, the general contractor) to assert a claim against another party (the subcontractor) to recover damages actually suffered by a third party (the owner) that lacks privity with the subcontractor.
Liquidating agreement
An agreement (often between owner and general contractor) that “liquidates” or fixes the general contractor’s liability to the owner to the amount recovered from the subcontractor—enabling litigation against the subcontractor without forcing the owner to sue the general contractor first.
Liquidated damages (and a cap)
A pre-agreed amount payable upon a specified breach (commonly delay), used to avoid proving actual delay damages. A “cap” limits the maximum payable under that liquidated-damages clause; this opinion holds the cap applies to that category (delay), not to unrelated damage categories unless the contract clearly says otherwise.
Direct vs. consequential damages
Direct damages compensate for the immediate, natural result of a breach (the basic “benefit of the bargain” loss). Consequential damages compensate for additional, indirect losses that flow from special circumstances (often requiring foreseeability and proof). Here, the CMA waived consequential damages but not direct damages.

V. Conclusion

Gamma USA, Inc. v. Pavarini McGovern, LLC establishes that, in a construction pass-through context, a subcontract’s liquidated-damages cap drafted for delay applies only to delay damages within that liquidated framework, while other direct damages may remain recoverable unless expressly waived—yet consequential damages remain barred where the incorporated prime agreement (here, the CMA) contains a consequential-damages waiver. The opinion reinforces careful, category-specific contract interpretation and signals that damage classification will be pivotal in future construction disputes.