Not All Damages Are Created Equal: What the First Department Reminds Litigators and Contract Drafters in Gamma v. Pavarini McGovern

By Leah Henry on October 1, 2026

Posted in Appeals, Breach of Contract, Commercial Division, Commercial Real Estate, Litigation

In contract litigation, damages provisions often do more work than parties expect—and sometimes less than litigants later claim. The First Department’s decision in Gamma USA, Inc. v. Pavarini McGovern, LLC is a useful reminder that courts will read damages limitations by their actual scope, not by their perceived practical effect.

Background: The Contract Framework

Gamma USA, Inc., a subcontractor on a major hotel, retail, and theater renovation project in Times Square, commenced an action to recover damages from Pavarini McGovern, LLC for failure to release contractual retainage owed. Pavarini McGovern counterclaimed, alleging that Gamma’s breaches caused the project owner, Times Square Hotel Owner LLC, to incur substantial additional costs (Gamma USA, Inc v Pavarini McGovern, LLC, 2026 NY Slip Op 05237 [Sup Ct, NY Cnty, Sept. 10, 2026]). Under the Construction Management Agreement between the owner and Pavarini McGovern, delay damages were liquidated at $10,000 per day, capped at $3.6 million, as the owner’s sole remedy for delay against the general contractor. That agreement also contained a consequential damages waiver but did not expressly waive other categories of damages.

The subcontract between Pavarini McGovern and Gamma incorporated the same liquidated damages framework for owner delay claims but expressly preserved Pavarini McGovern’s right to recover additional costs and other direct or consequential damages for breach.

Because of Gamma’s alleged breaches, Pavarini McGovern was liable for the owner’s damages under the Construction Management Agreement. However, Pavarini McGovern and the owner agreed to liquidate Pavarini McGovern’s liability for damages caused by Gamma via a Liquidating Agreement pursuant to which Pavarini McGovern could assert “pass-through” claims against Gamma on behalf of the owner. Liquidating agreements serve as a bridge for contractual gaps in construction disputes when the disputing parties lack any direct contractual relationship. The lack of privity between a subcontractor and an owner precludes a legal basis for either party to assert a breach of contract claim. These liquidating agreements allow the general contractor to act as a conduit for passing through the claim.

Gamma moved to dismiss Pavarini McGovern’s counterclaim, arguing that the Liquidating Agreement lacked consideration, and alternatively, that all counterclaim damages should be capped at $3.6 million. Manhattan Commercial Division Justice Melissa A. Crane partially granted the motion, finding the Liquidating Agreement enforceable but holding that the owner’s pass-through damages were limited to liquidated damages for the delay. The Commercial Division dismissed the portions of the counterclaim seeking damages in excess of the cap and consequential damages while acknowledging that Pavarini McGovern could have pursued consequential damages for injuries it suffered independently under the subcontract.

The First Department held that the Commercial Division correctly concluded that there was no independent claim asserted by Pavarini McGovern, and that, to the extent Pavarini McGovern sought to recover damages from Gamma for subcontractor delays, that recovery was subject to the liquidated damages cap. The First Department declined to hold that the relevant agreements restricted other damages potentially recoverable by Pavarini McGovern on behalf of the owner outside of the capped amount. The first amended counterclaim asserted several forms of non-delay damages attributable to the owner, and those claims, the First Department held, should not have been dismissed. Critically, the First Department clarified the Commercial Division’s reading of the consequential damages waiver in the Construction Management Agreement: it waived consequential damages, not all damages other than liquidated delay damages. That distinction mattered.

Upshot: Precision Pays

Gamma is useful well beyond construction disputes. Commercial contracts frequently layer remedial provisions. The First Department’s analysis reinforces that each provision must be read according to its actual scope. A cap attached to one remedial category should not automatically migrate to another.

This decision also makes clear that the First Department will not allow the existence of a liquidating agreement to expand liability beyond what the overarching construction management agreement allows or shrink recoverable damages below what is permitted. The pass-through structure affects who asserts the claim but does not rewrite the remedial limitations governing the claim.

For litigators, this is a good reminder to plead damages by category. Bundling all damages into a single undifferentiated claim risks subjecting otherwise recoverable damages to a cap that only applies to a narrower subset.

For contract parties and drafters, the decision underscores the importance of specifying whether a cap is category-specific or global and drafting waivers with equal precision.

For all, the broader takeaway is that labels matter. As the First Department made clear here, a liquidated damages provision is not necessarily an exclusive remedy for all damages. A consequential damages waiver is not necessarily a waiver of direct damages. Courts will enforce damages limitations according to their scope, not their gravitational pull.