1st Circuit Pending Appeal - Construction Contract Defenses & Miller Act

https://www.va.gov/directory/facility

In Endicott Constructors Corp. v. E. Amanti & Sons, Inc., No. 1:14-CV-12807-LTS, 2017 WL 3028877 (D. Mass. July 14, 2017), the plaintiff-subcontractor Endicott Constructors Corp. (“Plaintiff”) filed a lawsuit claiming breach of contract and quantum meruit against the defendant-general contractor E. Amanti & Sons, Inc. (“Defendant Contractor”) on a construction renovation project at a Veterans Affairs building in Bedford, Massachusetts. Plaintiff also brought a claim against Safeco Insurance of America (“Defendant Surety”) pursuant to the Miller Act, 40 U.S.C. § 3133.  The two Defendants moved for summary judgment against Plaintiff's claims. The District of Massachusetts granted the motions. Plaintiff is now appealing the decision to the First Circuit.

Though factually detailed, the decision serves as a review of numerous key concepts in construction law including the requirement of strict performance to recover on a contract breach, requirement of substantial performance to recover under quantum meruit, cardinal change, necessity of expert testimony, contractual notice provisions, and tolling applicable to the Miller Act statute of limitations.

• The Court held that Plaintiff could not, as a matter of law, show "complete and strict performance of all its terms" because Plaintiff walked off the project with 1/3 of the subcontract to complete, and therefore could not recover on the contract itself.  

• Moreover, in addition to walking off the job, Plaintiff acknowledged, inter alia, that it performed defective work and did not pay federally-required wages.  Accordingly, the Court concluded that the Plaintiff, as a matter of law, "did not substantially perform its contract obligations" which extinguished its claim for "quantum meruit" as well.

• To avoid this harsh result on its contract-based claims, Plaintiff argued that a "cardinal change" had occurred excusing its performance.  The Court hesitated to confirm that Massachusetts has adopted this doctrine, but in any event, held that the elements of a cardinal change were not present. The Court observed that there must be "alteration in the work [effected by the government] so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for."  Here, because Plaintiff only pointed to the government adding supervisory personnel to its payroll and a large number of change orders, the Court was not persuaded that Plaintiff's scope was "drastically altered." Indeed that court emphasized that, In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989) the court had held that even 86 change orders was not sufficient to show a cardinal change to construction contract.

• With respect to Plaintiff's extended time claim, the Court, in dicta, questioned whether an expert is required to prove such a delay claim, but also noted that Plaintiff's failure to do so may be at its peril as it had not presented a "coherent analysis" to allow a factfinder to could find in its favor.

• Adding to Plaintiff's challenges, it failed to present evidence that it had given notice of its claims within 7 days as required by the contract. The Court, without delving into whether the defendant was prejudiced by the delay, succinctly held that failure to comply with the contractual provision "will generally preclude all relief."

• With respect to the Miller Act action that Plaintiff filed on the bond provided by Defendant Surety, the Court was not persuaded that presence of Plaintiff's trailers on the construction site would extend limitations period.  The Miller Act requires that any action on the bond must be brought within one year of the "last of the labor was performed or material was supplied" by the contractor or supplier bringing the action.

If the First Circuit has an opportunity to weigh in, the law in these areas, as recounted above, may be further honed by its decision. If so, we will update this blog.

---------------------------------------
The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

MA Court Overturns Quantum Meruit Award Due to Contractor Not Strictly Complying with Plans and Specifications

The Plaintiff in Pinecone Construction, Inc. v. Kamala Sridhar & another was a residential builder who contracted with the husband and wife defendants to build an addition to their home.  After only a few months of construction, the defendants terminated the contract due to multiple code violations and breaches of the contract by the plaintiff.  Consequently, the plaintiff filed suit in Superior Court claiming breach of contract and quantum meruit for the work it performed and the defendant then filed a series of counter claims.  After a bench trial, the plaintiff prevailed on its quantum meruit claim, but the judge found for the defendants on the breach of contract claim.  Furthermore, the trial judge found for the defendants on their breach of contract counterclaim, breach of covenant of good faith and fair dealing claim, their request to dissolve the mechanic’s lien, and for violations of the consumer protection statute thus awarding treble damages and attorney’s fees.  Both parties appealed the judgments.

 The Court began its review of the quantum meruit award by examining the trial judge’s findings.  The trial judge identified that quantum meruit is based in quasi-contract and its underlying basis is “unjust enrichment of one party and unjust detriment of the other party.” Liss v. Studeny, 450 Mass. 473, 479-482 (2008), quoting Salamon v. [Terra], 394 Mass. 857, 859 (1985).   Additionally, the trial judge found that a quantum meruit claim requires both, “good faith and substantial performance of the contract.” J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 796 (1986).  Finally, the trial court identified that, “that an intentional departure from the precise requirements of the contract is not consistent with good faith . . . and unless such departure is so trifling as to fall within the rule de minimus, it bars all recovery." [emphasis added] Andre v. Maguire, 305 Mass. 515, 516 (1940).

Next, the Court presented the trial judge’s finding that the plaintiff failed to construct the addition to the defendant’s home in direct accordance with the plans and specifications, which were incorporated into the contract.  The trial judge found that the plaintiff "knowingly, intentionally and substantially departed from the contract's requirements, and its departure was not de minimus."  Ultimately though, the trial judge found for the plaintiff on its quantum meruit claim due to the plaintiff’s work being “structurally sound” and the installed work was ultimately used as the base for which the addition was completed by others.  Based upon that, the trial judge stated that, “equity demands that [the plaintiff] recover the value of its labor and materials.”

The Court found the trial judge’s decisions to be “circular reasoning” as any “any benefit or enrichment the defendants received from the plaintiff's work is irrelevant if the plaintiff failed to show both good faith and substantial performance of the contract, as was reasonably determined here." [emphasis added] See Andre, 305 Mass. at 516.  

Accordingly, the Court overturned the quantum meruit award and then affirmed all of the other trial judge’s decisions.

---------------------------------

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or carter@agcmass.org.

The Dispute Resolver is pleased to introduce its newest regular contributor, I’Ashea Myles-Dihigo of the Leitner, Williams, Dooley & Napolitan, PLLC firm in Nashville, Tennessee.  I'Ashea  focuses her practice on litigation and dispute resolution specifically in the areas of construction law, real estate law, commercial litigation, and employment law.  As a construction law attorney, I'Ashea regularly handles matters related to the building and development of both commercial and residential property. Her experience includes representing owners, contractors, subcontractors and suppliers in federal and state courts. She also counsels contractors and developers at the beginning of projects to avoid the need for litigation. She advises her clients with bid negotiations, contract drafting, liens, employment law matters and compliance with changing regulations. 

Thank you I’Ashea for your contributions to Division 1 and the Forum.  Enjoy her post:   

“Cost-Plus Contract and the Disorganized Contractor”

Some contractors are better at record keeping than others.  I always seem to run into this issue when I working with a client and I’ve asked them to provide me with all of their records regarding the project.  The usual answer that I get is, “I don’t keep those kinds of records,” or “All I have are text messages.”  Depending on the type of contract dispute, the lack of accurate record keeping may not be such a big deal, however, when there is a dispute regarding a cost-plus contract, recording keeping can become a central issue.  This concept is explained by the Tennessee Court of Appeals in the case of Forrest Construction Company, LLC v. Laughlin.

Generally speaking in Tennessee, when a contractor seeks to recover unpaid fees relative to a cost-plus contract, and the owner denies owing fees, the contractor must show the court an itemization of each expenditure made on the project.  In Forrest Construction Company, LLC v. Laughlin, homeowner entered into a cost plus contract with Forrest Construction Company to build a home. Forrest Construction Company, LLC v. Laughlin, 337 S.W. 3d 211 (Tenn. Ct. App. 2009).  Prior to completion, of the house, Forrest Construction and the homeowner began to have disputes about payment.  Id. at 216.  Forrest Construction stopped work on the home, filed a lien, and thereafter filed a breach of contract action against the homeowner and an action to recover damages based on the doctrine of quantum meruit. Id. at 218.  Forrest Construction claimed that homeowner breached the contract by failing to timely pay pursuant to the terms of the parties’ agreement. Id.  Defendant homeowners filed a counter-claim against Forrest Construction for negligent construction, gross negligence, negligence per se, breach of contract, and violations of the Tennessee Consumer Protection Act.  Id. at 218-219. 

The contract at issue in Forrest Construction required that the contractor retained a detailed accounting and back-up documents for all expenditures and draw requests on the project.  When the homeowner asked Forrest Construction for the accounting records on the project, the contractor could only provide a “two foot thick pile” of unorganized receipts.  Id. at 224.  The Court found this type of record keeping to be unacceptable when it said,  "In any cost-plus contract there is an implicit understanding between the parties that the cost must be reasonable and proper." Id. at 223-224; Kerner v. Gilt, 296 So. 2d 428, 431 (La. App. 4 Cir., 1974). "The contractor is under a duty of itemizing each and every expenditure made by him on the job and where the owner denies being indebted to the contractor the latter has the burden of proving each and every item of expense in connection with the job." Id. (citing Wendel v. Maybury, 75 So.2d 379 (Orl. La. App. 1954); Lee v. National Cylinder Gas Co., 58 So. 2d 568 (Orl. La. App. 1952)); see also 17A Am Jur. 2d Contracts, Sec. 495 (2008). Forrest Construction never itemized the expenditures it sought to recover from the homeowner. Id. Instead, it submitted essentially unsubstantiated requests for draws. Id. Moreover, when called upon to provide proper documentation and itemization of the costs, it provided a wholly disorganized, un-itemized box of documents, many of which were unrelated to the actual project.  Id. As a result of this finding, the Court reversed the trial court’s decision in favor of the contractor and instead held that the contractor materially breached the contract first. 

The take away from this case is when a contractor chooses to work under a cost-plus contract agreement, the contractor should be sure that they are able to maintain the heightened accounting requirement that goes along with that type of agreement. This means fully documenting each expenditure in an organized manner. If your client is like many of my clients, the fixed-fee agreement may work better because it does not require the heightened accounting in order to recover on a dispute of non-payment.