Massachusetts Federal Court: Contractor and Contractor’s Owner Personally Liable for Fraud and Conversion for Failing to Pay Subcontractor; Contractor Also Liable for Millions Resulting From Termination for Cause | Saul Ewing Arnstein & Lehr LLP

In a recent Massachusetts District Court ruling, a contractor and its owner were held personally liable for failing to pay a subcontractor and found that the contractor had caused the owner to pay the owner for damage due to the owner’s termination of the contractor for cause was made liable in the millions. See BRT administration. LLC v Malden Storage, LLC, No. CV 17-10005-FDS, 2021 WL 4133298 (D. Mass. September 10, 2021).

Contractor BRT Management LLC (“Contractor”) entered into three separate contracts with an owner group, Banner Storage Group, LLC (“Owners”) to build three self-storage facilities, two in Massachusetts and one in New York. In early 2015, the first project was completed and included a dispute settlement over $ 300,000 change orders. As part of this settlement, the contractor waived its claim to US $ 178,171 in the dispute.

On the next two projects, the contractor billed the owner for the work of the subcontractor Storage Structures (“Subcontractor”) for projects in New York and Massachusetts; $ 185,000 for work the subcontractor never performed on the New York project and $ 142,282 for work the subcontractor never performed on the Massachusetts project. Despite the settlement of the payment dispute over the original project, the contractor’s owner testified that the contractor was entitled to a payment of $ 142,000 in compensation for punch list work on the original Massachusetts project that was based on an alleged secret deal.

The owner terminated the contractor for good cause on the second and third projects. The owner alleged, and the court agreed, that the contractor was duly terminated for good cause because the contractor did not complete the work on time, did not complete payment requests in a timely and correct manner, did not pay a subcontractor and did not receive a non-exclusive license for drawings and Plans. After the termination, the contractor instructed its subcontractors not to communicate with the owner.

After a banking process, the court ruled firmly against the contractor and the owner of the contractor. Specifically, the court has held the contractor and the contractor’s owner personally liable for $ 185,000 and $ 142,282, respectively, for conversion and fraud related to receiving payments for subcontracting work that was never performed. The court also held the contractor liable to the owner for over $ 6.8 million in damages consisting of costs in excess of what the owner contracted the contractor for completing both Projects to pay. The damages of $ 6.8 million include damages in excess of $ 50,000 resulting from unauthorized interference by the contractor in the contractor’s business relationships because the contractor instructs its subcontractors, not with the contractor to communicate after the contractor has been terminated for good cause. The court also awarded the owner attorney’s fees and expenses, for which Contactor has filed for over $ 2 million (no specific amount has been ordered as of the date of this blog).

The purpose of this case is to remind contractors and their owners that over-invoicing and failing to meet the performance obligations of a contract can have serious consequences.