Subcontractor Cannot Recover Impact Damages Under Unjust Enrichment
November 18, 2013
The U.S. District Court for the District of Massachusetts held in September, 2013 that impact damages cannot be recovered in an unjust enrichment claim. See, United States of America f/u/b/o Auburn Door & Hardware, LLC v. Suffolk Const. Co., Inc., Civ. No. 10-11074, 2013 WL 5329214 (D. Mass. 2013). The result highlights the potentially drastic difference in recovery available to subcontractors when a breach of contract claim is not available and the subcontractor must resort to an unjust enrichment claim.
The project was the renovation of the John W. McCormack Post Office and Courthouse in Boston, Massachusetts. The general contractor, Suffolk Construction Company, LLC (“Suffolk Construction”), subcontracted with Northeast Interior Supply, Inc. (“Northeast Interior”) to supply and install doors and door hardware for the project. Northeast Interior, in turn, engaged Auburn Door & Hardware, LLC (“Auburn Door”), to provide labor for the installation of the doors and hardware supplied by Northeast Interior.
The relationship between Suffolk and Auburn Door was good throughout the project and Suffolk was generally happy with the work Auburn Door performed. Over the course of the project, additional tasks developed that brought Auburn Door’s manager into frequent contact with Suffolk Construction’s project manager. As a result, certain work requests were communicated directly from Suffolk Construction to Auburn Door. Beyond the voicemails and emails sent by Suffolk Construction, the only additional documentation was change orders sent from Auburn Door solely to Northeast Interior.
Despite the ongoing good relationship with Suffolk, the relationship with Northeast Interior was not as rosy. Northeast Interior encountered management and financial difficulties and on multiple occasions either failed or refused to pay Auburn Door. Ultimately, Auburn Door threatened to stop working on the project due to non-payment. Suffolk Construction responded by making joint payments to Northeast Interior and Auburn Door. By the conclusion of its tenure on the site, Auburn Door calculated it was due $664,466.92 in outstanding invoices. It further determined that it was due $613,084.00 in impact damages resulting from, e.g., elevators not operating, lack of a materials hoist, and additional time a manager was required to be on site.
Auburn Door’s chances of recovering these amounts under the preferred legal claims quickly dwindled. First, Auburn Door couldn’t collect the amounts from Northeast Interior because Northeast Interior filed for bankruptcy. Second, Auburn Door missed the notice of claim period under the Federal Miller Act and was precluded from seeking reimbursement through Suffolk Construction’s payment bond. Third, as a second-tier subcontractor, Auburn Door had no written contract with Suffolk Construction to enforce.
Auburn Door’s attempt to enforce an oral contract failed because, although Suffolk Construction had made representations to Auburn Door to keep it on the job, those representations were too vague and conclusory to be construed as a binding promise. For example, Suffolk Construction made statements such as “Suffolk guaranteed [Auburn Door] would be paid,” “If Northeast Interior was unable to complete the job, Suffolk Construction would take over the contract between Northeast Interior and Auburn Door,” and “We’ll work something out obviously.” The court found it was unclear whether the “guarantee” referred to the joint payments already made. It also found that the meaning of “unable to complete the job” was unclear. And not surprisingly, the court held that the statement to “work something out” was far too vague to support a binding promise.
This series of events left Auburn Door’s hopes of payment hanging solely on an unjust enrichment claim. The basis of the claim “is unjust enrichment of one party and unjust detriment to the other party.” Salamon v. Terra, 477 N.E.2d 1029, 1031 (Mass. 1985). In Massachusetts, that standard has been held to be satisfied where, after non-payment, a subcontractor continues to work only after assurance from the owner that it would pay the subcontractor if it completed the job. See, Mike Glynn & Co. v. Hy-Brasil Restaurants, Inc., 914 N.E.2d 103 (Mass. App. Ct. 2009). Thus, Auburn Door’s unjust enrichment claim was likely successful.
The problem facing subcontractors with an unjust enrichment claim in lieu of breach of contract, however, is how the amount of money recovered is calculated. For normal breach of contract claims, the measurement of recovery is the plaintiff’s loss. However, for unjust enrichment, the measurement is the defendant’s gain or benefit. 1 Dobbs, Law of Remedies § 3.1 at 280; LaRocca v. Borden, Inc., 276 F.3d 22, 28 (1st Cir. 2002).
The plaintiff’s loss and defendant’s gain are not always one and the same. Applying the “defendant’s gain” standard of recovery, the court held that “Auburn Door’s alleged inefficiency losses are not a measure of Suffolk’s gain.” United States of America f/u/b/o Auburn Door & Hardware, LLC v. Suffolk Const. Co., Inc., Civ. No. 10-11074, 2013 WL 5329214, *7 (D. Mass. 2013). Therefore, the impact damages were held to be entirely precluded from recovery. This meant Auburn Door could pursue the $664,466.92 representing outstanding invoices but the $613,084.00 representing impact damages was not recoverable.
The case highlights the importance of insisting on clear terms for agreements and making sure those terms are properly documented in order to protect breach of contract claims. Good relations on the jobsite may make it tempting to forego formalities, but taking extra time upfront to clearly define the scope of agreement, who will pay, and when, could mean the difference between being fully compensated for your work and losing large sums of revenue down the road when relations break down for unforeseen reasons.