Muscle Mania Gym wanted to expand its studio and upgrade the look and contents of its interior, so it contracted with Chiefly Construction Co. Their contract had a liquidated damages clause of $1,000 per day for late completion. An early reopening of the gym was important to Muscle Mania because of its existing customers, so it offered a $3,000 per day bonus (up to $60,000) for each day that Chiefly beat the contract completion date.
Lighting was an important part of the project. The design called for a large number of specialty light fixtures. Chiefly awarded that part of the project to ShurIcan Electric. ShurIcan’s subcontract did not have a liquidated damages provision or an early completion bonus, and ShurIcan did not know anything about those terms in Chiefly’s contract with Muscle Mania. ShurIcan’s subcontract did have a fixed completion date that was the same as Chiefly’s early completion date. ShurIcan was confident the schedule was attainable.
ShurIcan placed its orders for the light fixtures soon after getting the subcontract, which, per its schedule, did not have to be installed for two months. After a month and a half, only about 60% of the fixtures had been delivered to ShurIcan. That was a major concern. At this time, Chiefly emailed ShurIcan asking whether the light fixtures would be installed as scheduled. Chiefly had built up its crews and equipment to meet the early completion date knowing that the $60,000 bonus would cover its extra acceleration costs and still leave a $30,000–$40,000 profit for Chiefly.
ShurIcan emailed back that “We are on time and on schedule.” This statement was not quite a lie, but it was at least misleading. ShurIcan did not know when the remaining fixtures would arrive. Relying on this email, Chiefly happily reported to Muscle Mania that early completion was going to happen.
A few days before the fixtures were to be sent to the job site, Chiefly called ShurIcan and again asked for assurances that everything was on schedule. ShurIcan’s vice president confirmed. In fact, that same day, ShurIcan had discovered that, although all the fixtures had arrived, a number of them were damaged or missing parts.
What happened?
The last fixtures were installed 60 days late. Chiefly lost the bonus; it had paid extra money to accelerate the job for no benefit and Muscle Mania charged Chiefly 30 days of liquidated damages and accused Chiefly of dishonesty.
Chiefly sued ShurIcan for its delay costs and under its state’s Unfair and Deceptive Trade statute to recover the additional costs stemming from ShurIcan’s scheduling promises. Chiefly won on both counts.
The court ruled that ShurIcan’s email and telephone responses to Chiefly were “prevarications,” that is, evasive, and that they were designed to deceive. On top of that, the court ruled that ShurIcan’s deceptions had hurt Chiefly’s reputation with Muscle Mania. ShurIcan’s late completion was a breach of contract, and the court also found that ShurIcan violated the deceptive trade practices law.
ShurIcan was held liable for the liquidated damages that Muscle Mania had assessed against Chiefly, for the lost bonus of $60,000, for the wasted acceleration costs and for Chiefly’s attorney’s fees.
Real case
ShurIcan’s story is based on a judicial decision from the Connecticut Court of Appeals, United Concrete Products, Inc. v. NJR Construction, LLC , 207 Conn. App. 551 (2021). The reasoning used by the court was:
1. Aggravating circumstances or bad faith are not considerations for “unfair practices.” “The [subcontractor’s] claim that the trial court incorrectly concluded that its actions constituted unfair trade practices was unavailing: contrary to the [subcontractor’s] contention that it merely breached the sub-contract and that there was no evidence of aggravating circumstances or that its statements were made with ill intent . . .”
2. What decided the case were “prevarications.” “The record supported the [trial] court’s factual findings that the [subcontractor’s] unfounded assurances that [the fixtures were] progressing on schedule, and, later, that the [fixtures] were fabricated and available so that a delivery date could be scheduled, constituted prevarications that were clearly immoral, unethical and/or unscrupulous … .”
3. Without sounding glib, the court’s characterization of the promises as being “unscrupulous” reminds one of the old standard for pornography: “I know it when I see it.”
It may be surprising that unfair trade practices laws would apply to a construction project. But keep in mind that these laws are fairly broad.
For years, the Federal Trade Commission has been developing rules for unfair and deceptive practices in commerce. A number of states have similar laws addressing unfair or deceptive acts in the conduct of any trade or commerce. An example is Connecticut Statute 42-110 b(a).
All images: shutterstock / Talaj
About The Author
ITTIG, of Ittig & Ittig, P.C., in Washington, D.C., specializes in construction law. He can be contacted at 202.387.5508, [email protected] and www.ittig-ittig.com.