Most Construction Disputes Do Not Involve Unfair Trade Practices

Generally speaking, the legal profession is not currently held in high esteem. In my opinion, there are a couple of reasons for this situation. First, I believe that the general public does not fully understand the adversarial process used in our legal system or the reasons why lawyers are allowed to “argue in the alternative,” which, in normal parlance, would negatively be referred to as talking out of both sides of your mouth. Second, the negative public opinion is (unfortunately) deserved by virtue of how some attorneys approach their cases.

Attorneys that draft complaints that go beyond any reasonable interpretation of the facts hurt themselves and the legal profession as a whole. I once received a complaint that was far beyond the pale because, in a case where a subcontractor asserted a claim for nonpayment, the attorney not only alleged breach of contract, but also asserted a human rights violation against my client because the subcontractor was a Minority Business Enterprise (“MBE”) and my client was allegedly a racist. Of course, my African American client and I had a good laugh when I called to let her know that she was being accused of being a racist. (Practice tip to new attorneys: If you are going to make a claim based upon race, you should first check to see whether the company you are bringing the claim against is an MBE. Otherwise, you might look foolish.) More to the point, however, attorneys need to make more of an effort to adhere to the requirement that they cannot assert an allegation for which they do not have a good faith basis.

One area where I believe attorneys do not live up to their ethical obligations is by frequently asserting unwarranted allegations of unfair trade practices. In a commercial contract dispute, the reason why attorneys tend to overuse this cause of action is because a claim sounding in unfair trade practices allows you to claim punitive damages, which could lead to the recovery of 2-3 times the debt allegedly owed and/or the recovery of attorneys’ fees. (Under our system, each party pays its own attorneys’ fees unless there is a contract provision or a statute that allows a prevailing party to recover its attorneys’ fees from the other side, and a claim of unfair trade practices is one such statute that allows the recovery of attorneys’ fees.) The ability to recover attorneys’ fees is important because, without it, a significant number of construction contract claims will not make economic sense even if the claim is completely valid. Nonetheless, alleging unfair practices without a good faith basis is a violation of an attorney’s ethical obligations that ought to stop.

In Joseph Gen. Contracting, Inc. v. Couto, 317 Conn. 565 (Conn. 2015), the Connecticut Supreme Court found facts that supported a claim based upon unfair trade practices. In that case, the plaintiff and defendants entered into a contract for the sale of real property and the construction of residential structures. “At the time the contract was signed, [plaintiff] assured [defendants] that if they did not like the home and the carriage house, they would not be obligated to buy lot 5 or the completed dwellings.” Id. at 570. During construction, the plaintiff experienced financial difficulties and was not able to secure financing. However, the plaintiff lied to the defendants and told them that he could not obtain financing for the project because the lender was concerned about the defendants’ option to refuse to go forward with the sale after the structures were completed, and “they were likely to lose their deposits under the contract if they did not pay for the construction upfront.” Id. at 571. As a result of this false information, defendants purchased the property and released their right to not go forward with the sale if they were not satisfied with the completed buildings. During construction, there were further problems with the retention of the promised architect, the size of the structures, poor workmanship, access to the sewer line, undisclosed zoning issues, inaccurate allowances, and damage caused by debris. Id. In the end, the Court held that it was proper for the builder and its owner to be held liable for having engaged in unfair trade practices.

“In order for any individual liability to attach [for engaging in unfair trade practices,] someone must knowingly or recklessly engage in unfair or unscrupulous acts, as contemplated by the statute, in the conduct of a trade or business. Id. at 592. Here, the plaintiff lied about the reason he could not obtain financing, and told defendants “untruthfully, that financing was unavailable because they had reserved money through their loan commitment to purchase the property when construction was completed.” Id. at 592-593. In addition, plaintiff led defendants “to believe, inaccurately, that they would forfeit a substantial deposit, thereby pressuring them to agree to an unfavorable restructuring of the transaction.” Id. Plaintiff also “’willfully prevented’ defendants from accessing [the sewer line] after the [defendants] refused to make a payment that they did not in fact owe.” Id. In addition, the Court found that plaintiff wrongfully dumped construction debris on the property.” Id. These were actions that were willfully done and were obviously wrong. These were not good faith disagreements over the requirements of a contract. These were actions that were not in a gray area. These were actions that any 10-year-old could tell you were wrong. That is the level to which the other party’s actions need to arise before you consider accusing them of engaging in unfair trade practices. Most construction contract disputes have a lot of strong emotions on both sides but do not often rise to the level required for allegations of unfair trade practices. Yet, many complaints filed with the court arising out of construction contract disputes contain causes of action sounding in alleged unfair trade practices where no facts or allegations support this claim.

A court pleading is a considered a statement by a party. If you are the plaintiff in a lawsuit that alleges unfair trade practices without the claim being warranted, you might end up being held liable for vexatious litigation. Therefore, if you have any questions about whether your claim supports causes of action beyond breach of contract and the standard equitable remedies, please give me a call.

Scott Orenstein
(203) 640-8825