| The doctrine of unjust enrichment is an ancient legal concept that allows contractors to get paid even if they have no contractual right to compensation. Judges and lawyers, who appreciate obscure Latin phrases, commonly refer to this doctrine as “quantum meruit,” which is loosely translated as “what one deserves.”
The Massachusetts Supreme Judicial Court used this doctrine long ago in its 1876 decision of Day v. Caton. The plaintiff in Day built a party wall along a property line that he shared with the defendant. There was no contract between the parties, but the plaintiff believed that he would be paid. The defendant idly stood by without complaint while the plaintiff improved the defendant’s property, then refused to pay the plaintiff. The SJC upheld a jury verdict requiring the defendant to pay for one-half the value of the wall.
Christopher R. Vaccaro
Unjust enrichment claims often arise when contractors lose their contractual payment rights because of minor, technical or unintentional breaches. In such cases, contractors can file unjust enrichment lawsuits to recover the fair value of their labor and materials, and to prevent property owners from enjoying a windfall. To prevail, contractors must show that they furnished valuable services or materials that the defendant accepted, reasonable persons would have expected to pay the contractors, and the contractors’ expectations to be paid are reasonable.
In a series of decisions going back over 100 years, Massachusetts courts barred contractors from recovering for unjust enrichment if they had intentionally breached their contracts in a material manner. This suddenly changed last month when the Supreme Judicial Court decided G4S Technology LLC v. Massachusetts Technology Park Corporation.
Good Faith and Clean Hands
Massachusetts Technology Park Corp. (MTPC), a state development agency, received $87 million in government funding under the American Recovery and Reinvestment Act of 2009 for a 1,200-mile fiber-optic network. Congress had enacted that law during the Great Recession to promote job creation and economic growth. MPTC awarded a $45 million project contract to G4S Technology LLC (G4S), a publicly traded company. The contract imposed strict time limits for completion and steep financial penalties for delays. To ensure that government funds flowed into the economy, the contract required G4S to pay subcontractors on time and to certify its subcontractor payments.
As is often the case, project costs increased and completion was delayed. MTPC and G4S blamed each other for these setbacks. G4S finished the work late, but claimed that MTPC owed it an additional $10 million above the contract price. MPTC refused to pay the $10 million and withheld an additional $4 million in financial penalties. G4S sued MPTC for breach of contract and unjust enrichment.
MPTC learned during discovery that G4S had deliberately and repeatedly failed to pay subcontractors on time, in order to improve the cashflow shown on its financial reports. G4S also falsely certified that it paid subcontractors on time.
Armed with this information, MPTC argued that G4S’s duplicity barred G4S from recovering further payments. A superior court judge agreed, and dismissed G4S’s claims for breach of contract and unjust enrichment. G4S appealed.
The Supreme Judicial Court affirmed the superior court’s dismissal of the breach of contract claim. It ruled that G4S’s late payments to subcontractors and false certifications, although not involving project design and construction, were material breaches of a government contract. These breaches prevented G4S from recovering on its contract claim. However, the SJC disagreed with the superior court on G4S’s unjust enrichment claim.
The SJC recognized that the superior court’s decision followed established court precedent requiring that plaintiffs suing for unjust enrichment act in good faith and with “clean hands.” Although the SJC acknowledged the severity of G4S’s intentional breaches, it noted that G4S completed the project, and there was no evidence that G4S’s misconduct delayed completion or increased project costs. Under these circumstances, the SJC stated that it would be inequitable for MTPC to withhold payment for G4S’s labor and materials. The SJC overruled its earlier decisions on unjust enrichment, and reversed the lower court’s judgment against G4S on the unjust enrichment claim.
Before the SJC’s decision in G4S Technology, courts could easily dismiss unjust enrichment claims by contractors who intentionally breached major contract provisions. Courts can no longer follow this straightforward approach. Instead, when deciding these cases, courts must consider the contract performance as a whole, the parties’ breaches and resulting harm and the value of the work performed.
Christopher R. Vaccaro is a partner at Dalton & Finegold in Andover. His email address is cvaccaro@dfllp.com.
