The Supreme Judicial Court (SJC) is slated to hear oral argument in G4S Technology LLC v. Mass. Technology Park Corp. on Monday, March 5, 2017 – a case with significant implications for construction litigation.
The dispute arises out of a $45 million public works project to build a 1200-mile fiber optic network bringing high speed Internet access to western Massachusetts. Appellee Massachusetts Technology Park Corporation (MTPC), a state development agency, awarded the contract to design and build the fiber optic network to Appellant G4S Technology LLC (G4S).
G4S brought suit in Superior Court (Business Litigation Session) to recover the $4 million balance owed under the contract and $10 million of additional damages. MTPC refused the payment to G4S because of alleged poor workmanship and delays caused by G4S’s failure to timely pay its subcontractors and suppliers.
The trial court ruled in favor of MTPC on summary judgment and concluded that the undisputed evidence showed that G4S repeatedly withheld past due payments from its subcontractors at the same time that it sent certifications to MTPC representing and warranting that those same subcontractors had been paid. G4S’s intentional breach of its contractual obligations precluded regular contract damages. Moreover, the breaches were in bad faith and were not de minimis, which prevented recovery under a quantum meruit theory.
The primary question presented to the SJC on appeal, as articulated by the Court in its announcement soliciting amicus briefs, is:
In the context of a construction contract dispute, whether or to what extent a party’s own willful breach of contract should preclude it from recovering for another party’s breach, either under the contract or in quantum meruit; whether the principles of Sipley v. Stickney, 190 Mass. 43 (1906), and Andre v. Maguire, 305 Mass. 515, 516 (1940), with respect to assertion of contract, quasi-contract, or unjust enrichment claims by a party who has breached a construction contract, should be replaced with a materiality analysis.
In its briefs, G4S argues that the trial court should be reversed because it relied on outdated case law (i.e., Sipley and Andre) requiring G4S’s strict compliance with the construction contract to entitle it to contract damages. Instead, G4S advocates for the materiality rule from the Restatement (Second) of Contracts, which states that only an uncured, material breach relieves the non-breaching party from performance. Alternatively, G4S urges the adoption of a substantial performance rule, which would similarly allow recovery for less than strict and complete performance.
MTPC argues that the trial court correctly applied the near universal rule that an intentional, bad faith breach of contract – such as G4S’s “non-de minimis” failures to pay its subcontractors and its misrepresentations to MTPC regarding the same – bars recovery. MTPC also argues that the trial court’s dismissal of its fraud counterclaim should be set aside because it was improperly based on the court’s speculation that the $4 million forfeited under the policy covered any loss that MTPC may have sustained.
The Attorney General’s office filed an amicus brief in support of MTPC’s position arguing that the common law rule ensuring strict compliance with public construction contracts advances critical public policy goals.
Meanwhile, Associated Builders, a construction trade association, filed an amicus brief in support of G4S arguing for the adoption of the Restatement rule in order to avoid unjust windfalls and eliminate uncertainty and added costs to construction contracts.
According to the SJC docket, Chief Justice Gants and Justices Gaziano, Lowy, Budd, and Kafker will preside over oral argument. We will post an update after oral argument and then again once the Court reaches a decision in approximately 118 days.
This post was authored by Jonathan Small and is also being shared on our Massachusetts Appellate Blog. If you’re interested in getting updates on key developments in the Massachusetts Supreme Judicial Court, Appeals Court, and U.S. Court of Appeals for the First Circuit, we invite you to subscribe to the blog.