Better Roads

November 2014

Better Roads Digital Magazine

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and notes explaining the discrepancies, some of which pertained to the pipe-jacking and some of which per- tained to work performed by JLA. At trial, Carl Szabo testified that Szabo was seeking only $215,400 in dam- ages, instead of the full $266,274 subcontract price, because Lorig paid some of Szabo's suppliers directly. Lorig claimed it had no knowledge that Szabo was per- forming the pipe-jacking. Lorig's president testified the Tollway paid Lorig about $40 million for the project, which was payment in full for the completion of all work, including the pipe-jacking. Lorig's president fur- ther acknowledged that a contract price of $266,274 was reasonable for the pipe-jacking. The trial court ruled in Szabo's favor, finding that Lorig knew that Szabo was performing the pipe-jacking because when it needed additional information to pro- cess payment, it sent the Oct. 1, 2007, fax to Szabo. The court found that although Lorig did not entice Szabo to complete the pipe-jacking, it "certainly encouraged them to get the people out there and get the work done." The court found that Lorig did not guarantee Szabo it would be paid for the pipe-jacking, though Szabo had an expectation of payment, just as "anybody working on the job expected to be paid." The court further found that Lorig retained a benefit because it received payment in full from the Tollway, yet presented no credible evidence that it had paid anyone for the pipe-jacking. The court reasoned that if documentation existed establishing that Lorig paid for the pipe-jacking, it would have been easy to produce. The court conclud- ed that, under the circumstances, it would be unjust for Lorig to retain the benefit it received while paying no one for it. The court entered judgment in Szabo's favor in the amount of $215,400. Lorig appealed. On appeal, the court reviewed the law regard- ing unjust enrichment. The appeals court found that Lorig's failure to pay anyone for the pipe-jacking work it requested entitled the sub-subcontractor, Szabo, to recover from the general contractor, Lorig, for unjust enrichment based on quasi-contract (despite the exis- tence of contract between the sub-sub Szabo and the subcontractor JLA). The appeals court reasoned that be- cause Lorig would receive a windfall if it was allowed to retain the benefit without paying, requiring Lorig to pay Szabo for work it requested resulted in no forced exchange. Further, the court found no risk of double recovery to Szabo since the subcontractor, JLA, dis- missed its own claims against Lorig, and was not sued by Szabo. As a result, the appeals court affirmed the judgment of the trial court in favor of Szabo. The Szabo matter shows that under the doctrine of unjust enrichment, courts may act to protect lower- tier aggrieved subcontractors or material suppliers where work is requested and received, but not paid for. Although not all jurisdictions would have reached the same result, the Szabo result underscores potential risks faced by general contractors and owners, who can face legal exposure to lower tier subcontractors and suppli- ers despite the lack of a contract. One way to minimize this risk is to use prime contract "flow-down" clauses to attempt to disclaim liability to lower tier subcontrac- tors or suppliers. In addition, statutory protections such as mechanic's liens, stop payment notices, and payment bonds can also protect lower tier parties for claims of non-payment. Better Roads November 2014 33

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