W. Matthew Bryant and Bethany Beaver | Saul Ewing
The Illinois Appellate Court reversed a trial court’s statutory fraud judgment against a contractor in a defective construction case. The Appellate Court held that as a matter of law: (1) a contractor’s misstatement of amounts due for work did not support a statutory fraud claim even when the contractor appeared to have billed for work not actually performed; (2) the contractor’s mischaracterizing the status of payments to subcontractors (at least in the absence of subcontractor lien claims) was similarly not fraudulent; and (3) “puffing” of work in conjunction with the incorrect invoicing was not sufficient to elevate conduct in breach of the parties’ contract to the level of statutory fraud. In the Appellate Court’s opinion, the owner failed to prove fraud distinct from the breach of contract claim. Nitekman v. Fifield Construction and Realty, LLC, 2023 IL App (1st) 211319-U.
In Nitekman, the plaintiff property owner contracted with the defendant contractor to build a third-floor addition to the owner’s two-story home and a “breezeway” connecting the house to a detached garage. During construction, the owner and the contractor had a dispute over a leak in the owner’s bedrooms and other defects with the construction, after which the contractor announced he would do no further work on the project under the contract. The owner filed suit against the contractor for breach of contract and violation of Illinois Consumer Fraud and Deceptive Business Practices Act. After a bench trial, the trial court entered judgment in favor of the owner on both counts and awarded the owner $334,551, including punitive damages and attorneys’ fees.
On appeal, the Appellate Court reversed the judgment in favor of the owner on the consumer fraud claim because the owner failed to allege facts outside the breach of contract claim. The court held “a breach of contractual promise, without more is not actionable under the Consumer Fraud Act.” Instead, the contractor’s statements in invoices that overstated the amount of work done, and the contractor charging plaintiff for uncompleted work were merely “a matter of the payment terms in the contract” and “a simple failure to abide by the contractual payment terms, not a consumer fraud.” The contractor’s statement that “his work would ‘end water issues forever’” was a description relating to the quality of his work and therefore a nonactionable “subjective characterization.” And the contractor’s misrepresentations that he was “about $30,000 out of pocket in paying subcontractors and vendors, when in fact there should have been a positive balance of approximately $23,000” was another instance of a matter concerning the payment terms of the parties’ contract. Consequently, the Appellate Court reversed the judgment in favor of the owner on the statutory fraud claim and remanded the case to the trial court with directions to vacate the consumer fraud judgment including the award of punitive damages and attorney fees.
Owners and contractors in Illinois should be aware that owners will have to allege more than just contractor misrepresentations about contract amounts due and defective construction in order to plead and prove an Illinois statutory fraud claim. And even if successful in the trial court, the Appellate Court will review closely “misrepresentations” supporting claims of statutory fraud.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.