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Sub Must Repay Contractor,Fraud Perpetrator Or No

Tuesday, March 01, 2011 03:53 am


Unjust Enrichment

Javier Steel Corp. v. Central Bridge Co., LLC., 2011 Ky. App. Lexis 6 (Jan. 14, 2011)

A subcontractor tried to hold on to an overpayment by pointing to the contractor's unclean hands with the government. But that defense applies to facts involving only two parties, plaintiff and defendant--no third parties.

Over a three-year period, Central Bridge Company, LLC (CBC) hired steel sub Javier Steel Corporation (Javier) to work on seven highway projects funded by federal and state governments. Javier was to provide materials and labor, and the subcontracts ranged in price from $100,000 to $650,000. After paying Javier for these projects, CBC discovered that it had made several overpayments (due to a change in accounting software), which resulted in unjust enrichment for Javier--to the tune of almost $550,000. A circuit court ordered Javier to return the money, and the sub appealed, crying fraud.

The overpayment stemmed primarily from Javier's having retained funds that should have gone to third-party suppliers on five of the projects. The subcontracts allowed for a flexible payment method for suppliers whereby sometimes Javier paid them out of t [...]

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