NH Supreme Court Clarifies Unjust Enrichment Doctrine in Construction Cases

We successfully defended our clients Turner Construction Company and Stryker Biotech in a case that settled important issues of contract and evidence law affecting New Hampshire litigants. In Axenics, Inc. v. Turner Construction Company the New Hampshire Supreme Court ruled in favor of our clients that (1) a subcontractor cannot bring an unjust enrichment claim against an owner who has paid the general contractor in full, and (2) internal memoranda, work product, or other materials created for the purpose of settlement cannot be used at trial as evidence of liability or damages, even if they are never conveyed to the other side. This hotly-contested case came to the Supreme Court on appeal of a $1 million-plus judgment for the plaintiff-subcontractor, after an eighteen-day bench trial before Merrimack County Superior Court and Business and Commercial Dispute Docket Judge Richard McNamara.

The case stemmed from the construction of a large biotech facility in West Lebanon, NH. Stryker Biotech, the facility owner and operator, hired Turner Construction as the general contractor to build the facility. Turner hired Axenics as a subcontractor to install high-purity process piping throughout the facility. As is often the case in complex construction projects, some delays occurred and complications both on- and off-site resulted in the subcontractor expending more resources than anticipated to complete its part of the job. Although Turner paid the subcontractor the full subcontract price, plus more for some of the changes in the scope of the job that the parties agreed to, the subcontractor nonetheless sued Stryker and Turner, seeking more than $1.5 million in damages for the “extra work” the subcontractor claimed it performed to complete the project. The subcontractor contended that the parties had abandoned and/or breached the subcontract governing its work on the project and, alternatively, that Stryker and Turner were liable, under the equitable doctrine of unjust enrichment, to pay for the unforeseen costs the subcontractor incurred in finishing the job. The trial court rejected the breach of contract and contract abandonment claims but found that both Turner and Stryker were unjustly enriched by the subcontractor’s “extra work” and held them jointly liable to the subcontractor for more than $1 million. The Supreme Court reversed the judgment of the trial court, holding that the subcontractor could not recover under an unjust enrichment theory from either the general contractor or property owner. The Supreme Court also remanded the case for further findings as to whether the general contractor breached the subcontract. Ultimately, the Supreme Court agreed with the defendants that because a valid contract governed the subject matter of the subcontractor’s unjust enrichment claim, and because Stryker paid Turner in full and got no more than what it bargained for, Turner and Stryker were not unjustly enriched by the subcontractor's "extra work." The Supreme Court also agreed with the defendants that the trial court improperly considered as evidence of damages an internal memorandum composed by Turner that discussed possible contribution amounts from both Turner and Stryker toward a potential settlement with the subcontractor. The trial court admitted the memorandum into evidence over the defendants’ objection that it was inadmissible under New Hampshire Rule of Evidence 408 (substantially similar to its federal counterpart, Fed. R. Evid. 408). Rule of Evidence 408 prohibits the use of settlement offers as evidence of the validity or amount of a disputed claim. The Supreme Court held that settlement offers discussed internally by one party but not communicated to the other side are also inadmissible under Rule 408.