A federal jury in the Northern District of Illinois recently awarded nearly $23 million to the developer of a luxury hotel in Chicago’s trendy West Loop arising from multiple breaches of contract and fraud by its design-builder. What is particularly striking about the judgment in NHC LLC v. Centaur Construction Co. Inc., et al., No. 19-C-6332, is that more than $20 million of it was awarded jointly and severally against the design-builder, its CEO, and its president. Moreover, the award contained more than $2.5 million in punitive damages assessed against each of the three defendants individually.
The Nobu Hotel was originally under development by an entity uninvolved in the litigation, under whom defendant Centaur Construction Co., Inc. was the general contractor. In late 2017, NHC, LLC took the project over from the original developer and increased Centaur Construction’s role to that of design-builder. Over the next two years the project fell behind schedule and went over budget, until in autumn 2019, the developer served a notice of claim followed by a lawsuit alleging breach of contract and fraud against Centaur, its CEO and its president—the latter two on a piercing-the-corporate-veil theory of liability. The court ruled that veil-piercing was warranted because of unrefuted evidence of commingling and diverting of corporate funds—including a large wire transfer to a romantic partner of Centaur’s CEO. It then ultimately found fraud, in part, due to billing improprieties, such as knowingly invoicing work that had not yet been completed. The outcome of this litigation is a chilling reminder of the consequences that can result from failing to observe corporate formalities, maintain accurate project accounting records, and follow proper billing processes.
While the personal liability outcome of this case is attention-grabbing, the series of events that led to it include many that are not particularly remarkable—the project was over budget and behind schedule, and the design-builder cut some corners. When with this backdrop the design-builder fudged numbers in payment applications and billed improperly, the company and its president and CEO were exposed.
Several aspects of this case resemble other projects in varying degrees, especially ones that are not well-defined at the start (i.e., note the mid-project expansion of defendant Centaur’s role), or when an important party is taking on something outside its experience (i.e., evidence indicated this was Centaur’s largest ever project). While many other projects suffer similar ailments and yet avoid the headlines, this case serves as a cautionary reminder of the risks that can result from wrongful conduct, and the need for competent project management all around.