Contractor's Attempt to Avoid $1,000 Penalty Results in a $3.1 Million Judgment
Judge Larry J. McKinney of the United States District Court for the Southern District of Indiana (Indianapolis Division) recently issued a Memorandum Opinion & Order, after a four day bench trial, in favor of Wal-Mart Stores, Inc. and against S.C. Nestel, Inc. and its surety.
See, 2010 WL 2267751 (Slip Copy) (S.D. Ind., June 2, 2010).
As a result of issues with storm water contamination from Wal-Mart construction sites, Wal-Mart had entered into two separate Consent Decrees with the Environmental Protection Agency (“EPA”) which required Wal-Mart to put in place an oversight program, with added checks and balances, to ensure that the general contractors would comply with all federal, state, and local laws and regulations pertaining to Wal-Mart jobsites. As a result of the EPA’s concern with sufficient checks and balances, Wal-Mart put in place a storm water training certification program, which was approved by the EPA.
In conformance with the EPA’s Consent Decrees, S.C. Nestel’s contract with Wal-Mart required it to have a representative perform daily inspections of the jobsite and complete inspection reports. In addition, once every two weeks, a compliance officer was required to perform an inspection and an inspection report. On September 12, 2005, Charles Nestel (“Nestel”), acting in his role as compliance officer, signed a daily inspection report without having actually visited the jobsite. Wal-Mart found that this submission was “false or misleading” and terminated the contract with S.C. Nestel.
The Court found that the owner of S.C. Nestel and its project manager intentionally submitted the false and misleading report to deceive Wal-Mart in order to avoid a $1,000 penalty for failing to perform the storm water run-off inspections as required by the contract and the EPA Consent Decrees. The court concluded that Wal-Mart acted within its contractual rights when it terminated the contract because S.C. Nestel intentionally submitted a false and misleading daily inspection report and determined that Wal-Mart was entitled to judgment against S.C. Nestel and its surety in the amount of $3,176,662.11, plus pre-judgment interest at 8% per annum.
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C. Michael Shull, III focuses his practice on construction law and litigation. Michael's client representations range from casinos and ENR Top 400 contractors to design firms and subcontractors.