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When Donald Trump was a Client

This is not a political post, but surely we get enough of that elsewhere. Rather, this is a story about a construction claim I became involved in back in the early 1990s. I worked for a New Jersey construction consulting firm at the time. My firm was hired by Donald Trump to defend against a lawsuit filed by an electrical contractor on the Trump Plaza Garage in Atlantic City. The garage was located next to the Trump Plaza Hotel & Casino.

It is admittedly a misnomer to say that Donald Trump was my client. Each building that Donald Trump owned was a separate Limited Liability Corporation. The parking garage itself was a LLC and therefore shielded from any litigation that might affect the adjacent Trump Plaza Hotel & Casino, or any other Trump property for that matter. My client was really the garage. As clients go I have certainly had worse and I didn’t have to buy it dinner.

The first interesting part about this project was the contract. The attorneys spent so much time hammering out the details that the contract was not executed until a couple of months before the project ended. Regardless of the reasons, I thought it was very risky for a contractor to start work without a signed agreement. The electrical contractor was not my client of course, but he was the one spending all the money and hoping to get paid.

The second interesting part was the electrical contractor’s contradictory behavior. Early on, the electrical contractor apparently realized he had the basis of a claim. But he then signed each month’s pay application, which contained an unconditional waiver of any known disputes. And he did this on the advice of his attorney, who just happened to be his daughter. It was not until the final pay application was awaiting signature that the electrical contractor revealed his claim.

Trump’s attorneys filed a counterclaim based on these unconditional waivers. After all, the electrical contractor had stated on several occasions that he did not have any claims. The contract (a standard American Institute of Architects agreement) also had a notice provision that required the contractor to make claims in a timely manner. Waiting until the end of the project to pounce with a claim was prejudicial to the owner who expected there was an agreement on the project’s cost.

Notice provisions in a contract serve a very important purpose. As explained by attorney Justin Sweet in his excellent book, Sweet on Construction Law:

“The notice informs the owner of what is going on and it gives him the opportunity of trying to repair whatever problem is developing – a sort of early warning system. If warned, steps can be taken to minimize the harm caused.”

Notice can be given in many ways. Mr. Sweet even suggests that a telephone call would be sufficient as long as it is followed up with written confirmation. When this book was first published in 1997 email correspondence was pretty rare, but certainly it is much easier to send written confirmation these days. And presumably, not signing a waiver would be a way of giving notice that something was amiss.

Meanwhile, my firm had to evaluate the electrical contractor’s claim in case the judge allowed the claim to proceed. I even went to Atlantic City to meet with Trump’s representatives to discuss my preliminary findings. The meeting was rather uneventful and Mr. Trump was not in attendance; the stakes were not particularly high, only a few hundred thousand dollars.

Most construction disputes are not black and white, and the electrical contractor potentially had some valid claims for additional compensation – ignoring the waivers and proper notice. During a preliminary hearing with the judge the electrical contractor was asked to explain his actions. His response? He had heard from a contractor on another Trump project that if he did not sign the waivers then his progress payments would be withheld.

Now, it is understandable that no one likes the idea of not getting paid because they have the audacity to ask for more. The disputed amount might be very minor compared to what is otherwise owned. A waiver can be a pretty effective way of making a contractor forget about petty claims. On the other hand, the owner deserves to be protected from false or fraudulent claims that are submitted after the fact.

The judge ultimately rejected the electrical contractor’s claim because he could not prove that signing the waivers would have held up progress payments. Whether it might have happened to someone else was irrelevant. Giving timely notice of a claim was probably not as important as denying that a claim even existed.

Mr. Sweet has an interesting perspective regarding notice provisions on smaller projects, arguing that:

“They are still essential administrative provisions; but if we couple them with the wealth of notice provisions, we can see that administering ‘by the book’ is a wonderful but very costly way of operating. I have often advised contractors on smaller projects – say, under $500,000 – that they should ignore the notice system, such as created by the AIA, at least to the extent of giving every required notice in the required way.”

He still advocates giving “early warning” of a potential claim by some means. However, the distinction Mr. Sweet makes is that “if it is clear that the owner was not prejudiced by a failure to give the required notice in the required way at the required time to the required person, the contractor should still be able to press the claim.”

Here is final, compelling, thought by Mr. Sweet:

“A notice can show that a claim is a genuine one, not an afterthought claim. An often dispiriting ‘end of the job’ phenomenon is the assertion of many claims for time and money. This is part of construction legends.”