Anna-Becky Redlich needed some work done on the bedroom, sitting room, closet and bathroom of her Hillsborough, California home. Nothing structural. The only changes would be cosmetic. Reliance Management Group offered to do the work on a cost-plus basis. The estimated initial contract price was $250,000. The down payment would be $1,000 plus a "retainer" of 10%.

If you’ve done any home improvement work in California, you probably see a problem already. California home improvement contracts have to show the cost of work in dollars and cents. Cost-plus-fee (time and material) contracts for home improvement work are legal only if there’s a guaranteed maximum price (GMP). OK. Reliance had that covered. As recited in the contract, the GMP was $5 million.

Second problem: The 10% “retainer” came to $25,000. California limits initial payments to $1,000.

These issues aside, Anna-Becky signed the contract. During construction, six written change orders added $160,000 to the job. Eventually, work was completed to Anna-Becky’s satisfaction -- at a total cost of $459,000. If that seems a little high for a bathroom remodel, there’s something else to understand about this job.

Reliance’s manager on the Redlich job was Paul Burton. According to Judge Banke, Burton and Anna-Becky “became personally and romantically involved”. Another issue: According to Judge Banke, Burton was taking large cash kickbacks from subs, rigging the bidding process to favor specific contractors.

In the end, Anna-Becky wasn’t happy. She wanted her money back, $459,000 to be exact. To drive the point home, Anna-Becky’s legal counsel pulled out all the stops.

  1. The contract was void.
  2. Reliance didn’t have worker's compensation coverage.
  3. Reliance didn’t have a "responsible managing employee or officer" on the job.

In short, Anna-Becky was entitled to a refund.

At Trial

The court disposed of the second and third points with little effort. Facts simply didn’t support either claim. The first point presented a more difficult issue for the court. True, Anna-Becky’s contract was "void, and unenforceable." Did that entitle her to recover the full amount paid without any offset for the value of work done?

In the court’s words, “the public importance of discouraging prohibited transactions outweighs equitable considerations of possible injustice between the parties”. In other words, contractors who draft bad agreements are on their own. But the court refused to order a full refund, awarding Anna-Becky only $40,689.68, including $25,000 for the overcharge on initial payment. Redlich v. Reliance Mgmt. Grp. (June 9, 2021).

Take-away from this case: Write a bad contract and you’re on your own. Don’t expect any help enforcing a bum contract if the job turns bad. Apparently, Reliance learned their lesson. Counsel for Reliance stipulated their client would never again use the Redlich contract form.

Word to the Wise

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