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Court Permits Fraudulent Inducement Claim To Proceed

13 April 2022

Thomas H. Welby

Gregory J. Spaun

When a construction contractor egregiously fails to perform its obligations under a contract, it is easy for one’s mind to turn to fraud. First, it’s a provocative claim to make, given its quasi-criminal nature. Next, it’s a natural human defense to believe that one could not have erred in the selection of such a bad contractor without some untoward input. Either way, it also has the benefit of bringing a corporation’s principal into a lawsuit that they may otherwise not have been brought into. However, while it’s an easy claim to want to make, a court, in the recent case of Hunter Roberts Construction Group LLC v Vector Structural Preservation Corp., reminds us that the claim is not an easy one to assert.


In early 2017, Hunter Roberts Construction Group entered into a general contract with RXR Realty for the construction of a project known as Garvies Point in Glen Cove. Hunter Roberts, like many larger general contractors, maintains a subcontractor default insurance program, and it requires the enrollment of all subcontractors. As a part of this process, Hunter Roberts uses a third party subcontractor qualification and risk mitigation agency to perform risk assessments of subcontractors who are to be enrolled in the SDI program. Vector Structural Preservation Corp. submitted a bid to Hunter Roberts for the masonry scope of work for the project, and it was required to submit a response to a questionnaire for enrollment in the SDI program. Hunter Roberts alleges that the responses Vector’s principal, Vassilios Handakas, provided to the questions about prior criminal investigations and ongoing legal matters were patently false. Based on the determination that Vector was the “lowest responsible bidder” (which was based on the false response to the questionnaire), the subcontract was awarded to Vector.

As the job progressed, Vector delayed the project, and was delinquent in paying its vendors and employees. In March of 2019, Hunter Roberts defaulted Vector based on these shortcomings and, ultimately, terminated the contract. In addition to suing Vector based on the claimed breaches of contract, Hunter Roberts sued Handakas, personally, for fraud, and to hold him liable for Vector’s debts, alleging that he abused the privilege of doing business in the corporate form (“piercing the corporate veil”). As to the fraud claim, Hunter Roberts alleged that if it had known that Handakis was previously convicted of money laundering and other financial crimes, and that Vector was the defendant in numerous lawsuits brought by suppliers and subcontractors alleging non-payment, it never would have awarded Victor the subcontract. Handakas moved to dismiss the corporate veil claims, arguing that the allegations did not rise to the high level required to hold him personally liable for the corporation’s debts, and both Vector and Handakas moved to dismiss the fraud claim, arguing that the fraud claim (and damages) were simply duplicative of the contract claim, and did not rise to the level required to establish a claim for fraud. Handakas further argued that his representations could not have been reasonably relied upon because his criminal past was easily discoverable with a simple google search.


The court split its decision. First, it dismissed the “corporate veil” claim to hold Handakas personally liable for the corporation’s debts, finding that there were no specific allegations which would meet the high burden required to set aside Vector’s corporate form and hold Handakas personally liable for its debts. However, the court denied the motion insofar as the fraud claim and permitted it to proceed. In doing so, the court held that Hunter Roberts sufficiently alleged that it relied on Handakas’ false representations to its detriment when it rejected other subcontractors and awarded the contract to Vector. The court also held that Hunter Roberts sufficiently alleged that it incurred specific damages as a result of the fraud which were distinct from the breached contract, to wit: the damages incurred to clean up the aftermath of Vector’s failures, such as paying Vector’s suppliers. As to Handakis’ argument that the reliance could not have been reasonable when a google search would have turned up the information on his past, the court, following well settled case law, held that in the absence of “hints of falsity”, the party to whom the representation was made has no heightened burden of investigation. As such, the question as to whether the reliance was reasonable would have to be determined by a jury, and could not be determined upon a motion to dismiss. Finally, as to the fraud claim against Handakis himself, as opposed to Vector, it permitted the claim to proceed because “a corporate officer who participates in the commission of a tort can be held personally liable even if the participation is for the corporation’s benefit”.



A popular strategy in litigation is to figure out a way to sue (and keep in the case) a corporation’s principals. This has not only the practical effect of providing another pocket from which to recover (in the not unheard-of event that the corporation is insolvent), but it also may give the principal an extra incentive to resolve the case. A popular way to accomplish this is to level a fraud claim against the principal; another way is to claim that the corporation’s principal abused the privilege of doing business in a corporate form. As Hunter Roberts shows, while these are high burdens, they are not impossible to meet. As can be seen from the split decision here, the crucial difference was the specificity of the allegations in support of each claim. The allegations made in support of the claim to disregard the corporation were conclusory and generic, so they were not sufficient to meet the high burden required to support that claim. However, the allegations made in support of the fraud claim were detailed as to the scope of the fraud, and its results. Accordingly, because the allegations were specific enough to allege a tort committed by Handakis individually, the claim was allowed to proceed to discovery.

The lesson here is that in discussing your matter with construction counsel, do not feel that any detail is too small, as detailed allegations can potentially be helpful in drafting a claim which is sufficient to bring in a corporation’s principals into a lawsuit—and keep them there.

About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester and the Hudson Valley, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State/Greater Metropolitan Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series with Mr. Welby.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100