OC BuildingIs it wrong to falsely claim that you can get a better deal elsewhere during negotiations?

Is it OK to lie about having a lower bid from a competing contractor? Or is it fraud?

That’s one of the issues that emerged from a recently concluded lawsuit between the owner of two multimillion-dollar Newport Beach homes and his remodeling contractor.

The owner of the homes in gated Pelican Crest is Joe C. Wen, a paper business operator who also is building the 52,000-square-foot Villa de Formosa mansion in nearby Crystal Cove. When finished, Villa de Formosa will be the biggest house in Orange County.

An Orange County Superior Court judge ruled last month that Wen’s tactic of lying during negotiations was not legal, ordering him to pay his contractor almost $900,000 over the disputed remodeling jobs.

Wen purchased the homes involved in the lawsuit for $8 million and $9 million each in 2010 and 2011. He plans to move his family to Villa de Formosa when the house is done.

The contractor, Ahmad Tajik of Newport Beach, is seeking $6.7 million in punitive damages on top of the award granted last month.

Wen sued Tajik in 2012, accusing the contractor of failing to complete the remodeling job within the contracted amount, not paying subcontractors and shoddy workmanship.

Tajik countersued, claiming Wen failed to make timely payments and “fraudulently induced him into a contract” by falsely claiming he had $1 million bids for work elsewhere.

One issue in the tangled case is undisputed: Wen did not have a written $1 million bid from other contractors.

Superior Court Judge Richard Luesebrink sided with Tajik in part because of Wen’s own testimony.

Asked if it’s normal to tell a contractor he has bids for $1 million when he doesn’t, Wen testified: “I do that with my brothers. This is a business.”

“And you think it’s appropriate business practice to make a representation to somebody for which you have absolutely no basis?” a lawyer asked.

“Yes,” Wen answered. “Because that’s done to me every single day. And I do that too. It’s just business world. It’s brutal out there. It’s not against the law.”

Tajik’s attorney and Luesebrink disagreed about the tactic’s legality.

In his ruling, Luesebrink wrote that Wen violated “the implied covenant of good faith and fair dealing.”

Wen’s attorney, Wayne Kasai of Los Angeles, plans to appeal, saying the practice is a common business tactic, not fraud.

“When you’re negotiating price with someone, you don’t owe that person a duty to (help him or her) get the best price,” Kasai said.

Car buyers frequently tell dealers they can get a better price elsewhere, for example.

“I think that’s common,” he said. Wen was using that language “to try to negotiate the best price he can.”

Chapman University law professor Lawrence Rosenthal said determining the legality of such tactics depends on the circumstances.

“The definition of fraud, in short, is a material misrepresentation of a fact on which a reasonable person would rely,” Rosenthal said.

It can be legal if the false claim isn’t something a reasonable person would take seriously, he said.

For example, if a car dealer says he’s never had complaints about a particular model when, in fact, there were a few minor complaints, most people won’t take the claim literally.

“In the context of negotiation, it’s like poker. There’s bluffing,” Rosenthal said. “It all depends on what the evidence shows.”

Tajik’s attorney, Bobby Samini of Newport Beach, argued in a trial brief that Wen’s tactic was part of “an underhanded scheme whereby Mr. Wen would routinely short pay, delay payment or refused to pay (Tajik) for labor and materials.”

Wen “would rather cheat his own brother than lose money,” Samini wrote. Wen’s “reprehensible fraud,” Samini wrote, “caused (Tajik) to suffer catastrophic and life-changing economic hardships.”

Luesenbrink concurred that the tactic didn’t pass the smell test.

In a handwritten addition to his ruling, Luesenbrink wrote, “Mr. Wen was not a credible witness.”