K&L Gates Construction Law Blog : Construction and Engineering Lawyers & Attorneys : K&L Gates Law Firm : Financing, Development, Dispute Resolution, Government Contracting

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CZAR, Inc. v. Heath, 939 A.2d 837 (N.J. Super. Ct. App. Div. 2008)

In this case, a homeowner brought claims against a custom kitchen contractor under New Jersey’s Consumer Fraud Act.  During the construction of a new home, the homeowner had contracted directly with a custom kitchen contractor for the installation of custom kitchen cabinets, interior doors, a front door, and certain moldings.  The trial concluded that the home improvement practice regulations found in N.J.A.C. 13:45A-16.1 to 16.2 were not applicable to plaintiff and, therefore, dismissed the CFA claims.  The trial court reasoned that the kitchen contractor's work was not a “home improvement” within the meaning of the regulation because the construction and installation of the doors, cabinets, and moldings were part of the construction of a new residence and, therefore, excluded from the definition of “home improvement.”

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United States ex rel. E&H Steel Corp. v. C. Pyramid Enters., Inc., 509 F.3d 184 (3d Cir. 2007)

This litigation arose after a steel supplier on a U.S. government construction project asserted a claim against a payment bond issued by the general contractor (to which it had no contractual privity) pursuant to the Miller Act (40 U.S.C. § 3131).  Because the Miller Act limits the availability of such bond claims to either entities in contractual privity with the bond issuer (the GC) or those entities having contractual privity with a "subcontractor,” the key issue was whether the entity with which the supplier contracted was a “subcontractor.”  The District Court for the District of New Jersey, applying a number of a factors, determined that it was not a subcontractor and dismissed the bond claim.  

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In re Kara Homes, Inc., 374 B.R. 542 (Bankr. D.N.J. 2007)

On an issue never before addressed in a published opinion, a U.S. Bankruptcy Court decided an issue critical to the New Jersey Lien Law.  A major New Jersey based residential home building group (the “Debtors”), owning several large single-family home development projects, entered numerous agreements with various subcontractors who provided goods and services on the projects.  When the Debtors failed to pay, the subcontractors took steps to protect their rights under the New Jersey Construction Lien Law.  However, most of the Debtors initiated Chapter 11 bankruptcy proceedings before the subcontractors could fully complete all of the Lien Law's requirements.  The Debtors then filed adversary proceedings to determine the extent, validity, and priority of any liens.

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Alaska Servs., Inc. v. County of Morris, 2007 WL 2385941 (N.J. Super. Ct. App. Div. Aug. 23, 2007)

In this case, a county solicited bids for laundry services for a county-run nursing care facility pursuant to New Jersey’s Local Public Contracts Law (“LPCL”) (N.J.S.A. 40A:11-1, et seq.).  The county refused to award the contract to the lowest bidder, finding that the bid was “materially non-responsive," and because the services were such that the county could utilize the LPCL’s “competitive contracting” provision (an exception for certain “special” goods and services permitting a public entity to consider additional factors beyond the “lowest responsible bidder” standards set by the LPCL).  The county awarded the contract to another bidder.

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Gale v. New Jersey Iron, Inc., 2007 WL 2385948 (N.J. Super. Ct. App. Div. Aug. 23, 2007)

This case arose after an employee of a sub-subcontractor sued the project owner, the general contractor (“GC”) and the subcontractor for negligence over personal injuries he sustained after falling from a steel beam at the construction site.  All issues settled except for the owner’s cross-claim against the GC alleging that the GC breached its contract when it failed to obtain insurance coverage that protected the owner from its own negligence.

The Appellate Division affirmed the trial court’s dismissal of the claim.  Initially, the court determined that the “insurance” section of the contract did not specifically require such insurance and was more consistent with the industry standard requiring a GC to provide insurance to indemnify an Owner against acts of negligence by the GC or a subcontractor.  Moreover, the "indemnity” section of the contract merely required the GC to indemnify the owner only to the extent caused by the GC, a subcontractor or anyone employed by them.

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Kane Builders, Inc. v. S. New Jersey Bldg. Laborers Dist. Council, LIUNA, 2007 WL 2416470 (D.N.J. Aug. 21, 2007)

In this case, a labor union brought various claims against a general contractor (“GC”) stemming from a collective bargaining agreement (“CBA”) entered between the Union and the GC.  Briefly stated, the union asserted a multi-million dollar claim for unpaid employer contributions that the GC would have been obligated to pay, had it not violated the CBA by not using union laborers on over 100 “covered projects” in New Jersey.  Relying on ERISA’s record keeping provision (29 U.S.C. § 1145), the union argued that the GC bore the burden of proving which hours worked were not subject to contribution. 

The court, following 11^th Circuit precedent, adopted the burden-shifting approach.  It determined that the union had satisfied its initial burden of setting forth sufficient evidence concerning the amount and extent of work performed through an expert auditor’s report.  The court ruled that, at that point, the burden of proof shifted to the GC to disprove, or raise an issue of fact, regarding the extent of work performed on covered projects and/or whether covered employees performed the work.  Because the GC was unable to produce any records to disprove the union’s claim, the court entered partial summary judgment on the issue of damages.

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Capital Safety, Inc. v. State, 848 A.2d 863, 369 N.J. Super. 295 (N.J. Super. App. Div. 2004)

In this case, an asbestos removal contractor brought suit against the state for delay damages due to delays cause by the state’s inability to relocate workers to permit asbestos removal.  The court, in this matter, enforced the contract’s no-damages-for-delay clause, finding that such clauses are enforceable even if the delay is the result of the public entity’s “error of judgment, lack of effort, or lack of complete diligence.”
 

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Craft v. Stevenson Lumber Yard, Inc., 843 A.2d 1076, 179 N.J. 56 (2004)

In this matter, a project owner filed a complaint demanding the dismissal of a construction lien claim filed by a supplier (Stevenson) after the contractor, who was responsible for paying Stevenson, walked off the job.  The contractor owed Stevenson for multiple past unrelated projects. Therefore, when the contractor provided payments to Stevenson from the plaintiff’s payments, without specifying the project, Stevenson automatically credited the payments to the oldest outstanding invoices, not to those associated with the plaintiff's project.  The supplier subsequently filed a construction lien claim against the real property.  

The court found that the supplier could not arbitrarily assign the payments to different accounts, but rather must apply the contractor’s payments to the individual project account from which payments were derived.  Therefore, the supplier was precluded from filing the lien claim due to its failure to allocate the contractor’s payments to the proper accounts.

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Cyktor v. Aspen Manor Condo. Ass’n, 820 A.2d 129, 359 N.J. Super. 459 (N.J. Super. Ct. App. Div. 2003)

In this case, a condominium developer negotiated an agreement releasing it and its principals from all liability connected with the construction of the development at issue.  The agreement was reached in 1986, several years after construction was completed, and transferred control of the development to the condominium association.  Eleven years later, in 1997, the Department of Community Affairs (DCA) cited the development for certain violations regarding the structure of the facility.  In defense of the citation and the condominium association’s attempts to place liability with the developer, the defendants argued that the action was barred by the statute of repose.  The DCA argued that the statute of repose applied only to claims for damages and did not bar enforcement actions.  The court disagreed with the DCA and held that the statute of repose applies broadly to governmental action.

 

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M.J. Paquet, Inc. v. N.J. Dep’t of Transportation, 794 A.2d 141, 171 N.J. 378 (2002)

In this case, a contractor submitted an unbalanced bid to the New Jersey Department of Transportation (“DOT”) for the rehabilitation of a bridge with the expense of painting over-estimated and other expenses underestimated.  Following the award of the project, OSHA released new paint safety requirements that the contractor claimed significantly raised the price of the project.  DOT decided that the increased price was too much and decided to excise the bridge painting from the contract.  The contractor then filed suit claiming that DOT was not authorized to delete the painting from the contract and alternatively, that DOT could not subtract the entire amount attributed to painting in the initial unbalanced bid from the contract price.  The Supreme Court concluded that while it was appropriate for the DOT to excise the painting component from the contract it was not proper to simply subtract the value of that item from the initial bid.  Rather, the contractor must have an equitable adjustment to the contract price.
 

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DiMaria Constr., Inc. v. Interarch, 799 A.2d 555, 351 N.J. Super 558 (N.J. Super. Ct. App. Div. 2001)

In this case, the general architect and interior designer on a construction project recommended that the owner terminate the general contractor.  The owner, on this advice, terminated the contractor who subsequently filed suit against the architect and interior designer for tortious interference with contract.  In analyzing the claims, the court looked at the four elements of the tort of interference with a business relation or contract:  (1) a protected interest; (2) malice in the sense that the defendant interfered without justification; (3) a reasonable likelihood that the interference caused the loss of the prospective gain; and (4) resulting damages.  The court found that the architect and interior designer were liable for tortious interference.  The court also addressed whether they were acting as agents of the owner and therefore escaped liability.  The court found that question to be a factual issue that was implicitly answered in the affirmative in the jury’s finding of liability.
 

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F. Bender, Inc. v. Jos. L. Muscarelle, Inc., 700 A.2d 374, 304 N.J. Super. 282 (N.J. Super. Ct. App. Div. 1997)

In this case, the plaintiff sub-subcontractor sued the general contractor and property owner seeking to recover in quantum meruit for construction work on a parking facility.  The general contractor hired a sub-contractor to perform all of the concrete work who in turn hired the plaintiff.  The sub-contractor was eventually terminated for failure to adequately perform its subcontract agreement with the general contractor.  Plaintiff had no contract with the general contractor or the property owner but sued them for his losses nonetheless.  The court held that where the plaintiff sub-subcontractor had no contractual agreement with the defendants, recovery based upon quantum meruit was precluded.

In so holding, the court pointed out that the plaintiff was not without protection but that he had “failed to protect his rights by filing an appropriate mechanic’s lien” as provided by the Mechanic’s Lien Law.  The court also noted that the result of this opinion did not render the plaintiff helpless to recover but that recovery would properly come from action against the subcontractor.
 

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Saxon Constr. & Mgmt. Co. v. Masterclean of N.C., Inc., 641 A.2d 1056, 273 N.J. Super. 231 (N.J. Super. Ct. App. Div. 2004)

In this case, the court found a termination clause void as against public policy.  The plaintiff, Saxon, a general contractor was awarded a contract to renovate a building owned by the Veterans Administration.  Saxon entered a subcontract with defendant, Masterclean, for asbestos abatement and removal.  Masterclean defaulted and Saxon terminated the contract. The termination clause of the contract provided that if the subcontractor defaulted and the unpaid contract value was less than the expense of finishing the project, then the subcontractor was entitled to the difference.  Saxon was able to procure a substitute contractor at a price lower than Masterclean’s initial contract price.  Masterclean, therefore, invoked the clause to claim the difference between its contract price and the amount paid to the new contractor.  The court found that that type of termination clause violated public policy because it permitted a defaulting party to profit by its breach and discouraged the non-breaching party to minimize its losses.
 

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Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 129 N.J. 479 (1992)

In this case, a casino owner sought judicial enforcement of an arbitration award of lost profits against the general contractor hired to manage the casino renovation project.  The project took longer to complete than anticipated and the casino was not fully operational for its peak summer season.  The court held that lost profits may fall under the category of consequential damages and are therefore recoverable as long as they are foreseeable at the time of contract.
 

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Vinen Corp. v. Alan W. Nau Contracting, Inc., 557 A.2d 1056, 232 N.J. Super. 589 (N.J. Super. Ct. App. Div. 1989)

In this case, the court looked at an action by a contractor against the construction manager for breach of contract for withholding monies from payment that were owed on an unrelated project.  The defendant entered into a contract with the property owner to act as construction manager on a shopping center construction job.  Subsequently, the defendant entered into a subcontract with the plaintiff to act as the site contractor for the project.  During the course of construction, the plaintiff discontinued performance because the defendant withheld $11,000.00 from payment to the plaintiff for monies owed by the plaintiff to the defendant on a different project.  The defendant also insisted that the plaintiff sign a release of lien and threatened that failure to do so would result in defendant’s refusal to pay plaintiff any of the money it was owed for work up to that time.  The plaintiff filed suit for breach and defendant filed a counterclaim.  The court found that the withholding of money constituted a material breach and that the plaintiff was entitled to discontinue performance and was not liable for breach.
 

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P.T. & L. Constr. Co. v. N.J. Dep’t of Transportation, 531 A.2d 1330, 108 N.J. 539 (1987)

In this case, P.T. & L. Construction Co. was awarded a contract to perform work on a portion of Route 78.  Due to extremely poor working conditions, the project, which was contracted to end on November 15, 1974, was not completed until June of 1976.  P.T. & L. filed suit to recover damages, attributing the delay to the State’s failure to inform them of the actual conditions of the land.  Specifically, where P.T. & L. expected to work in normal or dry conditions, they instead faced wet conditions, including flooding of the work area.  The court, looking at the issue of whether an owner can be liable for damages where it fails to disclose certain critical information regarding the project to bidders, found that a sufficient factual basis existed to warrant recovery for nondisclosure of material facts.
 

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Edwin J. Dobson, Inc. v. State, 526 A.2d 1150, 218 N.J. Super. 123 (N.J. Super. App. Div. 1987)

In this case, a contractor brought suit against the state for delay damages arising out of the construction of a public project.  The delays were caused by a variety of reasons primarily stemming from the state’s requirement that the contractor use a specific manufacturer for supplies.  The contract included a “no damage for delay” clause which provided an extension of time for completion, but no additional payment, for damages, in the event of any hindrance or delay in the progress of the work, even if caused by the state.  The court found that the clause was legal and that it precludeed recovery by the plaintiff.

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A.J. Tenwood v. Orange Senior Citizens Hous. Co., 491 A.2d 1280, 200 N.J. Super. 515 (N.J. Super. Ct. App. Div. 1985)

In this case, a construction contractor brought a claim for breach of contract against the owner of a housing project.  The contract between the parties included a one-year claims limitation clause.  The court upheld that one-year limitation relying on precedent that the statutory limitation on contract actions could be waived by the express agreement of both parties.  Therefore, as long as the period is reasonable and does not violate public policy, shortened statutes of limitation clauses are valid.
 

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Seal Tite Corp. v. Ehret, Inc., 589 F. Supp. 701 (D.N.J. 1984)

In this case, a subcontractor sued the general contractor for failure to pay in a timely fashion, and moved for summary judgment.  Relying on the “pay when paid” provision of the subcontract, the general contractor claimed that it had not yet been paid in entirety by the owner and therefore the lack of payment to the subcontract was not in breach of the contract.  The court ruled that the “pay when paid” clause was designed to postpone payment by general contractor to subcontractor for a reasonable period after work has been completed to afford the general contractor the opportunity to procure from the owner the funds necessary to pay the subcontractor.  The purpose is not to require the subcontractor to wait to be paid for an indefinite period of time.  Accordingly, the court granted the subcontractor's motion for summary judgment and awarded the amount due under the subcontract.

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Broadway Maint. Corp. v. Rutgers Univ., 447 A.2d 906, 90 N.J. 253 (1982)

In this case, two prime contractors brought suit against the university for damages caused by delays in construction.  In the appeal, the Supreme Court of New Jersey looked at three issues:  (1) whether in an instance of multi-prime contractors each prime contract is liable to the other; (2) whether the owner has a duty to coordinate multi-prime contractors; and (3) whether the exculpatory clause in the prime contracts shielded Rutgers from liability.

The court found that each of the prime contractors, absent privity, had a right of action against the other as long as the contract between the owner and each prime contractor made the remaining contractors third-party beneficiaries.  Second, the court found that an owner entering into multiple prime contracts has the obligation to act in good faith to coordinate the various contractors to avoid unreasonable delay, if the owner has not delegated that responsibility to one of the prime contractors.  Finally, the court found that the exculpatory clause shielded Rutgers from all delays, not just reasonable delays.

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Zulla Steel v. A & M Gregos, Inc., 415 A.2d 1183, 174 N.J. Super. 124 (N.J. Super. Ct. App. Div. 1980)

In this case, a subcontractor brought an action against the prime contractor for breach after contractor failed to make progress payments when due.  The plaintiff did not complete the project. The court found that the contractor’s failure to make timely payments constituted a material breach and that the plaintiff was therefore justified in terminating its performance.  The court held that the measure of damages in a matter where the plaintiff was stopped from completing the contract is “such a proportion of the entire price as the fair cost of that work bears to the fair cost of the whole work and, in respect to the work not performed, such profits as he would have realized as a result of the complete performance.”  Accordingly, the judgment of the trial court was affirmed, with slight modification.
 

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Conforti & Eisele, Inc. v. John C. Morris Assocs., 418 A.2d 1290, 175 N.J. Super. 341 (N.J Super. Ct. Law Div. 1980)

In this case, a general contractor sued the State and its design professionals for economic damage due to the faulty plans prepared by the design professionals and provided by the State.  There was no privity between the general contractor and the design professional defendants.  However, the court found that a design professional can be held responsible for the losses suffered by a contractor regardless of privity.  The decision was based on a line of New Jersey cases that look with disfavor on the privity doctrine especially with regard to design negligence and physical injuries sustained by third-parties.  The court created a test to determine whether liability should be imposed on design professionals when third-parties are injured.  The elements are:  (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to him or her; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injuries suffered; (5) the moral blame attached to the defendant’s conduct; and (6) the policy of preventing future harm.
 

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Rolnick v. Gilson & Sons, Inc., 617 A.2d 288, 260 N.J. Super. 564 (N.J. Super. Ct. App. Div. 1992)

This case concerned a property that was severely damaged by a fire allegedly caused by a defective fan component in the air conditioning system.  The trial court applied the statute of limitations that bars claims over ten years after improvement, finding that the installation of an air conditioning system was an "improvement" within the meaning of the statute.  The appellate court reversed, finding that a mass produced and marketed attic ventilation fan was not an “improvement” within the meaning of the statute and thus the action was not barred.
 

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Golomore Assoc. v. N.J. State Highway Auth., 413 A.2d 361, 173 N.J. Super. 55 (N.J. Super. Ct. App. Div. 1980)

In this case, the court evaluated a claim by a contractor and subcontractor against the State for additional costs of construction. Plaintiffs claimed that the increased costs were due to faulty evaluations of ground elevation provided by the State prior to bidding. The bid submitted to the State was calculated using those faulty measurements and therefore did not adequately predict actual expenses. The court ruled in favor of the plaintiffs, finding that the elevations provided by the State constituted positive averments. Therefore, when the elevation data was shown to be incorrect, contractors were entitled to recover for additional costs.
 

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Buckley & Co. v. State, 356 A.2d 56, 140 N.J. Super. 289 (N.J. Super. Ct. Law Div. 1975)

In this case, the court adjudicated a claim by two construction companies against the State regarding the construction of Route 78.  The project, namely the creation of a section of the road that involved various bridge constructions as well as electrical, drainage and related work, was finished 87 days later than was provided in the contract and various change orders and 564 days later than the original completion date.  Consequently, the contractors filed suit for delay damages which included various overhead expenses and wages for employees.  The contractors also sought the return of monies withheld by the Department of Transportation as “liquidated damages” for the delay.  The State contended that the delays were the contractors’ fault, that the reasons for the delays given by the contractors did not occur, and that claims for costs were barred by no-damages clauses included in the contract.  The court, concluding that some of plaintiff’s losses were the result of breach by the State, allowed recovery for those losses accordingly.  The court declined to allow the State to withhold liquidated damages where the delay could be attributed actions and inaction by both parties as well as circumstances beyond either party’s control.  The court also held that the construction company had standing to assert claims on behalf of subcontractors.
 

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Totten v. Gruzen, 245 A.2d 1, 52 N.J. 202 (1968)

In this case, the Supreme Court of New Jersey held that the “completed and accepted” rule does not render defendants immune from liability for injuries sustained from a faulty heating system.  A child resident of a multi-family housing project sustained serious burns from contact with exposed, hot piping that was part of the radiator heating system in the child’s bedroom.  The court found that the lack of privity between the plaintiffs and the defendants was insufficient to excuse the defendants from liability.
 

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Home Owners Const. Co. v. Borough of Glen Rock, 169 A.2d 129, 34 N.J. 305 (1961)

In this case, the court looked at whether a contractor could recover in quantum meruit for services and materials actually provided, even though the work was not authorized in writing.  During the course of construction, the Borough requested the contractor to perform certain extra services and provide additional materials.  Upon the Borough’s refusal to pay these additional expenses, the contractor sought to recover in quantum meruit.  The court found that the lack of writing authorizing these changes did not preclude the contractor from recovery.
 

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525 Main St. Corp. v. Eagle Roofing Co., 168 A.2d 33, 34 N.J. 251 (1961)

In this case, the plaintiff property owner, contracted with the defendant for repairs to his roof and a five-year guarantee against leaks with a promise to repair.  During the five years, the defendant disputed the scope of his responsibility and stopped performing repairs.  The trial court found in favor of the plaintiff, concluding that the defendant had breached, but awarded nominal damages.  The plaintiff appealed on the issue of damages.

The defendant argued that the damages should properly be calculated as the difference in value of the entire structure with the defective roof and the value of the building as if the contract had been fully performed.  The court disagreed and found that in the construction context, the cost of repairs or the cost of replacement is the appropriate measure of damages and not a measurement made with reference to the value of the building as whole.
 

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