Construction Litigation

So, you properly file your construction lien claim within the time allowed by the New Jersey Construction Lien Law (“CLL”), and then timely send out a copy of the lien by certified and ordinary mail to the address of the condominium building where you performed your work.  All set, right?  Not so fast, according to a New Jersey appellate panel.

In the newly-issued, unpublished decision, Santander Condominium Assoc., Inc. v. AA Construction 1 Corp., Docket No. A-0525-15T3 (N.J. App. Div., October 13, 2017), the Appellate Division upheld a trial court’s decision ordering the discharge of a subcontractor’s construction lien claim upon the application of the condominium association (the “Association”) against whose property the lien was filed, and awarding attorneys’ fees and court costs to the Association.  While the subcontractor apparently followed the letter of the law in filing its construction lien claim, its fatal flaw lay in its defective service of the lien claim.

The subcontractor, which had performed façade repair work for the contractor of the Association, filed its construction lien claim after the contractor failed to pay the subcontractor for its work.  The subcontractor then sent the lien for service by certified and ordinary mail to the street address of the condominium property.  The CLL allows for simultaneous certified and ordinary mail service, but it must be made “to the last known business or residence of the owner or community association….”  The physical condominium street address was not the business address of the Association, which, like all corporations, had an easily discoverable registered agent address filed with the State.  Service, therefore, was defective.

While service is supposed to be made within 10 days of the lien filing, it may be made later and still be enforceable as long the owner/association is not materially prejudiced by the late service. Disbursement of funds by the owner/association in the interim, however, is, on its face, deemed material prejudice under the CLL.  In the Santander case, after the lien was filed, the Association paid the contractor in full on its contract, and, because the lien was deemed to never have been properly served, the CLL’s clear and unambiguous language required that the lien be deemed unenforceable, as there was no longer a lien fund against which the subcontractor’s lien could attach.

The court noted that, even if service had been made to the Association’s proper business address, the certified mailing of the lien had been returned unclaimed and the subcontractor had failed to present any evidence relating to the status of the ordinary mail.  Though not discussed in the decision, had the service address been proper, the subcontractor should, at the very least, have proffered evidence that the ordinary mail was never returned as undelivered by the postal service and, therefore, should be presumed to have been delivered to that address.

The court also affirmed the trial court’s award of attorneys’ fees to the Association under the CLL (N.J.S.A. 2A:44A-30(c)) because the Association filed its application to discharge a lien that the court deemed to have been filed “without factual basis”.

That last determination, however, is questionable at best, as the lien at issue appears to have been filed with a factual basis, but was deemed unenforceable solely due to a failure of proper service and the Association’s subsequent payment in full to the contractor.  Improper service should not be equated with a lack of a factual basis supporting the lien.  In fact, under a different section of the CLL (N.J.S.A. 2A:44A-15), which provides the bases for a determination of the forfeiture of lien rights based on an improper lien filing, the CLL defines “without basis” for purposes of that section as “frivolous, false, unsupported by a contract, or made with malice or bad faith or for any improper purpose.”   The failure to properly serve an otherwise factually supported lien does not appear to be accounted for in the language of the CLL as a basis for the award of attorneys’ fees.

In any event, the Santander  case does serve to illustrate the critical importance of properly and timely serving a construction lien claim.  When filing a lien against a condominium association or any other corporate real property owner, a claimant must do a corporate search with the State to ensure it has the proper business address for that entity.  Of course, there may be other ways to determine the proper last known business address of the owner/association, for example, through recent correspondence or documentation from that corporation, but the corporation’s registered agent address, as filed with the State, should always be deemed a valid address for service of a lien.  Without proper service, the lien will remain unenforceable, and to the extent the owner makes payment to its contractor prior to proper service, the lien fund available to a subcontractor or supplier is at risk of complete depletion.   If there is any question regarding the validity or service of a construction lien claim, it is always a good idea to consult an attorney well versed in the requirements of the CLL.

So you’ve managed to successfully file a construction lien claim in New Jersey.  Well, don’t then kick back and relax for too long, because if you fail to take action to enforce that lien claim within the limited time required by statute, the lien will be rendered unenforceable.  Under the New Jersey Construction Lien Law (“CLL”), a lien claimant must file a lawsuit seeking to enforce its lien within one year of the date of its last provision of work, services, material, or equipment.  This is a strict statutory deadline, which cannot be extended based on equitable circumstances.  It is important to note that the deadline is not one year from the date of the filing of the lien claim itself.  It is also important to ensure that the work, services, material or equipment, on which you are basing your last date of provision, was actually required to be provided by your contract, as the following case illustrates.

In the recent unpublished decision, WJV Materials, LLC v. Erin Contracting, Inc. (Docket No. A-2453-14T1, August 12, 2016), the New Jersey Appellate Division affirmed the trial court’s dismissal with prejudice of the claim in a supplier’s complaint seeking to enforce its construction lien claim.  The supplier had filed its complaint on May 2, 2014, which was more than one year after it provided its last delivery of materials on April 3, 2013.   The supplier attempted to argue that its actual last date of work was May 16, 2013, the date its quality control expert visited the site to review and approve the subcontractor’s work product.  The court rejected that argument, as the supplier had been hired solely to provide concrete to the subcontractor at the worksite, which it last did on April 3, and not to unilaterally inspect the work performed with the materials by the subcontractor.  There was no evidence in the record that the subcontractor contracted with the supplier to provide any such inspection services.  Note that this same issue may arise in connection with your initial filing of a construction lien claim, which, on a commercial project, must be filed within 90 days of your last provision of contracted-for work, services, material or equipment.

Many times after filing and serving a construction lien, the property owner or contractor for whom you worked will seek to immediately resolve your lien claim – or will file its own action to discharge the lien if it believes you filed a defective lien.  Often, however, a claimant will file a lien and no immediate action is taken by any party (or the lien is bonded, which still requires you to take timely enforcement action).   Filing a timely and valid construction lien claim is difficult enough.  Once you do so, it is critical that you not fall asleep at the switch and that you file your enforcement action within the time required by the CLL – that is, within one year of the last date of work, services or materials provided pursuant to your contract.

The right to file a mechanic’s lien is established by state statute, allowing those providing work, services, materials or equipment to a construction project with additional valuable security in the event of non-payment of amounts due under a contract for such work, services, materials or equipment.  As a pair of recent unpublished New Jersey Appellate Division decisions illustrate, the proper exercise of those rights can make a significant difference in attempting to obtain payment.

The Construction Lien Law (“CLL”), N.J.S.A. 2A:44A-1, et seq. sets forth the requirements for qualifying for and filing a lien claim against a private commercial or a residential property in New Jersey.   The Municipal Mechanics’ Lien Law (“MMLL”), N.J.S.A. 2A:44-125, et seq. sets forth the requirements for qualifying for and filing a lien against the funds of a project contracted by a New Jersey public agency (though not projects contracted by the State of New Jersey).  In the two recent cases discussed below, a subcontractor on a public project succeeded in obtaining a remedy after filing a lien under the MMLL, while a subcontractor on a private project deprived itself of a potential remedy by failing to file a lien under the CLL.

In Vincent Pools, Inc. v. APS Contractors, Inc. (Docket Nos. A-2670-13T3, A-2688-13T3, Decided March 18, 2016), a subcontractor, Vincent Pools, Inc. (“VP”), was retained by a general contractor, APS Contractors, Inc. (“APS”), to install the plaster work for two swimming pools that were part of a larger municipal pool complex project that Jersey City had contracted with APS to construct.  Upon the completion of VP’s work, a dispute arose over the quality of that work.   Jersey City demanded that the pools be re-plastered, while APS offered, instead, to acid wash the pool.   Jersey City terminated APS’s contract and claimed that it had paid APS in full for the work completed on the pools prior to the termination, though it admittedly did not pay APS for certain outstanding change order work.  APS, in turn, withheld $162,468.92 from VP.  VP then filed a municipal mechanics’ lien claiming a lien on the project funds due and owing from Jersey City to APS, and filed suit seeking, among other things, the enforcement of its lien against Jersey City.  At trial, a jury rendered a verdict in favor of VP on its lien claim in the amount of $150,498.92, as well as substantially more in favor of ABS in connection with ABS’s contract claims against Jersey City.

On appeal, as it related to the verdict in favor of VP on its lien claim, Jersey City argued that it would be double paying if it paid VP any funds on account of VP’s lien, because it had already paid APS in full from the funds appropriated for the pool project.  The Appellate Division recognized that a lien filed under the MMLL is limited to the amount owed by the public agency to the general contractor at the time of the filing of the lien or what thereafter becomes due under the prime contract.  A public agency, therefore, cannot be liable for more than the amount of the public contract if it pays the general contractor pursuant to the contract terms and withholds amounts sufficient to cover any liens filed.  The court determined that the MMLL refers to the full amount of the public contract as the amount to which a lien may attach, and not just the amount that may be allocated to a specific portion of the contract.  Thus, although Jersey City claimed to have paid APS in full for the particular work performed by VP, because Jersey City still owed money to APS on the contract as a whole, plus change orders, VP’s lien attached to those funds.   In fact, to ensure Jersey City was not double paying for VP’s work, the trial court reduced APS’s award to offset amounts previously paid to APS for Jersey City’s prior payment on account of VP’s work, which had not yet been paid to VP.   The Appellate Division further noted that because the MMLL, and New Jersey’s Bond Act and Trust Fund Act are to be read cumulatively, VP’s ability to recover under any one of those acts does not preclude recovery under any of the others.  Thus, the Appellate Division affirmed the verdict in favor of VP on its lien claim.

The unpaid subcontractor in Exterior Walls Systems, LLC v. 3D Contracting of Central Jersey, Inc. (Docket No. A-0383-14T4, Decided February 18, 2016), was not so fortunate.   There, Exterior Wall Systems, LLC (“EWS”) subcontracted with 3D Contracting of Central Jersey, Inc. (“3D”) on a private construction project for JSN Deli Corp. (“JSN”).  EWS claimed that 3D failed to pay it in full for its work. EWS brought suit against 3D, ultimately obtaining a default judgment against it in the amount of $48,000.  As the Appellate Division aptly noted, “[i]mportantly, EWS did not file a lien, pursuant to the provisions of the [CLL] for its work done.”  That is critical, because instead of having a lien on JSN’s interest in the real property on which EWS’s work was performed, and perhaps having had JSN withhold payment to 3D to satisfy EWS’s lien, EWS was left with a potentially uncollectable judgment against 3D.

EWS attempted to levy on any and all of 3D’s assets, to the extent there were any, including any amounts claimed due by 3D from JSN under 3D’s contract with JSN.  JSN, however, had earlier won a dismissal of a lawsuit 3D had filed against it for amounts allegedly due under that contract, based on the statute of limitations.  EWS, thereafter, filed a motion seeking an order compelling JSN to turn over to EWS funds allegedly owed by JSN to 3D, which the trial court denied.    EWS appealed, and the Appellate Division determined as a matter of law that, based on the facts before it, there was no “debt” from JSN to 3D that would be subject to EWS’s execution or garnishment under the relevant New Jersey statutes.  The Appellate Division, therefore, affirmed the trial court’s denial of EWS’s turnover motion, leaving EWS without a remedy against the owner and, instead, attempting to collect the debt directly from 3D, which may or may not have assets sufficient to satisfy EWS’s judgment.

While, in the above cases, VP still may have been able to recover from APS even if it had not filed a lien, and EWS still may not have been able to recover on its claim even if it had filed a lien, there is no question that the filing of a valid lien claim provides subcontractors and others contributing to a public or private project in New Jersey with substantial valuable additional protections and rights when attempting to collect a debt.  All potential beneficiaries of the CLL and the MMLL should understand when and whether they are entitled to assert a lien claim under these laws, and the deadlines and any other conditions precedent to filing a lien, so that their rights under these laws are not inadvertently lost, waived or otherwise diminished.

On April 14, 2016, the New Jersey Appellate Division, in a precedential decision, determined that injured parties are not obligated to serve pre-suit tort claims notices under the New Jersey Tort Claims Act (“TCA”) on private government contractors.

In Gomes v. County of Monmouth, et al. (A-1679-14T4, approved for publication), plaintiff filed a lawsuit against, among others, Correct Care Solutions, Inc. (“CCS”), alleging that she had been injured after being unlawfully denied access to her prescribed antibiotic medication during her incarceration at the Monmouth County Correctional Institution (“MCCI”).  CCS is a private company that, during the relevant time, provided medical services to inmates housed at the MCCI pursuant to a contract with the County of Monmouth.   The trial court ruled that plaintiff’s claims were barred as against CCS because she had failed to serve CCS with notice of her claim within ninety days of the accrual of the claim, as the trial court determined was required by the TCA under N.J.S.A. 59:8-8.  On appeal, the Appellate Division reversed, holding that there was no obligation, “either in the language of the Tort Claims Act or one logically compelled by the policies underlying the statutory scheme[,]” requiring a plaintiff to provide a tort claims notice to a public entity’s private contractor.

The Gomes court, however, was careful to point out that its holding was limited to the TCA’s pre-suit notice provisions, and did not extend to any other possible protections offered by the TCA to government contractors.  For example, the court expressly “recognize[d] that, in appropriate circumstances, private contractors retained by State and local governments to perform some of their functions may be protected by the TCA’s immunities and special defenses under the concept of ‘derivative immunity.’”  One of the cases cited by the court where such immunity was found to have applied was Cobb v. Waddington, 154 N.J. Super. 11 (App. Div. 1977), certif. denied, 76 N.J. 235 (1978).  In Cobb, plaintiff was injured in an automobile accident, and sued, among others, a Department of Transportation (“DOT”) contractor that had been performing road construction work at the site of the accident and had set up barricades which plaintiff struck during the accident.  The barricades, however, had been specified in type and configuration by the DOT, and the contractor merely followed the DOT’s specifications in purchasing and setting up the barricades.  Because the DOT was found to be immune from liability under the TCA based, among other things, on its protected exercise of discretion, and because the contractor was merely acting pursuant to the DOT’s exercise of discretion, the DOT’s immunity was deemed extended to the contractor.

Contractors, including construction contractors, who perform work for any governmental entity in New Jersey, as well as their counsel, should be aware, in light of the Gomes decision, that they are not entitled to the protections of the TCA’s pre-suit tort claims notice provisions, although they still may be subject to other protections afforded by the TCA, such as derivative immunity.

The New Jersey Constitution provides for taking of blighted property for the purposes of development, redevelopment or to clear such property of blight. In a split decision rendered on March 23, 2015, the New Jersey Supreme Court affirmed the City of Hackensack’s designation of two blocks of land as “blighted and in need of redevelopment,” a move that some legal experts believe, marks a significant shift in the Court’s mind-set that cuts back on governmental limits on eminent domain. The affected blocks, comprised of five contiguous lots of mixed commercial and residential uses, contained derelict buildings that the Hackensack Planning Board in 2008 designated as blighted and “in need of redevelopment”. The plaintiff landowners filed a complaint in the Superior Court, arguing that their properties were improperly classified as in need of redevelopment because they did not meet the constitutional standard for blight as set forth in prior New Jersey case law. The Superior Court rejected that argument in favor of the City, while the Appellate Division reversed for the plaintiffs, paving the way for the Supreme Court to once again review the constitutionality under New Jersey law of blight determinations made by a municipality. Ultimately, the Supreme Court determined that “so long as the blight determination is supported by substantial evidence in the record, a court is bound to affirm that determination,” concluding that substantial evidence in the record supported the Hackensack Planning Board’s findings. The Supreme Court, in dicta, affirmed the constitutionality of the standard for blight set forth in the Blighted Area Clause of the New Jersey Constitution. The Supreme Court also affirmed the deferential standard of review to the municipal decision–making for areas in need or redevelopment. Accordingly, “a presumption of validity” applies to a municipality’s designation of blight, and if supported by “substantial evidence” in the record creates an uphill battle for property owners challenging such designations. According to Ronald Chen, acting Dean of the Rutgers School of Law, “the ruling gives the Legislature a lot of latitude for what constitutes blight” and may make it more difficult for property owners to fight a blight designation in the future.