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BEREL CO. v. SENCIT F/G MCKINLEY ASSOCS.

March 3, 1989

BEREL COMPANY, Plaintiff,
v.
SENCIT F/G McKINLEY ASSOCIATES, Defendant, Third Party Plaintiff, v. SULLIVAN ARFAA, P.C., Third Party Defendant, Fourth Party Plaintiff, v. PENNONI ASSOCIATES, DONALD NARDY, JOHN GAMBLE AND THE NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY, Fourth Party Defendants



The opinion of the court was delivered by: COHEN

 Fourth party defendant, The New Jersey Housing and Mortgage Finance Agency ("Agency") has filed a motion to dismiss all claims against it asserted by plaintiff, Berel Company ("Berel") and fourth party plaintiff, Sullivan Arfaa P.C. ("Sullivan"). Plaintiff, Berel, moves for partial summary judgment against defendant, Sencit F/G McKinley Associates ("Sencit"). Both motions were argued before the Court orally on the same day, and will be disposed of consecutively below.

 I. FACTUAL HISTORY

 This controversy emanates from the construction of a residential housing apartment complex known as the McKinley Apartments in Atlantic City, New Jersey ("the complex"). The complex, which is also known as the Garden Court Apartments, consists of approximately twenty buildings comprising 177 units, twenty-seven of which were designated for low and moderate income rental, and is substantially complete. It is a low rise complex, that is, no building is more than three stories high.

 Defendant Sencit is a limited dividend partnership which owns the complex. On May 1, 1984, Sencit entered into a written agreement with Berel whereby Berel agreed to serve as general contractor and construct the complex ("Berel-Sencit Agreement"). In the Berel-Sencit Agreement, both Berel and Sencit agreed to be bound by Agency law. See Berel-Sencit Agreement, Article 3, at 8. Sencit then executed five contemporaneous agreements with the fourth party defendant, Agency, on June 7, 1984, borrowing $ 9,877,000 to assist in the development of the complex: 1) "Mortgage Agreement"; 2) "Mortgage Note"; 3) "Deed Restriction and Regulatory Agreement" ("Deed Agreement"); 4) "Loan Agreement"; and 5) "Fee Mortgage". *fn1" Of the $ 9,877,000 loaned, $ 7,130,000 was allocated for costs of construction of the complex. Sencit also contracted with defendant Sullivan, an architectural design firm, to provide the design for the complex and provide inspection during construction. ("Sullivan-Sencit Agreement"). Sullivan in turn contracted with fourth party defendants Donald Nardy ("Nardy"), John Gamble ("Gamble") and Pennoni Associates ("Pennoni") *fn2" to provide engineering consulting services.

 After doing certain extra work and changing certain work already completed upon inspection, Berel substantially completed construction of the complex. Berel submitted change order proposals for the excess and redone work, which were required to be approved by Sencit, Sullivan and the Agency, as a condition precedent to payment under the Berel-Sencit Agreement. Certain change orders were approved by all parties at a meeting held on May 21, 1986; however, various other change orders, including Numbers 30, 35 and 36 were not approved by Sencit and Sullivan at that time and remain at issue. Berel alleges that in many instances, change orders which received the requisite approval have still not been paid.

 Separate and apart from the submitted change order proposals and approved change orders controversy, the Agency alleges that certain work was done incorrectly and needs to be cured before it will authorize any further payments on the project. The Agency has designated these items on a separate "punch list," which the Agency estimates will cost approximately $ 118,388 to complete.

 II. PROCEDURAL HISTORY

 On August 20, 1986, Berel filed suit in this Court against defendant Sencit for breach of contract, alleging damages in excess of $ 2,000,000. In response thereto, on September 26, 1986, Sencit brought a third party action against Sullivan for breach of contract, negligent performance, and indemnification. In turn, Sullivan brought a fourth party action against some of the engineering consultants it had retained, (Nardy, Gamble and Pennoni) for indemnification. Sullivan also joined the Agency as a fourth party defendant in its request for indemnification. Approximately one year later, Berel filed claims directly against the Agency in tort and breach of contract. So that what we have here is each party playing the role - so to speak - of both a plaintiff and a defendant, except the Agency which is just a defendant.

 On August 6, 1987 we denied the Agency's motion to dismiss for lack of jurisdiction predicated upon the Eleventh Amendment. On December 18, 1987 we denied Sencit's and the Agency's motions to add the surety on the performance bond, United States Fidelity and Guaranty Company, as a fifth party defendant. Neither decision was appealed.

 Finally, Judge Simandle, United States Magistrate, recently granted Berel's motion to amend its complaint to include a counterclaim against Sullivan directly, in an Opinion and Order filed January 25, 1989. We affirmed that ruling in our own Opinion and Order dated February 24, 1989. 125 F.R.D. 100.

 III. THE AGENCY'S MOTION TO DISMISS

 A. Berel vs. The Agency

 Berel's direct claims against the Agency were apparently asserted in both tort for negligence and contract for breach of implied agreement. We will first resolve whether an agreement exists upon which the Agency could be liable to Berel in contract and then determine the applicability of the New Jersey Tort Claims Act, N.J.S.A. 59:1-1, et seq. ("Tort Claims Act").

 1. Alleged Breach of Contract

 In its supporting brief, the Agency suggested that Berel's direct claims against it in Berel's Complaint filed August 31, 1987, were grounded solely in tort. *fn3" Berel's opposition memorandum argued that its claims were grounded not only in tort, but also "arise, in part, out of two separate contracts." Id. at 5. Berel then asserted two different theories for breach of contract; *fn4" first, the existence of an agreement between Berel and the Agency, not memorialized in and of itself, but allegedly indicated by a reference in the Berel-Sencit Agreement, Article 48; and second, a third-party beneficiary theory. *fn5"

 a. Berel's "Direct" Agreement Allegation

 Berel claims that an agreement between it and the Agency exists, which, if it were in writing which it is not, would simply read: "The Agency will not withhold approval of Berel's change order proposals (and other things) unreasonably." See Affidavit of David Altman. As evidence of this alleged "agreement", Berel points to a provision in the Berel-Sencit Agreement *fn6" at Article 48, which states:

 
ARTICLE 48. AGENCY AS QUASI ARBITRATOR
 
Wherever, pursuant to the Contract Documents, the Agency declares its judgment, discretion or opinion be determinative of any matter, and such determination is not accepted by any party, the reasonableness of the decision of the Agency shall be determined by law. Whenever the documents provide for the approval of the Agency, it shall not be unreasonably withheld.

 To overcome the Statute of Frauds defense raised by the Agency to Berel's assertion of an Agreement, merely evidenced by this provision, Berel reminds us that summary judgment is improper where there is a genuine issue of material fact, citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). *fn7" We agree with Berel's statement of the proposition of law, but do not concur in their belief that the facts herein present a genuine issue of material fact.

 We do not agree with Berel that the Berel-Agency agreement exists in writing. Article 48 makes the Agency a quasi-arbitrator, not a party to the agreement between Berel and Sencit. Further, in characterizing the Agency as quasi-arbitrator the intent of Berel could not as a matter of law have been to make it contractually bound to that language, because arbitrators are afforded generous immunity from liability for the consequences of their decisions. Cahn v. International Ladies' Garment Union, 311 F.2d 113, 114 (3d Cir. 1962). See also Arroyo v. Crown Air/Dorado Wings, 672 F. Supp. 50, 53 (D. Puerto Rico 1987).

 Thus, in its role as arbitrator, the Agency would be afforded immunity comparable to that bestowed upon judges who also make decisions of great importance with potentially considerable detrimental financial impact. We believe that this provision most likely provides a standard for review of an Agency decision, reasonableness, but is clearly not embodiment of or evidence of a separate contractual agreement between Berel and the Agency.

 In any event, the explicit terms of Article 3 of the Berel-Sencit Agreement clearly exclude the Agency from being designated a party to that Agreement:

 
Any inspection, approval, review of the work, direction or supervision by the Agency or its representatives exercised pursuant to the Contract is performed in accordance with its responsibility as Lender and as an instrumentality of the State of New Jersey pursuant to the Agency law and shall not make the Agency a party to this Contract and in no way is intended to relieve the Owner of its obligations pursuant to the Contract Documents or its Mortgage Loan with the Agency.

 Berel-Sencit Agreement, Article 3, at 8. That the Agency was not to be considered a party to the Berel-Sencit Agreement is reinforced by substantively identical clauses contained in the Mortgage Agreement and Fee Mortgage:

 
Construction of the Project [the complex] shall at all times be subject to the inspection, review, regulation and approval of the Lender [the Agency] and its duly authorized representatives, but any such inspection, regulation and review or approval of the Lender shall be solely for its benefit and the benefit of the bondholders and in furtherance of its obligations under the Act and shall not be construed as making the Agency a party to the Construction Contract.

 Mortgage Agreement § 6 at 4; Fee Mortgage § 6 at 4-5 (emphasis supplied). When a provision in a contract is clearly unambiguous on its face, we have to assume that the parties meant to achieve the result the provision provides. See, e.g., Levison v. Weintraub, 215 N.J. Super. 273, 276, 521 A.2d 909 (App. Div. 1987) ("Where the terms of a contract are clear and unambiguous there is no room for interpretation or construction and we must enforce those terms as written.") Thus, Article 48 cannot serve as the agreement between Berel and the Agency.

 
No action shall be brought upon any of the following agreements or promises, unless the agreement or promise, upon which such action shall be brought or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or by some other person thereunto by him lawfully authorized:
 
b. A special promise to answer for the debt, default or miscarriage of another person;
 
d. A contract or sale of real estate, or any interest in or concerning the same; or
 
e. An agreement that is not to be performed within one year from the making thereof.

 The alleged agreement between Berel and the Agency is required to be in writing under N.J.S.A. 25:1-5 because it calls for the Agency to answer for the debt, default or miscarriage of another person (i.e., the project manager), and is arguably an interest in, or concerns a contract, or sale of real estate. Even if the previous two provisions are inapplicable the agreement is clearly not one capable of being performed within one year of the making thereof. The construction of the project was to be completed in twelve months, but not to commence until a day specified in a "Notice to Proceed" issued by the Agency some seven to thirty days following the effective date of the Berel-Sencit Agreement according to Article 4 of that Agreement. If the Berel-Sencit Agreement is evidence of a previously existing agreement between Berel and the Agency, as a matter of law, the agreement Berel is asserting was required by N.J.S.A. 25:1-5(e) to have been in writing, because it could not have been completed within one year.

 Berel has not been able to produce such a separate writing, and before the Court is an Affidavit from Shirley Allen, the Director of the Agency's Policy Development, in which Ms. Allen avers that:

 
3. A review of Agency records reveals that the Agency Board never acted to authorize the Agency to enter into any agreement or contract with the Berel Company.
 
* * * *
 
5. A review of Agency records reveals that the Agency Board never acted to delegate its authority to any employee of the Agency to enter into any agreement or contract with the Berel's Company.

 Ms. Allen's Affidavit and Berel's inability to rebut the same by producing a signed writing of any sort leads us to the conclusion that no agreement between the Agency and Berel ever existed. Since there is no agreement, there can also be no genuine issue of material fact on this contract theory. We therefore reject Berel's contention that its complaint states a cause of action for breach of a contract between Berel and the Agency, and grant the Agency summary judgment.

 Finally, even assuming, arguendo, that the Statute of Frauds was inapplicable and that Provision 48 was valid evidence of an unwritten agreement between Berel and the Agency, Berel's complaint would still be unsupportable on this direct contract theory. We come to this conclusion based on the reasoning that a party cannot create a valid contract to provide a pre-existing legal duty, because there is no valid consideration. See Restatement (Second) of Contracts § 73 and Comments (1981). Under N.J.S.A. 59:2-3(d), the Agency is already under a duty to not withhold its approval in a "palpably unreasonable" manner, as we shall discuss infra. This legal duty precedes any such similar assent manifested in a Berel-Agency Agreement, and obviates any last vestiges of plaintiff's argument that a valid enforceable contract existed between Berel and the Agency, leading us to deduce that summary judgment in defendant's favor should be granted.

 b. Berel's Third Party Beneficiary Theory

 Berel obliquely raised the third party beneficiary theory in its Memorandum in Opposition dated August 24, 1988 (late in the flurry of papers) in a vague, undeveloped statement with no legal support. The extent of Berel's argument was one paragraph stating:

 
Further, Berel is a third party beneficiary to the Contract between Sencit and [the Agency]. By that contract, [the Agency] loaned Sencit almost 10 million dollars, 70 percent of which was payable to Berel. [The Agency], however, has retained monies from the construction loan. Thus, to the extent Berel is entitled to those monies on a contract theory, [the Agency] cannot claim immunity under the Tort Claims Act.

 Memorandum in Opposition dated August 24, 1988 at 6. Apparently Berel's argument was designed to overcome the Agency's assertion that Berel's claims were based solely on tort, from which the Agency is immune. This is clear because Berel makes this assertion and then abandons it, spending the balance of its Memorandum arguing the inapplicability nature of the Tort Claims Act. It is not until the Agency's Memorandum in Response, dated August 31, 1988 that the third party beneficiary theory commands the full attention of the parties. Only after the Agency fully briefed the issue did Berel find it necessary to try to flesh out this argument, but in so doing, Berel only discussed the very same case previously cited by the Agency, *fn8" claiming that that case supported Berel's contention of liability, not the Agency's contention of non-liability. See Response of Berel Company to the Agency's Reply Memorandum.

 Because this is a motion for summary judgment, *fn9" a singularly harsh remedy, we fully examine the applicability of ...


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