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POLY-FLEX, INC. v. CAPE MAY CTY. MUN. UTILS. AUTH.

September 20, 1993

POLY-FLEX, INC. and TENSAR CORPORATION, Plaintiffs,
v.
CAPE MAY COUNTY MUNICIPAL UTILITIES AUTHORITY, D. KEMENASH AND ASSOCIATES, INC., J.H. WATER SYSTEMS INC., EARTHWORK ASSOCIATES, CUSTOM STRUCTURES CORP., DALEY'S PIT, COMSTOCK CORPORATION, and FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, Defendants.



The opinion of the court was delivered by: STANLEY S. BROTMAN

 BROTMAN, District Judge:

 Presently before this court in this diversity action are plaintiff's motion for summary judgment and defendants' cross-motion for summary judgment. Underlying these motions is a question of first impression relating to the requirements that need be met in order for a supplier in a public works construction project to collect funds from a surety on a statutory bond under the New Jersey Bond Act, N.J.S.A. 2A:44-143, et seq.. For the reasons addressed below, the motions of both plaintiff and defendants are denied.

 I. Factual Background

 A. Landfill Project History

 Defendant, Cape May County Municipal Utilities Authority ("MUA"), is a municipal corporation of the state of New Jersey, organized pursuant to N.J.S.A. 40:14(b)-1, et seq.. After public advertisement for bids, the MUA contracted on June 6, 1990 with D. Kemenash & Associates, Inc. ("Kemenash"), for the construction of a project known as Contract SLF-28-89, Cell 1C, Secure Sanitary Landfill (hereinafter the "Project"). Kemenash supplied a Performance and Payment Bond dated May 4, 1990, issued by the defendant, First Indemnity of America Insurance Company ("FIA"), to the MUA covering the project, up to the contract price.

 Kemenash entered into a subcontract with J.H. Water Systems, Inc. ("J.H. Water") in which J.H. Water agreed to provide all labor and materials necessary to install the liner systems required by Kemenash's contract with the MUA for the construction of the landfill project. J.H. Water subsequently entered into a subcontract with plaintiff Poly-Flex, Inc. (then known as Poly-America, Inc.) (hereinafter "Poly-Flex") in which Poly-Flex agreed to furnish and J.H. Water agreed to purchase certain materials known as Poly-Flex High Density Polyethylene 60 mil. liner material (hereinafter "HDP liner").

 B. Disputed Amount of Liner Material

 Under the terms of the J.H. Water/Poly-Flex contract, the parties agreed to a sales price of $ 0.24 per square foot. Poly-Flex claims to have shipped to J.H. Water 1,586,117 square feet of HDP liner for a value of $ 380,668.08. As verification of this amount, Poly-Flex offers the affidavit of its president, William Neill, various invoices, and bills of lading.

 Defendants, on the other hand, claim receipt of only 1,527,422 square feet of HDP liner, constituting a value of only $ 366,581.28 under the contract. As verification for this amount, defendants contend that (1) "as built" liner placement panel drawings prepared by the MUA's construction manager show that the total amount of all liner material installed at the Project was 1,834,122 square feet, (2) the Liner Company, hired to complete installation of all liner material after the MUA declared Kemenash in default, exhausted all HDP liner and was subsequently forced to purchase an additional 306,700 square feet of liner material from a third party in order to complete installation, and (3) subtracting the amount of liner material purchased by Liner Company from the total amount utilized (as revealed by the as-built drawings) indicates that defendants possessed only 1,527,422 square feet of HDP liner.

 3. Conclusion of Project and Aftermath

 By February, 1991, Poly-Flex had received no payments for the materials it provided to J.H. Water. On February 8, 1991, Poly-Flex filed with the MUA a Municipal Mechanic's Lien Claim Notice pursuant to N.J.S.A. 2A:44-125, wherein Poly-Flex asserted a lien in the amount of $ 390,245.04. Poly-Flex subsequently reduced the amount of its lien to $ 384,981.60.

 Subsequent to the filing of Poly-Flex's lien claim notices, Kemenash ceased all work on the Project. MUA demanded that Kemenash reman the job, and notified Kemenash of its intention to declare a default. Kemenash did not reman the job, the MUA declared Kemenash in default, and further demanded that the FIA, as surety, complete the contract pursuant to the obligations of the Performance and Payment Bond. The FIA agreed to discharge its obligations to the MUA under its performance bond to complete the Project. A "Takeover Agreement" between the MUA and FIA was executed on June 6, 1991. The FIA contracted with additional contractors, including the aforementioned Liner Company, to complete the Project. The FIA completed the Project and it was accepted by the MUA by resolution dated October 7, 1992.

 Poly-Flex filed the instant action on July 29, 1991, jurisdiction vesting in this court pursuant to 28 U.S.C. ยง 1332. Subsequently, defendant FIA paid to Poly-Flex $ 376,193.04. Of that amount, $ 366,581.28 represented payment in principal and $ 9,611.76 payment in interest. Poly-Flex has since readjusted the total amount it claims due under the contract with J.H. Water, arriving at $ 380,668.08. As such, the amount in principal currently in dispute is $ 14,086.80.

 Disagreements over both law and fact arise in this controversy. First, the parties disagree over the factual showing that need be made under the New Jersey Bond Act, N.J.S.A. 2A:44-143, et seq., in order for Poly-Flex to collect funds on the statutory bond held by FIA. Second, the parties disagree over whether Poly-Flex is able to make such a showing. Clearly the former issue requires ...


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