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Kvaerner Process, Inc. v. Barham-McBride Joint Venture

April 06, 2004


On appeal from the Superior Court of New Jersey, Chancery Division, General Equity Part, Union County, C-10-03.

Before Judges Kestin, Axelrad and Lario.

The opinion of the court was delivered by: Kestin, P.J.A.D.


Argued: March 16, 2004


Defendants appeal from a trial court order granting the discharge of a construction lien claim and awarding attorneys' fees and costs to plaintiff. We vacate the order and remand for further proceedings.

The action commenced with plaintiff's order to show cause and complaint filed on January 14, 2003. Defendants, sub contractors on the Tosco Bayway Refinery Polypropylene Plant Project (the project), had filed a $1,726,677.86 construction lien on December 6, 2002, pursuant to the Construction Lien Law (the Act), N.J.S.A. 2A:44A-1 to -38, against the implicated property of Bayway Refining Company (Bayway). Plaintiff, the general contractor on the project, alleged in the complaint that the lien was defective in several particulars, and sought an order discharging the lien claim and barring defendants"from filing any further liens arising out of the work which forms the basis of the defective lien;" as well as a judgment for all expenses incurred in the discharge of the lien claim, costs of suit and attorneys' fees.

After issue was joined on February 21, 2003, and the parties were heard on the return of the order to show cause on February 27, the trial court held a plenary hearing on March 27 limited to the issue whether defendants had sufficient support for the amount of the lien. The trial judge's findings and conclusions were articulated in a letter opinion dated May 20, 2003. Her disposition was memorialized in an order entered on June 10, directing discharge of the lien claim and awarding plaintiff $32,411.71 in attorneys' fees and costs.

The lien claim form recited that the contract amount, initially, had been $15,110,000 and that amendments to the contract had come to $56,612,700.86, resulting in a total of $71,722,700.86. The form noted that $69,996,023 had been paid, leaving an asserted balance of $1,726,677.86 as the"total lien claim amount." The complaint, in seeking discharge of the lien, alleged that the lien claim was"defective, willfully overstated and in substantial violation of N.J.S.A. 44A-2 et seq. in that the amount... was far in excess of the agreed upon contract price, which [was] misstated in the construction lien claim." The complaint asserted"that there was no unpaid balance under the contract at the time that the construction lien claim was filed." By way of basis for the additional relief sought, the complaint alleged that defendant had previously filed a $10,776,625 lien claim,"which the court dismissed in its entirety[,]" and in respect of which a motion for reconsideration had been denied. The complaint referred to defendants'"willful violation of the [Act]... evidenced by the filing of the instant construction lien in complete disregard to the Court's two prior rulings."*fn1

On the basis of the evidence received at the plenary hearing and post-hearing submissions, the trial judge concluded that the lien lacked a reasonable basis"and must be discharged." She noted that it was not possible, in this proceeding, to determine the exact amount due to defendant, if any, and that that question would be determined in a pending action in federal court, in which defendants allege a breach of contract against plaintiff and are seeking contract damages and quantum meruit recovery. The judge found that the transactions between the parties nominally qualified for construction lien eligibility and that the materials and labor evidenced by certain invoices had actually been delivered to the project. She determined, however, that defendants had not proved either the amount claimed in the lien or that plaintiff owed defendant any additional funds. According to the judge, the invoices offered by defendant were insufficient to establish the positions advanced. Even viewing the proofs most favorably for the lienor, the judge found that the proper"lienable amount" was less than $1,513,855. She determined, therefore,"that the lien is overstated by at least $212,823[,]" and found that defendant had"included legal fees of $22,000 in its lien claim, when it knew... the contract did not provide for it[.]" This, the judge concluded, was"evidence of bad faith." On these bases, the judge held"that the lien is willfully overstated and without basis and must be discharged." Counsel fees were awarded pursuant to N.J.S.A. 2A:44A-15.

On appeal, defendants argue that the trial court erred in several particulars: in granting the relief plaintiff sought, because the Act does not provide for such a cause of action; in placing the burden of proof on defendants and denying them discovery; in its evaluation of the evidence and its understanding of the contract between the parties; and in awarding counsel fees on the basis of a flawed finding that the lien was willfully overstated and without basis.

There has been considerable dispute between the parties for some time over the amount due defendants, if any, under the modified contract between them. That dispute informs the federal court litigation between them, and has spilled over into the State courts as defendants have sought to avail themselves of their rights under the Act.

Adopted in 1993 to replace the then extant Mechanics' Lien Law, see Sovereign Bank v. Silverline Holdings Corp., ___ N.J. Super. ___, ___ (App. Div. 2004) (slip op. at 4), the Act "recognizes the validity of construction liens, N.J.S.A. 2A:44A-3, with the exception of certain enumerated prohibited liens set forth in N.J.S.A. 2A:44A-5. It provides the form for a claim, N.J.S.A. 2A:44A-8, the requirements for the filing of a lien claim, N.J.S.A. 2A:44A-6, and the manner of service of such claims. N.J.S.A. 2A:44A-7."

Defendants argue that the Act establishes the exclusive remedies available to lien claimants and owners in response to the filing of a construction lien, and that, notwithstanding plaintiff is neither a claimant nor an owner, the Act precludes plaintiff's action here. Plaintiff argues that this issue may not be addressed because ...

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