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Stony Brook Construction Co., Inc. v. College of New Jersey

June 16, 2008

STONY BROOK CONSTRUCTION CO., INC. AND FIDELITY & DEPOSIT COMPANY OF MARYLAND, PLAINTIFFS-RESPONDENTS/CROSS-APPELLANTS,
v.
THE COLLEGE OF NEW JERSEY, DEFENDANT-APPELLANT/CROSS-RESPONDENT, AND CAMBRIDGE CONSTRUCTION MANAGEMENT, INC., AND WILLIAM ROGERS, DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket NO. L-260-01.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 2, 2008

Before Judges Lisa, Lihotz and Simonelli.

This appeal arises out of a lawsuit filed by a contractor, Stony Brook Construction Co., Inc. (Stony Brook), and its surety, Fidelity & Deposit Company of Maryland (F&D), against The College of New Jersey (TCNJ), in connection with the construction of a new three-story building on the TCNJ campus.

The matter was submitted to a retired appellate judge, as an umpire, for alternative dispute resolution. The umpire's recommendations were substantially adopted by the Law Division judge, who entered judgment against TCNJ in the amount of $1,371,652, plus prejudgment interest, for a total of $1,880,427.91.

TCNJ appeals, arguing that (1) the court lacked jurisdiction to award prejudgment interest, and (2) the court erred in failing to deduct from the amount of the judgment in favor of Stony Brook the sum of $365,000 that TCNJ paid to F&D to perform work required under the contract between TCNJ and Stony Brook.

Stony Brook and F&D cross appeal, arguing that (1) the court erred in finding that TCNJ's wrongful termination for cause should be converted to a termination for convenience, and in refusing to find that TCNJ and its agents acted in bad faith, (2) the court erred in failing to award Stony Brook reimbursable costs and a termination fee, (3) the court improperly rejected the portions of the umpire's award to Stony Brook regarding its claims for extra costs for the revised roof leader detail and for excessive clean-up costs, (4) the court erred in finding that TCNJ was not responsible for submitting a flood insurance claim on behalf of Stony Brook, and (5) the court improperly found that TCNJ was not liable to Stony Brook for its costs incurred in defending subcontractor claims.

We agree with the arguments presented by TCNJ. We reject the arguments presented by Stony Brook and F&D. Accordingly, we remand for entry of an amended judgment that (1) deletes prejudgment interest (except as to two items under the provisions of the New Jersey Prompt Payment Act, N.J.S.A. 52:32-32 to -39, which we will discuss later in this opinion), and (2) reduces the judgment by $365,000. In all other respects, the judgment is affirmed.

I.

In August 1998, TCNJ entered into multiple prime contracts for the construction of a new three-story building on its campus in Ewing. Pursuant to a contract dated August 16, 1998, TCNJ retained Stony Brook to perform the general construction work for its bid price of $3,783,565. The anticipated completion date for the project was August 17, 1999.

TCNJ retained a construction management firm, Cambridge Construction Management, Inc. (CMM), to coordinate and schedule the project. TCNJ employees, William Rogers and Gregory Bressler, were also designated as project supervisors. Due to numerous delays and disagreements between the parties, the project remained unfinished as of the anticipated completion date.

On October 26, 1999, TCNJ terminated its contract with Stony Brook for nonperformance. On November 5, 1999, TCNJ and F&D executed a takeover agreement, by which F&D agreed to complete the work in exchange for the unpaid balance of the contract price. Problems continued, and in September 2000, F&D ceased performance, claiming that TCNJ breached the takeover agreement. TCNJ hired another contractor to complete the general construction.

On January 26, 2001, Stony Brook and F&D filed an eleven-count complaint against TCNJ, CCM, and Rogers alleging, among other things, that TCNJ wrongfully terminated its contract with Stony Brook and that it breached its takeover agreement with F&D. In responsive pleadings, TCNJ counterclaimed against Stony Brook and F&D for breach of contract. At the time, many of Stony Brook's subcontractors and suppliers had filed complaints against Stony Brook and F&D in courts throughout the state. These were consolidated with the main action and venue was placed in Mercer County.

On September 8, 2003, the parties to the main action entered into a consent order agreeing to submit all of their claims, counterclaims, and cross-claims to the umpire for alternative dispute resolution. The subcontractor claims were severed and have remained stayed pending resolution of the main action. The umpire conducted hearings over the course of thirty-four days between October 2003 and February 2004. He issued a forty-one page written decision on May 3, 2005.

After making some preliminary comments regarding the parties' acrimonious relationship and the various causes of the project delays, he found (1) that CCM's scheduling of the project was "inaccurate and unrealistic," (2) that Rogers' harsh managerial style was detrimental to the project, (3) that Bressler's failure to make decisions impeded the completion of the project, and (4) that TCNJ had at times been "inflexible." Despite these findings, the umpire denied Stony Brook's claim for punitive damages, finding that TCNJ and Rogers were never "motivated by a malicious desire to harm."

Addressing Stony Brook's claims for change orders, and other additional costs, the umpire concluded that Stony Brook was entitled to a total of $257,037 for change orders that should have been approved by TCNJ, but he denied Stony Brook's requests for costs associated with excessive testing, clean-up of flood damage, and waterproofing. The umpire rejected Stony Brook's various claims for excessive overtime, supervision costs, lost productivity, lost profits, and extended performance costs, that were all based on TCNJ's alleged interference with Stony Brook's performance. He also rejected Stony Brook's tortious interference and negligence claims against CCM.

Regarding Stony Brook's wrongful termination claim, the umpire concluded that TCNJ's termination of Stony Brook's contract for nonperformance was legally improper. This was based on TCNJ's denial of many of Stony Brook's meritorious requests for extensions, as well as the fact that TCNJ had taken occupancy of a portion of the building two weeks before the actual termination date. Although the termination for nonperformance was considered improper, the umpire nevertheless found it could be converted into a termination for convenience based on express provisions to that effect in the parties' contract. As such, Stony Brook was only entitled to damages for the percentage of work completed, plus the cost of termination, plus a termination fee (to be negotiated by the parties). The umpire rejected Stony Brook's claims for additional damages associated with its defense of subcontractor actions, trial preparation, and damage to reputation.

The umpire concluded that TCNJ was entitled on its counterclaim to a credit for costs associated with repairing the faulty work done by one of Stony Brook's subcontractors, as well as costs associated with the delays caused by Stony Brook. TCNJ was also credited $250,000, which represented the work that Stony Brook and F&D failed to complete. The umpire denied the rest of TCNJ's claims for damages, including its claim for liquidated damages.

With respect to F&D's breach of contract claim against TCNJ, the umpire concluded that TCNJ substantially violated the takeover agreement because it improperly withheld payment from F&D and because it did not provide F&D with an adequate punch list of work to be completed. He found F&D was entitled to payment for the work it performed, which he valued at $342,444.45. However, he concluded that TCNJ's previous payment to F&D of $365,000 under the takeover agreement satisfied that obligation.

Finally, the umpire concluded that Stony Brook was equitably entitled to prejudgment interest, which he awarded at the annual rate of 6%, from August 8, 2001, the effective date of the amendment to the Contractual Liability Act (CLA), N.J.S.A. 59:13-1 to -10, that allowed prejudgment interest on a CLA "claim that accrues after the date of enactment." N.J.S.A. 59:13-8; L. 2001, c. 202, § 2. The total amount of the award in favor of Stony Brook, exclusive of interest, was just over $1.4 million.

On May 30, 2006, after a limited review of the umpire's decision, the Law Division judge issued a written opinion substantially adopting the umpire's decision. However, the judge reduced the amount of the award in favor of Stony Brook to just over $1.37 million, exclusive of prejudgment interest, after finding that the umpire improperly awarded damages based on two of Stony Brook's claims for change orders. The award, as modified by the court, was calculated as follows:

Original Base Contract Amount$3,783,565 Approved Change Orders143,093 Awarded Change Orders226,902 Adjusted Contract Amount$4,153,560 - Credit Awarded for incomplete work(250,000) Value of Work Performed$3,903,560 - Backcharges(46,062) Net Value of Work Performed$3,857,498 - [TCNJ] Payments to Stony Brook(2,485,846) Amount Due, Exclusive of Interest$1,371,652

The interest was calculated as follows:

AmountPeriodRateInterest $260,48511/18/99-2/2/004.75$2,578.80 $350,5642/3/00-6/30/004.75$6,765.89 $350,5647/1/00-6/30/015.75$20,157.43 $350,5647/1/01-8/8/013.5$1,262.03 $1,371,6528/9/01-12/31/016.0$82,299.12 $1,371,6521/1/02-12/31/026.0$82,299.12 $1,371,6521/1/03-12/31/036.0$82,299.12 $1,371,6521/1/04/12/31/046.0$82,299.12 $1,371,6521/1/05-12/31/056.0$82,299.12 $1,371,6521/1/06-12/31/066.0$33,821.56   TOTAL INTEREST TO 5/30/06$476,081.31   AMOUNT DUE, WITH INTEREST$1,847,733

A judgment in the total amount of $1,880,427.91 was entered on October 25, 2006, which included additional interest to that date.

II.

Before addressing the merits of the parties' arguments, we comment on the standard governing our review of the alternative dispute resolution procedure employed in this case.

The terms of the consent order authorized the umpire to make findings of fact and conclusions of law based upon "sufficient, competent, and credible evidence." The court could then accept, vacate or modify the umpire's proposed award, subject to the following:

(a) The award shall be vacated on the application of a party if the court finds that the rights of that party were prejudiced by:

(1) corruption, fraud or misconduct in procuring the award;

(2) partiality of the Umpire;

(3) in making the award, the Umpire's exceeding his power or so imperfectly executing that power that a final and definite award was not made;

(4) failure to follow the procedures set forth in this Order, unless the party applying to vacate the award continued with the proceeding with notice of the defect and without objection; or

(5) the Umpire's committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution.*fn1

(b) The court shall modify the award if:

(1) there was a miscalculation of figures or a mistake in the description of any person, thing or property referred to in the award;

(2) the Umpire has made an award based on a matter not submitted to him and the award may be corrected without affecting the merits of the decision upon the issues submitted;

(3) the award is imperfect in a matter of form, not affecting the merits of the controversy; or

(4) The rights of the party applying for the modification were prejudiced by the Umpire erroneously applying law to the issues and facts presented for alternative resolution.*fn2

The consent order further provided that "[t]he final judgment rendered by the Court shall be as fully appealable under the Court Rules governing appeals, and shall be subject to the same standard o[f] review on appeal, as if ...


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