July 28, 2008
INTERSTATE INDUSTRIAL CORPORATION, PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
STATE OF NEW JERSEY, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
D.F. GIBSON ARCHITECTS, P.C., THIRD-PARTY DEFENDANT/FOURTH-PARTY PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
MELICK-TULLY & ASSOCIATES, INC., TURNER CONSTRUCTION COMPANY, APPLIED ENGINEERING TECHNOLOGY, AND BUILDING CONSERVATION ASSOCIATES, INC., FOURTH-PARTY DEFENDANTS/RESPONDENTS, AND ROBERT BREHM, STEVEN SUTKIN, AND PATRICK COX, FOURTH-PARTY DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-1370-00.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: April 30, 2008
Before Judges Cuff, Lisa and Lihotz.
In the mid-1990s, the State of New Jersey determined that the facilities used by Thomas A. Edison College, a college designed specifically to provide higher education to self-directed adults, required renovation, rehabilitation and expansion. The college occupies a series of historic townhouses in close proximity to the State House. An architect was engaged, plans were prepared, bids were sought and contracts were awarded. Work commenced in 1997. The State anticipated the work would require nine months; the project was completed in twenty-four months.
This litigation seeking damages caused by the delay was filed in April 2000 by the contractor awarded contracts to perform excavation, concrete work, and renovation of drywall, plaster, acoustical and window construction. Soon thereafter, it became clear that the architect was the target defendant. Yet, in January 2006, after a brief damages trial, the architect recovered $234,921 pursuant to its contract with the State. It is the only party to the litigation that recovered damages.
In this appeal, we review the order striking the experts proposed by plaintiff Interstate Industrial Corporation (Interstate) and defendant State of New Jersey and the summary judgments entered against them dismissing their affirmative claims.*fn1 The architect filed a cross-appeal that challenges the invocation by the State of the termination for convenience clause of the contract between it and the State. The architect asserts that this action diminished its damages. We commence our discussion with the orders denying the State's motion to extend the discovery end date, granting the architect's motion to strike the State's belatedly submitted expert report, granting the architect's motion to strike plaintiff's proposed expert report, and the summary judgments dismissing the affirmative claims filed by the plaintiff and the State.
On October 17, 1995, the State signed a contract with defendant D.F. Gibson Architects (Gibson or the architect) to furnish "design and construction administration services" for the project. Gibson was to perform design services, including investigation of the site and the condition of the buildings.
It also was retained to provide construction administration services. It is undisputed that Gibson retained third-party defendants Melick-Tully & Associates, Inc. (Melick) and Building Conservation Associates, Inc. (BCA) to investigate soil conditions and the structural integrity of the buildings respectively. A primary issue in the litigation commenced by Interstate was whether the plans prepared by Gibson properly accounted for the sub-soil rock discovered by Melick and the structural integrity weaknesses identified by BCA.
On April 17, 2000, Interstate filed its complaint against the State. It demanded approximately $1.7 million in delay damages incurred during the college project. It alleged that the State improperly created or allowed the delays, denied it reasonable extensions to complete construction, and refused to pay the contract balance. On August 16, 2000, the State filed an answer and third-party complaint against Gibson. The third-party complaint asserted that Gibson breached its contract to provide proper architectural and engineering plans for the project.*fn2 The parties attempted to mediate the dispute in February 2001. When that failed, Interstate was granted permission to file a direct claim against Gibson. The architect filed its answer and counterclaim on July 18, 2001, and also asserted a fourth-party complaint against several firms it had hired as consultants for the project, including Turner Construction Company (Turner), Melick, and Applied Engineering Technology (Applied Engineering). Turner was employed as the construction manager of the project. Gibson also named three individuals: Robert Brehm, the State's Director of Office of Design and Construction, Division of Property Management and Construction; Steven Sutkin, an attorney for the State's Office of Construction; and Patrick Cox, the State representative overseeing the project during most of the delays.
Discovery commenced and originally was set to end in December 2002, but was extended. On August 5, 2003, a case management order directed closure of fact discovery on September 30, 2003. Interstate was directed to serve its expert report by October 31, 2003, the State was directed to serve its report by December 1, 2003, and Gibson was directed to serve its expert report by January 9, 2004. Although it appears that Interstate served its report in March 2003, the State did not serve its expert report in December 2003. The record reveals that fact discovery proceeded after the September 30, 2003 end date. In addition, Gibson filed an amended fourth-party complaint against BCA. Gibson filed a motion to reconsider the August case management order, which was denied in part because "discovery has been taking place in the meantime and is currently ongoing." Thereafter, in November 2003, BCA requested a case management conference to address the discovery end dates. The State joined this request.
In December 2003, the case was assigned briefly to another judge. He recused himself because the Interstate expert was a close friend. The requested case management conference was conducted on February 25, 2004, before Judge Andrew Smithson. The matter was referred to another round of mediation with no adjustment of discovery end dates. At an October 1, 2004 conference after the second attempt at a mediated settlement failed, the judge noted that any adjustment to the discovery schedule would have to be presented to the presiding judge. He also informed all parties that a trial date would soon be scheduled. In fact, two weeks later the parties received a trial notice for February 14, 2005.
On November 18, 2004, the State served its expert reports. Gibson filed a motion to dismiss Interstate's complaint against it and to bar the State's expert reports as untimely. The State filed a cross-motion to extend discovery and for a determination that its reports were timely. The fourth-party defendants filed motions for summary judgment.
On December 20, 2004, Judge Smithson held that the State did not demonstrate good cause to serve its expert reports almost eleven months beyond the date required by the last case management order and struck the reports. He also found that the Interstate expert report was a net opinion.
Once the expert reports submitted by Interstate and the State were barred, Gibson filed motions for summary judgment. The State also filed a motion for summary judgment against Interstate. Judge Smithson denied the State motion to dismiss the breach of contract claims but dismissed the negligence claims. In May 2005, the judge granted the State's motion for reconsideration of the contract claims issue. He concluded that Interstate had produced insufficient evidence for him to find that the State had actual knowledge of the conditions that caused the delays. The judge also granted Gibson's motion for summary judgment against the State. He held that the State claims against the architect required expert support. Having barred the State experts, the State could not carry its burden of proof to support its claims against Gibson.
On appeal, the State asserts that Judge Smithson erred in refusing to extend discovery, barring its experts from testifying and dismissing the State's claims against Gibson. According to the State, the expert reports should not have been barred because they were "critical" to the State's claims, the parties had not acted willfully to mislead, and procedurally the matter was still well before trial. Interstate joins this argument. It requests we remand the matter for further discovery so that it can "submit further expert reports and witnesses" to support its claims.
A. Order Striking State Expert Reports
Judge Smithson provided the following explanation of his decision to strike the State's expert reports. First, while the judge denominated the procedural history "convoluted," he added that it was a case "where the discovery just simply wasn't getting done, for any number of reasons." Instead of "mov[ing] as it should have," the State "dragged its feet time again [sic], and time again." Although the judge also noted that, meanwhile, the other parties "kind of waited and stood back, to see what the State would do, without taking the bull by the horns on their own," he was not "making any critical judgments about that" because it was a tactical decision those other parties were free to make under the circumstances.
Second, although the State had finally filed its expert reports a few weeks before the argument, those reports were filed "much, much too late" and, to permit them at that point "would be to invite just rounds and rounds of further discovery, which would put this case into another time frame."
Thus, based on the "complex commercial" nature of the case, the fact that it had been moved from "track 2" to "track 4" (referring to discovery deadlines in effect under Best Practices), the number of conferences that were held and the overall passage of time, the State's expert reports were not timely served. On balance, therefore, the record simply did not support good cause to extend discovery.
Interstate filed its complaint in April 2000 and the State filed its third-party complaint in August 2000, therefore, the discovery protocol in effect at that time governed the pre-trial proceedings. For cases filed prior to September 5, 2000, discovery extended 150 days from the date of service of the complaint, or as otherwise prescribed by the applicable "differentiated management rule" or court order. R. 4:24-1(d).
The "Best Practices" amendments never expressly applied to this case.*fn3
Pursuant to Rule 4:17-4(a) and (e), parties must identify their experts, and provide timely reports. Under Rule 4:23-5(b), the court may exclude an expert's testimony if his or her report is not timely furnished pursuant to Rule 4:17-4(a). The court applies that sanction in its discretion "subject only to the rule that the sanction visited upon the party must be just and reasonable." Westphal v. Guarino, 163 N.J. Super. 139, 145-46 (App. Div.), aff'd o.b., 78 N.J. 308 (1978). Under Rule 1:1-2, unless otherwise provided "any rule may be relaxed or dispensed with by the court . . . if adherence to it would result in an injustice."
This court has said that factors which "strongly urge" a court not to impose harsh sanctions are the absence of a design to mislead, absence of surprise were the evidence admitted and absence of prejudice resulting from admittance. Id. at 146. We explained that such a policy "accords with the overriding objective of giving the defaulting party his day in court, with due regard, however, to protecting the opposing party from the effects of surprise or other prejudicial factors." Ibid.
(citation omitted). The failure to serve an expert report in timely fashion can result, therefore, in its being barred altogether. See Clark v. Fog Contracting Co., 125 N.J. Super. 159, 162 (App. Div.) (the plaintiff's expert properly barred from testifying when there was no "reasonably available opportunity to permit [the] plaintiff to remedy his default" because the trial had already started and there was no forewarning to the defendant), certif. denied, 64 N.J. 319 (1973). But see Westphal, supra, 163 N.J. Super. at 148 (trial court's bar of two experts whose names were untimely submitted reversed as an abuse of discretion).
In cases where there has been no "fixed" arbitration or trial date set, the court considers whether the movant has established "good cause" for an extension of discovery, a concept that is "flexible and its meaning is not fixed and definite." Leitner v. Toms River Reg'l Sch.. 392 N.J. Super. 80, 87 (App. Div. 2007) (citing Tholander v. Tholander, 34 N.J. Super. 150, 152 (Ch. Div. 1955)). The factors the court should consider include: the reasons for the request; the movant's diligence in pursuing discovery theretofore; the type and nature of the case, including any unique features; any resulting prejudice to the movant if the motion were denied; whether granting the motion is "consistent with the goals and aims" of Best Practices; the case's age and whether an arbitration or trial date has been "established"; the "type and extent of discovery" that remains; any prejudice to the non-moving party should the motion be granted; and what motions have already been decided by the court. Id. at 87-88.
No matter which rules are applied, pre- or post-Best Practices, the existence of the trial date is critical. See Bendar v. Adelson, 187 N.J. 411, 426 (2006) ("although the amended rules still permit extensions to discovery and amendments to interrogatories, they render it substantially more difficult to obtain extensions and amendments once discovery has ended and a trial or arbitration date is set"). A decision to grant or deny a motion to extend discovery or to strike an expert report requires an exercise of judicial discretion. On appeal from a denial of a motion to extend discovery, the appellate court applies the abuse-of-discretion standard. Leitner, supra, 392 N.J. Super. at 87.
On October 1, 2004, Judge Smithson effectively gave the parties a two-week advance notice that a trial date would be scheduled shortly. The State had approximately two weeks to serve its reports or make a motion. Notably, the State did not serve its reports until about six weeks after Judge Smithson's oral warning and a month following notice of the actual trial date. It provides no good reason for the delay. We recognize that we have observed that generally the Best Practices amendments are applicable "for all cases regardless of when filed." Smith v. Schalk, 360 N.J. Super. 337, 344-45 (App. Div. 2003). We need not decide, however, whether the pre-Best Practice good cause standard or the Best Practice exceptional circumstances standard governed the motion to extend discovery. The State has simply not provided a satisfactory reason to explain the delay.
The State offers several mitigating circumstances to justify the late production of its expert reports. It notes the protracted history of the case, the late joinder of BCA, several failed mediations, and a pervasive sense of no urgency. It cites the adjournment of the February 2005 trial date as an exemplar of the lack of urgency to conclude the case.
The State's justifications, however, do not account for the State's unique position. As the owner, it was involved in dayto-day events once the project commenced. It did not have to learn the details of the causes of the various delays; it was a participant in the efforts to identify and implement solutions to the conditions encountered. Moreover, it commissioned Capital Project Management, Inc. (CPMI) to investigate and prepare a delay analysis of the college project to address the anticipated delay claims of Interstate. Prior to the commencement of litigation, CPMI submitted a "Preliminary Report" Delay Analysis to the State.
During discovery, the State named John Stetson and Mark Crater of CPMI as its experts. Admittedly, the March 2000 preliminary report and the November 2004 final expert reports contain some different findings attributable to information obtained during the course of discovery. Both reports, however, are fundamentally similar. This similarity raises further questions about the State's inability to produce this report before November 2004.
We, like the motion judge, are also unpersuaded that the late joinder of BCA contributed to the delay. The State was aware of BCA's involvement in this project from the outset. Its findings about the structural integrity of the exterior walls of the townhouses were known by the State as early as, and probably even before, March 2000, prior to the commencement of litigation.
Finally, the subsequent adjournment of the February 2005 trial has no bearing on our review of the December 2004 discretionary decision. Hindsight is perfect. We assess the discretionary decision of the motion judge based on the facts and circumstances extant at the time of decision. Given the age of the case, the scheduled trial date, and the absence of substantial reasons to explain the delay, we discern no mistaken exercise of the judge's discretion.
B. Order Striking Interstate Expert Report
Interstate contends that its expert report was admissible. It claims that the report cannot be considered a net opinion. It argues that it is founded on a reliable methodology.
Interstate's expert, S. Leonard DiDonato, authored a February 5, 2003 report that found that the project exceeded the allotted 240 days for completion by 441 days. He opined that Interstate was entitled to a $1,736,892 equitable adjustment.*fn4
He also offered an alternate damage calculation of $1,472,643 that would not make Interstate whole but would "minimize the financial injury" to it.
Judge Smithson held that Interstate asserted a professional negligence claim against Gibson and that claim must be supported by an expert report "that meets a passable standard." He found that the DiDonato report was replete with conclusory statements and that Interstate could not rely on the 2000 CPMI report.
An expert's "bare conclusion" unsupported by factual evidence amounts to inadmissible net opinion. Jimenez v. GNOC, Corp., 286 N.J. Super. 533, 540 (App. Div.), certif. denied, 145 N.J. 374 (1996). Rather, the expert must provide a causal link between his or her opinion and the underlying damage or fault. Ibid.
The report authored by DiDonato submitted by Interstate does not present an explanation of the applicable duties, identify any breach of duty, or the relationships between the two. For example, the report states that the State and Gibson "interfered with the progress of the work by providing Interstate with defective design documents and by issuing an order to stop the work for over a twelve month period of time." The report does not address why the design documents were defective, or identify the appropriate standard. DiDonato stated that during construction in July 1997 plaintiff "struck rock which was not shown on the Contract documents," but did not explain whose responsibility it was to have foreseen this particular rock problem and why the rock was a problem, or its effect on the project.
DiDonato asserted without further elaboration that the start up of the dry wall work was delayed "because of the rock problem in the previous contract and other interferences." He did not identify the other sources of delay, identify a standard of professional practice applicable to the circumstances, or explain how any party deviated from any standard and how any deviation caused any delay.
Rather, the report is essentially a list of the documents reviewed, a recitation or "narrative" of the history of the project with citations to the documents reviewed, various calculations of the amounts due plaintiff interspersed throughout in support of DiDonato's conclusion, and a self-serving reference of the 2000 CPMI preliminary report, upon which DiDonato also relies and which he claims is "extremely comprehensive and professionally prepared."
Thus, the DiDonato report is no more than an explanation of the damages formulation rather than support for the legitimacy of the CPMI report's conclusions regarding fault or responsibility, or indeed for DiDonato's own conclusion to that effect. It certainly did not represent the required explanation of a "causal connection between the act or incident complained of and the injury or damage allegedly resulting therefrom." Buckelew v. Grossbard, 87 N.J. 512, 524 (1981).
In addition, the DiDonato report was no more authoritative regarding Interstate's contract claims. Its expert needed to link the alleged damages to specific acts or omissions, and explain the relationship. The expert did not do so. For example, the DiDonato report never addressed any third-party beneficiary duty or breach.
We acknowledge, as urged by Interstate, that experts can rely on another party's expert's non-admissible report. See Graham v. Gielchinsky, 126 N.J. 361, 374 (1991) (noting certain public interests which may warrant admitting such evidence). Here, however, the 2000 CPMI preliminary report was never offered as the report of the State's expert. Second, the report's author was not identified and its methodology never explained or verified. Indeed, the State successfully resisted Gibson's attempt to depose the author of the 2000 CPMI report. Thus, Judge Smithson properly concluded that it could not serve as the basis for DiDonato's conclusions.
The State and Interstate argue that Judge Smithson erred in refusing to allow their claims against Gibson to proceed in the absence of expert support. More specifically, they allege that they could rely on lay testimony to prove the architect's negligence or breach of contract. We disagree with these contentions.
Except in professional negligence actions, there is no general requirement for expert testimony to establish the standard of care. Butler v. Acme Mkts., Inc., 89 N.J. 270, 283 (1982). The test of whether expert opinion is required is "whether the matter to be dealt with is so esoteric that jurors of common judgment and experience cannot form a valid judgment as to whether the conduct of the party was reasonable." Ibid. The extent to which expert testimony is necessary to enable the jury to understand other evidence usually outside the knowledge and experience of laymen is made in the court's discretion. State v. Griffin, 120 N.J. Super. 13, 20 (App. Div.), certif. denied, 62 N.J. 73 (1972).
By Interstate's own assertion, the essence of its claims are that the State breached a duty by submitting "erroneous plans and specifications," and that when Gibson failed to "incorporate known data about rock outcroppings and structural defects of the townhouses" in the plans and specifications, Gibson breached its contractual duty to plaintiff as a third-party beneficiary of the contract between the State and Gibson. The State, similarly, says that Gibson's contractual breaches to it were "so patent and obvious" that Gibson was clearly liable "with or without expert testimony."
However, expert opinion normally is required to establish the standard of care in a professional negligence case. Taylor v. DeLosso, 319 N.J. Super. 174, 179 (App. Div. 1999). Because Gibson was a licensed architectural firm, the expectation was that in order to prevail on its negligence claims Interstate and the State would have to provide expert support. See id. at 180-81 (owner's expert opinion that architect was negligent was net opinion, and architect was entitled to judgment of dismissal). And see Bartak v. Bell-Galyardt & Wells, Inc., 629 F.2d 523, 530 (8th Cir. 1980) ("majority of cases involving an architect's liability for harm" require expert testimony, because "laymen would be unable to understand highly technical architectural requirements without hearing other architects testify as to those requirements").
In this case, Interstate and the State attempt to simplify their claims, but there is little doubt that their claims required expert support and explanation. For example, the State asserted that it relied on Gibson's expertise, that Gibson negligently designed the project, and that it failed to complete the contract documents in a timely manner. We cannot discern, however, what standard would be applied by the jury to evaluate the architect's performance on a project of this size and complexity. In addition, we cannot readily identify what standard the jury would apply concerning whether the delay experienced on this project was reasonable or unreasonable and whether it was wholly attributable to any act or omission of the architect. The jury required guidance on questions such as the amount of detail Gibson's plans should have provided, and when the existence of underground rock or certain types of rock or other conditions are foreseeable and required to be reflected in plans. An architect is not a guarantor of every unknown contingency that could cause delay. The jury must have guidance in the form of expert opinion to evaluate when an unforeseen event should be considered negligence performance by the architect. Similar issues existed with respect to the structural renovations.
In short, the claims against Gibson involved questions of the extent to which Gibson had properly exercised its professional expertise in drafting the plans and specifications, and those are precisely the kinds of issues where expert opinion is needed. See Aldrich v. Hawrylo, 281 N.J. Super. 201, 214 (App. Div. 1995) (in a legal malpractice action, expert opinion required with respect to matters of the adequacy of an investigation or the soundness of an opinion), appeal dismissed, 146 N.J. 493 (1996). And see Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 222 N.J. Super. 363, 375-76 (App. Div. 1988) (expert testimony needed to establish surveyor's standard of care), aff'd in part, rev'd in part on other grounds, 116 N.J. 517 (1989).
Thus, this case is easily distinguished from the types of cases where the court concluded that, because of the uncomplicated nature of certain actions or injuries, expert testimony was not necessary in order to interpret a professional's breach. See Klimko v. Rose, 84 N.J. 496, 505 (1980) (even without expert testimony a jury could infer that a reasonably prudent chiropractor would have recognized the patient's symptoms of dizziness and perspiration as signs treatment should not have been repeated without further investigation); Sanzari v. Rosenfeld, 34 N.J. 128, 141-43 (1961) (dentist should have known to withhold an anesthetic when he knew the patient was susceptible to the harmful side effects as contraindicated by the medicine's warning); Brizak v. Needle, 239 N.J. Super. 415, 429 (App. Div.) (the plaintiff did not need an expert to refute the defendant-attorney's "obviously incorrect belief" that the statute of limitations did not start until an expert medical opinion had been obtained), certif. denied, 122 N.J. 164 (1990); Stewart v. Sbarro, 142 N.J. Super. 581, 591 (App. Div.) (attorney had clear duty to obtain for clients properly executed bond and mortgage, and to record it), certif. denied, 72 N.J. 459 (1976); Tramutola v. Bortone, 118 N.J. Super. 503, 512-13 (App. Div. 1972) (doctor should be able to read an X-ray showing a needle in the patient's lung, and inform patient accordingly), aff'd in part and modified and rev'd in part on other grounds, 63 N.J. 9 (1973); Jones v. Stess, 111 N.J. Super. 283, 287 (App. Div. 1970) (chiropodist should not perform a procedure when distracted, especially when he knows his diabetic patient is subject to special risks from cuts); Becker v. Eisenstodt, 60 N.J. Super. 240, 246 (App. Div. 1960) (surgeon should use available non-caustic solution, as opposed to a caustic one, to clean patient's nose); Steinke v. Bell, 32 N.J. Super. 67, 70 (App. Div. 1954) (dentist should pull correct tooth).
In short, we reject the contentions that Interstate and the State could proceed on their affirmative claims without expert testimony and allow the jury to refer to common knowledge to evaluate the performance of the architect.
Following entry of the orders suppressing the expert opinions proffered by Interstate and the State and the consequent summary judgment orders dismissing their affirmative claims, the only surviving issue was the Gibson counterclaim against the State. Gibson claimed that the State improperly invoked the termination for convenience provision of the extended services contract between it and the State. In addition, Gibson claimed that the State invoked this provision in bad faith. It asserted that the State did so to reduce its costs and then used this device to hire Gibson back at a lesser amount for the same work.
On October 17, 1995, the State, on behalf of the college, signed a contract with Gibson to furnish "design and construction administration services" for the project. The work was to include renovation and restoration of six historic townhouses and a 50,000-foot new addition. Among Gibson's duties, as part of "construction administration" detailed in section A.4 of the contract, was to determine if construction was "proceeding in accordance with the contract documents," to review the amounts requested by contractors and make recommendations concerning them, and to review and make recommendations regarding change orders. Gibson's contract also required that it file field reports with the State each time its representatives visited the site during construction. During construction, representatives would be on-site an average of twenty hours, or two to three days a week. In some instances, a Gibson representative was on-site every day during a week.
Under the contract with Gibson, the State had the right to defer or suspend "the whole or any part of the work" if in the State's opinion it was "necessary or expedient" to do so, or even to terminate performance when the State determined that "termination is in the best interest of the State." In the event the State exercised its right of suspension, or as a result of any change orders, Gibson was given an additional day's extension for each day of delay caused thereby. But Gibson was not entitled to any damages itself by reason of any delay.
Moreover, the contract made the New Jersey Contractual Liability Act, N.J.S.A. 59:13-1 to -10, expressly applicable to any claim Gibson might have against the State for delay damages. It also insulated the State from delay liability caused by other consultants, and set forth that in such event Gibson's sole remedy was against the culpable consultant. Gibson also agreed to indemnify the State for losses caused by Gibson's negligence. Gibson or disgruntled contractors on the project could request a conference with the State to resolve any claim or dispute that arose during the course of the contract.
The contract provided that the State would pay Gibson a lump sum of $998,684. The State also agreed to pay Gibson $22,481 for "extended services on a monthly basis." According to the State, the lump-sum payment covered the anticipated 270-day duration of the construction period, but that in the event construction exceeded the expected nine months, Gibson would receive additional compensation of $22,481 per month for each month that it was required to render the construction administration services defined in Article A.4. on April 24, 1998, Interstate wrote Turner about the problems the delay was causing, and sought a meeting to discuss additional expenses. Interstate notified the State and Turner in April and again in July 1998 that it would seek additional compensation for "extended general conditions."
According to Gibson's Steven Bauer, it was in May 1998 when Gibson submitted a set of drawings to the State to address the structural problems with the townhouses. In September 1998, Gibson wrote the State in support of its interim claims for additional compensation for the project, including a detailed report. Among the items referenced were "extended services on a monthly basis" whereby Gibson claimed its contract with the State provided for "on-going Construction Services" beyond the original nine months contemplated in their contract. In accord with that agreement, Gibson asserted a claim for $348,455.50 calculated at a rate of $22,481 per month for fourteen months from March 1998 prospectively to May 1999, including $33,712.50 for "demolition services" between July and September 1997. Gibson also "demand[ed] approval" of four existing "consultant amendment requests," or change orders, for unforeseen excavation problems, soil bearing analysis and electrical work totaling $40,967.55.
On September 25, 1998, representatives of Gibson, Turner and the State met to discuss these issues. At that meeting Turner and the State also presented a list of items concerning where they felt Gibson had been deficient. At a second meeting on November 20, 1998, Gibson responded to the claims against it. At that point, the State's Robert Brehm, Director of the Office of Design and Construction, informed Gibson's Bauer that the State intended to sue Gibson for "extended costs on the project" in the amount of $2.2 million, and that any claims Gibson had against the State would be offset against such amount. Brehm also informed Bauer of the State's intent to partially terminate Gibson from portions of the contract.
On November 30, 1998, the State issued its cost estimate "breakdowns" for the structural repair change orders. It included an analysis of plaintiff's claim and invited Gibson's comments. On December 7, 1998, Gibson objected to the $898,000 Turner had recommended the State pay Interstate for "additional work and delay claims" on the project, providing a detailed analysis.
By January 1999 the new construction phase was completed, and work turned to the renovations. On March 8, 1999, evidently in an effort to resolve at least some of their differences, Interstate executed a change order as proposed by the State for $345,494, but expressly reserved its right to seek additional reimbursement.
On December 8, 1998, the State confirmed its partial termination of Gibson's responsibilities for such matters as daily site supervision, and review of change orders and contractors' requests for payment, but otherwise confirmed Gibson's continuing duties. The partial termination was to be effective December 15, 1998. According to Bauer, when construction resumed, Gibson "did exactly the same thing" in terms of the services it continued to provide on the project as it had done prior to the work stoppage, notwithstanding the State's earlier partial termination letter to Gibson. In fact, according to Bauer, within a week of the State's December partial termination letter, "we were asked to review a very large change order on behalf of" Interstate and another contractor for carpentry and masonry work on the project.
On March 16, 1999, the State and Gibson signed an interim agreement to pay Gibson an additional $101,257 for work on the project. Gibson, in turn, agreed to pay express amounts to specifically named sub-consultants. In addition, the State agreed to pay monthly sums of $11,360 to Gibson, apportioned between the work of Bauer and David Gibson at $7200 and $4160 per month, respectively. Those amounts were for "services on and off the project site in order to aid in the performance of Gibson's professional obligations under the contract," were to be rendered "as the need arises at least twenty hours per week" for Bauer and eight hours a week for David Gibson, and were to extend "through and until April 30, 1999."
Additionally, the State agreed to pay Gibson for Gibson's pre-February 1, 1999 review of Fitzpatrick['s] [the demolition and masonry contractor] & [plaintiff's] change orders for structure and masonry repairs. Gibson shall submit reasonable costs to the State for performing this latter obligation which invoices the State will review for reasonableness prior to making payment; and . . . for invoiced amounts of subconsultants covering work performed beyond the requirements of the base contract, which may be submitted on a go-forward basis. The State, after reviewing these invoices for reasonableness, will pay Gibson the amount of the subconsultant's invoices, without any allowance for profit, overhead, etc. to Gibson, and otherwise in accordance with the payment procedures in the October 17, 1995 agreement.
The interim agreement, however, was not a release, and the parties did not surrender any claims they might have against one another. Bauer said that Gibson continued providing services on the project until July 1999, the date on which the State agreed the project was substantially complete.
Three witnesses testified at trial: Bauer (Gibson), Caputo (Turner) and Cox (State).
According to Bauer, Gibson was never paid for either of the change orders having to do with the excavation issues, though he did believe the State paid at least some of the other contractors whose work was reflected on the various change orders Gibson had submitted to the State for payment.
Bauer also said that Gibson had been entitled to be paid for a total of eighteen months extended field services, of which the State had paid Gibson $45,000 as part of the interim agreement representing a "reduced rate." Gibson still sought compensation for eleven months of those field services. Bauer maintained that issues Gibson raised with the State at the so-called "director's meetings" in September and November 1998 were never addressed by the State.
According to Caputo, the construction manager's representative, when he learned in January 1999 that the State was planning to cut back Gibson's role in the project, he advised the State's Brehm against such a course. Caputo told Brehm that there was "architectural input that was going to be necessary in a timely manner in order to finish the project," and Caputo's understanding was that, based on his advice, the State reconsidered terminating Gibson.
Cox had been the project director for the State for most of the period at issue, and was responsible for oversight of both contract and consultant aspects. He chaired bi-weekly project meetings, and described how the project evolved and changed from the original 1989 design consultant's work. He also described the renovation delays, how the structural problems were discovered and how the parties responded. He explained how, as the project moved forward, bids the State received for other aspects of the project exceeded the State's budget, and how dealing with those problems also contributed to delays.
Cox explained why in particular he had denied some of Gibson's requests for additional payments, concluding that certain work Gibson billed the State for as "additional" was, in fact, included within the amount the State initially paid it as architectural consultant. Nevertheless, Cox had approved certain additional payments to Gibson for extra work.
Cox also stated he met with Gibson representatives and others in January 1998 concerning Gibson's additional compensation requests and the resumption of construction. At that point the State was still waiting for the structural remediation report that Gibson had assigned to its sub-consultant, Applied Engineering. Gibson represented that it would provide the report by March 1998, and when that deadline came and went, Gibson said it would provide the report by April. Nevertheless, Gibson failed to meet that deadline as well, at which point David Gibson told Cox that Gibson was "having issues" with Applied Engineering. Gibson eventually delivered the remedial report and drawings in August 1998, but construction on the remediation had halted in the interim.
The State acknowledged that it agreed to pay Gibson $11,360 per month for February, March and April 1999 (for a total of $34,080) for construction administration. Thus, it also generally acknowledged that it had agreed to pay Gibson $45,440 "covering four past months of construction administration services rendered by" Gibson at the $11,360 monthly rate. And it agreed that Gibson was entitled to $2479 for the services Gibson performed in connection with the "relocat[ion] of [the] telecom room."
Following trial, Judge Jacobson issued a lengthy opinion fixing the amount of damages. In particular, the judge reviewed the development of "termination for convenience" clauses in public contracts, and noted that in order to prevail on its contention that the State terminated Gibson in bad faith, Gibson needed to show the State had an improper motive and was not simply exercising discretion.
The judge found that the evidence supported the State's asserted reason for termination, that is, that the State terminated the extended services provision because it was trying to avoid additional uncertain delay costs associated with Gibson's administrative work. Among the circumstances she believed supported that conclusion were the length of the delay in completion, the State's obvious concern for excessive delay costs, and the State's dissatisfaction with Gibson's performance, including Gibson's failure to have identified the structural problems encountered during renovation. The judge also found Gibson had failed to show that the State's rehiring of it shortly after the partial termination was in bad faith.
Gibson claims the judge erred in finding that the State did not exercise bad faith in terminating its contract to provide extended administrative services on the project. Among the items of evidence Gibson cites in support are: the State's refusal to give Gibson a "hearing" and to pay for extended services for which Gibson had demanded payment earlier; the State's failure to call as witnesses during trial the principal State "players" who could have provided information on the State's motives; the State's failure to have explained to Gibson at the time why Gibson was being terminated; the State's subsequent rehiring of Gibson "[a]lmost immediately" after being terminated; Gibson's performing essentially the same functions after being rehired as it did prior to termination; and a total lack of evidence from the State justifying its decisions.
Thus, Gibson essentially argues that the State failed to provide sufficient proof of its motives, and that as a result the judge's determinations were against the weight of the evidence. But the fact remains that the burden was on Gibson to prove the State's ill motive, and not on the State to prove it acted legitimately. Capital Safety, Inc. v. N.J. Div. of Bldgs. & Constr., 369 N.J. Super. 295, 301 (App. Div. 2004).
The provision at issue expressly allowed the State to terminate the work, in whole or in part, whenever the State's Director of the Division of Building and Construction determined that it "is in the best interest of the State." In construing such "termination for convenience" provisions, this court has agreed with the conclusion reached by federal courts that those provisions allow the contracting agency to terminate a contract "for any reason that is in the best interests of the government so long as the contracting agency does not act in bad faith." Id. at 300.
Error alone on the government's part, even if otherwise sufficient to form the basis of a contract breach action, will not suffice. Ibid. Rather, in order to show "bad faith" in a contractual context, the claimant must establish an improper motive. Id. at 301. Moreover, government officials are presumed to act in good faith and, as a result, the contractor has a very heavy burden of proof. Ibid. (citations omitted). Thus, a decision motivated by saving money does not qualify as one of bad faith. Ibid. (citation omitted). Neither is it dispositive that in exercising its discretion, the government's decision caused the other party some "'economic disadvantage.'" Ibid. (quoting Wilson v. Amerada Hess Corp., 168 N.J. 236, 251 (2001)).
Nevertheless, the record included sufficient evidence supporting the State's decision to terminate Gibson for legitimate reasons "in the best interests of the government." Id. at 300. For example, the project had experienced substantial delays and increased costs with respect to both the new construction and the renovation aspects. Gibson had been the architect for the overall project, and had drafted and provided the plans and specifications for both parts that were experiencing substantial difficulties. In the midst of the delays, while the parties were working to correct the problems, Gibson failed to deliver the remediation report it promised when, evidently, its relationship with Applied Engineering encountered troubles. Therefore, whether the problems were, in fact, attributable to Gibson was irrelevant because, at the time, there was evidence to suggest as much. Ibid.
Similarly, with respect to Gibson's rehire, Caputo explained that he advised Brehm, after the State had made up its mind to terminate Gibson, that the project's completion required Gibson's oversight. There was no evidence that anyone from the State consulted Caputo in advance or as part of a scheme to get Gibson to provide additional support at a reduced rate just because the State wanted to save money.
Certainly, some of Gibson's evidence suggested "bad blood" had developed between it and the State as the project progressed. Given the circumstances, however, such feelings were understandable. Yet, the frustration experienced by all parties offers as ready an explanation for the State's actions, as a putative intent on the State's part to damage or unfairly take advantage of Gibson. Thus, while the subsequent disagreements were regrettable, it is not to say that they were more likely than not a result of the State's improper motive. Caputo, for example, explained that one of the reasons for at least some of the delays was "claim posturing" by the contractors and Gibson, as well as "conflicting directions from" the State.
In the final analysis, the evidence falls far short of sufficient to support Gibson's burden to prove ill motive, and the so-called "good faith" cases upon which it primarily relies do not address the law's presumption of good faith to government actions. In fact, in trying to distinguish Capital Safety, Gibson fails to account for the substantial evidence in this case supporting a conclusion by the State that indeed Gibson was the primary party at fault.
Gibson says that it "never received a hearing--let alone a fair hear [sic]." But in fact Bauer acknowledged that both times Gibson requested a meeting with the State to discuss the delay issues, it received one. Although it evidently feels it was "ambushed" at the second meeting because when the State's representative indicated the State's intent to file suit, the fact remains that the State was putting Gibson on notice of its position in light of the numerous accusations passing among the parties regarding blame for the delays and costs. The contract with the State provided Gibson with the right to request a conference to resolve disputes; it did not guarantee that the disputes would be resolved in Gibson's favor.
A trial judge's fact findings are affirmed on appeal when supported by "adequate, substantial and credible evidence." Rova Farms Resort v. Investors Ins Co. of Am., 65 N.J. 474, 484 (1974). Judge Jacobson clearly explained how she reached the overall damages figure of $234,921 ($157,367 for extended services from January 15, 1998, to August 15, 1998 $22,481/mo x 7 months); $44,484 for four months of extended services prior to termination for convenience (August 15, 1998, to December 15, 1998, at the contracted rate minus amounts already paid); $21,200 for stipulated disbursements; and $11,870 for foundation work outside the scope of the architectural contract. Gibson points to nothing in the record to undermine any of those amounts.
Gibson's argument that it should be able to pursue its fourth-party claims is contingent on a reversal of the discovery decisions. We have affirmed those decisions and need not address this argument.