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Sherman & Zalenko, L.L.C. v. Spystef

December 11, 2008

SHERMAN & ZALENKO, L.L.C., PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
SPYSTEF, L.L.C., SOFIA KALIAKATSOU AND STEVEN TSOUKAS, DEFENDANTS-THIRD-PARTY PLAINTIFFS- APPELLANTS/CROSS-RESPONDENTS,
v.
AMERTECH ENGINEERING, INC., JAMES SHERMAN AND GARY ZALENKO, THIRD-PARTY DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1322-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 7, 2008

Before Judges Wefing and LeWinn.

Defendants Spystef, LLC (Spystef), Sofia Kaliakatsou and Steven Tsoukas hired plaintiff Sherman & Zalenko, LLC (S&Z), a commercial and residential construction company, to construct a seven-house development known as the Tara Greens project. Defendants also engaged with S&Z in an investment project known as the Bloomfield Avenue property. In addition, S&Z completed various projects for third parties at Tsoukas' request.

In February 2005, S&Z filed a complaint against defendants for breach of contract and fraud. Defendants counterclaimed for breach of contract, negligence, consumer and common law fraud, unjust enrichment, withheld profits, delay damages and improper lien claim damages. Defendants also filed suit against third-party defendant Amertech Engineering, Inc.*fn1 Following a five-day bench trial, the judge entered judgment awarding S&Z $225,485 and dismissing defendants' counterclaims. This appeal and cross-appeal followed. We have determined the judgment must be modified for the reasons set forth, and we remand for entry of an amended judgment.

The pertinent factual background may be summarized as follows. Sometime in late 2001 or early 2002, Jim Sherman, a partner and construction contractor with S&Z, met with Kaliakatsou and Tsoukas, the principals of Spystef, to discuss the construction of a housing development in New Brunswick, New Jersey, consisting of seven duplex homes. This project became known as Tara Greens.

Sherman prepared a proposal that reflected the parties' agreement that S&Z would build seven duplex homes on defendants' property at a price of $125,000 per unit; included in that price were foundation, framing, HVAC, plumbing, electric, exterior finish work and interior finish work. Sherman and Kaliakatsou signed this proposal.

When Sherman arrived at the New Brunswick site in August 2002 to begin construction, a survey revealed that the site had not been properly cleared, thus preventing construction from commencing. Tsoukas told Sherman to clear the site and to "keep track of the time and the materials that were used" so that he could reimburse S&Z for the "site work." Tsoukas agreed to pay S&Z an additional twenty percent for overhead and profit for this work.

As construction progressed, another problem arose concerning installation of sewer lines and water hook-ups. Sherman testified that Tsoukas told him to complete the sewer work and that Tsoukas "would pay [S&Z] the amount that it cost to actually do the work[,] plus a $30,000 profit." Tsoukas did not refute this contention.

Another dispute arose over the construction of basements, which had not been part of the original proposal, as well as the installation of air conditioning units. S&Z added air conditioning at a cost of $74,000, and constructed basements in four of the units at a cost of $20,000 per unit.

As the Tara Greens project neared completion, S&Z encountered financial difficulty because Spystef had not paid for all of the services rendered to date. Sherman acknowledged that Spystef had paid a portion of the costs for Tara Greens, but the total amount paid was in dispute at trial. These financial difficulties prevented S&Z from completing the seventh house. Sherman stated that S&Z "had no money to continue further. . . . We had no reason to doubt that Mr. Tsoukas would . . . pay us the money but we had no funds to continue." As a result, in February 2004, S&Z left the construction project with the seventh house "approximately [$]40 to $60,000 away from completion." Sherman testified that because of the debt S&Z was compelled to incur due to Spystef's failure to make complete payments, S&Z "borrowed over $200,000 on a . . . credit line," and Sherman individually borrowed "$95,000 against [his] personal home."

In April 2004, S&Z filed a construction lien against defendants in the amount of $230,676.10. The lien claim form was introduced into evidence; it reflected a "[c]ontract amount paid to date" of $1,254,529.91.

During the construction of the Tara Greens project, Sherman discussed with Tsoukas an opportunity to purchase an investment property on Bloomfield Avenue in Iselin, New Jersey. It was S&Z's plan to purchase the property, subdivide it into three lots, build two new homes and remodel a pre-existing home on the property. S&Z purchased the property for $390,000, listing itself as the only owner. Tsoukas contributed $97,500 to the purchase of the property. However, the ...


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