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Structural Concepts, Inc. v. Kean University

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


January 16, 2009

STRUCTURAL CONCEPTS, INC., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
KEAN UNIVERSITY, AN ALTER EGO OF THE STATE OF NEW JERSEY, THE STATE OF NEW JERSEY, SYSKA & HENNESSEY, INC., THERMACOR PROCESS, INC., EDUARDO DEL VALLE, AND HEMANT MEHTA, P.E., DEFENDANTS-RESPONDENTS, AND THE STATE OF NEW JERSEY ON BEHALF OF KEAN UNIVERSITY, THIRD-PARTY PLAINTIFFRESPONDENT/CROSS-APPELLANT,
v.
SAFECO SURETY, THIRD-PARTY DEFENDANT-CROSS-RESPONDENT.

On appeal from the Superior Court of New Jersey, Law Division, Union County, L-4547-02.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 27, 2008

Before Judges Lisa, Reisner and Sapp-Peterson.

This construction case involves a project to replace the steam heating and sanitary piping system at defendant Kean University (Kean). Following years of litigation, all parties agreed to submit their remaining disputes to arbitration before a retired judge, Reginald Stanton. After sixty-nine days of hearings, the arbitrator issued a cogent and exhaustively-detailed ninety-five page arbitration decision dated December 21, 2006, addressing all issues. Judge Anzaldi confirmed the arbitrator's award in an order dated February 22, 2007. Plaintiff Structural Concepts, Inc. (SCI) now appeals from Judge Anzaldi's February 22 order. Kean cross-appeals from the same order.*fn1 We affirm, substantially for the reasons set forth in the arbitrator's decision.

I.

We begin by noting several significant procedural issues. The parties agreed that the arbitrator would render proposed findings of fact and conclusions of law, and a proposed award, which the Law Division judge would consider under the traditional, very limited standard for review of an arbitrator's decision. See N.J.S.A. 2A:23B-23a and -24a. However, pursuant to N.J.S.A. 2A:23B-4c, the parties also agreed that for purposes of appealing the Law Division judge's order, the underlying decision of the arbitrator would be fully reviewable to the same extent as the decision of a trial court. Therefore, the parties contemplated that on this appeal we would review the arbitrator's decision to determine whether it was supported by substantial credible evidence and was consistent with applicable law. See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974).

In their appellate briefs, however, both Kean and SCI advise us that they accept the factual findings of the arbitrator. In its brief, SCI states that: "The record of the arbitration is admittedly lengthy; however, the Arbitrator's factual findings are substantially in accord with the testimony and documentary evidence and not disputed by SCI." Likewise, Kean advises us that: "The award of the Arbitrator included findings of fact supported by the evidentiary record, which are not disputed by either SCI or Kean." Consequently, in this opinion we will treat the arbitrator's factual findings as stipulated, and we will focus on whether the arbitrator's conclusions drawn from those facts (including his construction of the relevant bid documents and contracts) were correct as a matter of law. Under the traditional appellate standard of review, for which the parties bargained in this case, our review of the arbitrator's legal conclusions is de novo. See Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

II.

On this appeal, SCI presents the following points for our consideration:

POINT I: THE ARBITRATOR, AND THE COURT BELOW, ERRED AS A MATTER OF LAW BY FAILING TO FIND THAT (A) SCI WAS A THIRD PARTY BENEFICIARY UNDER THE S&H CONTRACT AND (B) S&H'S PERFORMANCE UNDER THE S&H CONTRACT WAS DEFICIENT AND IN BREACH OF ITS OBLIGATIONS AND THEREFORE, S&H WAS "DIRECTLY RESPONSIBLE" TO SCI FOR ALL DAMAGES CAUSED THEREBY.

POINT II: THE ARBITRATOR'S FACTUAL FINDINGS, CONFIRMING THAT THE PLANS, DRAWINGS AND SPECIFICATIONS WERE NOT FINAL AS REQUIRED BY N.J.S.A. 18A:64-64(g), ARE INCONSISTENT WITH HIS HOLDING THAT KEAN AND S&H ARE NOT RESPONSIBLE FOR SCI'S DAMAGES PROXIMATELY CAUSED BY THIS OMISSION.

POINT III: THE ARBITRATOR FOUND THE BIDDING DOCUMENTS INHERENTLY AMBIGUOUS, BUT ERRED AS A MATTER OF LAW BY NOT CONSTRUING THEM AGAINST KEAN AND S&H AS THE DRAFTERS.

POINT IV: EVEN IF SCI'S BID CONTAINED A MISTAKE, S&H AND KEAN CANNOT ESCAPE LIABILITY FOR SCI'S DAMAGES.

POINT V: THE GENERAL EXCULPATORY LANGUAGE IN THE CONTRACT DOCUMENTS DOES NOT TRANSFER RESPONSIBILITY FOR DEFECTIVE PLANS, DRAWINGS ANS SPECIFICATIONS TO SCI.

POINT VI: THE ARBITRATOR ERRED BY INVOKING EXCULPATORY LANGUAGE IN THE CONTRACT TO SHIELD KEAN FROM LIABILITY WHEN KEAN HAD "SUPERIOR KNOWLEDGE" CONCERNING THE DESIGN THAT IT WITHHELD FROM SCI.

POINT VII: THE ARBITRATOR APPLIED AN INCORRECT BURDEN OF PROOF REGARDING THE NO DAMAGES FOR DELAY PROVISION.

POINT VIII: SCI CAN RECOVER AGAINST KEAN UNDER A NEGLIGENCE THEORY FOR VIOLATION OF N.J.S.A. 18A:64-64(g).

POINT IX: THE ARBITRATOR ERRED IN FINDING THAT SCI WAS LIABLE TO KEAN ON THE COUNTERCLAIM FOR DAMAGES CAUSED BY A FAULTY DESIGN AND SPECIFICATION.

We will begin our discussion with the central issues which the arbitrator addressed and which comprise the core of SCI's appeal.

A. The Third Pipe Issue

SCI was the successful bidder on the project to install the new piping. SCI planned to buy the necessary piping from another company, Thermacor Process, Inc. After reviewing the bid specifications and consulting with Thermacor, SCI's president, George Moutis, and the president of SCI's main subcontractor, Gus Kamaratos, both believed that they would be installing a "two-pipe" system; that system would consist of one set of pipes carrying the steam from the heat source, and another set returning air and condensed water from the system back to the heat source. However, the arbitrator concluded as a matter of fact that SCI was mistaken about the system Thermacor would provide:

The only piping system which Thermacor made which could meet the requirements of [SCI's bid] was . . . a three pipe system. There was no secret about that fact. Had SCI been reasonably diligent in informing itself about the product which it was proposing to use as a major component of its performance under [its bid], it would have been aware that the system was a three pipe system.

The arbitrator concluded that this mistake was the fault of Moutis and Kamaratos: "That was their mistake. I do not think the mistake was excused by the fact that the bidding documents in this case were complicated and somewhat difficult to work with." Although SCI had to do more work to install the three pipe system, the arbitrator found no basis for SCI's claim that Kean would be unjustly enriched if SCI could not charge more than the contract price for that work:

Kean in no way contributed to [SCI's] making of that mistake. . . . I note that Kean invited prospective bidders to a pre-bid conference at which they would have the opportunity to raise questions concerning the bid plans and specifications and to seek, if necessary, clarification of them.

SCI chose not to participate in that pre-bid conference.

The arbitrator also concluded that SCI did not produce proof that it had installed a greater total length of pipe than the contract called for. Hence, with very minor exceptions, he rejected SCI's claims for additional compensation related to the third pipe "whether viewed as a matter of contract interpretation or as a matter of unjust enrichment."

Based on the arbitrator's undisputed findings of fact, we find no error in his conclusions concerning the third pipe issues. SCI's arguments concerning this issue are without sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(E).

B. The Unexpected Underground Conditions

The new heating system was to be installed underground. However, the University's old heating system, as well as many other utility pipes and wires, were already buried underground. Many of SCI's appellate arguments arise from SCI's discovery of unexpected difficulties in working around the extensive pre-existing underground piping and wiring while installing the new system. The crux of SCI's claims is that Kean and Syska & Hennessy, the engineering consultants who prepared the project plans and other bid documents for Kean, did not sufficiently identify those hidden underground conditions.

However, the arbitrator found that "[t]he pre-existing conditions on Kean's campus and the inherent practicalities of the situation made it impossible for the bid documents to specify the precise position of all the pre-existing utility lines." The arbitrator further found as follows:

It is also true that detailed soil conditions usually cannot be known in advance of extensive and expensive excavation of a site. Accordingly, when subsurface construction work is to be undertaken, it is usually the case, as it was with respect to this project, that both the owner and the prospective bidders cannot be sure about many important facts affecting the cost of construction at the time of bidding.

The arbitrator acknowledged that in these situations, the construction contract can place the risk of unknown underground conditions -- and the attendant risk of extra work -- on the bidder or on the owner. Placing the risk on the bidder may drive up the cost of contracting, since the bidders may charge more for undertaking a set of unknown risks. Placing the risk on the owner exposes the owner to potentially large cost overruns. In this case, the arbitrator found that: "[I]t is clear that the bidding documents and the contractual documents in our case purported to place the economic risk of encountering unexpectedly difficult underground conditions upon the bidder." He found that this language was consistent with the policy of the State of New Jersey, which, unlike the Federal Government, has chosen to "fix lump sum prices" and place the risk of unknown underground conditions on the bidder.

In an extended discussion, the arbitrator concluded that the contract shifted the risk to the bidder. For example, Section 4.1.1 of the General Conditions of the contract warned the contractor that the locations of known utility structures was "approximate" and that the State was not guaranteeing the "accuracy and completeness" of this information. Further, this provision advised the contractor "to ascertain for himself all the facts concerning the location of these utilities" and clearly warned that no allowance would be made "for any delays, inconvenience or damage sustained by [the contractor] due to any interferences from the said utility facilities or the operation of moving them."

Moreover, in section 4.4 of the Supplemental Conditions of the contract, the contractor represents that he has investigated the site, "has satisfied himself as to the nature and location of the work . . . and that he will not make any claim for, or have any right to damages, because of the lack of information." Notes which accompanied the drawings provided to the bidders likewise warned that information as to buried utility lines was not guaranteed as to accuracy or completeness and that it was the contractor's responsibility to dig test pits "prior to construction to ascertain existing utility inverts, elevations, materials and sizes." In fact, the arbitrator found as fact that "fully accurate disclosure of subsurface conditions with respect to the location of utilities, rocks, shale and soil composition could not take place in the absence of extensive digging of test pits."

Based on his factual findings and his interpretation of the bid documents and the contract, the arbitrator concluded that "the contract . . . shifts to SCI the risk of absorbing the extra costs caused by unexpectedly difficult underground conditions." Based on the arbitrator's factual findings and our own review of the relevant documents, we agree. Absent a positive misrepresentation of known conditions, the terms of the State's contract, shifting the risk to the bidder, must prevail:

[W]hen the State actually makes false representations in its contract documents that are more than gratuitous and amount to positive averments of site conditions, it will remain liable to the public contractor despite a general exculpatory clause in the contract. In some cases, actual concealment of information may be considered a false factual representation. Inferential conclusions from contract documents, however, shall not be considered a false factual representation in the face of sufficiently clear and unambiguous disclaimers of liability by the State. [P.T. & L. Constr. Co., Inc. v. Dep't of Transp., 108 N.J. 539, 562 (1987).]

We agree with the arbitrator that where the owner's representations as to underground conditions are as limited and as carefully disclaimed as they are in this case, and where the bidder is warned as carefully as he was in this case[,] . . . the owner is not responsible for making additional payments to cover the extra work caused by unexpectedly difficult underground conditions.

The parties are also bound by the arbitrator's factual finding that Kean, through its Assistant Vice President Eduardo Del Valle, did not deliberately misrepresent or withhold knowledge about subsurface conditions.

C. Alleged Wrongdoing by Syska & Hennessy

In its appellate brief, SCI asserts a variety of theories to support claims against Syska & Hennessy for its alleged failure to provide more complete and accurate plans and drawings. None of these contentions has merit and they warrant little discussion here. R. 2:11-3(e)(1)(E). Based on his evaluation of the credibility of Syska & Hennessy's employee Lawrence Kellermueller, the arbitrator concluded that Syska & Hennessy's work was "competent and reasonable" and that Syska & Hennessy was in no way responsible for the problems SCI encountered in performing the construction work.

The arbitrator also concluded that while Kean could have done a better job of retrieving old drawings from its files to assist Syska & Hennessy in preparing its plans, Kean's possible negligence "would not give rise to liability under the terms of the contract between Kean and SCI with its clear disclaimers with respect to the accuracy and completeness of the plans and drawings." We find no error in this conclusion, particularly in light of the arbitrator's unassailable conclusion that Syska & Hennessy's plans were not intended or represented to be final plans but were intended to be diagrammatic.

Based on his finding that Syska & Hennessy employees Kellermueller and Douglas Wen, and expert witness Paul A. Tutton, were credible, the arbitrator found that "it is common practice with respect to contracts of this kind . . . to shift the burden of detailed plan making to the contractor." He also concluded that "placing the burden upon the contractor is both fair and reasonable" and that the plans and specifications were sufficiently specific to satisfy the State contracting law, N.J.S.A. 18A:64-64(g). We find no error in these conclusions. As the arbitrator found:

If SCI had studied the bidding documents with appropriate care, it should have realized that the risk of bearing the cost of extra work for unexpectedly difficult conditions was being placed upon the contractor, and it should have either declined to submit a bid rather than accept that risk, or it should have raised the price of its bid considerably to cover the risk.

SCI's claim that Syska & Hennessy improperly showed round rather than square manholes on the plans is equally without merit. Its claim is precluded by the arbitrator's factual finding, which the record supports, that while the plans in some places used "circular symbols" as "a generic depiction of manholes," the plans also clearly showed that the proposed manholes would be square in shape. Neither Syska & Hennessy nor Kean is responsible for the fact that SCI misread the drawings.

D. SCI's Liability to Kean for Failed Pipes

We reject SCI's Point IX, concerning the arbitrator's award to Kean of damages for three failed sections of pipe. The arbitrator found as fact that the pipe system overall was properly designed and that the system had "been in daily use on the Kean campus for the past seven years and . . . has succeeded in supplying heat in the winter and cool air in the warmer months to all of the buildings which it is servicing on the Kean campus." However, based in large part on his evaluation of expert witness credibility, the arbitrator found that three discrete pipe sections failed due to SCI's poor workmanship on those sections. SCI's attempt here to blame Kean or Syska & Hennessy for the pipe failure is without merit.

E. Conclusion

In summary, we find no merit in any of SCI's assorted theories of liability against Kean or in SCI's attempt to re-frame the same essential arguments as theories of liability against Syska & Hennessy. Since we agree with the arbitrator that Syska & Hennessy was not responsible for any injury to SCI, we need not further address SCI's claim that it was a third-party beneficiary of the contract between Kean and Syska & Hennessy.

To the extent not discussed here, SCI's remaining appellate arguments, including its claim concerning damages for delay, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

III.

We turn next to Kean's cross-appeal.*fn2 Kean presents the following points for our consideration:

POINT I: THE ARBITRATOR ERRED IN FAILING TO ENFORCE S&H'S OBLIGATION TO INDEMNIFY AND DEFEND KEAN.

POINT II: THE ARBITRATOR ERRED IN FAILING TO ALLOW KEAN BROADER RECOVERY ON ITS WARRANTY CLAIMS.

POINT III: SCI AND SAFECO ARE JOINTLY AND SEVERALLY LIABLE FOR ALL CLAIMS OF KEAN UNDER THE TERMS OF THE STATUTORY PERFORMANCE BOND.

The arbitrator rejected Kean's $91,000 liquidated damages claim, calculated at the contractual rate of $1000 per day, for "SCI's failure to complete the work on the project within the time limitations imposed by the contract." In brief summary, the arbitrator concluded that under all the circumstances, it would be inequitable to strictly enforce this delay clause where SCI had already incurred the massive expense of performing all of the additional work required to complete the contract, and had "performed in an exceptionally responsible and honorable way in bringing the project . . . to substantial completion by February 14, 2000." He also found that under all the factual circumstances, "Kean was . . . much too stingy in granting extensions of time to SCI." We infer that in this limited instance, the arbitrator found Kean to have violated the covenant of good faith and fair dealing inherent in all contracts. See Sons of Thunder v. Borden, Inc., 148 N.J. 396, 420-24 (1997). Based on the arbitrator's undisputed factual findings, we perceive no error in his denial of Kean's claim.

Kean asserted a variety of additional claims. As SCI was completing the project, Kean and its engineer created "a punch list of items that allegedly needed to be corrected." The cost of repairs was alleged to be approximately $640,000. However, based on his evaluation of witness credibility, the arbitrator found that the punch list was greatly exaggerated and had been created in contemplation of litigation. He found that "SCI corrected the items on the punch list which were reasonably necessary to give Kean a reliable functioning steam supply piping system," and he therefore denied Kean's claims based on the punch list. We conclude that the arbitrator's factual findings on this issue are fatal to Kean's claims based on the punch list.

The arbitrator also rejected Kean's claim for approximately $1.75 million to repair leaking manholes. The arbitrator found it was likely that the claim was greatly exaggerated. However, more significantly, he concluded that while SCI may have had some fault with respect to the leakage, Kean could have mitigated its damages by promptly installing sump pumps at relatively modest expense: "It is Kean's fault that the problem was not dealt with effectively and inexpensively at an early stage." Based on the arbitrator's factual findings, to which the parties have agreed on appeal, we affirm the arbitrator's determination of this claim.

The arbitrator likewise denied Kean's $1.09 million claim to additional credits for work that was allegedly incomplete, not provided or not performed to specification, or otherwise deficient. The arbitrator found that "the list of credits is so inflated that it becomes incredible" and that the claim was "so totally unrealistic that no award will be made with respect to it." As the parties implicitly concede, we must defer to the arbitrator's credibility determinations and, as such, we find no basis to disturb his conclusion that Kean did not prove this claim.

We find no error in the arbitrator's decision to deny Kean's claims against Syska & Hennessy for indemnification and defense costs, substantially for the reasons stated by the arbitrator on pages 88 through 91 of his award. SCI's primary claims in this case were against Kean for breach of the construction contract and failure to pay SCI for the work reflected in SCI's forty-four change orders. SCI also attempted to recast some of its central contentions against Kean as claims against Syska & Hennessy. But this did not require the latter to pay Kean's defense costs. See Mantilla v. NC Mall Assocs., 167 N.J. 262, 274-75 (2001); Grippo v. Schrenell & Co., 223 N.J. Super. 154, 165-66 (App. Div. 1988). Further, the claims the arbitrator allowed against Kean had nothing to do with Syska & Henessy's performance of its duties and, therefore, would not require the firm to indemnify Kean. See Azurak v. Corp. Prop. Investors, 175 N.J. 110, 111-13 (2003); Mantilla, supra, 167 N.J. at 272-73; N.J.S.A. 2A:40A-1.

Kean's additional arguments in support of its cross-appeal, including its claim for repair expenses that the arbitrator found were actually litigation expenses, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.


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