April 13, 2009
LINDA M. HIRSCH, AS TRUSTEE OF THE LINDA M. HIRSCH FAMILY TRUST DATED OCTOBER 21, 2005, LINDA M. HIRSCH, SETTLER & TRUSTEE, PLAINTIFF-APPELLANT,
H & D PRIME CONSTRUCTION, INC., DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-343-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 15, 2008
Before Judges Carchman and Simonelli.
Plaintiff Linda M. Hirsch, as Trustee of the Linda M. Hirsch Family Trust dated October 21, 2005, Linda M. Hirsch, Settler & Trustee, appeals from the Chancery Division order granting summary judgment to defendant H & D Prime Construction, Inc., fixing and establishing it's entire $146,323 construction lien claim against her property pursuant to the Construction Lien Law (CLL), N.J.S.A. 2A:44A-1 to -38. We reverse and remand for a proof hearing to fix and establish that amount of the lien claim attributable to the labor and materials defendant provided to plaintiff's home.
The facts are undisputed. Kara at the Tradewinds, L.L.C. (Tradewinds) owned property in Sea Bright on which it developed twenty upscale, single-family homes. Tradewinds offered potential purchasers several model homes from which to choose, with varying price ranges.
On or about July 1, 2003, Tradewinds entered into a contract with plaintiff and Kevin Hirsch for the purchase of property described as Job #1016, Block 4, Lot 7.23 for $1.4 million. Plaintiff chose the "St. Simmons" model home. She paid a $210,000 deposit, which was not placed in escrow.
In April 2005, defendant entered into a Master Subcontractor Agreement -- Large Single Family (MSA) with Kara Homes, Inc. (Kara), the project's general contractor. Pursuant to the MSA, defendant agreed to provide labor and materials for the installation of siding and/or stucco on some of the homes in the project. The MSA required a set of plans for each home. It also required that a "siding plan meeting must be held at the start of each job to review the methods and means of how each home will be completed."
The MSA also provided that defendant would be paid in accordance with a price list for the siding or stucco it installed on each home. For example, for "The Avalon" model home, defendant would be paid $41,978 for siding or $16,980 for stucco work; for the "St. Simmons" model home, defendant would be paid $38,650 for siding or $13,035 for stucco work. To receive payment, the MSA required defendant to "bill each job on a separate invoice." Each invoice had to contain, among other things, a separate job and invoice number corresponding to each lot on which defendant worked. The MSA also contained other provisions permitting Kara to deduct payments or offset from any balance owed to defendant.
Defendant provided labor and materials for thirteen of the twenty homes in the project, but only received payment for four. As required by the MSA, defendant invoiced each job separately by job number corresponding to each property and by model type. Each invoice indicated the type of material installed, i.e. either siding or stucco, and the price, which corresponded to the model type on the price list. The invoice for plaintiff's home indicates that defendant installed stucco at a cost of $13,035.
Defendant last performed work on the project on August 19, 2006. By that time, Tradewinds had transferred title to all but three of the twenty properties in the project. Defendant had provided labor and materials for two of those remaining properties, which included plaintiff's property.
On September 12, 2006, defendant filed a Notice of Unpaid Balance and Right to File Lien (NUB) pursuant to the CLL, seeking to perfect a lien on the two remaining properties in the amount of $146,322.*fn1 On September 26, 2006, defendant filed a demand for arbitration.
Plaintiff proceeded to close title on October 2, 2006, with knowledge of defendant's NUB. Plaintiff also knew that there would be no proceeds available to satisfy defendant's lien and that the home was unfinished. She gave Tradewinds and Kara a release of, and indemnification for, defendant's lien. She also offered defendant $6500 to resolve the lien, which defendant rejected. Three days later, Tradewinds and Kara filed voluntary petitions under Chapter 11 of the Bankruptcy Code.*fn2
On October 26, 2006, an arbitrator issued an award finding defendant's lien claim valid in the amount of $146,323. On November 6, 2006, defendant filed a construction lien claim against plaintiff's property in that amount.
On October 31, 2006, plaintiff filed a complaint, seeking to establish the proportionate value of services and materials defendant provided to her home, among other things. Defendant filed a counterclaim, seeking, among other things, to validate the lien, to fix the amount due and to require payment from plaintiff.
Both parties sought summary judgment. Plaintiff contended, as she does here, that N.J.S.A. 2A:44A-18a governs the MSA because it is a residential construction contract which provides for an allocation by lot. Thus, she is only required to pay her proportionate share of the lien. N.J.S.A. 2A:44A-18, entitled "Residential construction contract; calculation of proportionate share," provides: This section shall solely apply to work, services, material or equipment furnished under a residential construction contract.
If a lien attaches to an interest in real property, the lien claimant shall release a proportionate share of the interest in real property from the lien upon receipt of payment for that proportionate share. This proportionate share shall be calculated in the following manner:
a. If there is a contract between the lien claimant and the owner which provides for an allocation by lot or tract, that allocation of the proportionate share shall be binding upon the lien claimant.
b. If the work performed by the lien claimant was for a condominium in which a master deed is filed before the lien attaches, or for work performed for a cooperative in which a master declaration is filed before the lien attaches, then the proportionate share shall be allocated in an amount equal to the percentage of common elements attributable to each unit.
c. If subsection a. or b. of this section does not apply, then the lien shall not be released as to any portion of the interest in real property unless the lien claimant and the owner otherwise agree in a writing signed by both parties.
d. If a lien claimant receives payment of its proportionate share but refuses to discharge its lien claim, then upon application to a court having jurisdiction thereof, the court shall order the discharge of the lien claim to the extent of that proportionate share. The lien claimant shall be further subject to the provisions of Section 30 of this act, and any amounts to be paid shall be paid from the amount due the claimant.
Plaintiff concluded that pursuant to this statute, defendant was required to file a NUB for, and apportion its lien claim among, each lot on which it provided labor and materials.
Defendant countered, as it does here, that N.J.S.A. 2A:44A-18a does not apply because the MSA did not provide an allocation by lot or tract; and that requiring it to file thirteen NUB's, thirteen arbitration demands and thirteen lien claims contradicts the Legislature's finding in N.J.S.A. 2A:44A-21a that "the multiplicity of lien claims and potential for minor monetary disputes poses a serious impediment to the ability to transfer title to residential real estate expeditiously."
Defendant also countered that N.J.S.A. 2A:44A-19b governs the MSA because it references "real property" and avoids the "multiplicity of lien claims" by permitting the filing of one lien claim against real property not conveyed before the lien attaches. N.J.S.A. 2A:44A-19, entitled "Attachment of lien to interest of owner for work performed in a condominium or cooperative unit," provides:
a. For work performed solely within a unit in a condominium or cooperative, the lien shall only attach to the interest of the owner in the condominium or cooperative unit.
b. If an interest in real property is conveyed after work is performed but before a lien attaches to that property, then the lien shall attach to the real property retained by the owner, but shall not attach to the real property or interest therein previously conveyed.
Plaintiff responded that N.J.S.A. 2A:44A-19 does not govern the MSA because the title to that statute controls. As such, the statute only applies to condominiums and cooperatives, not to single-family homes, such as her home.
The motion judge found, and defendant concedes, that the MSA is a residential construction contract. The judge also found that because the MSA did not reference allocation by lot or tract, N.J.S.A. 2A:44A-19b applies. He reasoned that the primary purpose of the CLL was to simplify the lien process to avoid tension between contractors and property owners, that the application of N.J.S.A. 2A:44A-18a would exacerbate those tensions by causing more filings and arbitrations, and that the application of N.J.S.A. 2A:44A-19b would effectuate the CLL's purpose by avoiding the adversarial relationship.
The judge also found that, notwithstanding the title of N.J.S.A. 2A:44A-19, which references a condominium and cooperative, subsection b refers to "real property", which is defined "much more broadly than plaintiff would have us accept." The judge reasoned that "[u]nder normal tenets of legislative construction, I think it's inescapable that I reach the conclusion that [subsection b] was intended . . . to apply to more than [subsection a] in terms of scope."
In making his findings, the judge was strongly influenced by plaintiff's purchase of the unfinished home with knowledge of the lien and the confidentiality agreement. He did not view her as an innocent party and questioned her motives in indemnifying Kara and Tradewinds without paying the entire lien. However, the judge mistakenly believed that the $210,000 deposit was available at the closing to pay the lien, but "[t]he parties chose not to do that." Regarding plaintiff's failure to insist on using the deposit money to pay the lien, the judge said:
It appears that whether it was a desire to precede the bankruptcy or just finish a situation which had been carrying on for several years, [plaintiff was] well aware of what was going on here, and chose to take the house with the understanding that the $146,000 lien was fully viable, had been asserted, and had to be dealt with.
There is a HUD form which indicates the following, the purchase price . . . was [$]1,396,500 and ultimately the mortgages on the property totaled [$]1,186,500. Real estate taxes and recording fees were all paid by the plaintiff. Therefore the net amount available certainly was at least the deposit of $210,000.
[I]f you net out the real estate taxes and real estate transfer fee, there was still sufficient proceeds to pay off the defendant's claim.
But the parties bargained not to do that and now seek to invalidate what they agreed would be an issue that they would have to deal with at a later time[.]
We use the same standard as the trial court when deciding a summary judgment motion. Jolley v. Marquess, 393 N.J. Super. 255, 267 (App. Div. 2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment as a matter of law." R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 528-29 (1995). If there is no genuine issue of fact, such as here, we must then decide whether the lower court's ruling on the law was correct. Prudential, supra, 307 N.J. Super. at 167. Applying these standards, we conclude that the judge's ruling on the law was incorrect.
The CLL is a lien statute with a dual purpose: "to help secure payment to contractors, subcontractors, and suppliers who provide work, services, material, or equipment pursuant to a written contract" and "to ensure the rights of property owners who have met their financial obligations and to preclude imposing upon them the burden of double payment for work and materials." Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56, 68 (2004) (citing Thomas Group, Inc. v. Wharton Senior Citizen Hous., Inc., 163 N.J. 507, 517, 521 (2000)). See also Michael J. Wright Constr. Co., Inc. v. Kara Homes, Inc., 396 B.R. 131, 136 (D.N.J. 2008). To balance the competing interests of the property owner and the contractor, the court must read the CLL "sensibly" and with "an understanding of the policies underlying the [CLL]." Craft, supra, 179 N.J. at 68 (citing Thomas Group, supra, 163 N.J. at 515). In this regard, the statutory provisions giving rise to a lien are strictly construed. Craft, supra, 179 N.J. at 67; Baldyga Constr. Co. v. Hurff, 174 N.J. Super. 616, 618 (App. Div. 1980). Once a valid lien is established, the enforcement provisions by a qualifying lien claimant are liberally construed. Craft, supra, 179 N.J. at 67-68 (citing Friedman v. Stein, 4 N.J. 34, 40-41 (1950)).
The CLL entitles a contractor to a lien for labor and/or materials provided pursuant to a written contract "for the value of the . . . materials . . . furnished in accordance with the contract and based upon the contract price, subject to the provisions of [N.J.S.A. 2A:44A-9] and [N.J.S.A. 2A:442-10][.]" N.J.S.A. 2A:44A-3. The CLL also provides specific requirements for liens for "work, services, material or equipment furnished under a residential construction contract." N.J.S.A. 2A:44A-18.
In order to "provide a system for balancing the competing interests of protecting consumers in the purchase of homes and the contract rights of contractors, suppliers, and subcontractors to obtain payment for goods and services provided[,]" the Legislature carved out specific rules for residential construction contracts. N.J.S.A. 2A:44A-21a. The Legislature's intent in so doing was to afford the ultimate residential consumer greater protection at the expense of abrogating 'the lien benefits accorded to contractors, subcontractors or suppliers.'
The legislature makes no suggestion that the availability or extent of the protection should depend on whether the consumer lives in a single-family home or unit within a larger complex. [Wright, supra, 396 B.R. at 137.]
Accordingly, N.J.S.A. 2A:44A-18 governs all residential construction contracts. If the residential construction involves a contract providing for an allocation by lot or tract, a lien attaches only to a proportionate share of that lot or tract. N.J.S.A. 2A:44A-18a. If the residential construction contract involves work performed for a condominium or cooperative, a lien attaches only to the percentage of common elements attributable to each unit. N.J.S.A. 2A:44A-18b. If neither subsection a nor subsection b apply, then the lien attaches to the entire "interest in real estate." N.J.S.A. 2A:44A-18c.
Because the MSA is a residential construction contract, N.J.S.A. 2A:44A-18 applies, not N.J.S.A. 2A:44A-19. The inquiry is whether subsection a or subsection c applies, requiring us to determine whether the MSA provides for an allocation by lot or tract. The CLL does not define "allocation." To construe the word "allocation" we consider its ordinary meaning. Darel v. Pennsylvania Mfrs. Ass'n. Ins. Co., 114 N.J. 416, 425 (1989); Mt. Hill v. Tp. Comm. of Middletown, 403 N.J. Super. 146, 199 (App. Div. 2008). "Allocation" means "[a] designation or apportionment for a specific purpose; esp., the crediting of a receipt or the charging of a disbursement to an account ." Black's Law Dictionary 75 (7th ed. (1999).
Applying this definition, we conclude that the MSA provides for an allocation by lot because it required defendant to designate or apportion for the work, services and material it furnished to each individual lot. To be sure, the MSA required a set of plans and a siding plan meeting for each home, and a separate invoice for each job, which had to specify each individual lot and job number. Defendant would be paid for the work it completed on each lot regardless of the labor and materials it furnished to other lots. This translates into an easily allocated and identified amount due as to each lot. We are not persuaded that Kara's ability to deduct payments or offset from any balance owed to defendant, or the absence of the word "allocation" in the MSA, compels a contrary result.*fn3 We conclude that because N.J.S.A. 2A:44-18a governs the MSA, defendant is only entitled to the value of services and material furnished to plaintiff's lot. The trial judge shall make that determination on remand.
Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.