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Schadrack v. K.P. Burke Builder

May 8, 2009


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket Nos. L-650-08 and L-955-08.

The opinion of the court was delivered by: Sabatino, J.A.D.



Argued January 20, 2009

Before Judges Carchman, Sabatino and Simonelli.

In these related appeals, which we hereby consolidate, plaintiff homeowners challenge the Law Division's application of the Construction Lien Law ("the CLL"), N.J.S.A. 2A:44A-1 to -38, to two contractors who each performed work on their marital residence. We affirm the trial court's orders in both cases.


In May 2006, plaintiffs, Jan Schadrack and Ngoc Nguyen, entered into a written agreement with K.P. Burke Builder, LLC ("Burke"),*fn1 for the construction of a "5600 square foot single-family residence to be constructed on the premises of [plaintiffs] at Lot 18.04 in Block 102" in Princeton. The agreement specified that it would be governed by the laws of New Jersey. It did not contain any provisions regarding arbitration.

Burke thereafter hired a subcontractor, L.E.D. Electrical and Mechanical Contractors, LLC ("LED"),*fn2 to perform electrical and HVAC work on the premises. According to LED's submissions, the principal amount of the agreement between Burke and LED for the electrical work was for $33,498.00, but, due to the execution of several change orders, the sub-contract charges increased by $26,434.80. In addition, LED subsequently agreed to provide for the installation of an HVAC unit on the premises. The sub-contract price for that HVAC work originally totaled $35,450.00, but, due to the execution of several other change orders, increased by $4,064.00. Accordingly, the adjusted LED contract price (including all change orders) was $99,498.80. Approximately $60,000 of that balance was paid by Burke, leaving $39,200.80 as an amount allegedly due to LED.

After problems ensued with being paid in full for their respective work, Burke and LED each undertook measures in an effort to protect their interests under the CLL. It is undisputed that the work performed respectively by Burke and LED is subject to the statute.

Burke acted first. On January 29, 2008, Burke filed a "Notice of Unpaid Balance and Right to File Lien" ("NUB"), pursuant to the CLL, see N.J.S.A. 2A:44A-20 and -21, in the amount of $128,244.00 with the Mercer County Clerk. However, a demand for arbitration, as prescribed by N.J.S.A. 2A:44A-21(b)(3), did not accompany Burke's filing and service of the NUB. According to the record, Burke had, in fact, prepared an arbitration demand, but had not filed the demand with the American Arbitration Association ("AAA"). Nor did Burke serve the demand on plaintiffs with its original NUB.

Approximately one week later, on February 6, 2008, LED filed its own NUB. Unlike Burke's original filing, LED contemporaneously served and filed with its NUB a demand for arbitration on the AAA and plaintiffs.

A. The LED Proceedings

On February 19, 2008, plaintiffs submitted a letter to the AAA, opposing LED's arbitration demand, pointing out: (1) that the demand was not accompanied by documentation supporting the claim, and (2) that the paperwork identified "K.P. Burke" and not "K.P. Burke Builder, LLC," with whom plaintiffs maintained a contract.

Following its receipt of plaintiffs' opposition papers, LED filed a supplemental submission with the AAA on February 20, 2008. That submission not only contained an argument section but also attached pertinent contractual documents between Burke and LED. Plaintiffs were served with LED's submission, but did not attempt to respond to it.

After considering the parties' respective positions, the arbitrator entered an award in favor of LED. The award was transmitted on March 6, 2008, and received by the parties on March 10, 2008. The arbitrator determined that LED was entitled to file a lien claim against plaintiffs in the amount of $39,200.80. Consequently, the lien claim was properly filed with the Mercer County Clerk on March 17, 2008.

Three days prior to LED's filing of the lien claim, plaintiffs filed an order to show cause in the Law Division against LED. Plaintiffs sought to vacate the arbitrator's decision pursuant to the CLL, which authorizes summary actions to challenge an arbitrator's award made under the statute. See N.J.S.A. 2A:44A-21(b)(10). On April 12, LED filed an answer, counterclaim, and third-party complaint in the Law Division against Burke. The counterclaim sought to foreclose on LED's recently-filed lien claim.

The order to show cause was heard by a Law Division judge on May 2, 2008. Plaintiffs primarily argued that LED's arbitration demand had violated the CLL because LED had failed to support its initial filing with documentation. They contended that the defect was not cured by LED's submission of documentation approximately one week later. Plaintiffs argued that the arbitrator erred by allowing LED to submit additional written materials belatedly with the AAA.

Following a lengthy colloquy with counsel, the motion judge in LED made the following findings:

* The last day of work on the project attributed to LED was January 17, 2008;

* The NUB and demand for arbitration were filed and served on February 6, 2008;

* AAA determined that the matter should be arbitrated on the papers;

* On February 19, 2008, plaintiffs responded to the arbitration demand by submitting to the AAA a letter in opposition, arguing that they did not have a contractual relationship with "K.P. Burke"; but in fact maintained a relationship with "K. P. Burke Builders, LLC";

* The arbitrator issued a decision on March 10, 2008, and thereafter, LED filed its lien claim on March 17, 2008;

* LED complied with all time requirements under the CLL up to that point;

* The AAA arbitrator's decision to allow LED to submit additional documentation was not governed by the CLL's strict compliance provision, see N.J.S.A. 2A:44A-5(c), but rather by the AAA's Rules, which grant arbitrators a degree of discretion.

As requested by the court, LED submitted a proposed form of order to memorialize the court's oral ruling. Plaintiffs objected to the form of order. After deleting the portion of the order specifying the amount of the lien claim, the judge entered the order.

B. The Burke Proceedings

Before the arbitrator in the LED matter rendered his decision, Burke filed what was entitled an "amended" NUB on February 22, 2008, in the amount of $229,785.20. The amended NUB was returned as "filed" from the Mercer County Clerk on March 11, 2008. On that same day, the AAA and plaintiffs were served by Burke with a demand for arbitration.

The arbitration in the Burke matter occurred on March 28 and April 1, 2008. On April 2, 2008, the arbitrator issued his decision, finding that Burke had the right to file a lien claim in the amount of $63,686.00. The following day, April 3, 2008, Burke filed its lien claim with the Mercer County Clerk.

On April 15, 2008, plaintiffs brought an order to show cause in the Law Division against Burke, seeking to vacate the arbitrator's award.*fn3 A hearing on the order to show cause took place on May 20, 2008. During that hearing, plaintiffs argued that Burke should have been foreclosed from going to arbitration because he had not filed a demand for arbitration simultaneously with the service of the original NUB. Plaintiffs also pointed out that this omission resulted in the Burke arbitration occurring after the normal thirty-day time frame specified by the CLL had expired. See N.J.S.A. 2A:44A-21(b)(6).

During the oral argument on the Burke matter, the motion judge explored the equities of the circumstances with counsel, and whether plaintiffs had suffered any significant prejudice by virtue of Burke's allegedly defective filings. Plaintiffs' counsel maintained that the very existence of a NUB on file in the public record, whether defective or not, is prejudicial because such a filing can interfere with project financing and the obtaining of land-use approvals. In opposition, defense counsel argued that Burke indeed had strictly complied with the CLL. Alternatively, the ...

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