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Nemco Construction Corp. v. AARK Construction Group

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


May 29, 2009

NEMCO CONSTRUCTION CORP., INDIVIDUALLY AND IN A REPRESENTATIVE CAPACITY UNDER ARTICLE 3-A OF THE NEW YORK STATE LIEN LAW ON BEHALF OF ALL OTHER BENEFICIARIES OF CERTAIN TRUST FUNDS, PLAINTIFF,
v.
AARK CONSTRUCTION GROUP, EDUARDO DUTRA, GLASS GARDENS INC., TERRY R. GLASS, IRVING GLASS, NEW JERSEY NATIONAL BANK, SHOP-RITE OF ROCKAWAY ASSOCIATES, INC., ROCKAWAY SHOP-RITE ASSOCIATES, INC., SHOP-RITE OF PEARL RIVER ASSOCIATES, INC., PEARL RIVER SHOP-RITE, INC., SHOP-RITE OF ENGLEWOOD ASSOCIATES, INC., AND GLF REALTY CO., INC., DEFENDANTS, AND AARK CONSTRUCTION GROUP, LTD., THIRD-PARTY PLAINTIFF-APPELLANT,
v.
GLASS GARDENS, INC., NEMCO CONSTRUCTION CORP., FRANK J. CONSOLI TRUCKING CO., INC., BLUE CIRCLE MATERIALS, INC., PROGRESSIVE BRICK COMPANY, AND THE TRANE COMPANY, A DIVISION OF AMERICAN STANDRD INC., THIRD-PARTY DEFENDANTS-RESPONDENTS.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket L-3857-98.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted April 22, 2009

Before Judges Payne and Waugh.

AARK Construction Group (AARK) appeals from the Law Division's order enforcing a settlement agreement between AARK and Glass Gardens Inc. (Glass). We affirm.

I.

In 1997, Glass hired AARK as the general contractor on a grocery store construction project in Paramus. AARK thereafter hired Nemco as the site-work subcontractor. A dispute arose between Glass and AARK as to whether the original contract contemplated the removal of unsuitable soil. Eventually, Glass fell three months behind in payments and, as a result, Nemco was not paid by AARK.

On February 10, 1998, AARK terminated Nemco as a subcontractor, alleging material breaches of the terms of their contract. On April 22, 1998, Nemco brought suit against AARK for breach of contract and Glass for lien foreclosure. Nemco claimed damages for breach of contract and specifically for removal of unsuitable soil, the design of a new retaining wall, and the relocation of a storm sewer. Cross-claims and counterclaims were filed by all parties against each other. Nemco and AARK filed construction liens against Glass's property in Paramus.

AARK and Glass reached a settlement of their claims against each other, which was embodied in a settlement agreement. The interpretation of that agreement is at issue on the present appeal.

Pursuant to their September 1, 1999, settlement agreement, Glass paid AARK $125,000 "in settlement of all claims between them." Glass also released AARK as the general contractor of the project. The outstanding subcontractor claims, including the Nemco claims, were addressed as follows:

3. . . . Glass shall be responsible for the payment of all subcontractors' material men and suppliers, including retainage and change orders, from the date Glass assumed AARK's contracts and took over the Project (on or about May 12, 1998), and AARK in turn shall be liable for the payment of subcontractors, suppliers and material men, including change orders but excluding retainage, prior to the time Glass took over the Project which are not otherwise specified in the Agreement.

4. Nemco's Claims

A. Pass Through Claims

AARK agrees to be liable for any and all pass through claims due Nemco and/or any other subcontractor except as otherwise provided herein. With regard to Nemco, all claims will be considered pass through claims, including but not limited to the retaining wall and sanitary sewer, except those specifically excepted in Section 4B.

B. Unsuitable Soil

Nemco has claimed an extra for the removal of unsuitable soil. If it is determined during the Arbitration that Nemco is entitled to additional compensation for removal of unsuitable soils, then Glass has agreed to indemnify AARK for the face amount determined by the Panel to be due Nemco, unless it is determined that AARK issued a Proceed Order to Nemco other than Proceed Order 02-02. However, Glass did not agree and did not authorize any additional work to remove unsuitable soils, and if AARK directed Nemco to do work in connection with the removal of unsuitable soil, then AARK shall be solely responsible to Nemco for same. Glass has, of course, disclaimed any liability for the removal of unsuitable soil except for a limited quantity which it approved in Change Order and Proceed Order 02-02, and paid totaling $84,336.37 because Glass believes the performance of such work was part of the Prime Contract, plans and specifications. AARK agrees to waive its right against Glass for AARK's proportionate share of overhead and profit in connection with Nemco's claim for unsuitable soil.

C. Nemco's Termination Claims

AARK shall be solely responsible for the satisfaction and payment of all amounts which are finally determined to be due and owing to Nemco from AARK for the alleged wrongful termination of Nemco's Subcontract.

[(Emphasis added).]

Thus, under Paragraph 4, AARK was to be responsible for the "pass through claims" pursuant to Paragraph 4A, and the "termination claims" pursuant to Paragraph 4C, while Glass would be responsible for indemnifying AARK for the "unsuitable soil claim," pursuant to, and subject to the restrictions in, Paragraph 4B.

When AARK and Glass were unable to settle the litigation with Nemco, they submitted their claims to arbitration before the American Arbitration Association (AAA). On June 29, 2005, the AAA made the following award:

CLAIM(S) PRESENTED AMOUNT OF AWARD

I. AARK Construction Group, $67,556.00

Ltd. Claims Against

Nemco Construction Corp.

II. Nemco Construction Corp.

Claims

1. Contract Balance $195,423.00

2. Extra Work Claims

(a) Unsuitable Soils $168,000.00

(b) Retaining Wall

Redesign $35,450.00

(c) Storm Sewer

Relocation $5,200.00

3. Loss Profit Claim 0 ______________

$404,073.00

The arbitration did not address the issue of the allocation of payments owed to Nemco as between AARK and Glass. Nemco brought an action against Glass and AARK in the Law Division, seeking to confirm the AAA award. On August 29, 2005, judgment was entered in favor of Nemco against Glass and AARK in the amount of $336,517, jointly and severally. The trial judge included an additional $2,960 in interest. Two subsequent confirming orders were entered on October 11, 2005, and October 14, 2005.

Glass appealed. In an unpublished opinion, AARK Construction Group v. Glass Gardens, Inc., No. A-1401-05T1 (App. Div. Apr. 24, 2007), we affirmed the decision of the trial court as to the amount owed to Nemco, but remanded for further proceedings to determine the respective liability of Glass and AARK with regard to the Nemco claims. On remand, the dispute centered on the $195,423 due for the outstanding contract balance and the apportionment of the interest.

A one day trial was held on May 7, 2008, on the sole issue of the allocation of the judgment entered against AARK and Glass. After the trial, Judge Mark M. Russello rendered a decision enforcing the settlement agreement. The portion of the decision on appeal is as follows:

This court finds no ambiguity with respect to the parties' meaning of the term "pass through claims" and what Glass and AARK's intent was with respect to responsibility for the payment obligation to Nemco, including pass through claims because they are clearly set it forth in [Paragraph 4A in the settlement agreement].

The parties (i.e., Glass and AARK) by their own words as set forth in [the settlement agreement] made their respective intentions known and clearly understood with respect to responsibility of the payment obligations to Nemco including "pass through claims."

The damages awarded by AAA under the heading "Nemco Construction Corp. Claims-Contract Balance" is and should be considered "pass through claims," pursuant to Glass and AARK's agreement, and as such, AARK is responsible for paying the contract balance to Nemco.

This appeal followed.

II.

On appeal, AARK argues that the settlement agreement was ambiguous as to the allocation of liability between itself and Glass for the Nemco claims and that it should have been allowed to introduce extrinsic evidence on that issue. Glass counters by arguing that, because the term "pass through claim" was defined in the agreement itself, extrinsic evidence was inadmissible to vary the meaning of that provision.

At the outset, we note that a settlement is a contract "governed by principles of contract law." Brundage v. Estate of Carambio, 195 N.J. 575, 600-01 (2008). Construction of a contract is generally a question of law for the court to determine, and our review is de novo. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998). When interpreting a contract, our task is to discern the intent of the parties. J.L. Davis & Assocs. v. Heidler, 263 N.J. Super. 264, 270 (App. Div. 1993). Contracts that are clear and unambiguous must be enforced as written. Id. at 271.

However, "where the intention is doubtful or obscure, the most fair and reasonable construction, imputing the least hardship on either of the contracting parties, should be adopted, so that neither will have an unfair or unreasonable advantage over the other." Ibid. (quoting Karl's Sales & Serv. v. Gimbel Bros., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991)). If the meaning of a contractual provision is doubtful or ambiguous and parole evidence is needed to interpret the document, then construction of the provision is a question of fact. Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 27-28 (App. Div. 1985).

AARK appears to argue that, because the term "pass through claim" has an established meaning in the construction industry and a defined meaning in the settlement agreement, it is amenable to two different interpretations and, therefore, ambiguous. We disagree. Although the term does appear to have a specific meaning in the construction industry, the parties in this case chose to define it differently, and clearly, in their agreement.

With regard to Nemco, all claims will be considered pass through claims, including, but not limited to the retaining wall and sanitary sewer, except those specifically excepted in Section 4B.

In our view, that language could hardly be less ambiguous.

In addition, the third category of Nemco claims covered by the settlement agreement, as listed in Paragraph 4C, is "Nemco's Termination Claims," which are also the sole responsibility of AARK. Consequently, even if the "contract balance" award is a "termination claim" rather than a "pass through claim," it would be AARK's sole responsibility.

Because there is no ambiguity in the settlement agreement, parol, or extrinsic, evidence is not admissible to vary the terms of the settlement agreement. In Conway v. 287 Corporate Center Associates, 187 N.J. 259, 268-69 (2006) (alterations in original), the Supreme Court discussed the parameters of the parol evidence rule as follows:

In general, the parol evidence rule prohibits the introduction of evidence that tends to alter an integrated written document. Restatement (Second) of Contracts § 213 (1981). Although the parol evidence rule is easily framed, it "is attended with confusion and obscurity which makes it the most discouraging subject in the whole field of evidence." 9 Wigmore on Evidence § 2400, at 4 (Chadbourn rev. 1981). Not only is the parol evidence rule difficult to apply, it is a misnomer because it applies to documentary as well as oral evidence. See id. at 5. Moreover, we have noted that the parol evidence rule is a rule of substantive law, not a rule of evidence. Atl. N. Airlines v. Schwimmer, 12 N.J. 293, 302 (1953); Restatement (Second) of Contracts § 213 cmt. a (1981).

Under Professor Williston's restrictive view, parol evidence may only be admitted if the language of the writing is unclear. See E. Allan Farnsworth, Contracts § 7.12, at 502-03 (1982) (citing Williston on Contracts § 95 (3d ed. 1957)); Restatement (First) of Contracts § 230 cmt. a [(1932)]. Professor Corbin has advanced a more expansive view of the parol evidence rule, which was adopted in the Second Restatement of Contracts. That view provides that "[a]ntecedent and surrounding factors that throw light upon . . . [the meaning of the contract] may be proved by any kind of relevant evidence." 3 Corbin on Contracts § 579 (West 1960); see also Restatement (Second) of Contracts § 214 [(1981)] ("Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish . . . the meaning of the writing, whether or not integrated.").

See also Chance v. McCann, 405 N.J. Super. 547, 563-64 (App. Div. 2009).

Because there is no ambiguity in the agreement as written with respect to the definition of the term "pass through claim," there is no need for parol or extrinsic evidence to interpret it.

The admission of evidence of extrinsic facts is not for the purpose of changing the writing, but to secure light by which to measure its actual significance. Such evidence is adducible only for the purpose of interpreting the writing -- not for the purpose of modifying or enlarging or curtailing its terms, but to aid in determining the meaning of what has been said.

[Atl. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301-02 (1953)] Consequently, Judge Russello correctly declined to admit such evidence.

III.

In summary, we affirm the judgment on appeal for the reasons set forth in Judge Russell's May 14, 2008, written opinion, as amplified above.

Affirmed.

20090529

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