January 5, 2010
HI-TECH STEEL ERECTORS, INC., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT,
TLC DRYWALL CONSTRUCTION, DEFENDANT, AND XL SPECIALTY INSURANCE COMPANY AND XL INSURANCE COMPANY, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-7233-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 9, 2009
Before Judges Sabatino, Lyons, and J. N. Harris
This appeal arises out of unpaid work performed by plaintiff Hi-Tech Steel Erectors, Inc. ("Hi-Tech"), on the construction of a police station. Plaintiff filed suit against two sureties that had issued bonds for the project. The Law Division dismissed plaintiff's complaint for failure to comply with the requirements of the Public Works Bond Act, N.J.S.A. 2A:44-143 to -147 (the "Bond Act"). The court also denied plaintiff's late request to amend its complaint to name the project's general contractor as a defendant in the surety action, and to reinstate another subcontractor as a defendant. Reconsideration was denied.
Plaintiff now appeals the trial court's various orders denying it relief. We affirm.
These are the pertinent facts, and the relevant procedural events. On March 30, 2004, the City of East Orange entered into a contract with a general contractor, Imperial Construction Group, Inc. ("Imperial"), to build a new police station. On that same day, defendants XL Specialty Insurance Company and XL Insurance Company ("the Sureties") issued both a performance bond and a payment bond for the project in the amount of $11,615,314, for which they were listed as the "Surety." Imperial was the "Contractor" named on the bonds and the City of East Orange was identified as the "Owner" and named as obligee for the bonds.
The payment bond allowed claimants who had not been paid by Imperial within ninety days of completion of work on the project to "sue on this bond for the use of such claimant, prosecute the suit to final judgment for each sum or sums as may be justly due claimant, and have execution thereon." Such claimants were defined in the bond as "one having a direct contract, with a subcontractor for labor, material, or both, used or reasonably required for use in the performance of the contract . . . [.]" However, suit under the bond was prohibited unless certain criteria were met by the claimant. Specifically, any such lawsuit was required to be brought in a "court of competent jurisdiction in and for the county or other political subdivision of the state in which the project, or any part thereof, is situated, or in the United States District Court for the district in which the project, or any part thereof, is situated[.]" Such an action was also required to be brought prior to: the expiration of one (1) year following the date on which Contractor ceased work on said contract, it being understood, however, that if any limitation embodied in this bond is prohibited by law controlling the construction hereof, such limitation shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. [(Emphasis added).]
Moreover, the payment bond prohibited suit by a claimant against the Surety:
Unless claimant, other than one having a direct contract with the Contractor, shall have given written notice to any of the following: the Contractor, the Owner or the Surety above named, within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last of the materials for which said claim is name[d], stating with substantial accuracy the amount claimed and the name of the party to whom the materials were furnished, or for whom the work or labor was done or performed. [(Emphasis added).]
In May 2004, Imperial entered into a subcontract with defendant TLC Drywall ("TLC") to provide various types of construction and carpentry work on the project, in return for payment of $928,000. TLC's work was to include "[e]xterior soffits framing and sheathing" and "[i]nterior soffits[.]" Under its agreement with Imperial, TLC was permitted to subcontract out its work, with the understanding that it "shall not subcontract any portion of the labor or materials involved in the work under this Subcontract without first obtaining written approval of its prospective subcontractor or supplier by the Contractor."
Five months after Imperial's subcontract with TLC was executed, on October 22, 2004, Imperial entered into a subcontract with plaintiff ("the Imperial/Hi-Tech contract") to perform other steel work on the project.*fn1 Plaintiff alleges that it commenced work on the project immediately.
According to plaintiff, in January 2005 its site supervisor, Pat Cianicullo, was approached by a representative from Imperial at the project site. The representative, Joseph Richardi, a supervisor for Imperial, allegedly "requested [plaintiff's] assistance in constructing a steel soffit for the [project]." Richardi explained to Cianicullo that TLC "did not have the expertise to construct and install the soffit and [that he] wanted [p]laintiff to do the job but bill TLC Drywall for payment." According to Cianicullo, Richardi further stated that "[p]laintiff would be paid when Imperial was paid by East Orange, through [TLC]."
On January 15, 2005, plaintiff and TLC entered into a written contract for the soffit work to be performed by plaintiff instead of TLC ("the TLC/Hi-Tech Contract").*fn2 Pursuant to that agreement, plaintiff completed this particular soffit work on February 5, 2005. However, plaintiff continued its other work on the site under its subcontract with Imperial.
In November 2005, after TLC had failed to pay plaintiff the $26,200 that plaintiff claimed was due under the TLC/Hi-Tech Contract, plaintiff filed a notice of an unpaid balance and an asserted right to file a construction lien on the property.
According to plaintiff, it continued to work on the project until its performance under the Imperial/Hi-Tech Contract was completed on January 10, 2006.
Still not paid for the soffit work that it performed in lieu of TLC, plaintiff filed the instant civil action in the Law Division on August 30, 2006. Plaintiff named as defendants the two sureties, XL Specialty Insurance and XL Insurance Company, and also named TLC. This initial complaint alleged damages caused by TLC for breach of contract, breach of promise to pay, quantum meruit, and detrimental reliance. The complaint also alleged that plaintiff was "an intended Third-Party beneficiary of the Surety Agreement ("Bond") entered into by [d]efendants . . . [.]" The complaint further alleged that "[d]espite demand having been made by [plaintiff] for payment for services rendered at the [s]ubject [p]remises, payment had not been made in accordance with the terms of the [b]ond by said [Surety] [d]efendants." Pursuant to Rule 4:5-1, plaintiff's counsel certified that this complaint was "not the subject matter of any other action pending in any court[.]"
The Sureties answered the complaint on November 17, 2006, denying the allegations. Their common answer also asserted seventeen separate affirmative defenses. Among those defenses were: (1) that the "[p]laintiff's complaint fail[ed] to state a cause of action against [the Sureties] upon which relief can be granted"; (2) that "[p]laintiff's claims are barred by the terms of the bonds issued by [the Sureties]"; and (3) that "[p]laintiff['s] claims are barred because [p]laintiff failed to comply with the terms of the payment and performance bonds or with the Bond Act under New Jersey [l]aw." In his Rule 4:5-1 certification, the Sureties' counsel asserted that there were two other related cases then active in the Law Division in Essex County, including "Hi-Tech Steel Erectors v. Imperial Construction Group, Inc., Docket No.: ESX-L-7154-06."*fn3
Plaintiff contends that it served TLC in November 2006 by private process server at TLC's primary place of business in New York. However, proof of that alleged service was not timely filed by plaintiff with the Essex County Sheriff's Office. Consequently, on January 12, 2007, the trial court sent a notice to plaintiff's counsel advising that its "complaint would be dismissed for lack of prosecution in 60 days unless one of the actions required by Rule 1:13-7 were taken." Plaintiff apparently took none of those required steps within sixty days, and its complaint against TLC was thus administratively dismissed by the court under Rule 1:13-7 for lack of prosecution on March 17, 2007.
Thereafter, the Sureties filed a motion to dismiss plaintiff's complaint. In support of their motion, the Sureties relied upon a certification by Richard Briggs, a principal of Imperial. Briggs certified that "[p]rior to February 5, 2005, Imperial never received any notice from [p]laintiff that it was performing work for TLC on the [p]roject as a beneficiary under the bond."
Plaintiff filed a cross-motion, seeking to amend its complaint against the Sureties and also for leave to add Imperial as a defendant. Plaintiff noted that no trial date was scheduled, that the discovery period had not yet expired and that the Sureties' counsel had consented to a sixty-day extension of discovery pursuant to Rule 4:24-1(c). Given that the original discovery period was initially set to expire on September 13, the sixty-day consensual extension would move the discovery end date to November 13, 2007.
Plaintiff's proposed amended complaint would add Imperial as a co-defendant on the breach of contract, quantum meruit, and detrimental reliance claims. The amended complaint also would add common-law claims of constructive trust and unjust enrichment against TLC and Imperial. Plaintiff further sought to have a constructive trust imposed under N.J.S.A. 2A:44-148 against Imperial.
The trial judge heard oral argument on these initial motions on September 20, 2007. At that oral argument, counsel and the judge both referred to the Sureties' motion as one for summary judgment under Rule 4:46-1 rather than as a motion to dismiss, given the references to matters outside of the pleadings, including certifications from Briggs and Cianicullo.
After considering these arguments, the trial judge granted summary judgment to the Sureties, dismissing the claims against them under the payment bond. In her oral ruling, the judge cited plaintiff's non-compliance with the notice requirements of N.J.S.A. 2A:44-145. Specifically, the judge noted:
[A]t this point in time everybody knows what the bond law [N.J.S.A. 2A:44-145] requires and does not require, so the explicit requirement that the notice be given should have even greater effect and the Court stated in Dial [Block Co., Inc. v. Mastro Masonry Contractors, 374 N.J. Super. 13 (App. Div. 2004), certif. denied, 183 N.J. 215 (2005)], "[T]he requirements to provide notice under the [B]ond [A]ct are not harsh[.] [A]ll a person seeking to become a beneficiary under the payment bond need do is give written notice of that intent to the contractor before starting work." [Dial Block Co., Inc., supra, 374 N.J. Super. at 24.]
Plaintiff failed to do so, consequently plaintiff has no claim to the -- bond under the [B]ond [A]ct. For those reasons defendant[s'] motion for summary judgment is granted.
With respect to plaintiff's cross-motion to amend the complaint, the judge faulted plaintiff for not joining Imperial as a defendant at the outset of the lawsuit. The judge was then under the misimpression, fortified by a mistaken representation at oral argument by plaintiff's counsel, that TLC had defaulted in this action and thus the claims against TLC were simply waiting a future default judgment. As a result, the judge found that: at this point in time [the surety defendants are] dismissed [and] that TLC Drywall is in default. The [c]court does not believe that it is -- [worth the] resources to now amend a complaint in a case that's basically over.
So rather than ruling on the futility issue the [c]court is simply going to deny the motion on judicial economy issues and require that if Hi-Tech now wishes to bring a cause of action against Imperial it do so separately. [(Emphasis added).]
The judge entered a corresponding written order that same day, dismissing the complaint against the Sureties and denying plaintiff's cross-motion for leave to amend the complaint.
Nineteen days later, on October 9, 2007, plaintiff filed the first of two successive motions for reconsideration. Plaintiff asked the court to reconsider the denial of leave to amend the complaint to include Imperial. In his certification supporting that request, plaintiff's counsel advised the court that "[t]he present status of the case is that a Notice of Motion to Reinstate the Complaint and enter Default against co-defendant TLC Drywall Construction, Inc. must be filed because the complaint against this defendant [TLC] was dismissed for lack of prosecution pursuant to R[ule] 1:13-7 and/or R[ule] 4:43-2." Fearing that entire controversy issues might arise if it tried to sue Imperial in a new action, plaintiff further requested the court to enter an order specifically reserving its ability to bring such a future action against Imperial for the unpaid soffit work at issue in this case.
Ten days later, plaintiff filed a motion to reinstate its complaint and to enter default against TLC.
Then, on December 5, 2007, seventy-five days after the court's original order was entered, plaintiff filed a second motion for reconsideration. That motion asked the court to reconsider its summary judgment order entered on September 20, 2007 against plaintiff in favor of the Sureties. In support of that request, plaintiff mainly relied on decisions from two federal Courts of Appeals denying summary judgment to a Surety in allegedly-similar circumstances under the Miller Act, 40 U.S.C. §§ 3131-34, the federal analogue to the New Jersey Public Works Bond Act, N.J.S.A. 2A:44-143 to -147.
On January 3, 2008, the trial judge heard oral argument on all three of plaintiff's pending motions. Despite the lateness of plaintiff's second motion for reconsideration, the court agreed to consider it on its merits.
The judge denied all three of plaintiff's applications. With respect to plaintiff's arguments concerning the Bond Act, the judge noted that she did not "see anything to disturb [her] decision that a previous direct contractual relationship [with a] general contractor absolved plaintiff of the notice requirement of the Bond Act on a contract where the plaintiff does not have a direct contractual relationship with the general contractor." The judge also rejected plaintiff's contention that the court had improperly treated the surety defendants' motion as one for summary judgment. Even considering the matters presented outside of the pleadings in a light most favorable to plaintiff, the judge continued to find that plaintiff's claims under the bond had "no legal basis" and that there were no disputed facts. The judge also found inapposite plaintiff's citation to the two federal cases under the Miller Act because that statute had no notice requirement similar to the one set forth in N.J.S.A. 2A:44-145. Consequently, the judge denied reconsideration of the dismissal of the Sureties.
The judge also denied plaintiff's motion to reinstate the complaint against TLC because plaintiff had not established good cause to do so. The judge noted that the moving papers were silent as to the reason why plaintiff did not file timely proof of service upon TLC in response to the court's warning notice under Rule 1:13-7. In this regard, the judge highlighted that plaintiff had waited for seven months from March 17, 2007, when the court's notice of dismissal was issued, to move to reinstate TLC. The judge found the delay particularly troublesome, given that plaintiff had filed more than one motion on other issues in the case during the intervening period, and given that plaintiff had misinformed the court as to the status of TLC during oral argument on September 20, 2007. The judge also noted that the court "has absolutely no competent evidence before it to indicate that TLC was ever served." Consequently, the judge denied plaintiff's motion to reinstate the complaint against TLC.
Third and finally, as to plaintiff's motion for reconsideration of the denial of leave to amend the complaint to add Imperial, the judge found that "the standards for reconsideration are neither addressed nor met." As to plaintiff's concerns about forfeiting such a claim under entire controversy principles, the judge observed that "one of the goals of the entire controversy doctrine is judicial economy, which would not be served here by granting leave to amend to name a new party." The judge declined to enter an order specifically reserving plaintiff's ability to sue Imperial in a future lawsuit. Instead, the judge left issues of the potential applicability of the entire controversy doctrine for disposition in such a future action, where Imperial would have the ability to assert its interests and show how it might have been prejudiced by the repetitive litigation.
The judge entered two companion orders on January 4, 2008 memorializing these decisions.
Plaintiff now appeals the trial court's initial order of September 9, 2007, and its subsequent orders on January 4, 2008. Plaintiff asserts that, in denying it relief from the Sureties, the trial judge misapplied the statutory notice standards under the Bond Act. Plaintiff argues that, by virtue of its separate subcontracting agreement with Imperial, it functioned as a so-called "first-tier" subcontractor on the instant soffit work, rather than as a "second-tier" subcontractor working for another subcontractor, TLC. As an alleged first-tier contractor, plaintiff argues that it was not required under the Bond Act to give formal notice to Imperial of its completion of the soffit work. Plaintiff also claims that the judge misapplied the general standards for summary judgment and was too quick to dismiss its claims against the Sureties.
Plaintiff further argues that the trial judge misapplied her discretion in denying amendment of the complaint to include Imperial, in denying reconsideration of that ruling, and in denying the motion to reinstate the complaint against TLC.
Having fully considered plaintiff's contentions on appeal, we affirm all of the orders appealed from, substantially for the reasons expressed by Judge Rachel N. Davidson in her oral rulings of September 9, 2007 and January 4, 2008. We add several observations on the discrete issues warranting comment.
First, we concur with the trial judge that plaintiff manifestly failed to comply with the procedural requirements of the Bond Act, and with the express terms of the payment bond itself.
With respect to notice, the Bond Act specifically requires that "[a]ny person who may be a beneficiary of the payment bond, as defined in this article, and who does not have a direct contract with the contractor furnishing the bond . . . shall, prior to commencing any work, provide written notice to the contractor by certified mail or otherwise . . . that said person is a beneficiary of the bond." N.J.S.A. 2A:44-145 (emphasis added). Additionally, the payment bond in this case plainly states that unless the claimant under the bond has a "direct contract with the Contractor", the claimant "shall have given written notice to [either] the Contractor, the Owner or the Surety . . . within ninety (90) days after such claimant did or performed the last of the work or labor, or furnished the last of the materials[.]" The notice must state "with substantial accuracy the amount claimed and the name of the party to whom the materials were furnished, or for whom the work or labor was done or performed." The record is clear that such written notices were not supplied by plaintiff here concerning the soffit work it performed for which it seeks payment under the bond.
The judge correctly ruled that plaintiff was not exempt from these notice requirements. The Bond Act establishes two tiers of subcontractors who are potential beneficiaries: first-tier subcontractors having direct contracts with the general contractor for the work in question, and second-tier contractors lacking a direct contract with the general contractor pertaining to the subject work. The legislative purpose of the notice provision, which was added to Section 145 by amendment in 1996, "was to clearly define the risk assumed by the surety issuing the bond." Velez v. Wilkerson Elec. Srvcs., Inc., 351 N.J. Super. 2, 10 (App. Div. 2002). The notice mechanism communicates that risk by "identify[ing] potential claimants and beneficiaries in a uniform and organized fashion." Ibid. (quoting Laborers Local Union #779 Pension, Welfare, & Annuity Funds v. Am. Cas. Co. of Reading, Pa., 339 N.J. Super. 345, 352 (Law Div. 2000)).
We have previously instructed that the requirement of a "direct contract" that makes a party a first-tier subcontractor under the statute "must mean more than just any contract. Otherwise, the term 'direct' would have no meaning." Dial Block Co., Inc., supra, 374 N.J. Super. at 23. In Dial Block, the general contractor, a subcontractor, and a supplier on the project were all parties to what was described as a joint-check agreement. Id. at 16. Under that agreement, the general contractor would provide checks in the names of both the subcontractor and the supplier, so as to make payment for materials by the subcontractor easier. Ibid. The joint-check agreement was subject to a limit of $125,000, thereby protecting the general contractor from larger exposures. Id. at 17. After the supplies delivered to the subcontractor had well exceeded that limit and the subcontractor had ceased to pay for them, the supplier contacted the general contractor, requesting that the limit be raised on the agreement and that the joint checks continue to be issued. Id. at 18. When the general contractor refused, the supplier sued on the bond that had been issued under the Bond Act. Id. at 19.
We held in those circumstances in Dial Block that the "direct contract" for providing materials for the construction project was between the supplier and the subcontractor, not between the supplier and the general contractor. Id. at 23. Consequently, no "direct contract" was created between the supplier and the general contractor within the meaning of N.J.S.A. 2A:44-145. Ibid. The supplier was thus a second-tier subcontractor (or sub-subcontractor) obligated to comply with the statute's notice requirements. We rejected the supplier's argument that joint-check agreement functionally satisfied the notice requirements of the Bond Act. Id. at 24.
Here, the trial judge correctly applied the principles of the Bond Act and the related case law, including Dial Block. The soffit work in question was undertaken by plaintiff pursuant to a contract between plaintiff and TLC. Imperial, the general contractor, was not a party to that agreement. The fact that plaintiff was performing other work on the site under a separate direct contract with Imperial as a first-tier subcontractor is irrelevant.
In addition, the alleged oral discussions between Imperial's representative and plaintiff's representative that led to plaintiff entering its agreement with TLC do not change the analysis. Those alleged oral communications, even if we accept them as true--viewing the record most favorably to plaintiff, see Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)--do not satisfy the statute's mandate for the formality of written notice. Without a direct contract, there is no genuine issue of material fact that plaintiff was a "second-tier" subcontractor for purposes of the Bond Act.*fn4
We also note that the soffit work in question was completed by plaintiff on February 5, 2005, and plaintiff did not file suit against the Sureties until more than a year later in August 2006. That timing violates the one-year time limitation set forth in both the payment bond here and also N.J.S.A. 2A:44-145, which specifies that suit under the Bond must be filed "in no event later than one year from the last date upon which such beneficiary shall have performed actual work or delivered materials to the project." We recognize that plaintiff did not complete its other work on the site, under its separate contract with Imperial, until January 2006. Even so, plaintiff cannot bootstrap the later date of completion of its other work to justify its violation of the one-year limitations period.
For all of these reasons, summary judgment in favor of the Sureties was appropriately granted. We also discern no reversible error in how the judge applied the summary judgment standards, once it became clear to her that the analysis involved delving into matters beyond the bare face of the pleadings.
Further, we detect no misapplication of discretion by the trial judge in declining to restore TLC as a defendant. Plaintiff never supplied the court with documented proof that TLC was actually served with process, and has still not supplied such proof of service in the record on this appeal. See R. 4:4-7. Absent such proof, the judge had no obligation to restore TLC to party status, and the judge did not misapply her discretion here in concluding that plaintiff had not shown good cause for such reinstatement. See R. 1:13-7(a); Weber v. Mayan Palace Hotel & Resorts, 397 N.J. Super. 257, 264 (App. Div. 2007) (applying the "good cause" standard for reinstatement of a Rule 1:13-7 dismissal).*fn5
Likewise, the judge did not clearly misapply her discretion by rejecting plaintiff's request to amend the complaint belatedly to name Imperial as a defendant. See Franklin Med. Assocs. v. Newark Pub. Sch., 362 N.J. Super. 494, 504 (App. Div. 2003) (noting that a trial judge's discretionary ruling "will not be disturbed on appeal, unless it constitutes a 'clear abuse of discretion'")(quoting Salitan v. Magnus, 28 N.J. 20, 26 (1958)). Although, as a general matter, leave to amend a pleading is freely granted in the interests of justice, see Rule 4:9-1, "the granting of a motion to file an amended complaint always rests in the court's sound discretion." Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 457 (1998). "'[C]courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law.'" Notte v. Merchants Mut. Ins. Co., 185 N.J. 490, 501 (2006) (quoting Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 256-57 (App. Div. 1997)). "'[T]here is no point to permitting the filing of an amended pleading when a subsequent motion to dismiss must be granted.'" Ibid. (quoting Interchange State Bank, supra, 303 N.J. Super. at 257). In addition, even where the merits of the claim are at least marginal, it is not an abuse of discretion to deny leave to add such a claim when it is likely to prolong the litigation. Stuchin v. Kasirer, 237 N.J. Super. 604, 609 (App. Div.), certif. denied, 121 N.J. 660 (1990); see also Pressler, Current N.J. Court Rules, comment 2.2.1 to R. 4:9-1 (noting that a motion to amend is properly denied "where its merits are marginal, its substance generally irrelevant to the main claim, and allowing the amendment would unduly protract the litigation").
The trial judge acted within her discretion in declining to add Imperial as a party to this case at the eleventh hour, for at least two reasons. First, plaintiff had already sued Imperial in another Law Division complaint for other work that it had performed on the police station project. Although we do not resolve the issue here, Imperial could plausibly argue that, under entire controversy principles, plaintiff should have added the instant claims to that other lawsuit. See R. 4:30A, Prevratil v. Mohr, 145 N.J. 180, 190 (1996). Second, the judge rightly was concerned about judicial efficiency and economy. With the Sureties dismissed from the case and TLC not appearing in the action as a viable party, for all practical purposes there was no lawsuit left. Adding Imperial would only "unduly protract" an otherwise-moribund litigation. See Pressler, supra, comment 2.2.1 to R. 4:9-1.
Finally, the judge did not misapply her discretion in declining plaintiff's request for a judicial reservation of claims against Imperial. Such a reservation, if it had been granted, would insulate plaintiff from a defense of entire controversy asserted by Imperial in a future action. DiIorio v. Structural Stone & Brick Co., Inc., 368 N.J. Super. 134, 139 (App. Div. 2004). However, Imperial might wish to argue that plaintiff inexcusably delayed in asserting its full claims against Imperial in the prior action and that Imperial was substantially prejudiced by that delay. See R. 4:30A; Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229, 242 (App. Div.), certif. denied, 175 N.J. 170 (2002). The trial judge rightly exercised caution in not foreclosing that potential argument of prejudice by a party that was not even before her.
The orders appealed from are affirmed in all respects.