July 7, 2011
EASTERN CONCRETE MATERIALS, INC., PLAINTIFF,
RARITAN TOWN CENTER, LLC, AND SHARP MANAGEMENT, LLC, DEFENDANTS-APPELLANTS, AND J.M. AHLE COMPANY, INC., DEFENDANT-RESPONDENT, AND RARITAN TOWN CENTER II, LLC, WACHOVIA BANK, N.A., CONTEK INTERNATIONAL, INC., TITAN FORMWORK SYSTEMS, LLC, ULMA FORM WORKS, INC., AND THE DYNAMIC COMPACTION COMPANY, INC., DEFENDANTS.
J.M. AHLE COMPANY, INC., THIRD-PARTY PLAINTIFF/RESPONDENT,
LIBERTY MUTUAL INSURANCE COMPANY, THIRD-PARTY DEFENDANT/APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-623-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 20, 2010
Before Judges Fuentes, Gilroy and Nugent.
This action involves the enforcement of a non-residential construction lien pursuant to the New Jersey Construction Lien Law (CLL or the Act), N.J.S.A. 2A:44A-1 to -38.*fn1 Defendant Raritan Town Center, LLC (RTC), defendant Sharp Management, LLC (Sharp), and third-party defendant Liberty Mutual Insurance Company (Liberty Mutual) (collectively, the appellants) appeal from the May 29, 2009 order that entered judgment against them in the amount of $305,724.88. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
RTC is the owner of a tract of property in the Township of Raritan (the property). RTC constructed a large apartment building and garage upon the property (the project). RTC engaged Sharp as the general contractor for the project; Sharp engaged Contek International, Inc. (Contek) to perform certain concrete work on the project; and Contek, in turn, engaged J.M. Ahle Company, Inc. (JMA) to provide rebar (steel reinforcement supports) for the project.
On April 26, 2006, Eastern Concrete Materials, Inc. (Eastern), the supplier of ready-mixed concrete construction materials for the project, filed a complaint seeking to enforce its construction lien claim against RTC, Sharp, JMA, Contek, and other parties possessing a possible interest in the property. On July 18, 2006, JMA filed an answer and counterclaim, together with a cross-claim against RTC, Sharp, and other defendants, seeking to recover under the construction lien it filed on December 2, 2005 (first count); and under the principles of unjust enrichment and breach of contract (counts two and three, respectively). Because Sharp had filed a lien discharge bond issued by Liberty Mutual as surety, JMA filed a third-party complaint against Liberty Mutual seeking to recover under the bond. During the course of the action, all other claims of the parties, except JMA's construction lien claim, including the claim under the bond, were either settled or dismissed by summary judgment. Following a multi-day bench trial, the court entered the order appealed from, supported by a written decision of March 31, 2009.
On October 28, 2004, RTC entered into a contract with Sharp for Sharp to serve as the general contractor of the project. Under the contract, RTC agreed to pay Sharp $35,543,755, plus the costs of any changes to the project requested by RTC.
The contract obligated RTC to make progress payments to Sharp during the course of the construction. To receive a progress payment, Sharp had to submit a payment application specifying the amount of construction completed during that period. Significantly, Sharp was required to state on the application "the percentage of completion of each portion of the [construction] work as of the end of the period covered" by the application. Thus, to obtain a progress payment from RTC, Sharp's project manager needed to certify the percentage of work completed by the various subcontractors to RTC.
On October 18, 2004, Sharp sent a letter agreement to Contek selecting Contek to perform certain concrete work on the project "in accordance with the General Contract Documents between Contractor and Owner and the subcontract agreement provided by the Contractor." Kianoush Rasekhi, who owned 50% of Contek, executed the letter agreement on October 29, 2004. The contract provided that Contek would perform the concrete work for $2,700,000, plus the costs of any additional work requested by Sharp. Subsequently, between December 2004 and October 2005, Sharp approved several change orders affecting the cost of the concrete work. Those additional changes totaled $65,073.46, increasing the contract amount to $2,765,073.46.
JMA, a supplier of materials to the construction industry, fabricates reinforcing steel and sells concrete related products. In January 2005, Contek engaged JMA to provide rebar needed to reinforce the concrete for the project. JMA had previously supplied material to Contek on several other construction projects. During 2005, at the same time JMA provided material to Contek for this project, it also supplied Contek with material to use on four other unrelated construction projects.
JMA manufactured and supplied the steel rebar and other related materials needed for the project. According to John E.Ahle, JMA's President, JMA did not enter into a formal contract with Contek because the project was not a "lump sum job," where the amount of reinforced concrete required could be accurately determined beforehand. Rather, Ahle "looked at all [JMA's] invoicing" for the material that JMA had supplied to Contek for the project.
JMA's involvement with Contek on the project followed an established pattern of conduct between the two companies. Contek would present RTC's construction plans to JMA, and JMA would send the plans to a "detailer," who estimated the amount and shape of the rebar required for the project. The detailer's estimates were then sent to RTC and Sharp for approval, following which Contek would confirm the order, and JMA would manufacture the rebar. JMA did not manufacture the rebar all at once, but instead did so in stages at Contek's request.
After its manufacture, JMA delivered the rebar to the property by truck, where Contek's employees unloaded it. At that time, a Contek employee would sign a delivery slip for the load, verifying receipt of the material. This delivery slip contained an order number, delivery date, specification of the material ordered, quantity of material, name of party to whom the materials were delivered, and name of construction project; however, the slip did not contain unit costs or a total pricebecause, according to Ahle, most customers did not want the prices known to third parties on a job site. After delivery, JMA's driver would return the signed delivery slip to JMA, and JMA would then generate an invoice that included the same information contained on the delivery slip, as well as unit cost and total price. JMA would then send the invoice to Contek for payment.
JMA issued an invoice to Contek for the project on January 5, 2005, charging $2,880 for the construction plan detailing. Ahle testified that thereafter, during 2005, JMA delivered an additional $676,620.01 worth of material to the property. During the period from August 11 to November 15, 2005, Contek failed to pay fifty-three invoices submitted by JMA for material delivered to the property. According to Ahle, during the course of construction, Contek paid JMA only $254,121.47 for material delivered, leaving an unpaid balance of $422,498.54.
In applying the payments made by Contek to JMA for the outstanding invoices for the project, as well as other construction projects, JMA followed specific payment instructions given by Contek for its checks and credit card charges. Thus, if JMA received a check from Contek which included payment for invoices involving both RTC's project and other unrelated projects, JMA applied the monies to the invoices specified by Contek. However, JMA made no independent inquiries to ascertain whether the payment instructions provided by Contek represented a proper allocation of the funds between RTC's project and Contek's four other ongoing, unrelated construction projects.
On November 4, 2005, Sharp's project manager, Frank Calafiore, submitted an application for payment to RTC seeking a progress payment for work completed through October 31, 2005. On the part of the application form addressing concrete work, Calafiore indicated that Contek had completed 100% of its work in six of nine categories, and 99%, 55%, and 33% of its work, respectively, in the three remaining categories. On December 20, 2005, Calafiore submitted another application for payment to Sharp, seeking a progress payment for work completed through November 30, 2005. On this application, Calafiore indicated that Contek had completed 100% of its work in all nine categories.*fn2
In the interim, on November 25, 2005, Rasekhi submitted an application for payment to Sharp on behalf of Contek, similarly indicating that Contek had completed all of its concrete work on the project. In late November or early December 2005, Ahle visited Contek's offices, met with Rasekhi, and unsuccessfully attempted to collect the money then owed by Contek to JMA. Because of an acrimonious parting of Rasekhi and his partners in Contek, on an unspecified date in December 2005, the court appointed a receiver to oversee Contek's business affairs. Ahle returned to Contek's offices a few days later and found the doors locked; he learned at that time about the receivership. Contek employees left the project site on December 16, 2005.
On December 2, 2005, JMA filed its construction lien claim. The claim listed the total contract with Contek as $676,620.01, the amount paid by Contek as $254,121.47, and the lien claim amount as $422,498.54. The claim indicated that there was a written contract, dated January 5, 2005, between JMA and Contek, and it listed Raritan Town Center II, LLC, (RTC II) as the owner of the property.
Sharp subsequently replaced Calafiore as its project manager, initially with Charles LaForte, and then followed by Craig Miller, who became the on-site project manager in February 2006. According to Miller, Contek's work at the site had not been completed when he became project manager, but was only "roughly . . . 93 to 94 percent" complete at that time. Sharp asserted that Contek had "walked off the project" withoutfinishing its work under the contract, causing Sharp to hire other subcontractors to complete Contek's concrete work.
On January 23, 2006, Sharp filed a surety bond in the amount of $464,748 to discharge JMA's construction lien pursuant to N.J.S.A. 2A:44A-31 and -32. The bond named Liberty Mutual as surety, Sharp as principal, and JMA as beneficiary. The bond provided that the surety would make payment if Sharp failed to pay any judgment rendered in JMA's favor in the enforcement of its construction lien.
The case was tried to the court without a jury in June 2008. During the trial, appellants contested JMA's construction lien claim on several grounds, including: 1) JMA's failure to comply with the written contract requirement of N.J.S.A. 2A:44A-2 and -3 by: a) misdesignating RTC II as owner of the property, rather than RTC; and b) by not identifying a written contract between JMA and Contek, but only referencing the January 5, 2005 invoice for the construction plan detailing charges of Soundside Enterprise; 2) Contek's abandonment of the project without completing the concrete work on December 16, 2005, entitling appellants a credit against the lien claim for the value of work Contek failed to complete; 3) JMA's failure to independently investigate and properly apply payments received from Contek against the various invoices JMA generated, not only for the project but also for Contek's four unrelated, ongoing projects; and 4) JMA's misallocation of a $10,000 payment made by Contek to JMA.
On March 31, 2009, the trial court issued a twenty-four page decision rejecting appellants' arguments; determining the amount of the lien fund pursuant to N.J.S.A. 2A:44A-10 as $258,923.62; rejecting the parties' request for counsel fees; and entering judgment in favor of JMA on its construction lien claim in the amount of $258,923.62, together with prejudgment interest from the filing date of the complaint in the amount of $46,801.26. We incorporate by reference the trial court's findings and analysis as reflected in its March 31, 2009 written decision.
On May 29, 2009, the court entered a memorializing order from which appellants appeal. Following the entry of judgment, appellants filed a motion seeking to submit a supersedeas bond to replace the surety bond, and to discharge the surety bond. On August 21, 2009, the trial court entered an order approving the supersedeas bond and discharging the surety bond.
On appeal, appellants argue: 1) "[JMA] failed to meet its burden of establishing the source of the funds it received from Contek and, therefore, cannot verify the existence of a debt as required under the [CLL]"; 2) "the trial court erred in holding that [JMA] has a valid and enforceable construction lien claim, as [JMA's] construction lien claim was legally and factually deficient"; 3) "[JMA's] delivery slips did not satisfy the written contract requirement"; 4) the court erred in entering personal judgment against [RTC] and Sharp; 5) the court erroneously "ordered" the amendment of JMA's pleadings; 6) the court erred in establishing the amount of the lien fund as the correct amount is $90,762.61; and 7) the court erroneously included and computed pre-judgment interest.
In a non-jury case, a judgment shall not be overturned except where, after a careful review of the record and weighing of the evidence, the appellate court determines that "continued viability of the judgment would constitute a manifest denial of justice." In re Adoption of a Child by P.F.R., 308 N.J. Super. 250, 255 (App. Div. 1998) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 597-98 (1977)). We will not disturb the factual findings and legal conclusions of a trial court unless they are "so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)); see also Seidman v. Clifton Savings Bank, 205 N.J. 150, 169 (2011). Consequently, "the appellate court should exercise its original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter." Rova Farms, supra, 65 N.J. at 484. "That the case may be a close one or that the trial court decided all evidence or inference conflicts in favor of one side has no special effect." Czoch v. Freeman, 317 N.J. Super. 273, 283 (App. Div.) (quoting State v. Johnson, 42 N.J. 146, 162 (1964)), certif. denied, 161 N.J. 149 (1999).
The rationale underlying this limited scope of appellate review is that "a trial judge's findings are substantially influenced by his or her opportunity to hear and see the witnesses and to get a 'feel' for the case that the reviewing court [cannot] enjoy." Twp. of W. Windsor v. Nierenberg, 150 N.J. 111, 132 (1997) (quoting State v. Whitaker, 79 N.J. 503, 515 (1979)). For this reason, credibility determinations are entitled to particular deference because the trial judge has a superior perspective "in evaluating the veracity of witnesses." Id. at 133. However, the same level of deference is not required when we are reviewing a legal conclusion. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
In Point IV of their brief, appellants argue that the trial court erred in entering judgment against RTC and Sharp. Appellants not only contend that JMA's unjust enrichment and breach of contract claims against RTC and Sharp had been dismissed, leaving only JMA's construction lien claim, but also that the CLL only provides the holder thereof a right to enforce the construction lien claim against an owner's interest in the real property. Appellants assert that after Sharp posted the lien discharge bond, security for the lien claim transferred from the real property to the bond, and as such, "the only claim upon which [JMA] could have prevailed was its third-party claim against Liberty Mutual [under] the lien discharge bond."
The primary purpose of the CLL is "to secure payment for contractors, subcontractors, and suppliers who furnish labor or materials used to enhance the value of the property of others." Craft, supra, 179 N.J. at 63. "A secondary goal . . . is 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." Id. at 68. The provisions of the CLL giving rise to parties imposing a construction lien are subject to strict construction, "but provisions [providing] for enforcement by qualifying lienclaimants [are] to be liberally construed to effectuate [the CLL's] purpose." Id. at 67-68. To further its purposes, the CLL "is to be read 'sensibly' and with 'an understanding of the policies underlying the Lien Law.'" Id. at 68 (quoting Thomas Group, Inc. v. Wharton Senior Citizen Hous., Inc., 163 N.J. 507, 515 (2000)).
Nothing in the CLL limits the right of a lien claimant from pursuing "any other remedy provided by law." N.J.S.A. 2A:44A-3. Once a construction lien is filed in accordance with the CLL, the lien claim "shall attach to the interest of the owner" in the real property giving rise to the contract improvement for which the contractor or subcontractor services or materialman's supplies are rendered at the time the construction lien is filed. N.J.S.A. 2A:44A-3 and -10. Upon receipt of notice of a lien claim, the owner of the property is "authorized to withhold and deduct the amount claimed from the unpaid part of the contract price that is or thereafter may be due and payable to the contractor or subcontractor, or both." N.J.S.A. 2A:44A-12. All lien claims reduced to judgment are to be paid pro rata "out of the lien fund and the proceeds of the sale authorized by this act." N.J.S.A. 2A:44A-23.
When the judgment is against the owner's interest in the improvements and land, the holder of the judgment may obtain "a special writ of execution . . . to make the amount recovered therein by sale of the improvements and land." N.J.S.A. 2A:44A-25. Upon issuance of a special writ of execution against the owner's interest in the lands, the sheriff "shall advertise, sell and convey the improvement and land in the same manner as in the case of other execution sales." N.J.S.A. 2A:44A-26.
Nonetheless, upon receipt of a notice of a properly filed lien claim, the "contractor . . . may execute and file with the proper county clerk a bond in favor of the lien claimant, with a surety company, duly authorized to transact business in this State, as surety thereon, in an amount equal to 110% of the amount claimed by the lien claimant." N.J.S.A. 2A:44A-31. Upon the filing of an appropriate lien claim bond, "the improvements and land described in the lien claim shall thereupon be released and discharged from the claim and no execution shall issue against the improvements and land." N.J.S.A. 2A:44A-32 (emphasis added).
Here, upon JMA filing its lien claim, Sharp filed a lien claim bond in the amount of $464,748. The bond designates Sharp as principal, Liberty Mutual as surety, and JMA as beneficiary. The bond referenced JMA's filed lien claim; referenced Sharp's "desire to discharge said construction lien claim" pursuant to the CLL; and conditioned Liberty Mutual's payment thereunder as: "[t]he condition of this obligation is such that if the above bounden [Sharp] shall well and truly pay any judgment which may be rendered for [JMA] in the enforcement of said lien, then this obligation shall be null and void, otherwise to remain in full force and effect." Of note, the bond was not conditioned upon a judgment being entered against RTC or Sharp, but only upon Sharp's failure to pay any judgment entered in favor of JMA in the prosecution of JMA's construction lien.
Upon posting of the surety bond, JMA's interest in the real property and improvements were released and discharged from the claim. N.J.S.A. 2A:44A-32. Because the trial court had previously dismissed JMA's unjust enrichment and breach of contract claims against RTC and Sharp, leaving only the construction lien claim for trial, the court erred in entering a monetary judgment against those two parties.
The trial court determined that Contek wrongfully failed to pay the balance of monies owed JMA under their contract ($422,498.54), and that JMA was entitled to judgment on its construction lien claim. Accordingly, the May 29, 2009 order must be corrected by deleting the monetary judgment against RTC and Sharp; and by including a determination that JMA proved its construction lien in the amount of $422,498.54, and is entitled to a judgment thereon limited by the amount of the lien claim fund.*fn3
We find no error in the trial court entering judgment against Liberty Mutual as surety for failure of Sharp to pay JMA the monies adjudged due and owing under the CLL on its lien claim, as limited by the lien claim fund. The filing of the surety bond did not deprive JMA from perfecting its construction lien claim by judgment; rather, the filing of the bond merely substituted the bond for the owner's interest in the real property and improvements as security for payment on the lien. Simply stated, the posting of the bond did not discharge the construction lien, rather the posting of the bond only "released and discharged" the "improvements and the land described in the lien claim." N.J.S.A. 2A:44A-32; see Patrick Connelly, Inc. v. Hugh Montague & Son Co., 17 N.J. Misc. 36, 38 (1939) (providing that a lien filed under the former Municipal Mechanics Lien Law*fn4 is not discharged upon posting of a lien claim bond, but continues for "procedural as well as all other purposes"). With appellants having posted a supersedes bond and the court having discharged the surety bond, JMA is entitled to recover on its judgment against Liberty Mutual under the supersedes bond. R. 2:9-6.
Appellants argue next that the trial court erred in awarding JMA prejudgment interest. Appellants contend that RTC paid Sharp, and Sharp paid Contek all the monies due and owing under their respective contracts, and as such, RTC and Sharp did not have use of the funds adjudged due JMA during the course of litigation. Appellants further assert that the court erred in awarding prejudgment interest from the filing of JMA's answer, counterclaim and cross-claim because, although Sharp served JMA with a copy of its lien discharge bond on January 27, 2006, JMA did not file its third-party complaint against Liberty Mutual until October 25, 2007, and in the interim, not only needlessly asserted unjust enrichment and breach of contract claims against them, but also joined unnecessary parties to the action, causing RTC and Sharp to incur additional litigation expenses. Wereverse the award of prejudgment interest and remand the issue for reconsideration.
"[T]he award of prejudgment interest on contract and equitable claims is based on equitable principles." County of Essex v. First Union Natl. Bank, 186 N.J. 46, 61 (2006). The primary purpose in awarding prejudgment interest is to compensate the plaintiff because "'the defendant has had the use, and the plaintiff has not, of the amount in question; and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled.'" Ibid. (quoting Rova Farms, supra, 65 N.J. at 506). Because "prejudgment interest is a matter of discretion for the trial court," ibid. the award should be sustained on appeal unless it "'represents a manifest denial of justice.'" Ibid. (quoting Musto v. Vidas, 333 N.J. Super. 52, 74 (App. Div.), certif. denied, 165 N.J. 607 (2000)).
Here, the trial court awarded prejudgment interest pursuant to Rule 4:42-11(a)(iii) from June 21, 2006, the date JMA filed its answer, counterclaim, and cross-claim in the amount of $46,801.26. The court stated that it was doing so in substantial part because "[a]lthough J.M. Ahle is receiving the maximum allowed under the lien fund [($258,923.62)], it is recovering only approximately 60% of the sums owed by Contek for work which has benefited RTC and Sharp." We conclude that it was error for the court to award prejudgment interest for that reason.
Recovery upon a construction lien claim is "limited to the contract price, or any unpaid portion thereof, whichever is less, of the claimant's contract for the work, services, material or equipment provided." N.J.S.A. 2A:44A-9. In furtherance of the two primary purposes of the CLL, the Act contains a specific provision under which the lien fund must be determined in a given case. N.J.S.A. 2A:44A-10. Simply stated, that statute provides:
1. An owner's property is never subject to liens in an amount greater than the amount unpaid by the owner to its prime contractor as of the time a lien is filed by one claiming a lien under that prime contractor.
2. Upon the filing of a lien by a subcontractor or supplier (second tier), an owner's property is never subject to a lien or liens in an amount greater than (1), above, or the balance owed by the contractor to the liening subcontractor whichever is less.
3. Upon the filing of a lien by a subsubcontractor, or supplier to a subcontractor (third tier), an owner's property is never subject to a lien or liens in an amount greater than (1), or (2) (with respect to the subcontractor with whom the third tier party hascontracted) or the amount due to the lienor from the contracting party, whichever is less. [41 New Jersey Practice, Construction Law § 12.58, at 342 (Robert S. Peckar) (1998) (footnotes omitted).]
The court correctly determined the amount of the lien claim fund under paragraph 3 above. Because the record contains evidence that RTC owed Sharp under the terms of the prime contract approximately $26,917,474.29, plus retainage, as of the date JMA filed its lien claim, there was never an issue whether RTC's real property could have been subjected to a lien in excess of the amount RTC owed Sharp under paragraph 1 above. With that said, the court concluded that the total construction price under the Sharp/Contek contract was $2,765,073.46 and that Sharp had paid Contek $2,506.149.84 at the time JMA filed its lien claim, resulting in a lien claim fund of $258,923.62, notwithstanding that Contek had wrongfully failed to pay JMA $422,498.54.
The statutory limitation on the lien claim fund prevents Sharp from having to pay twice for the materials delivered, that is, pay Contek in the first instance and then pay JMA under its lien claim. Because the party who wrongfully failed to pay JMA was Contek, the court should not have awarded prejudgment interest based on JMA only receiving the amount of the lien claim fund. That is all the money JMA is entitled to receive under the CLL. Although RTC and Sharp benefited from the goods JMA delivered to the project, RTC paid Sharp in full for those materials, and Sharp had substantially paid what was owed Contek under their contract, save the lien claim fund amount. Accordingly, we reverse the award of prejudgment interest and remand to the trial court to reconsider the issue without taking into account that JMA's lien claim is limited to the amount of the lien claim fund.
We have considered appellants' remaining arguments in light of the record and applicable law. We determine the argument asserted in Point V is without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We reject appellants' remaining arguments and affirm for the reasons expressed by the trial court in its written decision of March 31, 2009.
Affirmed in part; reversed in part; and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.