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Bob Mcewan Construction Corp v. White Rock Lake Association


July 14, 2011


On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-82-09.

Per curiam.


Argued March 22, 2011

Before Judges Carchman and St. John.

This is an appeal from the dismissal of an action that, in part, alleges engineering malpractice. In the malpractice count of the complaint plaintiff alleges that defendant Donahue Engineering Co. and defendant EcolSciences, Inc. "negligently and carelessly provided advice and counsel" to plaintiff Bob McEwan Construction Corp. by reason of their providing opinions that certain lots under contract of purchase were exempt from the Highlands Water Protection and Planning Act, N.J.S.A. 13:20-1 to -35, (the Highlands Act) and developable. It claimed damages including the cost of the lots, which it asserts cannot be developed.

The motion judge dismissed plaintiff's complaint, without prejudice, concluding that plaintiff was obligated to exhaust its administrative remedies and pursue an exemption before the Department of Environmental Protection (the DEP) prior to continuing with this action. Thereafter, plaintiff did so, and the application was denied. A subsequent motion for reconsideration was denied.

We reverse and remand. Plaintiff may proceed with its professional negligence cause of action, and defendant may raise, if appropriate, a defense that plaintiff failed to mitigate damages; however, any failure of plaintiff to pursue its remedy before the DEP is not a bar to its proceeding to prosecute its negligence action.

These facts are not complex. Plaintiff is a builder who engages in the development and construction of homes. On July 21, 2005, plaintiff entered into a contract with defendant White Rock Lake Association, Inc. for the purchase of two vacant lots. The contract included a contingency requiring "[p]roof that property is exempt from the Highlands Act." The contract did not specify which party had the burden of proving the property was exempt from the Highlands Act, but plaintiff acknowledged its "responsibility as purchasers."

Plaintiff subsequently retained Donohue, a professional engineering firm with which plaintiff had a previous relationship, to provide engineering services for this project. Donohue was engaged to do "whatever was required to get a subdivision before the Planning Board . . . and to conform with the ordinances." Plaintiff and Donohue did not enter into a written contract for this project. Another firm, EcolScience, an environmental consultant, was hired to prepare a preliminary investigation report, not to provide opinions about the Highlands Act. However, EcolScience provided an opinion on the applicability of the Highlands Act. In a March 22, 2006 letter, EcolScience explained:

Although the site is located within the Highlands Preservation Area, the standard three hundred foot buffers from Highlands open water/wetlands do not apply to the proposed lots. It is my understanding that you propose to develop the site with two single-family residences that will connect to the existing sewer[,]s service area.

Therefore, as long as the cumulative disturbance proposed on both lots does not exceed an acre and the cumulative impervious surfaces does not exceed 1/4 acre, development of the two lots is exempt from the standards of the Highlands Preservation Area.

Donohue delivered an oral report regarding the applicability of the Highlands Act to these lots. At the April 11, 2006 meeting of the Jefferson Township Planning Board (the Board), the Board noted in the minutes:

Mr. Donahue stated what we are showing is a conceptual dwelling and driveway and concrete walkway configuration on both lots. The total proposed impervious area on the site is 7,984 sq. ft., which is 18.3% of an acre, less than 1/4 acre, which is under one of the criteria of the highlands act. Along with that we have proposed disturbance on both lots combined being 29,766 sq. ft., which is less th[a]n 1 acre of disturbance. Falling underneath those two criteria does not require highlands.

Furthermore, the Board Resolution repeated what appeared in the notes and stated:

The issue of the Highlands Act was then brought up. Donohue described the conceptual dwelling and driveway and walkway configuration on both lots. He stated the total proposed impervious area on the site was 7,984 square feet which was 18.3 percent (18.3%) of an acre, less than 1/4 of an acre which was under one of the criteria of the Highlands Act. He stated they proposed disturbance on both lots combined being 29,766 square feet which was less than 1 acre of disturbance. He stated that falling underneath those two (2) criteria did not require the Highlands Act. [(Emphasis added).]

The Board granted subdivision approval, the parties closed on the property, and it was conveyed on June 26, 2006. Construction commenced shortly thereafter.

On July 27, 2006, the DEP issued a Notice of Violation to McEwan, claiming that the proposed development required a Highlands preservation approval, which would include a Highlands Applicability Determination or Highlands exemption letter.

Plaintiff then submitted a Highlands Applicability Determination Application, and on November 30, 2006, the DEP responded, indicating that the application was administratively complete, and the Department would perform a technical review of the application. On April 30, 2007, the DEP issued a Notice of Technical Incompleteness to plaintiff. It indicated that "[d]uring the technical review of the application, it was determined that additional information will be necessary for the [DEP], Bureau of Watershed Regulation to complete the Highlands Applicability and Water Quality Management Plan Consistency Determination Review." The Department then identified the specific information plaintiff was required to submit.

Plaintiff did not provide the DEP with any additional information. On June 27, 2007, the DEP issued a Notice of Intent to Cancel because it had not received the additional information. Plaintiff then submitted a request for additional time to secure a deed restriction from White Rock. The DEP never indicated that a deed restriction was necessary to develop the property, and plaintiff never received a deed restriction from White Rock. The DEP cancelled plaintiff's application on November 20, 2007. Plaintiff did not request an adjudicative hearing on the application or its cancellation.

On June 4, 2009, plaintiff filed its complaint against defendant White Rock alleging "mutual mistake" and seeking rescission of its contract. In addition, plaintiff joined Donahue and EcolSciences as defendants, and in a separate count of the complaint, alleged professional negligence and sought, among other damages, "the consideration paid for the Lots."

After all defendants filed answers to the complaint, Donohue filed an amended answer to include the affirmative defense that plaintiff failed to exhaust administrative remedies. Donohue followed the filing of its answer by filing a motion for summary judgment, alleging that the complaint should be dismissed for failure to exhaust administrative remedies. EcolSciences filed a cross-motion for summary judgment seeking the same relief, and White Rock also joined in the motion.

The judge granted summary judgment and dismissed the complaint without prejudice for failure to exhaust administrative remedies. Due to the "lack of evidence" presented at the motion, from both sides, the judge explained if a motion for reconsideration were filed, she would employ "a more relaxed view[.]"

Plaintiff filed a timely motion for reconsideration. After argument, but before the judge executed an order on the motion, plaintiff's application to the DEP for an exemption from the Highlands Act was denied.*fn1 Plaintiff supplied this information to the motion judge, but the judge signed the order denying the motion for reconsideration and dismissing the complaint without prejudice. She did not consider the DEP's determination because "the case was dismissed on 4/16/10, when the order was given from the bench notwithstanding counsel's inability to settle the form of order."*fn2

This appeal followed.

On appeal, plaintiff asserts that by dismissing the complaint, even without prejudice, the judge required plaintiff to mitigate damages as a condition precedent to proceeding with its action; the judge erred by not vacating the dismissal after being advised that DEP had denied the Highland's application; and the judge failed to consider that any attempt to pursue an exemption from the DEP would be futile.

As we have noted, the gravamen of plaintiff's complaint against Donahue and EcolSciences sounds in professional negligence. The damages are defined, in part, as the expenses incurred in acquiring the property and pursuing the land use approvals as well as the acquisition costs of the property.

The substance of the complaint against the target defendants is not that they failed to secure an exemption, but they affirmatively represented that the property was exempt. These are different claims.

In determining that the complaint warranted dismissal for failure to exhaust administrative remedies, the judge focused on her perception that the damages could not be calculated absent action by DEP. We disagree. On its face, the complaint sets forth the elements of the damages sought, and whether plaintiff can prevail at trial on the proof of such damages is an issue that was not before the judge on the motion.

The flaw in defendants' argument is that the cases relied on for the principle that plaintiff was required to exhaust its administrative remedies are cases involving challenges to administrative action that are brought in the trial courts. In both OFP, L.L.C. v. State of New Jersey, 395 N.J. Super. 571 (App. Div. 2007), aff'd, 197 N.J. 418 (2008), and United Savings Bank v. State Department of Environmental Protection, 360 N.J. Super. 520 (App. Div.), certif. denied, 177 N.J. 574 (2003), the underlying challenges were against the agency for review of agency action.

We contrast those circumstances with the allegations here. This is a professional malpractice action. The DEP has neither an interest in nor jurisdiction to address any of the issues underlying the liability or even the damages of plaintiff. Moreover, plaintiff has proffered the opinion of an expert on the issue of the status of the property and the relevance of the Highlands Act.

Plaintiff may have difficulty establishing its damages, but it proceeds at its own risk. In addition, we note that the issue is not whether plaintiff was entitled to an exemption but whether the property was exempt pursuant to the Highlands Act. Resolution of that issue does not require further action by the DEP.

We conclude that the judge erred by requiring plaintiff to exhaust its administrative remedies as a condition for proceeding forward on its malpractice claim. We will not require such action under the facts presented here, although we do note that plaintiff has been unsuccessful in attempting to obtain an exemption.

We have considered the other arguments raised by plaintiff as well as defendants' motion to dismiss the appeal and as to the former, we need not address those issues. As to the latter, we conclude that defendants' motion is without merit. R. 2:11-3(e)(1)(E).

The orders of March 5, 2010 and April 16, 2010 dismissing the complaint without prejudice are reversed, and the matter is remanded for further proceedings.

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