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P.E.M. Construction and Development Co., Inc v. Encap Golf Holdings

August 30, 2011

P.E.M. CONSTRUCTION AND DEVELOPMENT CO., INC., PLAINTIFF-APPELLANT,
v.
ENCAP GOLF HOLDINGS, LLC; CHEROKEE NORTHEAST, LLC; MEADOWLANDS DEVELOPMENT VENTURE I; AND THE TOWNSHIP OF LYNDHURST, DEFENDANTS, AND NEW JERSEY MEADOWLANDS COMMISSION AND NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5392-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted: March 23, 2011

Before Judges Cuff, Fisher, and Fasciale.

Plaintiff P.E.M. Construction and Development Co., Inc. (PEM) worked on two projects in the Hackensack Meadowlands district and sought payment from an escrow account established by EnCap Golf Holdings, LLC (EnCap) and held by defendant New Jersey Meadowlands Commission (the Commission). This appeal presents two issues: whether the Bond Act, N.J.S.A. 2A:44-143 to -147, applied to the two projects undertaken by PEM, and whether the Commission was an undisclosed principal of EnCap, thereby allowing PEM to be paid from the EnCap escrow account. PEM appeals from an order granting summary judgment to defendants the Commission and the New Jersey Department of Environmental Protection (DEP).

PEM argues that the existence of genuine issues of material facts precluded entry of summary judgment. PEM also contends that the Commission was an undisclosed principal and had a statutory duty to protect it, and that it is entitled to payment from the escrow account. We hold that PEM is not able to draw from the EnCap escrow account, and the Bond Act does not apply to the work performed by PEM. We, therefore, affirm.

The Commission was created to plan and implement the cohesive remediation and development of 21,000 acres of land known as the Meadowlands located in several contiguous municipalities in northern New Jersey. N.J.S.A. 13:17-6. In 1998, the Commission began the process of selecting developers for a project described as "one of the largest remediation, reclamation and development efforts ever undertaken in the State of New Jersey" (the Project). EnCap responded to the Commission's request, representing that it had "extensive experience and expertise in landfill-closure-to-golf-course development and that [it] had the private financial wherewithal to complete the project without public financing." Part of this private financial backing was attributed to investor Louis Gonda, "who was touted as one of the 400 richest men in the world." Investor William Gauger owned a 17.5% interest in EnCap.

EnCap and the Commission entered into a letter of intent on April 14, 2000, designating EnCap as the developer of the Project. On October 26, 2000, EnCap and the Commission entered into a "Landfill Closure and Development Agreement." This agreement provided for "replacement baseball fields and related facilities (the [Replacement Recreational Facilities]) substantially the same or better in size, quality, capacity and general suitability as the municipal baseball fields located . . . in Lyndhurst . . . ." At that time, the Township of Lyndhurst (Lyndhurst) owned the property on which the ball fields were located.

On February 28, 2002, the Commission and Lyndhurst entered into an "Agreement for Exchange of Real Property." In this agreement, Lyndhurst agreed to exchange the ball field property for a 16.8 acre property the Commission owned (the Replacement Property). In partial consideration for the exchange, the Commission would "cause EnCap (at EnCap's sole cost and expense) to construct (or cause to be constructed) the Replacement Recreational Facilities . . . on the Replacement Property." The Replacement Recreational Facilities were to "consist of two (2) little league fields, a large baseball field, and a combination football field/soccer field." Lyndhurst was to convey the ball field property to the Commission upon execution of the agreement, and the Commission was to convey the Replacement Property upon completion of the Replacement Recreational Facilities.

On March 13, 2002, the Commission and EnCap entered into an Eminent Domain/Accelerated Acquisition Agreement. The Commission and EnCap also entered into an "Amended and Restated Landfill Closure and Development Agreement" on March 10, 2003. This agreement stated that EnCap would construct the Replacement Recreation Facilities on the Replacement Property that would "replace certain municipal Recreational Facilities located on [the ball field property] in Lyndhurst . . . which will be rendered unusable by the Phase 1 Redevelopment Project." The amended agreement also required EnCap to obtain a performance security. On May 3, 2004, American Home Assurance Company issued Bond #ESD 731 5040 for this purpose. The bond served to secure EnCap's development obligations with respect to the Replacement Recreational Facilities.

On September 20, 2005, EnCap and the Commission entered into a "Second Amended and Restated Landfill Closure and Development Agreement," which also noted the continued inclusion of the Replacement Recreational Facilities "for use by the Township of Lyndhurst to replace the Existing Recreational Facilities, which will be rendered unusable by Phase 1 Redevelopment Project."

The Commission and Lyndhurst subsequently entered into an "Amended and Restated Agreement for Exchange of Real Property" on May 31, 2006, which set forth "additional work to be performed." Part of this additional work was the renovation of the Prevost Building "an abandoned bus service station that Lyndhurst sought to convert into a recreational center, including classrooms and a gymnasium" located on the Replacement Property. The amended agreement stated: "While not required by the Original Agreement, the Township and EnCap have negotiated in good faith with adequate consideration and have agreed that, in addition to the [Replacement Recreational Facilities], EnCap will renovate and redesign" the Prevost Building. As Lyndhurst wished to complete this renovation by September 1, 2006, the Commission agreed to convey the Replacement Property to Lyndhurst immediately rather than after the completion of the Replacement Recreational Facilities.

EnCap was required to apply for all necessary zoning and construction permits from the Commission, and was to do so at its own risk. Without the knowledge of the Commission, on May 5, 2005, ESA Architects, on behalf of EnCap and Cherokee Northeast LLC (Cherokee),*fn1 issued instructions for bids regarding the renovation of the Prevost Building. On June 3, 2005, PEM submitted a bid for the renovation to Cherokee. On March 28, 2006, PEM and EnCap entered into a contract to renovate the Prevost Building for a sum of $1,417,500. PEM entered into several subcontracts for the renovation of the Prevost Building. The Commission had no knowledge of or involvement in these negotiations.

The Commission has the statutory duty to review proposed plans for the alteration of any structure in the Meadowlands. N.J.S.A. 13:17-12(a). Pursuant to its contract, PEM was required to secure all necessary work permits, which it submitted to EnCap and Cherokee. The Commission rejected some applications because they failed to identify Lyndhurst as the property owner. Once the Commission received the revised applications identifying Lyndhurst as the owner of the Replacement Property along with Lyndhurst's approval of the applications, it informed a Cherokee representative that it would "issue the permit as soon as [it] ha[s] determined that the application is in compliance with the provisions of all applicable regulations."

On June 9, 2006, the Commission issued Conditional Zoning Certificate CZC-03-681 to EnCap, identifying Lyndhurst as owner. This certificate noted that it was "NOT AN APPROVAL TO START CONSTRUCTION." On June 13, 2006, Lyndhurst issued a permit to PEM, identifying Lyndhurst as owner in fee, and authorizing the start of the renovation. Renovation of the physical structure commenced after receipt of the permit. As a result of several change orders during the course of the renovation, the contract price increased to $1,839,784. EnCap paid PEM on a regular basis from June 2006 until May 2007.

On August 9, 2006, EnCap and the Commission entered into a "Third Amended and Restated Landfill Closure and Development Agreement" (the Third Amended Agreement). It contains the same provisions relevant to this appeal as the prior agreements, including a provision that nothing contained within it "shall be deemed or construed by the Parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venture or any association between the EnCap and [the Commission], their relationship being solely as contracting parties under this Third Amended Agreement."

In 2007, EnCap experienced a "liquidity crisis." Ultimately, the Commission terminated the Third Amended Agreement effective May 9, 2008. At the time, however, the Commission agreed to suspend the exercise of remedies under the Third Amended Agreement in exchange for the creation of a $5 million escrow account (the Escrow Account). The parties executed the first escrow agreement on November 28, 2007. EnCap continued to make a good faith effort to perform under the Third Amended Agreement and cure its defaults, and in exchange for an additional $1 million deposit into the Escrow Account, the Commission agreed to further suspend the exercise of its remedies until May 9, 2008, in an Amended and Restated Escrow Agreement. PEM was not a party to the Amended and Restated Escrow Agreement and was not involved in the negotiations of it.

The January 14, 2008 Amended and Restated Escrow Agreement provides that it is "only for the exclusive benefit of the parties hereto [the Commission and EnCap] and [DEP] and is not intended to benefit, or confer any rights (express or implie[d]) to, any third person, other than [DEP]." Further, the amended agreement "shall in no manner provide, or be deemed to provide, EnCap with access to, or any rights with respect to, the moneys on deposit in the Escrow Account." The Commission is the escrow agent, and is granted the discretion to "withhold disbursement of funds from the Escrow Account . . . until [it] receives evidence to [its] satisfaction . . . that such action is in accordance with the terms and conditions set forth herein."

Section 3.2 of the agreement states that funds "shall be disbursed from the Escrow Account solely for payment of Approved Costs." "Approved Costs" include "Approved Designated Recreational Costs" defined as "any Designated Recreational Costs that are the subject of a Completed Requisition and have been approved in writing by [DEP] and ...


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