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Joel and Kim Bradus v. Family Home Construction


March 14, 2012


On appeal from the Department of Community Affairs, Docket No. BHP-704-07-05/W#180893.

Per curiam.


Argued November 2, 2011 -

Before Judges Waugh and St. John.

Joel and Kim Bradus (collectively Bradus) appeal from a decision of the Department of Community Affairs dismissing their claim under the New Home Warranty and Builders' Registration Act, N.J.S.A. 46:3B-1 to -20 (the Act). After reviewing the record in light of the assertions advanced on appeal and considering the applicable law, we affirm.

Bradus purchased a new single-family home with a finished basement in Spring Lake Heights, which had been constructed by Family Homes Construction, LLC (FHC). The basement drainage system consisted of a full interior parameter drain (a floating floor), two sump pits with sump pumps, and two dry wells.

In accordance with the Act, Bradus received a ten-year warranty from FHC that commenced on October 15, 2006, and the home was warranted for the first year against defects arising from faulty workmanship and defective materials. Further, it was warranted for two years against defects caused by faulty installation of plumbing, electric, and heating and cooling systems. N.J.A.C. 5:25-3.2.

Before turning to the specifics of this appeal, we outline the procedures to be followed by a homeowner who experiences defects in a new home, as outlined in the applicable regulations. A homeowner with a covered defect within the warranty period must provide written notice to the builder no later than seven days from the expiration of the applicable warranty coverage. N.J.A.C. 5:25-3.3(d). Upon receipt of such notice, the builder has thirty days to conduct an inspection and provide the homeowner with a written statement explaining when and how the builder will resolve the problem. If the builder does not respond within thirty days, the homeowner may file a notice of claim and demand formal dispute resolution with the Bureau of Homeowner Protection (the Bureau) in the Department of Community Affairs. N.J.A.C. 5:25-5.5(b)(3). A homeowner seeking to pursue the matter must file the notice of claim within fourteen days of the expiration of the thirty-day inspection period afforded to the builder. Ibid.

If the homeowner files such a claim, the Bureau will initiate a conciliation/arbitration hearing, N.J.A.C. 5:25-5.5(c)(3), and if unsuccessful, the Bureau will decide the claim. In the event either party is dissatisfied with the Bureau's decision, an appeal can be filed with the Office of Administrative Law (OAL). Ibid. If the homeowner prevails, and the builder fails to correct the defect, the homeowner may file for compensation from the New Home Warranty Security Fund (the Fund). N.J.A.C. 5:25-5.5(e).

According to the State's records, between April 12 and 18, 2007, there was an excessive amount of rainfall in Monmouth County, measuring five to seven inches. During this period, the sump pumps were removing water from Bradus's basement into the dry wells. Eventually, the dry wells overflowed, which created ponding on their property and that of their neighbors'. The Borough of Spring Lake Heights was contacted regarding the flooding. In response, Borough workers disconnected the oneand-one-half-inch diameter PVC sump pump discharge pipe from the dry well entrance pipe and replaced it with a one-half-inch garden hose that drained the water to the street.

On April 18, 2007, Bradus informed FHC that the basement was flooded. Bradus contended that the flooding and subsequent damage to the wall, floor, and contents of the basement was caused by a defect in the drainage system. In May, Bradus made repairs to the basement by removing the lower two feet of sheetrock wall and insulation, as well as the basement flooring.

FHC denied there was any defect in the drainage system, and attributed the flooding to the excessive amount of rainfall. At Bradus's request, FHC replaced one of the sump pumps. FHC asserted that the pump had been unable to drain the sump pit because of the replacement of the PVC pipe with the smaller diameter garden hose, causing a backup into the sump pit, which then overflowed into the basement.

Bradus also argued that FHC should have installed Bilco doors over the outside stairwell leading to the basement, and that failure to do so caused water to accumulate at the bottom of the stairs which eventually flowed into the basement. Additionally, Bradus argued that the two dry wells were of an insufficient size to accommodate the foreseeable amount of water being removed by the sump pumps.

FHC contended that the outdoor stairwell has a drain at its lowest point and, even if the drain did not function properly, the amount of water able to flow over the raised lip and into the basement would have been negligible. It contended that the lack of Bilco doors would not have caused flooding in the basement. FHC also maintained that the dry wells on the property functioned properly and the reason for the overflow was due to the unforeseeable excessive rainfall, which resulted in the wells not being able to dissipate the accumulated water.

Bradus made a claim with the Department of Community Affairs' New Home Warranty Program on May 17, 2007. A claims analyst with the Bureau performed a site inspection on October 17. He found that the flooring and the bottom two feet of sheet rock had been removed from the basement along with the wall insulation behind it. He observed that both sump pits were dry and there was no sign of water infiltration. He did not detect any construction defects or violations of performance standards associated with the dry well or drainage system, but he noted it appeared some modifications had been made to both the inside and outside drainage systems.

Following the inspection, the Bureau denied Bradus's claim, finding that the basement water penetration was directly caused by an act of nature as a result of a one-time occurrence of a large rainfall in a short period. The claim was also denied because the specific cause of the damage could not be substantiated as a result of the drainage system having been modified by the disconnection of the PVC pipe and attachment of a smaller garden hose to the sump pump outlet, and the replacement of the sump pump. In addition, the Bureau concluded that FHC's obligation under the New Home Warranty Program was terminated because Bradus made repairs prior to giving FHC an opportunity to make them.

Bradus appealed to the OAL. An administrative law judge (ALJ) held a hearing that spanned four days from March 14, 2008 to January 15, 2009. The ALJ dismissed Bradus's claim on May 12, 2010, because of failure to prove the flooding in the basement was a direct result of any wrongdoing on the part of FHC.

The ALJ relied on N.J.A.C. 5:25-5.5(b)3iii, which states "[w]here a claim defect is filed that cannot be observed or determined under normal conditions[,] it is the owner's responsibility to substantiate that the condition does exist." He concluded that "without the sump pump available for testing to determine its operating condition, [Bradus] has not been able to substantiate that it was not operating properly in April 2007." He also concluded similarly with regard to the Bilco doors that Bradus argued should have been installed over the stairway leading to the basement, since there was no evidence that water from the stairwell landing overflowed into the basement. Further, the ALJ concluded that because Bradus conceded that rainfall event was a one-time occurrence, and because acts of nature are not covered under the New Homeowner Warranty Program, Bradus could not prevail under the Act.

Lastly, the ALJ concluded because Bradus modified the drainage system without allowing the inspector to observe the damage, and without affording FHC an opportunity to make repairs, Bradus was not entitled to any relief because they deviated from the procedure set forth in N.J.A.C. 5:25-5.5.

The Commissioner of the Department of Community Affairs adopted the ALJ's decision on June 14, 2010. It is from that decision Bradus appeals.

Bradus contends the denial of their claim for the defective drainage system was improper, and that the Commissioner erred in adopting the ALJ's conclusions to that effect. We disagree.

"There are well-recognized principles governing the judicial review of administrative agency determinations" and appellate courts "have a limited role in the review of such decisions." In re Stallworth, 208 N.J. 182, 194 (2011) (internal citation and quotation marks omitted). We can only intervene "'in those rare circumstances in which an agency action is clearly inconsistent with its statutory mission or with other State policy.'" Brady v. Bd. of Review, 152 N.J. 197, 210 (1997) (quoting George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994)). "In order to reverse an agency's judgment, an appellate court must find the agency's decision to be 'arbitrary, capricious, or unreasonable, or . . . not supported by substantial credible evidence in the record as a whole.'" Stallworth, supra, 208 N.J. at 194 (quoting Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980)). "If a reviewing court concludes that a decision of the [agency] is arbitrary, the court may either finally determine the matter by fixing the appropriate penalty or remand it to the [agency] for redetermination." Ibid. In determining whether agency action is arbitrary, capricious, or unreasonable, a reviewing court must examine:

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. [In re Carter, 191 N.J. 474, 482 (2007) (quoting Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995)).]

In turning to the procedure outlined in N.J.A.C. 5:25-5.5, the ALJ properly determined that Bradus's failure to adhere to the Bureau's procedural requirements barred relief from the Fund. The Commissioner correctly relied on the ALJ's determination when adopting the initial decision. The Supreme Court has held:

Given the trust statutorily reposed in the Commissioner of [the Department of Community Affairs] in respect of the management of the fund, N.J.S.A. 46:3B-7a, . . . there is nothing arbitrary, capricious or unreasonable in the procedures outlined in N.J.A.C. 5:25-5.5(e) requiring that a claimant against a trust fund make a claim, submit to an inspection, submit at least two estimates of the repair work to be performed, and await the Department's approval before barging ahead. [Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 19 (2006).]

Here, Bradus was required to follow the Bureau's procedure and allow its inspector to assess the extent of the damage in its normal condition prior to providing FHC the opportunity to make repairs. See N.J.A.C. 5:25-5.5(b)3iii. Bradus diverged from the procedure and the failure to follow them voids the benefit of any relief they would be entitled to otherwise. See Aqua Beach, supra, 186 N.J. at 19 (holding that a homeowner's informed decision to contract for repairs without the Bureau's pre-authorization voids any obligation on the part of the Fund to reimburse the homeowner for those repairs).

In Fisch v. Bureau of Construction Code Enforcement, 238 N.J. Super. 410, 422 (App. Div. 1990), we noted:

The Bureau acts as the fiduciary of the New Home Warranty Security Fund. It is the Bureau's responsibility to preserve the fiscal integrity of the Fund. In preserving this fiscal integrity, the regulations clearly provide for written authorization by the Bureau and satisfactory completion of the repairs prior to payment. The Commissioner held that ad hoc deviations from the well established claims procedures designed to prevent exorbitant claims and preserve the integrity of the Fund could not be countenanced.

After reviewing the record, and taking into account the well established conditions precedent for succeeding on a claim from the Fund, as well as the goals underlying the Bureau's procedures, we hold the Commissioner's adoption of the ALJ's determination that Bradus's failure to substantiate the damaged conditions and the inspector's inability to assess the damage before it was repaired, was not arbitrary, capricious, or unreasonable, as applied in this instance. Aqua Beach, supra, 186 N.J. at 8.

We disagree with Bradus's assertion that the ALJ erred in denying their motion to reopen the record based on the occurrence of a second flood, which occurred before the issuance of the decision. We see no reason to disturb either the ALJ's determination or the Commissioner's adoption, especially because motions to reopen the record prior to an initial decision are granted only under "extraordinary circumstances." N.J.A.C. 1:1-18.5(c). Bradus has presented no such extraordinary circumstances.

We find Bradus's contentions related to the Bureau's denial of their claims based on procedures of which they allege they had no notice, including the entire procedural scheme outlined under N.J.A.C. 5:25-5.5., to be without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).



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