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EnviroFinance Group, LLC v. Environmental Barrier Co.

Superior Court of New Jersey, Appellate Division

April 14, 2015

ENVIROFINANCE GROUP, LLC, Plaintiff-Appellant/Cross-Respondent,

Argued: October 22, 2014.

Approved for Publication April 14, 2015.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-111-11.

Cory Mitchell Gray argued the cause for appellant/cross-respondent ( Greenberg Traurig, LLP, attorneys; Mr. Gray, Robert C. Epstein and Michael R. Glanzman, on the briefs).

Paul J. Halasz ( Day Pitney, LLC ) and Gary H. Nunes ( Womble Carlyle Sandridge & Rice, LLP ) of the Virginia bar, admitted pro hac vice, argued the cause for respondent/cross-appellant ( Day Pitney, LLC and Mr. Nunes, attorneys; Mr. Halasz, Mr. Nunes and Robert G. Rose, on the briefs).

Before Judges LIHOTZ, ESPINOSA and ST. JOHN. The opinion of the court was delivered by LIHOTZ, J.A.D.


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[440 N.J.Super. 331] LIHOTZ, J.A.D.

In these appeals, calendared back-to-back and consolidated for purposes of our opinion, we examine several orders, which fix the [440 N.J.Super. 332] rights of the parties. Plaintiff EnviroFinance Group, LLC (EFG) provided construction financing to plaintiff Earthmark N.J. Kane Mitigation, LLC (Earthmark), the developer of an environmental mitigation project to be built on Bergen County wetlands owned by the Meadowlands Conservation Trust (MCT). The primary contractor of the project was defendant Environmental Barrier Company, LLC, d/b/a Geo-Con (Geo-Con).

When Geo-Con was not paid for its work, it filed two construction liens against Earthmark's leasehold interest in the project. Earthmark and EFG filed this action against Geo-Con, primarily to discharge the construction liens. The motion judge concluded Geo-Con's liens were properly asserted against the private leasehold interest and assets of Earthmark, not against the public realty. Geo-Con requested default and later moved for entry of final default judgment and to fix damages against Earthmark. EFG opposed the motion, asserting a final judgment against Earthmark would impair its collateral interest. Following a hearing, the judge disagreed and found EFG lacked standing to oppose determination of claims between Geo-Con and Earthmark. A final judgment in favor of Geo-Con and against Earthmark was entered. A second order, filed over EFG's objection and without benefit of a testimonial hearing, required Earthmark's payment to Geo-Con of an award of counsel fees, costs and pre--judgment interest. The first appeal, filed by EFG, challenges these two orders (A-2475-12). This court declined to consider, but did not dismiss this appeal, pending the outcome of cross-motions for summary judgment.

Reviewing the summary judgment record, the judge upheld Geo--Con's construction liens. He also determined EFG was liable for cure payments under the terms of its agreement with Geo-Con and assertions made in a February 2011 correspondence, but was not liable for additional

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cost overruns outlined in a September 7, 2010 contract between Geo-Con and Earthmark, or otherwise responsible to pay claims for work performed, despite allegations of quantum meruit. The second matter regards cross-appeals by [440 N.J.Super. 333] EFG and Geo-Con from the summary judgment orders (A-6202-12).

Following our review, of the arguments presented, the record on appeal and the applicable law, we affirm.


MCT owns 587 acres of environmentally sensitive wetlands in the Richard P. Kane Natural Area located in Bergen County. Earthmark was chosen as the successful bidder following the request for proposals to construct an environmental mitigation bank on MCT's land. A mitigation bank is " a wetland, stream, or other aquatic resource area that has been restored, established, enhanced, or (in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to aquatic resources permitted under . . . state or local wetland regulation." [1] Mitigation banks employ a market-based approach to preservation, placing the implementation and success of a project on a third party in exchange for credits, which may be sold to future developers, whose ventures in the surrounding area may impact the protected environment. See 33 C.F.R. § 332.2. The proposed mitigation bank in the Richard P. Kane Natural Area was designed to allow transportation authorities, including New Jersey Transit, the Port Authority of New York/New Jersey, the New Jersey Department of Transportation and the New Jersey Turnpike Authority, to buy credits to offset wetlands disruption by prospective development in the Meadowlands region.

Effective January 22, 2009, MCT's Board of Directors entered into a ground lease with Earthmark to construct the project, at Earthmark's sole cost and expense, on a portion of MCT's land. As required by the ground lease and request for proposal, Earthmark, MCT, and the various federal and state agencies comprising [440 N.J.Super. 334] the Meadowlands Interagency Mitigation Council, entered into the Richard P. Kane Natural Area Mitigation Bank -- Mitigation Bank Instrument (the project). Earthmark contracted with Geo-Con to be the project's primary contractor (construction contract).

The project was financed through a loan from EFG. Earthmark executed a $12 million " Secured Revolving Loan and Security Agreement" (the pledge agreement) on July 13, 2010. To secure repayment of the construction financing, Earthmark executed a " Pledge and Security Agreement" (the loan documents), granting EFG collateral security, which included 100% ownership and membership interests in Earthmark, including its leasehold and proceeds from the sale of mitigation credits generated by the project.

Geo-Con and EFG also entered into a Contractor Consent Agreement (CCA), which collaterally assigned the construction contract between Geo-Con and Earthmark to EFG. The agreement required Geo-Con to provide notice and a cure period to EFG, in the event Earthmark defaulted under the construction contract. Additionally, the CCA precluded amendment or modification of the initial Earthmark-Geo-Con construction contract, without EFG's prior written consent.

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Geo-Con commenced construction on the project in April 2010. Once EFG's financing was in place, monthly loan draw requests were submitted by Geo-Con, which certified the work covered had been completed as required by the project documents. EFG asserts problems in implementing the initial construction plan arose, creating a need for additional excavating and grading work, which caused timetable setbacks and significant cost overruns. The nature and treatment of these issues were delineated in a September 7, 2010 agreement between Earthmark and Geo-Con, amending the initial construction contract and adding more than $2 million of expense to complete the additional work. The amendment to the construction contract was not presented to or approved by EFG.

[440 N.J.Super. 335] Further, EFG alleged Geo-Con and Earthmark designed a separate payment schedule for this additional work, which was sought by, and disguised in, Geo-Con's draw requests to EFG. When EFG learned of the separate agreement to address cost overruns, it declared Earthmark in default in a December 8, 2010 letter.

By January 2011, Geo-Con ceased work on the project because it was not being paid. Geo-Con notified EFG of Earthmark's failure to remit payment of its October and November invoices, and separately sent notice of its intent to stop work, unless EFG cured the default. EFG challenged the work stoppage, advising Geo-Con it was willing to remit cure payments upon receipt of certain documents required under the CCA. Specifically, EFG identified Geo-Con's need to submit engineering approval, and offered to meet to discuss the matter. Geo-Con provided the engineer's certification approving the October and November invoices. Also, Geo-Con rejected EFG's position regarding the work stoppage, as well as its refusal to pay for the additional work, and accused EFG of bad faith. When EFG did not remit cure payments, Geo-Con recorded two construction liens in the Bergen County Clerk's Office against Earthmark's leasehold interest in the project, on March 28, 2011.

EFG and Earthmark initiated this action by filing a verified complaint and an order to show cause, principally seeking to discharge Geo-Con's construction liens. Further, EFG sought damages for Geo-Con's wrongful filing of the construction liens, which it argued violated the Construction Lien Law (CLL), N.J.S.A. 2A:44A-1 to -38, because the liens attempted to attach a public works project in violation of N.J.S.A. 2A:44A-15(a). The complaint also alleged breach of contract, asserting Geo-Con included sums in its liens pursuant to the concealed overrun modification agreement, which were neither approved nor due.

Geo-Con counterclaimed, alleging Earthmark and EFG breached their respective contractual obligations. Geo-Con sought quantum meruit payment from EFG, payment on an open book account [440 N.J.Super. 336] against Earthmark, an equitable lien against the assets of Earthmark and EFG, and permission to foreclose the construction liens.

On September 20, 2011, Judge Robert P. Contillo denied EFG and Earthmark's request to discharge the construction liens, finding the cited exception to the CLL inapplicable. Although the project was in the nature of a public works project as it would improve public property, the judge concluded the improvements were not " contracted for and awarded by a public entity," necessary elements for application of the exception. N.J.S.A. 2A:44A-5(b) (emphasis added). The judge determined the relationship from which the proposed liens arose between Geo-Con and Earthmark

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was a private one and did not involve a public entity. Therefore, the lien attached not to the public realty, but to Earthmark's private interest in the ground lease.

Partial summary judgment was later granted dismissing Geo-Con's claim for an equitable lien on mitigation credits generated from the project that were pledged by Earthmark to EFG. Subsequently, counsel for Earthmark requested to be relieved, which was granted. Earthmark did not secure substituted counsel and ceased participation in the litigation. Thereafter, Earthmark entered into a Transition Agreement giving EFG control of the project.

In June 2011, EFG assigned all its interest, including the loan and its security interest in Earthmark and the project, to Kane Mitigation, LLC (Kane). Kane was owned entirely by EFG. In February 2012, Kane became the successor bank sponsor of the project under the authorizing documents with MCT.

Without opposition, Geo-Con moved to dismiss Earthmark's complaint and requested default on its counterclaims against Earthmark. Geo-Con later moved for entry of final default judgment against Earthmark, seeking damages of $5,505,328. EFG opposed that motion and requested " a proof hearing on the validity and amount of Geo-Con's claims against Earthmark." Geo-Con challenged EFG's standing to oppose its motion, to which EFG advanced it held a financial stake in the outcome and a [440 ...

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