Where an owner of a property sues a contractor in a construction litigation case, the burden of proof is upon the owner to both prove that the work was defective and what it will cost to have the defective work repaired. In an unpublished decision from February 2021, the Appellate Division noted that even without testimony from the contractor who prepared the repair estimate, the repair estimate may still be admissible as a business record exception to the rule against hearsay. The court noted that the repair estimate, "may have been admissible as a business record if: (a) the author prepared the document in the regular course of business, contemporaneously with its estimate, and not for litigation, (b) the business regularly made such estimates, and (c) the method, purpose or circumstances of preparation did not indicate that it was not trustworthy. Accordingly, while the better evidence would still be to bring in the contractor for live testimony, the court found that the trial court (among other things) should have at least considered if the estimate was admissible as a business record and therefore the case was reversed and remanded. (Olivera v. NJ Asphalt Services)
In an unpublished decision released today, the Appellate Division gave litigants two reminders for those engaged in construction litigation over unpaid services. The first reminder is directed to a defendant that assert a "setoff" amount is due and owing from the plaintiff. In that regard, the Court reminds that a setoff is an affirmative defense and that the defendant "bears the burden of proving it." In the case at bar, although the defendant sought a setoff amount from the plaintiff, it failed to produce evidence showing that such an amount was actually due. Here, for example, the defendant's trial witness claimed, during testimony, to not have the correct ledger with her while on the stand and thus could not competently testify to the large setoff amount sought.
The second reminder to litigants touches on the Prompt Payment Act ("PPA") which is found at N.J.S.A. § 2A:30A-2. The first subsection of that statute is applicable only with the owner, while the second subsection is applicable only with a subcontractor. In the former subsection "(a)" if an owner does not reject an invoice/work by a contractor it is "deemed approved." In subsection "(b)" if a contractor does not reject an invoice/work by a subcontractor it is NOT "deemed approved." This distinction is important when seeking payment for construction services because if an invoice and/or work performed is "approved" or "accepted" the lone argument between the parties will be financial in nature. (A&E Construction Co. v. Barrier Electric Co., Inc, et als.)
In a reported opinion from the Appellate Division, the Court overturned a trial court verdict in the amount of $457,870.86 (inclusive of counsel fees), finding that there was no violation of the Uniform Fraudulent Transfer Act (“UFTA”). The suit was brought by a landlord who had been leasing 16,000 square feet of a strip mall to a Amma Corp. for the operation of a supermarket. Prior to the end of the lease, the owners of Amma Corp., Mr. and Mrs. Perez, created a new company named NRVP LLC and opened another supermarket under that company’s name in a different location less than a half-mile away. The Perezes operated both supermarkets simultaneously for approximately nine months, but proceeded to have Amma break its lease with its landlord about nineteen months early. After breaking the lease, the Perezes shut down Amma Corp.
Unable to find a replacement tenant for Amma Corp., the landlord sued NRVP LLC for the balance due under the remainder of Amma’s lease on a successor liability theory. The trial court testimony indicated that other than a trademark, no assets of Amma were transferred to NRVP. However, given the common ownership, the close proximity in location, and the transfer of Amma’s trademark of the term “Super Supermarket” to the new company, the trial court found that NRVP was liable for the debts of Amma as a “continuation of the selling corporation,” and entered judgment in favor of the landlord.
However, the Appellate Division disagreed and reversed the trail court’s decision, finding that transfer of all, or substantially all, of the assets of the prior company is a prerequisite to the imposition of liability upon another company. Here, while there was the transfer of a trademark, the expert testimony was that is value was only $740 and there were no other assets transferred. Accordingly, there could be no successor liability. 160 West Broadway Associates LP v. 1 Memorial Drive LLC, et. al
An "underage" adult, over the age of 18 but under the age of 21, who hosts other underage individuals and permits them to consume alcohol before driving drunk, can be held liable under the common law for foreseeable injuries to others.
This case involved a twenty year old host who permitted two other underage individuals, who had illicitly acquired alcohol from a local convenience store, to consume said alcohol at his parents' house where they became drunk and subsequently drove a motor vehicle. The two drunk individuals were involved in a motor vehicle accident resulting in the death of one of them. The decedent's estate sued the underage host seeking to hold him liable for a foreseeable personal injury.
The NJ Supreme Court created a new rule relying heavily on past precedent including case and statutory law. This new rule is as follows:
"A plaintiff injured by an intoxicated underage social guest may succeed in a cause of action against an underage social host if the plaintiff can prove by a preponderance of the evidence the following: (1) The social host knowingly permitted and facilitated the consumption of alcoholic beverages to underage guests in a residence under his control. This element does not require that the social host be a leaseholder or titleholder to the property. It is enough that the social host has the ability and apparent authority to give others access to the property; (2) The social host knowingly provided alcohol to a visibly intoxicated underage guest or knowingly permitted the visibly intoxicated underage guest to serve himself or be served by others. It is no defense that the underage guests bought and brought the alcoholic beverages that they or others consumed; (3) The social host knew or reasonably should have known that the visibly intoxicated social guest would leave the premises and operate a motor vehicle and therefore would foreseeably endanger the lives and property of others; (4) The social host did not take any reasonable steps to prevent the intoxicated guest from getting behind the wheel of the vehicle; and (5) The social guest, as a result of intoxication facilitated by the social host, negligently operated a vehicle and proximately caused injury to a third party."
In summary, if you are an adult and allow people to gather in a place which is "under your control", where knowing consumption of alcohol occurs, and someone over-consumes the alcohol to the point of obvious intoxication, then drives away, and you do not try to stop them, you can be held civilly liable to an injured plaintiff. (Estate of Brandon Tyler Narleski v. Nicholas Gomes)
In a lengthy unpublished decision from the Law Division, a beneficiary of the state funded health insurance plan (NJ Direct Plan) was denied the ability to sustain a legal action filed in the Superior Court. At issue was a benefit determination by the insurer, by no fault of the insured, which resulted in double payment being made to an out of network healthcare provider. Subsequent to the health insurer making double payment for one date of service, the insurer began reducing further payments to this beneficiary and her other healthcare providers. This left the insured to settle each account out-of-pocket.
The error which this insured made was that she did not try to file an internal appeal with the health insurer, and did not follow the steps required by the insurance Plan or the statutory constructs which enables a state funded health insurance plan. Following an adverse benefit determination by a state funded health insurer, the aggrieved insured must file an internal appeal/s, proceed to the State Benefits Healthcare Commission and then the Appellate Division which has original jurisdiction in such matters.
Although in the instant case the insured tried to circumvent the statutory law and the insurer's Plan by asserting a tort occurred, this Court saw through the ruse and held the legal issue here was an adverse benefit determination. The case was dismissed with prejudice and it remains to be seen if the insured can still timely file an appeal and begin the process as outlined in the insurer's Plan. (Tomaszewski v. Horizon Healthcare Services, Inc.)
The Appellate Division, in an unpublished opinion, reviewed a challenge by a company seeking to enjoin an ex-contractor from soliciting business from a specific third-party client. The contractor ceased working with the company in 2016 and was precluded by contract from soliciting business from former clients. In 2017, the parties were ensconced in a legal suit seeking to prevent competition. At that time the parties came to an enforceable agreement regarding the ex-contractor's ability to solicit former clients and created a list of untouchable clients. To note, there was no language concerning any clients "successors and/or assigns."
Between 2016 and 2018 one third-party client merged with another unrelated entity. This entity reorganized its internal governance, the IRS issued it a new tax identification number, though the business office address remained the same, and, important to the facts of this case, new account numbers were issued to this new entity for its electric service. In addition, this merged entity was not named as a former client in the settlement agreement.
The trial court held that the parties' prior settlement agreement did not include this new entity and that the ex-contractor could contact and solicit business from it. The Appellate Division agreed and upheld the trial court's decision relying on the facts that the merged entity reorganized its internal governance, was issued a new tax id from the IRS, was assigned new account numbers for electric service, and the parties' settlement agreement did not specifically include former clients and their "successors and/or assigns." A court must not rewrite an agreement to create more favorable terms for one party. Capital Energy Inc. v. MT
New Jersey's Multifamily Housing Preservation and Receivership Act, N.J.S.A. § 2A:42-114-142 (the "Act"), was created to give municipalities tools to address and protect tenants living in multi-family housing from deadbeat landlords. The statute permits a court to appoint a receiver when a building is, "in violation of any State or municipal code to such an extent as to endanger the health and safety of the tenants . . . and the violation or violations have persisted, unabated, for at least [ninety] days preceding the date of the filing of the complaint[,]" or "[t]he building is the site of a clear and convincing pattern of recurring code violations, . . .." N.J.S.A. § 2A:42-117(a), (b).
In a recent unpublished decision, the Appellate Division upheld Union City's ability to have a receiver appointed for a building that was literally falling onto the tenants and causing injuries which required hospitalization. This building had many violations over the course of years, up to and including illegal apartments. The record showed that despite both the tenants and the city providing notice of the conditions to the landlord, such violations were not cured and negatively affected the safety of the building and its tenants. Accordingly, the city properly and successfully used the process set forth in the statute to have a receiver being appointed. In addition, fees and costs were assessed against the landlord. (City of Union City v. Zaky Tadros)
In an unpublished decision issued earlier this week, the Appellate Division reaffirmed that mere puffery regarding a contractor does not amount to an actionable statement under New Jersey Consumer Fraud Act. (“CFA”) The judgment had been entered against Jeff Sands (“Sands”), who met with the Plaintiffs as a result of them contacting Stanley’s Home Improvement LLC (“Stanley’s”). Sands took notes during the meeting, gave his sales pitch about the great work that Stanley’s did and the company’s terrific reputation, but indicated that someone else would be in touch with the Plaintiffs in order to give them a cost estimate.
After the Plaintiffs decided to hire Stanley’s, Fed Zappolo (“Zappolo”) met with Plaintiffs and provided them a cost estimate of $28,000. Although Zappolo introduced himself as Stanley’s foreman, the agreement given to the Plaintiffs to sign was with Zappolo’s company named Fred Allen Builders, not Stanley’s. When Fred Allen Builders failed to complete the work, the Plaintiffs contacted Sands who advised that he was no longer with Stanley’s and that they had gone out of business. Eventually, the Plaintiffs were forced to hire another contractor at a cost of $39,600 to complete the unfinished work and correct the deficient work.
The trial court entered a judgment against all of the defendants, including Sands individually, for over $200,000. Sands was the only party to appeal, and the court agreed that there was no basis to find that Sands violated the Consumer Fraud Act. The court noted that being an officer of a business entity, without more, does not amount to liability under the CFA. Instead there must be an affirmative act, knowing omission or administrative violation personally committed by an individual. Here, the court determined that Sands’ statements in his sales pitch that Stanley’s stood by their work, had a terrific reputation, etc. were mere puffery and did not provide a basis for liability under the CFA. Consequently, the over $200,000 judgment was vacated as to Mr. Sands. (Pellegrino v. Fred Allen Builders, et. al.)
A recent unpublished decision from the Appellate Division exhibits why caution should be used when incorporating prime contracts into subcontracts “by reference”. In this matter, a General Contractor ("GC") had an agreement with an Owner to construct two grocery stores. The prime contract between GC and Owner contained a forum selection which directed any disputes to be filed in courts in upstate New York. The GC subcontracted the electrical work to a Subcontractor (“SC"), but the subcontract had no such forum selection clause. Instead, there was language directing mediation for disputes in the same upstate New York locale, and further language that all disputes were to be, "settled according to the dispute resolution procedures in the Prime Contract."
As is unfortunately too common in the construction realm, SC completed work but was not paid. Prompting SC to file construction lien claims against the GC and Owner along with a lawsuits in the New Jersey counties where each property was located seeking damages under the Prompt Payment Act ("PPA") and enforcement of the construction liens. The Owner objected to jurisdiction in New Jersey based on the prime contract's language and incorporation into the subcontract. At the trial level, each judge held that the selected New Jersey venues were proper and rooted their decisions on the PPA's language whereby it states, such an "action shall be conducted inside of this State."
On appeal, the Appellate Court would not endorse a complete preclusion from contracting away venue selection. Instead, the appellate panel conducted an in-depth review of the language of both contracts, and noted that there was a great deal of ambiguity and confusion as to the terms of each. The court noted that the subcontract included a venue provision only for mediation and was silent as to the terms of any other form of dispute resolution if mediation was unsuccessful. While there was reference to the prime contract, the court found that the prime contract contained very little instruction for a how to resolve subcontractor disputes, and specifically focused on the resolution of disputes between the Owner and GC. To apply those terms to a subcontractor was nonsensical in the courts mind, and therefore the Appellate Division found there to be no forum selection clause in the subcontract as to litigation and permitted the two lawsuits to proceed. (Sal Electric Company, Inc. v. The Pike Co., Inc, et. al.)
In a recent unpublished case from the Appellate Division, the court upheld a trial judge's piercing of the corporate veil, and held the individual defendants personally liable to repay monies loaned to their company. Despite the funds having been paid to a corporation, the court noted that there were no stock certificates, no financial reports, no tax documents filed with the state or the IRS, and cash withdrawals that were allegedly for business purchases but for which the defendants produced no documentation. The trial judge stated that the defendants used the plaintiffs' money for whatever expenses they had without any accounting whatsoever and ruled that the corporation was just a "mere facade" for the defendants' "personal gain". The Appellate Division agreed, and held the individual defendants liable to repay the Plaintiffs. This case enforces the importance of following the proper corporate formalities when operating any business entity in order to preserve the shield against personal liability. (Longmuir v. Kickin' It, Inc., et. al.)
Peter J. Vazquez, Jr.