A recent unpublished decision from the Appellate Division exhibits why caution should be used when incorporating prime contracts into subcontracts “by reference”.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In a recent unpublished case from the Appellate Division, the court upheld a trial judge's piercing of the corporate veil, and held the individual defendants personally liable to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.)
The Appellate Division has upheld an arbitration award of $552,202 in favor of a general contractor who was not paid in full after completing a five-million dollar contract to construct a medical facility in Paterson. After the contractor's success at arbitration, the owner petitioned the Superior Court to vacate the arbitration award, while the contractor cross-moved to confirm the award. At the trial level, the trial court judge read the award and stated, "quite frankly, I can't follow it," and found that the arbitrator did not give a well-reasoned decision. Therefore the trial court vacated the award and ordered re-arbitration, prompting the contractor's appeal. On appeal, the three-judge panel cited N.J.S.A. 2A:23B-22 for the proposition that an arbitration award can only be vacated in six specific situations, and found that none of the six were present in this matter. Consequently, whether or not the court thought the arbitrator's decision was well-reasoned, it was not fraudulent, corrupt, or in line with any of the other grounds for vacating an arbitration award, and the $552,202 award in favor of the contractor was updheld. (Paterson Medical Plaza LLC v. Litana Development, Inc.)
In a split bench (4-3), the NJ Supreme Court has established that an aggrieved property owner need to show a diminution of property value prior to being entitled to restoration damages when a neighbor illicitly cuts down generic foliage (trees, shrubs or bamboo) on another's property. This game changer of a case flies in the face of property rights.
At issue in this case was a lot of bamboo. As one may know, bamboo is not easily contained once planted. It easily spreads and does not adhere to drawn property lines. In this case, Neighbor planted bamboo years ago which ultimately spread across his property and onto that of Next-door Neighbor's. Neighbor did not claim this bamboo held a "peculiar value" to him but rather referred to this bamboo as a "fence" used for privacy. One day Next-door Neighbor's landscapers came and removed all the bamboo from both properties. Neighbor sued seeking damages to replace the torn down bamboo.
The Supreme Court held that although a trespass occurred and foliage was undisputedly removed, without showing the property's value had been diminished, Neighbor was out of luck in seeking restoration damages. The Majority suggests that Neighbor should have shown either the bamboo was near and dear to him or that the value of his property was reduced by the removal. This holding seems very wrong when viewed through the lens of property rights and the dissent took this position. The evidence here established Next-door Neighbor's landscapers removed all of the bamboo from Neighbor's property without permission. Damages should be the cost to replace what was removed regardless of a personal attachment and regardless if the property value was diminished. (Kornbleuth v. Westover)
In a recently-published opinion from the Appellate Division, the court found that the plain language of the County Improvement Authorities Law exempts county improvement authorities from the provisions of the Municipal Mechanics’ Lien Law which permit liens to be filed for unpaid work on public projects. Relying upon the definitions of a “public agency” in the lien law, as well as language in the statute permitting county improvement authorities and stating that they are not, “a county or municipality or agency or component of a municipality for the purposes of any other law,” the Court found that the plain language of the applicable laws exempted county improvement authorities from being subject to the lien law. Consequently, contractors and sub-contractors should be aware that there is no ability to file a lien on any projects funded by a county improvement authority. (Mastec Renewables Construction Co. Inc. v. Sunlight General Mercer Solar LLC)
The NJ Supreme Court recently affirmed an Appellate Division's decision that medical providers' claims for reimbursement, related to and arising from treatment rendered in a workers' compensation context, are not time barred by the two-year statue of limitations as found in the enabling workers compensation statute but rather remain legally viable for the full six-year period allotted for contracts per N.J.S.A. § 2A:14-1.
The genesis of the challenge was a 2012 amendment to the WC enabling statute which "granted the Division of Workers' Compensation . . . exclusive jurisdiction over claims brought by medical providers for payment of services rendered to injured employees." The employers, by and through their insurance providers, argued that the Legislature must have also truncated the statue of limitations for medical providers' claims for reimbursement, related to and arising from treatment rendered in a workers' compensation context, because of the 2012 amendment.
The Court disagreed with that argument after an examination of the Legislature's intent when it amended N.J.S.A. § 34:15-51. Since the amended statute remained silent as to altering the statute of limitations, and because for many, many years prior the SOL was a six-year period, there could be no finding that the medical providers' claims should be time barred after two-years. The Court noted the Legislature can reexamine this issue and could truncate the SOL, however it did not do so with the 2012 amendment. (The Plastic Surgery Center, PA v. Malouf Chevrolet-Cadillac, Inc. )
NJ Supreme Court Rejects Appellate Division's Attempt at Expanding a Commercial Landlord's Non-delegable Duty
In a recently decided case, the NJ Supreme Court rejected the Appellate Division's attempt at expanding a commercial landlord's non-delegable duty (a duty that cannot be assigned). Over the course of decades, our courts have created certain duties for commercial landlord's which cannot be assigned to a tenant. One such duty is that of maintaining a safe sidewalk for the general public to use. However no court has ever found that same duty exists for any private area of the leased property.
In the case at bar, the plaintiff slipped and fell on a portion of icy driveway which was separated by a fence from the sidewalk. The tenant had been assigned all the duties to maintain the property and was even declared the "de facto owner" per the lease terms. Further, the tenant testified that he was solely responsible for clearing snow and ice from the property. Regardless of the weight of evidence, the Appellate Division still found the commercial landlord had liability in not verifying that the driveway was free of the transient condition of snow and ice prior to plaintiff's fall.
However, the Supreme Court disagreed and prevented such holding from overturning years of precedent. In doing so, the Court held (1) a driveway is private property, open to invitees, and not akin to a sidewalk which is used by the general public, (2) this particular lease assigned complete control of the property to the tenant even where the landlord reserved a right to enter to make repairs or in the case of emergency, and (3) even under alternative analysis of Hopkins v. Fox & Lazo Realtors the landlord here did not have a duty to protect the plaintiff (especially since plaintiff did recover for his injuries from the tenant).
In sum, a commercial landlord has certain duties which it cannot delegate to its tenant. Maintaining a private portion of the leased premises is not one of those items - yet. (Shields v. Ramslee Motors)
Held: NJ Construction Company's Workers Compensation Benefits Must Cover the Costs of Former Employee's Medicinal Marijuana
In a case of first impression in New Jersey, the Appellate Division held that an employer can be ordered to reimburse an injured worker for the costs of purchasing medicinal marijuana in conformity with the workers' compensation act and the medical marijuana act (the "MMA"). In this case the employer argued it could not be ordered to purchase pot for a patient because that would amount to aiding and abetting a crime. However the Appellate Division disagreed and ordered the employer to buy the marijuana for the former employee.
The facts of the matter involved a former construction worker who was injured on the job and suffered some severe spinal injuries. The injuries caused great pain and over the course of a decade and a half, the injured worker had several surgeries to no avail. Eventually the worker was using opioids as the sole form of pain relief. In trying to prevent a cycle of drug abuse, the injured worker sought the assistance of a doctor that specialized in prescribing medical marijuana and received a prescription for same.
Part of the issue is that under Federal Law, marijuana is a Class 1 drug (meaning there is no inherent medicinal benefit through use) and opioids are Class 2 drugs (meaning there is a medicinal benefit with use). New Jersey's MMA creates an affirmative defense to a patient if caught in the State with marijuana. However, the Federal government does not recognize such a defense. In addition, this case turned away a pre-emption challenge (State law vs. Federal law) by the former employer. In doing so the Court weakly pointed to the mere words of this State's Legislature when that body declared that, "compliance with this act does not put the State of New Jersey in violation of federal law." (Vincent Hager v. M & K Construction )
New Jersey's Public bidding laws were enacted to protect the taxpayer by providing an even playing field for public construction projects (such as school construction), and mandating the project be awarded to the lowest responsible bidder. Taken from a recent opinion, a plaintiff submitted the lowest bid for work to be performed at a public school and the defendant submitted the third-lowest bid for the project. However, the school board decided to "review" the bids after bidding closed and subsequently disqualified plaintiff (and the second-lowest bidder) because those bid submissions included certifications from subcontractors which were used in a prior round of bidding for the same project, three weeks prior. Thus the board awarded the defendant the construction project.
Plaintiff filed suit and the trial court judge reversed the school board's decision, and anointed the plaintiff the lowest responsible bidder. The trial judge found that the three-weeks old certifications were not a material defect but were rather a minor defect which did not cause the parties to be on unequal footing when submitting their respective bids. Further, the plaintiff's bid would save the taxpayers nearly $190,000 verses the defendant. An appeal was filed by the defendant seeking to be reinstated as the lowest responsible bidder but the Appellate Division rejected the attempt and adopted the trial judge's reasoning.
This highlights two important reminders to the bidders for public contracts: pay attention to the details in your submissions, and mere technical defects should not override the public policy of saving the taxpayer money. (Thassian Mechanical Contracting, Inc. v. East Brunswick Board of Education and Hanna's Mechanical Contractors, Inc.)
In an unpublished Appellate Division opinion issued last month, an award of lost rents was affirmed in a matter where two neighbors were pitted against each other in a residential construction dispute. One property owner wanted to raze his house and build a brand new two-family house for use as a rental property. However, after neighbor #1 demolished the existing home and completed construction of the new first floor, the owner realized the the next door neighbor's fire-escape protruded onto his property. Therefore, construction of the new home was forced to stop as the second floor would hit the protruding fire escape. Both neighbors had land surveys performed which confirmed the encroachment, but the "stubborn" neighbor refused to modify or remove the fire escape - even after owner #1 offered to pay for such action. After an almost two-year delay to construction, the "stubborn" neighbor relented and repaired the fire escape to conform with the property boundaries. However, since the neighbor caused a two-year delay, the first owner filed suit seeking compensation for weather damage to the new but unfinished construction, as well as the lost rents. The trial court found the "stubborn" neighbor at fault and awarded neighbor #1 those damages, a decision that was upheld on appeal by the Appellate Division. (Rosario v. Pallazhco)
Peter J. Vazquez, Jr.