E. Concrete Materials, Inc. v. Liberty Mut. Ins. Co.

• Decision Date: 24 April 2020
• Docket Number: DOCKET NO. A-3492-18T1
• Parties: EASTERN CONCRETE MATERIALS, INC., Plaintiff-Respondent, v. LIBERTY MUTUAL INSURANCE COMPANY, AS SURETY OF KRE HAMILTON URBAN RENEWAL LLC, and INDUSTRIAL URBAN CORPORATION, Defendants, and ENGINEERED DEVICES CORPORATION, Defendant/Third-Party Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY AS SURETY OF CLAREMONT CONSTRUCTION GROUP, and CLAREMONT CONSTRUCTION GROUP, INC., Third-Party Defendants-Appellants.
• Court: New Jersey Superior Court — Appellate Division

EASTERN CONCRETE MATERIALS, INC., Plaintiff-Respondent, v. LIBERTY MUTUAL INSURANCE COMPANY,

AS SURETY OF KRE HAMILTON URBAN RENEWAL LLC,and INDUSTRIAL URBAN CORPORATION, Defendants,andENGINEERED DEVICES CORPORATION, Defendant/Third-Party Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY

AS SURETY OF CLAREMONT CONSTRUCTION GROUP,

and CLAREMONT CONSTRUCTION GROUP, INC., Third-Party Defendants-Appellants.

DOCKET NO. A-3492-18T1

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

Argued March 2, 2020

April 24, 2020

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Before Judges Sumners, Geiger and Natali.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3241-17.

John H. Klock argued the cause for appellants (Gibbons PC, attorneys; John H. Klock, of counsel and on the briefs).

Craig W. Miller argued the cause for respondent.

PER CURIAM

In this construction lien case, third-party defendants Liberty Mutual as surety for Claremont Construction Group and Claremont Construction Group, Inc. (collectively Claremont) appeal from a March 20, 2019 judgment entered following a jury verdict in favor of plaintiff Eastern Concrete Materials, Inc. (Eastern). We affirm in part and reverse and remand in part.

We first identify the parties involved in this project to construct two residential seventeen-story interconnected towers (the Marin Project) on property owned by defendant KRE Hamilton Urban Renewal LLC (KRE) in Jersey City. KRE hired Claremont as the general contractor for the MarinProject. Claremont subcontracted with defendant Industrial Urban Corporation (IUC) to provide all cast-in place concrete work for the Marin Project. IUC, in turn, engaged Eastern to supply the ready-mix concrete and third-party plaintiff Engineered Devices Corporation (EDC) to supply material and equipment.

Prior to entering into the agreement with Claremont, IUC executed a promissory note in the amount of $2,645,736.71 in favor of Eastern. The Claremont-IUC contract was in the amount of $11,050,000. Under the terms of the agreement, IUC was required to "pay for material, equipment and labor used in connection with the performance of th[e] [s]ubcontract through the period covered by previous payments received from [Claremont]."

As the work progressed, IUC submitted formal requests for payment to Claremont. By January 2017, IUC had submitted twelve applications for payment that totaled $11,175,337, including approved change orders, with $11,007,667 worth of work reported as completed. In each application, IUC certified that all work (materials and labor) had been paid through the previous applications. Claremont paid IUC $10,445,167, retaining five percent ($552,500) in accordance with the subcontract. The purpose of the retainage was to "cover costs of items to be completed or corrected by the[s]ubcontractor." No further payment applications were made by IUC to Claremont.

On March 3, 2017, Claremont received an email from Eastern claiming it was owed $791,188.32 for concrete delivered to the Marin Project. Claremont alleged this was the first notice it received that Eastern had not been paid for the past eight or nine months. Thereafter, the parties adopted a joint payment procedure. Claremont also claimed IUC had not completed its work. There were no further joint checks issued after a May 2017 meeting.

In May 2017, EDC filed a construction lien for $89,305.08 against KRE. On June 22, 2017, Eastern filed a construction lien for $784,466.40 against KRE. Liberty Mutual Insurance Company filed lien bonds as surety for Claremont. As a result, the Marin Project property was released from the liens and KRE was removed.¹

In August 2017, Eastern filed this action against KRE and IUC, seeking to enforce its construction liens. That same month, Eastern filed an amended complaint that added EDC as a lienor party. EDC subsequently joined Claremont as a third-party defendant.

The jury trial commenced on February 26, 2019. Before jury selection began, EDC and Claremont settled their matter for $50,000 on its construction lien claim of $89,305.08. Additionally, IUC announced it would not participate in the trial and assigned its affirmative claims to Eastern without objection by Claremont.

Claremont's defense theory was that IUC improperly diverted funds from the Claremont-IUC contract to pay off the promissory note owed to Eastern.

At the close of the evidence, Claremont moved for judgment under Rule 4:40-1. The trial judge denied the motion, noting the lack of evidence that the Claremont payments, deposited into IUC's operating account, "was the only money available to pay their other obligations." Thus, the court found no evidence that IUC did not use its own funds to pay the IUC-Eastern note. Based on the testimony, the judge characterized Claremont's assertion as mere "belief and suspicion." The judge permitted Claremont to

argue to the extent there's sufficient evidence in the record that while Claremont was paying [IUC], [[IUC], for whatever reason, wasn't paying Eastern, but beyond that speculating on what they were . . . doing with the money that they got from Claremont, . . . I don't think there's enough evidence in the case . . . to permit you to ask the jury to infer that they were diverting the funds.

The judge concluded the evidence did not support Claremont's contention that Eastern "failed to do their due diligence on the payments that they did get."

The jury returned a verdict against Claremont for the unpaid $781,611.40 worth of concrete Eastern supplied for the Marin Project. The jury found the amount due to IUC on the subcontract, was $708,279, "consisting of the $552,500 retainage plus $155,279 for completed and unpaid approved work and purchased materials."

On March 20, 2019, the trial judge entered a judgment for $658,277.84 (the lien fund amount less the $50,000 settlement reached between Claremont and EDC). On March 29, 2019, the judge entered a default judgment against IUC, awarding Claremont $236,211 for work IUC failed to complete. This appeal followed.

Claremont raises the following points for our consideration:

I. IDENTIFICATION OF THE SOURCE OF FUNDS IS REQUIRED BY CRAFT² AND UNDERLIES THE RATIONALE FOR THE LIEN ACT.

A. THE COURT ERRED IN NOT ADMITTING THE REQUEST FOR ADMISSIONS OF IUC.

B. CRAFT REQUIRES THE SUPPLIER OR VENDOR TO ASCERTAIN THE SOURCE OF

FUNDS, BUT THE COURT ERRONEOUSLY PLACED THE BURDEN ON CLAREMONT.

C. THE COURT ERRONEOUSLY DIRECTED CLAREMONT NOT TO ARGUE COLLUSION IN CLOSING.

II. THE LIEN ACT CALLS FOR [THE] COURT TO DETERMINE THE LIEN FUND AND FURTHER WHERE THE LIEN FUND ARISES FROM A CONTRACT TO INTERPRET THE CONTRACT.

III. COURT ERRED IN ALLOWING [EASTERN] TO ATTEMPT TO PROVE ALLEGED CLAIMS THAT IUC DEFAULTED ON.

IV. CLAREMONT IS ENTITLED TO PARTICIPATE IN THE LIEN FUND.

V. THE COURT ERRED IN MAKING THE JUDGMENT PRO TANTO INSTEAD OF PRO RATA.

"A jury verdict is entitled to considerable deference and 'should not be overthrown except upon the basis of a carefully reasoned and factually supported (and articulated) determination, after canvassing the record and weighing the evidence, that the continued viability of the judgment would constitute a manifest denial of justice.'" Risko v. Thompson Muller Auto. Grp., Inc., 206 N.J. 506, 521 (2011) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 597-98 (1977)).

The primary purpose of the Construction Lien Law, N.J.S.A. 2A:44A-1 to -38, is to secure payment to subcontractors and others "who provide work, services, material, or equipment, pursuant to a written contract." NRG REMA LLC v. Creative Envtl. Sols. Corp., 454 N.J. Super. 578, 587 (App. Div.) (quoting Craft, 179 N.J. at 68), certifs. denied, 234 N.J. 577 and 235 N.J. 111 (2018). The "secondary purpose is to 'protect owners' against paying more than once for the same work or materials." L & W Supply Corp. v. DeSilva, 429 N.J. Super. 179, 183 (App. Div. 2012) (quoting Labov Mech., Inc. v. E. Coast Power, L.L.C., 377 N.J. Super. 240, 245 (App. Div. 2005)).

Under the Construction Lien Law, a lien fund exists if a property owner has paid the general contractor less than the value of the work completed. N.J.S.A. 2A:44A-9(a). A lien fund is limited to "the earned amount of the contract between the owner and the contractor minus any payments made prior to service of a copy of the lien claim." N.J.S.A. 2A:44A-9(b)(1). "[N]o lien fund exists, if, at the time of service of a copy of the lien claim, the owner . . . has fully paid the contractor for the work performed . . . ." N.J.S.A. 2A:44A-9(d); see also Craft, 179 N.J. at 80 ("Because the lien fund can only be based on what is actually owed, when nothing is owed there can be no fund.") A property owner "should never be subject to liens in an amount greater than the amountunpaid by the owner to its prime contractor at the time the lien claim is filed." Labov, 377 N.J. Super. at 240.

DENIAL OF ADMISSION OF REQUESTS FOR ADMISSION

Claremont moved to admit into evidence the request for admissions served on IUC. In those requests, IUC admitted that it "never identified to [Eastern] the source of the funds used for any payment to [Eastern] during the period from" May 2016 to June 2017 and that "[Eastern] never requested IUC to identify the source of funds in any payment by IUC to [Eastern]" during that period. Claremont sought to introduce the requests for admission in support of its defense theory that IUC improperly diverted funds from the Claremont-IUC subcontract to pay off the promissory note entered into between IUC and Eastern for work unrelated to the Marin Project, and that Eastern turned a blind-eye. The court excluded the requests for admission from evidence because it was not referenced by any witness during...