Labov Mechanical v. East Coast Power

• Decision Date: 05 May 2005
• Parties: LABOV MECHANICAL, INC., S.M. Electric Co., Inc., and Frank Lill & Son, Inc., Plaintiffs-Respondents, v. EAST COAST POWER, L.L.C., and East Coast Power Linden, GP, L.L.C., Defendants-Appellants, and AC & S, Inc. (a/k/a New States Contracting), Furino & Sons, Inc., Nepcan Engineering Ltd., Foster Wheeler Energy Corporation, Mechanical Dynamics And Analysis, L.L.C., Joseph Jingoli & Son, Inc., Simplex Grinnell, L.P. (a/ k/a Grinnell Fire Protection), ONYX Industrial Services, Inc., West Virginia Paint & Tank Company, AMQUIP Corporation, EPIC Process Control and Safeway Steel Products, Inc., Defendants.
• Court: New Jersey Superior Court

872 A.2d 142

377 N.J. Super. 240

LABOV MECHANICAL, INC., S.M. Electric Co., Inc., and Frank Lill & Son, Inc., Plaintiffs-Respondents, v. EAST COAST POWER, L.L.C., and East Coast Power Linden, GP, L.L.C., Defendants-Appellants, and AC & S, Inc. (a/k/a New States Contracting), Furino & Sons, Inc., Nepcan Engineering Ltd., Foster Wheeler Energy Corporation, Mechanical Dynamics And Analysis, L.L.C., Joseph Jingoli & Son, Inc., Simplex Grinnell, L.P. (a/

k/a Grinnell Fire Protection), ONYX Industrial Services, Inc., West Virginia Paint & Tank Company, AMQUIP Corporation, EPIC Process Control and Safeway Steel Products, Inc., Defendants.

Superior Court of New Jersey, Appellate Division.

Submitted April 20, 2005.

Decided May 5, 2005.

Lindabury, McCormick & Estabrook, attorneys for appellants (Barry J. Donohue and Bruce P. Ogden, Westfield, on the brief).

Peckar & Abramson, attorneys for respondent Labov Mechanical, Inc., Clancy, Callahan & Smith, attorneys for respondent S.M. Electric Co., Inc., and Brown & Moskowitz, attorneys for respondent Frank Lill & Son, Inc. (Charles F. Kenny, River Edge, Edward M. Callahan, Jr., Roseland, and Kenneth L. Moskowitz, Millburn, on the joint brief).

McElroy, Deutsch, Mulvaney & Carpenter, attorneys for defendant Foster Wheeler Energy Corp. (Robert S. Moskow, II, Morristown, on the brief).

Steven A. Berkowitz & Associates, attorneys for amicus curiae The South Jersey Mechanical Contractors Association (Steven A. Berkowitz, Marlton, on the brief).

Before Judges CONLEY, BRAITHWAITE and WINKELSTEIN.

The opinion of the court is delivered by

CONLEY, P.J.A.D.

This is a Construction Lien Law (CLL), N.J.S.A. 2A:44A-1 to -38, appeal. Respondents are subcontractors on a $96 million energy operation project.¹ Appellant East Coast Power (ECP) is the owner of the project. Its general contractor, NEPCO, whose parent corporation was ENRON, ran into cash flow difficulties towards the end of the project and did not meet its contractual completion date.² ECP negotiated an amendment to the contract that, among other things, extended the final completion date and modified a liquidated damages clause to establish an agreed fixed liquidated damages amount. Critically, however, the amendment included, as to moneys then due to subcontractors from NEPCO and as to the assessment of the agreed upon liquidated damages against NEPCO, the following:

Owner shall not assert any claims arising in connection with or as may be required to discharge mechanic's and materialmen's liens arising in connection with certain amounts due and owing as of the date hereof to Subcontractors for work performed prior to December 1, 2001 and otherwise shall not assert any claims arising under this Agreement against Contractor before the earlier of (i) April 30, 2002 and (ii) the date upon which Contractor shall commence a voluntary proceeding ... seeking liquidation, reorganization or other relief with respect to Contractor or its debts....

On November 29, 2001, respondent Labov Mechanical, Inc. (Labov) filed a construction lien claim against ECP in the amount of $6,663,917 for work, services, material and equipment provided by it to NEPCO pursuant to its subcontract with NEPCO. Similar liens were filed on December 6, 2001, and amended on February 28, 2002, by respondent S.M. Electric Co., Inc. (S.M.) in the amount of $2,828,081.67 and on February 13, 2002, by respondent Frank Lill & Son, Inc. (Frank Lill) for $2,231,151.16. When Labov filed its lien claim, approximately $11,000,000 remained unpaid on the Prime Contract. That amount did not change until February 2002 when, after the filing of respondent's lien claims, ECP advised respondents that only $8,185,755 was available for a lien fund. It claimed that under the December 1, 2001, amendment to the contract with NEPCO it was entitled to $2,196,000 in liquidated damages from NEPCO which it could off-set from the contract price. Respondents filed an action against ECP seeking a pro rata distribution of the full amount remaining due to NEPCO under the prime contract, i.e., $11,000,000. Following partial settlement as to $8,185,755 that ECP agreed was distributable to the lien holders, and after completion of discovery, motions for summary judgments were filed by respondents as to the remaining $2,196,000. The motion judge granted summary judgment to respondents, rejecting ECP's efforts to reduce the lien fund by the amount of the contractual liquidated damages against NEPCO. We affirm that judgment for the reasons set forth by Judge Miriam Span in her well-reasoned, legally supported, September 15, 2003, written decision. We add the following.

"The CLL is a lien statute which, consistent with the general protections afforded by such statutes, is remedial and `designed to guarantee effective security to those who furnish labor or materials used to enhance the value of the property of others.'" Triple "R" Enters., Inc. v. Pezotti, 344 N.J.Super. 31, 37, 779 A.2d 1110 (App.Div.2001) (quoting Thomas Group, Inc. v. Wharton Senior Citizen Hous., Inc., 163 N.J. 507, 517, 750 A.2d 743 (2000)). The CLL is to be read "sensibly" in accord with the policies sought to be served by it. Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56, 68, 843 A.2d 1076 (2004). Those policies are, firstly, to help secure payment to those who provide work, services, material or equipment pursuant to a written contract, and, secondly, to protect the rights of property owners who have met their financial obligations under the contract so that they do not become responsible for double payment for work and materials. Ibid.

To effectuate these policies, the CLL directs, in part:

Any contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price, subject to the provisions of sections 9 and 10 of this act.

[N.J.S.A. 2A:44A-3.]

A "lien claim shall attach to the interest of the owner from and after the time of filing of the lien claim." N.J.S.A. 2C:44A-10. While the filing of a lien by one subcontractor does not establish a lien fund for a subsequent lien holder, Triple "R" Enters., Inc. v. Pezotti, supra, 344 N.J.Super. at 36-37, 779 A.2d 1110, it is undisputed that all respondents here filed their liens prior to ECP's efforts to effectuate the reduction of the lien fund by way of an offset of its contractual liquidated against NEPCO.³

At issue here, is the CLL's secondary policy to protect owners who have performed their financial obligations under a construction contract. In this respect, the CLL provides that "[t]he amount of a lien claim shall be limited to the contract price, or any unpaid portion thereof, whichever is less, of the claimant's contract for the work, services, material or equipment provided." N.J.S.A. 2A:44A-9 (emphasis added). "Contract price" is defined in the CLL as "the amount specified in a contract for the provision of work, services, material or equipment." N.J.S.A. 2A:44A-2. But that amount:

shall not be greater than ... a. In the case of a lien claim filed by a contractor, the total amount of the contract price of the contract between the owner and the contractor less the amount of payments made, if any, prior to receipt of a copy of the lien claim pursuant to section 7 of this act ...; or b. In the case of a lien claim filed by a subcontractor or supplier, the amount provided in subsection a. of this section, or the contract price of the contract between the contractor or subcontractor and the subcontractor or supplier, as applicable, pursuant to which the work, services, materials or equipment is provided by the subcontractor or supplier, less the amount of payments made, if any, prior to receipt of a copy of the lien claim pursuant to section 7[⁴] of this act...."

[N.J.S.A. 2C:44A-10 (emphasis added).]

ECP contends that the unpaid contract price of $11,000,000 as of the filing of the liens must be reduced by the liquidated damages it was entitled to from NEPCO. In this respect, it asserts that, as of the original completion date, October 26, 2001, which NEPCO had not complied with, it could have offset the daily delay damages of $36,000 against the contract price. It did not then do so. But, as of December 1, 2001, with NEPCO's agreement to the new liquidated damages provision, ECP asserts that the contract price was automatically reduced by the agreed to amount, i.e., $2,196,000.

Contrariwise, respondents argue that the lien fund was established upon filing of their lien claims, all prior to ECP's notification of its intent to reduce the contract price by assessment of the liquidated damages. They also point out that Section 17 of the December 1, 2001, amendment provided a new "Guaranteed Completion Date" of April 30, 2002, and prevented ECP from "assert[ing] any claims arising under this Agreement against Contractor before the earlier of (i) April 30, 2002 and (ii) the date upon which Contractor shall commence a voluntary proceeding ... seeking liquidation, reorganization or other relief with respect to Contractor or its debts...."

While declining to find April 30, 2002, the new "Guaranteed Completion Date," Judge Span nonetheless held that "an Owner cannot reduce the Lien Fund by contractual liquidated damages against the prime contractor after the Fund has been established, to the detriment of subcontractors who were not parties to the Prime Contract." This result is entirely consistent with our decisions in Legge Indus. v. Joseph Kushner Hebrew Academy, 333 N.J.Super. 537, 756 A.2d 608 (App.Div.2000) (Legge), and AEG Holdings, L.L.C. v. Tri-Gem's Builders, Inc., 347 N.J.Super. 511, 790 A.2d 954 (App.Div.2002).

In Legge, a contractor defaulted in payment to its suppliers, who then brought action against the owner to enforce their...