Construction law info blog

Is a homeowner who retains and manages contractors for his own home improvement project able to enforce his rights under the New Jersey Consumer Fraud Act (CFA) and New Jersey Contractor’s Registration Act?

In a recent case, the Appellate Division of Superior Court of New Jersey determined that even though a homeowner may have acted as a “contractor” for his own project by retaining and managing all the other contractors, nevertheless, he still had the protections of a “homeowner” under the Consumer Fraud Act (“CFA”) and Contractor’s Registration Act (“CRA”).   Murnane v. Finch Landscaping, LLC, 420 N.J. Super. 331. Murnane, a homeowner, contracted with Finch Landscaping, LLC to construct a bluestone patio in the backyard of his home. He also contracted with other building contractors and a patio designer to undertake other parts of the project. He did not engage the services of a general contractor and at one point also referred himself as the “general contractor” for this construction project.

The parties entered into a written contract that also specified the thickness of the bluestone. As the work progressed, various changes were made to the construction specifications but these changes were not reflected in writing. Although, Murnane paid the full contract price of $26,300, Finch Landscaping, LLC sent Murnane invoices for additional costs it incurred due to the various changes made during the construction. Murnane refused to pay the additional charges and brought an action for breach of contract and a violation of the CFA in the Superior Court of New Jersey, Special Civil Part. Finch Landscaping, LLC counterclaimed for the amount incurred for the additional work it performed.

The trial court held that since Murnane held himself out as the “general contractor” for his patio construction project, he was barred from asserting a CFA claim against Finch Landscaping, LLC. The jury ruled in favor of Finch Landscaping, LLC on its counterclaim and returned a verdict of no cause of action on the contract claim but at the same time found Finch Landscaping, LLC liable for damages to Murnane’s property. Murnane appealed from the dismissal of its CFA claim and Finch Landscaping, LLC appealed from the denial of its motion for counsel fees.

Since home improvement contracts are prone to consumer fraud violations, the New Jersey Supreme Court has applied the CFA and the CRA to these transactions. This is significant because, for example, under the CFA, every home improvement contractor is required to register with the Division of Consumer Affairs, N.J.S.A. 56:8-138.

The Court held that even if “a homeowner could be characterized as a general contractor, he is still ‘an owner … of a residential … property’ who has entered into a ‘home improvement contract’ with a contractor.” N.J.S.A. 56:8-137. The Court distinguished this case from the holding in Messeka Sheet Metal Co. v. Hodder, 368 N.J. Super. 116, 845 A. 2d 646 (App. Div. 2004). In Messeka Sheet Metal Co. a homeowner contracted with a general contractor who in turn contracted with a subcontractor to install air conditioning. The subcontractor asserted a direct claim against the homeowner and the homeowner asserted a CFA claim against the subcontractor. The Court dismissed the homeowner’s CFA claim because the homeowner had no direct contractual relationship with the subcontractor. However, in the present case, Murnane had a direct contractual relationship with Finch Landscaping, LLC. Therefore, he was not barred from bringing a claim under CFA in spite of holding out as a general contractor for the construction project.

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Can a Licensed Home Improvement Contractor Enforce a Contract Entered into Under a Name Other Than the one on his License?

The New York Court of Appeals recently considered whether a licensed home improvement contractor is barred from enforcing a contract that was entered into in his individual name. The reason this became an issue was because the license was under his company’s name.

Anthony Marraccini, a licensed home improvement contractor entered into a contract with John and Pam Ryan to perform construction and maintenance work. He used his own name on the contract in spite of possessing a home improvement license under the name of  “Coastal Construction Development”. After the work was completed, a dispute arose between the parties about payment, and Marraccini sued John and Pam Ryan in his own name. John and Pam Ryan moved for summary judgment on the grounds that the home improvement license was under the company’s name and that the company was licensed to perform home improvement business, not Marraccini individually.

The Court held that although Marraccini may have violated Westchester County Code § 863.319 (1) (b), neither the Westchester County Code nor the common-law bar a violator of the County Code from bringing a lawsuit under a contract entered into under his individual name. It appeared that Coastal Construction Development and Marraccini were not separate legal entities. The case seems to indicate that the name, Coastal Construction Development, was simply a trade name. Therefore, there would be no forfeiture of the right to receive payment for the work done when the violation of the County Code seems to have been “inadvertent and harmless” and the other party was neither deceived nor prejudiced.

The Court distinguished its decision in B & F Bldg. Corp. v. Liebig (72 NY2d 689, 693) (1990) in which a contractor who was not licensed at the time the work was performed was barred from recovery. In the present case, Marraccini was already licensed when he did the work for the Ryans, and hence he is not barred from recovery. Marraccini v. Ryan, 17 N.Y.3d 83, 85, 2011 N.Y. Slip Op. 04543, 2 (2011).

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC

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What are the Downsides of Arbitration to Enforce a Construction Contract?

Many construction contracts contain clauses that require any dispute to be resolved through binding arbitration. That sounds good to most people. Arbitration is known to be generally quicker than litigation. It involves an arbitrator that is usually picked by the parties; so, presumably it is someone who might (or to be fair, might not) have more experience with construction contracts than the typical judge.

However, I would submit that there are at least three main drawbacks to using arbitration for commercial construction disputes. 

1. Little Right of Appeal  The right to appeal an arbitration award is generally very narrow. Most of the time, it is some variation of the fact that the appealing party has the burden of showing that the award was arbitrary and capricious. That is an extremely hard thing to prove. Contrast that with many court systems that allow an automatic right to appeal a final disposition by a trial court. 
2. No Right to a Jury  While many people believe that it is better for commercial disputes to be resolved by a judge sitting without a jury, that is not always the case. It is impossible to know in advance if the reason you will be suing will be something that would elicit sympathy in a jury of your peers. In the arbitration setting, there is generally no choice; juries are usually for courts, not arbitrations.
3. Abbreviated Discovery of Documents and Testimony Prior to the Hearing An arbitration generally allows for some level of pre-hearing testimony and document exchange known by lawyers as “discovery.” However, it is almost always far more abbreviated and circumscribed than would be the case in discovery under court procedures. Again, there is no way of knowing in advance of the dispute which party will benefit from this. However, it is a risk that is not present when one has their dispute decided by a court, rather than an arbitrator.

In sum, the choice to enter into a contract that provides for arbitration is not always the right one. It should be discussed with an attorney before signing on the dotted line.

Can homeowners sue for damage to their home caused by a product that damages itself?

The New Jersey Supreme Court recently considered whether a homeowner could sue for damage to his home caused by synthetic stucco, also known as Exterior Insulation and Finish System (EIFS).

The homeowner claimed damage to his home and the stucco as a result of moisture trapped behind the stucco. The Court was asked to decide whether the stucco was an integral part of the home or a separate product. The manufacturer of the stucco argued that the homeowner was barred from making a products liability claim because of the integrated product doctrine. That doctrine prevents a lawsuit from being brought when a defective product is incorporated into another product which the defective product then damages. The manufacturer argued that the stucco was an integral part of the house, and therefore, the damage was not compensable since the product (the stucco) only caused damage to itself (the integrated stucco and home).

The Court disagreed with the manufacturer, holding that the stucco was not an integrated part of the home and, therefore, a separate product. As a result, the homeowner could sue in products liability for damage to the home caused by the stucco. However, since the stucco also caused damage to itself, the homeowner could not include the damage to the stucco in its claim. Download Dean v. Barrett Homes, Inc., 204 N.J. 286 (2010)

Can a Contractor be Sued Personally For What His Company Did?

Recently, the owner of a construction company was sued personally for two actions taken by his company. First, his company allegedly interfered with someone’s potential business transaction. Second, the company allegedly filed a construction lien with incorrect amounts. The case came before the Federal Court in New Jersey. The Court held that the contractor could not be held personally responsible for what his company had done. The lawsuit was limited to the company itself. Deluxe Building Systems, Inc. v. Constructamax, Inc., 43-7-0852; January 31, 2011 (unpublished opinion).

Does a subcontractor have the right to sue under the main construction contract if they are not a party to it?

On August 11, 2010, the Federal District Court of the Southern District of New York decided a case in which it determined whether a contractor owed a duty of care to the subcontractors who did not sign an agreement directly with the contractor.

 

    The Court in Travelers Casualty and Surety Company v. Dormitory Authority-State of New York et al., --F.Supp.2d--, 2010 WL 3199861 (S.D.N.Y.) held that the sub-contractor, Travelers Casualty and Surety Company, could not recover because the law does not permit a stranger to a contract to sue a contracting party for negligent contract performance.  In reaching its decision, the Court stated:

 

Travelers cannot show that defendants intended that Trataros be a third-party beneficiary of their agreement.  The passages cited by Travelers from the Kohn Pederson Fox (“KPF”)-Dormitory Authority State of New York (“DASNY”) Contracts and the TDX Construction Corp.-DASNY Contracts in opposing KPF’s and TDX's motions only amount to contract language referring to third parties as necessary to assist those parties in their performance.  The ordinary construction contract ... does not give third parties who contract with the promisee the right to enforce the latter's contract with another.  As such, to the extent Travelers purports to state a claim for breach of contract against KPF and TDX, those claims are dismissed.

Id. at 6, 14. 

 

    The Court granted defendants’ motions for summary judgment to dismiss plaintiff’s complaint.

The Enforceability of “Pay if Paid” Clauses by Contractors Against Subcontractors

A June 30, 2010 case decided by the Appellate Division of the Superior Court of New Jersey, O.A. Peterson Construction Co., Inc. v. Englewood Hospital And Medical Center, 2010 WL 2696758 (N.J.Super., App.Div. 2010) dealt with the issue of whether a contractor can withhold payment to its subcontractor under a “pay if paid” clause.

   

    The Underlying Facts

    Plaintiff O.A. Peterson Construction Co., Inc. (“OAP”) was the general contractor on a construction project for Englewood Hospital (“Hospital” or “owner”). On Par Contracting Co., Inc. (“On Par”) was one of the subcontractors on the project. The contract between OAP and On Par contained the following provision concerning OAP's obligation to pay On Par:

It is expressly understood and agreed that the receipt by the Contractor of payment for the Subcontractor's work shall be a condition precedent to the Contractor's obligation to pay the Subcontractor. That is, the Contractor shall have no liability or responsibility for any amounts due or claimed to be due the Subcontractor for any reason whatsoever except to the extent that the Contractor has actually received funds from the Owner specifically designated for disbursement to the Subcontractor.

[Emphasis added.]

    The Pay if Paid Clause  

    OAP contended that this language constituted an unambiguous “pay if paid” clause, which shifted to On Par the risk of the owner's nonpayment for the work. The Court agreed, stating, “[W]e find that the “pay if paid” clause unambiguously shifted the risk of non-payment to the subcontractor. That is, the clause clearly anticipated that as the contract progressed, the owner would make periodic payments to the general contractor, with portions being designated as payment for work performed by each specific subcontractor on the job. If the owner refused to pay for a particular subcontractor's work, the general contractor was not obligated to pay that subcontractor until the dispute was resolved and the owner made payment.” Id. at 2

    The Covenant of Good Faith and Fair Dealing

    One interesting note is that the Court also decided that OAP was wrong to enter into a settlement with the owner that did not designate a portion of the settlement funds for disbursement to the subcontractor, and then rely on the “pay if paid” clause to defeat that subcontractor's right to payment. It found that this argument would violate the covenant of good faith and fair dealing implicit in every contract.

 

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC

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Amendment to New York Crane Inspector Regulations

New York Legislation: Crane Inspections: Amendment to the New York Crane Inspector Regulations We previously wrote on this blog about the recently enacted licensing regulations in New York for crane inspectors. See New Law for New York Crane Inspections. However, a June 2009 amendment to the law modifies the consequences of an inspector’s wrongdoing.

Previously, the law provided that a crane inspector could have his license revoked and be prohibited from receiving a new license in the event that he engaged in certain wrongdoing. The law now makes it illegal for an inspector to willfully engage in any of the following:

    (a) Failing to inspect a crane for which he filed a report;

    (b) Falsifying an inspection report;

    (c) Making material misstatements or omissions on an inspection report; and/or

    (d) Accepting a bribe.

The law, as revised, now provides for a specific civil remedy. Rather than address those same acts from simply an administrative and licensing standpoint, the amended law provides that a violator can be subject to a penalty of not less than $1,000.00, nor more than $5,000.00, per occurrence or transaction. The penalties are not exhaustive and apply retroactively to the law’s effectuation in November of 2008.

Comments/Questions: ljm@gdnlaw.com

© 2009 Nissenbaum Law Group, LLC

Please visit our website at www.gdnlaw.com and our other blogs at www.nissenbaumlawblog.com; www.foreclosuredefenselawblog.com; www.saleofbusinesslawblog.com; www.internetdefamationlawblog.com; www.constructionlawinfoblog.com; www.filmproductionlawblog.com; www.internetlawinfoblog.com; and www.njbusinesslawblog.com

Pennsylvania Passes Law Imposing Strict Requirements on Home Improvement Contractors

Home Improvement Regulation: In an effort to strengthen the protections afforded consumers against wrongful acts by home improvement contractors, the Pennsylvania legislature recently enacted the Home Improvement Consumer Protection Act.

The Act, which will become effective as of July 1, 2009, imposes stringent requirements on individuals or entities engaging in any form of home improvement. They are similar to those implemented in other states. Under the Act, “home improvement” is broadly defined and includes any repair, replacement, remodeling, demolition, removal, renovation, installation, alteration, construction or other improvement for which the total contract price exceeds $500. However, the Act does not apply to the construction of a new home or to the sale of goods or materials, where the seller does not perform actual work on the home.

The new law requires that all Pennsylvania home improvement contractors register with its Bureau of Consumer Protection in the Office of the Attorney General. The contractor’s registration number then must be included in every advertisement, estimate, proposal or contract for home improvement. Contractors must also maintain liability insurance in the minimum amount of $50,000. In addition, they must disclose in the registration application if they have ever been convicted of a criminal offense, fraud or theft related to a home improvement transaction crime. Contractors are also required to disclose if they have ever filed for bankruptcy or if they have had a judgment entered against them in connection with a home improvement transaction within the previous 10 years.

In addition, the Act contains strict requirements regarding the form and content of home improvement contracts. Under the Act, all home improvement contracts must be in writing, and also as mentioned above, must contain the contractor’s registration number. The Act mandates certain items be included in the agreement. For instance, though without limitation, the agreement needs to be signed by both the contractor and the customer; it needs to include required statutory notices; the contract must provide a mailing address for the contractor (this cannot be a PO Box); and provide an outline of information relating to any subcontractor that will be used on the project. Moreover, the contract must also include a description of the work to be performed, the materials to be used and a set of specifications that cannot be changed without a written change order signed by the consumer. It must also specify the approximate start and completion dates for the work and the total sales price due under the contract. Moreover, the contract must contain the toll-free number of the Pennsylvania Bureau of Consumer Protection, as well as a provision allowing the consumer to rescind the contract within 3 business days. Moreover, where the contract price exceeds $1000, the contract must not provide for any deposits in excess of 1/3 of the total contract price. Finally, the Act specifies other language that cannot be included in the agreement. If these provisions are nevertheless included in the agreement, it could void it entirely, and prevent a contractor for being able to enforce it (i.e., collect money owed to the contractor for work performed).

Any violation of the Act by a home improvement contractor will also constitute a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. As a result, consumers have the potential to recover treble damages (or three times the amount of the consumer’s actual damages) and attorneys’ fees from a contractor found to be in violation of the Act. This means that regardless of the quality of work performed, a contractor could find himself liable for a violation of the Act for failing to have a compliant agreement. Even a technical violation would suffice to make a contractor liable under the Act. For example, an argument could be made that if the contractor’s customer agreement did not include each and every one of the required elements, or did not include verbatim the statutory language set forth for the required notices, the contractor would be liable for violating the Act, even if unintentionally. It could be responsible for treble (triple) damages as a result.

In light of the potential for huge recoveries against them, contractors should be extremely careful in drafting their home improvement contracts. Any individual or entity engaging in any form of home repair or improvement should consult an attorney in order to ensure that they are in compliance with the Act’s detailed requirements.

Comments/Questions: ljm@gdnlaw.com
© 2008 Nissenbaum Law Group, LLC

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New Jersey Municipal Mechanics’ Lien Law

It is well established that a subcontractor may recover against a public agency even though there is no direct contractual relationship between the parties. Accordingly where either a contractor or a subcontractor performs work with respect to public improvements and is due and owing money for supplies and services furnished, it is entitled to file a lien against the public agency or municipality to recover the amount owed. However, in order to do so, the contractor or subcontractor must first comply with certain procedures.

Specifically, under the New Jersey Municipal Mechanics’ Lien Law, in order to perfect a lien, a contractor or subcontractor must file written notice that it performed work or delivered materials to a subcontractor within 20 days of first performing such work or delivering such materials. This notice must be filed with the appropriate designated official for the public agency. Where a notice of delivery is not filed, the courts will not recognize a valid lien.

In addition, the New Jersey Municipal Mechanics’ Lien Law requires that a contractor or subcontractor file a notice of lien with a designated individual of the public agency either prior to the work to being “completed or accepted by resolution of the public agency” or within sixty (60) days thereafter. The notice of lien must contain certain designated items in order to be valid.

Moreover, an action to enforce a lien must be brought within 60 days from the date on which the work to be performed by the contractor is “completed or accepted by resolution of the pubic agency.” Otherwise, the lien will not be considered binding on the municipality or public agency.

Comments/Questions: ljm@gdnlaw.com

© 2008 Nissenbaum Law Group, LLC

Please visit our website at www.gdnlaw.com and our other blogs at www.nissenbaumlawblog.com; www.foreclosuredefenselawblog.com; www.saleofbusinesslawblog.com; www.internetdefamationlawblog.com; www.constructionlawinfoblog.com; www.filmproductionlawblog.com; www.internetlawinfoblog.com; and www.njbusinesslawblog.com