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.

Comments/Questions: gdn@gdnlaw.com

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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)

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

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