It has been several months since the New Jersey Supreme Court decided Cypress Point Condo Ass’n v. Adria Towers, LLC.

The issue in Cypress Point was whether rain water damage caused by a subcontractor’s faulty workmanship constituted “property damage” caused by an “occurrence” to trigger coverage under a condominium developer’s commercial general liability (CGL) insurance policy. Cypress Point, a condominium association, filed claims against Adria Towers, the developer, and its insurers, as well as various subcontractors. Adria Towers was also the general contractor on the condominium project and hired the subcontractors who performed the construction work. The Association alleged faulty workmanship during construction and claimed consequential damages.

Continue Reading What Should Condominium Associations Do After Cypress Point?

In a Per Curiam decision, the Appellate Division recently reversed a Trial Judge’s order dismissing several Consumer Fraud Act (“CFA”) claims against the developer of a condominium development and the general contractor for allegedly having filed false affidavits of title in the course of selling several units.

The CFA claims concerned defendants Paxton Construction (Jon Paxton, principal), the general contractor, and Cresse Development, LLC, the owner and developer of the condominium construction project. Cresse had sold units to three residential buyers and a commercial unit to Park Place Management in 2005. Prior to closing, Cresse conveyed to the buyers an affadavit of title signed by Paxton, representing among other things that “[n]o judgment or other lien … has been filed against [the property]” as well as attesting “that there were no pending lawsuits or judgments against it … [that] may be enforced against the property.” Despite these representations, Cresse had not paid a subcontractor, ABJ Sprinkler Co. (“ABJ”), for its work, and as a result, ABJ filed a construction lien against the property. Moreover, in his deposition, Paxton admitted that at the time the affadavits were signed, he knew that there was an ongoing dispute between Cresse and ABJ over the amount of money owed for the sprinkler work.

The CFA prohibits both affirmative misrepresentations and knowing omissions that are made with the intent that others rely upon the misrepresentations or omissions. Under the CFA, acts of omission must be knowing and committed with intent to induce reliance. However, affirmative acts, including misrepresentation of material facts, do not require proof of intent to mislead. In this case, the Appellate Court did not hesitate in concluding that Paxton’s affadavits of title were in fact issued to induce the buyers to complete the purchases of the units. As a result, the owners had established a prima facie violation of the CFA and were entitled to default judgment on that claim.

Consequently, because the buyers established a CFA violation, the Appellate Court reversed the order on appeal and remanded the matter to the trial court to address the issues of damages and counsel fees under the CFA.

The construction industry appears to be the latest victim of the stream of defectively manufactured goods from China that have poured into our country over the last few years. As if the construction market has not experienced enough hardship in these trying economic times, reports have recently surfaced of defective drywall products that were imported from China as the likely cause of putrid sulfur odor emissions being experienced in newly constructed homes and failure of metal devices typically installed behind sheetrocked walls, such as HVAC systems and metallic wiring. (See http://online.wsj.com/article/SB123171862994672097.html). Although drywall products used by American builders were typically manufactured in the U.S., a shortage of construction materials in the Gulf Coast following Hurricane Katrina lead to builders importing the products from overseas.

A handful of builders and environmental consultants, mostly in the Florida area, are investigating whether the drywall that was imported from China is emitting sulfur-based gases that could be corroding air-conditioner coils, computer wiring and metal picture frames. Homeowners in several Florida counties have reported that their evaporator coils of air-conditioning equipment prematurely failed, were replaced, and then failed again. The Sulfur odors have been associated with erosion on copper in electrical outlets, metal surfaces behind refrigerators and other places where metal is in these homes. The Sulfur odor can also cause people to experience mild and moderate respiratory irritation that clears up only when they leave the homes. These reports have lead to homeowners expressing concerns whether the odor will cause long-term health conditions if they stay in the home.

The Environmental Protection Agency has investigated the problem and confirms there is a problem with the drywall from China:

“It is the drywall, and from what I gather it is causing a problem with copper and, specifically, air conditioning units,” said Dawn Harris-Young, spokeswoman from the EPA’s Region 4 in Atlanta.

The extent of the problem is not yet known, with reports coming in mostly in the southeast, but at least one case reported in the Virginias. Officials have indicated that children and the elderly are at the highest risk for health problems from the sulfur gas emissions, and that individuals with asthma or chemical sensitivity are at an even higher risk.

If you suspect your home may be built with defective Chinese drywall, contact us here for a free no obligation case review.

In a recent unpublished decision under New Jersey’s Consumer Fraud Act, the Appellate Division in D. Wyatt Stone and Stone Foundation, LLC v. Kahr Properties, LLC, December 2008 App. Div. 09-2-2471), decided the appeal of a judgment in the Plaintiff’s favor for damages, attorneys’ fees and costs arising from a home improvement project. The Plaintiff was a limited liability company engaged in the business of buying, renovating and reselling residential properties. The Defendant was a family-owned company whom the Plaintiff contracted with to renovate a residential property. The project met with delays, shoddy workmanship and overcharges, which prompted suit by the Plaintiff under the Consumer Fraud Act. The Defendant appealed the judgment in Plaintiff’s favor by arguing that the Consumer Fraud Act was not intended to apply to a corporate entity such as the Plaintiff that is engaged in the business of buying, renovating and reselling residential properties. The Appellate Division disagreed, finding that the Consumer Fraud Act applied to the transaction between the parties, based upon testimony from the Defendants that established they were involved in the sale or advertisement of home improvement services, either directly or indirectly to the public, and finding that the Act was meant to protect both business entities like the Plaintiff as well as individual consumers.

Every builder operating in New Jersey is most likely aware that our state has plaintiff-friendly laws in the context of construction defect litigation. Even so, the gravity of claims made against builders for alleged defects typically has a direct correlation to relatively known and controllable factors, i.e. their contract performance and quality of product. However, there is another category of claims being made with increasing success in defect cases made under New Jersey’s Consumer Fraud Act (CFA).

The CFA is aimed at unlawful sales and advertising practices designed to induce consumers to purchase merchandise or real estate. Intended to give New Jersey one of the strongest consumer protection laws in the nation, it receives liberal interpretation from the Courts in favor of consumers. The CFA declares as an unlawful practice “[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission”. Affirmative misrepresentations under the Act do not require proof that the alleged violator actually intended to deceive the consumer. Concealment or omission claims require only that the alleged violator knowingly concealed a material fact with the intent that the omission be relied upon by consumers.

The scope of the CFA’s consumer protections can be seen in its language that “any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act…may bring an action”. Courts have interpreted that, an “ascertainable loss” occurs simply when a consumer receives less than promised.

Additionally, no proof is required under the CFA that a consumer actually relied upon any alleged statement or conduct by a defendant to make a claim. Rather, the Act specifically provides that consumers are protected “whether or not any person has been misled, deceived, or damaged thereby”. There is also no requirement that consumers have a contract with the alleged violator, or be in direct contact with a party who has allegedly violated the CFA, in order to assert claims. How these principles have been applied in defect cases shows how broad the potential scope of liability can be for builders and contractors.

In Chattin v. Cape May Greene, a developer had distributed a brochure to homeowners that indicated the homes would contain “insulated aluminum windows”. The windows actually used in the homes had a double pane of glass, which provided insulation. The aluminum frames of the windows, however, had no insulating features. Homeowners claimed the frames of the windows allowed air infiltration and caused condensation damage to the sills and woodwork. Homeowners who received the brochure won at trial because the Court agreed that the representation about the windows in the brochure was misleading under the CFA. On appeal, the Appellate Court sent the case back for a new trial, but only because it wanted the jury to determine whether the average consumer would understand the term “insulated aluminum windows” to refer only to the glass or to the entire window unit.

Recently in Matera et. al. v. M.G.C.C. Group, Inc. et. al., a defendant bank concealed information from a local planning board regarding drainage problems connected to land it was selling to a developer, in order to gain approval from the planning board for construction of homes. Homeowners in an adjoining property all began experiencing flooding after the developer bought the land from the bank and built the homes. Despite the homeowners having no direct contact with the bank, and despite the facts that the homeowners never heard any of the bank’s misrepresentations and were never directly exposed to any of its omissions, the Court found the homeowners could still maintain CFA claims against the bank.

With cases like Chattin and Matera, which involved liability to homeowners under the CFA for statements in a brochure and statements to a planning board, it may seem difficult for a builder to avoid claims under the CFA. However, builders and contractors can take steps to protect themselves by having an understanding of the broad scope of potential liability under the CFA and using that knowledge to serve as a filter for all statements and advertisements made in developing and marketing a project.

Matera et. al. v. M.G.C.C. Group, Inc. et. al., Docket No. L-1812-04

Judge Louis Locascio of the New Jersey Superior Court recently ruled in the matter of Matera et. al. v. M.G.C.C. Group, Inc. et. al., Docket No. L-1812-04, that a cause of action under New Jersey’s Consumer Fraud Act exists where there is no direct contact between the parties but there is a connection between the defendants’ “alleged violation of the Consumer Fraud Act and plaintiff’s ascertainable loss.”

The Plaintiffs, homeowners who purchased homes in a development called Crystal Creek Estates, argued that the defendant Bank of America (“BOA”) had concealed information and made misrepresentations to its purchaser, Defendant Developer M.G.C.C. Group, Inc., and to the Howell Township Planning Board, in order to gain approval for constructing the final phase of Crystal Creek Estates, known as Section III. The Plaintiffs all bought homes within Section II of Crystal Creek Estates and began experiencing flooding in their basements and back yards after defendant M.G.C.C. Group, Inc. constructed Section III of the development.

BOA, as the successor to the original financier of the project, took title to two undeveloped lots in Section II and all of the undeveloped lots in Section III of the Crystal Creek Estates development. BOA obtained approvals for the construction of Section III of Crystal Creek Estates from the Howell Township Planning Board before selling the land to Developer M.G.C.C. Group, Inc. In obtaining those approvals, BOA failed to disclose to either the Howell Township Planning Board or M.G.C.C. Group, Inc. that BOA knew about serious drainage problems that would occur in Section II of the development if Section III was constructed as planned and approved. BOA also knew but concealed that Section II of the development would have to be re-graded in order to deal with excessive drainage to the section caused by the planned construction of Section III, and that an engineer had provided BOA with an opinion that there were serious drainage issues between the two sections.

Judge Locascio found that BOA’s misrepresentations and omissions were not only made directly to the Howell Township Planning Board, but were also “intended to be conveyed to the buyer” (defendant M.G.C.C.), because obtaining planning board approval “was necessary to complete the real estate transaction with defendant M.G.C.C.” Id. at 5. The Judge concluded, therefore, that BOA’s misrepresentations and omissions were “in connection with the sale of real estate,” a requirement for application of the Consumer Fraud Act.

The Judge then went on to find that a “causal nexus” existed between the Plaintiffs’ damages and BOA’s misrepresentations and omissions to M.G.C.C. Group and the planning board. Noting that the Consumer Fraud Act does not require privity between a defendant and a consumer, Judge Locascio concluded that the Plaintiffs did not need to be directly exposed to BOA’s misrepresentations and omissions because the Consumer Fraud Act states that a violator of the Act “is liable for any misrepresentations whether ‘any person has in fact been misled, deceived, or damaged thereby’ … [the Act] did not say any party.” Id. at 6 to 8 (emphasis in original). The Judge found, therefore, that because BOA’s misrepresentations to the planning board and to M.G.C.C. Group ultimately damaged the Plaintiffs, there existed “a causal nexus” between BOA’s violation of the Consumer Fraud Act and the Plaintiff’s “ascertainable losses.” The Judge reasoned that if BOA “did not misrepresent facts to the Howell Township Planning Board, the planning board would not have granted the letter of compliance and section III would not have been built, or in the alternative, the drainage problems would have been corrected before the letter of compliance was granted.” Id. at 9. “Under either scenario, plaintiffs’ properties would not have been flooded.” Ibid. Therefore, it is “proper to hold BOA liable for the damages under the Consumer Fraud Act even though BOA had no contact with plaintiffs.” Ibid.

If you are interested in more information on this topic or have any questions, please contact John Randy Sawyer, Esq. at (609) 895-7349, or by email at jsawyer@stark-stark.com.

The New Jersey Appellate Division ruled this month in two companion cases, New Jersey Shore Builders Association v. Township of Jackson, A-5805-06 (June 23, 2008) and Builders’ League of South Jersey v. Egg Harbor Township, A-1563-07 (June 23, 2008), that municipalities cannot require as a condition of approval that builders and developers provide on-site recreation areas or facilities, or common open space, outside the context of planned unit developments. The Court also held that municipalities cannot require payment of monies to built such facilities off-site in lieu of providing them on-site. The Court found that ordinances requiring such conditions of development approvals were not authorized under the Municipal Land Use Law (MLUL). Through this ruling, the Court has ended a longstanding practice of municipalities to exact these types of conditions from developers, and, for developers who have in the past been made to remit payments in lieu of providing on-site recreation areas, facilities, or common open space, the decision may open a floodgate of demands for reimbursement of those payments.

Ordinances in two municipalities, Egg Harbor Township, Atlantic County and Jackson Township, Ocean County, were the subject of the attack. Both ordinances compelled developers seeking approvals to set aside a certain amount of acreage on-site for use as public open space and/or recreational facilities such as tot lots, tennis and basketball courts, and baseball, soccer and football playing fields. Both townships’ ordinances also provided for payments in lieu of providing those facilities on-site for use in constructing such facilities off-site.

The Appellate Division found that both ordinances were not permitted under the MLUL did not permit the recreational open space exactions required by the ordinances. The Court rejected the Townships’ arguments that the MLUL should be read expansively to implicitly authorize the imposition of open space and recreation exactions. The Court held instead that the MLUL contains explicit language specifically limiting municipalities’ powers in that regard. The Appellate Court held that while providing public open space and recreation facilities is an important goal of New Jersey land use law under the MLUL, it is a goal that can only be accomplished within the strict and specific limits of the MLUL. Municipalities cannot require developers to provide common open space and recreation facilities on-site as a condition of development approval, or require payments in lieu thereof, outside the context of planned unit developments.

The New Jersey Supreme Court Appellate Division recently upheld a judgment against a stucco/masonry contractor under the New Jersey Consumer Fraud Act in Briggs v. Luisi, et al.. The case involved allegations by the owners of a single family home that the stucco/masonry contractor negligently performed repair work on the exterior of the house and on cracks in the home’s foundation, and that the contractor violated the Consumer Fraud Act through affirmative misrepresentations and knowing omissions in connection with a five year warranty issued covering the work.

After performing only a portion of the scope of work he was retained to complete, the contractor gave the homeowner a guarantee on the exterior stucco surface and the foundation of the entire house against cracks and defects for a period of five years. In discovery, however, the contractor admitted that he did not complete all of the work that was described in the warranty. He also acknowledged that the plaintiff and the plaintiff’s lending institution relied on the warranty. Based on this evidence, the Appellate Court affirmed the $89,485 judgment against the contractor and in favor of plaintiff, as well as affirming the jury verdict apportioning twenty percent of the total damages against the contractor as attributable to the contractor’s violation of the Consumer Fraud Act, which portion was then trebled by the Court and was the basis for an award of counsel fees.

The New Jersey Legislature has recently enacted a new Act called the “Prompt Payment Act.” The Act entitles all contractors, subcontractors, sub-subcontractors and product suppliers to prompt payment on all public and private projects. By its terms, the Act is only applicable to contracts entered into after September 1, 2006.

The Act requires a project owner to pay a contractor not later than thirty (30) days from the date the contractor’s bill is received. The Act applies only when the bill has been “approved and certified.” However, the Act states that a bill will be deemed “approved and certified” if twenty (20) days after the owner receives it, the owner has not objected to the bill, in writing, and specified the amount objected to and the reasons for the objection. The Act has different procedures, however, for certain public entities that have approval mechanisms for payment of contractors on public projects. Subcontractors, sub-subcontractors, and suppliers are entitled to receive payment from contractors they are under contract with or supplied material to within ten (10) days of the contractor’s or subcontractor’s receipt of periodic payments from the owner, unless otherwise agreed to in writing.

The Act also provides for payment of interest on unpaid amounts at prime plus one (1%) percent in the event payment is not made within the time period provided by the Act. In addition, the Act allows a contractor, subcontractor and sub-subcontractor to suspend work upon seven (7) days written notice if; a) the unpaid party is not provided a statement of the amount withheld and the reason for the withholding, and b) the payor is not engaged in a good faith effort to resolve the reason for the withholding of payment.

The Act provides that a party who sues under the Act and wins is entitled to an award of statutory costs and attorneys fees for bringing the action.

If you have any questions about how the Prompt Payment Act may affect your contracts or work, please contact John Randy Sawyer, Esquire.

This is part 16 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (g)
88(g) – In the event that no settlement agreement and releases are executed with respect to any phase of completed common elements or improvements during the period of declarant control of the executive board of the association, any statutes of limitation or repose applicable to such phase shall be extended for a period of one year after the assumption of control of the executive board by unit owners other than the declarant. In addition, the declarant controlled board shall not be obligated to commence suit for any such claims during its period of control.

This provision of Section 88 seeks to limit the statute of limitations on construction defect claims to one year following the transition of control of the Association from the developer to the independent unit owners. Under current law, the independent unit owners get six years from the date of transition for statutes of limitations and ten years from the date of transition under the state statute of repose (at a minimum as to claims against the developer). This provision, therefore, severely limits current legal rights. There is no benefit here to anyone other than the developer. This provision would allow a developer to conceal the existence of defects during the entire time it controls the Association, which could be several years, then turn over control to the independent unit owners. Then, if the independent unit owners do not discover the defects or act upon them within one year of getting control, they could possibly lose the claim entirely.
This provision also completely eliminates the well settled fiduciary duty that board members appointed by the developer to the developer-controlled Association have to ferret out defects and deal with them, be it by lawsuit or otherwise. In other words, they have no liability whatsoever for burying their heads in the sand.