Articles Posted in Litigating Claims

Unitowners in condominium associations and homeowners in homeowner associations are often confused about the legal responsibilities of design professionals, general contractors, subcontractors and municipal building officials and building inspectors regarding construction of their homes. This blog is intended to briefly clarify and explain the relationship among these various people and entities.

Architects are licensed professionals who design buildings to meet the needs of the owner. They are required to adhere to all applicable building codes and standards in the industry. To that end the architect creates construction drawings, details, and specifications to direct the subcontractors as to the materials or systems they are to use and how those materials and systems are to be integrated into the overall construction in such a manner as to satisfy the design intent of the architect. Architects have to have an overall understanding of the systems and materials being designed into a building and the requirements of the applicable building codes governing construction. The scope of work of the architect varies from job to job and is typically defined by the contract signed by the architect. For example, the scope of work could be as narrow as being hired by builders to simply produce a set of construction drawings that can be used by the builder to obtain a building permit. After that, the architect has no further involvement. At the other end of the spectrum, the architect is involved in reviewing and approving submittals of materials the builder or subcontractors want to use on the project, reviewing contractor applications for payment of invoices, and even reviewing work done by the general contractor/subcontractors in the field for compliance with the plans, manufacturer’s installation specifications, and details.

The Building Department of the municipality is responsible for protecting life and safety. They review the architectural and other construction drawings for compliance with building codes prior to issuing a building permit. They review things like the height of the building, square footage, intended occupancy, fire ratings, seismic requirements, and other considerations with an eye towards keeping the public safe. Once construction is under way, the building inspectors visit the site to check to see if the building is being built per the codes and approved plans. When construction defects are discovered and damage is found, many homeowners and condominium unit owners want to know why the building inspector and township are not responsible. While they may have some moral responsibility, the law of New Jersey gives them a qualified immunity from liability for negligence in doing building inspections. In the absence of fraud (ie, taking bribes), the building inspectors and the municipalities are immune from civil liability. This immunity was presumably granted by the legislature to prevent every municipality in New Jersey from being bankrupted by construction defect cases.

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On January 7, 2015, the Judicial Panel on Multidistrict Litigation (JPML) ordered that six putative class-action lawsuits stemming from Colorado, Illinois, Indiana, Iowa, North Carolina and Ohio will be venued and centralized in the U.S. District Court for the District of New Jersey. New Jersey was selected to handle this MDL litigation matter because the primary defendant/manufacturer of the outdoor decking material at issue, GAF Materials Corp., is headquartered in Wayne, NJ. The cases are consolidated before U.S. District Court Judge Jose Linares in Newark. The number of nationwide suits subject to the consolidation order is expected to at least double.

The claims at issue involve an outdoor decking product manufactured by GAF. One of the class representatives, Thomas McGovern, installed the subject decking at his vacation house in Mackinac Island, Michigan in 2009. The decking almost immediately began to warp and stain when exposed to the elements. The condition of the material was so bad that it had to be completely replaced two years later. The claims involve violations of applicable consumer protection laws, breach of warranty and unjust enrichment, and relate primarily to the defective product itself rather than improper installation.

GAF is represented by Quinn Emanuel in New York. Insofar as GAF has not filed a motion to dismiss any of the actions, it looks like these MDL cases are headed into full-blown litigation.

In late 1998 Monroe Station Associates started construction on the Belmont, a seven-story, thirty-four unit condominium building in Hoboken, New Jersey. Monroe Station served as the sponsor, developer, and general contractor of the Belmont. Prior to completing construction, Monroe Station filed a Public Offering Statement (“POS”), which stated that there were no known defects in the common elements of the Belmont building that a prospective purchaser could not determine by a reasonable inspection. Attached to the POS were certain marketing materials, which provided that the potential buyers would be getting a “Proven Developer and Construction Management Team which has overseen the building and renovation of over 400 Single Family & Condominium Homes, and over 1,000,000 Sq. Ft. of Office/Commercial/Retail Development.”

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The doctrine of equitable estoppel prevents a defendant from asserting the statute of limitations as a defense when the defendant has engaged in conduct that was calculated to mislead the plaintiff into believing that it was unnecessary to file suit. Thus, our courts have recognized that equitable estoppel may be appropriate where a defendant has lulled plaintiff into a false sense of security by representing that a claim will be amicably settled or resolved without the necessity for litigation. Such is the case when an association is engaged in settlement discussions with a developer and the developer promises to repair all identified defects and water intrusion issues in the community.

The important caveat regarding equitable tolling is that if, after the cessation of any basis for continued reliance by a plaintiff on the conduct of a defendant, there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be barred if not filed within this remaining time. Thus, while the discovery rule defers the accrual of a cause of action and provides a full six (6) years after discovery of injury and fault to file suit, equitable tolling delays the bar of the statute of limitations once a cause of action has accrued and may provide less than the full six years to file a claim if plaintiff has “a reasonable time” after the basis for equitable tolling has ceased to file under the original limitations period. What constitutes “reasonable” is not well delineated and will likely turn on the specific facts of each case.

In New Jersey, construction defect claims are subject to a six-year statute of limitations, N.J.S.A. 2A:14-1, which is subject to the discovery rule, and a separate ten-year statute of absolute repose, N.J.S.A. 2A:14-1.1, after which potential causes of action no longer exist.

Under New Jersey’s discovery rule, the accrual of a cause of action is deferred until the injured person knows or should know that he has sustained an injury and knows or should know that an injury of which he is aware is attributable to the fault of another person. The discovery rule is an equitable principle by which an accrual of a cause of action is delayed until the injured party discovers, or by the exercise of reasonable diligence and intelligence, should have discovered, that he may have a basis for an actionable claim. Once the injured party knows that it has been injured and that the injury is the fault of another, it has the requisite knowledge for the period of limitations to commence running.

Put simply, for a cause of action to accrue, the injured plaintiff must have knowledge of both injury and fault. Lynch v. Rubacky, 85 N.J. 65, 70 (1981) (“the discovery rule centers upon an injured party’s knowledge concerning the origin and existence of his injuries as related to the conduct of another person”). This rule applies to complex construction defect cases involving hidden construction and design defects.

Among the relevant factors in analyzing whether the discovery rule applies are the nature of the injury and the difficulties inherent in discovering it. Vispisiano v. Ashland Chem. Co., 107 N.J. 416, 428 (1987). For example, in a toxic tort case, such as that presented in Vispisiano, diagnosing a plaintiff’s injury is but the first step in establishing a chain of causation. Id. at 429. The plaintiff’s suspicion that he had been poisoned, after comparing his symptoms to those of a co-worker, was not sufficient to accrue a cause of action, particularly in the face of his doctors’ repeatedly rejecting plaintiff’s concerns that he had been poisoned while working at a chemical plant. Id. at 436.

Applying the foregoing to the condominium construction defect setting gives rise to the argument that a plaintiff association’s cause of action accrues when it receives an engineer’s report (either during transition or afterwards) that first apprises the association of the defects afflicting its buildings and the suspected causes of those defects. However, it may be the case that the requisite knowledge is obtained at an earlier date when unit owner board members learn of defects.

Statutes of repose and limitations establish different types of deadlines for the assertion of claims. Statutes of repose begin to run at an identifiable time or event and allow a claim to be filed for a specific amount of time after that event has occurred. After the expiration of the repose period, no claim will be deemed to have accrued and none may be filed. A statute of repose does not function to bar an existing cause of action; rather, it prevents what might otherwise be a cause of action from ever arising. Statutes of limitations, on the other hand, commence at the time a claim accrues and run for a specified amount of time. After a claim accrues, the statute of limitations begins to run and an action may be filed until the end of the limitations period or the end of the repose period, whichever comes first.

New Jersey follows the discovery rule, which tolls the running of the statute of limitations until the time when plaintiff has or reasonable should have knowledge of injury and fault. One fundamental difference between the statute of limitations and repose is that the statute of limitations may be tolled, whereas the statute of repose cannot. In New Jersey, the statute of repose period is ten (10) years from the date of substantial completion and the statute of limitations period is six (6) years from the date of accrual of a cause of action.

All too often homeowners engage a contractor to perform certain home improvements and/or maintenance functions and end up in a fight with the contractor either over the work or amount of payment or both.  Recognizing the disparity in leverage and technical knowledge, the Legislature and the New Jersey Division of Community Affairs have promulgated laws and regulations designed to give homeowners powerful rights to protect them when they undertake maintenance and improvement projects.  With these enactments, the onus is placed where it belongs, on the shoulders of the home improvement contracts to insure they act fairly and honestly when performing projects that affect a person’s home.
 
Deception, fraud and misrepresentation are not tolerated.  Every home improvement contractor doing business in New Jersey is obligated to comply with New Jersey law, even if they are not aware of the law’s requirements.  The Consumer Fraud Act and the Home Improvement Act are designed to protect the rights of homeowners and to provide an effective way for homeowners to combat deceptive and inequitable practices.  The hallmark of these laws is to impose strict liability upon the contractor for any violations of the Acts’ myriad provisions.
 
Inside the Consumer Fraud Act and Home Improvement Practices Regulations
The Consumer Fraud Act (“CFA”) gives New Jersey one of the strongest consumer protection laws in the country.  The CFA protects the general public by providing consumers a private cause of action for violations of the Act and allowing for recovery of treble damages, attorneys’ fees and costs.  See N.J.S.A. § 56:8-19.  To violate the Act, a person must commit an “unlawful practice,” which may fall into one of three general categories: 1) affirmative acts; 2) knowing omissions; or 3) regulation violations.  The third category is based on violations of regulations enacted under N.J.S.A. § 56:8-4, the Home Improvement Act (“HIA”).
 
The impetus behind enacting the HIA was to protect unknowing homeowners from predatory and deceptive tactics of contractors as well as to provide standards for the terms and criteria by which home improvement work should be done.  In this regard, the regulations apply to any persons holding themselves out as contractors in New Jersey.  N.J.S.A. § 56:8-139.  Contract is defined as any person engaged in the business of making or selling home improvements, and includes corporations, partnerships, associations and any other form of business organization or entity, and its officers, representatives, agents and employees.  N.J.S.A. § 56:8-137.  Notably, the Act does not apply to architects, professional engineers or other licensed professionals.  N.J.S.A. § 56:8-140.  The regulations broadly define “home improvement” to cover nearly every conceivable type of residential improvement or repair, including, but not limited to:
 
construction, installation, replacement, improvement, or repair of driveways, sidewalks, swimming pools, terraces, patios, landscaping, fences, porches, windows, doors, cabinets, kitchens, bathrooms, garages, basements and basement waterproofing, fire protection devices, security protection devices, central heating and air conditioning equipment, water softeners, heaters, and purifiers, solar heating or water systems, insulation installation, siding, wall-to-wall carpeting or attached or inlaid floor coverings, and other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property . . . 
 
[N.J.A.C. § 13:45A-16.1A.]
 
Therefore, the reach of the regulations is expansive and almost all dealings between consumers and contractors related to home improvement will fall within their purview.
 
Practices Required By The Home Improvement Regulations
Generally, a home improvement contractor must obtain all necessary permits prior to commencing work, secure final inspection certificates before demanding final payment and ensure that all agreements for improvements in excess of $500.00 be in writing as well as any changes in the terms and conditions of such contracts.  N.J.A.C. § 13:45A-16.2(a).  More importantly, the regulations require that contracts must be signed by all parties to the contract, not just the customer or contractor, and detail the parties’ obligations and rights under the contract.  Specifically, the contract must accurately set forth in legible form all terms and conditions of the contract, including, but not limited to, the following:
  1. The legal name and business address of the seller, including the legal name and business address of the sales representative or agent who solicited or negotiated the contract for the seller;
  2. The contractor’s Division of Consumer Affairs registration number and the DCA’s toll free telephone number must be prominently displayed on the first page of the contract;
  3. A copy of the Certificate of Commercial General Liability Insurance required of a contractor under the Act and the telephone number of the insurance company issuing the Certificate;
  4. A description of the work to be done and the principal products and materials to be used or installed in performance of the contract;
  5. The total price, including all finance charges and, where applicable, the hourly rate for labor;
  6. The start date and completion date;
  7. A description of any mortgage or security interest to be taken in connection with the financing or sale of the home improvement; 
  8. A statement of any guarantee or warranty with respect to any products, materials, labor or services made by the contractor; and
  9. A precise and conspicuous notice of cancellation provision informing the customer of his or her right to cancel the contract by the end of the third business day after having received a copy of the contract.
Case law makes clear that proof of even a single violation of these regulations is sufficient to establish unlawful conduct under the Act.  See Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994).  Notably, intent to comply or not comply with the Act is not a requirement as the Act imposes strict liability for even the most minimal of violations such as not including a start/finish date on the contract or asking for final payment prior to completing the work and/or furnishing copies of the inspection certificates.
 
What Can A Homeowner Recover When A Contractor Violates the Act
The Legislature intended the Act to be both remedial and punitive in nature.  Therefore, the remedial aspect of the Act compensates for a homeowner’s loss, yet at the same time punishes the transgressor by allowing the homeowner to recover treble damages, attorney’s fees, filing fees and other related costs.  See N.J.S.A. 56:8-29.
 
Since the contractor is subject to strict liability under the Act, the homeowner is entitled to an award of actual damages when he or she has suffered an ascertainable loss as a direct result of the contractor’s violation.  These damages are then trebled and reasonable attorneys’ fees and costs are awarded.  Notably, the Act mandates an award of attorneys’ fees and costs when the homeowner is successful in proving the contractor committed a technical violation of the Act, even if no ascertainable loss is shown.  See BJM Insulation v. Evans, 287 N.J. Super. 513, 516 (App. Div. 1996).  This means that even if the homeowner has not suffered any consequential losses as a result of the contractor’s violation of the Act, he or she is still entitled to attorney’s fees and costs upon a showing that a violation has occurred.  See Performance Leasing Corp. v. Irwin Lincoln-Mercury, 262 N.J. Super. 23, 34 (App. Div.), certif. denied, 133 N.J. 443 (1993) (holding that a plaintiff proving a violation of the act but unable to demonstrate a causal connection between the violation and his damages was nevertheless entitled to attorneys’ fees).  
 
The threat of recovering attorneys’ fees is a powerful tool the homeowner has in negotiating a fair resolution of whatever dispute may arise with the contractor.  Therefore, it is important for homeowners to be familiar with the Act and the home improvement regulations in order to recognize contractor violations and build leverage in dealing with unscrupulous contractors. 

Gene Markin, member of Stark & Stark’s Construction Litigation Group, authored the article, Buyer Beware of Defects in New Construction, for the January 30, 2012 edition of the New Jersey Law Journal. The article discusses why the remedy under the homeowner warranty program, may not be a remedy at all.

In the article, Mr. Markin states, “Since its inception, the New Jersey Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1 to -20, has proven to be more of a trap for new homeowners than the safety net it was purported to be. The purpose of the act is to establish a program requir¬ing that newly constructed homes con¬form to certain construction and quality standards, as well as to provide buyers of new homes with insurance-backed warranty protection in the event such standards are not met. While the intent of the act is to provide homeowners with a prompt, convenient and cost-saving means of resolving disputes con¬cerning construction defects, in reality, its effect has been, in many cases, to strip homeowners of any meaningful means of recovery for discovered con¬struction defects.”

Often times, a subcontractor or general contractor may be left with no other option after attempting to collect funds from a general contractor or owner then to file a Construction Lien to collect these funds at some future time. The party filing the Construction Lien, however, should be careful to ensure that the Lien is not overstated and it is accurate in its entirety. While Construction Lien Law allows a contractor to file a Lien against a property, it is also favorable to the property owner if the Construction Lien is improperly filed, overstated, or contains incorrect information. As a reference point, the process for filing a Construction Lien with regard to a residential property is entirely different than commercial Liens.

As to non-residential properties, a contractor must first be able to demonstrate the existence of a Construction Agreement. In the absence of a signed Contract, a party may not file a Construction Lien. The individual must then make sure that the Lien has been timely filed, which is within ninety days of the last date services or materials were provided. This period excludes any relevant warranty work which may be performed. Thereafter, a party must be careful not to overstate the value of the Construction Lien. An overstated Construction Lien may be removed due to its invalidity. A contractor must be aware of the statute which provides that if a Lien holder fails to file suit within thirty days of a demand by the property owner, or within one year of the filing of the Lien, then in that event, the Lien becomes invalid.

Once the Construction Lien has been properly filed, the contractor should be careful to ensure that the Lien has satisfied the above requirements and that a lawsuit has been timely instituted. If the contractor fails to follow the above requirements, then a property owner may seek to have the Lien removed and they would be entitled to any counsel fees and costs incurred in removing an overstated or invalid Construction Lien. If a lawsuit is not commenced within one year of the date of the filing of a Construction Lien, the Lien must be removed upon request by the property owner. If not, the owner can move forward to have the Lien removed and be awarded counsel fees and costs associated with doing so. These are just a few simple rules which a party must follow when filing a Construction Lien. While it is a good process to help to preserve and protect a contractor’s right, it can end up becoming something that an adverse party can use to subject you to sanctions, counsel fees, and costs. Therefore, it is always suggested that you consult with an attorney prior to filing a Construction Lien.

In many construction contracts, the general contractor or the owner will often insert a “Paid When Paid” provision within the Contract which dictates when payment will be due to the general contractor or subcontractor. In the past, the Court’s had construed many of these “Paid When Paid” provisions as only controlling the timing of the payment to be made pursuant to the contract and not an absolute bar to payment being tendered.

Recently, however, the Court’s have begun to strictly enforce the “Paid When Paid” provisions provided they are clearly worded and all parties had prior notice of the provision. In general, the Court has stated that where the condition precedent of upstream payment prior to payments being tendered to the subcontractor or contractor was clear and unambiguous and there is no room for interpretation, the Court must strictly construe the “Paid When Paid” provision of the contract. In order to properly fashion one of these clauses, it should be clear and the terms should be clearly worded that the “Paid When Paid” provision is not to be construed as a time of payment clause, but instead, as a condition precedent which must be satisfied before a contractor is entitled to payment pursuant to the terms of the agreement.

It is likewise advisable to include language that the subcontractor understands and agrees that it assumes the risk of non-payment by the owner for work and materials for which the subcontractor seeks payment. In the absence of clear and unambiguous language that the subcontractor would never be entitled to payment under any circumstances unless and until funds are received by the general contractor, it is probable that the Court would construe the “Paid When Paid” provision against the general contractor and find it to be only a timing of the payment clause. In such an event, the general contractor would have to pay the subcontractor even if was not directly paid by the owner.

As such, if you are a subcontractor you should carefully review the “Paid When Paid” provision to determine whether payment from the owner to the general contractor is an absolute condition precedent prior to you being entitled to payment. If this is the case, you can either attempt to renegotiate the clause, or you can understand that you are taking a risk in receiving payment. On the other hand, if you are the general contractor, it behooves you to carefully draft a “Paid When Paid” provision which might protect you from payment to subcontractors should you not be paid by the owner. The wording of these clauses can be somewhat technical, and therefore, it is suggested that you seek the advice of an attorney.

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