Appellate Decision Explains New Jersey Construction Lien Law

The New Jersey construction law opinion in Site Enterprises Inc. vs. NRG Rema, LLC highlighted several important areas of the New Jersey Construction Lien Law.

 

The New Jersey Construction Lien Law

The New Jersey Construction Lien Law replaced the Mechanic’s Lien law, and made it easier for contractors, subcontractors and suppliers to use construction liens to enforce payment for  their contract work on construction projects.

The New Jersey Construction Lien Law provides that:

any contractor or subcontractor… 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 on the contract price.

The Appellate Division explained that “The lien attaches to the interest of the owner in the real property.  The amount of a lien claim shall not exceed the unpaid portion of the contract price of the claimant’s contract for the work, services, material or equipment provided.”

In commercial construction projects, a lien must be filed within 90 days and suit filed within one year after the last day of work.  “If a lien claim is untimely or willfully overstated… the claimant shall forfeit all claimed lien rights and rights to file subsequent lien claims ‘to the extent of the face amount claimed in the lien claim.’”  However, the Construction Lien Law also provides that:

If a defense to a lien claim is without basis, the party maintaining the defense shall be liable for all court costs, and reasonable legal expenses, including, but not limited to, attorneys’ fees, incurred by any of the parties adversely affected by the defense to the lien claim. The court shall, in addition, enter judgment against the party maintaining this defense for damages to any of the parties adversely affected thereby.

 

Background, Trial and Appeal

NRG Rema, LLC, entered into a contract with Werner to demolish 3 units of a generating station in South Amboy.  Werner paid NRG $250,000 for the salvage materials from the demolition which it anticipated would be valued at $13,000,000.  Werner contracted with BTU Solutions to perform the prime contract on the demolition.  BTU projected costs of $4,500,000 to generate the salvaged material and perform the demolition.  However, BTU overestimated the value of the salvageable material, and underestimated the cost to recover it, because five months after the contract was signed Hurricane Sandy hit the area, destroying salvageable material and increasing the cost of demolition.

BTU subcontracted with Site Enterprises, Inc. (“SEI”) to perform the demolition work for $3,700,000.  It was a flat rate, and no invoices or time sheets were required to be submitted.  After SEI performed fifteen percent of the work, valued at $555,000, BTU breached the contract.  SEI filed a construction lien for $450,000 and thereafter sued BTU and NRG (as owner of the property) for enforcement of the construction lien.  A four day bench trial (in which the judge tries the case without a jury) was held in the Law Division of the Superior Court of New Jersey in Middlesex County.  The judge entered judgment in SEI’s favor enforcing the lien and awarding judgment for $491,379.42.  It also awarded SEI $80,188.26 in attorneys fees for its expenses in enforcing the construction lien, finding that the defense to the lien claim was without basis and caused significant expense to SEI.  An appeal followed.

The Appellate Division upheld the trial judge in all his decisions, and affirmed both the judgment and the award of attorneys fees.

 

The Takeaways

• The Defendants attacked SEI’s estimate that fifteen percent of the work was completed, and its valuation of that work. Because the contracts did not re         quire submission of time records or invoices, this was proven by site supervisors’ and expert’s testimony.  While the Court found this sufficient to establish the amount and value of the work, and the Court found that the fact that SEI asked for less than the full value of the work it performed gave its testimony additional credibility, it would have far, far easier to prove if detailed records of the work and time had been available.  Always keep meticulous records!
• The Defendants also argued that the lien was not filed within the required 90 days from the last work performed. The Court also rejected this argument.  However, once again, meticulous records would have made SEI’s case far clearer  On the other hand, had the Defendants kept better records they might have been able to prove that the lien had not been filed within 90 days.  So again, always keep meticulous records, and file the lien as soon as possible.
• The Appellate Division also upheld the trial judge’s award of costs and attorneys fees under the New Jersey Construction Lien Law. While the Court could have denied the awards even though the Defendants lost, it found that they were appropriate because they were incurred because the Defendants made arguments to remove the lien that had no support in the language of the contract or the facts of what happened.  So this takeaway is that always be careful in construction lien cases.  Under the New Jersey Construction Lien Law a party can be required to pay the other side’s attorneys fees for filing a lien without adequate basis, or for trying to vacate a lien without basis.
• Although the contract between SEI and BTU required claims to be litigated in Texas, the New Jersey Construction Lien Law requires that construction liens be filed and litigated in the New Jersey county in which the work was done. Therefore, litigation over the construction lien was required to be filed in the Superior Court of New Jersey, despite the language of the contract.

 

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