Bill Would Impose Significant Apprenticeship Requirements on New Jersey Contractors

Russell McEwan | Littler Mendelson PC | January 7, 2019

On December 17, 2018, the New Jersey Legislature paved the way for a game-changing prerequisite for N.J. public works contractors. The State Assembly and Senate passed Assembly Bill A-3666 and forwarded it to Governor Murphy for his signature. If signed into law as is expected, the bill—which would impose new apprenticeship and training requirements on public works contractors—would be among the most restrictive of its kind in the country. Governor Murphy has until the end of January to sign the legislation, which would become effective 90 days thereafter.

What Are the New Contractor Obligations?

The bill, which blazed its way through the lawmaking process, would require a contractor to certify its participation in a U.S. Department of Labor (DOL)-approved apprenticeship program in order to obtain or renew its public works contractor registration certificate. Further, apprenticeship programs would have to include training for every classification of worker a contractor employs on a public works jobsite. Thus, if a contractor employs workers in a single job classification, participation in a program limited to just that one classification would suffice. If, however, a contractor employs workers in multiple classifications on a covered job site, the contractor would have to certify participation in an apprenticeship program that encompasses each and every such classification.

It is anticipated that many of the state’s 10,000+ registered contractors do not currently participate in a DOL-approved program, and would not therefore be able to register/renew their public works contractor registration certificates. Instead, only those contractors that participate in a DOL-approved program (whether through or in conjunction with a trade association or a labor union) or that maintain their own apprenticeship program will be able to obtain and/or renew their public works contractor registration certificates. It is important to note that there is nothing in the law to suggest that currently registered contractors will be precluded from continuing to perform prevailing wage work while their current registration is in effect. However, once the new law is in effect, contractors will not be able to obtain or renew their registration unless they are able to certify that they participate in an apprenticeship program.

What Are a Contractor’s Options?

Contractors that are not currently participating in an approved apprenticeship program but wish to remain eligible for prevailing wage work have several options. First, a contractor could sign with a building trades union. Most of the building trades unions operating in New Jersey maintain DOL-approved apprenticeship programs. There are, of course, implications beyond apprenticeship that accompany union relationships. Before signing with a union, contractors are advised to seek counsel to fully understand the obligations that go along with forming a collective bargaining relationship.

Second, contractors could team up with an association/industry group that maintains DOL-registered apprenticeship programs. These groups are currently few in number in New Jersey, although the pending law has spurred a flurry of activity. Existing groups like the Associated Builders & Contractors are reported to be awaiting final approval on an apprentice program covering multiple classifications, and new groups with similar plans are rumored to be on the horizon.

Third, contractors can create their own DOL-approved apprenticeship program. While maintaining an apprenticeship program is frequently the option offering the greatest flexibility for an individual contractor, those that opt to go this route must be prepared to navigate the process of designing and registering a program, and to comply with mandatory record-keeping and other requirements once their program is operating.

In the interim, contractors whose public works contractor registration certificates expire in the first quarter of 2019—before the law’s likely effective date—are encouraged to renew at the earliest possible time (i.e., 30 days prior to expiration). Where possible, contractors should consider renewing for a two-year period. By doing so, they may be able to buy time until their next renewal to address the apprenticeship issue.

Insurer’s Summary Judgment Motion to Reject Claim for Construction Defects Upheld

Tred R. Eyerly | Insurance Law Hawaii | July 23, 2018

The Third Circuit upheld the district court’s order granting summary judgment in favor of the insurer on a claim seeking coverage for construction defects. Lenick Constr. v. Selective Way Ins. Co., 2018 U.S. App. LEXIS 15197 (3d Cir. June 6, 2018).

Westrum was the general contractor for a 92 unit development, and it subcontracted with Lenick to perform rough and finish carpentry and to install paneling, windows, and doors provided by the developer. After the project was completed, it was discovered that some units experienced water infiltration, leaks and cracked drywall.

The condominium development sued Westrum, alleging contract and warranty claims. Westrum impleaded Lenick, asserting claims for breach of contract and indemnification. Lenick sought a defense from its insurer, Selective. Selective defended under a reservation of rights.

Lenick then sued for a declaratory judgment that Selective was obligated to defend and indemnify. The parties filed cross-motions for summary judgment. The district court found that the allegations in the underlying case against Lenick were not covered and Selective had no duty to defend or indemnify.

On appeal, Lenick argued that under Pennsylvania law, the damage occurred to areas of the property on which Lenick did not work, invoking coverage. The court disagreed. Damages that were a reasonably foreseeable result of faulty workmanship were not covered, even when damages occurred to areas outside the work provided by the insured.

Lenick also argued that the property damage was caused by defects in the materials provided to it by the developer. But this theory was not supported by the underlying pleadings, only by extrinsic evidence. Because the pleadings did not contain allegations sufficient to support a claim that the windows, doors, and/or panels used by Lenick malfunctioned, causing the property damage to the project, the argument for coverage failed.

The district court’s granting of summary judgment to Selective was affirmed.

New Jersey’s Highest Court Scrutinizes Statutes of Limitation and the Discovery Rule in Construction Defect Cases

Robert C. Neff, Jr. | Wilson Elser | July 11, 2018

The typical construction defect case presents an up-front analytical challenge: the defense attorney is presented with boxes of project materials, perhaps an extensive case history and prior discovery, and likely an unhappy (but these days, resigned) client. So you start with the basics: a review of the complaint to assess the allegations; a review of the contract documents, particularly the scope of work, for an understanding of the client’s role in the project; and a conference with the client to review the project and the expected course of the litigation.

At the same time, you speak with the carrier involved for an understanding of the terms of the applicable policy, and whether that may affect your strategy. Is there an ability to spread the risk, perhaps through a contractual indemnification provision? Or might your client be on the hook to defend and indemnify another party?

There is so much to do that sometimes a statute of limitations or statute of repose evaluation might take a back seat, unless it’s obvious. After all, particularly if your client was brought into the suit late, aren’t these cases typically subject to the discovery rule? And aren’t there often multiple owners, such that this new owner bringing suit wouldn’t have had prior knowledge of any defects?

Well, yes and yes. But a new case in New Jersey illustrates the importance of reviewing this potential affirmative defense and the related statute of repose defense, and making the review part of every initial analysis. Most importantly, the case gives defendants the ability to defend against the assertion that the statute of limitations was tolled until the most recent owner (and plaintiff) discovered the cause of action.

Background
In Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, LLC, 2017 N.J. Lexis 845, 169 A.3d 473 (Supreme Court of New Jersey, September 14, 2017), Palisades at Fort Lee Condominium Association, Inc. (plaintiff) sued the general contractor and three subcontractors, alleging various defects in a commercial/residential high-rise under plaintiff’s control at the time suit was filed. However, the complex had gone through two ownership changes prior to suit being filed, and the building had been completed more than six years earlier.

The relevant timeline was as follows: in December 1999, Palisades A/V Acquisitions Co., LLC (A/V) retained defendant general contractor AJD Construction Co., Inc. (AJD) to build the complex. The project architect certified that the project was “substantially complete” as of May 1, 2002. A/V then rented units in the project for two years, after which, in June 2004, it sold the complex to 100 Old Palisade, LLC (Old Palisade), which converted the units into condominiums. On October 1, 2004, an engineer retained by Old Palisade found the complex to be in good condition.

In July 2006, the unit owners took control of the Condominium Association and retained another engineer to inspect the complex. That engineer issued a June 13, 2007, report detailing construction-related defects, and the Association eventually sued various defendants in 2009 and 2010. The allegations were the typical breach of warranty and negligent workmanship allegations found in most construction defect complaints.

Rulings
In New Jersey, the statute of limitations to file such a suit is six years, as set forth in N.J.S.A. 2A:14-1. Ruling on a motion to dismiss for violation of the statute of limitations, the trial court found that the statute began to run on May 1, 2002, when the complex was “substantially complete.” Because suit had been filed after May 2008, the court granted the motion and dismissed the case.

The Appellate Division disagreed, concluding that the Association’s claims accrued when it assumed control of the complex and became “reasonably aware” of the claims of construction defect based on its June 2007 engineer’s report. The Supreme Court granted certification, but did not completely agree with either the trial or appellate courts, illustrating the difficulties inherent in the application of the statute of limitations and the discovery rule in construction defect litigation.

First, the Supreme Court disagreed that it is simply a matter of determining when a project is “substantially complete” when setting the accrual date. The discovery rule applies, it noted. So if an owner does not reasonably first discover a cause of action until after the project is substantially complete, then the full six-year statute does not begin to run until the date that the cause of action is discovered.

The Supreme Court therefore rejected the trial court’s opinion that, because damages and an at-fault party were discovered within the initial six-year period commencing with the substantial completion of the project, the plaintiff had to file the action within the initial six-year period. “We therefore reject defendants’ argument that, so long as plaintiff discovered the basis for an actionable claim within six years from the date of substantial completion, plaintiff had to file within the time remaining in the limitations period.”

Instead, the Supreme Court determined the statute of limitations does not begin to run until “the date that the plaintiff knows or reasonably should know of an actionable claim against an identifiable defendant” if that date is after the date of substantial completion. While defendants lost that argument, they won another, perhaps less obvious, argument.

The plaintiff in Palisades was the third owner of the project in question, a 41-story high-rise consisting of a 30-story residential tower atop an 11-story parking garage, including mid-rise apartments, townhomes and recreation facilities. A/V owned it in 1999, Old Palisade took ownership in 2004, and the plaintiff, the Condominium Association, owned it in July 2006 when 75 percent of the unit owners took control of the Condominium Association.

Plaintiff attempted to argue that the statute of limitations did not begin to run until the Condominium Association received its expert report in June 2007, notifying it of the defects. In fact, that is how the Appellate Division ruled. It made no difference to the Appellate Division that the prior owners had known of defects in the project. Instead, the Supreme Court held that a current owner stands in the shoes of a prior owner for statute of limitations purposes, and has no right to revive what may have been a lapsed claim simply because of a change in ownership:

“The statute of limitations clock is not reset every time property changes hands… A cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.”

Rejecting plaintiff’s argument and that of its amicus curiae supporters, the Supreme Court explicitly held that a condominium association is not exempt from that rule: “Old Palisade took title subject to the rights of A/V Acquisitions, and the plaintiff Condominium Association took title subject to any limitation on the rights of the two predecessor owners.”

As a final point, the Supreme Court noted that its holding does not abrogate the effect of the statute of repose, which in New Jersey is 10 years. Repose statutes are specifically enacted to save architects, planners, designers, builders and contractors from indefinite liability through operation of the discovery rule. Thus, the 10-year period begins to run on the date of substantial completion and cannot be extended.

At the end of the day, the Supreme Court found in Palisades that it could not determine the accrual date of the statute of limitations, and that a hearing would have to be held with respect to when each of the three owners knew or should have known of a cause of action as against each defendant. It remanded the case for that purpose.

Analysis
Back to the beginning: a statute of limitations analysis must be conducted at the start of each case. In Palisades, the motions to dismiss based on the statute of limitations were filed at the conclusion of all discovery. While an initial analysis might yield the conclusion that certain discovery will be needed to ascertain the appropriate accrual date (or dates, in the case of multiple defendants), counsel will then know what discovery to seek during the discovery period.

In addition, as a practical matter − and if the managing judge or counsel are in agreement − discovery limited to the statute of limitations can be conducted in the beginning of the case, early motions can be filed, and an early hearing held, potentially obviating the need for a lengthy full-discovery period.

…And potentially winning the case on an affirmative defense short of trial for one of those resigned, but now pleasantly surprised, clients.

New Jersey Senate Passes Bad Faith Bill

Jason Cleri | Property Insurance Coverage Law Blog | June 10, 2018

Recently, the New Jersey Senate passed S-2144, entitled the New Jersey Insurance Fair Conduct Act. While the bill still must go through the Assembly and be signed by the Governor, this is much welcomed news by insureds and their representatives. Since 1993, insureds have had basically no right to bad faith claims against their insurers under the blanket of the Picket v. Lloyd “fairly debatable” standard.1

That standard set the bar so low for the insurance carrier to overcome that most cases could only proceed under the breach of contract claim. The new bill states:

a. In addition to the enforcement authority provided to the Commissioner of Banking and Insurance pursuant to the provisions of P.L. 1947, c.379 (C.17:29B-1 et seq.) or any other law, a claimant may, regardless of any action by the commissioner, file a civil action in a court of competent jurisdiction against its insurer for:

(1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or

(2) any violation of the provisions of section 4 of P.L. 1947, c.379 (C.17:29B-4).

b. In any action filed pursuant to this act, the claimant shall not be required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.

c. Upon establishing that a violation of the provisions of this act has occurred, the plaintiff shall be entitled to:

(1) actual damages caused by the violation of this act;

(2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and

(3) treble damages

This could be a huge win for insureds in New Jersey if it passes as-is. Not only could a Plaintiff recover extra-contractual damages but those damages can also be tripled (treble damages).

In addition, removing the requirement to show a pattern or practice by the insurance company allows a single litigant the ability to collect under this act. Stay tuned for more developments as this bill makes its way through the New Jersey legislature.

I leave you with a quote from Matt Mead, Governor of Wyoming who stated: Connectivity is important to our state, including the opportunity for our citizens to see our legislative process at work. Let’s hope the New Jersey legislature does the right thing here and passes this bill.
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1 Picket v. Lloyd, 131 N.J. 457 (1993).

Subcontractor Lien Claims “Salvaged” in New Jersey

Adam J. Sklar | Cole Schotz | June 4, 2018

Published cases examining the New Jersey Construction Lien Law (“CLL”) tend to be few and far between, but recently the Appellate Division issued a decision to be published, helping to further illuminate, albeit on a fairly narrow issue, the scope of the CLL.  In NRG REMA LLC v. Creative Environmental Solutions Corp., Docket Nos. A-5432-15T3, A-0567-16T3 (N.J. Super. App. Div. April 25, 2018), the court analyzed the novel issue of whether, under the CLL, the salvage value of scrap recovered by a demolition contractor may be included in the “lien fund” available for distribution among lien-filing subcontractors and suppliers within that contractor’s chain of contracting.

In NRG REMA, the owner entered into a contract directly with a demolition contractor, pursuant to which the contractor actually agreed to pay the owner$250,000 for the right to demolish a power station but also for title to and the right to sell the resulting scrap metals and equipment (which it estimated at the time would net it millions of dollars).  While the CLL explicitly allows liens to be filed for demolition work, it does not specifically contemplate this type of payment arrangement in determining the “lien fund” – which, at the top contracting tier, is typically based on the simple calculation of the amount owed under the written contract from owner to contractor for the work performed through the date of the lien filing.  Thus, subject to certain limited exceptions, the more paid to the contractor prior to the lien filing, the less the lien fund available for distribution.

While the CLL’s lien fund provision and its lien claim form speak only in monetary terms, other relevant CLL provisions, incorporate the term “contract” whose definition refers to “price or other consideration to be paid” the contractor.  In this case, because the contract specifically required the transfer of title to the salvage materials to the contractor and “it was an essential component of the price [the owner] agreed to pay,” the court deemed such transfer non-monetary “consideration to be paid” to the contractor, and, therefore, part of the “contract price” paid by the owner to the contractor.

Following a lengthy analysis and a balancing of the interests between owner and lien claimant, the court ultimately concluded that, in this case, the lien fund calculation should be based on a contract amount that includes the value of the scrap obtained by the contractor pursuant to its contract, but reduced by the contractor’s cash payment to the owner made prior to the lien’s filing (note: where a contractor was paid for the demolition work and also received title to the salvage, the payment to the contractor would be added to the salvage value to calculate the total contract price).  The court further held that because the owner had transferred title to the scrap at the outset of contract performance, rather than incrementally, the value of the transferred scrap did not reduce the lien fund at that top tier at the time of such transfer, as the CLL provides that the lien fund is not reduced where the owner makes payment of unearned amounts to a contractor prior to a subcontractor’s lien filing.

The court, however, remanded the case back to the trial court for the difficult task of determining, for each lien claimant, both of which resided on the third-tier, the amount of the lien fund that was available at the time each such lien was filed based on the percentage of completion of the work at that time.  The court also made clear that it was solely dealing with the facts before it, and it identified a number of issues along the way, which if the facts were different may require a different analysis or outcome, and which the court made clear, it was not determining in its decision.  Thus, while instructive and useful when dealing with a project on which a contractor obtains salvage rights, the decision is fairly narrow and limited to the facts of that case.   

After the court’s extensive analysis on the lien fund issue, and an apparent victory for the lien claimants, the court found that one of those lien claimants, however, committed a critical technical error in the execution of its lien which precluded its enforcement.  The court reiterated and strictly applied the CLL’s express requirement that a signatory of a lien claim must be an authorized corporate officer pursuant to the company’s bylaws or as designated by board resolution.  The court found that one of the subject liens had been executed by an employee who was informally titled the company’s “financial director”, and had not been properly authorized to execute a lien on behalf of the company.  This case, therefore, serves as an additional warning that any company seeking to file a CLL lien must strictly adhere to its express provisions, lest it risk forfeiture of its lien claim and a potential damages claim based on an improper filing.

Update:  The property owner has appealed the Appellate Division’s decision to the New Jersey Supreme Court, so we will monitor whether the Supreme Court decides to hear the case, and if so, what decision it renders.