ERCO INTERIOR SYSTEMS, INC. VS. NATIONAL COMMERCIAL BUILDERS, INC., ETC. (L-0259-18, GLOUCESTER COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4640-17T1
ERCO INTERIOR SYSTEMS, INC.,
Plaintiff-Appellant,
v.
NATIONAL COMMERCIAL
BUILDERS, INC., d/b/a NCB
BUILDERS OF NEW JERSEY,
INC. c/o REGISTERED AGENTS,
INC.,
Defendant-Respondent.
______________________________
Submitted March 5, 2019 – Decided May 7, 2019
Before Judges Yannotti and Natali.
On appeal from Superior Court of New Jersey, Law
Division, Gloucester County, Docket No. L-0259-18.
Kreiser & Associates, PC, attorneys for appellant
(Travis L. Kreiser, on the briefs).
Hurvitz & Waldman, LLC, attorneys for respondent
(Mitchell A. Waldman and Joshua K. Givner, on the
brief).
PER CURIAM
Plaintiff ERCO Interior Systems, Inc. (ERCO) appeals from the Law
Division's May 25, 2018 order dismissing its complaint against defendant
National Commercial Builders, Inc. (National) with prejudice under Rule 4:6-
2(e) based on a forum selection clause in the parties' subcontract, which
provides that litigation relating to the subcontract "shall be brought only in the
District Court of Johnson County, Kansas, and in no other court or location."
We reverse.
I.
National, a corporation located in Lenexa, Kansas, entered into a
contract with Rio Mall LLC, to construct movie screens in a theater at the Rio
Mall in Rio Grande, New Jersey. National entered into a subcontract with
ERCO, a New Jersey-based corporation, to install acoustical tiling in the
theater. Paragraph D of the parties' subcontract provides that:
[a]ny litigation arising out of or related to the
Agreement shall be brought only in the District Court
of Johnson County, Kansas, and in no other court or
location. Regardless of where it is signed, this
Agreement is deemed made in Kansas and shall be
interpreted under Kansas law.
A dispute arose between ERCO and National regarding payment.
Specifically, ERCO claimed it completed all the work as required by the
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subcontract and invoiced defendant $23,500, but was only paid $10,019.75.
Accordingly, ERCO filed a complaint in the Law Division against National
seeking to recover the remaining $13,480.25 owed to it, plus pre- and post-
judgment interest and attorney's fees. ERCO's complaint asserted claims for
breach of contract, quantum meruit, unjust enrichment, violation of the Prompt
Payment Act (PPA), N.J.S.A. 2A:30A–1 to –2, and amounts owed on a book
account/account stated. With respect to its claim under the PPA, ERCO
averred that National did not provide written notice of any disputes as to the
invoices, and that it lacked a good faith basis to withhold payment.
National moved to dismiss ERCO's complaint and argued that the forum
selection clause in the subcontract was knowingly and voluntarily entered by
both parties. ERCO, relying on Kubis v. Perszk, Inc. v. Sun Microsystems,
Inc., 146 N.J. 176 (1996), opposed the motion and asserted the forum section
clause was invalid because it violated New Jersey's strong public policy, as
codified in N.J.S.A. 2A:30A-2(f), which provides that "any civil action
brought to collect payments [under the PPA] . . . shall be conducted inside of
this State . . . ."
After hearing oral arguments, the court issued a written decision and
order on May 25, 2018, granting National's motion and declining to invalidate
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the forum selection clause. In its written decision, the court noted that forum
selection clauses are presumed valid and enforceable in New Jersey unless
they are the result of fraud or overreaching, or if enforcement would violate
strong public policy, or would be unreasonable. The court found "no
indication" that the clause resulted from fraud or overreaching, and determined
the parties agreed to work on the project in New Jersey "freely and voluntarily
in the interest of each of their respective businesses and trades."
Further, after reviewing the pertinent sections of the PPA, including the
provision that civil actions brought under the PPA for payment must be
conducted in New Jersey, the court rejected ERCO's claim that enforcement of
the forum selection clause would violate New Jersey public policy. The court
acknowledged that "New Jersey public policy does, in some circumstances,
favor providing legislative protection to subcontractors performing
construction work in New Jersey," but did "not find that this public policy was
shown to be strong enough to override a freely negotiated forum selection
clause." Finally, the court determined ERCO could cost-effectively litigate its
claim in Kansas, that enforcement would not be so inconvenient as to be
unreasonable, and that ERCO failed to establish "any exception to the
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presumption of validity and the enforceability" of the parties' forum selection
clause. This appeal followed.
II.
On appeal, ERCO maintains the "plain and unambiguous" language of
N.J.S.A. 2A:30A-2(f) establishes that "all claims under the [PPA] must be
litigated in New Jersey," and contends "any forum selection clause at odds
with the statutory mandate is invalid and unenforceable." According to ERCO,
the PPA "includes a provision which confirms that the Act is controlling over
any other applicable law," and the trial court "erred when it relied on . . . other
conflicting law in granting" National's motion to dismiss.
Further, ERCO argues that the forum selection clause "is invalid and
unenforceable because it violates New Jersey's strong public policy in favor of
providing legislative protection to subcontractors performing construction
work in New Jersey." Specifically, ERCO contends N.J.S.A. 2A:30A-2(f)
expresses New Jersey's "right and public policy goal to protect the payment
rights of all construction subcontractors" in "the State of New Jersey by and
through the New Jersey [c]ourts." Moreover, ERCO claims that it would lose
its protections under the PPA and "its basic contract right" to receive payment
"if it were forced to litigate this $13,000.00 debt in Kansas" because ERCO's
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"ability to obtain payment would no longer be prompt or cost efficient." Thus,
according to ERCO, "[a]s a practical matter," enforcement of the "forum
selection clause would force ERCO to abandon its legitimate claims for
payment and cause it to lose the benefits of the [PPA]." We agree with ERCO
that the parties' forum selection clause is invalid because it subverts New
Jersey's strong public policy, as embodied in the PPA, for the prompt and
efficient payment of claims related to New Jersey-based construction disputes.
We further conclude the requirement codified at N.J.S.A. 2A:30A-2(f), that all
actions brought to collect payments under the PPA "shall be conducted inside
of this State," is an integral part of that policy.
III.
"We review a grant of a motion to dismiss a complaint for failure to state
a cause of action de novo, applying the same standard under Rule 4:6–2(e) that
governed the motion court." Wreden v. Twp. of Lafayette, 436 N.J. Super.
117, 124 (App. Div. 2014); Hoffman v. Supplements Togo Mgmt., L.L.C., 419
N.J. Super. 596, 605 (App. Div. 2011); see also Salovaara v. Jackson Nat'l Life
Ins. Co., 246 F.3d 289, 295 (3d Cir. 2001) (explaining the "interpretation and
enforcement of a forum selection clause is a matter of law" subject to plenary
review).
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"[F]orum selection clauses are prima facie valid and enforceable in New
Jersey." Caspi v. The Microsoft Network, L.L.C., 323 N.J. Super. 118, 122
(App. Div. 1999) (quotation omitted). However, we have declined to enforce a
forum-selection clause if: "(1) the clause is a result of fraud or 'overweening'
bargaining power; (2) enforcement would violate the strong public policy of
New Jersey; or (3) enforcement would seriously inconvenience trial." Paradise
Enters., Ltd. v. Sapir, 356 N.J. Super. 96, 103 (App. Div. 2002) (quoting
Caspi, 323 N.J. Super. at 122).
ERCO does not advance any argument that the forum selection clause is
the result of fraud or the exercise of superior bargaining power by National.
Instead, ERCO invokes the strong public policy and serious trial
inconvenience exceptions.
New Jersey courts have declined to enforce forum selection clauses that
violate public policy on several occasions. See Kubis & Perszyk Assocs., Inc.
v. Sun Microsystems, Inc., 146 N.J. 176, 192-93, 195 (1996) (holding "forum-
selection clauses in contracts subject to the Franchise Act," N.J.S.A. 56:10 -1 to
-31, "are presumptively invalid" because "general enforcement" of those
clauses would "substantially circumvent the public policy underlying the
Franchise Act"); McNeill v. Zoref, 297 N.J. Super. 213, 222-24 (App. Div.
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1997) (declining to enforce a forum-selection clause in a mortgage brokerage
services agreement when enforcement would be contrary to "the strong public
policy . . . found in the entire controversy doctrine which is firmly entrenched
in this State" (citations omitted)); Param Petroleum Corp. v. Commerce and
Indus. Ins. Co., 296 N.J. Super. 164, 170–71 (App. Div. 1997) (refusing to
give effect to a forum-selection clause in an insurance policy when the insured
property was located in New Jersey and enforcement of the clause would
violate the policy that the location of the insured risk should determine the
forum).
"[T]he sources of law where a mandate of public policy may be found
are expansive," Young v. Schering Corp., 141 N.J. 16, 29 (1995), and "include
legislation; administrative rules, regulations or decisions; and judicial
decisions." Pierce v. Ortho Pharm. Corp., 84 N.J. 58, 72 (1980). Our
paramount goal in interpreting a statue is to discern the Legislature's intent,
which we discern according to the statutory language "as written and not
according to some unexpressed intention." Lehmann v. Kanane, 88 N.J. Super.
262, 265 (App. Div. 1965) (first citing Hoffman v. Hock, 8 N.J. 397, 409
(1952); then citing Dacunzo v. Edgye, 19 N.J. 443, 451 (1955)). Resort to
extrinsic aids is generally appropriate only if the plain language of the statute
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is ambiguous. Jen Elec., Inc. v. Cty. of Essex, 197 N.J. 627, 641 (2009)
(quoting Bedford v. Riello, 195 N.J. 210, 221-22 (2008)). However, "when 'a
literal interpretation would create a manifestly absurd result, contrary to public
policy,' courts may consider the law's overall purpose for direction." Sussex
Commons Assocs., LLC v. Rutgers, 210 N.J. 531, 541 (2012) (quoting
Hubbard ex rel. Hubbard v. Reed, 168 N.J. 387, 392 (2001)).
The relevant statute here is the PPA, which has six subsections.
Subsection (a) establishes the time period in which an owner 1 must pay "the
amount due to the prime contractor for each periodic payment, final payment
or retainage monies" if the prime contractor 2 has performed in accordance with
the contract and the owner has approved the bill. N.J.S.A. 2A:30 A-1(a).
Similarly, but not identically, subsection (b) sets forth the time period in which
1
"Owner means any person, including any public or governmental entity, who
has an interest in the real property to be improved and who has contracted with
a prime contractor for such improvement to be made," and includes the owner's
agent or successor in interest. N.J.S.A. 2A:30A-1.
2
"'Prime contractor' means a person who contracts with an owner to improve
real property." N.J.S.A. 2A:30A-1. "'Subcontractor' means any person who
has contracted to furnish labor, materials or other services to a prime
contractor in connection with a contract to improve real property." Ibid."'Subsubcontractor' means any person who has contracted to furnish labor,
materials or other services to a subcontractor in connection with a contract to
improve real property." Ibid.A-4640-17T1
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a prime contractor must pay a subcontractor, and in which a subcontractor
must pay a subsubcontractor, "the full amount received for the work of the
subcontractor or subsubcontractor" if the payee has performed in accordance
with the provisions of its contract, the prime contractor or owner has accepted
the work, "and the parties have not otherwise agreed in writing . . . ." N.J.S.A.
2A:30A-2(b).
Pursuant to N.J.S.A. 2A:30A-2(c), "[i]f a payment due pursuant to the
provisions of this section is not made in a timely manner, the delinquent party
shall be liable for the amount owed under the contract, plus interest at a rate
equal to the prime rate plus 1%." Subsection (d) permits a "prime contractor,
subcontractor or subsubcontractor . . . after providing seven calendar days'
written notice" to the delinquent party, to "suspend performance" of the
contract "without penalty for breach of contract, until the payment required
pursuant to this section is made," if the payee "is not paid as required by this
section; [the payee] is not provided a written statement of the amount withheld
and the reason for the withholding; and the payor is not engaged in a good
faith effort to resolve the reason for the withholding." N.J.S.A. 2A:30A-2(d).
Paragraph one of subsection (e) establishes that "[t]he rights, remedies
or protections provided by this section for prime contractors, subcontractors
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and subsubcontractors shall be in addition to other remedies provided pursuant
to any other provision of State law," and that if the PPA provides "greater
rights, remedies or protections . . . than other provisions of State law," the
PPA's provisions "shall supersede those other provisions." N.J.S.A. 2A:30A -
2(e)(1). Paragraph two of subsection (e) prohibits the PPA from being
"construed as restricting in any way the rights or remedies provided by any
other applicable State or federal law to an owner who is a resident homeowner
or purchaser" of the property. N.J.S.A. 2A:30A-2(e)(2). Finally, subsection
(f) requires construction contracts to expressly permit alternative dispute
resolution,3 and further requires that "any civil action brought to collect
payments pursuant to this section . . . shall be conducted inside of this State
and the prevailing party shall be awarded reasonable costs and attorney fees."
N.J.S.A. 2A:30A-2(f).
Interpreting the statute as a whole, we conclude the PPA embodies New
Jersey's strong public policy to ensure that contractors performing construction
work in New Jersey are paid promptly. And, the requirement in N.J.S.A.
2A:30A-2(f) that all "civil actions brought to collect payments pursuant to" the
3
The parties' subcontract does not contain a provision expressly permitting
alternative dispute resolution. Neither party has raised this omission as
relevant to any issue on appeal.
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PPA "shall be conducted inside of this State" is an essential element of that
policy.
The Legislature's affirmative command in subsection 2(f) is similar to
statutes enacted in nearly half of our nation's states that either expressly deem
forum selection clauses in construction contracts "against public policy" or
otherwise "void and enforceable." See 7 Philip L. Bruner & Patrick J.
O'Connor, Bruner and O'Connor on Construction Law § 21:30.10, n.2
(collecting statutes from twenty-four states). Such statutes restrict the forum
for resolving construction contract disputes to the local forum.
Further, we conclude that application of the parties' forum selection
clause would effectuate a result contrary to the principles underpinning the
entire controversy doctrine. Indeed, as noted, civil actions under the PPA must
be conducted in New Jersey. N.J.S.A. 2A:30A-2(f). Similarly, the Kansas
Fairness in Private Construction Contract Act (KFPCCA), Kan. Stat. Ann. §§
16-1801 to -1807, which provides rights, remedies, and protections to
subcontractors who perform work in Kansas analogous to those provided in the
PPA, also requires that venue of actions filed under the KFPCCA "shall be in
the county where the real property is located," id. at § 16-1806, which in this
case is Cape May County, New Jersey.
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Thus, the practical effect of enforcing the parties' forum selection clause
would be to require ERCO to adjudicate its common law claims for breach of
contract, quantum meruit, unjust enrichment, and book account in Kansas,
leaving it to adjudicate its statutory claims to prompt payment in New Jersey.
Such a result would not only contravene New Jersey's strong public policy
embodied in the PPA, but would also violate New Jersey's "strong public
policy promoting [our] constitutionally based entire controversy doctrine," see
McNeill, 297 N.J. Super. at 223, as it would result in improper fragmentation
of litigation involving common facts and parties. 4
National argues for the first time on appeal that because the PPA "is a
New Jersey statute" and the subcontract provides that it was "made in Kansas"
and "shall be interpreted under Kansas law," the PPA "is inapplicable." We
4
ERCO also argues that the PPA was designed to protect subcontractors from
contractors' superior bargaining power, similar to the forum selection clause
deemed unenforceable in Kubis. In that case, our Supreme Court held that
"forum-selection clauses in contracts subject to" the Franchise Practices Act,
N.J.S.A. 56:10-1 to -31, "are presumptively invalid because they
fundamentally conflict with the basic legislative objectives of protecting
franchisees from the superior bargaining power of franchisors and providing
swift and effective judicial relief against franchisors that violate the Act."
Kubis, 146 N.J. at 192-93. In light of our decision that the PPA, and
particularly N.J.S.A. 2A:30A-2(f), embodies New Jersey public policy, we
need not determine if the public policy objectives underlying the Kubis
decision are also applicable here.
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note that because this issue was not raised in the court below, we need not
address it. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973)
(quoting Reynolds Offset Co., Inc. v. Summer, 58 N.J. Super. 542, 548 (App.
Div. 1959)). Nevertheless, even considering the substance of National's
belated choice of law argument, we conclude the point is without merit.
"When law suits are filed in New Jersey, we apply our choice-of-law
rules." Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615, 621 (2007).
"Ordinarily, when parties to a contract have agreed to be governed by the laws
of a particular state, New Jersey courts will uphold the contractual choice if it
does not violate New Jersey's public policy." Instructional Sys., Inc. v.
Comput. Curriculum Corp., 130 N.J. 324, 341, 614 (1992). The first step in
any choice-of-law analysis is to determine, "on an issue-by-issue basis,"
whether "an actual conflict" exists between Kansas law and New Jersey law.
See Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 597-98 (App. Div.
2004) (quotations omitted); see generally P.V. ex rel. T.V. v. Camp Jaycee,
197 N.J. 132, 143 (2008) (explaining that, to determine whether an actual
conflict exists, a court must "examin[e] the substance of the potentially
applicable laws" of the states that have an interest in the matter).
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Here, there is no conflict between Kansas and New Jersey law on the
issue of where a claim for prompt payment of a construction contract must be
litigated. See Kan. Stat. Ann. § 16-1806; N.J.S.A. 2A:30A-2(f). Under both
the KFPCCA and the PPA, ERCO's claim for prompt payment must be filed in
New Jersey, so there is no actual conflict of law and "no choice-of-law issue to
be resolved." See Camp Jaycee, 197 N.J. at 143. 5 Moreover, National has not
cited any principle of Kansas law, which would allow the prompt payment
claims to be litigated in New Jersey, while other, related claims are litigated in
Kansas.
In light of our decision, we need not address ERCO's alternative
argument that serious trial inconveniences attendant to litigating this matter in
Kansas support invalidating the parties' forum selection clause.
Reversed and remanded for further proceedings consistent with this
opinion. We do not retain jurisdiction.
5
Nothing in our opinion precludes the parties from raising in the trial court
any choice-of-law issue involving an actual conflict between Kansas and New
Jersey law.
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