CITY OF PERTH AMBOY VS. INTERSTATE INDUSTRIAL CORP. VS. IMPERIAL CONSTRUCTION GROUP, INC.(L-2745-06, L-3789-07 AND L-7861-07, MIDDLESEX COUNTY AND STATEWIDE)(CONSOLIDATED) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE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-0778-14T4
A-0842-14T4
CITY OF PERTH AMBOY,
Plaintiff-Respondent/
Cross-Appellant,
v.
INTERSTATE INDUSTRIAL CORP.,
Defendant-Respondent/
Cross-Appellant,
and
XL SPECIALTY INSURANCE COMPANY
and S.M. ELECTRIC COMPANY, INC.,
Defendants,
and
TAK CONSTRUCTION, INC.,
SAFECO INSURANCE COMPANY
OF AMERICA,
Defendants-Appellants/
Cross-Respondents,
and
XL SPECIALTY INSURANCE COMPANY,
Third-Party-Plaintiff,
v.
IMPERIAL CONSTRUCTION GROUP,
INC.,
Third-Party-
Defendant-Respondent,
and
MICHAEL ZEMSKY, A.I.A.,
ARCHITECTS AND PLANNERS,
Third-Party Defendants.
________________________________________
Argued November 29, 2016 – Decided May 17, 2017
Before Judges Messano, Espinosa and Guadagno.
On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County, Docket
Nos. L-2745-06, L-3789-07 and L-7861-07.
Benjamin D. Lentz argued the cause for
appellant/cross-respondent Safeco Insurance
Company of America (Torre, Lentz, Gamell, Gary
& Rittmaster, L.L.P., attorneys; Kevin M.
Gary, on the briefs).
Geoffrey J. Hill argued the cause for
appellant/cross-respondent TAK Construction,
Inc. (Law Offices of Steve M. Kalebic, P.C.,
attorneys; Steve M. Kalebic, of counsel and
on the briefs).
Timothy D. Cedrone argued the cause for
respondent/cross-appellant City of Perth
Amboy (Apruzzese, McDermott, Mastro & Murphy,
attorneys; Mark J. Blunda, of counsel and on
the brief; Mr. Cedrone, on the briefs).
Robert S. Cosgrove argued the cause for
respondent/cross-appellant Interstate
Industrial Corp. (Durkin & Durkin, L.L.P.,
attorneys; Mr. Cosgrove, on the briefs).
2 A-0778-14T4
James J. Ross argued the cause for respondent
Imperial Construction Group, Inc. (Carroll,
McNulty & Kull, L.L.C., attorneys; Joseph P.
McNulty, of counsel and on the brief; Mr.
Ross, of counsel and on the brief; Michael S.
Kerr, on the brief).
PER CURIAM
These consolidated appeals arise from the construction of a
municipal complex in the City of Perth Amboy (the City). The
project envisioned a free-standing building housing the fire
department and emergency medical services (the first building),
and a second building containing the public safety department,
municipal court and community center, which included swimming
pools and a gymnasium. The City intended to expedite completion
of the project within one year. It decided not to hire a general
contractor, but rather have its business administrator serve as
project manager and contemporaneously award contracts to a number
of prime contractors. The process was delayed, and the City
opted to begin awarding contracts seriatim, even though, in some
instances, plans and specifications were not complete.
The City awarded multiple contracts, including those to:
Michael Zemsky, A.I.A., Architects & Planners (Zemsky), for
architectural services; Imperial Construction Group (Imperial),
for construction management; Interstate Industrial Corp.
(Interstate), for concrete work; and TAK Construction Co. (TAK),
3 A-0778-14T4
the largest contract — $19.774 million — for general construction.
Safeco Insurance Company of America (Safeco) was TAK's surety, and
XL Specialty Insurance Company (XL) was Interstate's surety.
Zemsky was to supply "normal" structural, mechanical and
electrical "engineering services" for all project phases, from
design through construction. He was required to prepare all design
and construction drawings and specifications.
Imperial was the project's construction manager, with
responsibility to monitor the quality of contractor work and
coordinate all work and other activity. It was to review change
orders, make recommendations to the City and Zemsky, and negotiate
final terms with the contractors. Imperial was charged with
"immediately causing the remediation of any incorrect work," and
notifying the City and Zemsky of such deviations or other
deficiencies, as well as "any situation" that might increase the
project's cost or delay its completion.
The contract with Interstate included a time of the essence
provision that subjected the company to per diem liquidated damages
if Interstate did not finish on time. Interstate was subject to
Imperial's direction about the sequencing of work, but Imperial
had no authority over Interstate's "means, methods, techniques,
sequences or procedures of construction."
4 A-0778-14T4
The contract specified that additional time for completion
was Interstate's only relief against the City, Zemsky, or Imperial
for the effect of any "delay, obstruction or hindrance for any act
or omission of" those parties or other contractors, including
changes in work schedules or sequencing. Additionally, the
contract allowed the City, at its convenience, to terminate
Interstate "for any reason" upon seven days' written notice. The
City could also terminate Interstate for cause within forty-eight
hours of its failure to begin whatever corrective measures Imperial
might demand in order to cure or mitigate insufficient progress
or other defaults on Interstate's contractual obligations. Those
other defaults included the failure to furnish sufficient skilled
labor or, "in the sole opinion of" Imperial, "in any respect to
prosecute the work, to insure its completion in the manner and
within the time determined by [Imperial] or the [City]."
The contract with TAK included identical provisions
permitting termination for convenience and for cause, as well as
time of the essence and liquidated damages provisions. TAK was
to "furnish all labor, materials, equipment, tools and services
necessary to perform and complete the Project in strict compliance
with the Contract Documents." That included the bulk of
construction work following site preparation, except for work done
by other contractors providing structural steel, concrete building
5 A-0778-14T4
foundations and floor slabs, climate control, plumbing, general
electrical work, and the alarm and building management systems,
all of which TAK was responsible for coordinating as "project
coordinator," subject nonetheless to Imperial's direction.
As with Interstate, Imperial would decide questions about the
timelines of TAK's work and satisfaction of its contractual
obligations, and Imperial had no authority over TAK's means or
methods of performance. TAK also waived delay damages for any
additional costs that arose from Imperial's direction and
acknowledged an extension of time would be its sole remedy against
the City, Zemsky, or Imperial for delays that resulted from their
negligence or that of another contractor.
The project rapidly fell behind schedule. The City held TAK
responsible for the delays, and the parties mediated their dispute.
In October 2006, TAK and the City executed a memorandum of
understanding (MOU), also designated as a stipulation of
settlement. The MOU was "a supplement to" TAK's contract and
stated that, "[e]xcept as set forth herein, all other terms and
conditions of [TAK's] Contract remain[ed] in full force and
effect." The MOU set October 31, 2006, as the date for substantial
completion of the first building, and May 15, 2007, as the
completion date for the second building. As to each building, the
City agreed to pay additional sums as "change orders," subject to
6 A-0778-14T4
the right to impose penalties upon TAK for failure to meet
completion dates.
Although TAK substantially completed the first building in
December 2006, disputes over TAK's performance regarding the
second building continued. On March 26, 2007, Imperial sent TAK
the forty-eight-hour notice required by the contract before any
take-over of TAK's work. It cited scheduling failures and advised
TAK that the City was taking control of unspecified "portions" of
TAK's obligations. It instructed TAK "to increase [its] work
force, work hours [and] workdays" and "to work two shifts."
TAK responded the same day, asserting that any delays were
beyond its control and caused by delays and errors of other prime
contractors, design changes, and delayed responses to TAK's
requests for "decisions, approvals, and answers to" requests for
information. Additional disputes arose over the payment of TAK's
invoices. In May, TAK notified Imperial that the City was in
"material breach" of the contract for failing to pay requisitions
for work TAK completed earlier in the year.
On May 16, 2007, Imperial sent TAK a notice listing ten
specific grounds of default. The letter stated that TAK would be
terminated "[i]f [it] fail[ed] to correct this default within the
next seven days." TAK responded by asserting its work was adequate
and any delays were caused by other contractors. The City
7 A-0778-14T4
terminated the contract with TAK on May 23, 2007. Safeco assumed
TAK's contractual responsibilities in June and completed the
project.
More problems arose regarding the second building,
particularly as to a trench drain for the proposed pool deck area.
Imperial believed Interstate had clearly indicated its intention
to mobilize and address the issue, but Interstate adamantly
indicated that Imperial had not supplied necessary documentation
and specifications to address an admittedly plain design error in
Zemsky's plans.
On September 23, 2008, Imperial sent Interstate written
notice of default for its alleged failure "to mobilize and schedule
labor and material as required to proceed with the installation
of rebar and concrete in order to complete the pool deck area."
The letter gave Interstate seven days to cure the default to avoid
being terminated on September 30. Nonetheless, at a project
meeting held on September 25, the City's representatives told
Interstate's representatives the company had been terminated.
Another contractor finished Interstate's remaining work and was
paid $43,000.
The City filed the first action in the Law Division against
Interstate, seeking a declaration that Interstate was not entitled
to delay damages. Interstate answered and asserted a counterclaim
8 A-0778-14T4
for wrongful termination and damages. In the second action, TAK
filed a complaint in lieu of prerogative writs challenging the
City's termination of its contract. As expected, the parties
asserted cross-claims and counterclaims against each other, and
other contractors and sub-contractors were added to the suits,
which were then consolidated.1
The judge dismissed certain claims asserted by TAK and
Interstate against Imperial on summary judgment. The bench trial
began in March 2014, with the only remaining parties being the
City, Interstate, TAK and Safeco, plus Imperial on the City's
claim for indemnification. The testimony did not conclude until
June.
In a comprehensive written opinion, which we discuss more
fully below, the trial judge reviewed the evidence. As summarized
in his June 30, 2014 order for judgment, the judge concluded the
City properly terminated the contract with TAK, but its termination
of Interstate's contract was for the City's convenience and not
because of Interstate's default. The judge further determined the
City suffered no delay damages from TAK's failure to perform
because of Zemsky's "concurrent delay in . . . redesigning the
1
A third action, brought by the electrical contractor, S.M.
Electric Company, Inc., was also consolidated with the other
two, but, prior to trial, all claims by all parties involving
S.M. Electric were dismissed by stipulation.
9 A-0778-14T4
trench drain and the pool deck structural slab . . . ." He
concluded, however, the City suffered damages from "Interstate's
failure to provide certain work in compliance with the contract
. . . ."
The judge determined Safeco was entitled only to the "full
contract balance," concluding Safeco was "barred by the . . . the
Contract . . . from asserting damages for . . . delays . . . ."
He also found TAK was not entitled to any damages, and Interstate
failed to prove "it suffered measurable damages as a result of the
City's termination of its contract for default rather than
convenience." Lastly, the judge concluded the City failed to
prove that Imperial breached its contract.
The court entered final judgment for $221,074.41 in favor of
the City against Interstate, ordering an offset for the amount of
the settlement the City reached with XL. It also entered judgment
for Safeco for $927,547.38 against the City. The court entered
judgments of no cause on Safeco's counterclaim for improper
termination of TAK and delay damages against the City, and on
TAK's and Interstate's counterclaims and cross-claims. The court
dismissed all other claims, and subsequently denied Safeco's and
TAK's motions for reconsideration.
In A-778-14, Safeco argues that, for various reasons, the
court erred in concluding the City legally terminated TAK's
10 A-0778-14T4
contract. It also contends that even if termination was proper,
the judge should have awarded pre-judgment interest on the contract
balance and delay damages, despite the contract's exculpatory
clause.
In A-842-14, TAK argues its termination was improper for a
number of reasons. Interstate cross-appeals, arguing the City
terminated its contract wrongfully and in bad faith, the
exculpatory clause is unenforceable and it is entitled to delay
damages. Interstate also argues the judge erred by granting
summary judgment to Imperial on Interstate's indemnification
claim. The City filed a defensive cross-appeal, arguing its
indemnification claims against Imperial should survive in the
event we grant relief to Safeco, TAK or Interstate.
We have considered these arguments in light of the record and
applicable legal standards. We affirm.
I.
We set forth the standards that guide our consideration of
the issues raised on appeal. "We review the trial court's
determinations, premised on the testimony of witnesses and written
evidence at a bench trial, in accordance with a deferential
standard." D'Agostino v. Maldonado, 216 N.J. 168, 182 (2013).
"[W]e do not disturb the factual findings and legal conclusions
of the trial judge unless we are convinced that they are so
11 A-0778-14T4
manifestly unsupported by or inconsistent with the competent,
relevant and reasonably credible evidence as to offend the
interests of justice . . . ." Ibid. (quoting Seidman v. Clifton
Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011)).
"[W]e do not weigh the evidence, assess the credibility of
witnesses, or make conclusions about the evidence." Mountain
Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App.
Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)).
"To the extent that the trial court's decision constitutes a legal
determination, we review it de novo." D'Agostino, supra, 216 N.J.
at 182 (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan,
140 N.J. 366, 378 (1995)).
With these standards in mind, we first address the substantive
arguments raised by Safeco and TAK.
II.
In his written opinion, the trial judge found that Imperial
repeatedly warned TAK that its performance was deficient. The
judge noted that in September 2006, Imperial recommended the City
terminate TAK because it failed to complete tasks on schedule, and
it "would not and could not reasonably fulfill [its] obligations
in the near future." Instead, the City negotiated the MOU with
TAK, but "neglected to include any of the other prime contractors
in the negotiating process."
12 A-0778-14T4
The judge found that in November 2006, Imperial attempted to
bring together all the prime contractors with responsibilities for
the pool area in an attempt to reach the May 2007 target completion
date for the second building. The judge found, "this was not
Imperial's responsibility; it was TAK's." The judge also concluded
that beginning in January 2007, Imperial began notifying TAK of
its obligations to submit shop drawings and schedules to meet the
May deadline, and in March, Imperial directed TAK to increase its
work force and hours. The judge detailed the numerous inadequacies
Imperial found in TAK's performance and manpower commitment during
April 2007.
The judge reviewed the contract's termination provisions and
the ten reasons listed in the May 16, 2007 notice of termination.
The judge found "this notice is the culmination of a series of
notices all related to [Imperial's] opinion, expressed in writing
and in meeting minutes, that TAK [was] not manning, scheduling or
coordinating the work properly." He concluded, "the notice
comports with the procedural requirements of the contract . . . .
There is nothing in the evidence to support any notion that TAK
attempted to cure the ongoing issues, or provide a detailed
response to evidence a cure."
The judge also found that the MOU did not "preclude the City
from exercising its right of termination for cause." He noted
13 A-0778-14T4
that the City based the termination on more than TAK's inability
to complete the second building by May 15, 2007.
The judge also rejected Safeco's and TAK's claim that the
termination was improper because delays attributable to TAK were
not on the "critical path" to the project's completion. The judge
found "the parties had evidenced a clear intention that the
completion of the disparate areas of the [second] building was to
be sequenced." He cited testimony from "multiple witnesses . . .
that the City urgently wanted beneficial use of the police area
first, the courthouse second, and the recreational area last."
The judge found "other parties [in addition to TAK] bear
responsibility for the project being abysmally behind schedule."
However, he specifically noted TAK's failure to challenge
Imperial's "litany of over thirty pieces of correspondence
detailing the lack of manpower, coordination and scheduling needed
to move the project . . . ." In detailed fact-finding implicitly
rejecting the credibility of TAK's principal and expressly
rejecting TAK's expert's testimony, the judge found the City
properly terminated TAK for failure to employ sufficient skilled
craftsmen and complete the project in a timely manner; TAK failed
to make timely submittals for stone work, which denied the City
"beneficial use of the police and court . . . areas"; and TAK
failed to "schedule and coordinate all activities at the site."
14 A-0778-14T4
The judge addressed Safeco's claims, finding it was entitled
to the "full contract balance due and owing," $927,547.38. Based
on his earlier findings, he rejected any damages for the City's
"improper termination" of TAK. The judge then addressed Safeco's
"own claim for delay damages based on the time for completion as
the completing contractor . . . ." The judge concluded that TAK,
Interstate and Zemsky all played a part in causing the delays, but
the exculpatory clause "extend[ed] the protections sought for the
benefit of the City to the negligence of its retained
professionals."
A.
Safeco and TAK both argue that termination was improper
because TAK's remaining work at the time was not on the "critical
path" for completion of the project. Safeco claims that delays
in work not on the critical path are not sufficiently material to
justify the severe remedy of termination. It also argues that the
judge constructed other "critical paths" that never existed by
concluding, contrary to the contract and the MOU, that the second
building was to be completed in stages. We reject these arguments
without extensive discussion. R. 2:11-3(e)(1)(E).
Safeco and TAK cite a number of federal precedents for
support. See Decker & Co. v. West, 76 F.3d 1573, 1580 (Fed. Cir.
1996); Devito v. United States, 413 F.2d 1147, 1153 (Ct. Cl. 1969);
15 A-0778-14T4
J.D. Hedin Constr. Co. v. United States, 408 F.2d 424, 431 (Ct.
Cl. 1969); Sterling Millwrights, Inc. v. United States, 26 Cl. Ct.
49, 75, 92 (1992). While these cases hold termination is akin to
a forfeiture and should not be imposed lightly, they do not hold
that delay in work off a critical path can never justify
termination. Rather, the decisions may be summarized as holding
critical path analysis to be useful in determining delay damages.
See G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662, 728 (1984)
("The reason that the determination of the critical path is crucial
to the calculation of delay damages is that only construction work
on the critical path had an impact upon the time in which the
project was completed." (emphasis added)).
Only a handful of published cases from our courts even discuss
the concept of critical path scheduling. See, e.g., P.T. & L.
Constr. v. State, Dep't of Transp., 108 N.J. 539, 544 (1987);
Broadway Maint. Corp. v. Rutgers, State Univ., 90 N.J. 253, 261
(1982); Utica Mut. Ins. Co. v. DiDonato, 187 N.J. Super. 30, 34
(App. Div. 1982); Am. Sanitary Sales Co. v. State, Dep't of Treas.,
178 N.J. Super. 429, 433-34 (App. Div.), certif. denied, 87 N.J.
420 (1981); Edwin J. Dobson, Jr., Inc. v. Rutgers, State Univ.,
157 N.J. Super. 357, 367-68 (Law Div. 1978), aff'd sub nom.
Broadway Maint. Corp. v. Rutgers, State Univ., 180 N.J. Super. 350
(App. Div. 1981), aff'd, 90 N.J. 253 (1982); Buckley & Co. v.
16 A-0778-14T4
State, 140 N.J. Super. 289, 294 (Law Div. 1975). None of them
support the proposition that a contract cannot be terminated unless
there is delay to work on the critical path to completion.
B.
Safeco contends there was no evidence that TAK's alleged
failure to provide sufficient manpower actually delayed completion
of the public safety and municipal court sections of the second
building for the City's "beneficial use," and the judge effectively
"re-wrote" the contract by ignoring the intended unitary nature
of the project. It contends Zemsky and others caused the delays,
which continued even after Safeco assumed the work. Finally,
Safeco claims the judge ignored the City's failure to give TAK
forty-eight hours to cure defaults. TAK makes similar arguments,
stating there was no basis for the judge to conclude the parties
intended the second building be delivered in piecemeal fashion.2
2
TAK also argues that, during the City's earlier motion for
partial summary judgment, the judge concluded the contract was a
unitary contract and rejected the City's argument that there were
differing completion dates for the second building. We have only
the transcript of the argument, but, in any event, an interlocutory
"order denying summary judgment . . . decides nothing and merely
reserves issues for future disposition." Gonzalez v. Ideal Tile
Importing Co., Inc., 371 N.J. Super. 349, 356 (App. Div. 2004),
aff'd, 184 N.J. 415 (2005), cert. denied sub nom. Gonzalez v.
Komatsu Forklift, U.S.A., Inc., 546 U.S. 1092, 126 S. Ct. 1042,
163 L. Ed. 2d 857 (2006).
17 A-0778-14T4
In essence, these arguments require us to reject the judge's
factual findings, which we refuse to do. The evidence demonstrates
TAK acknowledged the anticipated delivery of the public safety and
court portions of the second building would precede the troubled
pool deck area. On June 28, 2006, TAK sent Imperial a schedule
and sequencing update for the entire project. TAK noted this
comported with Imperial's request to bifurcate the work on the
second building, with separate completion dates "to meet the
Owner's recently desired priorities of the Police and Court areas
followed by the Recreation [portion's] Daycare, Gymnasium, and
Pool areas." Each of the more than 350 items in the update had its
own schedule and completion date, with final completion projected
for March 27, 2007, and a certificate of occupancy to be issued
on April 10, 2007. This alone supports the judge's conclusion
that the parties anticipated the City's earlier beneficial use of
the public safety and municipal court portions of the second
building.
As to TAK's failure to supply adequate skilled labor, the
judge relied on Imperial's repeated and specific requests in March
and April 2007, particularly in areas where there would be no
disruption of ongoing work or its completion. To the extent we
have not specifically addressed Safeco's and TAK's other claims
18 A-0778-14T4
in this regard, they lack sufficient merit to warrant discussion
in a written opinion. R. 2:11-3(e)(1)(E).
Safeco also contends the judge found a basis for termination
that the City never asserted, namely, TAK's alleged failure to
coordinate the work of other prime contractors. However, the
City's notice of termination cited TAK's breach of various articles
of the contract, including Article VIII, which placed upon Imperial
the obligation to settle "all questions concerning the acceptable
fulfillment of the Contract by [TAK]." In its contract, TAK was
the designated "project coordinator" with responsibility to
"[p]rovide overall coordination of the [w]ork of all other
[c]ontractors." The judge cited the cumulative effect of TAK's
failure to coordinate and schedule the work of other prime and
subcontractors.
Safeco and TAK argue the judge erred in concluding TAK's
delay in furnishing certain stone samples caused a significant
delay in the public safety and municipal court portions of the
second building. TAK also argues that the judge's finding that
Zemsky was negligent precluded the conclusion that TAK materially
breached the contract, and it also contends that, under the terms
of the MOU, the City's remedy was limited to liquidated damages.
These arguments lack sufficient merit to warrant extensive
discussion. R. 2:11-3(e)(1)(E).
19 A-0778-14T4
The judge did not find that TAK's delay in submitting samples
was a breach. Rather, the judge noted Imperial's concern that TAK
was not taking into account the long lead time for the stone
materials to arrive once ordered. In any event, for the reasons
already stated, there was sufficient, credible evidence in the
record to support the judge's conclusion that delays attributable
to TAK's breaches justified its termination.
We construe the legal import of the MOU de novo. See e.g.,
Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420
(App. Div. 1998) ("Interpretation and construction of a contract
is [sic] a matter of law for the court subject to de novo review.").
By its express terms, the MOU supplemented the original agreement
and expressly continued the contract's other terms. We reject
TAK's argument that the MOU modified them.
Lastly, TAK cites no authority for the proposition that other
concurrent causes for delay barred the City's right to terminate
the contract. We have not recognized such an "all-or-nothing"
approach and, instead, have held that even as between owner and
contractor, the appropriate solution is an apportionment of
damages occasioned by concurrent delays. Am. Sanitary Sales,
supra, 178 N.J. Super. at 434.
20 A-0778-14T4
C.
Safeco and TAK also argue the judge did not consider that the
City's failure to pay TAK's early-2007 requisitions was a material
breach barring the City from declaring TAK's default. TAK
additionally argues the failure to pay evinces the City's bad
faith. The City contends TAK was not "entitled" to payment of the
submitted requisitions in spring 2007, nor was it permitted by the
contract to delay or withhold required performance over disputes
about payment. We agree with the City.
"When there is a breach of a material term of an agreement,
the non-breaching party is relieved of its obligations under the
agreement." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990) (citing
Stamato & Co. v. Borough of Lodi, 4 N.J. 14 (1950)). Failure to
pay may be a material breach under the common law even if the
contract fails to name it as a ground of default and termination.
Ingrassia Constr. Co. v. Vernon Twp. Bd. of Educ., 345 N.J. Super.
130, 136-37 (App. Div. 2001). If the shortcomings in a
contractor's work are not significant enough to justify
withholding payment, then the owner's failure to make payments as
required is such a breach. Zulla Steel, Inc. v. A & M Gregos,
Inc., 174 N.J. Super. 124, 131 (App. Div. 1980). However, a
statement by the contractor of its "implied . . . willingness to
resume service upon payment . . . waive[s] the materiality of the
21 A-0778-14T4
breach." Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J. Super.
275, 287 (App. Div. 1998).
Although the judge did not address the issue directly, he
specifically rejected TAK's claim that the City had earlier delayed
payments because of political reasons, noting the evidence
revealed TAK received its payments at that time without delay.
The unpaid requisitions TAK asserted as evidence of the City's
material breach were the subject of significant controversy at
trial.
For example, Zemsky suggested checks be drawn but not
tendered, citing pages of inadequacies in TAK's submissions. TAK's
principal testified that despite serving the May 15, 2007 letter
alleging the City's breach for non-payment, the company continued
to pay subcontractors so as not to slow the completion of TAK's
work. Imperial's representative testified at trial that, despite
TAK's claim, the items requisitioned for payment were incomplete,
there was still work TAK needed to do and some of it was unaffected
by disputes with other prime contractors. In short, there was
substantial, credible evidence in the record to support the judge's
implicit conclusion that the City's failure to pay previously
requisitioned work was not a material breach of the contract and
did not foreclose the City from legally terminating TAK's contract.
22 A-0778-14T4
We also reject TAK's assertion of bad faith by the City. As
Judge Skillman wrote, "To show bad faith, the claimant must
establish that the alleged breaching party had an 'improper
motive.'" Capital Safety, Inc. v. State, Div. of Bldgs. & Constr.,
369 N.J. Super. 295, 301 (App. Div. 2004) (quoting Wilson v.
Amerada Hess Corp., 168 N.J. 236, 251 (2001)). The judge clearly
rejected any claim that the City acted in bad faith, and the record
evidence provides no reason to conclude otherwise.
D.
Safeco contends the judge erred in denying pre-judgment
interest on the damage award. The judge did not address the issue
in the order for judgment or in his written opinion. The judge's
September 19, 2014 order that denied Safeco's motion for
reconsideration also denied pre-judgment interest.
The City correctly notes that Safeco did not include that
order in its notice of appeal, and only orders included in the
notice of appeal are subject to our review. 30 River Court E.
Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 473-74 (App.
Div. 2006).3 Safeco counters by stating in its reply brief that
a demand for pre-judgment interest was "inherent in its claim for
the contract balance."
3
TAK included the order denying reconsideration in its notice of
appeal.
23 A-0778-14T4
"Although prejudgment interest in a tort action is expressly
governed by R. 4:42-11(b), 'the award of prejudgment interest on
contract and equitable claims is based on equitable principles.'"
Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 390 (2009)
(quoting Cty. of Essex v. First Union Nat'l Bank, 186 N.J. 46, 61
(2006)). "Thus the award of prejudgment interest in a contract
case is within the sound discretion of the trial court." Ibid.
Here, the sparse record hampers our ability to review Safeco's
contention. Safeco did not raise the issue in its post-trial/pre-
judgment brief, which is in the appellate record, and the issue
was not raised at oral argument on Safeco's motion for
reconsideration. In short, there is no basis for us to conclude
Safeco ever argued the point, much less that the judge mistakenly
exercised his discretion by denying pre-judgment interest.
III.
Turning to the issues raised in its cross-appeal, the judge
found that Interstate was "one of the first contractors to begin
its work," was given a one-hundred day timetable for completion
and rightly assumed "other prime contracts would be issued
contemporaneous with its contract." By January 2005, Interstate
had completed most of its work on the first building and signaled
an intention to demobilize for lack of work. Interstate completed
most of its work on the second building before it became apparent,
24 A-0778-14T4
in fall 2005, that Zemsky's design specifications were wrong, and
the flooring subcontractors could not make their installations
upon the concrete slabs Interstate poured. The judge concluded
other design flaws were discovered when Interstate mobilized to
work at the pool deck area.
The judge considered the four grounds for termination in
Imperial's September 2008 notice. He concluded the City failed
to demonstrate it paid Safeco or other contractors to remediate
Interstate's unsatisfactory work after termination. Instead, any
additional work was "necessary to harmonize the discrepancies in
the tolerances inherent in the contract documents." The judge
also concluded the City failed to permit Interstate to cure any
alleged defaults, and therefore, the "termination . . . was not
for cause."
Instead, he construed the termination as one for the City's
convenience, and, pursuant to the contract, Interstate was
entitled to "compensation 'for . . . authorized services rendered
. . . up to that date, and for all reasonable shutdown costs as
agreed to by both parties.'" The judge found it was undisputed
that the contract's unpaid balance was $43,000, and "the remaining
work . . . exceeded this amount." The judge concluded Interstate's
other damage claims were speculative.
25 A-0778-14T4
In its cross-appeal, Interstate claims the judge erred by
concluding the City properly terminated the contract for
convenience. It argues the City's attempted termination for cause
evidenced bad faith, entitling Interstate to delay damages,
despite the exculpatory clause in the contract.4
We have followed the decisions of federal courts, which "have
broadly construed termination for convenience provisions to
authorize termination for any reason that is in the best interests
of the government so long as the contracting agency does not act
in bad faith." Capital Safety, supra, 369 N.J. Super. at 300
(citations omitted). "Mere error on the part of the Government,
even if it would constitute sufficient ground for contractual
breach were the termination clause inapplicable, is insufficient
to overcome the presumption of regularity inherent in the
invocation of the termination for convenience." Ibid. (quoting
Kalvar Corp. v. United States, 543 F.2d 1298, 1303 (Ct. Cl. 1976),
cert. denied, 434 U.S. 830, 98 S. Ct. 112, 54 L. Ed. 2d 89 (1977)).
The contractor's burden to prove bad faith is "very weighty." Id.
at 301 (quoting Krygoski Constr. Co. v. United States, 94 F.3d
4
The judge's opinion did not explain in any detail the reasons
for, or calculation of, the judgment of $221,071.41 in favor of
the City, subject to an offset for the amount of the City's
settlement with XL. However, Interstate has not appealed from
that portion of the judgment.
26 A-0778-14T4
1537, 1541 (Fed. Cir. 1996), cert. denied, 520 U.S. 1210, 117 S.
Ct. 1691, 137 L. Ed. 2d 819 (1997)).
Interstate does not challenge the City's ability to terminate
the contract for convenience. Rather, it contends the City's
attempted termination for cause, as well as other conduct,
demonstrates the City intended to make Interstate a "scapegoat"
for delays occasioned by others. Interstate argues it proved the
City acted in bad faith.
The circumstances are unusual in that, even at trial, the
City argued it properly terminated Interstate for cause. The
judge rejected that argument and concluded the termination was
properly for the City's convenience. In any event, the judge
entered judgment for the City against Interstate, and Interstate
has not challenged that portion of the judgment on appeal.
Implicit in that finding was the judge's rejection of any claim
that the City acted in bad faith. Moreover, in addressing the
impact of the exculpatory clauses, the judge explicitly found the
City did not act in bad faith. We therefore reject Interstate's
argument the termination for convenience was improper.
Interstate also contends the judge erred by dismissing its
cross-claim against Imperial on summary judgment. Interstate
argues it was an intended third-party beneficiary of Imperial's
contract, and Imperial's contractual duties of proper management
27 A-0778-14T4
and coordination of the project flowed to Interstate as well as
to the City. Interstate contends the web of contracts for the
project gave Imperial an enforceable duty to supervise, manage,
and coordinate the project. We disagree.
In granting Imperial summary judgment, the judge reasoned the
various contracts made clear that Imperial did not have "any
authority or any responsibility for means, methods, sequences
procedures. And [it was] not . . . responsible for it." Under
the circumstances, the judge concluded none of the prime
contractors had a cause of action against Imperial as implied
third-party beneficiaries of Imperial's contract with the City.
"The principle that determines the existence of a third party
beneficiary status focuses on whether the parties to the contract
intended others to benefit from the existence of the contract, or
whether the benefit so derived arises merely as an unintended
incident of the agreement." Broadway Maint., supra, 90 N.J. at
259. "The contractual intent to recognize a right to performance
in the third person is the key. If that intent does not exist,
then the third person is only an incidental beneficiary, having no
contractual standing." Ibid.
In Broadway Maintenance, which involved a multi-prime
contract with a general contractor, the owner allocated all
coordination duties to the general contractor in order to insulate
28 A-0778-14T4
itself from liability for damages to any contractor arising from
lack of coordination. Id. at 256-58. The Court upheld that
arrangement and ruled that the prime contractors could assert such
claims only against the general contractor. Id. at 266-68.
The Court explained how the provisions of the various
contracts "expressly" created mutual expectations that "failure
to comply could cause damages to other prime contractors," damages
would "be paid by other prime contractors whose improper
performance caused delay," and "[i]f a contractor were the
wrongdoer, [it would] pay those damages" itself. Id. at 261-62.
Such a "promise to pay the damages of a fellow prime contractor"
was "strong evidence that the injured prime contractor is an
intended beneficiary who may enforce that promise." Id. at 262.
Imperial's contract in this case was devoid of similar
obligations to other contractors. By the terms of its contract,
Imperial was required to cooperate only with the City and Zemsky,
it provided express indemnification only to them and the contract
disclaimed liability for the harm that any contractor might sustain
from another contractor's failure to coordinate. In short,
regardless of the extent of Imperial's responsibility to
coordinate, it plainly was not an enforceable duty running to the
contractors. The judge properly granted Imperial summary
judgment.
29 A-0778-14T4
IV.
Citing Broadway Maintenance, the judge concluded the
exculpatory clauses in Safeco's and Interstate's contracts were
enforceable unless they violated public policy. He construed the
contracts in this case to "extend the protections sought for the
benefit of the City to the negligence of its retained
professionals." The judge concluded Zemsky was negligent and the
City "persisted in its belief . . . [Zemsky] was properly handling
the issues . . . ." Although in "hindsight" the City was wrong,
its error was not based upon bad faith or unfair dealing. He
rejected any argument that Zemsky's negligence was unforeseen by
the contractors. The judge concluded the exculpatory clauses were
enforceable and barred any claim for delay damages.
Both Safeco and Interstate argue it was error to enforce the
exculpatory clauses. Safeco contends it was entitled to recover
the fees it paid to FAA, a construction manager it hired to
complete TAK's work, because Zemsky's negligence was imputed to
the City and precludes enforcement of the exculpatory clause. It
also argues the City acted in bad faith and the delays were
unanticipated when TAK entered into the contract.
Interstate contends its contract was ambiguous and the
exculpatory clause should not be enforced because of the City's
bad faith in endeavoring to avoid the consequences of Zemsky's
30 A-0778-14T4
negligence. It also argues the City's decision to award contracts
without complete plans was an independent source of negligence.
When the Local Public Contracts Act, N.J.S.A. 40A:11-1 to -39,
was enacted in 1971, L. 1971, c. 198, §§ 1-39, the Legislature
allowed publicly bid, local government contracts to include
exculpatory clauses denying delay damages and limiting
contractors' remedies to extensions of time. N.J.S.A. 40A:11-19
(2000). However, in 2001, the Legislature declared it was "void,
unenforceable and against public policy . . . to limit a
contractor's remedy for the contracting unit's negligence, bad
faith, active interference, tortious conduct, or other reasons
uncontemplated by the parties that delay the contractor's
performance, to giving the contractor an extension of time."
Ibid.; L. 2001, c. 206, § 1. No reported cases have construed the
amended provision. Cf. Broadway Maintenance, supra, 90 N.J. at
269-70 (addressing only non-local government agencies or claims
that predated the amendment).
"The fundamental objective of statutory interpretation is to
identify and promote the Legislature's intent." Parsons ex rel.
Parsons v. Mullica Twp. Bd. of Educ., 226 N.J. 297, 307 (2016)
(citing State v. Gelman, 195 N.J. 475, 482 (2008) (citing
DiProspero v. Penn, 183 N.J. 477, 492 (2005))). "In construing
any statute, we must give words 'their ordinary meaning and
31 A-0778-14T4
significance,' recognizing that generally the statutory language
is 'the best indicator of [the Legislature's] intent.'" Tumpson
v. Farina, 218 N.J. 450, 467 (2014) (alteration in original)
(quoting DiProspero, supra, 183 N.J. at 492). "However, not every
statute is a model of clarity. When the statutory language is
sufficiently ambiguous that it may be susceptible to more than one
plausible interpretation, we may turn to such extrinsic guides as
legislative history, including sponsor statements and committee
reports." Wilson ex rel. Manzano v. City of Jersey City, 209 N.J.
558, 572 (2012) (citing Burns v. Belafsky, 166 N.J. 466, 473
(2001)).
We conclude the Legislature did not intend to broaden a public
entity's liability by permitting the negligence of its agents or
independent contractors to be imputed to the public entity. We
reach this conclusion for a number of reasons.
Initially, the plain language of the statute provides the
contractor's remedy cannot be limited to an extension to complete
the work because of the "contracting unit's negligence, bad faith,
active interference, tortious conduct, or other reasons
uncontemplated by the parties." N.J.S.A. 40A:11-19. N.J.S.A.
40A:11-2(1) defines a "contracting unit" as a county,
municipality, and certain local governmental boards, commissions,
authorities, and agencies. The definition does not include the
32 A-0778-14T4
agents or independent contractors of the "contracting unit." Ibid.
In other words, the exculpatory clauses in these contracts did not
violate public policy, except to the extent they exculpated the
City's own conduct. There is nothing to suggest that the
Legislature intended the negligent conduct of Zemsky or Imperial
could be imputed to the City so as to transform a contract that
did not violate public policy as to the City's agents into one
that violated public policy as to the City, thereby making
cognizable a damage claim against the City that otherwise did not
exist.
Additionally, the history accompanying the 2001 amendment
makes clear the Legislature never intended that contractors'
remedies could be broadened by imputing the negligence of others
to the contracting unit. The Assembly sponsor's statement
described the amendment as "allow[ing] contractors to submit
claims of delay caused by the contracting unit to the contracting
unit for consideration." Sponsor's Statement to A. 2913 (Nov. 9,
2000) (emphasis added). The purpose of the amendment was "to
create an incentive for the contracting unit to work cooperatively
with the contractor to resolve project issues in a timely manner."
Ibid.
The amendment was "modeled" after identical language in
L. 1994, c. 80, § 1, which amended N.J.S.A. 2A:58B-3. Assembly
33 A-0778-14T4
Local Gov't Comm., Statement to A. 2913 (Jan. 18, 2001). That
1994 enactment similarly prohibited contracts with state agencies
from having exculpatory clauses that barred delay damage claims
arising from a state agency's "negligence, bad faith, active
interference, or other tortious conduct." N.J.S.A. 2A:58B-3(b).
However, that amendment also expressly restricted delay damage
claims against a state agency based on the imputed negligence of
an agent: "Nothing in this section shall be deemed to void any
provisions in a contract, agreement or purchase order which limits
a contractor's remedy for delayed performance caused by reasons
contemplated by the parties nor shall the negligence of others be
imputed to the State." N.J.S.A. 2A:58B-3(c) (emphasis added); L.
1994, c. 80, § 1(c). The Senate sponsor's statement confirmed
that the prohibition barring delay damage claims "applies solely
to the public entity's use of these clauses to exculpate its own
negligence or intentional tort[i]ous acts but does not allow a
contractor to impute the sole negligence of third parties to the
public entity." Sponsor's Statement to S. 977 (May 5, 1994).
In short, although we disagree with the judge's reasoning,
we agree the exculpatory clauses in this case barred any claims
by Safeco or Interstate against the City for delay damages
occasioned by the negligence of Zemsky or other contractors. For
the reasons that follow, we also reject any claim that Safeco or
34 A-0778-14T4
Interstate may recover delay damages from the City based on the
City's independent "negligence, bad faith, active interference,
tortious conduct, or other reasons uncontemplated by the parties."
N.J.S.A. 40A:11-19.
In its brief, Interstate argues the City acted in bad faith,
a claim the judge rejected and we affirm, and Zemsky's negligence
should be imputed to the City, which we reject for the reasons
already stated. It also argues all delays were "uncontemplated"
and therefore not subject to the exculpation clause pursuant to
N.J.S.A. 40A:11-19. The judge, however, concluded the parties
could anticipate an architect's negligence. For the reasons that
follow, we need not address that specific conclusion by the judge.
Interstate's contract limited damages upon termination for
convenience to "all reasonable shutdown costs as agreed to by both
parties." Interstate fails to explain how, having been properly
terminated for convenience, it can nonetheless recover any kind
of damages beyond those permitted by the contract. Nor does
Interstate explain how it is entitled to delay damages, given the
court's final judgment against the company for $221,074.41 in
favor of the City, which Interstate has not challenged on appeal.
Interstate also fails to explain what consequence the settlement
reached by its surety, XL, which has not participated in these
appeals, has upon this argument.
35 A-0778-14T4
Safeco contends it was entitled to delay damages both before
and after Safeco took over TAK's work because of Zemsky's
negligence, because of the City's lack of good faith and fair
dealing and because the delay was uncontemplated. As noted, we
reject the first argument and, in his findings and conclusions,
the judge rejected the second, which we affirm.
Safeco arguably asserted a claim that the City's own
negligence was responsible for uncontemplated delays, and the
judge found a project that was supposed to be completed in one
year was not completed for nearly four years. In its post-
trial/pre-judgment submission, citing certain treatises and cases
from other jurisdictions, Safeco contended it was entitled to
"recover its costs to complete and related damages if it can prove
a wrongful termination." In other words, Safeco premised its
delay damage claim on the assertion that the City had not properly
terminated TAK.
Safeco fails to supply us with any authority that supports
the position that a surety, whose insured has been properly
terminated, may assert a claim for delay damages occasioned, at
least in part, by the insured's failure to perform the contract.
Safeco also fails to explain how such a damage claim, even if
cognizable, should be apportioned to reflect the concurrent causes
36 A-0778-14T4
for the delay the judge found in this case. We therefore reject
Safeco's claim for delay damages.
Affirmed.
37 A-0778-14T4