2009 – LIEN LAWS 

In dealing with the lien laws, the primary focus for the courts during 2009 was the distinctions between commercial and residential projects.  The US District Court affirmed the earlier decision of the Bankruptcy Court that subcontractor work on a large residential project was subject to the residential lien requirements; latitude was given on the lien arbitration processes; and in a currently unreported decision involving fall-out issues from the Kara Homes bankruptcy, the court required allocation of lien sums to individual residential units.  In the commercial area, the court placed strict requirements on the ability to pursue a landlord’s interests. 

Relaxing Procedures in Residential Arbitration 

Schadrack v. K.P. Burke Builder, LLC  (407 N.J. Super. 153, App. Div. 2009) 

            In this residential construction case, both the prime contractor and its subcontractor filed Notices of Unpaid Balances (“NUB”) but only the subcontractor filed and served the demand for arbitration as required by the Construction Lien Law (“CCL”).  The lien arbitrator thereafter entered an award in favor of the subcontractor allowing it to file a lien for approximately $39,000, which was then done.  The contractor filed an amended NUB with the arbitration demand and received an award allowing the filing of a lien for approximately 25% of the amount claimed in the amended NUB and demand.  In each instance the lien was ultimately filed within the 90 day time period.  The owner attacked the sub’s liens based upon a claim that the sub did not initially provide the arbitrator with all supporting documentation (although a supplemental submittal was made) and the sub did not use the contractor’s full corporate name. The trial court rejected the owners’ claims for dismissal of the liens. 

            The Appellate Division affirmed.  The court found that in general the residential procedures are to be strictly met.  However, in the subcontractor situation, failure of the sub to include all documentation in support of its position with the initial arbitration demand and failure to identify its customer (the prime contractor) by the full corporate name were not fatal deficiencies.  With regard to the prime contractor’s claims, while the arbitration demand is required to be filed and served with the NUB, the court applied the requirement for a showing of “material prejudice”, which was not demonstrated by the owners.  The court also rejected the owners’ argument that the award should be rejected on the basis that the award was issued more than 30 days after the initial NUB.  The court found that it was still within 30 days of the amended NUB and followed 2 days of hearings.  The court further held that the 30 day limitation would not be read so rigidly as to eliminate the ability of the American Arbitration Association to, within reason, work with its scheduling. 

Residential Requirements Apply to Subcontractor Work on Subdivision 

Michael J. Wright Construction Co. v. Kara Homes Inc. (396 B.R. 131, US District Court, District of NJ, 2008) 

            Affirming the Bankruptcy Court, the US District Court found that under the NJ Construction Lien Law (“CCL”), a subcontract agreement to perform framing for a developer for hundreds of dwelling units constituted “residential construction”, subjecting the lien claimant to the residential provisions of the CLL.  The argument of the contractor/claimant that since the CLL spoke of single or two-family dwelling in its definition of “residential”, it would not be subject to the added residential lien requirements in a large development was rejected. 

Claimant Forced to Allocate Sums due Among Properties 

Hirsch v. H&D Prime Construction, Inc.  (App. Div. April 2009)  

            In this residential construction dispute arising out of the Kara Homes bankruptcy, the defendant (a subcontractor on a development) filed a NUB on the last 2 properties held by the developer.  The Plaintiff homeowner bought from the developer while aware of the NUB and following the service of the NUB and demand for arbitration.  Thereafter, the arbitrator granted an award to the sub for over $146,000 and the lien was filed.  Plaintiff sought a court determination to establish the proportionate value of the services to her home, seeking to develop an allocation by lot.  The trial court rejected plaintiff’s position.  The Appellate Division reversed, finding that there must be an allocation between lots where a multiple residential project is involved, and remanded to the trial level to take proofs on the value of the goods and services provided to plaintiff’s lot. 

Landlord Must Approve the Contract 

The Benmoore Construction Group, Inc. v. Herod Rutherford Developers, LLC (App. Div., Nov. 2009) Unpublished 

            In a case where the contractor for the tenant pressed unjust enrichment and lien claims against the landlord, the court repeated existing case law that prevents such claims for unjust enrichment, finding that the contractor’s only ability to jump past the party with whom it contracted was the lien law.  The court then determined that in the absence of a specific writing where the landlord approved the specific contract (not just the work or project) between the tenant and contractor, the contractor had no lien rights.  Here the plans for renovation, but not the contract itself, were attached to the lease and were approved by the landlord,.

                                                                                  CURETON CLARK, P.C.                                                                                   James H. Landgraf, Esq.