STONY BROOK CONSTRUCTION CO., INC. et al. v. THE COLLEGE OF NEW JERSEY

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1941-06T11941-06T1

STONY BROOK CONSTRUCTION CO.,

INC. and FIDELITY & DEPOSIT

COMPANY OF MARYLAND,

Plaintiffs-Respondents/

Cross-Appellants,

v.

THE COLLEGE OF NEW JERSEY,

Defendant-Appellant/

Cross-Respondent,

and

CAMBRIDGE CONSTRUCTION MANAGEMENT,

INC., and WILLIAM ROGERS,

Defendants.

________________________________________________________________

 

Argued April 2, 2008 - Decided

Before Judges Lisa, Lihotz and Simonelli.

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket NO. L-260-01.

Wayne J. Martorelli, Deputy Attorney General, argued the cause for appellant/cross-respondent (Anne Milgram, Attorney General, attorney; Patrick DeAlmeida, Assistant Attorney General, of counsel; Mr. Martorelli, on the brief).

Richard E. Wenger argued the cause for respondents/cross-appellants (Hedinger & Lawless L.L.C., attorneys; Mr. Wenger and Anthony J. Belkowski, on the brief).

PER CURIAM

This appeal arises out of a lawsuit filed by a contractor, Stony Brook Construction Co., Inc. (Stony Brook), and its surety, Fidelity & Deposit Company of Maryland (F&D), against The College of New Jersey (TCNJ), in connection with the construction of a new three-story building on the TCNJ campus.

The matter was submitted to a retired appellate judge, as an umpire, for alternative dispute resolution. The umpire's recommendations were substantially adopted by the Law Division judge, who entered judgment against TCNJ in the amount of $1,371,652, plus prejudgment interest, for a total of $1,880,427.91.

TCNJ appeals, arguing that (1) the court lacked jurisdiction to award prejudgment interest, and (2) the court erred in failing to deduct from the amount of the judgment in favor of Stony Brook the sum of $365,000 that TCNJ paid to F&D to perform work required under the contract between TCNJ and Stony Brook.

Stony Brook and F&D cross appeal, arguing that (1) the court erred in finding that TCNJ's wrongful termination for cause should be converted to a termination for convenience, and in refusing to find that TCNJ and its agents acted in bad faith, (2) the court erred in failing to award Stony Brook reimbursable costs and a termination fee, (3) the court improperly rejected the portions of the umpire's award to Stony Brook regarding its claims for extra costs for the revised roof leader detail and for excessive clean-up costs, (4) the court erred in finding that TCNJ was not responsible for submitting a flood insurance claim on behalf of Stony Brook, and (5) the court improperly found that TCNJ was not liable to Stony Brook for its costs incurred in defending subcontractor claims.

We agree with the arguments presented by TCNJ. We reject the arguments presented by Stony Brook and F&D. Accordingly, we remand for entry of an amended judgment that (1) deletes prejudgment interest (except as to two items under the provisions of the New Jersey Prompt Payment Act, N.J.S.A. 52:32-32 to -39, which we will discuss later in this opinion), and (2) reduces the judgment by $365,000. In all other respects, the judgment is affirmed.

I

In August 1998, TCNJ entered into multiple prime contracts for the construction of a new three-story building on its campus in Ewing. Pursuant to a contract dated August 16, 1998, TCNJ retained Stony Brook to perform the general construction work for its bid price of $3,783,565. The anticipated completion date for the project was August 17, 1999.

TCNJ retained a construction management firm, Cambridge Construction Management, Inc. (CMM), to coordinate and schedule the project. TCNJ employees, William Rogers and Gregory Bressler, were also designated as project supervisors. Due to numerous delays and disagreements between the parties, the project remained unfinished as of the anticipated completion date.

On October 26, 1999, TCNJ terminated its contract with Stony Brook for nonperformance. On November 5, 1999, TCNJ and F&D executed a takeover agreement, by which F&D agreed to complete the work in exchange for the unpaid balance of the contract price. Problems continued, and in September 2000, F&D ceased performance, claiming that TCNJ breached the takeover agreement. TCNJ hired another contractor to complete the general construction.

On January 26, 2001, Stony Brook and F&D filed an eleven-count complaint against TCNJ, CCM, and Rogers alleging, among other things, that TCNJ wrongfully terminated its contract with Stony Brook and that it breached its takeover agreement with F&D. In responsive pleadings, TCNJ counterclaimed against Stony Brook and F&D for breach of contract. At the time, many of Stony Brook's subcontractors and suppliers had filed complaints against Stony Brook and F&D in courts throughout the state. These were consolidated with the main action and venue was placed in Mercer County.

On September 8, 2003, the parties to the main action entered into a consent order agreeing to submit all of their claims, counterclaims, and cross-claims to the umpire for alternative dispute resolution. The subcontractor claims were severed and have remained stayed pending resolution of the main action. The umpire conducted hearings over the course of thirty-four days between October 2003 and February 2004. He issued a forty-one page written decision on May 3, 2005.

After making some preliminary comments regarding the parties' acrimonious relationship and the various causes of the project delays, he found (1) that CCM's scheduling of the project was "inaccurate and unrealistic," (2) that Rogers' harsh managerial style was detrimental to the project, (3) that Bressler's failure to make decisions impeded the completion of the project, and (4) that TCNJ had at times been "inflexible." Despite these findings, the umpire denied Stony Brook's claim for punitive damages, finding that TCNJ and Rogers were never "motivated by a malicious desire to harm."

Addressing Stony Brook's claims for change orders, and other additional costs, the umpire concluded that Stony Brook was entitled to a total of $257,037 for change orders that should have been approved by TCNJ, but he denied Stony Brook's requests for costs associated with excessive testing, clean-up of flood damage, and waterproofing. The umpire rejected Stony Brook's various claims for excessive overtime, supervision costs, lost productivity, lost profits, and extended performance costs, that were all based on TCNJ's alleged interference with Stony Brook's performance. He also rejected Stony Brook's tortious interference and negligence claims against CCM.

Regarding Stony Brook's wrongful termination claim, the umpire concluded that TCNJ's termination of Stony Brook's contract for nonperformance was legally improper. This was based on TCNJ's denial of many of Stony Brook's meritorious requests for extensions, as well as the fact that TCNJ had taken occupancy of a portion of the building two weeks before the actual termination date. Although the termination for nonperformance was considered improper, the umpire nevertheless found it could be converted into a termination for convenience based on express provisions to that effect in the parties' contract. As such, Stony Brook was only entitled to damages for the percentage of work completed, plus the cost of termination, plus a termination fee (to be negotiated by the parties). The umpire rejected Stony Brook's claims for additional damages associated with its defense of subcontractor actions, trial preparation, and damage to reputation.

The umpire concluded that TCNJ was entitled on its counterclaim to a credit for costs associated with repairing the faulty work done by one of Stony Brook's subcontractors, as well as costs associated with the delays caused by Stony Brook. TCNJ was also credited $250,000, which represented the work that Stony Brook and F&D failed to complete. The umpire denied the rest of TCNJ's claims for damages, including its claim for liquidated damages.

With respect to F&D's breach of contract claim against TCNJ, the umpire concluded that TCNJ substantially violated the takeover agreement because it improperly withheld payment from F&D and because it did not provide F&D with an adequate punch list of work to be completed. He found F&D was entitled to payment for the work it performed, which he valued at $342,444.45. However, he concluded that TCNJ's previous payment to F&D of $365,000 under the takeover agreement satisfied that obligation.

Finally, the umpire concluded that Stony Brook was equitably entitled to prejudgment interest, which he awarded at the annual rate of 6%, from August 8, 2001, the effective date of the amendment to the Contractual Liability Act (CLA), N.J.S.A. 59:13-1 to -10, that allowed prejudgment interest on a CLA "claim that accrues after the date of enactment." N.J.S.A. 59:13-8; L. 2001, c. 202, 2. The total amount of the award in favor of Stony Brook, exclusive of interest, was just over $1.4 million.

On May 30, 2006, after a limited review of the umpire's decision, the Law Division judge issued a written opinion substantially adopting the umpire's decision. However, the judge reduced the amount of the award in favor of Stony Brook to just over $1.37 million, exclusive of prejudgment interest, after finding that the umpire improperly awarded damages based on two of Stony Brook's claims for change orders. The award, as modified by the court, was calculated as follows:

Original Base Contract Amount $3,783,565

+ Approved Change Orders 143,093

+ Awarded Change Orders 226,902

Adjusted Contract Amount $4,153,560

- Credit Awarded for incomplete work (250,000)

Value of Work Performed $3,903,560

- Backcharges (46,062)

Net Value of Work Performed $3,857,498

- [TCNJ] Payments to Stony Brook (2,485,846)

Amount Due, Exclusive of Interest $1,371,652

The interest was calculated as follows:

Amount Period Rate Interest

$260,485 11/18/99-2/2/00 4.75 $2,578.80

$350,564 2/3/00-6/30/00 4.75 $6,765.89

$350,564 7/1/00-6/30/01 5.75 $20,157.43

$350,564 7/1/01-8/8/01 3.5 $1,262.03

$1,371,652 8/9/01-12/31/01 6.0 $82,299.12

$1,371,652 1/1/02-12/31/02 6.0 $82,299.12

$1,371,652 1/1/03-12/31/03 6.0 $82,299.12

$1,371,652 1/1/04/12/31/04 6.0 $82,299.12

$1,371,652 1/1/05-12/31/05 6.0 $82,299.12

$1,371,652 1/1/06-12/31/06 6.0 $33,821.56

TOTAL INTEREST TO 5/30/06 $476,081.31

AMOUNT DUE, WITH INTEREST $1,847,733

A judgment in the total amount of $1,880,427.91 was entered on October 25, 2006, which included additional interest to that date.

II

Before addressing the merits of the parties' arguments, we comment on the standard governing our review of the alternative dispute resolution procedure employed in this case.

The terms of the consent order authorized the umpire to make findings of fact and conclusions of law based upon "sufficient, competent, and credible evidence." The court could then accept, vacate or modify the umpire's proposed award, subject to the following:

(a) The award shall be vacated on the application of a party if the court finds that the rights of that party were prejudiced by:

(1) corruption, fraud or misconduct in procuring the award;

(2) partiality of the Umpire;

(3) in making the award, the Umpire's exceeding his power or so imperfectly executing that power that a final and definite award was not made;

(4) failure to follow the procedures set forth in this Order, unless the party applying to vacate the award continued with the proceeding with notice of the defect and without objection; or

(5) the Umpire's committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution.[]

(b) The court shall modify the award if:

(1) there was a miscalculation of figures or a mistake in the description of any person, thing or property referred to in the award;

(2) the Umpire has made an award based on a matter not submitted to him and the award may be corrected without affecting the merits of the decision upon the issues submitted;

(3) the award is imperfect in a matter of form, not affecting the merits of the controversy; or

(4) The rights of the party applying for the modification were prejudiced by the Umpire erroneously applying law to the issues and facts presented for alternative resolution.[]

The consent order further provided that "[t]he final judgment rendered by the Court shall be as fully appealable under the Court Rules governing appeals, and shall be subject to the same standard o[f] review on appeal, as if entered following a trial on the merits before the Court."

TCNJ argues, and Stony Brook does not dispute, that the terms in the consent order should govern our review of the trial court's decision. TCNJ brings this to the court's attention because the trial court incorrectly stated that review of the umpire's decision would be guided by the Alternative Procedure for Dispute Resolution Act (APDRA), N.J.S.A. 2A:23A-1 to -30.

"Although limited judicial review is a central component of the APDRA, the APDRA's procedures are entirely voluntary, and thus, parties are free to invoke its procedure in toto or subject to agreed upon modifications." Mt. Hope Dev. Assocs. v. Mt. Hope Waterpower Project, L.P., 154 N.J. 141, 149 (1998). Therefore, parties may preserve their right to appeal and may also delineate the scope and extent of any appeal. Ibid.

Here, the consent order did not state that the alternative dispute resolution would be governed by the APDRA. And while most of the language in the order was taken from the APDRA, there are notable differences. For example, N.J.S.A. 2A:23A-18b provides that "[t]here shall be no further appeal or review of the [lower court's] judgment." However, the parties in this case preserved their right to appeal.

Thus, we are not bound by the standards set forth in the APDRA. Rather, our review of this case is pursuant to the familiar standard that a trial court's findings of fact are binding on appeal if supported by adequate, substantial and credible evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We will not disturb a trial court's findings of fact unless they are "so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Ibid. However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

III

As noted, the umpire found that TCNJ's termination of Stony Brook's contract for nonperformance was legally improper, but converted it to a termination for convenience based upon the express terms of the parties' contract. Stony Brook argues this was error.

Articles 2.2.2 and 2.2.3 of the contract between TCNJ and Stony Brook provide:

2.2.2 The College's Right to Terminate for Convenience - The Contracting Officer reserves the right to terminate for the convenience of the College, in which case the Contractor shall be entitled to a portion of the fee which the services actually and satisfactorily performed by the Contractor shall bear to the total services contemplated under this agreement, less payments previously made, together with appropriate reimbursable costs and a reasonable termination fee to be negotiated between the Contractor and the Contracting Officer.

2.2.3 If the College's termination of the contract pursuant to 2.2.1 [termination for cause] is found by a court to be legally improper, the termination of the contract will be treated as if it had been a termination for convenience and such termination is to be compensated for in accordance with the provisions of 2.2.2, governing terminations for convenience.

The umpire expressed the view that "the courts would, within reasonable limits, enforce a clear contractual provision containing the constructive termination for convenience rule." The trial court agreed.

Stony Brook argues on appeal that TCNJ should be prohibited from invoking the termination for convenience and conversion clauses because TCNJ failed to carry out its contractual obligations in good faith. TCNJ responds that it did not act in bad faith when it terminated the contract and the express terms of the parties' contract should be enforced.

Termination for convenience clauses are common in most federal government procurement contracts. See, e.g., Federal Acquisition Regulations, 48 C.F.R. 49.501 - .505 (2008). Even if not expressly included in a contract, a termination for convenience clause may still be incorporated, as a matter of law, if such a clause is required by federal regulations. G.L. Christian & Assocs. v. United States, 160 Ct. Cl. 1, 14-17 (1963). Moreover, if the government terminates a contract for an improper purpose, the termination can be "constructively" converted into a termination for convenience if such a clause is present in the contract. John Reiner & Co. v. United States, 163 Ct. Cl. 381, 391-93 (1963). A termination for convenience, whether constructive or otherwise, limits a contractor's recovery to costs incurred, a reasonable profit for the work performed, and termination costs. Best Foam Fabricators, Inc. v. United States, 38 Fed. Cl. 627, 637 (1997).

Federal courts have long held that terminations for convenience are presumptively valid absent a judicial finding of bad faith or clear abuse of discretion. See, e.g., T & M Distribs., Inc. v. United States, 185 F.3d 1279, 1284 (Fed. Cir. 1999) (Navy properly invoked termination for convenience clause after it discovered that it substantially underestimated the cost and scope of the work); Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1544-45 (Fed. Cir. 1996), cert. denied, 520 U.S. 1210, 117 S. Ct. 1691, 137 L. Ed. 2d 819 (1997) (Army Corps of Engineers had ample justification for terminating contract for convenience after it discovered cost of project had increased); Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578, 1581 (Fed. Cir. 1995) (APHIS did not engage in any impropriety in exercising contractual right to terminate for convenience after it discovered that error in contractor's bid could not be remedied through amendment); Salsbury Indus. v. United States, 905 F.2d 1518, 1521-22 (Fed. Cir. 1990); cert. denied, 498 U.S. 1024, 111 S. Ct. 671, 112 L. Ed. 2d 664 (1991) (Postal Service properly terminated contractor for convenience after district court granted an injunction ordering the contract's termination due to the Postal Service's unlawful disqualification of contractor from the bidding process).

The contractor's burden to prove that the government acted in bad faith is a "weighty" one. Krygoski Constr. Co., supra, 94 F.3d at 1541. Government actors are presumed to act in good faith, and federal courts require "well-nigh irrefragable proof" to rebut that presumption. T & M Distribs., Inc., supra, 185 F.3d at 1285. Thus, in order to show bad faith, a contractor must provide evidence of "specific intent to harm." Custom Printing Co. v. United States, 51 Fed. Cl. 729, 734 (2002).

In the only New Jersey case to address the validity of a termination for convenience clause, we cited this federal case law with approval, Capital Safety, Inc. v. N.J. Div. of Bldgs. & Constr., 369 N.J. Super. 295, 300-01 (App. Div. 2004), and added:

Our Supreme Court has also recognized that if a breach of contract claim requires a showing of bad faith, a party may not be held liable for simply exercising its discretionary authority under the contract for "ordinary business purposes--reasonably within the contemplation of the parties." Wilson v. Amerada Hess Corp., 168 N.J. 236, 246, 773 A.2d 1121, 1127 (2001). To show bad faith, the claimant must establish that the alleged breaching party had an "improper motive." Id. at 251, 773 A.2d at 1130. "Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance." Ibid.

[Id. at 301.]

We upheld the termination for convenience clause in a State contract, concluding that the State agency's motive for terminating the contract was not to harm the plaintiff, but was to serve the financial interests of the State by avoiding exposure to the contractor's claims for delay damages. Id. at 304.

In the case before us, the umpire found that TCNJ's motive for terminating the contract was not to harm Stony Brook, but to protect the interests of the college. This project involved the construction of a three-story classroom building that TCNJ wanted ready for the Fall 1999 semester. After numerous delays caused by both parties, the project remained unfinished as of the August 1999 deadline. TCNJ terminated Stony Brook because it wanted to complete the project in a timely fashion, and it felt it could no longer accomplish that goal with Stony Brook as its general contractor. Although TCNJ was not justified in terminating Stony Brook for nonperformance, it was not motivated by malice or an intent to harm Stony Brook, as we will further discuss in this section. These were the factual findings accepted by the trial court. They are supported by adequate, substantial and credible evidence in the record, and we defer to them.

Stony Brook alternatively argues that TCNJ should not be permitted to invoke the conversion clause because the government's right to convert a wrongful termination to one of convenience is "not universally recognized." Stony Brook cites the dissenting opinion in Linan-Faye Construction Co. v. Housing Authority of Camden, 49 F.3d 915, 933-39 (3d Cir. 1995) (Becker, J., dissenting), for the proposition that New Jersey courts would not adopt the federal doctrine of constructive termination for convenience. The umpire commented:

I am inclined to agree with Judge Becker that New Jersey courts would not adopt the federal common law "constructive termination for convenience" rule. It is not apparent to me why judges should create a doctrine that rescues governmental agencies from liability for wrongfully terminating a contractor by giving them the benefit of a partial immunity rule that was created for the unrelated purpose of protecting taxpayers from having to pay for goods and services after the need for them has unpredictably ended. However, that conclusion does not decide the issue in this case. That is because the "constructive termination for convenience" rule that TCNJ invokes is not a common law rule imposed upon contracting parties by a court that thinks it is a good idea, but is a clearly expressed term of Stony Brook's contract. It is one thing to predict New Jersey would not adopt the federal common law doctrine. It is another thing to decline to enforce the clear provision of a contract that expresses the parties' agreement to adopt the doctrine.

Although New Jersey courts might well not adopt the federal common law doctrine imposing a constructive termination for convenience rule on all public entity contracts, I believe that the courts would, within reasonable limits, enforce a clear contractual provision containing the constructive termination for convenience rule. Although enforcing such a provision can lead to harsh results in some cases, the prospective contractor is aware of what it is facing, and can make its decisions accordingly.

The trial court concurred with the umpire's comments, and so do we. In this case, we are not confronted with the potential applicability of the federal common law doctrine of constructive termination for convenience, but with a clear express provision by which the parties agreed to apply the doctrine to their contractual undertaking. In the absence of bad faith, we find no error in enforcement of the provision.

Stony Brook asserts that TCNJ's representatives acted with a malicious intent to harm Stony Brook. Citing various factual findings of the umpire, Stony Brook argues that TCNJ "implemented a systematic pattern of disparaging treatment of Stony Brook" and that it "orchestrated . . . a scheme to gradually place Stony Brook in a compromised financial position whereby Stony Brook had no option but to continue to work the Project . . . or suffer grave financial losses . . . ." Accordingly, in addition to advancing this contention to support its termination for convenience argument, Stony Brook claims entitlement to punitive damages.

In response, TCNJ argues that "[Stony Brook's] allegations of bad faith were thoroughly considered and resoundedly rejected by the Umpire, who found after 34 days of hearings that the actions of College officials - even those with which he found fault - were undertaken in good faith in the best interests of the Project, without malice or intent to injure Stony Brook or to interfere with its work."

We first note that a breach of contract, even if intentionally committed, does not warrant an award of punitive damages unless the defendant also breached a duty independent of the contract. Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1194 (3d. Cir. 1993). For example, punitive damages are not awarded unless the breach also constitutes a tort for which punitive damages are recoverable, Buckley v. Trenton Sav. Fund Soc'y, 216 N.J. Super. 705, 715 (App. Div. 1987), modified, 111 N.J. 355 (1988), or there is a fiduciary relationship between the parties. Villa Enters. Mgmt. Ltd. v. Fed. Ins. Co., 360 N.J. Super. 166, 190 (Law. Div. 2002).

In Sandler v. Lawn-A-Mat Chemical and Equipment Corp., we declined to allow punitive damages in a contentious case involving one party's breach of a distributor agreement. 141 N.J. Super. 437, 451 (App. Div.), certif. denied, 71 N.J. 503 (1976). We rejected the non-breaching party's argument that the cause of action equated with the tort of malicious interference with a contractual relationship, finding that the claim was made by one party to the contract against the other, and not against a third party interloper. Id. at 450. We added, "[t]he addition of such stylized labels as 'malice' and 'maliciously' . . . do not transform the essence of the action into a tortious wrong," and, because there was no special relationship or duty arising out of the parties' contract, punitive damages were inappropriate. Id. at 451.

Likewise, in this case, the cause of action primarily involves Stony Brook's breach of contract claims against TCNJ and cannot sustain an award of punitive damages. Moreover, as we will later explain, this contract is subject to the CLA, as a result of which punitive damages are barred. N.J.S.A. 59:13-3.

As we have discussed, a termination for convenience is valid absent a showing of bad faith. See Capital Safety, supra, 369 N.J. Super. at 300. A party "breaches the duty of good faith and fair dealing if that party exercises its discretionary authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the other party from receiving its reasonably expected fruits under the contract." Wilson, supra, 168 N.J. at 251. Furthermore, "an allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract and absent improper motive." Ibid. Bad motive or intention is essential as "'[c]ontract law does not require parties to behave altruistically toward each other; it does not proceed on the philosophy that I am my brother's keeper.'" Ibid. (quoting Original Great Am. Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir. 1992)).

In its briefs, Stony Brook references the umpire's lengthy discussion of Rogers' harsh managerial style. The umpire noted that Rogers became anxious about timely completion of the project and that he felt "it was up to him to whip Stony Brook along, deal firmly with its personnel and its subcontractors, interfere with its relationships with its subcontractors, and transmit to Mr. Bressler his distrust and disgust with Stony Brook." It is quite clear from the umpire's discussion that Rogers' conduct was detrimental to the project. Nevertheless, the umpire noted:

I do not believe that any of the people involved behaved maliciously. I don't believe any of them, even Mr. Rogers, acted with intent to injure Stony Brook. However, I believe that there was a good deal of harshness, lack of cooperation, refusal to concede even the matters that plainly should have been conceded early, and refusal to work sensibly and flexibly to complete the project. . . .

. . . .

I am convinced, as I said just above, that, however inappropriate some of the actions of TCNJ's representatives may have been, none of them was motivated by a malicious desire to harm Stony Brook. . . . However wrong they may have been from time to time, TCNJ's representatives, including Mr. Rogers, believed they were doing their job vigorously, and that Stony Brook's performance defaults deserved strong and clear responses, and that keeping Stony Brook's feet to the fire would encourage performance. I believe many of those responses were unjustified, but not that they were intended to do harm.

Stony Brook also references the umpire's discussion of Bressler's failure to make decisions regarding disputes brought before him for determination pursuant to the contract. During the project, Bressler failed to address erroneously threatened backcharges against Stony Brook in the amount of $236,000 associated with claims by other prime contractors against TCNJ. Bressler also terminated Stony Brook for cause without first determining whether or not to grant Stony Brook's claim for $83,246 associated with the repair of the concrete slab leveling, as well as its request for an eight-week extension. The umpire found Bressler's refusal to grant Stony Brook's meritorious requests for relief to be especially troubling:

The picture that emerges is that of a project owner charging or threatening to charge a contractor, or failing to pay a contractor, in large, unjustifiable, and indefensible amounts totaling over $1 million, while expecting fervent performance from the contractor, and terminating it for not meeting its standards. I have no hesitancy describing the positions taken by TCNJ as unjustifiable and indefensible. The evidence shows them as unjustifiable, and TCNJ no longer tries to defend most of them.

Nevertheless, the umpire concluded that Bressler did not act in bad faith:

I do not believe that Mr. Bressler consciously and maliciously made a decision to terminate that he knew was unjustified in the light of historical facts. He was not personally engaged and knowledgeable about the Business School project to the extent one would have hoped for. He did not make the effort to independently evaluate and resolve disputed issues himself, as the contract contemplated he would, and he did not seek or obtain balanced accounts of the true events from the people who reported him. Instead, he relied on Mr. Rogers and Cambridge and their distorted and self-protective reports of progress on the job and responsibility for the problems that arose.

Even after Stony Brook moved for reconsideration of his decision, the umpire stated:

Stony Brook questions how I could conclude that the defendants were not liable for punitive or exemplary damages after concluding that their conduct was as bad as I described . . . . It is apparent from that opinion that I believed Mr. Bressler and Mr. Rogers both acted in violation of the contract with Stony Brook, and followed their apparent belief that harsh treatment of a nonperforming contractor would best insure the job would get done and get done right. I found much of what they did troublesome, but I concluded that they both believed their behavior was in the interest of the project and the college. I thus concluded that their purposes were not malicious or reckless of the consequences. That is still my belief.

The umpire's finding of good faith in this case, accepted by the trial court, is entitled to our deference. See Seidenberg v. Summit Bank, 348 N.J. Super. 243, 263 (App. Div. 2002) ("Ultimately, however, the presence of bad faith is to be found in the eye of the beholder or, more to the point, in the eye of the trier of fact."); see also Sandler, supra, 141 N.J. Super. at 447 (explaining that appellate deference to factual findings are particularly warranted in cases where there are many areas of conflicting testimony leading to differing inferences and subtle nuances pertaining to the complex relationship of the parties, which required careful sifting by a judge who saw and heard the witnesses and was in a position to acquire a "feel" of the case).

The good faith determination finds ample record support, and we will not interfere with it. And we agree with the legal determination of the trial court that the contract's termination for convenience provisions were enforceable and properly applied in favor of TCNJ.

IV

The remaining arguments presented by Stony Brook and F&D on their cross-appeal pertain to the trial court's denial of their claims for reimbursable costs and a termination fee, costs incurred because of the revised roof leader detail and excessive clean up costs, costs resulting from TCNJ's refusal to submit a flood damage insurance claim on Stony Brook's behalf, and costs incurred in defending subcontractor claims.

Under the termination for convenience clause, Stony Brook was entitled to payment for services performed "together with appropriate reimbursable costs and a reasonable termination fee to be negotiated between the Contractor and the Contracting Officer." Stony Brook argues that, pursuant to this provision, it should have been awarded the total amount required to place it in the financial position it would have enjoyed had there been no termination by TCNJ. This would include reimbursement of any amounts Stony Brook is required to pay F&D by way of indemnification, reimbursement for legal fees incurred in the litigation, and compensation for the alleged loss of its business because of the termination. Such an award, of course, would render meaningless the termination for convenience provisions of the contract because, rather than the limited recovery allowable by those provisions, Stony Brook would be able to recover the full measure of expectation damages that would generally be recoverable for a breach of contract.

Stony Brook did not close out the contract, and it presented no evidence of any costs that would be reimbursable as such under the termination for convenience clause. And, Stony Brook declined to attempt to negotiate a reasonable termination fee. The umpire offered to reopen the record to allow Stony Brook to present evidence regarding its claims for reimbursable costs and termination fees. Apparently, Stony Brook's attorney informed the umpire by letter of February 18, 2005 that a termination fee was not being pursued. Stony Brook waived its claim to a termination fee.

The umpire awarded Stony Brook the full amount it requested, $15,135.15, for extra work it claimed it was required to perform as a result of changes in the design of roof leaders. Stony Brook sought recovery of $55,427.40 for excessive clean-up costs. The umpire awarded Stony Brook $15,000 for this item.

The trial court rejected these awards, finding that they were unsupported by competent evidence in the record. We accept the trial court's findings, based upon the reasons set forth in the court's written opinion. No further discussion of these items is warranted. R. 2:11-3(e)(1)(A) and (E).

Stony Brook argues that the umpire improperly found that TCNJ was not required to submit a claim under its builder's risk insurance for costs arising out of flood damage to the basement during construction. Citing the general clause in the contract providing that "[t]he College shall provide insurance protection for the benefit of the Contractor and his Subcontractors in the form of a Builders Risk Insurance Policy," Stony Brook argues that TCNJ should have submitted a claim because the insurance policy was obtained for the benefit of the contractor. Stony Brook claims it has suffered damages of more than $17,000 because of TCNJ's refusal to submit an insurance claim on its behalf.

TCNJ argues that it had no contractual duty to pursue insurance coverage for damages caused by Stony Brook's own breach of its contractual duties, resulting from Stony Brook's failure to properly dewater and grade the site. TCNJ adds that the parties' contract expressly excluded coverage for losses attributable to faulty workmanship.

The umpire found no contractual duty requiring TCNJ to submit a claim. He further noted that the list of risks contractually required to be covered did not include damage from flood or water infiltration. In accepting the umpire's decision on this issue, the trial court noted that the builder's risk policy obtained "mentions floods, defining them as the 'rising . . . of oceans, seas, lakes, ponds, reservoirs, rivers, harbors, streams, and similar bodies of water, whether driven by wind or not.'" Thus, the court concluded that the policy would not have covered damage caused by water running into an unfinished building during a rain storm because exposed dirt on the site was improperly maintained.

We agree with the analysis set forth in detail by the umpire and the trial court, and need not discuss the issue further. R. 2:11-3(e)(1)(E).

Stony Brook argues that TCNJ should be responsible for paying Stony Brook's costs of defending subcontractor claims. According to Stony Brook, these claims resulted from TCNJ's wrongful refusal to issue payments to Stony Brook, which, in turn, precluded Stony Brook from paying its subcontractors. The umpire and trial court rejected this claim, noting that the subcontractor claims have been stayed, and the merits of those claims remain unadjudicated. There was no basis on this record in the disposition of the main action to award Stony Brook costs associated with the defense of subcontractor claims.

V

We next address TCNJ's claim that the trial court erred by failing to deduct $365,000 from the award to Stony Brook. TCNJ argues that its payment of $365,000 to F&D under the takeover agreement was to be applied to the performance of the same work required to be performed by Stony Brook under Stony Brook's contract with TCNJ. F&D failed to complete the work required under the Stony Brook contract, as evidenced by the undisputed fact that $250,000 worth of work remained incomplete after F&D left the job. Therefore, TCNJ argues that because its $365,000 payment to F&D was for the work required under the Stony Brook contract, failure to credit TCNJ with that amount results in a double payment of that sum by TCNJ. We agree.

The takeover agreement obligated F&D to complete the work, and it obligated TCNJ to pay F&D the entire unpaid balance of the contract price. The takeover agreement further provided that immediately upon its execution, TCNJ would pay F&D not less than $365,000, "which amount shall be properly deducted from the remaining contract funds available." TCNJ paid that amount to F&D.

The performance of the takeover agreement was, like the original contract with Stony Brook, marked by disputes and disagreements. According to the umpire, TCNJ made unreasonable demands regarding exterior molding installation and failed to produce an appropriate punch list of work to be completed. On the other hand, F&D did not use any of its own money to pay subcontractors to come back to work. As a result, work came to a standstill and F&D ultimately terminated the takeover agreement and left the job. As stated, the work was not complete. Indeed, $250,000 worth of work remained unfinished.

In reviewing F&D's claim against TCNJ, the umpire found that TCNJ was in substantial violation of its contractual obligations under the takeover agreement, but also found that F&D acted unreasonably in failing to spend its own money to fulfill its obligations. The umpire accordingly concluded that F&D was entitled to payment for the work it performed, which the umpire valued at $342,444.45. Recognizing TCNJ's prior payment to F&D of $365,000 the umpire concluded that F&D was adequately compensated for any damages it may have suffered.

Although Stony Brook asserts that F&D incurred additional costs as a result of the takeover, it cites no evidence in support of the assertion. Nor do the umpire's and trial court's decisions suggest that the $342,444.45 represented additional costs incurred by F&D beyond that contemplated by the original contract between TCNJ and Stony Brook.

It is plain to us that TCNJ is entitled to a credit for this $365,000 payment against the amount it owes Stony Brook. In the absence of such a credit, TCNJ would paying that sum twice for the same work.

VI

Finally, we address the award of prejudgment interest. TCNJ argues that the trial court erred when it awarded prejudgment interest to Stony Brook because the CLA bars the award of prejudgment interest on contractual claims against public entities that accrued prior to August 8, 2001. TCNJ submits that Stony Brook's claim against TCNJ accrued no later than January 26, 2001 - the date on which it filed its complaint. Accordingly, TCNJ argues that the trial court lacked jurisdiction to award prejudgment interest and requests that the award of prejudgment interest to Stony Brook be vacated.

Stony Brook argues that its contractual claims against TCNJ are not subject to the CLA because TCNJ does not fall within the ambit of the Act. Because the CLA does not apply, Stony Brook argues that it is equitably entitled to recover interest for the time period prior to August 8, 2001. And, even if the CLA does apply, Stony Brook maintains that its claim for prejudgment interest accrued after August 8, 2001, and it can recover from that date foreword.

In awarding prejudgment interest to Stony Brook, the umpire acknowledged that the CLA, as it existed at the time Stony Brook's cause of action accrued, barred an award of prejudgment interest for construction contract claims against public entities like TCNJ. Nevertheless, he found that the term "claim" as it is used in the CLA means "claim for prejudgment interest," not Stony Brook's underlying substantive claim against TCNJ. The umpire held that claims for prejudgment interest on post-August 8, 2001 judgments entered on pre-August 8, 2001 construction contract claims, are valid and are not barred, but only for periods after August 8, 2001. He concluded that all claims for which Stony Brook prevailed would bear simple interest at six percent from August 9, 2001, to the date of judgment. The trial court adopted the umpire's reasoning.

The threshold issue is whether Stony Brook's claims against TCNJ are subject to the CLA. Generally, the State waives its sovereign immunity from contractual liability subject to the limitations and exceptions set forth in the CLA. N.J.S.A. 59:13-3; Allen v. Fauver, 327 N.J. Super. 14, 18-19 (App. Div. 1999), aff'd 167 N.J. 69 (2001). The State, as defined in the CLA, includes: "the State and any office, department, division, bureau, board, commission or agency of the State, but shall not include any such entity which is statutorily authorized to sue and be sued." N.J.S.A. 59:13-2 (emphasis added).

TCNJ asserts that the CLA applies because TCNJ is not "statutorily authorized to sue and be sued." TCNJ correctly points out that its enabling statute, N.J.S.A. 18A:64-1 to -84, does not expressly grant TCNJ the power to sue and be sued. Stony Brook acknowledges this, but relies on Frank Briscoe Co. v. Rutgers, 130 N.J. Super. 493, 505-06 (Law Div. 1974), in which the court held that even though Rutgers University is not statutorily authorized to sue and be sued, see N.J.S.A. 18A:65-25, the CLA did not apply because Rutgers' enabling statute did not explicitly repeal its authority under its original charter to sue and be sued. Stony Brook also relies on an unreported oral decision in The College of New Jersey v. Framan Mechanical, Inc., No. L-2734-03 (Law Div. Feb. 23, 2007), in which the judge concluded that TCNJ, like Rutgers, had the power to sue and be sued and therefore did not fall within the protections of the CLA.

We reject these arguments. The statutory definition of "State" controls. TCNJ is not a "sue or be sued" entity. See N.J.S.A. 18:64-6. Because, TCNJ is not "statutorily authorized to sue and be sued," N.J.S.A. 59-13-2 (emphasis added), it is the "State," and is covered by the CLA. Ibid. The legislative history underlying the amendment to N.J.S.A. 59:13-8, that authorized the discretionary award of prejudgment interest on construction claims against the "State" under the CLA, expressly stated that "this bill applies to State entities as 'State' is defined in N.J.S.A. 59:13-2." Assembly Judiciary Committee, Statement to S. 2050 (June 7, 2001).

Briscoe differs from this case because the enabling statute in Briscoe was considered an amendment to Rutgers' existing charter, which expressly authorized Rutgers to sue and be sued. See Fine v. Rutgers, 163 N.J. 464, 470 (2000). Here, Stony Brook presents no evidence to suggest that TCNJ's original charter expressly authorized it to sue and be sued, nor does Stony Brook present any basis upon which we should find that TCNJ's enabling statute can be considered an amendment to its original charter.

Perhaps most significantly, the parties' contract in this case expressly provides that "[a]ny claims made by a Contractor against The College for damages or extra costs are governed by and subject to the New Jersey Contractual Liability Act, N.J.S.A. 59:13-1 et seq. as well as all the provisions in this contract." Thus, the parties' contract dictates that the limitations set forth in the CLA govern this case.

The CLA, as it existed at the time Stony Brook's cause of action accrued, barred the award of prejudgment interest on construction contract claims against public entities. See P.T. & L. Constr. Co. v. Dep't of Transp., 108 N.J. 539, 566 (1987). The CLA was amended on August 8, 2001 to permit a court, in its discretion, to "award prejudgment interest on the whole or part of a judgment arising out of or relating to claims for the construction or installation of improvements to real property in accordance with principles of equity." N.J.S.A. 59:13-8. The amendment applies "to any claim that accrues after [August 8, 2001]." L. 2001, c. 202, 2.

TCNJ argues that Stony Brook's claim against TCNJ accrued no later than January 2001, the date on which the complaint was filed. Thus, TCNJ argues that the plain language of the amendatory provision precludes an award of prejudgment interest on this claim, which accrued prior to the amendment.

The umpire rejected that construction as too narrow and not consistent with the apparent legislative intent underlying the amendment. He set forth the following reasoning:

There are some claims recognized by the law that accrue in installments. Typical would be a lessor's claim for monthly rent, or periodic payments required by bonds or notes, divorce agreements, or service contracts. See Metromedia Co. v. Hartz Mountain Associates, 139 N.J. 532, 535 (1995). In such circumstances, the creditor does not have a cause of action in February for March's not-yet-due installment, in the absence of contractual provision or facts showing repudiation.

In County of Morris v. Fauver, 153 N.J. 80 (1998), the County brought an action under the Contractual Liability Act against the State for agreed monthly payments it said were due and unpaid for housing state prison inmates in the county jail. The State argued that the County was fatally late in making its claim, because the notice of intention to make claim required by the Act was filed too long after the County's cause of action accrued, which was when the State first failed to make a monthly payment the County sued for. The Supreme Court disagreed. It concluded that, in cases in which the claim was for a series of periodic payments, there was a separate cause of action for each payment, which did not accrue until the debtor failed to make that payment. On that basis, the County's notice was untimely as to some payments and timely as to more recent ones.

All of the substantive claims Stony Brook prevailed on are claims governed by the Contractual Liability Act. Its claims for prejudgment interest are similarly governed by the Act, and in particular by N.J.S.A. 59:13-8. But N.J.S.A. 59:13-8 must be interpreted and applied with an eye toward the Supreme Court's opinions in Metromedia Co. v. Hartz Mountain Associates, supra, and County of Morris v. Fauver, supra. Just as a service contractor like the County of Morris has a series of separate claims for monthly payments, each of which comes into being only as each month's payment is not made, so Stony Brook's claims for interest accrue as time passes, in hourly, daily, weekly, or monthly increments. Stony Brook had no cause of action in July 2001 for prejudgment interest on money due it from TCNJ that was not paid in September 2001. It was not until the money due was not paid in September that Stony Brook had a cause of action for September's interest.

In all these circumstances, I conclude that a proper reading of the amended N.J.S.A. 59:13-8, consistent with its purpose of curing the inequity of barring prejudgment interest to prevailing construction contractors, is that "claims," in N.J.S.A. 59:13-8, means claims for prejudgment interest. Therefore, claims for prejudgment interest on post 8/8/01 judgments entered on pre-8/8/01 construction contract claims, are valid and are not barred, but only for periods after 8/8/01.

I would hesitate to make this ruling if I had any sense that the effective date of the amendment was chosen with a view toward giving the State agencies fair advance notice to enable them to include provision for the expanded liability in their project costs and financing plans. I am convinced, however, that the [L]egislature had no such purpose, because no such provision is contemplated in such financing plans. I simply cannot see any agency head deciding to include money in a project for prejudgment interest in case he fails for five years to pay a contractor money the agency fairly obviously owes.

The trial court accepted this construction.

We do not agree. The CLA defines "accrual of claim" as "the date on which the claim arose." N.J.S.A. 59:13-2. We are dealing here with N.J.S.A. 59:13-8, which, in its amended form, authorizes prejudgment interest on "claims for the construction or installation of improvements to real property." The plain language of that section makes clear that the claims to which it applies are the underlying substantive claims pertaining to the construction or installation of improvements to real property. In this case, Stony Brook's claim, within this plain meaning, accrued prior to the effective date of the amendment.

The Legislature could have ordained that the amendment would apply to "interest" or "claims for interest" that accrued after the date of an enactment. But it did not.

We find unpersuasive the umpire's and trial court's reliance on cases dealing with installment obligations, in which a new substantive claim accrues when each installment becomes due and remains unpaid. That is not the case here. Whatever claim Stony Brook had against TCNJ existed before August 8, 2001. Interest on a judgment arising out of a substantive claim is not a separate claim.

We are directed to no expression by the Legislature of an intent that the amendment apply retroactively to substantive claims that accrued prior to the effective date. The legislative history is to the contrary. The amendment, in its original form, provided:

1. N.J.S. 59:13-8 is amended to read as follows:

59:13-8. Interest on judgments. No interest shall accrue prior to the entry of judgment in a court of competent jurisdiction, except interest shall accrue prior to, and be payable on, a judgment arising out of or relating to claims for the construction or installation of improvements to real property.

2. This act shall take effect immediately.

[S.B. 2050, 209th Leg. (N.J. 2001).]

This version of the amendment provided for automatic prejudgment interest on construction claim judgments, and can fairly be read to apply retroactively to substantive claims that accrued prior to the enactment date.

However, the Assembly Judiciary Committee proposed the following changes, which were eventually adopted by the Legislature:

1. N.J.S. 59:13-8 is amended to read as follows:

59:13-8. Interest on judgments. No interest shall accrue prior to the entry of judgment in a court of competent jurisdiction, except that the court, in its discretion may award prejudgment on the whole or part of a judgment arising out of or relating to claims for the construction or installation of improvements to real property in accordance with principles of equity.

2. This act shall take effect immediately and shall apply to any claim that accrues after the date of enactment.

[L. 2001, c. 202 eff. Aug. 8, 2001).]

The addition to Section 2 of the phrase "shall apply to any claim that accrues after the date of enactment" signals that the Legislature did not intend for the amendment to apply retroactively to substantive claims that accrued prior to the effective date. Indeed, the Committee Statement was explicit in this regard: "The effective date was amended to apply to any claim that accrues after the date of enactment." Assembly Judiciary Committee, Statement to S. 2050 (June 7, 2001). Therefore, the Committee amendment did two things. It made the award of prejudgment interest discretionary rather than mandatory, and it "amended" the effective date to clarify that the new provision would apply prospectively.

The purpose of the amendment was to cure the inequity of barring prejudgment interest to prevailing construction contractors. See Senate State Government Committee, Statement to S. 2050 (March 15, 2001) (noting that the adjudication of construction-related claims can often take years). It does not follow, however, that the Legislature intended the cure to apply retroactively. Indeed the language it employed is to the contrary. A prospective cure is also consistent with the statute's purpose.

In our view, the amendatory language is clear and unambiguous on its face and must be construed in accordance with its plain language. In re Freshwater Wetlands Protection Act Rules, 180 N.J. 468, 491-92 (2004). We find no legislative intent to construe this statute in any manner other that its plain language dictates.

Accordingly, because Stony Brook's substantive claim for the construction or installation of improvements to real property accrued prior to the effective date of the amendment to N.J.S.A. 59:13-8, the trial court lacked jurisdiction to award prejudgment interest under that provision.

VII

We remand to the Law Division for entry of an amended judgment that (1) reduces the award to Stony Brook by $365,000, (2) reduces the award to Stony Brook by the amount of all prejudgment interest awarded pursuant to N.J.S.A. 59:13-8, and adjusts the amount of prejudgment interest due to Stony Brook under the Prompt Payment Act, N.J.S.A. 52:32-35, on Requisition Nos. 13 and 14. In all other respects, the judgment of October 25, 2006 is affirmed.

Affirmed in part; reversed and remanded in part.

and 2 Unlike with disputes under the arbitration statute, see N.J.S.A. 2A:24-8 and -9, the court could vacate or modify the umpire's award based on a mistake of law.

The trial court largely followed the standard of review set forth in the consent order. However, instead of applying the consent order's "sufficient, competent, and credible evidence" standard, it applied the APDRA's "substantial evidence" standard. See N.J.S.A. 2A:23A-13b. As a result, the trial court applied a stricter standard than what the parties had originally contracted for. Nevertheless, this does not constitute reversible error because the two damage awards vacated by the trial court would have been vacated under either standard. Furthermore, neither party argues on appeal that this case should be reversed because the trial court employed the wrong standard of review.

The consent order provides, "The Umpire's written decision shall be a part of the record in this case."

The letter is not in the appellate record. The trial court opinion referenced it as an exhibit. Neither party disputes the letter's existence.

TCNJ does not challenge one small portion of the prejudgment interest award, stating:

The Contract between the College and Stony Brook stated that the contractor would be entitled to interest on unpaid invoices as provided under the New Jersey Prompt Payment Act, N.J.S.A. 52:32-32 et seq. Part of Stony Brook's claim sought recovery for amounts billed but unpaid under two invoices submitted prior to the October 1999 termination: Requisition No. 13, $260,484.94; and Requisition No. 14, $90,079.36. The College concedes that Stony Brook is entitled to the award of interest on these unpaid invoices only, at the rate set by the Treasurer under the Prompt Payment Act. N.J.S.A. 52:32-35. The College believes that this court should remand the matter back to the trial court to redetermine the proper amount of this limited prejudgment interest award and to modify the final judgment accordingly.

A state college may create an auxiliary organization for the performance of college operations or functions. N.J.S.A. 18A:64-26. Unlike the college itself, auxiliary organizations are statutorily authorized to sue and be sued. N.J.S.A. 18A:64-30.

(continued)

(continued)

43

A-1941-06T1

June 16, 2008