SHERMAN & ZALENKO, L.L.C. v. SPYSTEF, L.L.C.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6305-06T36305-06T3

SHERMAN & ZALENKO, L.L.C.,

Plaintiff-Respondent/

Cross-Appellant,

v.

SPYSTEF, L.L.C., SOFIA KALIAKATSOU

and STEVEN TSOUKAS,

Defendants-Third-Party Plaintiffs-

Appellants/Cross-Respondents,

v.

AMERTECH ENGINEERING, INC.,

JAMES SHERMAN and GARY ZALENKO,

Third-Party Defendants.

_______________________________

 

Argued October 7, 2008 - Decided

Before Judges Wefing and LeWinn.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1322-05.

Brian J. Molloy argued the cause for appellants/cross-respondents (Wilentz, Goldman & Spitzer, attorneys; Mr. Molloy, of counsel and on the brief; Jeffrey J. Brookner, on the brief).

Randi S. Greenberg argued the cause for respondent/cross appellant (J. Stewart Grad, attorney; Ms. Greenberg, on the brief).

PER CURIAM

Defendants Spystef, LLC (Spystef), Sofia Kaliakatsou and Steven Tsoukas hired plaintiff Sherman & Zalenko, LLC (S&Z), a commercial and residential construction company, to construct a seven-house development known as the Tara Greens project. Defendants also engaged with S&Z in an investment project known as the Bloomfield Avenue property. In addition, S&Z completed various projects for third parties at Tsoukas' request.

In February 2005, S&Z filed a complaint against defendants for breach of contract and fraud. Defendants counterclaimed for breach of contract, negligence, consumer and common law fraud, unjust enrichment, withheld profits, delay damages and improper lien claim damages. Defendants also filed suit against third-party defendant Amertech Engineering, Inc. Following a five-day bench trial, the judge entered judgment awarding S&Z $225,485 and dismissing defendants' counterclaims. This appeal and cross-appeal followed. We have determined the judgment must be modified for the reasons set forth, and we remand for entry of an amended judgment.

The pertinent factual background may be summarized as follows. Sometime in late 2001 or early 2002, Jim Sherman, a partner and construction contractor with S&Z, met with Kaliakatsou and Tsoukas, the principals of Spystef, to discuss the construction of a housing development in New Brunswick, New Jersey, consisting of seven duplex homes. This project became known as Tara Greens.

Sherman prepared a proposal that reflected the parties' agreement that S&Z would build seven duplex homes on defendants' property at a price of $125,000 per unit; included in that price were foundation, framing, HVAC, plumbing, electric, exterior finish work and interior finish work. Sherman and Kaliakatsou signed this proposal.

When Sherman arrived at the New Brunswick site in August 2002 to begin construction, a survey revealed that the site had not been properly cleared, thus preventing construction from commencing. Tsoukas told Sherman to clear the site and to "keep track of the time and the materials that were used" so that he could reimburse S&Z for the "site work." Tsoukas agreed to pay S&Z an additional twenty percent for overhead and profit for this work.

As construction progressed, another problem arose concerning installation of sewer lines and water hook-ups. Sherman testified that Tsoukas told him to complete the sewer work and that Tsoukas "would pay [S&Z] the amount that it cost to actually do the work[,] plus a $30,000 profit." Tsoukas did not refute this contention.

Another dispute arose over the construction of basements, which had not been part of the original proposal, as well as the installation of air conditioning units. S&Z added air conditioning at a cost of $74,000, and constructed basements in four of the units at a cost of $20,000 per unit.

As the Tara Greens project neared completion, S&Z encountered financial difficulty because Spystef had not paid for all of the services rendered to date. Sherman acknowledged that Spystef had paid a portion of the costs for Tara Greens, but the total amount paid was in dispute at trial. These financial difficulties prevented S&Z from completing the seventh house. Sherman stated that S&Z "had no money to continue further. . . . We had no reason to doubt that Mr. Tsoukas would . . . pay us the money but we had no funds to continue." As a result, in February 2004, S&Z left the construction project with the seventh house "approximately [$]40 to $60,000 away from completion." Sherman testified that because of the debt S&Z was compelled to incur due to Spystef's failure to make complete payments, S&Z "borrowed over $200,000 on a . . . credit line," and Sherman individually borrowed "$95,000 against [his] personal home."

In April 2004, S&Z filed a construction lien against defendants in the amount of $230,676.10. The lien claim form was introduced into evidence; it reflected a "[c]ontract amount paid to date" of $1,254,529.91.

During the construction of the Tara Greens project, Sherman discussed with Tsoukas an opportunity to purchase an investment property on Bloomfield Avenue in Iselin, New Jersey. It was S&Z's plan to purchase the property, subdivide it into three lots, build two new homes and remodel a pre-existing home on the property. S&Z purchased the property for $390,000, listing itself as the only owner. Tsoukas contributed $97,500 to the purchase of the property. However, the parties never reached any agreement as to the allocation of their respective financial responsibilities for the property.

S&Z subsequently encountered obstacles to developing the Bloomfield Avenue property, including denial of the three-lot subdivision. S&Z eventually sold the property for $550,000. Sherman testified that S&Z suffered a net loss of $30,000 on the property, after deducting all costs and fees associated with the efforts to develop it.

In addition to these two projects, Sherman testified that Tsoukas requested that S&Z perform certain work for two third-parties: a company know as Landmark Pools and an individual identified as Mr. Norris. Sherman testified that S&Z was not paid in full for the work it performed for these parties, and sought full payment from Tsoukas who, Sherman claimed, had promised to cover the costs associated with that work.

At the conclusion of trial, the judge placed her decision on the record. The judge found that S&Z had agreed to build seven homes for defendants for $125,000 per home, as reflected in the original proposal. The trial judge found Sherman's description of the payment arrangements for the additional work performed outside the four corners of the original proposal to be credible. The judge characterized that arrangement as "get the work done, we'll pay you for it or we'll work it out[.]"

The trial judge found that in addition to the agreed upon price of $125,000 per house, S&Z incurred the following charges at Tsoukas' request: (1) $80,000 for the construction of basements in four of the seven houses; (2) $74,000 for the addition of twelve air conditioning units; (3) $185,095 for the site work; and (4) $118,000 for the sewer work (including the $30,000 profit). The trial judge deducted $60,000 for plaintiff's acknowledged incomplete construction of the seventh house. Therefore, the trial judge concluded that Spystef owed S&Z a total of $1,272,095. The judge then added twenty percent to that figure representing overhead and profit, thus bringing the total owed to S&Z to $1,526,514.

The trial judge then made the following deductions from that total: (1) $57,744 in equipment rental fees; (2) $97,500 for the amount owed to Tsoukas for his investment in the Bloomfield Avenue property; (3) $9,000 in repayment of a loan to S&Z from Spystef; and (4) $1,194,529 representing the figure Sherman had testified to as the total amount defendants paid to date. These deductions reduced Spystef's obligation to S&Z to $225,485.

Regarding the Bloomfield Avenue property, the trial judge found that Spystef was not responsible for S&Z's loss because "there [was] nothing in the agreement between the parties" and S&Z had failed to mitigate its damages with respect to the property.

Regarding the work S&Z performed for Landmark and Mr. Norris, the trial judge determined that S&Z was not entitled to recover for work done for these third parties because "any representation made by [Tsoukas] that he would pay is not a binding contract. Plaintiff could and should have pursued those individuals . . . directly . . . ."

Spystef now appeals claiming that the trial judge erred in adding a twenty percent allowance to the entire amount S&Z claimed due; and that the trial judge erred in crediting Spystef with only $1,194,529 in payments to date, as opposed to the higher figure reflected on S&Z's construction lien form. Spystef argues that, because the trial judge's errors "all involve easily corrected calculations, this Court should render judgment based on the correct calculations."

S&Z cross appeals, seeking the following relief: (1) an increase in the amount awarded for the sewer work; (2) $57,700 for equipment rental; (3) $94,000 for insurance on the Tara Greens project; (4) reimbursement of the carrying charges on the credit line and home mortgage S&Z incurred when Spystef failed to make timely payments on the Tara Greens project; (5) a pro rata share of its loss on the Bloomfield Avenue venture; and (6) payment for the work done for the third parties.

Having reviewed these contentions in light of the record and the applicable law, we conclude that the trial judge's decision should be affirmed in all respects, with the exception of (1) the manner in which the judge applied the twenty percent allowance for overhead and profit, and (2) the amount of the credit granted to Spystef for payments previously made.

Undisputed evidence of record established that S&Z's price of $125,000 per home, as set forth in the signed proposal, was a fixed price. Sherman acknowledged his intent to charge a total of $875,000 for the seven homes. It is equally undisputed that the $30,000 "profit" was in the nature of a bonus to S&Z for completing the sewer lines and water hook-ups. Therefore, the trial judge's inclusion of these two fixed costs within the twenty percent overhead/profit assessment was clearly improper and not contemplated by the parties.

Moreover, the record is devoid of any evidence that the parties agreed to an additional twenty percent overhead and profit payment on the $80,000 cost of the four basements or the $74,000 cost of the air conditioning units. Therefore, these expenses must also be adjusted accordingly.

Regarding the issue of plaintiff's payments to S&Z, Sherman testified that S&Z received a total of $1,194,529. However, as noted, S&Z had filed a construction lien form that indicated total payments received in the amount of $1,254,529.91. When confronted with this lien form, Sherman could not explain the discrepancy in the two figures.

In her decision on this issue, the trial judge accepted Sherman's testimony rather than the documentary evidence. The judge did not address the discrepancy between that testimony and the construction lien form, and gave no reasoning to support her acceptance of the lower figure.

We note that, in its complaint, S&Z sought judgment in the amount of $230,676.10. This is the same amount listed as the "total lien claim amount" in S&Z's April 12, 2004 construction claim form, thus lending support to the figure of $1,254,529.91 as the credit to which defendants are entitled.

We reject defendants' "judicial estoppel" argument in support of this issue.

The purpose of the judicial estoppel doctrine is to protect "the integrity of the judicial process." A threat to the integrity of the judicial system sufficient to invoke the judicial estoppel doctrine only arises when a party advocates a position contrary to a position it successfully asserted in the same or a prior proceeding. . . . Consequently, "[a]bsent judicial acceptance of the inconsistent position, application of [judicial estoppel] is unwarranted because no risk of inconsistent results exists. Thus, the integrity of the judicial process is unaffected; the perception that either the first or second court was mislead is not present."

[Kimball Int'l., Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 606-07 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001)(citations omitted).]

The doctrine of judicial estoppel "only applies when a court has accepted a party's position . . . ." Id. at 607. Here, although S&Z had filed a construction lien claim against defendants, that lien was subsequently discharged for failure to comply with the Construction Lien Law, N.J.S.A. 2A:44A-1 to-38. Thus, no "court has accepted [S&Z's] position" that defendants paid a total of $1,254,529.91.

Notwithstanding the futility of defendant's judicial estoppel argument, we nonetheless conclude the trial judge erred in accepting, without reasoning or analysis, the lower payment figure.

Regarding S&Z's cross-appeal, we have reviewed those contentions in light of the record and applicable law and find them to be without merit. R. 2:11-3(e)(1)(E). We add only the following comments.

Regarding the cost of the sewer work, Sherman testified that, "the total on the material and labor for the sewer was $88,053.86." Sherman reiterated this figure again during both cross and redirect examination.

However, S&Z submitted two exhibits purporting to reflect the total sewer costs incurred between April 17 and November 12, 2003. One of those exhibits showed a total cost of $88,053.86. The other exhibit, encompassing the same time period, showed a total of $102,489.86. The difference between the two documents appears to be two charges for "Foley Equipment," each in the amount of $7,218, on July 15 and August 15, 2003. S&Z provided no explanation for the appearance of these two additional charges on a document covering the same time period as the document upon which the trial judge ultimately relied. Under the circumstances, we find no abuse of discretion in the trial judge's acceptance of the document that corresponded directly with Sherman's testimony.

Regarding the $57,700 equipment rental expense, Sherman testified that he removed that charge from defendants' bill, acknowledging that he "shouldn't charge [defendants] that money . . . ." The trial judge relied upon this testimony in deducting this expense from defendants' obligation, finding that S&Z had waived its claim to this relief.

"'Waiver' is the intentional relinquishment of a known right. It is a voluntary act, 'and implies an election by the party to dispense with something of value, or to forego some advantage which he might at his option have demanded and insisted on.'" W. Jersey Title & Guaranty, Co. v. Indus. Trust Co., 27 N.J. 144, 152 (1958) (quoting Geo. F. Malcom, Inc. v. Burlington City Loan & Trust Co., 115 N.J. Eq. 227 (Ch. 1934)). We conclude the trial judge properly found a waiver of this claim based upon Sherman's testimony.

S&Z's request for reimbursement of $94,000 in insurance payments was not specifically included in its complaint. Moreover, at trial, Sherman testified that the total cost of the site work was $223,537.16, and that this figure did not include "the operating cost of the company. For example the . . . cost of compensation insurance for employees, auto insurance, liability insurance, [and] builder's risk insurance." Sherman quantified those insurance costs for the Tara Greens project at $94,000, and testified that insurance costs were not included in S&Z's standard overhead charge. Moreover, plaintiff presented no evidence documenting the $94,000 figure. Under the circumstances, the trial judge's denial of this request was not an abuse of discretion.

The trial judge properly denied S&Z's request for reimbursement of $116,191 in carrying costs associated with loans S&Z claimed it was forced to obtain after defendants failed to make timely payments. The trial judge found that "suit could have been filed sooner. Other actions could have been taken. And there is no testimony saying that the financial straits of [S&Z] were totally attributable to this particular project . . . ." In support of this finding, we note that S&Z's other named partner, Gary Zalenko, testified that during the time period when S&Z worked on the Tara Greens project, the company had "at least a dozen[,] if not more" projects underway.

The trial judge properly denied S&Z's request that defendants pay a pro rata share of the loss on the Bloomfield Avenue venture. The record supports the judge's finding that Tsoukas was merely an investor in the project and not a co-owner. Moreover, the record is devoid of any evidence of an agreement between the parties as to how profits and losses on this venture were to be allocated. As defendants point out, S&Z did not include this request for relief in their pleadings and, therefore, no evidence was introduced at trial on this issue.

Finally, we conclude that the trial judge properly found that S&Z was not entitled to have Tsoukas pay for side jobs performed for Landmark Pools and Mr. Norris. Neither party was involved in the Tara Greens project. The trial judge stated:

The Court is not going to permit plaintiff to recover for work done for third parties who were friends with Mr. [Tsoukas]. Certainly if work was done for other parties, even if they were friendly with Mr. [Tsoukas], any representation made by Mr. [Tsoukas] that he would pay is not a binding contract. Plaintiff could and should have pursued those individuals for whom the work was done directly and not Mr. [Tsoukas].

We reject S&Z's contention that the trial judge abused her discretion by treating these two claims "differently than the Tara Greens claims" since in both cases, "plaintiff did what Mr. Tsoukas asked it to do." The Tara Greens project was the subject of a specific proposal and an ongoing business relationship between the parties. The record contains no evidence of how either Tsoukas or these two third-parties benefited from plaintiff's work. Moreover, this claim was not asserted in S&Z's complaint.

Based on the foregoing, we affirm the trial judge's decision in all respects except for the two issues noted herein. We reverse and remand for entry of an amended judgment in conformance with this opinion.

 

Amertech Engineering, Inc., was granted summary judgment and dismissed from the case in December 2006.

The trial judge deducted the amount of $60,000 from the proposal figure of $875,000, representing the unfinished construction of the seventh home, reducing that figure to $815,000. When added to the $30,000 bonus, therefore, the amount of $845,000 was improperly increased by the twenty percent overhead/profit assessment.

(continued)

(continued)

15

A-6305-06T3

December 11, 2008