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New Jersey's Appellate Division Holds that the Provisions of the Construction Lien Law Are Clear and Unambiguous as They Relate to Who May File a Construction Lien

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Construction Group Newsletter

July 1, 2009

New Jersey’s Construction Lien Law, N.J.S.A. § 2A:44A-1 (the “Act”), et seq. provides that only certain categories of entities or individuals are entitled to file construction liens. See N.J.S.A. § 2A:44A-3 (“[a]ny contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed . . .”). The Act defines “Supplier” as:

[A]ny supplier of material or equipment, including rental equipment, having a direct privity of contract with an owner, contractor or subcontractor in direct privity of contract with a contractor.

N.J.S.A. § 2A:44A-2.

Thus, the Act recognizes three levels, or “tiers” of valid lien claimant, and only claimants within those tiers may file valid Construction Liens. For example, a supplier to a supplier may not file a construction lien, but a supplier to a first-tier subcontractor (i.e. a subcontractor in direct privity of contract with a general contractor) may.

In Eastern Concrete Materials, Inc. v. Tarragon Edgewater Associates, LLC, et al., 402 N.J. Super. 583 (App. Div. 2008), New Jersey’s Appellate Division held that the language of the Act is plain and unambiguous, and that a material supplier to a second-tier subcontractor was not entitled to file a Construction Lien pursuant to the Act, rejecting the supplier’s public policy-based arguments to the contrary.

The plaintiff, Eastern Concrete Materials, Inc., provided concrete to an entity called Nigo Construction Corporation. Nigo failed to pay Eastern, and Eastern filed a lien against the property. The property was owned by Tarragon Edgewater Associates, LLC, which had contracted with Daibes Brothers, Inc., the general contractor on a project involving improvements to a high-rise condominium building. 402 N.J. Super. at 585. Daibes, in turn, had subcontracted with R&L Construction Corporation to provide certain cast-in-place concrete services on the project. Id. Nigo performed work for R&L, pursuant to a purchase order issued by R&L. Id.

The Superior Court of New Jersey, Law Division, entered an order holding that Eastern was “not a valid and rightful lien claimant” pursuant to the Act. Id. at 584. The trial court issued a written opinion stating:

The supplier must have a contractual relationship with either an owner, general contractor or subcontractor. Plaintiff’s purchase order identifies its contractual relationship [sic] was with a sub-subcontractor, Nigo Construction Corp. As the court has before it all documents, the findings are that the Construction Lien Act applies.

Id. at 585.

The trial court also rejected Eastern’s argument that R&L was an “alter-ego” of Daibes. Id. The Appellate Division affirmed, holding that “the plain meaning of the statute controls.” The court went on to say that the “three-tier orientation of the statutory scheme” is further supported by the Act’s definition of “subcontractor” as “any person providing work or services in connection with the improvement of real property pursuant to a contract with a contractor or pursuant to a subcontractor in direct privity of contract with a contractor.” Id. at 586 (emphasis added). The court noted that Eastern did not have a contract with the contractor; rather it supplied concrete to Nigo, which “was not in direct privity of contract with the contractor.” Id.

In a short but straightforward decision, the Appellate Division “decline[d] plaintiff’s invitation” to embrace a public policy rationale to find in Eastern’s favor. In this regard, the court held that “[c]ourts are obliged to interpret a statute in a way that gives full meaning to all of its terms.” Id. The court concluded that the Legislature would be free to change the meaning of the definitions in the Act, but that the courts “have no warrant to reach a result that is manifestly precluded by the terms of the governing statute.”

The lesson of this decision for practitioners and potential claimants under the Act is simple: If you (or your client) do not fall within the three tiers of recognized lien claimants, you are not entitled to file a construction lien. Because the Act provides stiff penalties, including paying your opponent’s legal fees, for any lien that is determined to have been filed “without basis,” see N.J.S.A. § 2A:44A-15, you (or your client) should carefully scrutinize your contract, your role on the construction project, and your relationship to other parties (and their role on the construction project) before filing a Construction Lien in order to ascertain whether you fit within the narrow scope of authorized claimants under the Act.