FOR IMMEDIATE RELEASE
On
July 12, after a five day trial in Middlesex County Superior Court,
Roger Mitchell of Mikulski & Mitchell obtained a jury verdict in a
consolidated multiparty construction dispute involving a public entity.
The verdict came in a bifurcated trial on liability issues only. The
jury found in favor of Mitchell’s client, a Middlesex County Fire
District, determining that a contractor and its surety company were
liable for a material breach of contract by failing to progress the work
in a dispute over a change order.
In spite of the old saw that construction disputes make everybody’s eyes
glaze over, the members of the jury reportedly thought it was an
interesting case and were glad to have the opportunity to decide a case
that did not involve mayhem. It was indeed an interesting case on
several levels.
The owner of the construction company was born and raised in Trinidad
where he had minimal education. He came to the US in 1979 at the age of
19, landing at JFK and going to Irvington NJ where his brother resided.
He started a small contracting business. Fifteen years later, he was
married to a local woman, raising a family and still operating out of
the Irvington area, acquiring and renovating dilapidated inner city row
houses.
Then, in 1992, he got involved with a convicted felon with 40 years
experience in public construction projects. This functionally illiterate
minority contractor and his defrocked public construction expert joined
forces. The results were good for them and bad for the rest of us.
The felon, freshly burdened with a Federal criminal conviction for a
crime of moral turpitude, bribing a public official to obtain building
contracts in New Jersey, was ineligible under N.J.S.A. 2C:51-2
(d) to do business with public entities for up to ten years. The
unspoken partnership was a perfect solution for both individuals. The
contractor who couldn’t read could get public contracts and the
convicted construction expert who was barred from doing public work
could hide behind the contractor to obtain public contracts.
He did all the paperwork to obtain the necessary NJ State registration
for the company to bid on public projects. He enabled the contractor to
submit bogus financial statements to surety companies for approval.
Beyond that, he prepared estimates and bids on public projects, and
handled all the correspondence on the projects that were awarded.
It was not until long after the contractor’s disputed termination in May
2000, commencement of litigation by unpaid subcontractors and others in
2001, and well into the discovery phase in 2004 that investigation led
to this criminal history.
In addition, contrary to the deposition testimony of the contractor, a
bank subpoena led to information revealing that the contractor’s claimed
unpaid consultant, in fact was well compensated, albeit without benefit
of any tax reporting, as he wrote some 150 checks drawn on the
contractor’s bank account for the project. He signed many checks made
payable to himself and other individuals and entities with no connection
to the project. In hindsight, it appears that he was siphoning public
monies paid to the contractor for this project for his own benefit.
During the approximate eight years of operation of this improperly
registered contracting company there were at least a half-dozen claims
involving its performance on public projects. The company is now
defunct and the individual contractor and his spouse filed personal
bankruptcy petitions, leaving behind millions of dollars in unsatisfied
judgments.
The felon, who for all practical purposes was running the business, has
never been charged with any wrongdoing. Although he remains a New
Jersey resident, the jury never became aware of these facts because he
avoided service of a trial subpoena, and never testified.
This in itself raised a number of interesting
evidential questions. How do you impeach an absent witness with a
criminal conviction? The
process, which appears to involve convincing the Court that the
deposition should be read in the interest of justice, R.
4:16–1(c), or convincing the Court that the
witness is unavailable because diligent attempts made to secure the
witnesses’ appearance failed. N.J.R.E. 804, 806; Williams v.
Hodes 363 N.J.Super. 600, 605-606 (App.Div. 2003). A
criminal conviction is generally admissible to impeach any declarant,
N.J.R.E. 609, 806, but when the witness is absent and is not a
party, it is a more difficult question.
Surprisingly, the court that had case
managed the matter was not available when the trial finally occurred.
Therefore, a trial judge who knew nothing about the case was assigned at
the last minute. There were other surprises, including the trial
court’s strict relevancy limitations on the introduction of evidence.
The trial court nonetheless gave the attorneys plenty of time prior to
jury selection to adjust to its preliminary rulings and also at the end,
going over the charge and its skillfully prepared verdict sheet so that
closing arguments could be in synch with the court’s instructions.
As a result of the trial court’s rulings, instead of focusing on the
contractor’s numerous breaches, the issue at trial was the Fire
District’s compliance with the termination provisions of the contract,
which had not been followed to the letter. For a similar case regarding
such problems, see Ingrassia Const. Co., Inc. v. Vernon Tp. Bd. of
Educ., 345 N.J.Super. 130 (App. Div. 2001), where the court
determined that non-compliance with contract language in a wrongful
termination case is not always fatal.
On another subject, it is a little known fact that there are about 500
Fire Districts in New Jersey, many of which are public entities entitled
to secure public financing through the sale of tax free bonds to make
improvements such as in this case, the construction of a fire and rescue
station valued at more than a million dollars. As a public entity, the
fire district was bound to develop specifications, advertise and seek
sealed bids pursuant to the Public Contracts Law, and to accept the
lowest responsible bidder. N.J.S.A. §40A: 11-1 et seq.
The requirement of the Public Contracts Law that the lowest
responsive bid must be accepted is designed to protect against
corruption by local public officials, who might otherwise be tempted to
offer lucrative contracts to their friends and supporters. The
unintended consequence of this policy is sometimes low quality and poor
workmanship in the construction of a public project. In addition, as
happened here, the low bidder gets the award, only to later make
unreasonable claims for extra compensation.
Another point of interest is the requirement that such public projects
be backed by performance and payment guarantees, typically provided by
surety companies. If and when a contractor is terminated, or is unable
to perform, the public entity calls upon the surety to complete the
work. In that event, the surety company is confronted with a difficult
decision involving significant financial exposure.
Surety bonds are not insurance policies. The surety stands in the shoes
of the contractor, and has the same defenses as the contractor. An
often seen defense justifying a refusal by the surety to finish a
contract where the contractor has been terminated is the contention that
the public owner violated the contract in the termination or breached
its contract in some other fashion.
In such an event, the public entity has to complete the project with
others and sue for damages. Typically, public officials have no
experience with such disputes. Their decisions are made in the heat of
the moment. As lay people, they act in reliance on their consultants’
advice. Often, this leads to errors. This is only one of a number of
pitfalls to avoid. Surety companies are target defendants because they
are perceived to be well-financed, whereas a contractor may not be able
to satisfy a judgment. For that reason, surety companies are well armed
to take advantage of mistakes made by the public owner in terminating
the contract, or in compliance with other aspects of the contractual
undertaking.
Generally speaking, trial lawyers have a vicarious stake in the risk of
letting a random group of citizens decide the outcome of a dispute.
Unfortunately, in this case, his adversary blew up Mitchell’s letter
giving the contractor seven days notice of termination to poster size
and forcefully urged the jury in closing argument to find that it
constituted an unfair attempt to chisel the contractor out of payment by
demanding that he accept a reduction in payment or be terminated.
Waiting for the verdict, usually an exciting event, was tough because
this argument made it personal and had a certain appeal to the underdog
especially if the underlying details were not understood or were
confused.
After 3 hours deliberating, the jury determined that the contractor was
liable for a material breach of contract by refusing to progress the
work. What a relief!
The motto of this story is at trial, as they say, “Keep it simple,
stupid,” or “kiss it.” There were more than 7,000 documents generated
during the construction of this fire station. As the case was
litigated, a large number of issues developed. During trial, it felt
like the attorneys had large pails of poison to throw into the hopper,
but the judge limited them to eyedroppers. Boiling it all down is
easier said than done, but with enforcement from the trial judge, who
was a quick study, there were 7 documents admitted in evidence from
Mitchell’s client and 5 from the other side dealing with one issue only.
July 12, 2005
For More Information Contact:
Mikulski & Mitchell, LLC
12 Mount Hope Street, Lambertville, NJ 08530
Tel: 609-397-7667
FAX: 609-397-0006
Internet:
info@njbarristers.com