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Middlesex County Fire District Wins

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On July 12, after a five day trial in Middlesex County Superior Court, Roger Mitchell of Roger S. Mitchell, LLC 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

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