by: Steve P. Gouin
In the recently decided Seavey Construction Inc. v. St. Peter, the Appellate Division reversed the Law Division and its construction of the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1, et. seq. (the Lien Law”).
Under the Lien Law, before a contractor may file a construction lien stemming from a residential project, he must file a Notice of Unpaid Balance and Right to File Lien (“NUB”) and Demand for Arbitration of the NUB with the AAA. This added step is intended to prevent contractors from filing meritless lien claims against unsuspecting homeowners. An arbitrator will be assigned to make certain determinations regarding the NUB, such as whether it was filed correctly and states a valid lien claim and whether the homeowner has any valid setoffs or counterclaims. Once the arbitrator renders his decision, the contractor may file his lien, but may be required to post a bond, to the extent the arbitrator determines that the homeowner’s claims have merit.
In Seavey, the arbitrator ruled in favor of the contractor on the NUB arbitration. In doing so, it found the homeowner’s counterclaims to be invalid. Subsequently, the contractor filed a complaint in the Law Division seeking to foreclose on its lien. The homeowner’s answered and asserted the same counterclaims that the arbitrator had found to be invalid. The trial court dismissed these counterclaims, on the grounds that the arbitrator had already found them to be invalid.
On appeal, the Appellate Division held that the arbitrator’s determination merely established a “prejudgment lien” which still need to be confirmed in litigation brought pursuant to the lien law. The arbitrator’s decision does not, as the trial division held, absolve the contractor of the burden of proving the validity of its lien claims at trial. Moreover, it does not prevent the homeowner’s from raising the same counterclaims as were asserted during arbitration of the NUB. The Court noted that, to do so, would require the parties “to have completed discovery for all non-lien causes of action within” the thirty day period provided by the Lien Law for the arbitrator to render a decision.
The Appellate Division also reversed the trial court’s grant of summary judgment on the contractor’s breach of contract and unjust enrichment claims, which the trial court had granted based on the arbitrator’s decision. The Appellate Court noted that the trial court improperly treated the arbitrator’s decision as one entitling the contractor to a money judgment. Rather, pursuant to the Lien Law, the Appellate Division held that the arbitrator’s decision, while confirming the validity of the NUB and the underlying lien claim, is not to be used for res judicata or law of the case purposes.