Court Opinion

ID: 9694584
Source: CourtListenerOpinion
Date Created: 2023-08-25 17:47:56.308104+00
Date Added: 2024-06-11T18:20:03.715269
License: Public Domain

STEIN, J.,
concurring in part and dissenting in part.
As the majority observes, the guiding principles by which we review arbitration awards should serve to enhance the use of arbitration as an alternative forum for the resolution for disputes. Ante at 490, 610 A.2d at 369. Thus, I concur in the Court’s holding that arbitration awards based on mistakes of law should be disturbed only where the arbitrators’ error is “gross, unmistakable, undebatable, or in manifest disregard of the applicable law,” ante at 496, 610 A.2d at 373, a standard of review consistent with the common understanding that courts will upset arbitration awards only in the most extreme circumstances. The availability of review, however, even under so restricted a standard, also enhances resort to reliance on arbitration, by protecting those who use arbitration against runaway awards that ignore fundamental legal principles and settled industry practice. In this matter, the arbitrators have ignored a basic and fundamental legal principle and industry practice governing construction contracts: delay damages for unexcused failure to complete a project on time are awarded only to the date of substantial completion. Disregarding that settled principle, the arbitrators’ $14,500,000 award included delay damages of over $4,000,000 to compensate for losses incurred after the date of substantial completion. The majority upholds the entire award.
I
In 1983, Perini entered into a contract with Sands pursuant to which Perini would coordinate an extensive renovation project *550in exchange for a $600,000 fee. Perini was not engaged as a contractor and did not perform any construction work. The contract specified that the parties would establish a substantial-completion date when they determined the project’s maximum cost. The contract also provided that final payment of Perini’s fee would be due when the project was either delivered to the owner, ready for occupancy, or actually occupied, provided that the project had been substantially completed. The parties defined substantial completion as
the date when construction is sufficiently complete * * * so the Owner can occupy or utilize the Project or designated portion thereof for the use for which it is intended.
The contract did not refer to a final completion date. Thus, as is common in construction contracts, the parties’ bargained-for obligations were linked to the date of substantial completion.
The contract also gave Perini a reasonable time to complete any punch-list work remaining after substantial completion, and provided Sands with a remedy if Perini failed to complete the punch-list or warranty work within a reasonable time. According to Sands, the parties eventually agreed on May 31, 1984, as the date by which Perini was obligated substantially to complete the project, although Perini asserts that “no date for completion had ever been contractually agreed upon.”
The renovation consisted of five project components, including the building of a new entrance and the creation of an ornamental glass facade with an elevator on the outside of the building. Because most of the project was complete, or excusably delayed, by May 31st, Sands’ delay claim related primarily to damages resulting from Perini’s failure timely to complete the new entrance and the facade. According to Sands, it had been depending on the “glitzy” new facade to attract customers from the boardwalk during the busy summer season. Allegedly, the incomplete appearance of the hotel discouraged those potential customers, and Sands claimed losses of approximately $9,000,000 in new business from May 3rd to August 31st.
*551Sands also sought to collect delay damages of over $4,500,000 for the period between September 15th through December. Sands admitted, however, that the project had been substantially completed by September 15th. For example, Sands’ expert testified that the entire project had been substantially completed by that date, and Sands did not contest during the arbitration proceeding that substantial completion had occurred by September 15th. Moreover, although the Chancery Division acknowledged more than once that September 15th was the date of substantial completion, Sands did not object or suggest that a different substantial-completion date might have been contemplated by the arbitrators. Most importantly, in its Appellate Division brief Sands states at least six times that Perini had substantially completed the project by September 15th. For example, Sands asserted, “While it is true, (and Greate Bay has admitted) that substantial completion was achieved by September 15, 1984, this did not preclude Perini from terminating the contract.” Sands also stated, “While Perini was able to achieve substantial completion in September 1984, it was still on the site working on unfinished construction as late as December, 1984.” Moreover, temporary certificates of occupancy for all phases of the project had been issued by September 14,1984, a factor that ordinarily indicates substantial completion. See 2 Steven G.M. Stein, Construction Law 1f 7.09, at 7-77 (1991) [hereinafter Stein]. Thus, all evidence indicates that Sands viewed September 15th as the date of substantial completion. Only in a supplemental brief to this Court did Sands change its position and argue that “significant evidence [] supports a finding that substantial completion did not occur until long after September 15.”
After September 15th, Perini continued the work necessary to finish the project completely. For example, steps leading to the casino had been constructed improperly and had to be repoured pursuant to the warranty provision in the contract. The steps were repoured in sections, however, and one of Sands’ witnesses explained that there was “actual foot traffic *552through that area during the entire time.” Perini also continued the punch-list work, including work on the glass elevator.
According to Sands, it was entitled to delay damages after September 15th, the date of substantial completion, because the loss of business caused by the delay during the summer had carried over to the fall months, causing Sands to lose an additional $4,580,000. Sands also argued that punch-list and warranty work that Perini had continued to perform after September 15th had caused it inconvenience and had given the hotel an unfinished appearance, forcing Sands to spend extra money on promotions and causing additional lost profits.
II
The majority opinion presents a thorough and well-reasoned explanation of the law of substantial completion. As the majority notes, “substantial completion has definite meaning in the construction industry.” Ante at 500, 610 A.2d at 875. Generally, as in this case, parties and courts define substantial completion as the date on which construction is sufficiently complete to enable the owner to occupy or use the project for its intended purpose. Because liquidated or delay damages are designed to approximate an owner’s loss before occupancy, awarding those damages for a period after substantial completion serves to penalize the breaching party and would thus be contrary to the fundamental principles of contract law. See Stein, supra, at 116.07[3] at 8-18. Thus, courts have consistently recognized that delay or liquidated damages may not be awarded after substantial completion. See Monsen Eng’g Co. v. Tami-Githens, Inc., 219 N.J.Super. 241, 244, 250-51, 530 A.2d 313 (App.Div.1987); Utica Mut. Ins. Co. v. DiDonato, 187 N.J.Super. 30, 453 A.2d 559 (App.Div.1982); Public Health Trust v. Romart Constr., Inc., 577 So.2d 636, 637 (Fla.Dist.Ct.App.1991); Stone v. City of Arcola, 181 Ill.App.3d 513, 130 Ill.Dec. 118, 128, 536 N.E.2d 1329, 1338 (Ill.App.Ct.1989); American Druggists Ins. Co. v. Henry Contracting, Inc., 505 So.2d 734, 738-39 (La.Ct.App.), *553cert. denied, 511 So.2d 1156 (1987); Hemenway Co. v. Bartex, Inc., 373 So.2d 1356, 1358 (La.Ct.App.), cert. denied, 376 So.2d 1272 (1979); Page v. Travis-Williamson County Water Control, 367 S.W.2d 307, 311 (Tex.1963); Brower Co. v. Garrison, 2 Wash.App. 424, 468 P.2d 469, 476-77 (1970). Accordingly, as the majority acknowledges, “Perini’s argument that delay damages cannot be awarded after substantial completion of the contract is amply supported by the case law and construction-industry practice.” Ante at 505, 610 A.2d at 377. As the majority concedes, the accepted measure of damages after substantial completion is merely the amount necessary to bring the project to full completion. Ante at 502, 610 A.2d at 376; Van Dusen Aircraft Supplies, Inc. v. Terminal Constr. Corp., 3 N.J. 321, 329, 70 A.2d 65 (1949); Feeney v. Bardsley, 66 N.J.L. 239, 240, 49 A. 443 (E. & A. 1901); 6 Williston on Contracts § 842 (3d ed. 1962).
Ill
Because the law and industry practice concerning delay damages is so well-settled and firmly established, parties to a contract ordinarily would not contemplate the possibility of an assessment of delay damages after substantial completion. One can infer that owners and contractors rely on that established principle in negotiating construction contracts. A contractor submitting a bid on a construction contract would understandably calculate its profit margin, and select its subcontractors, on the assumption that its exposure for delay or liquidated damages could not extend beyond the substantial-completion date. An owner seeking the option of collecting delay damages after substantial completion of a project would not only have to bargain for that right during negotiations but presumably would expect to pay a premium for that option, in the form of a higher contract price.
Although the construction industry relies on the well-settled law of substantial completion, the majority bases its decision in part on a finding that the language of the contract “does not *554suggest [ ] that Sands fully conceded either that an award of consequential damages was precluded after September 15, 1984, or that it intended to give the expression, substantial completion, its construction-industry ‘term of art’ meaning.” Ante at 506, 610 A.2d at 378. That analysis suggests that when parties do not explicitly recite their intention to be bound by applicable law, arbitrators are not bound to follow the law. That theory directly contradicts the settled rule that “[u]nless the parties provide otherwise, it is also presumed that they intended that their dispute be resolved in accordance with the law.” Communications Workers v. Monmouth County Bd. of Social Servs., 96 N.J. 442, 450, 476 A.2d 777 (1984) (emphasis added); accord In re Arbitration Between Grover & Universal Underwriters Ins. Co., 80 N.J. 221, 230-31, 403 A.2d 448 (1979). Here, the parties agreed that the contract would be governed by New Jersey law, and Sands concedes that it intended that the dispute be governed by applicable legal principles. See ante at 493, 610 A.2d at 371. The arbitrators, therefore, were bound to honor the parties’ intentions by interpreting their contract in accordance with the law. See Kearny P.B.A. Local #21 v. Town of Kearny, 81 N.J. 208, 217, 405 A.2d 393 (1979). Thus, the arbitrators’ award of delay damages after the date of substantial completion violated not only established law but the apparent intentions of the parties at the time of contracting.
The majority also explains that an arbitration award is not reviewable on grounds of mistake of law if the arbitrators’ interpretation of that law is “reasonably debatable.” Ante at 493, 610 A.2d at 371. The majority then concludes that the arbitrators’ failure to apply the law and settled practice limiting delay damages to the period prior to substantial completion might have been reasonable on this record. Specifically, the majority notes that there was evidence to suggest that Perini’s work after substantial completion “greatly detracted from the building’s appearance, prevented customer access, disrupted operations, and contributed to Sands’s loss of business.” Ante at 507, 610 A.2d at 378. However, that ongoing work was *555punch-list and warranty work, work that Perini had a right under the contract to complete within a reasonable time after substantial completion. To assess delay damages against Perini for adhering to its contractual obligation to complete punch-list and warranty work would be unthinkable. Moreover, Sands had a bargained-for remedy under the contract for punch-list work and warranty work that was not completed within a reasonable time.
The majority also observes that Perini’s delay in completing the facade allegedly discouraged potential patrons from patronizing the casino and that the arbitrators might have assumed that the lost patronage continued after the date of substantial completion. Ante at 508, 610 A.2d at 379. That assumption notwithstanding, the award of delay damages beyond the date of substantial completion, even if such damages had been sustained, is simply impermissible.
Because the principle limiting delay damages to the period up to substantial completion is so firmly embedded in the law and in construction-industry practice, Sands must have known that delay damages would not be available after that date. If Sands had wanted to protect itself from possible losses arising after the substantial-completion date but attributable to a delay in substantial completion, it should have bargained for that right. The Court should not allow the arbitrators to disregard established law and industry practice in awarding delay damages unauthorized by the contract and not contemplated or bargained for by the parties.
IV
The majority upholds an arbitration award requiring Perini to pay over $14,500,000 for breach of a contract under which it was to receive $600,000. Over $4,000,000 of that award is comprised of delay damages that accrued after the date of substantial completion. Because the case law and construction-industry practice do not permit the award of delay damages for periods after substantial completion, the arbitrators committed *556an egregious error of law. The reliability of arbitration as an alternative method of dispute resolution mandates judicial intervention in extreme cases such as this in which a settled legal principle and industry practice have been repudiated by the arbitrators’ award. Accordingly, I dissent from the majority opinion to the extent that it upholds the imposition of delay damages after the date of substantial completion.
Justice HANDLER joins in this opinion.
Chief Justice WILENTZ and Judge A.M. STEIN, concur in result.
For affirmance — Chief Justice WILENTZ, and Justices CLIFFORD and O’HERN and Judges A.M. STEIN and KEEFE — 5.
Justices HANDLER and STEIN, concur in part and dissent in part — 2.