Court Opinion

ID: 4428638
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:10:10.742701+00
Date Added: 2024-06-11T14:50:49.269997
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-4640-17T1

ERCO INTERIOR SYSTEMS, INC.,

          Plaintiff-Appellant,

v.

NATIONAL COMMERCIAL
BUILDERS, INC., d/b/a NCB
BUILDERS OF NEW JERSEY,
INC. c/o REGISTERED AGENTS,
INC.,

     Defendant-Respondent.
______________________________

                    Submitted March 5, 2019 – Decided May 7, 2019

                    Before Judges Yannotti and Natali.

                    On appeal from Superior Court of New Jersey, Law
                    Division, Gloucester County, Docket No. L-0259-18.

                    Kreiser & Associates, PC, attorneys for appellant
                    (Travis L. Kreiser, on the briefs).

                    Hurvitz & Waldman, LLC, attorneys for respondent
                    (Mitchell A. Waldman and Joshua K. Givner, on the
                    brief).
PER CURIAM

      Plaintiff ERCO Interior Systems, Inc. (ERCO) appeals from the Law

Division's May 25, 2018 order dismissing its complaint against defendant

National Commercial Builders, Inc. (National) with prejudice under Rule 4:6-

2(e) based on a forum selection clause in the parties' subcontract, which

provides that litigation relating to the subcontract "shall be brought only in the

District Court of Johnson County, Kansas, and in no other court or location."

We reverse.

                                        I.

      National, a corporation located in Lenexa, Kansas, entered into a

contract with Rio Mall LLC, to construct movie screens in a theater at the Rio

Mall in Rio Grande, New Jersey. National entered into a subcontract with

ERCO, a New Jersey-based corporation, to install acoustical tiling in the

theater. Paragraph D of the parties' subcontract provides that:

              [a]ny litigation arising out of or related to the
              Agreement shall be brought only in the District Court
              of Johnson County, Kansas, and in no other court or
              location. Regardless of where it is signed, this
              Agreement is deemed made in Kansas and shall be
              interpreted under Kansas law.

      A dispute arose between ERCO and National regarding payment.

Specifically, ERCO claimed it completed all the work as required by the

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subcontract and invoiced defendant $23,500, but was only paid $10,019.75.

Accordingly, ERCO filed a complaint in the Law Division against National

seeking to recover the remaining $13,480.25 owed to it, plus pre- and post-

judgment interest and attorney's fees. ERCO's complaint asserted claims for

breach of contract, quantum meruit, unjust enrichment, violation of the Prompt

Payment Act (PPA), N.J.S.A. 2A:30A–1 to –2, and amounts owed on a book

account/account stated.    With respect to its claim under the PPA, ERCO

averred that National did not provide written notice of any disputes as to the

invoices, and that it lacked a good faith basis to withhold payment.

       National moved to dismiss ERCO's complaint and argued that the forum

selection clause in the subcontract was knowingly and voluntarily entered by

both parties. ERCO, relying on Kubis v. Perszk, Inc. v. Sun Microsystems,

Inc., 146 N.J. 176 (1996), opposed the motion and asserted the forum section

clause was invalid because it violated New Jersey's strong public policy, as

codified in N.J.S.A. 2A:30A-2(f), which provides that "any civil action

brought to collect payments [under the PPA] . . . shall be conducted inside of

this State . . . ."

       After hearing oral arguments, the court issued a written decision and

order on May 25, 2018, granting National's motion and declining to invalidate

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the forum selection clause. In its written decision, the court noted that forum

selection clauses are presumed valid and enforceable in New Jersey unless

they are the result of fraud or overreaching, or if enforcement would violate

strong public policy, or would be unreasonable.            The court found "no

indication" that the clause resulted from fraud or overreaching, and determined

the parties agreed to work on the project in New Jersey "freely and voluntarily

in the interest of each of their respective businesses and trades."

        Further, after reviewing the pertinent sections of the PPA, including the

provision that civil actions brought under the PPA for payment must be

conducted in New Jersey, the court rejected ERCO's claim that enforcement of

the forum selection clause would violate New Jersey public policy. The court

acknowledged that "New Jersey public policy does, in some circumstances,

favor    providing    legislative   protection   to   subcontractors   performing

construction work in New Jersey," but did "not find that this public policy was

shown to be strong enough to override a freely negotiated forum selection

clause." Finally, the court determined ERCO could cost-effectively litigate its

claim in Kansas, that enforcement would not be so inconvenient as to be

unreasonable, and that ERCO failed to establish "any exception to the

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presumption of validity and the enforceability" of the parties' forum selection

clause. This appeal followed.

                                        II.

      On appeal, ERCO maintains the "plain and unambiguous" language of

N.J.S.A. 2A:30A-2(f) establishes that "all claims under the [PPA] must be

litigated in New Jersey," and contends "any forum selection clause at odds

with the statutory mandate is invalid and unenforceable." According to ERCO,

the PPA "includes a provision which confirms that the Act is controlling over

any other applicable law," and the trial court "erred when it relied on . . . other

conflicting law in granting" National's motion to dismiss.

      Further, ERCO argues that the forum selection clause "is invalid and

unenforceable because it violates New Jersey's strong public policy in favor of

providing legislative protection to subcontractors performing construction

work in New Jersey."      Specifically, ERCO contends N.J.S.A. 2A:30A-2(f)

expresses New Jersey's "right and public policy goal to protect the payment

rights of all construction subcontractors" in "the State of New Jersey by and

through the New Jersey [c]ourts." Moreover, ERCO claims that it would lose

its protections under the PPA and "its basic contract right" to receive payment

"if it were forced to litigate this $13,000.00 debt in Kansas" because ERCO's

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"ability to obtain payment would no longer be prompt or cost efficient." Thus,

according to ERCO, "[a]s a practical matter," enforcement of the "forum

selection clause would force ERCO to abandon its legitimate claims for

payment and cause it to lose the benefits of the [PPA]." We agree with ERCO

that the parties' forum selection clause is invalid because it subverts New

Jersey's strong public policy, as embodied in the PPA, for the prompt and

efficient payment of claims related to New Jersey-based construction disputes.

We further conclude the requirement codified at N.J.S.A. 2A:30A-2(f), that all

actions brought to collect payments under the PPA "shall be conducted inside

of this State," is an integral part of that policy.

                                         III.

      "We review a grant of a motion to dismiss a complaint for failure to state

a cause of action de novo, applying the same standard under Rule 4:6–2(e) that

governed the motion court." Wreden v. Twp. of Lafayette, 436 N.J. Super.

117, 124 (App. Div. 2014); Hoffman v. Supplements Togo Mgmt., L.L.C., 419

N.J. Super. 596, 605 (App. Div. 2011); see also Salovaara v. Jackson Nat'l Life

Ins. Co., 246 F.3d 289, 295 (3d Cir. 2001) (explaining the "interpretation and

enforcement of a forum selection clause is a matter of law" subject to plenary

review).

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                                         6
      "[F]orum selection clauses are prima facie valid and enforceable in New

Jersey." Caspi v. The Microsoft Network, L.L.C., 323 N.J. Super. 118, 122

(App. Div. 1999) (quotation omitted). However, we have declined to enforce a

forum-selection clause if: "(1) the clause is a result of fraud or 'overweening'

bargaining power; (2) enforcement would violate the strong public policy of

New Jersey; or (3) enforcement would seriously inconvenience trial." Paradise

Enters., Ltd. v. Sapir, 356 N.J. Super. 96, 103 (App. Div. 2002) (quoting

Caspi, 323 N.J. Super. at 122).

      ERCO does not advance any argument that the forum selection clause is

the result of fraud or the exercise of superior bargaining power by National.

Instead, ERCO invokes the strong public policy and serious trial

inconvenience exceptions.

      New Jersey courts have declined to enforce forum selection clauses that

violate public policy on several occasions. See Kubis & Perszyk Assocs., Inc.

v. Sun Microsystems, Inc., 146 N.J. 176, 192-93, 195 (1996) (holding "forum-

selection clauses in contracts subject to the Franchise Act," N.J.S.A. 56:10 -1 to

-31, "are presumptively invalid" because "general enforcement" of those

clauses would "substantially circumvent the public policy underlying the

Franchise Act"); McNeill v. Zoref, 297 N.J. Super. 213, 222-24 (App. Div.

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                                       7
1997) (declining to enforce a forum-selection clause in a mortgage brokerage

services agreement when enforcement would be contrary to "the strong public

policy . . . found in the entire controversy doctrine which is firmly entrenched

in this State" (citations omitted)); Param Petroleum Corp. v. Commerce and

Indus. Ins. Co., 296 N.J. Super. 164, 170–71 (App. Div. 1997) (refusing to

give effect to a forum-selection clause in an insurance policy when the insured

property was located in New Jersey and enforcement of the clause would

violate the policy that the location of the insured risk should determine the

forum).

      "[T]he sources of law where a mandate of public policy may be found

are expansive," Young v. Schering Corp., 141 N.J. 16, 29 (1995), and "include

legislation; administrative rules, regulations or decisions; and judicial

decisions."   Pierce v. Ortho Pharm. Corp., 84 N.J. 58, 72 (1980).            Our

paramount goal in interpreting a statue is to discern the Legislature's intent,

which we discern according to the statutory language "as written and not

according to some unexpressed intention." Lehmann v. Kanane, 88 N.J. Super.

262, 265 (App. Div. 1965) (first citing Hoffman v. Hock, 8 N.J. 397, 409

(1952); then citing Dacunzo v. Edgye, 19 N.J. 443, 451 (1955)). Resort to

extrinsic aids is generally appropriate only if the plain language of the statute

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                                       8
is ambiguous.    Jen Elec., Inc. v. Cty. of Essex, 197 N.J. 627, 641 (2009)

(quoting Bedford v. Riello, 195 N.J. 210, 221-22 (2008)). However, "when 'a

literal interpretation would create a manifestly absurd result, contrary to public

policy,' courts may consider the law's overall purpose for direction." Sussex

Commons Assocs., LLC v. Rutgers, 210 N.J. 531, 541 (2012) (quoting

Hubbard ex rel. Hubbard v. Reed, 168 N.J. 387, 392 (2001)).

      The relevant statute here is the PPA, which has six subsections.

Subsection (a) establishes the time period in which an owner 1 must pay "the

amount due to the prime contractor for each periodic payment, final payment

or retainage monies" if the prime contractor 2 has performed in accordance with

the contract and the owner has approved the bill.         N.J.S.A. 2A:30 A-1(a).

Similarly, but not identically, subsection (b) sets forth the time period in which

1
  "Owner means any person, including any public or governmental entity, who
has an interest in the real property to be improved and who has contracted with
a prime contractor for such improvement to be made," and includes the owner's
agent or successor in interest. N.J.S.A. 2A:30A-1.
2
   "'Prime contractor' means a person who contracts with an owner to improve
real property." N.J.S.A. 2A:30A-1. "'Subcontractor' means any person who
has contracted to furnish labor, materials or other services to a prime
contractor in connection with a contract to improve real property." Ibid.
"'Subsubcontractor' means any person who has contracted to furnish labor,
materials or other services to a subcontractor in connection with a contract to
improve real property." Ibid.

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a prime contractor must pay a subcontractor, and in which a subcontractor

must pay a subsubcontractor, "the full amount received for the work of the

subcontractor or subsubcontractor" if the payee has performed in accordance

with the provisions of its contract, the prime contractor or owner has accepted

the work, "and the parties have not otherwise agreed in writing . . . ." N.J.S.A.

2A:30A-2(b).

      Pursuant to N.J.S.A. 2A:30A-2(c), "[i]f a payment due pursuant to the

provisions of this section is not made in a timely manner, the delinquent party

shall be liable for the amount owed under the contract, plus interest at a rate

equal to the prime rate plus 1%." Subsection (d) permits a "prime contractor,

subcontractor or subsubcontractor . . . after providing seven calendar days'

written notice" to the delinquent party, to "suspend performance" of the

contract "without penalty for breach of contract, until the payment required

pursuant to this section is made," if the payee "is not paid as required by this

section; [the payee] is not provided a written statement of the amount withheld

and the reason for the withholding; and the payor is not engaged in a good

faith effort to resolve the reason for the withholding." N.J.S.A. 2A:30A-2(d).

      Paragraph one of subsection (e) establishes that "[t]he rights, remedies

or protections provided by this section for prime contractors, subcontractors

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                                     10
and subsubcontractors shall be in addition to other remedies provided pursuant

to any other provision of State law," and that if the PPA provides "greater

rights, remedies or protections . . . than other provisions of State law," the

PPA's provisions "shall supersede those other provisions." N.J.S.A. 2A:30A -

2(e)(1). Paragraph two of subsection (e) prohibits the PPA from being

"construed as restricting in any way the rights or remedies provided by any

other applicable State or federal law to an owner who is a resident homeowner

or purchaser" of the property. N.J.S.A. 2A:30A-2(e)(2). Finally, subsection

(f) requires construction contracts to expressly permit alternative dispute

resolution,3 and further requires that "any civil action brought to collect

payments pursuant to this section . . . shall be conducted inside of this State

and the prevailing party shall be awarded reasonable costs and attorney fees."

N.J.S.A. 2A:30A-2(f).

      Interpreting the statute as a whole, we conclude the PPA embodies New

Jersey's strong public policy to ensure that contractors performing construction

work in New Jersey are paid promptly.       And, the requirement in N.J.S.A.

2A:30A-2(f) that all "civil actions brought to collect payments pursuant to" the

3
   The parties' subcontract does not contain a provision expressly permitting
alternative dispute resolution. Neither party has raised this omission as
relevant to any issue on appeal.

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                                     11
PPA "shall be conducted inside of this State" is an essential element of that

policy.

      The Legislature's affirmative command in subsection 2(f) is similar to

statutes enacted in nearly half of our nation's states that either expressly deem

forum selection clauses in construction contracts "against public policy" or

otherwise "void and enforceable."       See 7 Philip L. Bruner & Patrick J.

O'Connor, Bruner and O'Connor on Construction Law § 21:30.10, n.2

(collecting statutes from twenty-four states). Such statutes restrict the forum

for resolving construction contract disputes to the local forum.

      Further, we conclude that application of the parties' forum selection

clause would effectuate a result contrary to the principles underpinning the

entire controversy doctrine. Indeed, as noted, civil actions under the PPA must

be conducted in New Jersey. N.J.S.A. 2A:30A-2(f). Similarly, the Kansas

Fairness in Private Construction Contract Act (KFPCCA), Kan. Stat. Ann. §§

16-1801 to -1807, which provides rights, remedies, and protections to

subcontractors who perform work in Kansas analogous to those provided in the

PPA, also requires that venue of actions filed under the KFPCCA "shall be in

the county where the real property is located," id. at § 16-1806, which in this

case is Cape May County, New Jersey.

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      Thus, the practical effect of enforcing the parties' forum selection clause

would be to require ERCO to adjudicate its common law claims for breach of

contract, quantum meruit, unjust enrichment, and book account in Kansas,

leaving it to adjudicate its statutory claims to prompt payment in New Jersey.

Such a result would not only contravene New Jersey's strong public policy

embodied in the PPA, but would also violate New Jersey's "strong public

policy promoting [our] constitutionally based entire controversy doctrine," see

McNeill, 297 N.J. Super. at 223, as it would result in improper fragmentation

of litigation involving common facts and parties. 4

      National argues for the first time on appeal that because the PPA "is a

New Jersey statute" and the subcontract provides that it was "made in Kansas"

and "shall be interpreted under Kansas law," the PPA "is inapplicable." We

4
  ERCO also argues that the PPA was designed to protect subcontractors from
contractors' superior bargaining power, similar to the forum selection clause
deemed unenforceable in Kubis. In that case, our Supreme Court held that
"forum-selection clauses in contracts subject to" the Franchise Practices Act,
N.J.S.A. 56:10-1 to -31, "are presumptively invalid because they
fundamentally conflict with the basic legislative objectives of protecting
franchisees from the superior bargaining power of franchisors and providing
swift and effective judicial relief against franchisors that violate the Act."
Kubis, 146 N.J. at 192-93. In light of our decision that the PPA, and
particularly N.J.S.A. 2A:30A-2(f), embodies New Jersey public policy, we
need not determine if the public policy objectives underlying the Kubis
decision are also applicable here.

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note that because this issue was not raised in the court below, we need not

address it. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973)

(quoting Reynolds Offset Co., Inc. v. Summer, 58 N.J. Super. 542, 548 (App.

Div. 1959)).    Nevertheless, even considering the substance of National's

belated choice of law argument, we conclude the point is without merit.

      "When law suits are filed in New Jersey, we apply our choice-of-law

rules."   Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615, 621 (2007).

"Ordinarily, when parties to a contract have agreed to be governed by the laws

of a particular state, New Jersey courts will uphold the contractual choice if it

does not violate New Jersey's public policy."         Instructional Sys., Inc. v.

Comput. Curriculum Corp., 130 N.J. 324, 341, 614 (1992). The first step in

any choice-of-law analysis is to determine, "on an issue-by-issue basis,"

whether "an actual conflict" exists between Kansas law and New Jersey law.

See Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 597-98 (App. Div.

2004) (quotations omitted); see generally P.V. ex rel. T.V. v. Camp Jaycee,

197 N.J. 132, 143 (2008) (explaining that, to determine whether an actual

conflict exists, a court must "examin[e] the substance of the potentially

applicable laws" of the states that have an interest in the matter).

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                                      14
      Here, there is no conflict between Kansas and New Jersey law on the

issue of where a claim for prompt payment of a construction contract must be

litigated. See Kan. Stat. Ann. § 16-1806; N.J.S.A. 2A:30A-2(f). Under both

the KFPCCA and the PPA, ERCO's claim for prompt payment must be filed in

New Jersey, so there is no actual conflict of law and "no choice-of-law issue to

be resolved." See Camp Jaycee, 197 N.J. at 143. 5 Moreover, National has not

cited any principle of Kansas law, which would allow the prompt payment

claims to be litigated in New Jersey, while other, related claims are litigated in

Kansas.

      In light of our decision, we need not address ERCO's alternative

argument that serious trial inconveniences attendant to litigating this matter in

Kansas support invalidating the parties' forum selection clause.

      Reversed and remanded for further proceedings consistent with this

opinion. We do not retain jurisdiction.

5
   Nothing in our opinion precludes the parties from raising in the trial court
any choice-of-law issue involving an actual conflict between Kansas and New
Jersey law.

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