PROFESSIONAL STONE, STUCCO & SIDING APPLICATORS, INC. VS. JMOC BUILDERS, INC. (L-2989-15, PASSAIC COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: January 28, 2019
• Docket: A-0015-17T2
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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-0015-17T2

PROFESSIONAL STONE, STUCCO & SIDING APPLICATORS, INC.,

Plaintiff-Respondent,

v.

JMOC BUILDERS, INC.,

Defendant-Appellant. _________________________

Argued October 23, 2018 – Decided January 28, 2019

Before Judges Yannotti and Rothstadt.

On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-2989-15.

Brian D. Schwartz argued the cause for appellant (Craner, Satkin, Scheer, Schwartz & Hanna, PC, attorneys; Brian D. Schwartz, on the briefs).

Riley E. Horton, Jr., argued the cause for respondent.

PER CURIAM Defendant JMOC Builders, Inc. appeals from the Law Division's July 21,

2017 judgment in the amount of $50,832.17 it entered in favor of defendant's

subcontractor, plaintiff, Professional Stone, Stucco & Siding Applicators, Inc.

Following a bench trial, the trial court concluded that defendant breached its

agreement with plaintiff. The court awarded damages based solely upon the

unpaid balance due under the parties' agreement, and added prejudgment interest

and attorney's fees.

On appeal, defendant contends that it was error for the court to simply rely

upon the balance of the contract amount that was not paid without any

calculation of plaintiff's lost profits. Because plaintiff did not prove its lost

profits, defendant argues the court should not have entered judgment and instead

it should have dismissed the complaint. We agree. We reverse the trial court's

judgment because we conclude there was no evidence in the record for the trial

court to rely upon to award damages to plaintiff.

The facts as found by the trial court are summarized as follows. Plaintiff

is a company that performs stone, stucco, brick, and siding work on new

construction for contractors and builders. Defendant provides maintenance and

construction services and was the construction manager on a project at an

apartment building in Morristown owned by defendant's principal. The parties

A-0015-17T2 2 entered into two contracts in May 2014 that called for plaintiff to first install a

weather-resistant membrane to the exterior of defendant's building for a price of

$13,975.00, and then, under the second contract, to provide materials and labor

for the application of exterior stucco to the building for a price of $78,525.00.

Defendant was to pay for the stucco work by making two $30,000 payments

when thirty percent and sixty percent of the work was completed, with the

remaining $18,525.00 to be paid at completion.

The stucco agreement addressed plaintiff's damages in the event that

defendant did not allow plaintiff to commence or "continue performance" under

the agreement. If defendant interfered with plaintiff's performance, plaintiff

would be entitled to recover "as a measure of damages . . . an appropriate portion

of the profit [plaintiff] would have earned under th[e] agreement, plus the

reasonable [value] of the labor and materials that were furnished." 1

Just prior to plaintiff commencing performance of the contract, the parties

also entered into a subcontractor agreement on August 25, 2014. The

subcontractor agreement stated that it could be terminated by defendant's written

1 It also stated that if defendant defaulted, plaintiff would be immediately entitled to payment of the "outstanding unpaid balance," a late charge of "1 1/2% per month," and the "owner [would be] responsible for all costs and fees including attorney's fees incurred in [the] collection of [the] outstanding balance." A-0015-17T2 3 notice in the event of an uncured breach, or upon thirty days' written notice by

plaintiff in the event of untimely payment. Additionally, either party could

terminate the agreement if the other materially breached any other provision and

failed to cure the breach within thirty days of receiving notice from the non-

breaching party.

Plaintiff fully performed the contract for the installation of the weather

membrane in May 2014 and was paid in full in June 2014. Plaintiff then

subcontracted the labor portion of the stucco contract to a sub-subcontractor,

Duo Construction, LLM (Duo) for $55,580.00. Duo began work on the stucco

sub-subcontract in August 2014 and ceased work in November 2014. According

to Duo's principal, when Duo had completed approximately eighty percent of

the stucco project, it was forced to stop because the remainder of the building

was not complete, and thus not ready for stucco application. Defendant's

principal confirmed that when Duo stopped working, excavation work prevented

stucco from being applied to parts of the building. Although Duo still had

twenty percent of the work to complete, plaintiff had paid Duo all but

approximately $3,500 of its contract price.

Prior to Duo not being able to complete its work, defendant had already

paid plaintiff the first $30,000 installment as well as $20,000 towards the second

A-0015-17T2 4 payment due under the contract. It also issued another payment of $10,000 but,

in December 2014, defendant stopped payment on that check because it found

leaks in the building that it previously directed plaintiff to cure, and which

prevented the building from being "water tight."

Defendant initially raised issues about the leaks in an August 12, 2014

email to plaintiff asking it to "do something about getting the upper portion

water tight." On December 2, 2014, plaintiff emailed defendant informing it

that the work was complete and requesting a final payment of $28,525.00.

Defendant disagreed with that assessment and in a responding email described

the work as "far from complete." Shortly after that email exchange, defendant

stopped payment on the $10,000 check because the building was "taking in

water" and experiencing other issues, and defendant was dissatisfied with

plaintiff's "overall lack of attention" to the project, which was causing leaks to

occur throughout the building. Defendant emailed plaintiff on December 10,

2014, demanding that plaintiff "remedy th[e] situation immediately."

After discussions between the parties, it was determined that it was

necessary for the building to be caulked in order for it to be waterproof.

However, according to plaintiff, the leaks were not its fault, but due to the roof

A-0015-17T2 5 being unfinished. Nevertheless, plaintiff immediately installed a "caulking

membrane" to remedy the issue.

Despite plaintiff's actions, in mid- to late December 2014, defendant

decided to hire a different company to complete the remaining stucco work. In

June 2015, it hired Darco Construction Corp. (Darco) to complete the unfinished

work for a total cost of $25,400.00. According to plaintiff, after December 2014,

it did not receive any communication from defendant regarding returning to the

site to finish the work, or any written communication that plaintiff was

terminated or that its services were no longer required. It was plaintiff's

understanding that defendant would contact it when it was ready for plaintiff to

complete the stucco work. According to defendant, it believed that stopping

payment on the $10,000 check in December 2014 and the parties' subsequent

communications were "a form of [notice of] termination."

Based on its belief that it would be completing the work on the project, on

August 21, 2015, plaintiff sent an email to defendant, stating that it was "looking

forward to completing [its] scope and collecting [its] final payment." In

response to that email, on August 27, 2015, defendant informed plaintiff that it

had hired Darco to caulk due to plaintiff's "history of delays and poor

workmanship" as well as Duo's "inferior work." Plaintiff replied that it "had no

A-0015-17T2 6 idea and was given no notice of any issues" and that "[a]ny concerns [defendant]

had were addressed expeditiously." According to plaintiff, because it had "never

heard anything," defendant's email was a surprise.

Plaintiff filed a complaint against defendant alleging breach of contract

and unjust enrichment and sought $28,525.00 in damages, plus interest and

attorney's fees. Defendant filed an answer denying plaintiff's allegations;

counterclaimed for breach of contract, violation of the implied covenant of good

faith and fair dealing, fraud and deception, and unjust enrichment; and sought

compensatory and punitive damages.

The court conducted a bench trial over three days in 2017. At trial, there

was no evidence adduced regarding plaintiff's lost profits. Plaintiff's principal

testified that it paid all but $3,156.84 of the amount owed to Duo. He also

confirmed that plaintiff was working on numerous other jobs while under

contract with defendant, used workers from defendant's project at other work

sites, and similarly used materials that were dedicated for defendant's project at

other locations. One of plaintiff's administrative assistants testified as to the

invoices that were sent to defendant, the payments plaintiff received, and the

amount of interest she calculated that was due and owing from defendant.

A-0015-17T2 7 After considering the evidence, the trial court issued its final judgment,

supported by a written decision setting forth its findings and legal conclusions.

In its decision, the trial court found that defendant wrongfully terminated the

contract without proper notice or affording plaintiff an opportunity to cure.

According to the court, any breach by plaintiff as alleged by defendant was not

a material breach, and plaintiff should have been given the opportunity to cure

before being terminated from the project. The trial court held that defendant's

actions in not paying the contract balance and not permitting plaintiff to finish

the stucco application without any valid explanation as required under the

contract constituted a breach of contract, especially in light of the fact that

plaintiff acted in good faith and agreed to caulk the relevant areas at no extra

cost.

Turning to plaintiff's damages, the trial court highlighted the fact that

defendant's architect determined that 63.22% of the stucco application work had

been completed, therefore, under the contract, plaintiff was entitled to $60,000

and defendant would be "unjustly enrich[ed]" if permitted to retain the $10,000

check it had cancelled. The court also determined that plaintiff would have

received the entire amount due under the stucco contract had it been permitted

to complete the work. Relying on the amount unpaid under contract, the trial

A-0015-17T2 8 court entered judgment against plaintiff for damages in the amount of

$28,252.00.2 The court also imposed 1.5% interest in the amount of $10,657.36,

attorneys' fees of $11,672.81, and court costs. This appeal followed.

In an appeal from a bench trial, "[t]he scope of appellate review of a trial

court's fact-finding function is limited." Seidman v. Clifton Sav. Bank, S.L.A.,

205 N.J. 150, 169 (2011) (quoting Cesare v. Cesare, 154 N.J. 394, 411 (1998)).

"We uphold the trial court's factual findings in a non-jury trial 'if they are based

on credible evidence in the record. . . . To the extent that the trial court interprets

the law and the legal consequences that flow from established facts, we review

its conclusions de novo.'" RSI Bank v. Providence Mut. Fire Ins. Co., 234 N.J.

459, 472 (2018) (quoting Motorworld, Inc. v. Benkendorf, 228 N.J. 311, 329

(2017)).

On appeal, defendant does not challenge the trial court's determination

that it breached its contract with plaintiff. Its challenge is limited to whether

there was sufficient evidence to support an award of damages. Defendant argues

that the trial court incorrectly relied on the gross revenue plaintiff would have

received under the contract as the basis for its award without deducting from

2 The remaining balance on the contract was $28,525.00. The trial court's award appears to have been a typo or miscalculation. A-0015-17T2 9 that amount the related costs that plaintiff did not incur by not having to perform.

We agree.

In order to prevail on a breach of contract claim, a plaintiff must prove,

among other elements, that "defendant[s'] breach, or failure to do what the

contract required, caused a loss to the plaintiff." Globe Motor Co. v. Igdalev,

225 N.J. 469, 482 (2016) (quoting Model Jury Charges (Civil), 4.10A, "The

Contract Claim—Generally" (approved May 1998)). "[W]here the plaintiff is

a . . . contractor who has been prevented by the defendant from completing his

contract, the plaintiff is entitled to the profit that would have been realized if

performance had been completed." V.A.L. Floors, Inc. v. Westminster Cmtys.,

Inc., 355 N.J. Super. 416, 422 (App. Div. 2002).

We do not require specificity or exactness in calculating lost profits. Lost

profits are a measure of compensatory damages that may be recoverable if

capable of being established to a "reasonable degree of certainty." Desai v. Bd.

of Adjustment, 360 N.J. Super. 586, 595 (App. Div. 2003) (citing Stanley Co.

of Am. v. Hercules Powder Co., 16 N.J. 295, 314 (1954)). "Anticipated profits

that are too remote, uncertain, or speculative are not recoverable." Ibid. That a

plaintiff may not be able to fix its lost profits with precision will not preclude

recovery of damages, but courts require a "reasonably accurate and fair basis for

A-0015-17T2 10 the computation of alleged lost profits." V.A.L. Floors, Inc., 355 N.J. Super. at

424. "Profits lost by reason of breach of contract may be recovered 'if there are

any criteria by which probable profits can be estimated with reasonable

certainty.'" Id. at 425 (quoting Feldman v. Jacob Branfman & Son, Inc., 111

N.J.L. 37, 42 (E & A 1933)). For example, a plaintiff's historical profit margin

in business, rather than exact dollar amounts attributable to the specific contract,

can provide a suitable basis to calculate lost profits. See id. at 425-26.

Here, the trial court found that the contract amount was the correct basis

for determining the gross amount plaintiff would be entitled to under the

contract. The court omitted, however, the second step: calculating "the

difference between the contract price and the cost of performance or

production." Id. at 422 (quoting J.L. Davis & Assocs. v. Heidler, 263 N.J. Super.

264, 276 (App. Div. 1993)); see also Cromartie v. Carteret Sav. & Loan, 277

N.J. Super. 88, 103 (App. Div. 1994). "Proof of the relevant costs or expenses

is not a matter of mitigation. It is part of the damage case of the party seeking

recovery for lost profits." Cromartie, 277 N.J. Super. at 103.

Even if the trial court attempted to complete the correct calculation, it

could not do so as there was no evidence of lost profits whatsoever. Without

such evidence, plaintiff failed to meet its burden of proof as to a necessary

A-0015-17T2 11 element of its claim. Under these circumstances, we are constrained to reverse

the trial court's determination.

Reversed and remanded for entry of an order vacating the judgment and

dismissing the complaint with prejudice. We do not retain jurisdiction.

A-0015-17T2 12