Opinion
DOCKET NO. A-6094-11T3
07-01-2013
LUMA ENTERPRISES, L.L.C., Plaintiff-Appellant, v. HUNTER HOMES & REMODELING, L.L.C., SURESTYLE BUILDERS, L.L.C., J HUNTER CONSTRUCTION CORPORATION, JOSEPH HUNTER, and JENNIFER HUNTER, Defendants-Respondents.
John A. Albright, attorney for appellant. Law Offices of Charles Shaw, attorneys for respondents (Mr. Shaw, of counsel; Romain D. Walker, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Ashrafi, Espinosa, and Guadagno.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5620-10.
John A. Albright, attorney for appellant.
Law Offices of Charles Shaw, attorneys for respondents (Mr. Shaw, of counsel; Romain D. Walker, on the brief). PER CURIAM
By our leave granted, plaintiff Luma Enterprises, L.L.C. (Luma), appeals from the May 11, 2012 interlocutory order of the Law Division granting summary judgment in favor of all defendants except Hunter Homes & Remodeling, L.L.C. (HHR), now a defunct company. Plaintiff also appeals from an order entered June 22, 2012, denying its motion to amend its complaint and for reconsideration of the May 11 order. We affirm in part and reverse in part.
I.
Luma is a New Jersey limited liability company owned by Luiz and Maria Grzybek. HHR was a New Jersey limited liability company formed in 2004 by Joseph Hunter and his wife Jennifer Hunter. Joseph Hunter also formed Surestyle Builders, L.L.C. (Surestyle) in 2007 and J. Hunter Construction Corporation (JHCC) in 2008.
On November 26, 2005, Luma and HHR contracted to renovate a structure located in East Brunswick, New Jersey (the "Property") in order to construct a pre-school and daycare facility. The contract price of $485,000 was to be paid in installments: $194,000 upon signing the contract; $145,500 after the framing inspection and roof were completed; $48,500 after the rough inspection of the plumbing, heating, and electrical work; $48,500 upon completion of the job; and $48,500 after final inspection and the issuance of a certificate of occupancy. The contract also provided that work "shall be substantially completed on or before June, 2006," with time being of the essence. Finally, the parties agreed that "failure to make payment for a period of time in excess of 10 days from the due date of the payment" would amount to a material breach.
Luma made the initial payment of $194,000. On July 24, 2006, Hunter submitted an invoice for $48,500, for the progress payment due after the plumbing, heating and electrical rough inspections. Luma paid that invoice on August 7, 2006, fourteen days after its submission. Although the payment was not timely under the contract, HHR accepted the payment without protest and continued work on the project.
On September 28, 2006, HHR submitted an invoice to Luma for $145,500, for the progress payment due after framing inspection and completion of the roof. This invoice was paid in three installments by checks delivered on September 29, 2006, October 20, 2006, and November 14, 2006. Although the second and third payments were not timely, they were again accepted by HHR.
Shortly after receipt of the November 14, 2006 payment, HHR stopped all work on the project, although HHR continued to make some payments to suppliers and subcontractors through December 2006. Plaintiff completed the project by hiring other contractors, expending over $200,000. On December 27, 2006, one of the subcontractors hired by HHR recorded a $78,769 construction lien against the Property. Shortly after stopping work on the Luma project, Joseph Hunter made the decision to close HHR. At the time it closed, HHR had no assets.
On July 28, 2010, Luma filed a complaint, alleging consumer fraud and breach of contract, naming HHR, Surestyle, JHCC, and the Hunters individually as defendants. Both plaintiff and defendants moved for summary judgment. On May 11, 2012, the court denied Luma's motion and granted defendants' motion in part, dismissing with prejudice all of Luma's claims except for the breach of contract claim against HHR. The court determined that the Consumer Fraud Act (CFA) was inapplicable as the Property was not in use as a residence at the time construction began. Following dismissal of the CFA claims, plaintiff moved to amend its complaint and for reconsideration of the two prior orders. The court denied the motion on June 22, 2012. We granted Luma's motion for leave to appeal. On appeal, appellant raises the following points for our consideration:
POINT I
THE COURT ERRED IN CONCLUDING THAT THE HOME IMPROVEMENT REGULATIONS OF THE CONSUMER FRAUD ACT DO NOT APPLY TO A RENOVATION CONTRACT FOR AN UNOCCUPIED PROPERTY WITH BOTH COMMERCIAL AND NON-COMMERCIAL USES.
POINT II
THE COURT ERRED IN THE DENIAL OF SUMMARY JUDGMENT IN PLAINTIFF'S FAVOR AS TO DEFENDANTS' CONTRACTUAL LIABILITY BECAUSE THERE WERE NO MATERIAL FACTS IN DISPUTE
RELEVANT TO THE BREACHES, AND DEFENDANTS WAIVED THE MATERIALITY OF BREACHES IN THE UNTIMELINESS OF PAYMENTS BY PLAINTIFF, BY CONTINUING TO PERFORM THEIR CONTRACTUAL OBLIGATIONS, AND SIMPLY BY ACCEPTING THE FINAL $145,500.00 PAYMENT.
A. PLAINTIFF WAS ENTITLED TO JUDGMENT AS A MATTER OF LAW ON DEFENDANTS' LIABILITY FOR BREACH OF CONTRACT BECAUSE IT WAS UNDISPUTED THAT DEFENDANTS DID NOT COMPLETE THE WORK REQUIRED BY THE CONTRACT, AND NO REASONABLE FACT-FINDER COULD CONCLUDE THE FAILURE TO COMPLETE THE SITE WORK, INSTALL THE HVAC SYSTEMS, INSTALL THE ELECTRICAL SYSTEMS, FINISH THE INTERIOR AND TRIM WORK, OR INSTALL GUTTERS WERE NOT MATERIAL BREACHES OF THE CONTRACT.POINT III
B. DEFENDANTS' ONLY DEFENSE TO LIABILITY ON THE BREACH OF CONTRACT CLAIMS -- THAT THEY WERE ENTITLED TO ABANDON THE CONTRACT BECAUSE THE FINAL $145,500.00 PAYMENT WAS LATE -- FAILS AS A MATTER OF LAW BECAUSE THEIR ACCEPTANCE OF THE PAYMENT THAT WAS FOR WORK YET TO BE PERFORMED, WAS A DE FACTO MANIFESTATION OF THEIR INTENTION TO CONTINUE PERFORMANCE OF THE CONTRACT.
C. DEFENDANTS WAIVED THE MATERIALITY OF BREACHES BY PLAINTIFF IN MAKING LATE PAYMENTS, BECAUSE THEY CONTINUED TO PERFORM THEIR CONTRACTUAL OBLIGATIONS, IN EACH INSTANCE, AFTER THE PAYMENTS WERE MADE IN FULL.
THE COURT ERRED IN DISMISSING ALL CLAIMS AGAINST JOSEPH HUNTER AND JENNIFER HUNTER, INDIVIDUALLY, WITH PREJUDICE, WHEN SUBSTANTIAL EVIDENCE IN THE RECORD SUGGESTED
THAT THEY HAD NO SEPARATE EXISTENCE FROM HUNTER HOMES.
POINT IV
THE COURT ABUSED ITS DISCRETION IN DENYING PLAINTIFF'S MOTION TO AMEND THE COMPLAINT, WITHOUT FINDING THAT THE AMENDMENTS WOULD BE FUTILE, AND WITHOUT ANY FINDINGS THAT THE AMENDMENTS WOULD CAUSE UNDUE PREJUDICE TO THE DEFENDANTS.
POINT V
THE MOTION COURT ERRED IN THE DENIAL OF PLAINTIFF'S MOTION FOR RECONSIDERATION OF THE AWARD OF SUMMARY JUDGMENT TO DEFENDANTS, WHEN IT APPLIED THE INCORRECT LEGAL STANDARD.
II.
We review the grant or denial of a motion for summary judgment using the same standard as the trial judge, giving no deference to the lower court's legal conclusions or application of law to the facts. W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012). We must inquire anew into "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor" of that party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); see also R. 4:46-2(c). Points IV (decision to grant or deny motion for leave to amend complaint) and V (decision to grant or deny motion for reconsideration) are governed by the abuse of discretion standard.
A.
The CFA provides that the "use . . . by any person of any unconscionable commercial practice . . . in connection with the sale or advertisement of any merchandise . . . is declared to be an unlawful practice." N.J.S.A. 56:8-2. Merchandise is defined broadly to include, among other things, "services or anything offered, directly or indirectly to the public for sale." N.J.S.A. 56:8-1(c).
Luma's amended complaint sought damages for HHR's alleged violations of N.J.A.C. 13:45A-16.2(a)(7), N.J.A.C. 13:45A-16.2(a)(11), and N.J.A.C. 13:45A-16.2(a)(12). These regulations apply only to "home improvement" work, which is defined as the remodeling of a "residential or non-commercial property," and also includes the "conversion of existing commercial structures into residential or noncommercial property." N.J.A.C. 13:45A-16.1A. Residential or non-commercial property is, in turn, defined as "a structure used, in whole or in substantial part, as a home or place of residence by any natural person, whether or not a single or multi-unit structure." Ibid. The trial court held that the Property, though in a residential neighborhood, is not a "residential or non-commercial property," and that therefore Luma may not sue under the regulations. We agree.
Luma argues that the residential zoning of the Property gives it a "continuing inherent residential use," and renders the services provided by HHR "home improvement" within the meaning of the regulations. HHR contends that there is no evidence that, during the times relevant to this case, the Property was ever used or intended to be used as a residence by a natural person. Rather, Luma's intention was always to renovate the structure on the Property into a daycare facility.
Luma relies on our decision in Marascio v. Campanella, 298 N.J. Super. 491 (App. Div. 1997). There, the building to be renovated was a three story "apartment and office building" that had office space on the first floor and residential apartments on floors two and three. Id. at 494. The issue there was "whether a commercially owned, unoccupied, part residential, part commercial property qualifies as a residential, noncommercial property for the purposes of the [Consumer Fraud] Act and its regulations." Id. at 498. We concluded that it did so qualify, notwithstanding the fact that the structure's residential units were unoccupied, the owner was a corporation, and none of the corporation's principals lived on the property. Id. at 498-99. Because two-thirds of the building was "residential in nature," meaning it was intended to be used as a residence, the regulations applied. Id. at 501.
We observed that application of the regulations does not turn on the "nature of the ownership and the owner's use of the property." Id. at 500. Luma interprets this to mean that the actual use of the property is irrelevant. Not so. The referenced portion of the opinion relates to the contractor's argument that, in order to be a "residential or non-commercial" property, the structure must be owned by a natural person (not a business entity) and owner-occupied. We observed that, under the plain language of the regulations, "[t]here is no requirement that the owner of the property reside there or that the owner be a natural person." Ibid.
Thus, Marascio does not stand for the proposition that the property's use is irrelevant. To the contrary, as the statute indicates, how the property is used is the overriding concern. If a substantial part of the property is used as a "home or place of residence" by the owner or any other natural person, it is covered by the regulations. See Blake Constr. v. Pavlick, 236 N.J. Super. 73, 79-81 (Law Div. 1989) (regulations applicable to building in which ground floor was used as tavern while upper floors used as residence), overruled on other grounds, R. Wilson Plumbing & Heating, Inc. v. Wademan, 246 N.J. Super. 615 (App. Div. 1991).
The issue here is not that Luma's owners do not live on the Property, but that no natural persons live or intend to live on the property following the renovations, despite its residential zoning. Luiz and Maria Grzybek testified that they did not reside at the Property, and although the Property was used as a residence at the time Luma acquired it, the person living there moved out "almost immediately," and no one has used the Property as a residence since.
Luma notes that Joseph Hunter testified that, at the time the renovations began, the structure on the Property was a "house." This reference or the appearance of the structure has little to do with how the Property was "used." Luma never used or intended to use the Property as a residence and contracted with HHR to renovate it into a "daycare center." At no time since 2004 has any natural person used the Property as a residence, and at all times during Luma's ownership, efforts have been directed toward constructing a commercial, not a residential, property. That the Property could be used as a residence without approval from the township or other appropriate authorities is irrelevant. The question is not how the Property might be used, or how the Property is zoned, but how it is actually used.
Because the Property has not been used as a residence, and because Luma did not intend to use it as such, Luma may not seek relief under the Home Improvement Practices regulations of the CFA. Summary judgment was properly granted to HHR, and denied to Luma, on counts two, three, and four of Luma's amended complaint.
B.
Luma next argues that the court erred in denying summary judgment on Luma's breach of contract claim. HHR admits that it failed to complete the work required by the contract, which, if not waived, would amount to a breach. Luma admits that it materially breached the contract by failing to make required progress payments within the 10-day window provided for in the agreement. The trial court found there was an issue of fact as to whether HHR accepted the late payments and continued work, thereby acquiescing in the late payment and waiving its right to rely on Luma's breach.
Every failure to perform as required by a contract, even a small failure, is a breach that gives rise to a claim for damages. Restatement (Second) of Contracts § 236 cmt. a (1981). Unless the breach is material, the duty of both parties to perform remains intact. Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J. Super. 275, 285 (App. Div. 1998). Whether an act or course of conduct amounts to a material breach is usually a question of fact to be submitted to the jury. Id. at 286. Here the parties included clear provisions in the contract defining specific conduct as being a material breach and Luma's failure to make timely payments was clearly a material breach.
But that does not end the inquiry, because a party may waive the materiality of the other party's breach and continue performance of the contract. Once Luma materially breached the contract, HHR was faced with a "genuine election . . . of continuing performance or of ceasing to perform." Frank Stamato & Co. v. Borough of Lodi, 4 N.J. 14, 21 (1950). At that point, "any action indicating an intention to perform [would] operate as a conclusive choice, not indeed depriving [it] of a right of action for the breach which has already taken place, but depriving [it] of any excuse for ceasing performance on [its] own part." Ibid.
HHR continued to perform some of its contractual obligations following its receipt of the late payment in November, by paying out monies associated with the project. Joseph Hunter testified, however, that these payments may not have been for work done after receipt of the payment, but instead might have been payments for labor or materials provided prior to when HHR stopped performance. Whether HHR continued performance after receiving the payment, and therefore indicated an intent to treat Luma's breach as non-material, is a question of fact to be resolved by the jury.
Similarly, HHR's mere acceptance of the untimely payment, standing alone, is insufficient to indicate an intent to waive the materiality of Luma's breach. The payment might have been for work yet-to-be performed, in which case acceptance would seem to be an indication of an intent to continue with performance of the contract. If the payment was for services already rendered, acceptance may not indicate an intent to continue to perform. The language of the contract is ambiguous on this point, as some payments were clearly for work to be performed in the future (the $194,000 payment upon signing), while other payments came only after the work was done (the $48,500 following final inspection and the issuance of a certificate of occupancy). See, e.g., Sons of Thunder v. Borden, Inc., 148 N.J. 396, 410 (1997) (the meaning of an ambiguous contract is a question for jury).
It is a question of fact as to whether HHR's actions indicate an intent to waive the materiality of Luma's breach and continue performance of the contract. See Garden State Bldgs., L.P. v. First Fidelity Bank, N.A., 305 N.J. Super. 510, 527 (App. Div. 1997) ("Questions of waiver are normally questions of intent and hence should not be decided on a summary judgment motion."), certif. denied, 153 N.J. 50 (1998). The Law Division properly denied plaintiff's motion for summary judgment.
C.
Luma next argues that the court erred in dismissing the individual claims against Joseph and Jennifer Hunter. The trial court's findings here were limited and devoid of legal analysis:
I don't understand how Jennifer and Joseph Hunter should be individually — individual defendants here. There's no claim that at any time, any documents were signed by the plaintiff, which other than which identified Hunter Homes Remodeling, LLC, as a limited -- as a corporation. Therefore, I will dismiss claims against Jennifer and Joseph Hunter with prejudice.
"[P]iercing the corporate veil is not technically a mechanism for imposing legal liability, but for remedying the fundamental unfairness that will result from a failure to disregard the corporate form." Verni ex rel. Burstein v. Stevens, 387 N.J. Super. 160, 199 (App. Div. 2006) (quotations omitted), certif. denied, 189 N.J. 429 (2007). New Jersey courts will pierce the corporate veil when necessary "to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate a fraud, to accomplish a crime, or otherwise to evade the law." Tung v. Briant Park Homes, Inc., 287 N.J. Super. 232, 239-40 (App. Div. 1996).
The party seeking to pierce the corporate veil separating entity from owner bears the burden of proving that doing so is appropriate. Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., 195 N.J. 457, 472 (2008); Verni, supra, 387 N.J. Super. at 199. The issue is one for the factfinder, "unless there is no evidence sufficient to justify disregard of the corporate form." Verni, supra, 387 N.J. Super. at 199.
To justify holding the principals of a company individually liable, it is not enough to allege that a judgment against the company will be uncollectible; after all, "the insulation of shareholders from the liabilities of the corporate enterprise" is the primary reason for incorporation. Pulaski, supra, 195 N.J. at 472. "The purpose of the doctrine of piercing the corporate veil is to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate fraud, to accomplish a crime, or otherwise to evade the law." State, Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983) (citations omitted).
Some factors to consider in the analysis include whether the corporation was undercapitalized at its formation (that is, did not have enough capital to satisfy then existing or reasonably foreseeable debts), whether the principals failed to observe corporate formalities, insolvency, and the absence of corporate records or accounts. 18 Am. Jur. 2d Corporations § 54 (2004).
Luma argues that several facts in the record support a finding that HHR had no separate existence from Joseph and Jennifer Hunter. First, the Hunters formed three separate business entities over the course of four years, all performing the same business function of home improvement. When asked why he abandoned HHR after ending work on the Luma project in late 2006, Joseph Hunter testified that he was "financially distraught," that the Luma project was "draining all [his] time from other jobs," and that the "name was tainted."
It also appears that none of the three entities formed by Hunter held any assets. At the time HHR was operating, it appears that neither Joseph nor Jennifer kept a personal bank account and that several payments were made to Joseph Hunter from the corporate account. The Hunters appear to have formed and dismantled uncapitalized companies, at will, to suit their purpose. After HHR was shut down, ostensibly because of its "tainted" name, Joseph Hunter formed Surestyle, only to close it after one project, before moving on to JHCC. The most compelling evidence that HHR was simply a front to "defeat the ends of justice," was Hunter's decision to walk off the Luma job after receiving the third installment of the $145,500 progress payment.
The reality is that HHR had no underlying substance and no capital. Absent a piercing of the corporate veil, Luma lacks an adequate remedy at law. We conclude that genuine issues of fact existed that precluded summary judgment with respect to Luma's claims that the corporate veil should be pierced and that Joseph and Jennifer Hunter should be held personally liable for alleged breach of contract. We reverse that part of the court's May 11, 2012 order and remand for trial against the individual defendants.
D.
Luma argues that even if its claims under the Home Improvement Practices regulations were properly dismissed, it should have been permitted to amend its complaint following the summary judgment order to add other claims under the CFA and for common law fraud. The trial court noted that Luma's motion to amend was filed on May 21, 2012, and decided on June 22, 2012, with trial scheduled for three days later on June 25. The judge concluded that because granting the motion would result in an "automatic adjournment [of] the trial date," it would prejudice Hunter by stretching the case out even longer.
Motions for leave to amend should be granted liberally, and may generally be denied only if the non-moving party would be prejudiced by the amendment, or if the amendment would be futile. Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006). Furthermore, Luma's filing of a late motion to amend its complaint was prompted by the eleventh-hour dismissal of its CFA claims, less than one month before the first scheduled trial date. Luma had pursued a theory of CFA liability that was fairly debatable under the circumstances, namely, that the Property was subject to the Home Improvement Regulations of the CFA.
The portion of the May 11, 2012 order granting defendants' motion for summary judgment as to counts two, three, and four of the amended complaint (the "Consumer Fraud" counts) is affirmed without prejudice to the trial court's reconsideration on remand of Luma's motion to amend its complaint to allege affirmative misrepresentation by defendants as CFA violations. The portion of that order dismissing all claims against defendants Jennifer Hunter and Joseph Hunter is reversed and the matter is remanded to the trial court for further proceedings consistent with this opinion. We do not retain jurisdiction.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION