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Jetco Construction, Inc. v. EA Engineering, Science and Technology, Inc.

A-1542-03T5 and A-1608-03T5 (N.J. Super. App. Div. 2005) (Unpublished)

CONTRACTORS; SUBCONTRACTORS—Where the contract required written notices to direct a subcontractor to do extra work, a contractor does not breach its obligation when it refuses to pay for extra work that was not the subject of such a written notice.

A subcontractor sued for payment for work it did on three projects – one in Burlington Township, New Jersey, one in Jackson Township, New Jersey and one in the state of Florida. The contractor counterclaimed “for losses it suffered as a result of the subcontractor’s failure to perform work for the Florida project. The lower court subsequently dismissed all the subcontractor’s claims in favor of the company’s counterclaims. The subcontractor appealed.

The Florida Project
Under their contract for the Florida project, any “changes in the work within the general scope of the contract” required submission of a request for change orders to the contractor or the project’s owner and subsequent written authorization from them. While working on the Florida project, the subcontractor sought compensation for additional expenses it incurred as well as for what it claimed “were inaccurate design plans.” Based on these claims as well as its own, the contractor requested additional compensation from the owner, who summarily rejected that request and attributed most of the delays in the project to the subcontractor and the subcontractor’s subcontractor. The dispute between the contractor and the owner was eventually settled with the owner paying what was owed under the contract and no additional sums for any of the claimed extra work, including the extra worked claimed by the subcontractor.

The Burlington and Jackson Projects
During both projects, shortly after the subcontractor signed a contract with the contractor, a subcontractor of the subcontractor (sub-subcontractor) sued the contractor and the subcontractor for payment. In those suits, both the contractor and the subcontractor cross-claimed against each other for contribution and/or indemnity and for breach of contract. Each suit was eventually settled and dismissed without prejudice to the subcontractor.

The Appeal
The subcontractor argued that the lower court erroneously dismissed its suit concerning the Burlington and Jackson projects pursuant to the entire controversy doctrine because the prior lawsuits with the sub-subcontractors were dismissed without prejudice to the subcontractor. The Appellate Division held that “although a dismissal without prejudice is a factor the court may consider when applying [the] entire controversy doctrine, that factor must be considered in entire context of the litigation and is not, by itself, dispositive.” Thus, the Court found that the lower court’s dismissal of the subcontractor’s claims was supported by other issues—including the subcontractor’s failure to actively defend or prosecute its claims in either of those lawsuits—which were essentially the same claims as those in the present suit.

The Court held that by intentionally withholding its principal claim against the contractor, the subcontractor risked the right to bring that claim at a later date because those actions resulted in fragmented litigation, contrary to the goal of the entire controversy doctrine to expeditiously expose of claims in order to spare litigants from expense, undue harassment, and other impediments. Thus, the Court upheld the lower court’s dismissal of the Burlington and Jackson claims pursuant to the entire controversy doctrine.

The Court also held that the entire controversy doctrine did not bar the company’s claim for indemnification against the subcontractor which arose out of the Florida litigation. The Court held that since the company could raise the same claim in federal court in Florida, there was no reason why the company should be barred from raising it in the present lawsuit. The Court held that the Florida suit differs from the applicability of the entire controversy doctrine to the Burlington and Jackson suits because those actions were litigated in New Jersey, where claims joinder is mandatory. In Florida, claims joinder is merely permissive. The Court further held that to claim damages, the subcontractor had to prove that a breach of contract caused it damages. Since the subcontractor did not submit a request for change order to the contractor or the project’s owner as it was contractually obliged to do for any work changes it needed to make, the contractor did not breach the contract when it failed to compensate the subcontractor for that extra work. The Court additionally held that since the contract required written notice directing the subcontractor to perform extra work, its claim that the contractor had received oral notice was without merit.

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