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Riggs Distler & Company, Inc. v. Valero Refining Company

2005 WL 2897483 (U.S. Dist. Ct. D. N.J. 2005) (Unpublished)

CONTRACTORS; CONSTRUCTION LIENS —When calculating the value of a lien fund, a court must consider all of the contracts in the construction chain.

A refinery contracted with a general contractor to construct a continuous catalyst regeneration unit. The general contractor then entered into an agreement with a subcontractor whereby the subcontractor agreed to be the principal subcontractor for the project and to perform a large portion of the construction work. The principal subcontractor later entered into several agreements with individual sub-subcontractors to perform some of the construction work. Approximately one month later, the principal subcontractor filed for bankruptcy and as a result it was unable to pay the individual sub-subcontractors for work that had been performed. One of the individual sub-subcontractors filed a construction lien claim. During the course of the bankruptcy proceedings, the principal subcontractor entered into a settlement agreement with the general contractor whereby the parties agreed to terminate their subcontract agreement and the general contractor agreed to pay the subcontractor for work performed and pay a termination fee. The general contractor also agreed to pay one of the individual sub-subcontractor’s lien claims against the principal subcontractor. Despite this agreement, several other individual sub-subcontractors had not been compensated for their work. As a result, they also filed construction lien claims. Those sub-subcontractors then individually filed complaints against the general contractor for unpaid services that were consolidated by the court. All parties moved for summary judgment, seeking to establish the amount of the lien fund. The sub-subcontractors asserted that the amount of the lien fund should be based solely on the total contract price between the refinery and the general contractor. Conversely, the general contractor contented that the lien fund should be calculated by using all of the agreements entered into for work to be performed on the project, including the agreement between the general contractor and the principal subcontractor.

The District Court wouldn’t enter summary judgment for any of the parties, ruling that a genuine issue of material fact existed with respect to the amount of the lien fund. It discussed the overall purpose behind the New Jersey Construction Lien Law (CLL), which is to give contractors, subcontractors, and suppliers the right to place liens on property for work that they have performed that they have not been compensated for. Under the CLL, a contractor has the right to file a construction lien claim for the value of the work that it has performed. The CLL limits the amount of a lien claim to the lesser of: 1) the value of the contract price; or 2) any unpaid portion of the contract price. The CLL seeks to protect a property owner from paying twice for work and material by setting a limit for the amount of the lien fund. According to the statute, the lien fund may never exceed the difference between the value of the prime contract (between the property owner and the general contractor) and the amount the property owner had paid to the contractor when the lien claim is filed. The court held that it must consider all of the agreements in the construction chain in order to properly determine the value of the lien fund and to ensure that the property owner was not charged twice for payments that it made to the principal subcontractor for work done but for which the principal subcontractor didn’t pay the individual sub-subcontractors.

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