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Seavey Construction, Inc. v. St. Peter

A-2536-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

CONSTRUCTION LIENS; ARBITRATION — An arbitrator’s decision with respect to the amount of a construction lien claim is not, as a matter of law, a final merits disposition and is not to be considered final in any legal action or proceeding and is not admissible for any purposes in any other action or proceeding, such as a suit under the Consumer Fraud Act.

A homeowner signed a home improvement contract with a pre-construction estimate and an arbitration clause. After the parties became involved in various disputes, the contractor eventually stopped working. Then, the contractor filed a notice of unpaid balance and right to file lien (NUB) under New Jersey’s Construction Lien Law (CLL). It served a demand for arbitration. The homeowner answered and counterclaimed asserting that the contract was governed by New Jersey’s Consumer Fraud Act (CFA) and by the Home Improvement Practices Regulations. There was also a dispute as to calculation of the lien claim. The arbitrator rendered a decision for the lien amount.

After the arbitration, the contractor sued, alleging breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing. The homeowner counterclaimed for violations of the CFA and the Regulations. The contractor filed a motion to confirm the arbitration award, dismiss the contractor’s claims, and enter an order granting partial summary judgment as to liability on its breach of contract and unjust enrichment claims. The lower court found that the contractor had complied with the CLL procedures and it entered summary judgment on the contractor’s claims for breach of contract and unjust enrichment. The homeowner’s counterclaims were dismissed with prejudice because the arbitrator had found no validity to them. The homeowner appealed.

The Appellate Division held that the lower court erred in holding that the arbitrator’s decision was binding on the parties. Courts have previously held that an arbitrator’s decision “in essence comprises … the establishment of a prejudgment lien that must be confirmed thereafter in litigation… .” Thus, an arbitrator’s decision is not, as a matter of law, a final merits disposition entitling the lien claimant to a money judgment. If the CLL were interpreted to make an arbitrator’s decision binding, then the lien claimant could effectively preclude the other party from taking discovery on all claims arising out of a residential construction contract. Furthermore, the statute’s reference to arbitration is clear. It states that “except for the arbitrator’s determination itself … the determination shall not be considered final in any legal action or proceeding … and shall not be admissible for any purposes in any other action or proceeding.” For these reasons, the Court reversed and remanded the case because the lower court had erroneously treated the arbitrator’s decision as one entitling the contractor to a money judgment.

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