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St. Louis, L.L.C. v. Final Touch Glass & Mirror, Inc.

A-6420-04T1 (N.J. Super. App. Div. 2006) (Unpublished)

CONTRACTORS; DAMAGES—A court may measure damages by the cost of repair even where market damages can be ascertained.

A limited liability company (LLC), formed by an individual and his wife, purchased a large tract of land. The LLC developed plans to construct a house on the property with exterior walls made of glass. The house cost approximately $8.5 million to construct. The principal of the LLC acted as the general contractor, hired a construction manager, and hired a glass company to install the glass.

The house’s drain pipes, vent pipes, and electrical raceways were to be contained within steel columns that would serve as the support for the house. While affixing the glass panels to the steel columns with screws, the glass company punctured nearly all of the pipes contained within the columns. The LLC brought suit against the glass company, which asserted third-party complaints for contribution against the principal, the architect, and the construction manager. The construction manager defaulted. While the lawsuit was pending, the LLC sold the house for $2.5 million. At trial, the lower court ruled that the appropriate measure of damages would be diminution in value of the house and the cost of repair could be considered by the jury in making that assessment. The LLC and its construction cost expert testified that the defects would cost at least $774,000 to repair. The jury returned a $737,500 verdict in favor of the LLC. It apportioned negligence as follows: the glass company, forty percent; the construction manager, sixty percent; the principal and the architect, zero percent. The glass company appealed.

The glass company’s primary argument on appeal was that the LLC failed to prove it was damaged by the glass company’s actions. The Appellate Division explained that the purpose of compensatory damages is to put the injured party in as good a position as it would have been if performance were rendered as promised. Whether the cost of repair or diminution in value is the measure of damages rests in good sense rather than in a mechanical application of a single formula. Generally, either diminution in the value of the property or the reasonable cost of restoring or repairing the damage may be appropriate. With those principles in mind, the Court concluded that cost of repairs was an appropriate measure of damages. It noted that while the lower court ruled that the measure of damages would be diminution in value, the lower court also ruled that the diminution in value could be established by cost of repairs. The Appellate Division concluded that the evidence of those costs proved the LLC’s damages. Specifically, the LLC’s expert testified as to cost of repair. He was a qualified expert, and gave the whys and wherefores to support his conclusions.

The Court explained that once the LLC survived the motion to dismiss, it became the glass company’s burden to challenge the valuation. The glass company’s own expert testified that the market value of the property, as it was unimpaired, was approximately $2.8 million. In other words, the diminution in value was $300,000—his value of $2.8 million, less the $2.5 million plaintiff received from the sale of the property. However, the jury returned a verdict of $737,500, apparently substantially accepting the LLC’s proofs rather than the glass company’s. The glass company further argued that because the LLC sold the house, it was impossible for the LLC to perform the repairs and the LLC was therefore left to prove damages by showing diminution in market value. The Court reasoned that accepting the glass company’s rationale would have the practical effect of penalizing the LLC and rewarding the glass company. Resorting solely to the diminished market value standard would deny the LLC adequate compensation for the glass company’s actions even though the LLC suffered harm by those actions. The Court concluded that such a solution would be inequitable and contrary to common sense. Thus, the Appellate Division held that the lower court did not err in ruling that the cost of repair was a proper element to consider in ascertaining the LLC’s damages.

Next, the Appellate Division considered whether the lower court erred by permitting the principal to testify as to diminution in value. The glass company argued that homeowners are not permitted in New Jersey to testify as to the value of their homes. The Court found that the principal’s testimony was insufficient to establish the cost to repair the damages caused by the glass company. However, his testimony was not the only testimony as to damages. The Court found that the LLC’s expert’s testimony as to the cost of repair was sufficient evidence to sustain the verdict. Thus, in light of the expert’s testimony, the principal’s testimony was harmless.

Next, the glass company argued that the verdict should not stand because the construction manager’s liability should be imputed to the owner. The glass company contended that the job site conduct of the principal and the construction manager established an agency relationship between the construction manager and the LLC, such that the construction manager’s liability should be imputed to the LLC. If correct, New Jersey’s Comparative Negligence Law would have barred the LLC’s recovery because the construction manager was found to be more than fifty percent at fault for the LLC’s injuries. In response, the Appellate Division first stated that whether the construction manager’s negligence should have been imputed to the LLC was a jury question. It concluded that the question of agency was untimely. Notwithstanding the timing, the Court concluded that the agency argument lacked merit. An agency relationship can arise when one party authorizes another to act on its behalf while retaining the right to control and direct those acts. Nonetheless, a principal will not be held vicariously liable for the negligent acts of an agent if the principal did not direct or participate in them. Here, the Court reasoned that although the construction manager held responsibilities that included activities that furthered the interests of the property owner, that fact did not convert his status from independent contractor to “alter ego” of the property owner. Furthermore, the construction manager did not have final decision making authority. Accordingly, the Appellate Division held that the evidence did not show that the principal transferred his project authority to the construction manager to the point that the construction manager became the “alter ego” of the principal.

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