New Jersey Federal Court Endorses HVAC Subcontractor’s Claims Against Property Owner Who Locked It Out Of A Job Site To Prevent It From Completing Subcontract
March 10, 2023
By: Carl L. Engel
On March 8, 2023, the U.S. District Court for the District of New Jersey, in the case Green Star Energy Solutions, LLC v. Edison Properties LLC, allowed an HVAC subcontractor to proceed with claims against a property owner who had locked it off a job site. Even though the subcontractor and owner did not have a contract together, the owner’s interference with the subcontractor’s agreement with the general contractor gave rise to several extra-contractual claims against the owner. Accordingly, this case illustrates the remedies available to subcontractors where a property owner has taken action to prevent them from completing a subcontract with a general contractor.
In June 2018, Edison Properties LLC contacted Green Star Energy Solutions LLC to request that it perform HVAC services on the renovation of a 30,000-square-foot property called “Edison Place.” Green Star expressed concern about Edison Properties’s financial condition, and advised that it could only work on Edison Place if it were paid “every month without fail.” Edison Properties responded that they “would instruct the general contractor to pay Green Star timely without fail on all invoices.”
On September 7, 2018, Green Star entered into a contract with general contractor Hollister Construction Services LLC (which is not a party to the lawsuit) to provide certain HVAC installation services at Edison Place. Green Star claims that it was never paid in a timely manner for its work, including a four-month period of nonpayment from October 2018 through February 2019. Green Star claims that, through March 2019, Hollister paid it $593,895.73 for its work on Edison Place.
In March 2019, Edison Properties took over day-to-day management of the Edison Place project on account of their dissatisfaction with Hollister’s performance. Hollister, however, remained the general contractor and had workers and subcontractors on site. On April 2, 2019, Edison Properties paid Green Star an additional $156,275.57 for further work on Edison Place.
May 30, 2019, was Green Star’s final scheduled workday on the project before the building was to be occupied. As of that date, Green Star needed only to install two fire dampers to complete all the work it had been subcontracted to do. Nevertheless, that same day, Edison Properties emailed Green Star threatening to terminate them from the project, and locked them out of the job site to prevent them from completing the work. Edison Properties then hired Green Star’s lead technician so they could complete the remaining work without Green Star.
Green Star claims that it had substantially completed its subcontract before it was locked out of the job site, and only some “minor work” remained which had been delayed by Hollister. Green Star’s final invoice of $220,060.58 remains outstanding. It claims that Edison Properties refusal to pay the final invoice is a part of a larger general practice of refusing to pay the final invoice to its contractors on various projects. Edison Properties argues that they are not required to pay Green Star because the job was “abandoned” before the subcontract was completed.
On February 17, 2022, Green Star filed a complaint against Edison Properties, bringing claims for fraud, tortious interference, breach of contract, breach of contract rights as third-party beneficiary, and quantum meruit. Edison Properties moved to dismiss each of these claims.
On March 8, 2023, the court dismissed some of Green Star’s claims, but allowed others to proceed. The court dismissed Green Star’s fraud claim, which was based on Edison Properties’s promise to assure prompt monthly payments, because Green Star had continued to work on the project after payment delays. Therefore, Green Star could not be found to have relied on the promise when it decided to undertake the work, which reliance is necessary to establish fraud. The court also dismissed Green Star’s contract claims, because their subcontract was with Hollister and not Edison Properties, and the contract parties did not indicate an intention for Green Star to be a third-party beneficiary.
However, the court is allowing Green Star to proceed with two of its claims: tortious interference and quantum meruit. The court reasoned that Edison Properties’s action to lock Green Star out of the job site was clear interference with Green Star’s ability to complete the subcontract with Hollister. The court also found that Green Star’s quantum meruit claim was supported by allegations that Edison Properties had benefited from Green Star’s work after they had taken over management of the project from Hollister.
This case illustrates the remedies subcontractors have against property owners who interfere with subcontracts concerning their properties. The subcontractor generally will not be able to bring contract claims against the property owner, because the owner’s contract is usually with a general contractor instead. However, if the owner takes action that inhibits the subcontractor from completing the subcontract, the subcontractor may seek the remaining amounts owed thereunder from the owner. Similarly, if the owner has benefited from work to his property performed by the subcontractor, and has obstructed the general contractor from making payment, the subcontractor may be able to receive compensation from the owner for the value of the work via a claim for quantum meruit.