MORRIS COUNTY IMPROVEMENT AUTHORITY and SOMERSET COUNTY IMPROVEMENT AUTHORITY, Plaintiffs–Respondents, v. POWER PARTNERS MASTEC, LLC, Defendant–Appellant, SUNLIGHT GENERAL SOLAR MORRIS, LLC, SUNLIGHT GENERAL SOLAR SOMERSET, LLC, SUNLIGHT GENERAL SOLAR SUSSEX, LLC and SUNLIGHT GENERAL CAPITAL, LLC, Defendants–Respondents.
In 2011, Power Partners Mastec, LLC (Mastec) and SunLight General Capital, LLC (SunLight) responded to a request for proposals (RFPs) issued by plaintiffs Morris County Improvement Authority and Somerset County Improvement Authority, and were awarded the contract to design and construct approximately seventy solar energy generating systems on various properties owned or otherwise occupied by governmental entities across Morris, Somerset, and Sussex Counties. Mastec's and SunLight's business relationship did not endure. The two entities are currently embroiled in arbitration to determine which one of them is liable for cost overruns and construction delays that have affected their ability to perform under the contract entered into with plaintiffs.
Before these arbitration proceedings began, Mastec filed notices to assert liens under the Municipal Mechanics' Lien Law, N.J.S.A. 2A:44–125 to –142, on approximately $50,000,000 in project financing funds plaintiffs received from the sale of government-secured, taxable municipal bonds. These funds are intended to cover the cost of the solar energy program and are held in a trust managed by the U.S. Bank National Association (U.S.Bank).
Acting on plaintiffs' order to show cause and verified complaint, the Law Division discharged any restrictions on the disbursement of these funds by U.S. Bank as trustee that were created by Mastec's notice under the Municipal Mechanics' Lien Law. The court found Mastec was not a “subcontractor” under the statute and thus not entitled to the protections afforded by the Municipal Mechanics' Lien Law. After this ruling, Mastec filed notices of lien under the Construction Lien Law, N.J.S.A. 2A:44A–1 to –38. On plaintiffs' challenge, the trial court limited the scope of these liens, by permitting them to attach only to interests in real property held by SunLight, arguably rendering the liens powerless to affect the disbursement of the municipal bond funds managed by U.S. Bank. The court denied Mastec's motion for reconsideration of this ruling.
Mastec now appeals arguing the trial court erred when it discharged the municipal mechanics' liens based on having found Mastec was not a subcontractor as defined under N.J.S.A. 2A:44–126. Mastec also argues it is entitled to have construction liens attach to SunLight's entire leasehold interest in properties, including any revenue generated by leases that are derived from the municipal bond funds. If we were to reject these arguments, Mastec urges us to remand the matter for the parties to engage in discovery and, if necessary, for the trial court to conduct a plenary hearing. According to Mastec, the limited record developed before the trial court thus far is not sufficient to support a final determination of the issues raised here.
We affirm. Although we are satisfied Mastec falls under the purview of a “subcontractor” as defined in N.J.S.A. 2A:44–126, we nevertheless conclude it is not entitled to the protections afforded under the Municipal Mechanics' Lien Law. On the question of whether Mastec is entitled to assert construction liens on revenues generated by leases between SunLight and governmental entities that participated in the solar energy program, the trial court correctly held that construction liens attach exclusively to real property. In this light, we discern no legal basis to otherwise disturb the rulings made by the trial court.
These are the salient facts. As noted earlier, in 2011, Mastec and SunLight responded to plaintiffs' RFPs seeking developers to design and construct solar generating facilities (“SGFs”) on a variety of municipal properties throughout Morris, Sussex, and Somerset Counties. SunLight assumed the role of developer and financier of the solar energy projects. Although it had engineers on staff, SunLight delegated the actual construction of the SGFs to other companies through turnkey engineering, procurement and construction (EPC) contracts. Consistent with this practice, SunLight teamed up with Mastec, a specialist in the construction of renewable energy projects, and submitted a joint bid in response to the RFPs. Plaintiffs awarded the projects to SunLight.
The complex nature of this endeavor necessitated four different types of contractual arrangements: (1) licensing agreements between plaintiffs and the Local Government Units; (2) lease agreements between plaintiffs and SunLight to finance the project; (3) Power Purchase Agreements (PPAs) between plaintiffs and SunLight; and (4) EPC Contracts between SunLight and Mastec to delegate SunLight's design and construction obligations to Mastec. The License Agreements authorized the Local Government Units to license to plaintiffs and their designees, in this case Sunlight and Mastec, “one or more properties for the construction, operation and maintenance of an SGF.”
As summarized by the trial court, the financing arrangement covered under the lease agreements provided that:
(1) Sunlight will design and construct all of the SGFs, (2) the Authorities will finance a portion (approximately 70%) of the costs of development, design, and construction of the SGFs through the issuance of taxable municipal bonds, (3) the Authorities will take title to the SGFs, (4) the Authorities will lease the SGFs to SunLight for a minimum of fifteen (15) years, during which SunLight will receive and bear all of the benefits and burdens associated with ownership of the SGFs, and (5) Sunlight may purchase the SGFs at the end of each Lease Agreement for nominal consideration.
To generate the funds needed to make the SGFs a reality, plaintiffs issued taxable municipal bonds in the aggregate principal amounts of $26,790,000, $34,300,000 and $27,700,000 for the Somerset, Morris, and Sussex County solar projects, respectively. According to plaintiffs, the lease payments are the primary source of repayment of the bonds. The County guarantied the debt in the event of default by SunLight. The basic lease payments under the Lease Agreements are equal to the bond payments; the lease payments are funded entirely by the revenue earned from the SGFs.
The net proceeds from the sale of the bonds are held by U.S. Bank, as Bond Trustee for the holders of the respective bond series, in funds designated for the solar projects. The Bond Trustee is authorized to disburse money from these funds to either SunLight or a vendor/subcontractor, as directed by SunLight, to pay documented project costs. According to plaintiffs, the bonds were intended to cover approximately seventy percent of the costs of the project; the balance of the costs was to be borne solely by SunLight.
The third part of this contractual arrangement is a series of PPAs, which provide, among other things, that (1) SunLight, its contractors, and subcontractors are designated as permitted licensees under the respective License Agreements; (2) SunLight will complete the design, engineering, permitting, acquisition, construction, installation, interconnection, start-up, testing, operation, and maintenance of all SGFs; and (3) plaintiffs will nominally purchase the electric power generated by the SGFs during the term of the PPA but will assign this right to purchase, and obligation to pay, to the Local Units under the License Agreement. EPC contracts are the final piece of this puzzle. Under the EPC contract, Mastec agreed, among other things, “to assume and substantially perform all of SunLight's obligations under the PPA with respect to the design, permitting, procurement, construction, installation, and testing of the SGFs being built pursuant to the PPA.”
The projects have all undergone extensive delays and remain incomplete to this date. As required by their contract, SunLight and Mastec have submitted their claims to arbitration to determine liability and damages. The completion dates in the Program Documents were extended to reflect these delays; SunLight's lease payment obligations were not extended. Plaintiffs argue this exposes the County to the risk of having to honor their pledge to the bond holders, leaving the taxpayers to bear the cost.
In January 2013, Mastec filed municipal mechanics' liens pursuant to N.J.S.A. 2A:44–128 on the projects, asserting that it is still owed approximately fifty million dollars for work performed on the various sites. Plaintiffs were notified on February 1, 2013, that Mastec had filed municipal mechanics' lien notices on the Somerset, Morris, and Sussex County solar projects in the amounts of $19,924,000, $17,308,000 and $12,542,000, respectively. At the time of the filing, the balances of each Project Fund were as follows: Somerset: $9,859,650.96; Morris: $17,456,352.74; and Sussex: $16,394,315.82. After the trial court discharged Mastec's municipal mechanics' liens, Mastec filed construction liens as defined by N.J.S.A. 2A:44A–2 on SunLight's leasehold interest in the property, specifically on SunLight's ability to withdraw the Project Funds, among other interests.
The trial court discharged Mastec's municipal mechanics' liens on plaintiffs' project funds, holding that Mastec is not a “subcontractor” and is therefore not within the class of individuals intended to be protected under the statute. The court predicated its decision on the relationship between SunLight, Mastec, and plaintiffs. Applying a plain meaning approach of interpretation, Mastec argues it is entitled to the statute's protection as a subcontractor. Plaintiffs and SunLight, on the other hand, argue that treating Mastec as a subcontractor under these circumstances would lead to an absurd result contrary to public policy.
Because the trial court decided these issues as a matter of law, our review on appeal is de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). As our Supreme Court has recently reaffirmed, statutory interpretation requires courts to first apply the plain language of the statute. Headen v. Jersey City Bd. of Educ., 212 N.J. 437, 448 (2012). Words are generally to be given their ordinary meaning. Id. at 451. When the words used have “a special or accepted meaning in the law,” however, they must be construed “in accordance with such technical or special and accepted meaning.” N.J.S.A. 1:1–1; see also Marino v. Marino, 200 N.J. 315, 329 (2009). If the plain language of a statute is clear, that meaning must be given effect, and the court's inquiry is complete. O'Connell v. State, 171 N.J. 484, 488 (2002). But, “where a literal interpretation would create a manifestly absurd result, contrary to public policy, the spirit of the law should control.” Hubbard v. Reed, 168 N.J. 387, 392 (2001) (citation and internal quotation marks omitted).
However, because the Municipal Mechanics' Lien Law is in derogation of the common law, it should be strictly construed in light of the intent of the Legislature. Twp. of Parsippany–Troy Hills v. Lisbon Contractors, Inc., 303 N.J.Super. 362, 368 (App.Div.) (citing Morris Cnty. Indus. Park v. Thomas Nicol Co., 35 N.J. 522, 533 (1961)), certif. denied, 152 N.J. 187 (1997). The statute identifies contractors, subcontractors, and materialmen as “distinct and exclusive classes.” Ibid. The term subcontractor is defined in the “technical and precise sense ․ and not in a broad or loose context.” Id. at 369. While the definition of “subcontractor” is “technical,” the nature of the work performed, rather than the exact contractual status, is dispositive in determining whether a party is a “subcontractor” as intended by the Legislature. Id. at 368–69.
N.J.S.A. 2A:44–128 states, in pertinent part that:
Any person who, as laborer, mechanic, materialman, merchant or trader, or subcontractor, in pursuance of or conformity with the terms of any contract for any public improvement made between any person and a public agency ․ performs any labor or furnishes any materials ․ shall, ․ have a lien for the value of the labor or materials, or both, upon the moneys due or to grow due under the contract and in the control of the public agency, to the full value of the claim or demand.
As a threshold matter, in order to invoke the Municipal Mechanics' Lien Law, the party filing the lien must be a laborer, mechanic, merchant, trader, or a “subcontractor” as defined by N.J.S.A. 2A:44–126. N.J.S.A. 2A:44–126 provides three definitions:
“Contractor” means a person, his assigns or legal representatives, with whom a contract with a public agency is made.
“Public agency” means any county, city, town, township, public commission, public board or other municipality in this state authorized by law to make contracts for the making of any public improvement in any city, town, township or other municipality.
“Subcontractor” means a person having a contract under a contractor for the performance of the same work, or any specified part thereof,․
[Ibid. (emphasis added).]
Mastec directs our attention to a variety of instances that allegedly establish the parties' intent to consider Mastec as a subcontractor assigned to perform the “same work” that SunLight was contractually obligated to perform under its contract with plaintiffs. These include: (1) the Project Contracts, in which SunLight and the plaintiffs are the only parties; (2) The PPA's provision allowing SunLight to choose acceptable subcontractors; (3) the Program Contracts that require SunLight to design, permit and construct the solar projects; (4) the Lease Agreements charging SunLight with the responsibility of designing and constructing the projects; (5) the course of dealing between the parties whereby SunLight retains its own engineers and oversees Mastec's work; (6) plaintiffs' ability to remove the scope of work to shift the work to other subcontractors; (7) plaintiffs' involvement in the requisition process; and (8) lien rights in the EPC contract itself.
Because SunLight was “the owner” of the solar projects for federal tax purposes and Mastec was designated as the “turnkey EPC contractor,” plaintiffs argue Mastec was the general contractor rather than the subcontractor, and therefore not entitled to the Municipal Mechanics' Lien Law's protection. The trial court agreed with this characterization, citing to the party designations in the EPC contracts. Relying on Parsippany–Troy Hills, supra, the trial court concluded that “[b]ased on a reading of the EPC contract, the [c]ourt finds that the type and the manner of the work to be performed by Mastec was that of a contractor, and not a subcontractor.”
While the trial court correctly characterized the nature of Mastec's work to be more akin to that of a contractor, the court did not apply the statutory language protecting a person who does the same work as the party who contracted with the public agency, not just a portion of the work. N.J.S.A. 2A:44–126.
Strictly construing the terms of the statute, as we are required to do, we conclude Mastec falls under the purview of a subcontractor under N.J.S.A. 2A:44–126. Notwithstanding the multiple roles SunLight played in the project as developer, financier, and tenant, SunLight was “a person ․ with whom a contract with a public agency is made.” Ibid. Indeed, plaintiffs noted in their brief that each PPA, as well as the Company Leases between the plaintiffs and SunLight provide, among other things, that SunLight will design and construct all of the SGFs. Under the EPC contract, SunLight designated Mastec to assume these obligations, making Mastec a “person having a contract under a contractor for the performance of the same work, or any specified part thereof.” Ibid. Mastec falls within the statute's definition of “subcontractor” because the agreements indisputably obligated SunLight to construct the SGFs and assigned that same work to Mastec.1
Although the trial court erred in not finding Mastec to be a subcontractor under N.J.S.A. 2A:44–126, we nevertheless affirm the court's ultimate judgment denying Mastec the protections available under the Municipal Mechanics' Lien Law because the County Improvement Authorities Law, N.J.S.A. 40:37A–44 to –135, specifically exempts the property of a county improvement authority from “judicial process.” N.J.S.A. 40:37A–127. As plaintiffs correctly argue, because a municipal mechanics' lien can only be enforced through judicial process, the liens are unenforceable as a matter of law.2
The County Improvement Authorities Law provides that:
All property of the authority, except as otherwise provided herein, shall be exempt from levy and sale by virtue of an execution ․ nor shall any judgment against the authority be a charge or lien upon its property; provided, that nothing herein shall apply to or limit the rights ․ or obligations to pursue any remedy for the enforcement of any pledge or lien given by the authority on its revenues or other moneys[.]
Under the Municipal Mechanics' Lien Law, a lien will not be binding on the public agency unless the lienholder brings an action to enforce the lien claim. N.J.S.A. 2A:44–138. This indispensable predicate under the Municipal Mechanics' Lien Law conflicts with the County Improvement Authorities Law exempting the plaintiffs from judicial process, rendering the former statute inapplicable under these circumstances.
Our colleague, Judge Fisher, reached an analogous conclusion while sitting in the Law Division in Jersey Central Power & Light Co. v. Kingsley Arms, Inc., 271 N.J.Super. 68 (Law Div.1993), a case concerning N.J.S.A. 40A:12A–34, a similar statute exempting housing authorities from levies. Judge Fisher noted the statute was “virtually identical to a number of other statutes which exempt the property of various public entities from execution.” Id. at 72 n.2. Here, the County Improvement Authorities Law directly conflicts with the Municipal Mechanics' Lien Law because the latter requires judicial process to enforce the lien and the former disallows such process from being imposed on Improvement Authorities. N.J.S.A. 40:37A–127; N.J.S.A. 2A:44–138.
We next address Mastec's claims under the Construction Lien Law. Mastec argues that the right to draw down on Project Funds is an enforceable interest in SunLight's leasehold estate under the lease agreement that is subject to attachment under a construction lien. Mastec also claims it is entitled to the “Lien Fund” which is defined by the Construction Lien Law as “the pool of money from which one or more lien claims may be paid.” N.J.S.A. 2A:44A–2. Plaintiffs argue that the Project Funds are mere bank accounts, not “interests in real property,” and as such are outside the scope of the Construction Lien Law, N.J.S.A. 2A:44A–2. The trial court agreed with plaintiffs' position. We do as well.
The Construction Lien Law provides, in relevant part, that:
Any contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price,․ The lien shall attach to the interest of the owner or unit owner of the real property development,․”
N.J.S.A. 2A:44A–2 defines “interest in real property” as “any ownership, possessory security or other enforceable interest, including, but not limited to, fee title, easement rights, covenants or restrictions, leases and mortgages.” It defines “lien” or “construction lien” as “a lien on the owner's interest in the real property arising pursuant to the act.” Ibid.
The trial court correctly held that “[c]onstruction liens attach exclusively to real property and SunLight's ability to draw on the project funds is neither created by the Lease Purchase Agreement nor can it be defined as ‘real property’ or an ‘interest in real property.’ ” Section 510 of the Lease Agreement, however, grants SunLight the ability to draw on the project funds. The trial court was thus incorrect in holding otherwise. Nonetheless, this interest is not derived from an “enforceable interest in real property.” N.J.S.A. 2A:44A–2. The ability to submit “Draw Papers” to the Trustee of municipal bonds financing a project does not equate to a leasehold interest in the units.3 As plaintiffs correctly noted, “the Project Funds do not qualify as real property because they are nothing more than bank accounts held by the Trustee, containing funds to construct and implement the renewable energy projects.”
Mastec's remaining arguments lack sufficient merit to warrant discussion in a written opinion. R. 2:11–3(e)(1)(E). Unless otherwise indicated here, we reject those arguments substantially for the reasons expressed by the trial court.
FN1. Regarding the intent of the parties and the nature of the work Mastec performed, Mastec emphasizes that none of the parties disputed its status as a subcontractor. The issue was raised by the trial court sua sponte.. FN1. Regarding the intent of the parties and the nature of the work Mastec performed, Mastec emphasizes that none of the parties disputed its status as a subcontractor. The issue was raised by the trial court sua sponte.
FN2. Although the trial court's decision was based on a different legal basis, plaintiffs raised this issue before the trial court. Even if this specific issue had not been raised before the trial court, however, a respondent may raise any legal theory in favor of affirming the trial court's judgment. Lippman v. Ethicon, Inc., 432 N.J.Super. 378, 381 n.1 (App.Div.2013) (citing Chimes v. Oritani Motor Hotel, Inc., 195 N.J.Super. 435, 443 (App.Div.1984)).. FN2. Although the trial court's decision was based on a different legal basis, plaintiffs raised this issue before the trial court. Even if this specific issue had not been raised before the trial court, however, a respondent may raise any legal theory in favor of affirming the trial court's judgment. Lippman v. Ethicon, Inc., 432 N.J.Super. 378, 381 n.1 (App.Div.2013) (citing Chimes v. Oritani Motor Hotel, Inc., 195 N.J.Super. 435, 443 (App.Div.1984)).
FN3. Mastec argues that Exhibit A–1 to the Lease Purchase Agreement “specifically identifies the Public Project Funds as ‘Leased Property.’ ” The record before us does not support this contention.. FN3. Mastec argues that Exhibit A–1 to the Lease Purchase Agreement “specifically identifies the Public Project Funds as ‘Leased Property.’ ” The record before us does not support this contention.