In a recent appellate decision, the court discussed the N.J. Prompt Pay Act, a fraudulent inducement claim and piercing the corporate veil with regard to a subcontractor’s claims against a general contractor. In finding in favor of the sub-contractor, the court applied the N.J. Prompt Pay Act and a fraudulent inducement claim in order to pierce the corporate veil of the contractor who had declared bankruptcy.
In this matter, the subcontractor had properly completed its work and said work had been approved by the contractor, thereby triggering the N.J. Prompt Pay Act. Thereafter, the contractor certified to the general manager that it paid the subcontractor for the concrete work, even though it had not paid the subcontractor. Shortly thereafter, the contractor filed for bankruptcy and it sought the protection of the bankruptcy court against any claims brought by the subcontractor.
During the course of the bankruptcy proceedings, the bankruptcy court pierced the corporate veil of the contractor and allowed the subcontractor to seek reimbursement directly from the principals of the corporation. The court explained that the principals of the contractor had fraudulently induced the subcontractor to enter into the agreement, and moreover, that said funds were due to the subcontractor pursuant to the terms of the N.J. Prompt Pay Act. As a result of this decision, principals of the general contractor became personally liable for the payment of the judgment, and moreover, the award of counsel fees and costs that were granted to the subcontractor. This decision clearly highlights how strong the New Jersey Prompt Pay Act is and how it can be utilized for a subcontractor to obtain the relief it seeks.