Construction Litigation

Contractors Cannot Use Contractual Limitations Periods to Wholly Preclude Actions

April 13, 2020 | by Daniel E. Katz

Digesare Mechanical, Inc. v. U.W. Marx, Inc. stands for the principle that while parties are free to contract to to shorten the six-year statute of limitations period for breach of contract they cannot use such a limitation to effectively preclude such a claim in its entirety. 176 A.D.3d 1449, 112 N.Y.S.3d 306 (3d 2019).

The case effectively concerned a dispute between a subcontractor and a contractor in which the subcontractor alleged that the contractor had not fully paid it for work completed on a project. The relevant subcontract contained a limitations period provision stating that the subcontractor was required to bring any claim within six months of its last day of work.

Additionally, the subcontract contained a provision providing that the subcontractor would be paid by the contractor when the contractor was paid by the owner. The court determined that this provision was a permissible pay-when-paid provision rather than an unenforceable pay-if-paid clause. However, it was the combination of the pay-when-paid provision in conjunction with the shortened contractual limitations period that rendered the limitations clause unenforceable.

RPAPL Section 881 Litigation Continues Apace

August 12, 2019 | by Daniel E. Katz

Due, in part, to increased construction activity, a renewed focus on project safety, and owners becoming more aware of their rights and remedies, Real Property Action and Proceedings Law (“RPAPL”) Section 881 continues to generate litigation and court decisions construing various provisions of the statute. Two recent decisions are of special note.

In Cucs Housing Develop. Fund Corp. IV. V. Aymes, 2019 WL 934935, 2019 N.Y. Slip Op. 30450 (Sup. Ct. N.Y. Co. Feb. 26, 2019), Judge Melissa A. Crane granted a developer the right to underpin its neighbor’s building, even though such access constitutes a permanent encroachment. While many practitioners and developers believe RPAPL Section 881 does not authorize a trespass of this nature, Justice Crane found to the contrary.

The specific facts of the case undoubtedly had something to do with the result. The petitioner-developer was in the early stages of building an affordable housing project to address the homelessness problem in New York City. The plans in question were approved after a two-year review process by the New York City Department of Buildings. The respondent-neighbor owned a vacant and unused building, without active utilities or security. When questioned at a hearing as to why he opposed the underpinning application, the neighbor, appearing pro se, responded, “I don’t have to have a reason… I just don’t want underpinning.” Furthermore, the Court found there was no feasible alternative to the underpinning, and that in cases such as Madison 96 Associated LLC v. 17 East 96th Owners Corp, 121 A.D.3d 605, 608, 995 N.Y.S.2d 553 (1st Dep’t 2014) and Matter of Tory Burch LLC v. Moskowitz, 146 A.D.3d 528, 43 N.Y.S.3d 901 (1st Dept’t 2017) the First Department seemed to recognize that underpinning could be authorized if it was “virtually unavoidable” or if the “reasonableness and necessity of the trespass” was clearly demonstrated. Accordingly, the Cucs Court authorized the underpinning.

Joint Venture Status Denied By Court

December 26, 2018 | by Daniel E. Katz

Construction companies, especially those engaged in large public works or private development projects, sometimes form joint ventures to pool their resources and perform work on jobs that might be beyond their individual financial capabilities or technical expertise. Typically, the joint venture is formed for an individual project. As a result, the formation of the joint venture is often not addressed with the same degree of formality and care as when a corporate entity is formed on a more permanent basis. Recently, in Slabakis v. Schik, 164 A.D.3d 454, 84 N.Y.S.3d 45 (1 st Dep’t 2018), the First Department addressed the requirements of forming a joint venture in the context of a dispute as to whether a proper joint venture had been formed.

The plaintiff in Slabakis alleged there was an oral joint venture agreement, and sued the defendant, its purported joint venture partner, for breach of contract, breach of fiduciary duty and related wrongs. Defendant moved to dismiss, alleging that the complaint did not adequately allege the existence of a joint venture agreement. The trial level court denied the motion, holding that there was an issue of fact as to the viability of the complaint.

On appeal, the First Department reversed and dismissed the complaint, holding that the pleading was defective in two material respects. First, the Slabakis complaint failed to contain a mutual promise that profits and losses would be shared to some degree. Instead, it indicated that all of the losses would be solely borne by the defendant. This was “fatal” to plaintiff’s claim that a joint venture was created.

Lienor Unable To Establish Lien Fund Based Upon Owner’s Alleged “Bad Faith” Payment

October 25, 2018 | by Daniel E. Katz

Enforcing mechanic’s lien rights raises several issues which are distinct from the ability to simply file a mechanic’s lien. For example, a subcontractor must generally show that a “lien fund” existed between the owner and contractor at the time it filed its lien in order to successfully foreclose. Peri Formwork Systems, Inc. v. Lumbermens Mutual Casualty Co., 65 A.D.3d 533, 884 N.Y.S.2d 129 (2d Dep’t 2009); See also Van Clief v. Van Vechten 130 N.Y. 571 (1892). Some courts have recognized an exception when the general contractor issues back charges to a subcontractor after termination. See Spectrite Design LLC v. Elli N.Y. Design Corp., (16 Civ. 6154, N.Y.L.J. 120279380599) (S.D.N.Y., Decided July 26, 2017). Other courts have recognized that if payments are made by the owner in bad faith, and before they were otherwise due, a lienor’s ability to foreclose its mechanic’s lien should not be prejudiced. See Glens Falls Portland Tenant Co. v. Schenectady County Coal Co., 163 A.D. 757, 759-763, 149 N.Y.S. 189 (3d Dep’t 1914); Lawrence v. Dawson, 34 A.D. 211, 212-215, 54 N.Y.S. 647 (2d Dep’t 1898). The bad faith exception to the lien fund rule was recently addressed by the First Department in 3-G Services Limited v. SAPV/Atlas 845 WEA Associates NF, L.L.C., 162 A.D.3d 487, 79 N.Y.S.3d 24 (1st Dep’t 2018).

In 3-G, the owner moved to dismiss plaintiff subcontractor’s lien foreclosure claim by submitting proof that the owner had paid the contractor in full at the time the plaintiff’s lien was filed. Owner had terminated the contractor for convenience prior to the filing of the subcontrator’s lien, and issued final payment to the contractor at that time.

Plaintiff raised several grounds in attempt to show owner’s bad faith. It alleged that owner knew that the general contractor owed monies to the subcontractor when it terminated the general contractor for convenience, that the owner made an advance payment to the general contractor to avoid the Lien Law, and that owner opted to terminate general contractor for convenience when it could have terminated it for cause.