Duane Morris Construction Law

March 5, 2025March 5, 2025 by Jose A. Aquino

The Impact of Corrective Work on Performance Bond Deadlines: A Case Study

The recent decision in BCC Housing Development Corp. v. LPCiminelli, Inc., entered on February 27, 2025, by the New York Supreme Court, Appellate Division, Third Department, addresses the enforcement of contractual time limits in performance bonds and clarifies when a contractor’s work is considered complete under a construction contract.

BCC Housing Development Corp. (“BCC”) engaged LPCiminelli, Inc. (“LPCiminelli”) to construct student housing for SUNY Broome Community College. As required by the contract, LPCiminelli executed a performance bond issued by defendant Liberty Mutual Insurance Company, as surety. The bond required that any action on the bond be commenced within two years after the contractor stopped work. Substantial Completion of the project occurred in August 2014. The building housed students starting in the 2014–2015 academic year. The Final Payment was made in June 2015. However, construction defects required LPCiminelli to perform corrective work until September 2017. After LPCiminelli stopped performing corrective work without rectifying all the defects, BCC commenced an action against the performance bond in August 2019.

Under the construction contract, the LPCiminelli was responsible for correcting non-conforming work discovered after Final Payment. LPCiminelli was required to promptly correct work rejected by BCC or failing to conform to the contract documents, whether discovered before or after Substantial Completion. If non-conforming work was found within a year of Substantial Completion, the contract required LPCiminelli to correct it.

Defendants argued the lawsuit was untimely, claiming the two-year period started with Substantial Completion or Final Payment. BCC countered that the deadline should run from September 2017, when corrective work stopped. The trial court ruled in favor of BCC, finding that the contractor’s continued performance of corrective work rendered the lawsuit timely. Defendants appealed.

The appellate court affirmed, emphasizing that the terms of the contract must be interpreted according to their plain meaning. Since LPCiminelli was required to remedy defects discovered after completion, its corrective work was part of the contract. The court stated:

“[I]t is manifest that the terms of the contract placed a continuing obligation on LPCiminelli to perform corrective work, which it had done until September 2017. As such, substantial completion was not synonymous with cessation of work nor was the fact that final payment had become due indicative of the same.”

Performance bonds are strictly construed against the surety. Given the contract’s wording, the lower court determined that the work terminated in September 2017, when LPCiminelli stopped corrective work. Since BCC filed suit in August 2019, within the two-year contractual limitations period, the claim was timely. The appellate court upheld the denial of defendants’ summary judgment motion, emphasizing that corrective work can extend the timeframe for performance bond claims.

The decision underscores the role of contract language in determining claim deadlines under performance bonds. Notably, depending on the terms of the contract, ongoing defect correction work can extend the limitations period, thereby affecting the timing of actions against the bond.

Jose A. Aquino (@JoseAquinoEsq on X) is a special counsel in the New York office of Duane Morris LLP, where he is a member of the Construction Group and of the Cuba Business Group. Mr. Aquino focuses his practice on construction law, lien law and government procurement law. This blog is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this blog are those of the author and do not necessarily reflect the views of the author’s law firm or its individual attorneys.

February 24, 2025February 24, 2025 by Jose A. Aquino

FEMA’s Withdrawal from Building Code Development

For approximately 25 years, the Federal Emergency Management Agency (FEMA) has been involved in developing building codes to help homes withstand natural disasters. However, the Trump Administration has recently halted these efforts, withdrawing FEMA’s involvement from the latest building code improvements.

National Public Radio (NPR) reported that FEMA is withdrawing from the latest effort to improve building codes. This decision has raised concerns among disaster experts about the potential impact on safety and property protection.

Building codes, reviewed every three years by the International Code Council (ICC), are important for disaster resilience. The ICC convenes experts and stakeholders in the building industry to review and improve these codes and is currently developing a new set of standards. The ICC’s International Codes are being updated for a 2027 version. FEMA’s involvement has encouraged states to adopt stronger codes. According to FEMA’s “Building Codes Save: A Nationwide Study,” modern building codes have led to significant reductions in property losses from natural disasters, avoiding at least $32 billion in losses over a 20-year period.

The decision to cease work on stronger building codes could affect efforts to improve construction practices, potentially leaving a gap in disaster preparedness and response.

February 21, 2025 by Jose A. Aquino

Appellate Court Highlights the Essential Role of Pre-Bid Inspections in Construction Projects

A recent appellate decision underscores the importance of due diligence in construction projects. The dispute arose from a construction contract between Maric Mechanical, Inc. (“Maric”) and the New York City Housing Authority (“NYCHA”). The contract involved the replacement of boilers at the Ravenswood Houses in Queens. According to the contract documents, the project required the construction of 40 temporary shoring towers. However, Maric later discovered that 206 shoring towers were necessary, significantly increasing the project’s cost.

Maric sought compensation for this “extra work,” arguing that the additional towers were not included in the original contract. NYCHA moved to dismiss the complaint, citing Maric’s failure to perform a pre-bid site inspection and the explicit disclaimers in the contract documents regarding the accuracy of the provided information.

The Supreme Court, New York County, granted NYCHA’s motion to dismiss the complaint. The decision was unanimously affirmed by the Appellate Division, First Department.

The appellate court’s decision was based on several factors. First, Maric admitted that it did not conduct a pre-bid project work site inspection, as required by the contract. This acknowledgment meant Maric could not claim that the need for additional shoring towers was unforeseeable. Second, the contract documents explicitly warned that NYCHA did not assume responsibility for the accuracy or completeness of the information regarding existing conditions. This disclaimer placed the responsibility on Maric to independently verify the site conditions. Lastly, Maric’s argument that its engineer’s post-contract determination of the need for extra work could not have been made based on a pre-bid inspection was deemed conclusory and insufficient to support its claim.

The decision in Maric Mechanical, Inc. v. New York City Housing Authority serves as an important reminder for contractors and legal professionals alike. It highlights the importance of pre-bid inspections and the need for documentation and verification of site conditions. Contractors must conduct pre-bid inspections to inspect and document all site conditions before submitting a bid. Additionally, contractors should pay close attention to disclaimers in contract documents, recognizing the limitations of the provided information.

The lower court’s decision can be found here, and the appellate decision here.

February 6, 2025February 6, 2025 by Jose A. Aquino

Appellate Court Affirms That Flagging Work Qualifies for Prevailing Wage

The New York Appellate Division, First Department’s decision in Santana v. San Mateo Construction Corp., entered on January 16, 2025, reinforces the enforceability of prevailing wage claims under Administrative Code of City of N.Y. § 19-142. The court clarified that section 19-142 applies to any permit issued “to use or open a street,” not just public works projects. It reaffirmed that flagging work qualifies for prevailing wages, and that laborers can enforce agreements related to this provision as third-party beneficiaries.

San Mateo Construction Corp.’s flagging contracts obligated compliance with all laws, making putative class members third-party beneficiaries despite contractual disclaimers, which the court deemed void as against public policy. The ruling also affirmed that prevailing wage rights under Administrative Code § 19-142 extend to private projects, rejecting the contractual forfeiture of such rights as contrary to public policy.

February 4, 2025February 4, 2025 by Jose A. Aquino

Trust Fund Diversion Claims Require Clear Evidence of Unauthorized Expenditures

In a recent decision, a New York appellate court reversed a trial court ruling that had granted summary judgment in favor of the plaintiff in a dispute over alleged diversion of trust funds under Article 3-A of the New York Lien Law. The case, 1 Park East Construction Corp. v. Uliano, underscores the evidentiary burden required for a plaintiff to establish a case of trust fund diversion for summary judgment.

The underlying dispute arose from a construction project in which the plaintiff alleged that a corporation owned by defendant, acting as a subcontractor, received trust funds from plaintiff to purchase materials for the installation of a stormwater filtration system but failed to pay the vendor. The plaintiff sought recovery of trust funds pursuant to N.Y. Lien Law Article 3-A. Initially, the trial court denied the plaintiff’s motion for summary judgment without prejudice, allowing for renewal once issue had been joined. The plaintiff subsequently renewed its motion, which the trial court granted, awarding damages in the principal sum of $78,066.62 against the defendant. The defendant appealed, leading to the reversal of the trial court’s decision.

The Appellate Division, Second Department, found that the plaintiff had failed to establish, as a matter of law, that the defendant had diverted trust funds. Under Article 3-A of the Lien Law, contractors and subcontractors who receive payments for construction projects hold those funds in trust for the benefit of subcontractors, suppliers, and other designated beneficiaries. Any unauthorized use of these funds before all trust claims have been satisfied constitutes an impermissible diversion, regardless of intent. However, the court emphasized that a plaintiff moving for summary judgment must eliminate all triable issues of fact regarding whether the trust assets were improperly used for unauthorized expenditures.

In this case, while it was undisputed that the defendant had received trust assets and had not paid the vendor, the plaintiff failed to show that the defendant had used the funds for unauthorized purposes. The court cited precedents emphasizing that summary judgment is inappropriate where factual questions remain unresolved, particularly in cases involving allegations of improper use of trust assets.

This decision serves as a reminder that plaintiffs seeking summary judgment on claims of trust fund diversion must present undisputed evidence that the defendant misused trust assets in violation of Lien Law § 71. Mere nonpayment to a vendor, without additional proof of improper diversion, is insufficient to grant summary judgment. The ruling confirms that summary judgment is inappropriate when factual disputes exist, leaving such issues to be resolved at trial.

Notably, however, the opinion fails to address how the plaintiff acquired standing to assert a trust fund diversion claim. Under the trust fund provisions of the Lien Law, only those who are beneficiaries—that is, those entitled to receive payment from the trust—generally have standing. In this case, the opinion states that the plaintiff paid trust funds to defendant’s corporation, a fact that typically indicates the plaintiff was merely the payer rather than a beneficiary. The sole exception in the statute is found in Lien Law § 71‑a(4)(a), which provides that under a home improvement contract, payments received from an owner by a home improvement contractor prior to substantial completion may be considered trust funds, thereby designating the owner as the beneficiary. Unfortunately, the decision does not address whether the dispute involves a home improvement contract, nor does it clarify the plaintiff’s actual role in the construction project, leaving its standing under the trust fund diversion claim uncertain.

January 20, 2025 by Jose A. Aquino

The New York City Fair Chance Housing Law: Advancing Inclusivity and Equity by Addressing Criminal History Discrimination

Effective January 1, 2025, the New York City Fair Chance Housing Law prohibits housing discrimination based on criminal history. The primary objective of this legislation is to foster an inclusive and equitable housing environment for all New Yorkers.

The law imposes specific limitations on when and how housing providers can consider an applicant’s criminal history. Landlords, real estate brokers, and other housing providers are permitted to review criminal history only after assessing an applicant’s other qualifications. Furthermore, housing providers may only consider a limited set of convictions, referred to as “Reviewable Criminal History.” These include:

Convictions that require registration on a sex offense registry at the time of the background check.
Misdemeanor convictions within three years from the date of release from incarceration or the date of sentencing if no incarceration occurred.
Felony convictions within five years from the date of release from incarceration or the date of sentencing if no incarceration occurred.

The 3 or 5 years are measured from the actual date of release or the sentencing date (if the sentence does not include jail or prison time), regardless of probation or parole status.

The arrest of an applicant or a pending case cannot be taken into consideration. Nor can any of the following circumstances be considered:

Convictions that were sealed, expunged, are under an executive pardon or certificate of relief from disabilities, or legally nullified or vacated.
Convictions for violations, which are non-criminal offenses such as disorderly conduct.
convictions under federal law or another state’s law for conduct related to reproductive or gender affirming care that is lawful in New York State.
Convictions under federal law or another state’s law for cannabis possession that does not constitute a felony in New York State.
Adjournments in Contemplation of Dismissal (ACDs)
Adjudications as a youthful offender or for juvenile delinquency
Terminations in favor of an individual, including but not limited to, acquittals, reversals upon appeal, and exonerations).
Dispositions of criminal matters under federal law or another state’s law that are comparable to those listed here.

In the event that an applicant is rejected based on their criminal history, the housing provider is required to provide a written explanation for the decision.

The significance of this law cannot be overstated. It aims to offer a second chance to New Yorkers with a criminal history, facilitating their reintegration into society and reducing recidivism. By curbing discrimination based on criminal history, the law helps alleviate pressure on the city’s shelter system and addresses issues of racial bias and exclusion from housing.

It is important to note that the law does not apply to two-family owner-occupied housing or rooms in owner-occupied housing. Additionally, it does not apply in situations where federal, state, or local laws mandate or permit exclusion based on criminal history.

The Fair Chance Housing Law represents a progressive step towards ensuring fair housing opportunities for all, reflecting New York City’s commitment to justice and equality. Through the implementation of this law, New York City aspires to create a more just and inclusive community, where everyone has the opportunity to secure stable housing.

While this law promotes fairness and inclusivity, it also places significant responsibilities on landlords. They must navigate the complex requirements of the Fair Chance Housing Law, including conducting the bifurcated screening process, providing necessary notices, and justifying any decisions to withdraw a housing offer based on criminal history. This added responsibility necessitates that landlords remain informed and compliant with the law, ensuring that their practices align with the new regulations.

For more detailed information on the NYC Fair Chance Housing Notice and the specifics of the law, please visit the official website. The NYC Fair Chance Housing Notice can be found here.

January 16, 2025January 16, 2025 by Jose A. Aquino

U.S. Circuit Court Highlights the Importance of Timely Asserting Legal Arguments

On January 15, 2025, the U.S. Court of Appeals for the Second Circuit entered a summary order on the case of E & T Skyline Constr., LLC v. Talisman Cas. Ins. Co., LLC. This case revolves around a dispute over the obligations under a performance bond issued for a condominium project in Manhattan.

E&T Skyline Construction (E&T), a general contractor, had subcontracted NY Renaissance Corp. (NYR) to deliver and install custom windows for the project. To safeguard against potential non-performance by NYR, E&T secured a performance bond from Talisman Casualty Insurance (Talisman). When NYR failed to perform, E&T terminated the subcontract and demanded payment from Talisman. However, Talisman refused, citing E&T’s own failure to meet its obligations under the subcontract as a precondition for the bond payment.

After a bench trial, the district court ruled in favor of Talisman. E&T’s subsequent motion to alter or amend the judgment was also denied. E&T then appealed.

On appeal E&T argued that the district court erred in considering the terms of a March 8, 2019 revised schedule as part of the subcontract. E&T contended that since the revised schedule was not signed, it should not be enforceable. The district court had found that E&T could have raised this issue earlier in the proceedings but failed to do so, leading to the forfeiture of this argument. Specifically, the court noted that E&T had multiple opportunities to contest the enforceability of the revised schedule but did not. E&T had acknowledged the revised schedule in various communications and legal filings, treating it as binding. Despite these opportunities, E&T only challenged the enforceability of the revised schedule in a post-trial motion. As a result, the district court deemed this argument forfeited.

E&T also argued that even if the revised schedule was enforceable, the district court wrongly concluded that E&T breached the subcontract. The district court, however, determined that E&T’s failure to clear debris and obstructions from the construction site made it impossible for NYR to deliver the windows, constituting a breach of the subcontract.

The appellate court affirmed the district court’s judgment, agreeing that E&T had forfeited its argument regarding the revised schedule and that E&T’s breach of the subcontract justified Talisman’s refusal to pay the bond. The appellate court’s reasoning underscored the importance of timely raising all relevant arguments during the trial phase, as failing to do so can result in the forfeiture of those arguments on appeal.

This case highlights the critical need to assert all relevant arguments at the appropriate stages of litigation to avoid waiving them. Failing to do so can result in the forfeiture of potentially pivotal legal arguments, as demonstrated in this case.

December 20, 2024December 20, 2024 by Jose A. Aquino

Mechanic’s Liens and Licensing Laws: Court Ruling Highlights Strict Enforcement

The recent decision by the Supreme Court, Appellate Division, Second Department, New York, in the case of Mikoma Electric, LLC, et al. v. Otek Builders, LLC, et al., emphasizes the importance of adhering to licensing requirements within the construction industry. The case revolves around a dispute where plaintiffs, Mikoma Electric, LLC (Mikoma Electric), and Mikoma Technology of Power and Lights Wiring and Control Limited Liability Partnership (Mikoma Tech), sought to recover damages for breach of contract from Otek Builders, LLC, the general contractor for various WeWork properties.

Mikoma Tech, which was not licensed to perform electrical work in New York City, subcontracted with Otek Builders to carry out electrical work on several properties. Although Mikoma Electric, a licensed entity, obtained the necessary permits and allegedly supervised the work, the court found that this arrangement did not satisfy the licensing requirements stipulated by the Administrative Code of the City of New York § 27–3017(a), This section mandates that electrical work must be performed by a licensed master electrician or under their direct supervision.

The defendants moved to dismiss the complaint and discharge the mechanic’s liens filed by Mikoma Tech, arguing that Mikoma Tech’s lack of a proper license barred its recovery. The Supreme Court initially denied this motion, but upon appeal, the Appellate Division reversed the decision. The appellate court held that the documentary evidence provided by the defendants, which included printouts from the New York City Department of Buildings’ webpage, did not meet the criteria for documentary evidence under CPLR 3211(a)(1). However, the court agreed that Mikoma Tech’s failure to obtain the required license precluded it from recovering under breach of contract or quantum meruit theories and from foreclosing on its mechanic’s liens. Consequently, the Appellate Court dismissed the complaint as to Mikoma Tech and discharged the mechanic’s liens filed by Mikoma Tech.

This decision underscores the strict interpretation of licensing statutes aimed at protecting public health and welfare. The court emphasized that employing or subcontracting work to a licensed entity does not fulfill the statutory requirements if the primary contractor is unlicensed. Consequently, Mikoma Tech’s argument that it should recover because Mikoma Electric, a licensed subcontractor, performed the work was deemed insufficient.

The ruling serves as a critical reminder for contractors and subcontractors in New York City to ensure compliance with licensing regulations to avoid forfeiting their lien rights and the right to recover payments for their work. It also highlights the importance of understanding and adhering to legal requirements in contractual agreements within the construction industry.

December 14, 2024 by Jose A. Aquino

Appellate Court Ruling Clarifies Legal Boundaries of Surety Roles in Mechanic’s Liens

The Supreme Court, Appellate Division, First Department, New York, recently issued a decision in Thorobird Grand LLC et al. v. M. Melnick & Co., Inc., et al., affirming the lower court’s ruling that granted the plaintiffs’ motion for summary judgment on their cause of action alleging willful exaggeration of mechanic’s liens by the defendant Surety.^{^[1]} The court invalidated and discharged the Surety’s liens but denied the plaintiffs’ claim for damages under Lien Law § 39-a.

The court determined that the plaintiffs had demonstrated the Surety did not meet the statutory definition of a contractor under Lien Law § 2, thereby invalidating its liens. The plaintiffs had engaged M. Melnick & Co., Inc. as their general contractor for certain projects. In accordance with their agreement, Melnick, along with the Surety acting as Melnick’s guarantor, executed payment and performance bonds. Upon Melnick’s termination, which triggered the Surety’s obligations under the performance bond, the Surety elected to retain Melnick to complete the project.

Subsequently, the plaintiffs initiated an action asserting breach of contract claims against both Melnick and the Surety. In response, the Surety filed three mechanic’s liens for unpaid work, while Melnick filed its own liens. The Surety also counterclaimed against the plaintiffs and additional counterclaim defendants, asserting causes of action for breach of contract, quantum meruit, unjust enrichment, declaratory relief, and lien foreclosures. The plaintiffs then filed an amended complaint that included, among other claims, a cause of action for willful exaggeration of liens.

The plaintiffs moved for partial summary judgment on the willful exaggeration claim, contending that the Surety’s liens were invalid as a matter of law because sureties lack the right to file mechanic’s liens. In opposition, the Surety argued that it qualified as a contractor with standing to file liens and had not waived its lien rights by contract.

The court concluded that the takeover agreement between the parties was clear and unambiguous, establishing that the Surety remained in its capacity as a surety and did not assume the role of a contractor. As a result, the court found the Surety lacked standing to file mechanic’s liens. However, it declined to award damages to the plaintiffs under Lien Law § 39-a, noting that such damages are unavailable when a lien is discharged for reasons other than willful exaggeration.

This decision underscores the importance of precise contractual language and the legal distinction between a surety and a contractor in disputes involving mechanic’s liens.

[1] 2024 WL 5080524 (1st Dep’t December 12, 2024)

December 12, 2024December 12, 2024 by Jose A. Aquino

Mechanic’s Liens: Examining and Enforcing Through Foreclosure Actions vs. Special Proceedings

In the matter of Arcadia Landing, LLC v. CVM Construction Corp., the Supreme Court, Appellate Division, Second Department, New York, recently rendered a decision concerning a mechanic’s lien filed by CVM Construction Corp. The petitioner, Arcadia Landing, LLC, demanded an itemized statement of the lien pursuant to Lien Law § 38, which CVM Construction Corp. provided along with supporting exhibits. However, Arcadia Landing deemed the response insufficient and sought further details through an amended petition.

The Supreme Court, Nassau County, presided over by Judge Eileen C. Daly-Sapraicone, denied the amended petition and dismissed the proceeding. Upon appeal, the Appellate Division affirmed the lower court’s order.

Lien Law § 38 mandates that a lienor must furnish a written statement detailing the labor and materials that constitute the lien, along with the terms of the contract. In this instance, CVM Construction Corp. complied by listing the items of work and asserting that the work was completed. The petitioner disputed the completion of the work, but the court determined that such disputes are more appropriately resolved in an action to enforce the mechanic’s lien rather than through additional demands for information in the special proceeding under Lien Law § 38.

This decision is consistent with the precedent established in Matter of Mr. White, L.L.C. v. Pink Shirt Constr., Inc., where the court exercised its discretion to vacate and cancel a mechanic’s lien because the respondent failed to commence an action to enforce the lien as required by Lien Law § 59. The validity of the lien and any disputes regarding the completion of work were to be resolved in a foreclosure action, which the respondent in that case admitted it never commenced. Similarly, in the Arcadia Landing case, the court emphasized that the appropriate forum for resolving disputes about the completion of work is in a foreclosure action, not through procedural demands for more detailed statements.

This decision underscores the critical importance of resolving factual disputes concerning the completion of work delineated in a mechanic’s lien within the context of a foreclosure action, rather than through a special proceeding seeking an itemization of the lien. The appellate court’s affirmation of the lower court’s decision elucidates the judiciary’s position on the adequacy of compliance with Lien Law § 38 and delineates the proper procedural avenues for addressing such disputes.