Duane Morris Construction Law

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.

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.

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.

October 27, 2024October 27, 2024 by Jose A. Aquino

NY Court Affirms Labor Law Protections For Ancillary Construction Tasks

Last week, in Rodriguez v. Riverside Center Site 5 Owner LLC, a New York appellate court unanimously held that a plaintiff who sustained injuries after falling from a cement truck while cleaning its chute was engaged in a protected activity under New York’s Labor Law.

The case arose from an incident at a Manhattan construction site, where the plaintiff was responsible for delivering and pumping cement. After completing the delivery, workers on site directed him to move his truck approximately ten feet forward to a designated “wash box” area for cleaning the truck’s chute. The plaintiff climbed onto the truck’s elevated platform, which was equipped with a railing, to wash the chute. While descending and holding onto the railing, it gave way, causing him to fall approximately ten feet to the ground.

The appellate court concurred with the trial court’s finding that the plaintiff’s activity of cleaning the cement truck was “necessary and incidental” to the overall construction work at the site, thereby qualifying as protected work under Labor Law § 240(1). The court emphasized that tasks integral to construction work, even if ancillary, fall within the statute’s protective scope, cautioning against assessing the moment of injury in isolation from the general context of the work.

This decision underscores New York courts’ commitment to an expansive application of the Labor Law, ensuring protection for workers performing tasks integral to construction activities, even when such tasks may appear secondary. The ruling reinforces the broad interpretation of Labor Law § 240, commonly known as the “Scaffold Law,” affirming protections for workers across construction projects in New York State.

October 22, 2024October 22, 2024 by Jose A. Aquino

INSIGHTS INTO NEW YORK’S CONSTRUCTION LIABILITY LAWS

In a recent decision, Injai v. Circle F 2243 Jackson (DE), LLC, the New York Appellate Division, Second Department, affirmed the denial of a plaintiff’s motion for summary judgment in a case involving alleged violations of New York’s Labor Law §§ 240(1) and 241(6). This case, centered on a construction site accident, highlights the complexities and requirements of proving liability under New York’s Labor Laws.

The plaintiff, a carpenter, was injured after falling from a ladder while working at a construction site. He claimed that the ladder wobbled or moved as he was ascending it, causing him to lose balance and fall. The plaintiff filed a lawsuit against the property owner and its contractor, alleging common-law negligence and violations of Labor Law §§ 200, 240(1), and 241(6). The defendants filed a third-party action against the subcontractor that had allegedly hired the plaintiff.

The plaintiff sought summary judgment on the issue of liability, focusing on the alleged violations of Labor Law § 240(1) and § 241(6). Labor Law § 240(1), commonly known as the “Scaffold Law,” imposes a nondelegable duty on owners and contractors to provide safety devices to protect workers from elevation-related risks. To prevail, a plaintiff needs to show that the statute was violated and that the violation was a proximate cause of his or her injuries.

The court found that the plaintiff’s evidence raised triable issues of fact. There were unresolved questions about how the accident occurred, whether the ladder was indeed unsecured, and the credibility of the plaintiff’s account, given that he was the sole witness to the accident. The court explained that when the plaintiff is the sole witness to the accident or their credibility is in question, it is improper to grant summary judgment in favor of the plaintiff under Labor Law § 240(1). Consequently, the court denied the motion for summary judgment on the Labor Law § 240(1) claim.

The court also found unresolved factual issues regarding the alleged violation of Labor Law § 241(6), which was based on a violation of 12 NYCRR 23–1.21(b)(4)(ii). This regulation pertains to safety standards for ladders used in construction, stating in part that “[a]ll ladder footings shall be firm.” The plaintiff’s inability to conclusively prove that this regulation was violated and that such a violation caused his injuries led to the denial of summary judgment on this claim as well.

This decision highlights the standards that plaintiffs must meet to obtain summary judgment in construction accident cases under New York’s Labor Laws. It emphasizes the necessity for clear, unequivocal evidence when alleging safety violations and the importance of corroborative testimony or documentation, especially in cases where the plaintiff is the sole witness to the accident. The ruling illustrates the need for thorough and credible proof in proving liability under Labor Law §§ 240(1) and 241(6).

October 14, 2024October 14, 2024 by Jose A. Aquino

KEY TAKEAWAYS UNDER ARTICLE 3-A OF THE LIEN LAW FROM A RECENT NY APPELLATE COURT DECISION

The New York Appellate Division, First Department, recently revisited several legal principles of Article 3-A of the New York Lien Law in the case of Flintlock Construction Services, LLC v. HPH Services, Inc., 230 A.D.3d 446 (1st Dept. 2024). The court’s ruling provides important clarifications on personal liability, standing in trust asset diversion claims, and the conditions under which punitive damages may be awarded.

A key aspect of this case is the court’s affirmation of the contractor’s standing to assert a claim for the diversion of trust assets under Article 3-A of the New York Lien Law. Article 3-A establishes a trust fund for monies received in connection with improvements to real property and designates the recipient of such funds—whether an owner, contractor, or subcontractor—as the trustee of those funds. The trustee is obligated to hold the funds in trust until the claims of all trust fund beneficiaries are either paid or discharged.

Trust beneficiaries, where the subcontractor is a trustee, include sub-subcontractors, architects, engineers, surveyors, laborers, and suppliers who provided labor or materials for the improvement. Section 77 of the Lien Law provides that the “holder of any trust claim, including any person subrogated to the right of a beneficiary of the trust holding a trust claim,” may maintain a cause of action for the enforcement of the trust.

In Flintlock, the court found that the contractor had standing to enforce a trust claim against its subcontractor. This standing was based on the contractor’s status as a subrogee of the subcontractor’s suppliers, a status formed by the contractor’s involuntary payments to the subcontractor’s unpaid vendors. Under the doctrine of subrogation, one party gains the right to enforce another party’s claim by paying the other party’s debt under compulsion or to protect some interest. By making these “involuntary” payments, the contractor acquired the right to assert claims initially held by the subcontractor’s suppliers.

Although the appellate opinion leaves some ambiguity regarding what constitutes an involuntary payment, an earlier decision by the trial court provides clarification. It explains that a payment can be deemed involuntary either due to a contractual obligation or the necessity to protect the payer’s legal or economic interests. The trial court emphasized that when relying on the latter, the party must prove that the action is not just beneficial but essential to safeguard its interests.

For instance, a contractor who makes payments to trust beneficiaries can enforce an Article 3-A trust if they have already paid the subcontractor and are subsequently required to pay the subcontractor’s suppliers or sub-subcontractors due to the subcontractor’s failure to do so. Among other situations, this requirement can arise from either a contractual obligation or a payment bond obligation.

The First Department’s opinion in Flintlock aligns with the Appellate Division, Second Department’s ruling in J. Petrocelli Constr., Inc. v. Realm Elec. Contrs., Inc., 15 A.D.3d 444 (2d Dept. 2005). In Petrocelli, the court similarly found that a contractor who involuntarily paid a subcontractor’s unpaid vendors could maintain a cause of action under Article 3-A, recognizing the contractor as a subrogee with standing to enforce trust claims. The court emphasized that involuntary payments to cover a subcontractor’s obligations can establish standing to enforce trust fund claims.

It is also noteworthy that the appellate court in Flintlock found the principal of the subcontractor personally liable for the diversion of trust assets. The evidence presented showed that the principal knowingly participated in the diversion, including a substantial payment that was funneled through various accounts before ending up with one of his companies.

While punitive damages can be awarded for violations of Lien Law Article 3–A involving the diversion of trust assets, the court in this case declined to adopt a fixed rule that would make such damages recoverable in every instance. The plaintiff’s failure to demonstrate that punitive damages were warranted under the specific circumstances of this case serves as a reminder that such awards are not automatic and must be justified by the particular facts presented.

The decision in Flintlock Construction Services, LLC v. HPH Services, Inc., highlights the potential personal liability for those who divert trust assets. It also clarifies that while punitive damages can be a remedy for diversion of trust assets, they are not automatically awarded and must be justified by the specific circumstances of each case. Furthermore, the ruling provides valuable insight into the conditions under which a contractor can establish standing as a subrogee to enforce trust fund claims, emphasizing the necessity of demonstrating involuntary payments made to protect their economic interests.

October 2, 2024October 2, 2024 by Jose A. Aquino

The Importance of Written Agreements: Insights from a Recent Court Decision

In a recent decision, Hopwood v. Infinity Contracting Services Corp., a New York appellate court addressed the application of the statute of frauds in a dispute concerning compensation for negotiating business opportunities. The plaintiffs alleged that Infinity Contracting Services Corp. (“Infinity”) had failed to honor an oral agreement to pay a commission for securing a contract with the New York City Department of Education (“DOE”). According to the plaintiffs, Infinity’s CEO had verbally agreed to pay them 5% of the contract’s value for their role in procuring the DOE contract. However, Infinity allegedly failed to fulfill this promise, prompting claims for breach of contract and unjust enrichment.

At the trial level, the court granted Infinity’s motion for summary judgment, dismissing the breach of contract and unjust enrichment claims on the basis that they were barred by the statute of frauds. This legal doctrine requires that certain agreements, including those involving compensation for negotiating business opportunities, be in writing and signed by the party to be charged. The appellate court upheld the dismissal, finding that the emails presented by the plaintiffs were insufficient to satisfy the statute of frauds, as they lacked the essential terms of a binding agreement.

For a writing to comply with the statute of frauds, it must designate the parties involved, describe the subject matter, and set forth all essential terms necessary to form a complete agreement. In this case, the court concluded that the emails did not meet these requirements, and as a result, the plaintiffs’ claims for breach of contract and unjust enrichment could not proceed.

This decision highlights the importance of putting business agreements in writing to ensure enforceability. The New York Statute of Frauds, codified in General Obligations Law § 5-701, requires that certain agreements be in writing and signed by the party to be charged in order to be enforceable. These include agreements that cannot be performed within one year, contracts involving real property, promises to answer for the debt of another, agreements made in consideration of marriage, promises to make a testamentary disposition, contracts for the sale of goods over $500, and agreements to pay compensation for negotiating a business opportunity.

This case serves as a reminder of the limitations of oral agreements and the potential pitfalls associated with failing to comply with statutory requirements. By ensuring that agreements are properly documented in writing, parties can avoid disputes, establish clear expectations, and safeguard their rights.

September 23, 2024September 24, 2024 by Jose A. Aquino

APPELLATE COURT REJECTS UCC ADEQUATE ASSURANCE CLAIM IN CONTRACT DISPUTE

A recent New York appellate court opinion, Dreamco Development Corp. v. Cranesville Block Company, Inc., provides valuable insight into the application of the Uniform Commercial Code (UCC) and the concept of “adequate assurance of performance.”

The case centered on a one-page “independent contractor and consultant” agreement. Under the contract, the plaintiff was responsible for selling a minimum quantity of concrete on behalf of the defendant in exchange for monthly payments. However, midway through the contract term, the defendant stopped making these payments and ultimately terminated the agreement. The defendant claimed that the plaintiff had sold less than 10% of the required minimum and failed to provide adequate assurance that the remaining amount would be sold before the contract’s expiration.

The key legal issue was whether the defendant was justified in demanding “adequate assurance of due performance” under UCC § 2-609(1). Under the UCC, a party to a contract can demand adequate assurance from the other party if they have reasonable grounds for insecurity regarding performance. If such assurance is not provided, the party may treat the contract as repudiated. However, the UCC applies only to contracts primarily for the sale of goods.

The court found that the plaintiff’s role was to sell concrete, a service, rather than to buy or sell goods. Because the contract was service-oriented and not predominantly for the sale of goods, the UCC did not apply. As a result, the defendant’s demand for adequate assurance was unjustified, and their failure to make the agreed-upon monthly payments constituted a breach of contract.

This ruling underscores the importance of identifying the nature of a contract’s obligations and determining whether the UCC governs the agreement. It also highlights the need for parties to define their roles and responsibilities to prevent future disputes.

September 5, 2024September 5, 2024 by Jose A. Aquino

Court Emphasizes Strict Compliance in Construction Contracts

In a recent ruling, a New York appellate court sided with a contractor in a dispute over a 33-story building project.[1] The contractor initially hired a subcontractor to supply equipment for the project, but the subcontract was later assigned to another entity. Shortly thereafter, the contractor alleged breaches of the subcontract, terminated the agreement, and took possession of the equipment. The contractor then filed a lawsuit seeking compensation for delays and additional costs resulting from the defendants’ defective work. In response, the defendants counterclaimed for breach of contract and sought foreclosure of mechanic’s liens. They also filed a third-party claim against the property owner and its surety, seeking to foreclose on the liens.

The court dismissed the defendants’ counterclaims and third-party claims, highlighting the defendants’ reliance on unsigned and unnotarized requisitions and change orders, which failed to meet the contractual requirements. The court citing precedent underscored that payment requisitions must be both signed and notarized, and that change orders must be formally documented and mutually approved in strict compliance with the terms of the contract.[2]

Additionally, the court found that the contractor had provided sufficient evidence to support its claims for delay damages. The contractor presented documentation detailing additional work performed by other vendors, as well as payments made to replacement subcontractors, due to the delays attributed to the defendants. The court found that such evidence raised genuine issues of material fact regarding the impact of the defendants’ actions on the project’s timeline and costs, prompting the court to deny the defendants’ motion for summary judgment on this issue.

The court also rejected the defendants’ claims for unpaid equipment rental, as they were unable to demonstrate that the proposed monthly rental rates had been agreed upon. The subcontract specified only a 12-month rental period, and the defendants could not provide evidence of any additional rental terms beyond that period.

This decision highlights the importance of adhering to contractual documentation and approval processes in construction projects. It serves as a reminder to contractors and subcontractors alike to ensure that all requisitions and change orders are properly signed, notarized, and approved to avoid disputes and potential legal challenges. Furthermore, the ruling underscores the necessity of maintaining thorough records and evidence to substantiate claims for damages and delays. The court’s decision reinforces the judiciary’s commitment to enforcing strict compliance with agreed upon contract terms.

[1] Hudson Meridian Construction Group LLC v. Bayport Construction Corp., 228 A.D.3d 531, 215 N.Y.S.3d 78 (1st Dept. 2024)

[2] F. Garofalo Elec. Co. v. New York Univ., 270 A.D.2d 76, 80, 705 N.Y.S.2d 327 (1st Dept. 2000), lv dismissed 95 N.Y.2d 825, 712 N.Y.S.2d 450, 734 N.E.2d 762 (2000); Martin Iron & Constr. Corp. v. Howell Co., 242 A.D.2d 608, 609, 664 N.Y.S.2d 746 (2d Dept. 1997).

August 30, 2024September 6, 2024 by Duane Morris

Duane Morris Attorneys Named “Lawyers of the Year” for Construction Law and Litigation

Duane Morris partners Frederick Cohen and Allen J. Ross have been recognized by Best Lawyers® as 2025 “Lawyers of the Year.” The recognition is given to only one attorney for each practice area and city. Lawyers are selected based on high marks received during peer-review assessments conducted by Best Lawyers each year.

Cohen has been selected as the “Lawyer of the Year” in New York City for Construction Law. He also received this distinction in 2018 and was named for Litigation – Construction in 2014.

Ross has been selected as the “Lawyer of the Year” in New York City for Litigation – Construction. He also received this distinction in 2015 and 2016.

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