Duane Morris Construction Law

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).

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.

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.

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

August 25, 2024 by Jose A. Aquino

New York NY Court Dismisses Construction Defect Case Over Statute of Limitations

The New York Appellate Division, Second Department, recently affirmed the dismissal of a breach of contract lawsuit related to alleged construction defects.[1] The plaintiff claimed that the defendant had breached their remodeling contract by improperly installing flooring in the plaintiff’s basement. However, the appellate court affirmed the lower court’s ruling that the plaintiff’s claim was barred by the statute of limitations.

Under New York law, breach of contract claims are subject to a six-year statute of limitations.[2] This limitations period begins to run upon the contractor’s completion of the work. In this case, the court determined that the claim accrued on May 26, 2015, the date on which the plaintiff made the final payment under the contract, with no subsequent work performed. The plaintiff filed the lawsuit on January 21, 2022, well beyond the six-year statutory period.

The court also considered the potential tolling of the statute of limitations due to executive orders issued during the COVID-19 pandemic. However, even with these tolling provisions, the court found the plaintiff’s action untimely. Consequently, the lower court’s dismissal of the complaint was upheld on appeal.

In affirming the lower court’s decision, the Appellate Division emphasized that the burden rests with the defendant to establish that the statute of limitations has expired. Once this burden is met, the plaintiff must then demonstrate a factual basis for tolling the statute of limitations or show that the claim was filed within the statutory period. In this case, the plaintiff failed to present a factual issue that could preclude dismissal, resulting in the affirmation of the dismissal the complaint.

The ruling underscores the critical importance of understanding and adhering to the statute of limitations in construction-related disputes. It also highlights the necessity for plaintiffs to act promptly when they believe they have a claim, as delays can easily result in losing the right to sue.

[1] Hillaire v. Jose A. Torres, ___ N.Y.S.3d ___, 2024 WL 3281628 (2d Dep’t 2024).

[2] N.Y. C.P.L.R. § 213(2)

August 6, 2024August 7, 2024 by Jose A. Aquino

Equitable Subrogation: Insights Into Legal Complexities In Recovery

The principle of equitable subrogation plays a central role in ensuring that the party responsible for causing loss or damage is held accountable. This doctrine allows an insurer, who has compensated the insured for a loss, to assume the legal rights of the insured to seek recovery from the third party responsible for the loss.

The recent decision of New York Municipal Insurance Reciprocal v. Stewart’s Shops Corporation, 228 A.D.3d 1116, 212 N.Y.S.3d 859 (3d Dep’t 2024), presents a scenario involving property damage, insurance claims, and the intricacies of equitable subrogation. In 2016, Stewart’s Shops Corporation acquired properties with the intention of constructing a new store. The development required the removal of an underground fuel storage tank and contaminated soils, a task undertaken by its contractor. However, the remediation project led to structural damage in a neighboring building owned by the Village of Middleburgh.

In response to the damage, the Village’s insurance company initiated a subrogation action against both Stewart’s and its contractor. The defendants countered by moving for summary judgment challenging plaintiff’s standing. Defendants noted the absence of payment under the policy prior to the commencement of the action and argued that any future attempt to do so was barred by the statute of limitations.

The lower court’s decision to deny the defendants’ motion for summary judgment was reversed on appeal. The appellate court held that the insurer for the owner of a building damaged by a contractor’s work on adjacent property lacked standing to bring a claim as the owner’s subrogee. This was because standing accrues only upon payment of the loss, and the insurer filed suit before making any payments. According to established precedent, an insurer’s right to subrogation arises upon payment of the loss, which must be directed toward satisfying an actual claim rather than a potential liability. This right arises independently of any contractual agreement between the insurer and the insured.

The appellate court’s ruling underscores that the insurer, as an equitable subrogee, is subject to the same defenses that could have been raised against the insured, including the statute of limitations.

The case serves as a reminder of the legal complexities surrounding equitable subrogation. It highlights the importance of timely payment by insurers to secure their subrogation rights.

July 30, 2024July 31, 2024 by Jose A. Aquino

Revisiting The Intricacies Of New York Lien Law § 38

In the realm of construction law, disputes over the enforcement and validity of mechanic’s liens are fairly common. The recent case of 176 Washington Park LLC v. Empire Core Group LLC, 2024 N.Y. Slip Op. 50906(U) (Sup. Ct., NY Co., June 21, 2024), serves as a classic illustration of the complexities involved.

New York Lien Law § 38 is clear in its mandate: a lienor must provide a detailed statement of the labor and materials that constitute the claimed lien amount. This includes a comprehensive breakdown of materials used, their quantities, costs, and the specifics of labor, including the nature of the work, hours spent, and the rates charged.

In 176 Washington Park LLC v. Empire Core Group LLC, the defendant’s submission fell short of these requirements. The court found the provided classifications of costs, such as “Porta Potty,” “Construction Site Signs,” “Waste Removal,” “DOB Drawings,” and “DOT Permits,” to be too general. They lacked the necessary detail regarding the nature of the labor and the hours and wages expended. Furthermore, payments to subcontractors were listed without adequate information about the services rendered or the basis for the charges.

The materials section was similarly lacking, with no specifics on the quantity or costs of materials used, despite listing the suppliers and amounts disbursed. This lack of detail ultimately led to the court’s decision to grant the plaintiff’s motion in part, requiring the defendant to provide a proper verified itemized statement within 30 days. Failure to comply would result in the discharge of the mechanic’s lien.

This case underscores the importance of record-keeping and transparency in construction projects. It emphasizes the need of contractors and subcontractors to adhere to the requirements of Lien Law § 38 to ensure the enforceability of their liens.

June 5, 2024 by Duane Morris

Duane Morris Named to Construction Executive’s Top 50 Construction Law Firms List

Duane Morris has been named named to Construction Executive’s Top 50 Construction Law Firms list for the fourth consecutive year.

Construction Executive is the leading source for news, market developments and business issues impacting the construction industry. In its June 2024 issue, CE published a comprehensive ranking of the Top 50 Construction Law Firms featuring breakouts and analysis accompanied by an article in which leading legal experts discuss their construction clients’ most pressing business concerns. Read the article for more information.