December 2025 – Duane Morris Construction Law

December 22, 2025December 22, 2025 by Jose A. Aquino

Under Article 3‑A of the NY Lien Law, Settlement Proceeds Are Trust Assets — Not a Source of Contractor Reimbursement

A recent decision from the New York Appellate Division, Third Department, reinforces how strictly New York courts apply the trust-fund rules of Article 3-A of the Lien Law, particularly when settlement funds are involved. In L.C. Whitford Co., Inc. v. Babcock & Wilcox Solar Energy, Inc., the Court held that a general contractor could not use settlement proceeds to reimburse itself for project costs it claimed to have advanced, even where those advances were used to pay subcontractors.

The case arose out of several solar construction projects that ended in disputes and delays. The project owners and the general contractor ultimately resolved their disputes through a confidential settlement that resulted in a multimillion-dollar payment to the contractor. Subcontractors with pending mechanic’s liens objected when the contractor stated that it intended to apply a portion of the settlement funds to reimburse itself for monies it had previously advanced on the jobs.

The Appellate Division agreed with the subcontractors. The Court concluded that the settlement proceeds were trust assets under Article 3-A because they were paid in connection with contracts for the improvement of real property. Once funds are deemed trust assets, the Lien Law strictly limits how they may be used. For a contractor acting as trustee, those funds must be applied first to pay subcontractors, laborers, and material suppliers.

The contractor argued that it should be allowed to reimburse itself because it had used its own money to pay subcontractors when project funds were exhausted. The Court rejected that argument, emphasizing that the Lien Law does not permit a contractor‑trustee to place itself ahead of unpaid trust beneficiaries. The statutory language governing the use of trust assets “is mandatory.” Unlike an owner, a contractor has no statutory right to apply trust funds toward its own “costs of improvement.” Until all valid trust claims are satisfied, the contractor has no beneficial interest in the trust funds at all.

Because the proposed reimbursement would have diverted trust assets away from subcontractors with unresolved claims, the Court held that it would violate the contractor’s fiduciary obligations under Article 3-A. The injunction barring any use of the settlement funds without court approval was therefore properly granted.

The dissent took a different view, reasoning that nothing in the statute prohibits the use of trust assets to reimburse payments made for proper trust purposes before trust assets were available. It cautioned that the majority’s interpretation could discourage contractors from advancing their own funds to keep projects moving when owners fail to pay on time. The majority, however, reaffirmed that Article 3‑A is designed to protect subcontractors first and foremost, even if doing so places the financial risk of such advances squarely on the contractor.

The decision underscores that settlement proceeds from construction projects are not available for contractor reimbursement when trust claims remain unresolved. Contractors who front their own funds do so at their own risk, while subcontractors retain strong protections under Article 3‑A to ensure settlement funds are used exclusively to satisfy trust claims..

Jose A. Aquino (@JoseAquinoEsq on X) is a special counsel at Duane Morris LLP’s New York office, where he is a member of Construction Group, specializing in construction law, lien law, and government procurement law. He is also a member of the Cuba Business Group.

This blog is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed herein are those of the author and do not necessarily reflect the views of Duane Morris LLP or its individual attorneys.

December 15, 2025 by Jose A. Aquino

Strict Compliance With Notice‑To‑Cure Provisions In Construction Contracts

Strict compliance with notice‑to‑cure provisions is essential in construction contracts, particularly when a contractor seeks to terminate a subcontract for cause. These provisions are designed to ensure that subcontractors receive clear, written notice of alleged defaults and a defined period to cure them before facing termination. Courts have repeatedly emphasized that failure to follow these procedures can make a termination invalid and expose the contractor to liability.

In the recent case of Pizzarotti, LLC v. MDB Development Corp., the New York Appellate Division, First Department, reinforced this principle. The general contractor terminated its concrete subcontractor on May 22, 2018, citing performance failures. The court found the termination invalid because the contractor had not complied with the subcontract’s requirement that termination for cause could occur only if the subcontractor failed to cure a default within five calendar days after receiving written notice. The last correspondence that could arguably qualify as a notice of default was sent on January 31, 2018, identifying incomplete work. In the months that followed, the subcontractor substantially completed much of that work. Later emails and letters did not amount to valid notices of default: a February email confirmed that most problems were fixed and left only minor punch‑list items, while the March and April letters about liens did not start the notice‑to‑cure process, since the contractor removed the liens itself and only mentioned applying back charges. By allowing this time to pass without further notice, the contractor effectively waived its right to terminate based on those alleged defaults.

The court cited Bast Hatfield, Inc. v. Joseph R. Wunderlich, Inc., where a contractor issued a 48‑hour notice but then waited more than a month while the subcontractor corrected deficiencies. When the contractor later terminated without issuing any further notice, the court held that it had waived its right to rely on those defaults. The same reasoning applied in Pizzarotti: delay and informal communications cannot excuse the formal notice required by contract.

The Appellate Division also rejected the claim that the subcontractor abandoned the project. Although its last work on site occurred on February 27, 2018, the subcontractor continued to communicate with the contractor and the engineer of record, expressing readiness to complete remaining items pending direction. These communications demonstrated that the subcontractor had not repudiated the subcontract, and therefore the contractor could not bypass the notice‑to‑cure requirement.

Together, Pizzarotti and Bast Hatfield underscore that termination for cause requires strict adherence to contractual procedures. Contractors who fail to comply risk not only forfeiting their termination rights but also incurring substantial exposure to breach‑of‑contract claims and related liabilities.

December 4, 2025 by Jose A. Aquino

Court Reaffirms: Licensing Is Essential for Home Improvement Contractors

The New York Appellate Division, Second Department, in Nationwide HVAC Supply Corp. v. Mosby, held that an unlicensed home improvement contractor cannot recover damages for breach of contract or foreclose a mechanic’s lien, and therefore dismissed the complaint. The dispute began when Andrew Mosby hired Nationwide HVAC Supply Corp. to install an HVAC system at his home, leading to a mechanic’s lien after payment disagreements. Although the trial court denied Mosby’s motion to dismiss, the appellate court reversed, stressing that Nassau County Administrative Code requires strict compliance with licensing laws. Because Nationwide failed to allege possession of a valid license, it forfeited its right to enforce the lien or seek damages. The appellate court also rejected the argument that reliance on a licensed subcontractor could cure the defect, reaffirming that subcontractor licensing does not substitute for the general contractor’s own compliance. This ruling makes clear that in New York, contractors who lack the required license cannot enforce contracts or liens, even when the work has been fully performed.

December 2, 2025April 9, 2026 by Duane Morris

Duane Morris Attorneys Speaking at Construction Super Conference 2025

Duane Morris attorneys will be speaking on the following panels at the Construction Super Conference in Bonita Springs, Florida.

Blueprints for Evolving Compliance: Navigating DEI, FCA, OFCCP & Immigration Under the New Trump Administration
Wednesday, December 10, 2025 | 9:45 a.m. to 11:00 a.m.

Thomas Curran
Duane Morris LLP

Lorraine D’Angelo
LDA Compliance Consulting Inc.

Managing Legal Risk Created by Strong Corporate Values
Wednesday, December 10, 2025 | 4:15 p.m. to 5:30 p.m.

Owen Newman
Duane Morris LLP

Jenn Shafer
DLR Group

Benjamin Strawn
Kiewit Corporation

Benton Wheatley
Duane Morris LLP

For more information or to register, please visit the Construction Super Conference website.

About the Duane Morris Construction Group

Duane Morris’ Construction Group is nationally ranked by Chambers USA among the leaders in the industry, with construction attorneys across the United States and around the world. The group’s lawyers provide a full range of legal services to clients in all aspects of construction and government contracting.

December 2, 2025December 2, 2025 by Jose A. Aquino

Appellate Court Reinforces Delay Clause in Construction Subcontract

The First Department’s recent decision in Henick–Lane, LLC v. Stellar Management Group, Inc. reaffirms New York’s strong policy of enforcing no-damages-for-delay clauses. Henick–Lane sought compensation for eight change orders tied to delays, but the subcontract’s no-damages-for-delay clause limited remedies to extensions of time. The court held that the claims were barred, rejecting arguments that they constituted “extra work” or that recognized exceptions applied. It found that evidence of poor planning was insufficient to establish bad faith, that the delays were expressly contemplated by the subcontract, and that the defendants’ failure to provide a crane did not amount to breach of a fundamental obligation. The court also held that the prevention doctrine—which bars a party from relying on a condition precedent it has itself prevented—was inapplicable because a no-damages-for-delay clause is exculpatory rather than a condition precedent. The decision illustrates how New York courts apply no-damages-for-delay provisions according to their plain terms.