construction law – 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, 2025December 2, 2025 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.

September 9, 2025September 9, 2025 by Jose A. Aquino

Indemnity by Implication Rejected by the New York Judiciary

In a recent decision from the New York Supreme Court, Appellate Division, Second Department, Garcia v. Fed LI, LLC, the court addressed a dispute involving personal injury, Labor Law liability, and contractual indemnification. The case arose from an incident in which an electrician fell from an extension ladder while working on a commercial property. The property was owned by several entities and leased by Multi Packaging Solutions, Inc. (collectively MPS). The electrician and his wife filed suit under Labor Law § 240(1), also known as the Scaffold Law, which holds owners and contractors strictly liable for injuries to workers from falling objects or falls from elevations. The plaintiffs sought summary judgment on liability, while MPS sought to transfer responsibility to the electrician’s employer, J.P.S. Electric Co., Inc. (JPS), through a third-party contractual indemnification claim.

Indemnification emerged as the key issue on appeal. MPS contended that a purchase order issued to JPS approximately one month after the accident incorporated “Terms and Conditions” that included an indemnification clause. However, the court found this argument legally insufficient. Incorporation by reference requires that the referenced document be clearly identified and mutually understood by both parties. The material to be incorporated must be so well known to the contracting parties that a mere reference is sufficient. In this case, the purchase order did not specifically mention any indemnification clause, nor were the Terms and Conditions provided to JPS prior to the accident. The vague reference lacked the legal certainty required for incorporation, rendering the clause invalid.

Even if the indemnification clause had been valid, its timing presented another problem. Courts do not apply indemnity agreements to past events unless the contract clearly expresses that intention. In this case, neither the purchase order nor the Terms and Conditions manifested any intent to cover an incident that had already occurred. Because there was no clear language making the clause retroactive, it could not be used to shift responsibility for the accident. The court emphasized that indemnity agreements signed after an incident apply only when both parties clearly intended that outcome.

As a result, the court affirmed the dismissal of the third-party cause of action for contractual indemnification. JPS had no legal duty to indemnify MPS. This decision underscores the importance of clarity and timing in indemnity agreements. Parties seeking to shift liability must ensure that indemnification clauses are explicitly stated and properly incorporated.

August 30, 2025 by Jose A. Aquino

Contract Enforcement and Licensing Requirements in Residential Construction: Differences from Florida and New York Courts

Home construction and improvement projects in the U.S. are governed state and local laws that require contractors to be properly licensed and registered. These laws are designed to protect homeowners and maintain industry standards. Whether building a new home or renovating an existing one, contractors are typically required to hold valid licenses, register their businesses, and comply with the laws and standards that govern the industry. If a contractor fails to meet these requirements, they may lose the ability to enforce their contracts, recover payment, or defend themselves in court, even if the work is completed.

A recent case from Florida illustrates the risks of noncompliance with contractor licensing statues. In CAM Bradford Homes, LLC v. Arrants, the Florida First District Court of Appeal upheld a trial court’s ruling that CAM Bradford Homes could not enforce its contract with homeowners because it was an unlicensed contractor. The homeowners had hired the company to build a single-family home in Fernandina Beach. Although the company owner, a certified general contractor, personally oversaw the project, he failed to register the business with the Department of Business and Professional Regulation as required by Florida law. As a result of this omission, the company could not pursue its claims in court.

Before the project was completed, the homeowners terminated the contract. CAM filed suit alleging breach of contract and other related claims, including lien foreclosure and unjust enrichment. The homeowners responded with counterclaims and moved for summary judgment, arguing that the contract was unenforceable because the company was unlicensed. The trial court agreed, finding that CAM’s failure to apply as a qualifying agent meant the company was unlicensed, and granted summary judgment in favor of the homeowners. On appeal, the CAM contended that CAM’s owner’s active role in the project should suffice to establish him as a de facto qualifying agent. However, the appellate court rejected this argument, emphasizing that statutory language requires formal registration and certification for a business to be considered licensed.

The court’s analysis leaned heavily on principles of statutory interpretation, particularly the surplusage canon, which holds that every word in a statute should be given meaning, and none should be interpreted as redundant or meaningless if it can be reasonably avoided. Accepting CAM’s argument would undermine the statute’s requirement of registration for business engaged in contracting. The court noted that only sole proprietorships may rely on an individual’s license without further application, and that CAM’s failure to apply meant the business never received the necessary certificate or registration. As such, the contract was unenforceable under, and the company was barred from asserting any lien or bond claims.

This decision stands in sharp contrast to Schott v. Lucatelli, a case recently reviewed in this blog, where the New York State Supreme Court, Appellate Division, Third Department took a more flexible approach to a construction dispute. In Schott, the court addressed a disagreement over the construction of a single family residence without a written contract. Despite the absence of a formal agreement, the court allowed recovery under the equitable doctrine of quantum meruit, awarding the contractor compensation for services rendered. The court found that the contractor had performed work in good faith, that the homeowner accepted the services, and that the work had reasonable value. Even after accounting for defective work, the court awarded the contractor a monetary judgment that included prejudgment interest.

While both cases involved building single-family homes and disputes over licensing, the courts reached different outcomes based on how they interpreted the law. Florida’s approach in CAM Bradford Homes emphasized strict compliance with licensing requirements. New York’s approach in Schott was more flexible, allowing recovery based on fairness and the realities of informal arrangements.

August 21, 2025August 21, 2025 by Jose A. Aquino

Judicial Caution in Determining Liability for Withheld Payments Under Public Works Contracts

In public construction projects, disputes over payment obligations between contractors and subcontractors often depend not only on the terms of the contract but on the resolution of underlying factual questions. A recent decision from the Appellate Division, First Department in Brownie Companies of Long Island, LLC v. Volmar Construction, Inc., illustrates the court’s cautious approach to summary judgment where material facts remain unresolved. The case, arising from work performed under New York City’s Build It Back Program, underscores the issues that can arise when payments are withheld due to alleged delays and potential liquidated damages. This blog examines the court’s reasoning and considers its implications for payment disputes arising from public construction contracts.

The subcontractor had entered into an agreement with the contractor to perform house lifting and repair services for homes damaged by Superstorm Sandy. The subcontractor alleged that the contractor breached the subcontract by failing to pay $474,000 for work performed and invoiced.

The court found that the subcontractor established a breach of contract, as the contractor failed to pay for work that had already been paid for by the City. It further held that, under established case law, contractors are obligated to pay subcontractors amounts received from the owner for their work. However, unresolved factual issues precluded summary judgment.

The court noted that key factual issues remained unresolved, including how damages should be calculated and whether the City had reduced its payments to the contractor due to delays caused by the subcontractor. The contractor had withheld payments in anticipation of liquidated damages the City intended to impose. The court acknowledged that such delays if proven could justify the withholding. As a result, the judgment in favor of the subcontractor was vacated, and the matter was remanded for further proceedings to address factual questions.

The court also held that the contractor’s motion for leave to amend its answer should have been granted. Through the proposed amendment, the contractor sought to assert counterclaims for indemnification, contending that if the City’s deductions were upheld and exceeded the amount remaining unpaid to the subcontractor, the subcontractor should be liable for the difference.

The decision highlights the importance of resolving factual disputes prior to summary judgment. By vacating the judgment and permitting amended pleadings, the court left open questions regarding the parties’ payment obligations, requiring further proceedings.

August 17, 2025August 17, 2025 by Jose A. Aquino

Court Affirms Quantum Meruit Award in Home Construction Dispute

In Schott v. Lucatelli, decided by the New York State Supreme Court, Appellate Division, Third Department on June 12, 2025, the court addressed a dispute between two members of an extended family over the construction of a home. In 2017, the defendant asked the plaintiff to build a home, but the parties never entered into a written contract. Construction began in 2018, and while plaintiff was paid for work performed that year, a dispute arose in early 2020 over escalating costs. When plaintiff returned from a winter trip to Florida in April 2020, he discovered that defendant had changed the locks on the unfinished home and hired someone else to complete the project.

Plaintiff sued to recover compensation for work performed between May 2019 and January 2020. Defendant responded with counterclaims, including breach of contract. The trial court found no enforceable contract under New York General Business Law § 771, which requires a written agreement for building a new single-family home on land the buyer owns at the time of the contract. As a result, plaintiff could not recover under a breach of contract theory. Instead, the court evaluated his claim under the equitable doctrine of quantum meruit, which allows recovery for services rendered when no formal contract exists, provided certain elements are met.

The court found that plaintiff had performed services in good faith, that defendant accepted those services, that he expected compensation, and that the services had reasonable value. Plaintiff testified that he worked 31 weeks at 40 hours per week, and the court determined that $35 per hour was a fair rate, totaling $43,400. However, due to evidence of defective work, the court reduced the award by $12,750, resulting in a judgment of $30,650 in plaintiff’s favor. The court also granted prejudgment interest from the date defendant prevented plaintiff from completing construction.

On appeal, the defendant challenged both the award and the prejudgment interest. The appellate court affirmed the trial court’s decision, noting that the plaintiff had provided sufficient testimony and supporting evidence. It further held that prejudgment interest was appropriate, reasoning that although quantum meruit is an equitable theory, its quasi-contractual nature permits interest under NY CPLR 5001(a), which authorizes interest on damages in contract and property-related actions from the time the claim arose. Without deciding whether such interest is mandatory or discretionary, the court found the award proper under either standard.

August 7, 2025August 7, 2025 by Jose A. Aquino

Appellate Court Reaffirms Limits on Delay Damages in Construction Contracts

On June 5, 2025, the Appellate Division, First Department of the New York Supreme Court issued an opinion in Gamma USA, Inc. v. Pavarini McGovern, LLC, addressing the enforceability of a no-damages-for-delay clause in a construction contract between the subcontractor and contractor. The subcontractor had brought breach of contract claims based on alleged project delays, but the court dismissed those claims, citing the clause in the subcontract that barred recovery for delay-related damages..

The court found that the subcontract’s unambiguous Section 6.3 barred the subcontractor from recovering delay damages, regardless of other terms in the agreement. Section 6.3 provided:

“Notwithstanding any other provisions of this Subcontract, the Subcontractor agrees to make no claim for additional costs on account of, and assumes the risk of, any and all loss and expense for delay.”

This language was central to the ruling. It clearly allocated the risk of delay to the subcontractor and took precedence over any conflicting provision. The court rejected claims of ambiguity or conflicting terms and dismissed the case based on established precedent.

The subcontractor argued that exceptions to the no-damages-for-delay rule applied, including bad faith, reckless indifference, and breaches of fundamental obligations. The court rejected those arguments, concluding that the alleged conduct—such as poor planning, lack of scheduling detail, and removal of a crane—did not amount to intentional wrongdoing or fundamental breach. These were characterized as “inept administration,” which was insufficient to overcome the no-damage-for-delay clause.

The court also rejected the argument that the delays were unexpected. The subcontract clearly covered delays in starting, carrying out, and finishing the work. The subcontractor’s claim of a year-long delay did not alter the outcome, as the subcontract anticipated such delays.

The subcontractor’s claim that the contractor breached a fundamental obligation by failing to provide a crane was also dismissed. The subcontract stated that hoist size and capacity were limited, placed responsibility for oversized materials on the subcontractor, and gave the contractor discretion over site logistics. The court found no basis to support the argument that crane availability constituted a fundamental obligation under the subcontract.

This decision confirms that New York courts enforce no-damages-for-delay clauses that are clear and specific. Exceptions like bad faith or uncontemplated delays will not apply unless they involve conduct that goes beyond mere poor planning or administrative missteps. Subcontractors seeking to avoid the impact of such clauses must show that delays stemmed from deliberate misconduct or circumstances undisputably outside the scope of the agreement.