Contracts Cancelled Because of Illegal Actions May be Unenforceable

Posted on July 30, 2008 by K&L Gates

FCI Group, Inc. v. City of New York, 2008 WL 2796591 (N.Y. App. Div. July 22, 2008)

In this case, plaintiff contractor sued to recover the outstanding balance for work already completed on a construction project after the city cancelled the contract because of plaintiff’s attempted bribery of two city officials.  The Appellate Division, First Department, granted defendants’ motion for summary judgment, holding that:  (i) “plaintiff agreed to conduct itself ethically…and consented to the imposition of penalties for violating the contractual prohibition against dispensing monetary inducements to City workers;” and (ii) the illegal conduct at issue was central to plaintiff’s performance under the contract.

The court rejected defendants’ alternative argument that the contract’s alternative dispute resolution clause required dismissal in favor of arbitration.  The court held that the narrow ADR provision only applied to specified disputes in accordance with the intent of the parties and could not be interpreted so as to render the language limiting its scope mere surplusage.

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Pay-When-Paid Clause Does Not Shift Risk of Non-Payment to Subcontractor

Posted on June 20, 2008 by K&L Gates
Otis Elevator Co. v. Hunt Constr. Group, Inc., 859 N.Y.S.2d 850 (N.Y. App. Div. 2008)

In this case, plaintiff subcontractor sought damages resulting from an alleged breach by defendant general contractor for payments due under the subcontract.  Both parties moved for summary judgment.  Defendant argued that its receipt of payment from the owner was a condition precedent to its obligation to pay plaintiff, and that it was under no obligation to pay because it had not yet received payment from the owner.  The court rejected this argument, holding that “the pay-when-paid clause in the subcontract merely regulated the time of payment, and did not shift the risk of owner nonpayment to plaintiff.”  Because plaintiff submitted evidence establishing its entitlement to payment, plaintiff’s motion for summary judgment was granted, and defendant’s motion was denied.
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Showing that Adequate Safety Devices were Absent is Sufficient to Establish Prima Facie Liability under NY Labor Law ยง240(1)

Posted on June 19, 2008 by K&L Gates
McCarthy v. Turner Constr., Inc., 859 N.Y.S.2d 648 (N.Y. App. Div. 2008)

In this case, plaintiff brought claims under Labor Law §240(1) for injuries sustained when the unsecured ladder he was standing on to drill holes in the ceiling tipped over and he fell to the floor.  The Supreme Court granted summary judgment to plaintiff on the issue of liability under the Labor Law and the Appellate Division, First Department, affirmed.

The court held that, for purposes of establishing a prima facie case of liability under the statute, the plaintiff need only show that adequate safety devices to prevent the ladder from slipping were absent; plaintiff is not required to show the ladder was defective.  Further, the owner and general contractor would still be liable even if the apprentice electrician working with plaintiff disobeyed an instruction to hold the ladder steady, as this is not the type of “safety device” contemplated by the statute.
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Court Declines to Strike Defendant's Answer as Sanction for Spoliation of Evidence

Posted on June 13, 2008 by K&L Gates
Carroway Luxury Homes, LLC v. Integra Supply Corp., 859 N.Y.S.2d 834 (N.Y. App. Div. 2008)

In this case, plaintiff brought suit for construction delays and business expenses that arose after a forklift rented from defendant rolled over while being operated by plaintiff’s subcontractor.  Defendant answered asserting affirmative defenses and counterclaims.  Plaintiff moved to strike defendant’s answer based on intentional spoliation of evidence, asserting that defendant had sold the forklift at issue before plaintiff had the opportunity to examine it.  The court denied plaintiff’s motion, holding that striking a pleading is a drastic sanction and that the record, at that time, was insufficient to determine whether the unavailability of the forklift for examination would deprive the plaintiff of the means to prove its case.
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Insurer's Duty to Defend Construed Broadly in Favor of Insured

Posted on April 23, 2008 by K&L Gates
WTC Captive Ins. Co. v. Liberty Mut. Fire Ins. Co., 549 F. Supp. 2d 555 (S.D.N.Y. 2008)

After the World Trade Center disaster in September 2001, the City of New York created a captive insurance company, funded by a grant from the Federal Emergency Management Agency, to insure the costs of lawsuits arising from the WTC clean-up efforts.  Liberty Mutual was the primary insurer and had agreed to defend and indemnify the city against claims including, but not limited to, bodily and personal injury.  A group of secondary insurers agreed to provide the same coverage if the Liberty Mutual policy became exhausted.  All of the policies were retroactive to September 11, 2001. Continue Reading...
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Constructive Notice Not Established by Discussion in Meetings

Posted on April 22, 2008 by K&L Gates
Geonie v. O.D. & P. N.Y., Ltd., 855 N.Y.S.2d 495 (N.Y. App. Div. 2008)

An injured worker, Geonie, filed a negligence suit against multiple defendants, including the general contractor, after stepping into an opening left by the removal of a tile from a raised floor in a computer room.  Geonie argued that defendants failed to provide adequate safety devices to protect against an elevation-related hazard and failed to adequately supervise the work area.  He further claimed that because the removed tile was discussed at weekly safety meetings, the defendants had, at least, constructive notice of the problem.  The trial court dismissed Geonie’s claims under New York Labor Law and his negligence claim against the general contractor. Continue Reading...
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Landscaper Must Have Proper License to Recover Damages for Breach of Contract

Posted on April 22, 2008 by K&L Gates
Hakimi v. Cantwell Landscaping & Design, Inc., 855 N.Y.S.2d 273 (N.Y. App. Div. 2008)

Hakimi filed a breach of contract claim against Cantwell stemming from landscaping work performed on the property where Hakimi was having a new home built.  Cantwell admitted that it was not licensed as a home improvement contractor at the time it did the work.  In response to the lawsuit suit, Cantwell filed a mechanic’s lien and a notice of pendency against Hakimi’s property.  Cantwell claimed that it did not need a home improvement contractor’s license because Hakimi was building a new house and the administrative code exempted new home construction from the home improvement licensing requirements.  Hakimi moved to dismiss Cantwell’s counterclaims and the Supreme Court denied the motion. Continue Reading...
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Whether Liquidated Damages Clause is Properly Invoked Depends on Whether Actual Damages Can be Determined

Posted on April 15, 2008 by K&L Gates
Zeer v. Azulay, 2008 WL 1134239 (N.Y. App. Div. Apr. 8, 2008)

In this case, defendant contractors agreed to construct a home on property owned by plaintiffs pursuant to a written contract executed by the parties in September 2003.  The parties agreed that if the contractor did not complete the project by February 29, 2004 and obtain a certificate of occupancy, it would be liable for liquidated damages of $250 per day until the work was completed. Continue Reading...
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No Summary Judgment Where Counterclaim is Equal To or Greater Than Amount Demanded in Complaint

Posted on April 4, 2008 by K&L Gates
Pronti v. Grigoriou, 853 N.Y.S.2d 718 (N.Y. App. Div. 2008)

In this case, a construction company filed a mechanic’s lien foreclosure action against a homeowner.  The parties had executed a written contract providing that Pronti would find an independent contractor to install vinyl siding on Grigoriou’s residence.  After Grigoriou paid the full contract price of $11,000, she refused to pay a $500 cleanup fee provided for in the contract.  Grigoriou alleged that Pronti performed the work in an “unworkmanlike manner” and counterclaimed for $10,520 in damages. Continue Reading...
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Suit Can Proceed Against General Contractor Based on Claims of Subcontractor's Negligence and Public Nuisance

Posted on March 27, 2008 by K&L Gates
New York v. Shaw Contract Flooring Servs., 853 N.Y.S.2d 694 (N.Y. App. Div. 2008)

State university brought claims against a general contractor and subcontractor for asbestos released as a result of tile work performed by the subcontractor.  The trial court denied the general contractor’s motion to dismiss the negligence and public nuisance claims.  The Appellate Division affirmed. Continue Reading...
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General Contractor Waives Right to Challenge Settlement by Surety

Posted on March 19, 2008 by K&L Gates
Kennerson v. LaBarbera, 536 F. Supp. 2d 305 (W.D.N.Y. 2008)

In this case, a subcontractor sued a general contractor and a surety for failure to make payments for work performed on a construction project for a county water authority.  The surety filed cross-claims against the general contractor pursuant to an indemnification agreement.  The water authority asserted indemnification claims against the surety.  The surety subsequently settled the claims against the general contractor and moved for summary judgment as to all cross-claims.  The district court granted the motion. Continue Reading...
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Bond Issuer Lacks Authority to Release Claims Related to Construction

Posted on February 26, 2008 by K&L Gates
Eaton Elec., Inc. v. Dormitory Auth. of New York, 852 N.Y.S.2d 363 (N.Y. App. Div. 2008)

In this case, plaintiff contracted with Dormitory Authority of New York to perform electrical work in the renovation of a library.  Plaintiff experienced delays and financial problems, eventually forcing it to assign its payment interest in the construction contract to AXA Global Risks U.S. Insurance Company in exchange for financial assistance.  Later, in return for payment from Dormitory Authority, AXA executed a release to discharge Dormitory Authority from any claims of liability in relation to the underlying construction project.  That release later became problematic when plaintiff sought an additional $12 million from Dormitory Authority as reimbursement for unanticipated and unforeseen additional costs incurred on the project.  Dormitory Authority moved for summary judgment, arguing that AXA had released it from any such liability.  The Supreme Court denied Dormitory Authority’s motion, reasoning that AXA lacked authority to release any such claims. Continue Reading...
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Issue of Fact Precludes Summary Judgment in Indemnification Action

Posted on January 21, 2008 by K&L Gates
Ins. Co. of New York v. Central Mut. Ins. Co., 850 N.Y.S.2d 56 (N.Y. App. Div. 2008)

In this case, the First Department examined cross-motions for summary judgment in relation to contractual indemnification.  Plaintiffs – the property owner and general contractor in a related personal injury action – brought this action against a subcontractor, S&S Construction Group.  Plaintiffs sought a declaration that S&S’s liability insurer, Central Mutual Insurance, was required to defend and indemnify plaintiffs in connection with the underlying action.  According to plaintiffs, the contract between the general contractor/plaintiff and S&S required S&S to obtain insurance covering plaintiffs. Continue Reading...
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Contractor Escapes Negligence and Indemnity Liability

Posted on January 17, 2008 by K&L Gates

Luby v. Rotterdam Square, L.P., 850 N.Y.S.2d 252 (N.Y. App. Div. 2008)

In this negligence action, plaintiff sustained injuries when he fell over a transition flare of a handicapped ramp.  That ramp had been constructed by defendant Clifford H. Quay & Sons fourteen years earlier pursuant to a contract between Quay and another defendant, Rotterdam Square.  The architectural firm that designed the plans pursuant to which the ramp was constructed was also named as a defendant.  Two issues were at stake.

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Plaintiff Wins Recovery in Quantum Meruit for Heating and Cooling Services Provided

Posted on December 28, 2007 by K&L Gates

Capital Heat, Inc. v. Buchheit, 848 N.Y.S.2d 481 (N.Y. App. Div. 2007)

In this case, the court awarded recovery in quantum meruit to plaintiff for heating and cooling services it had provided at the defendant's residence.  The court explained that:  (i) by issuing invoices, (ii) the plaintiff established an expectation that it would receive payment for its services, (iii) the invoices established the reasonable value of those services, and (iv) the defendant did not dispute that the plaintiff performed the heating and cooling work in good faith or of acceptable quality.

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Court Denies Summary Judgment in Insurance Dispute Concerning Indemnification for Wrongful Death Claim

Posted on December 23, 2007 by K&L Gates

Grand Crossing, L.P. v. U.S. Underwriters Ins. Co., 2007 WL 4591989 (S.D.N.Y. Dec. 18, 2007)

This case concerned an insurance policy claim made for partial coverage of settlement in a wrongful death action based on a construction site fatality.  The Southern District of New York denied the parties' cross-motions for summary judgment. 

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Court Strictly Interprets Notice Requirements in Construction Contract

Posted on December 20, 2007 by K&L Gates

Marcor Remediation, Inc. v. County of Broome, 847 N.Y.S.2d 702 (N.Y. App. Div. 2007)

In this case, defendant hired the plaintiff contractor to perform lead abatement work.  The contractor sued for breach of contract and quantum meruit, alleging that the county had failed to pay for work performed.  The terms of the contract prohibited plaintiff from bringing any action arising out of the contract unless plaintiff “strictly complied with all requirements relating to the giving of notices and information with respect to such claim . . . .”  The contract further required plaintiff to file a “verified, detailed statement” in order to claim that it performed revised work under the contract, as plaintiff claimed here.  Plaintiff appealed after the action was dismissed by the trial court.

The appellate court affirmed, finding that plaintiff had failed to provide a "verified, detailed statement."  The court explained:   “compliance with notice of claim provisions of a municipal contract constitutes a condition precedent to the commencement of an action for breach of contract which may only be avoided if the municipality acted in a manner that precluded the other party from complying.”

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No Victory for Plaintiff Where Renovations Were Made in Good Faith

Posted on December 19, 2007 by K&L Gates

Baker v. City of Plattsburgh, 847 N.Y.S.2d 300 (N.Y. App. Div. 2007)

In this case, plaintiff sought recovery of property damages due to water runoff caused by a utilities renovation and paving project carried out by defendants on an adjacent property.  The Supreme Court granted defendants’ summary judgment motion, dismissing the causes of action against them alleging that water runoff caused property damage.  However, defendants’ motion papers did not specifically address the remaining causes of action for trespass, due process rights violations and zoning ordinance violations, and thus those claims remained.

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Court Awards Attorneys' Fees in Breach of Contract Action

Posted on December 18, 2007 by K&L Gates

Fabcon East, LLC v. Steiner Bldg. Co. NYC, 848 N.Y.S.2d 267 (N.Y. App. Div. 2007)

In this case, the court upheld an award of damages and contractually-based attorneys’ fees to plaintiff, finding sufficient support for the conclusion that defendant had breached the parties’ construction subcontract and the implied covenant of good faith and fair dealing.  However, the court reduced the attorneys’ fee award in the amount of $19,250.50 -- the amount of fees incurred by plaintiff in a separate action commenced against it by a sub-contractor.  The court explained:  “the subcontract provision dealing with an award of contractual attorney’s fees to the prevailing party in a covered action did not include the New Jersey action, to which [defendant] was not a party.”

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No Summary Judgment on Labor Law Claims Regardless of Whether Plaintiff's Work Was Performed in Furtherance of Contract

Posted on December 13, 2007 by K&L Gates

Butt v. Bovis Lend Lease LMB, Inc., 2007 WL 4260519 (N.Y. App. Div. 2007 Dec. 6, 2007)

In this case, plaintiff sued for common law negligence and Labor Law violations, seeking to recover for injuries allegedly sustained when he fell from ladder while plastering a ceiling beam of an interior stairwell at a public school.  Defendants included the City of New York which owned the premises, the Board of Education which operated and maintained the premises, the general contractor, and the construction manager.  Defendants moved to dismiss the Labor Law violations on summary judgment, arguing that the work the plaintiff was performing when he was injured was outside the scope of his contract, and thus was not covered by the Labor Law.  The court denied the motion, finding that such a defense only applied to the benefit of parties who did not have authority to supervise or control the work at issue.  The court explained that such a defense would not apply to the owner’s liability because injury to a worker may not be circumscribed by contract.  Further, conflicting evidence had been presented as to whether the work was outside the scope of the contract., and so the issue was not capable of resolution on summary judgment. 

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Subcontractor Liable for Damages Caused by Equipment It Was Contractually Obligated to Provide at Construction Site

Posted on December 13, 2007 by K&L Gates

Urbina v. 26 Court St. Assocs., LLC, 847 N.Y.S.2d 67 (N.Y. App. Div. 2007)

This case involved causes of action for negligence, violations of Labor Law §§ 200, 240(1) and 241(6), and loss of consortium brought by an electrician, Urbina, and his wife.  Plaintiffs sought to recover damages for injuries sustained when a platform upon which Urbina was kneeling collapsed at a construction site.  That platform had been installed by the drywall subcontractor, R&J Construction Corp. for its own use.  Plaintiffs brought claims against the owner of the premises, the lessee of the premises, and R&J.  The issues on appeal involved the reasonableness of the damages awarded to plaintiffs, and contractual indemnification between defendants. 

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No Summary Judgment for Contractors Relying on Preemption

Posted on December 10, 2007 by K&L Gates

Wysocki v. Kel-Tech Constr. Inc., 847 N.Y.S.2d 166 (N.Y. App. Div. 2007)

Here, the court denied the defendants’-contractors’ summary judgment motion to dismiss the breach of contract claims brought against them by plaintiffs-construction workers.  The court reasoned that the plaintiffs’ contractual rights would be independent of a collective bargaining agreement whether or not Labor Law § 220 was incorporated into the public works contracts at issue.  The court explained that Labor Law § 220 applies across the board, making its requirements non-negotiable.  Therefore, the collective bargaining agreement did not have any bearing on the public works contracts at issue in the case.

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Second Department Grants Leave to Amend Answer to Plead Statute of Limitations Defense Under CPLR 214-c

Posted on December 10, 2007 by K&L Gates

Felice v. Am. A.W.S., Corp., 846 N.Y.S.2d 656 (N.Y. App. Div. 2007)

In this action, plaintiffs sought to recover for personal injuries and property damages arising out of defendant's renovation of plaintiffs’ residence.  Plaintiffs alleged that defendant had negligently performed the work, resulting in water leaks and the formation of mold.  Defendant sought leave to interpose an amended answer which included, inter alia, the affirmative defense of statute of limitations.  Defendant contended that the plaintiffs' causes of action sounded in negligence and thus were governed by a three-year statute of limitations. 

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Fourth Department Rules on Labor Law Claims

Posted on November 30, 2007 by K&L Gates

Mulcaire v. Buffalo Structural Steel Constr. Corp., 846 N.Y.S.2d 838 (N.Y. App. Div. 2007)

In this case, a construction worker and a family member alleged Labor Law and common law negligence causes of action for injuries plaintiff sustained while installing floor decking in a building undergoing construction.  Plaintiff slipped and fell through an uncovered opening approximately 18 feet to the floor.  The trial court granted in part and denied in part plaintiffs' motion for summary judgment, and denied defendants' motion for summary judgment.  Defendants appealed.

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Jury to Decide Whether Falling Debris was Foreseeable at Construction Site

Posted on November 27, 2007 by K&L Gates
Amerson v. Melito Constr. Corp., 845 N.Y.S.2d 457 (N.Y. App. Div. 2007)

In this case, the Second Department reversed a finding of summary judgment concerning an alleged violation of Labor Law § 241(6).  Plaintiff, a masonry subcontractor, was injured while performing his duties at the construction site when a concrete block fell on his head.  At the time he was injured, plaintiff was wearing a hard hart and had various pieces of equipment, including a chipping hammer, scraper, shovel and wheelbarrow, in his possession as needed to perform his work. Continue Reading...
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Subcontractor Liability For Injuries Caused By Subcontractor's Equipment

Posted on November 21, 2007 by K&L Gates
Saccenti v. City of New York, 846 N.Y.S.2d 236 (N.Y. App. Div. 2007)

In this action based on Labor Law §§ 200 and 241(6) and common law negligence, the Second Department examined the lower court’s grant of summary judgment on all claims to defendant Hallen Construction, a subcontractor hired by a third-party defendant.  The claims involved injuries plaintiff sustained when he tripped over a spike Hallen had installed at the construction site in order to affix steel plates covering the trench it was excavating.
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Default Judgment Overturned Due to Law Firm Error

Posted on November 20, 2007 by K&L Gates
Franco Belli Plumbing & Heating & Sons, Inc. v. Imperial Dev. & Constr. Corp., 845 N.Y.S.2d 446 (N.Y. App. Div. 2007)

In this case, the appellate court reversed a default judgment entered against defendant New York City School Construction Authority (“SCA”).  Plaintiff had claimed that Imperial Development & Construction Corp., the general contractor, owed over $253,000 to it as the sub-contractor for plumbing work on the project.  Imperial disputed the claim.  Pursuant to Public Authorities Law § 1735(6), plaintiff notified SCA, as the owner of the property where the disputed work took place, of its dispute with Imperial.  Also pursuant to that law, SCA was required to withhold the disputed amount of money from any payments it made to Imperial pursuant to the construction contract.  After plaintiff filed a note of issue, SCA disclosed that it had failed to withhold any money on plaintiff’s behalf.  Consequently, plaintiff moved to preclude SCA from introducing evidence regarding setoffs and back-charges with respect to its contract with Imperial on the basis that SCA had failed to respond to interrogatories seeking such information.  The Supreme Court granted this motion upon SCA’s default. Continue Reading...
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Third Party Defendant's Summary Judgment Appeals Go Unheard

Posted on November 14, 2007 by K&L Gates
D’Angelo v. Builders Group, 845 N.Y.S.2d 814 (N.Y. App. Div. 2007)

This case involved an alleged violation of Labor Law § 240(1) and contractual indemnification.  Specifically, this decision involved an appeal brought by third-party plaintiff Builders Group from the lower court’s denial of its summary judgment motion seeking dismissal of the complaint and its cross-motion for summary judgment seeking contractual indemnification from third-party defendant Caruso Painting and Decorating Corp. Continue Reading...
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Court Awards Liquidated Damages and Specific Performance in Breach of Construction Contract Case

Posted on November 5, 2007 by K&L Gates

Granite Broadway Dev. LLC v. 1711 LLC, 845 N.Y.S.2d 10 (N.Y. App. Div. 2007)

In this case, a contractor sued a property owner for breach of a construction contract.  After a bench trial, the court awarded the owner liquidated damages, certain offset damages, and specific performance.  The contractor appealed.

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Courts Apply Heightened Pleading Standards to Fraud Claims in Adversary Proceeding

Posted on August 20, 2007 by K&L Gates

In re Andrew Velez Constr., Inc., 373 B.R. 262 (Bankr. S.D.N.Y. 2007)

This adversary proceeding was brought by Andrew Velez Construction, Inc. (“Velez”), a general contractor on a major construction project for Con Edison Company of New York, Inc. (“Con Edison”), against Con Edison.  After substantial cost overruns, delays and changes in the scope of work, the parties each claimed that the other committed pre-petition defaults under their contract.  The parties asserted numerous causes of action, including claims for: fraudulent transfers, turnovers, declaratory relief, fraud, fraudulent inducement, quantum meruit, unjust enrichment, trust fund violations, and defamation.  Because the court was presented with Con Edison’s motion to dismiss, this decision examined the pleading standards for each claim.

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Court Favors Arbitration in Disputes Between Contractor and Subcontractor

Posted on August 19, 2007 by K&L Gates

Actus Lend Lease LLC v. Integrated Bldg. Res. Dev. LLC, 2007 WL 2362389 (N.D.N.Y. Aug. 14, 2007)

Here, defendant moved to dismiss the action for breach of its subcontract with plaintiff-contractor on the basis that the action was subject to binding arbitration.  According to the subcontract, a dispute between the parties must be resolved by mandatory arbitration when the dispute (1) arises in connection with the subcontract and either party elects, by written notice, to submit the matter to binding arbitration; or (2) involves the correlative rights and duties of the owner.  The subcontract also provided that a party must provide written notice to elect binding arbitration.

In support of its motion, defendant submitted a notice of motion and an affirmation with exhibits; however, it did not submit a memorandum of law to set forth its legal arguments.  The court held, therefore, that factual disputes existed as to whether the alleged dispute was subject to arbitration under the terms of the agreement.  However, the court granted defendant leave to renew its motion to dismiss upon submission of the proper papers, reasoning that there is a strong public policy in favor of arbitration.

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Insurer Not Entitled to Summary Judgment on Breach of Performance Bond Claim

Posted on August 5, 2007 by K&L Gates

Klewin Bldg. Co. v. Heritage Plumbing & Heating, Inc., 840 N.Y.S.2d 144 (N.Y. App. Div. 2007)

In this case, plaintiff was the construction manager for a building project and had entered into a subcontract with defendant Heritage Plumbing & Heating pursuant to which Heritage was required to supply plumbing materials and services for the project.  Defendant Hartford Fire Insurance Company provided a performance bond to Heritage for the benefit of Klewin.   Hartford's obligations to Klewin under the bond would only arise upon certain conditions, including, among other things, Klewin's declaration that Heritage had defaulted and a termination of Heritage's right to complete the subcontract.

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Court of Claims Ruling Upheld - Contractor Entitled to Reimbursement from Government Under Unit Contract

Posted on July 23, 2007 by K&L Gates

Harrison & Burrowes Bridge Constructors, Inc. v. New York, 839 N.Y.S.2d 854 (N.Y. App. Div. 2007)

The claimant filed suit in the Court of Claims seeking additional compensation for its rehabilitation and resurfacing of eight bridges under a unit-price contract with the State of New York.  The state offered several reasons for its refusal to pay the claimant for labor and materials supplied under the contract.

First, the contract required the state to pay the claimant for the total number of markers installed, including any markers damaged by traffic.  The state refused to pay for an additional 1,478 replacement markers installed by the claimant, arguing that the bid proposal, upon which the contract was based, only covered the installation of 868 markers.  Affirming the Court of Claims, the appellate court found that the state should pay for the additional 1,478 replacement markers.  Although the contract (which required the claimant to replace damaged markers) did not specify who would be obligated to pay for those markers, the court reasoned that the contract did not require the claimant to include the cost of replacing markers in its bid.

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New York Public Policy Against Pay-If-Paid Provision Does Not Apply to Contracts Governed by Jurisdictions That Do Not Share That Policy

Posted on January 1, 2007 by K&L Gates
Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624 (2006)

Welsbach involved a general contractor engaged to construct a telecommunications network in New York.  The agreement between the general contractor and sub-contractor included a pay-if-paid clause and a Florida choice of law provision.  The New York Court of Appeals decided that New York’s public policy against pay-if-paid contract provisions was not so fundamental that it would override the parties’ choice of law.

The significance of this ruling is that it is now possible for a subcontractor to find that its lien rights are imported if it does business under the law of a non-West-Fair state.
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New York Law Allows Subcontractors' Assignees to Recover From Sureties

Posted on January 1, 2007 by K&L Gates
Quantum Corporate Funding, Ltd. v. Westway Indus., Inc., 4 N.Y.3d 211 (2005)

In Quantum Corporate Funding, a subcontractor sold its accounts receivable to an assignee.  When the general contractor failed to pay its debts, the assignee, or factor, brought suit against the surety for the State Finance Law § 137 payment bonds that the general contractor had been required to purchase.  The surety refused payment and the factor brought suit.  Though the statute is silent on who may sue on the bond, the Court of Appeals ruled that State Finance Law § 137 allows subcontractors’ assignees to recover payment from bond sureties.
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Subcontract Pay-If-Paid Provisions Violate New York Public Policy

Posted on January 1, 2007 by K&L Gates
West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148 (1995)

In West-Fair, the New York Court of Appeals decided that pay-when-paid provisions in a subcontract, which transfer the risk of an owner’s default from a general contractor to a subcontractor, violate New York public policy as set forth in the Lien Law.  New York’s Lien Law provides that any contractual provision that waives the right to enforce any mechanic’s lien shall be void as against public policy.  The court reasoned that if a subcontractor’s right to be paid could be indefinitely postponed by an owner’s failure to pay the general contractor under a pay-when-paid provision, the subcontractor’s right to enforce its mechanic’s lien would be similarly frustrated and constitute an illegal waiver of lien rights.
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Functional Equivalent of Privity is Required in Negligent Misrepresentation Cases that Produce Only Economic Injury

Posted on January 1, 2007 by K&L Gates
Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417 (1989)

In Ossining, the Court of Appeals expanded on the holding in Credit Alliance and ruled that a school district, which contracted with an architect, could sue engineers hired by the architect for damages suffered as a result of the engineers’ negligence and malpractice.  The issue addressed by the court was whether privity of contract is required in a negligent misrepresentation case that produces only economic injury.  The court held that a cause of action for negligent misrepresentation which produces only economic injury requires that the underlying relationship between the parties be one of contract or the bond between them so close as to be the “functional equivalent of contractual privity.”  The court laid out a three-prong test following the guidance of Credit Alliance:  (i) that the design professional be aware that its reports are to be used for a particular purpose; (ii) that a known person rely on the reports in furtherance of that purpose; and (iii) that there be some conduct by the design professional linking it to the reliant person and evidencing its understanding of the reliance.
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Notwithstanding "No Damage for Delay" Clause, Delay Damages May be Recovered in Certain Circumstances

Posted on January 1, 2007 by K&L Gates
Corinno Civetta Constr. Corp. v. City of New York, 67 N.Y.2d 297 (1986)

In Corinno Civetta, the Court of Appeals reaffirmed that generally, “no damage for delay” clauses, which bar a contractor from recovering damages for delay in the performance of a contract, are valid and enforceable.  However, even with such a clause, damages may be recovered for:  (i) delays caused by the contractee’s bad faith or willful, malicious, or grossly negligent conduct; (ii) uncontemplated delays; (iii) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee; and (iv) delays resulting from the contractee’s breach of a fundamental obligation of the contract.
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Professionals Can Be Liable to Non-Contracting Parties if Their Relationship Approximates Privity

Posted on January 1, 2007 by K&L Gates

Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (1985)

In Credit Alliance, the Court of Appeals held that accountants could be liable to noncontractual parties if the relationship of the parties approached that of privity.  Specifically, the court held that an accountant could be liable, absent privity of contract, to a party who relies to his detriment on a negligently prepared financial report if (i) the accountant was aware that the financial reports were to be used for a particular purpose, (ii) in the furtherance of which a known party was intended to rely, and (iii) there must have been some conduct on the part of the accountant linking him to that party which evinces his understanding of that parties’ reliance.

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"No Damage for Delay" Clauses Are Generally Valid and Enforceable, with Certain Limited Exceptions

Posted on January 1, 2007 by K&L Gates
Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377 (1983)

In Kalisch-Jarcho, the city entered into a contract with a contractor for the construction of a ventilation system in police headquarters.  The contract contained an exculpatory clause, by which the contractor agreed to make no claims for delay damages occasioned by any act or omission by the city.  After trial on the scope and validity of the delay damages clause, the Court of Appeals ruled that clauses barring a contractor from recovering damages for delay in the performance of a contract are valid, but they will not prevent the recovery of damages resulting from the contractee’s grossly negligent or willful conduct which “smacks of intentional wrongdoing.”
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Factor May be Liable for Diversion of Lien Law Trust Funds

Posted on January 1, 2007 by K&L Gates
Caristo Constr. Corp. v. Diners Fin. Corp., 21 N.Y.2d 507 (1968)

In Caristo Constr. Corp., a general contractor paid a subcontractor who then turned the money over to a factoring corporation.  The factor failed to file assignment of accounts or a “Notice of Lending” and failed to deposit the general contractor’s checks in depository in trust.  In so doing, the factor participated in diversion of statutory trust funds, despite having returned to the subcontractor simultaneously with the payments “advances” equal to the payments.  The general contractor, who was forced to make payment after the subcontractor became insolvent, prevailed in a suit as subrogee against the factor.
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