When the New York Prompt Payment Act (“PPA”) was first enacted (effective 1/14/2003), many
believed that it would have a major impact on the payment process in the construction industry. That
has not been the case. United States District Court Judge Jack Weinstein recognized the limited reach of
A recent case from Supreme Court, New York County, brings clarity to a conflict that can arise when a building that shares a party wall is demolished and the site is redeveloped without relying on the party wall.
In 145 W. 21st Realty LLC v. First West 21st Street LLC, 653241/12, NYLJ 1202792788020 (Sup. Ct. N.Y. Co. July 26, 2017), Justice Kelly O’Neill Levy had to decide whether a new building that extends above the party wall that it had formerly shared with the adjoining building, could also be built over part of the party wall, thus preventing neighbor from ever being able to exercise its right to extend the party wall up in the future. The court followed earlier cases that favor modern construction practices, and allowed the cantilever of the new structure over the old, holding that the obligations to a party-wall neighbor do not extend to the space above the party wall.
A party wall is a single wall constructed along a property line that is used by the two adjoining buildings to provide structural support for their beams. Typically, one half of the party wall sits on each owner’s property. Each owner owns the half of the party wall on its property, and has an easement on the other half of the wall. Brooks v. Curtis, 50 N.Y. 639, 642-3 (1873).
General Business Law § 771 provides a host of requirements for home improvement contracts, chief among them being that such contracts must be in writing and signed by all parties. Additionally, the contract must contain the name, address, telephone number, and license number of the contractor, the dates that the work is to begin and to end, a description of the work to be performed, a list of the materials to be provided by the owner, the agreed-upon compensation due to the contractor, and a schedule of any progress payments. The contract must also provide a series of notices to the owner advising that claims for payment may be enforced against the property by lien, that the contractor is required to deposit all payments received prior to completion in accordance with Lien Law § 71-a (4) or the contractor may post a bond, contract of indemnity, or irrevocable letter of credit, and that the owner may cancel the home improvement until midnight of the third business day after the day on which the owner signs the contract.
Despite the strict requirements of General Business Law § 771, it is not uncommon that parties engage in such home improvement projects on the basis of a hand-shake deal. While it is always advisable to put any such agreements in writing, including any changes to the work along the way, a contractor who improves a home absent a written contract is not without remedy should a dispute arise.
Courts have held that the absence of a written contract prevents recovery on a breach of contract cause of action but does not prevent a remedy on a theory of quantum meruit. Johnson v. Robertson, 131 A.D.3d 670, 672, 15 N.Y.S.3d 457 (2d Dep’t 2015); see also Home Construction Corp. v. Beaury, No. 2014-06600, 2017 WL 1240146, at *2 (2d Dep’t Apr. 5, 2017) (“Although a contractor cannot enforce a contract that fails to comply with General Business Law § 771, a contractor may seek to recover based on the equitable theory of quantum meruit…”).
Section 1312(a) of the Business Corporation Law, New York’s “door closing” statute, precludes foreign corporations doing business in the state without authority from maintaining an action in the state. The purpose of this statute is to regulate foreign companies actually conducting business in the state. As held in Special Breaks, LLC v. 201 Murray Ave., 2017 WL 987199 (Sup. Ct. Westchester Co. Mar. 10, 2017), the statute does not apply to those foreign companies that are not “doing business” within the state.
The defendant in Special Breaks moved to dismiss the complaint filed by foreign corporate plaintiff on two related grounds:
Courts are increasingly being called upon to decide disputes over access to a neighboring property during construction, and their guide is RPAPL § 881, titled “Access to adjoining property to make improvements or repairs.” However, because the statue is vague, a body of cases interpreting RPAPL § 881 has developed that has expanded on concepts only implied in the statute. A recent Appellate Division case confirms that the application of RPAPL § 881 can only be understood in light of the cases interpreting the statute.
A property owner who is renovating or constructing a new building often needs access to its neighbor’s property for a variety of reasons, including protecting it from falling debris or strengthening its foundation, as required by the building code. The neighbor does not always agree to allow access, sometimes because of concerns that the planned construction could harm its building or inconvenience its occupants. RPAPL § 881 provides relief for the party performing the construction—if it can meet certain conditions—by allowing a court to order access. The statute requires that:
The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires.
“Shadow docketing” is the practice of filing a foreclosure action but waiting years to file an RJI, thus delaying court involvement that would otherwise move the case forward. Because of the priority structure in New York foreclosure proceedings (explained below), and because bank lenders recover not just the full outstanding amount of the first lien, but also any accrued interest, banks are incentivized to delay the prosecution and ultimately the sale of the unit to allow elevated default interest rates to accumulate. Shadow docketing, however, creates a substantial conflict where a condominium board also seeks to recover unpaid common charges.
In a New York foreclosure proceeding, normally the priority of liens is determined by the chronology of recording. However, the New York Condominium Act provides that a condominium board’s lien for unpaid common charges has priority over all other liens, except for a first mortgage of record that predates the common charge lien.[1] In the event of a foreclosure sale, the bank holding the first mortgage, as senior lien holder, recovers first. Bank lenders also receive all interest that has accrued on the mortgage before other lienors or creditors are paid. If there are excess proceeds after the first mortgage is satisfied, the condominium association retains a prior lien against such proceeds. If there are no excess proceeds, the condominium’s subordinate lien is extinguished. Unfortunately, foreclosure proceeds are frequently insufficient to cover the amounts owing to both the bank and the condominium association. Shadow docketing further decreases the likelihood that a condominium association will recover on its common charge lien because substantial interest is allowed to accrue on the mortgage while the case remains dormant.
This practice has been the subject of several recent court decisions. Most recently, the New York Supreme Court reduced the accrued interest owed to a lender because of the lender’s extensive and unexplained delays. In Citimortgage, Inc. v. Gueye, 52 Misc.3d 1203(A), 2016 WL 3450850 (Sup. Ct. N.Y. Co. 2016), the bank commenced a foreclosure action, but then waited more than three and one half years to file an RJI. In fact, the Court noted that the action “dragged on for over seven years despite the fact that the borrower has never appeared.” Id. at *1. After the bank made an unopposed motion seeking a judgment of foreclosure and sale, the condominium board of managers cross-moved seeking to reduce and/or extinguish the accrued interest on the mortgage. The condominium argued that the bank’s seven year delay in prosecuting the foreclosure action should preclude it from recovering interest. This delay, the condominium argued, prejudice it by reducing the chances that it might recover the outstanding common charges. Id.
A New York Supreme Court judge has reminded parties to be extremely careful in discarding computer system components during the pendency of litigation. In a March 30, 2016 opinion in Ferrara Bros. Building Materials Corp., et ano v. FMC Construction LLC, et ano, Sup. Ct., Queens Co., Index No. 16452/2007, the Court sanctioned a defendant for allegedly swapping out an older computer system for a newer one while discovery was still pending, even though a request for metadata on the computer had not been made at the time of the replacement.
In Ferrara, plaintiff sought damages for breach of its contract with defendant FMC Construction LLC (“FMC”) to provide concrete for a construction project (the “Ferrara Contract”) based, inter alia, on the alleged interference of defendant Casa Redimix Concrete Corp. (“Casa”). In its defense, Casa alleged that it had entered into its own contract with FMC to provide the same concrete (the “Casa Contract”) on a date earlier than that set forth in the Ferrara Contract. Later in the case, while discovery was still pending, plaintiff requested metadata related to the creation of the subject documents constituting the Casa Contract. Casa responded by providing some document metadata, but stating that the computers and servers on which the document had been created had been replaced as part of an alleged company-wide technical upgrade. This replacement had resulted in the loss of valuable and relevant “system metadata” capable of showing the author, date and time of creation, as well as the dates of any revisions of the contested documents. Plaintiff then moved for sanctions regarding the spoliation of such evidence. Casa opposed the motion by arguing that there was no bad faith intent to destroy the evidence, that it should not be penalized because the request had not been made by Ferrara until years after the case had begun, and that, in any event, the evidence was not relevant.
In its thoroughly researched opinion, the Court first went through the legal precedent reviewing metadata as discoverable evidence and then noted that there was no issue that the metadata at issue had been destroyed. Thus, the only questions to be determined were whether Casa knew or should have known the destroyed material was relevant, whether any delay by plaintiff to request the metadata waived plaintiff’s right to the request, and what sanction, if any, was appropriate. The Court ruled that, given the question of alleged back-dating of the Casa Contract, the “system metadata” was clearly relevant to the case.
Construction contracts typically contain indemnification clauses which shift the financial burdens and risks between and among various parties. Although these clauses are common, their precise meaning and effect can still raise novel legal issues. Recently, Justice Carolyn Demarest of the Commercial Division in the Brooklyn Supreme Court rendered a decision grappling with certain issues of first impression in Board of Managers of the 125 North 10th Condo v. 125 North 10, LLC (Supreme Court Kings County Index Number 14982/2012).
Plaintiff Board of Managers brought the underlying action against the sponsors of the condominium in question. The sponsors, in turn, brought third party claims against their construction manager, Ryder Construction, Inc. Ryder then brought claims for contractual and common law indemnification, and declaratory relief, against fifteen subcontractors who had worked on the project. These fifteen subcontractors moved to dismiss Ryder’s claim against them and the sponsors claim against Ryder, among other things.
Justice Demarest, in a decision dated January 26, 2016, dismissed Ryder’s claims for declaratory relief, holding that it was essentially duplicative of the claim for contractual indemnification.
New York’s highest court recently issued a decision (after remaining silent for years) concerning sanctions for spoliation of destroyed ESI. See Pegasus Aviation I, Inc. v. Varig Logistica S.A., 2015 WL 8676955, 2015 N.Y. Slip Op. 09187 (Dec. 15, 2015). The trial court originally found that a company’s corporate parent had sufficient control over a subsidiary’s operations to be liable for spoliation of evidence when the subsidiary company failed to issue a litigation hold notice. That failure to institute a litigation hold notice, combined with several computer crashes resulting in the loss of much of the ESI, rose to the level of gross negligence, according to the Supreme Court. Where the destruction of evidence is merely negligence, the relevance of the lost material must be proven by the party seeking spoliation sanctions – otherwise, relevance is presumed. Thus, based on the Supreme Court’s finding of gross negligence in the Pegasus case, the relevance of the missing ESI was presumed. Based on this finding, the trial court struck the answer of the subsidiary and imposed a trial adverse inference sanction against the parent company with regard to that ESI.
The First Department reversed the sanctions imposed against the parent company, rejecting the lower court’s holding that the failure to institute a litigation hold amounted to gross negligence per se. The Appellate Division reasoned that this failure supported, at most, a finding of simple negligence. Because there was only a showing of simple negligence, the plaintiff had failed to prove that the missing ESI was relevant per se and the adverse inference was therefore improper.
Can a cooperative apartment owner claim to be “ready, willing and able” to close where the board of directors of the cooperative has threatened to try to reclaim exclusive rights to penthouse terrace access that the buyer bargained for? According to the First Department, the answer may well be “No” in the absence of “unequivocal assurances” from a meddling board.
In Pastor v. DeGaetano, et al., 128 A.D.3d 218 (1st Dep’t 2015), the defendant, an estate owner of a luxury penthouse apartment (the “Seller”), sought summary judgment dismissing the complaint seeking the return of the plaintiff’s (the “Buyer”) $2.75 million deposit. The factual record shows that, despite the Seller’s 50 years of exclusive access to the penthouse terrace and the existence of a proprietary lease clearly spelling out such exclusive use, the cooperative board (the “Board”) sent a letter to the prospective buyer advising that the upper roof of the building was common property available to all unit owners. Since the upper roof was only accessible by walking across the penthouse terrace, the letter amounted to a notification that the terrace would no longer be exclusive to the Buyer. After the Board unsuccessfully attempted to get the Buyer and Seller to execute an agreement confirming the same rooftop access right, the Seller commenced a declaratory judgment action against the Board seeking a declaration that the Seller, and the prospective Buyer, had exclusive rights to the terrace. This action was subsequently settled without the issuance of the requested declaration. The Buyer was not satisfied with this conclusion and attempted to cancel the contract and regain his deposit. When the Seller instead set a closing date, the Buyer refused to close and commenced the lawsuit at issue. The Seller then moved for summary judgment and the trial grant granted the motion, holding that the Seller had proven that it was “ready, willing and able” close.
The First Department, however, disagreed.
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