New York Commercial and Construction Lawyer Blog

July 31, 2020

Continuous Treatment Doctrine Applied To Sustain a Claim Against Architect

There is a three year statute of limitations for malpractice claims against architects and other design professionals. These claims generally begin to accrue upon the completion of the work in issue. However, a cause of action against a design professional may be tolled based upon the “continuous treatment” doctrine if the plaintiff can show it relied upon a continuous course of service related to the original work performed. The Second Department recently issued an opinion which applied this doctrine to uphold, at the pleading stage, a claim based upon a contractual relationship which started more than ten years before the legal action was commenced.

In Anderson v. Pinn, 2020 WL 3554992, 2020 N.Y. Slip Op. 03636 (2^nd Dep’t) the Plaintiff entered into a contract in 2005 with an architecture firm for the design of a construction project. Because Plaintiff lost its funding for the project, the physical construction work apparently stopped in 2008. Prior to that time, Plaintiff had discovered that the utilities in the two buildings being constructed would have to be installed separately. The Architect, according to the Complaint, stated this has been an “oversight” on its part, but that subdividing the property “would not be a problem.”

In 2015 and 2018, Plaintiff and the Architect entered into a new contract for the project. The Architect filed numerous unsuccessful applications with the Department of Buildings for the subdivision. The Architect died, and never completed the project.

June 25, 2020

When Is an Arbitration Award Final?

By Daniel J. Swayze

In American International Specialty Lines Insurance Company v. Allied Capital Corporation the New York Court of Appeals wrestles with a simple yet significant question: When is an arbitration award truly final such that it may not be altered? 2020 N.Y. Slip Op. 02529 (2020).

The matter arose out of dispute between an insurer and its insureds that was adjudicated in arbitration. By way of background, the insureds had previously settled a federal qui tam action involving allegations of their participation in loan origination fraud.

Following this settlement, the insureds sough payment from their insurer for their defense costs and indemnification for the settlement. When the insurer denied coverage, the insureds demanded arbitration based on the insurer’s alleged breach of two relevant insurance policies.

June 16, 2020

Due Process at Risk in Arbitration Proceedings

By Robert J. Howard

The Appellate Division, Second Department, has handed down an opinion telling a cautionary tale to would-be parties who are considering contracts containing broad arbitration agreements. Litigants in court have the right to rely on a broad array of rights under the Constitutionally protected right to “due process.” In Matter of New Brunswick Theological Seminary v. Van Dyke, 2020 N.Y. Slip Op. 03114, the Court emphasized just how far an unwary litigant can waive those protections in arbitration.

The New Brunswick matter concerned a dispute between a registered financial broker and a former client which was governed by an arbitration agreement. The broker claimed that she did not know that an arbitration had been filed against her until after an award was granted in favor of the former client on default. When the former client went to court seeking to convert the arbitrator’s award into an enforceable money judgment, the broker cross-moved to vacate the award on the grounds that the procedures set forth in the arbitration agreement for giving notice of the commencement of the arbitration violated her due process rights.

Ordinarily, due process does not require actual notice of an action or proceeding. It does, however, require such procedures which are “reasonably calculated” to result in actual notice. The notice provisions in the arbitration agreement provided for notice by certified mail at a specified residential address. The broker contended that this was not “reasonably calculated” to result in actual notice because the former client knew or should have known that the broker spent prolonged periods away from her residence The broker also argued that the former client knew how to reach her by email.

May 21, 2020

NYCHA Construction Contracts Are Traps For The Unwary

By Daniel E. Katz

Public owners often utilize notice of claims and contractual notices to bar otherwise valid claims for relief. The New York City Housing Authority (“NYCHA”)is no different, and requires any potential claimant to be especially vigilant in preserving rights to monetary damages. The First Department recently upheld NYCHA’s assertion of these defenses and sustained the dismissal of a complaint by a surety acting in place of a contractor. Colonial Surety Co., v. New York City Housing Authority, 182 A.D.3d 517, 120 N.Y.S.3d 772 (1st Dep’t 2020).

The NYCHA contract under review stipulated that notices of claim be filed within twenty (20) days of accrual.. The Court here found, consistent with prior caselaw, that the claim had accrued when the NYCHA had informed claimant in writing that it intended to substantially decrease its scope of work. Unfortunately, claimant here did not file its notice of claim until two and one half years later, and after the underlying project had been substantially complete.

Plaintiff’s claims were also barred because the NYCHA had found that Plaintiff had defaulted in its contractual obligations. Pursuant to the NYCHA contract, in those circumstances Plaintiff could not properly maintain a plenary action for monetary damages. Instead it was required to commence an Article 78 proceeding, which imposes a far higher burden of proof on a claimant.

May 12, 2020

Flanking the Corporate Shield of a Home Improvement Contractor

By Robert J. Howard

A recent decision handed down by the Suffolk County Supreme Court (Hon. Sanford Neil Berland, J.) in the matter of Sweeney v. Waitz and Artisan Builders of the North Fork, Inc. (66 Misc.3d 384) reminds us of the rights and risks that homeowners and home improvement contractors must confront when the home improvement contractor is doing business in the corporate form.

Many are familiar with the principle that an individual who incorporates a business generally has no personal liability for the obligations of the corporation. Incorporation creates a legal entity which is distinct from the individual incorporator. When transacting business, the individual acts in the capacity as an agent for the corporation. So long as the homeowner is made aware that the individual is acting as an agent on behalf of the corporate entity and the individual has not specifically agreed to personally assume any obligations, the individual cannot be held liable for the obligations of the company.

In Sweeney, the homeowner filed an action against the corporate defendant and its individual/principal in connection with a home improvement contract for the renovation of a personal residence. The individual defendant made a motion for summary judgment asking the Court to dismiss the claims which were asserted personally against the individual based on the principle that an individual acting as an agent for a disclosed principal generally has no personal liability. The individual defendant established that he always disclosed that he was acting as an agent for the corporate principal and that he never assumed any personal liability.

May 4, 2020

Damages for Willfully Exaggerated Mechanic’s Liens Unavailable for Mechanic’s Liens that Are Prohibited by Enforceable Agreements

By Megan Gardner

The Second Department recently found, in Degraw Construction Group, Inc. v. McGowan Builders, Inc., 178 A.D.3d 770, 114 N.Y.S.3d 395 (2d Dep’t 2019), that a lienor cannot be held liable for willfully exaggerating a mechanic’s lien if the mechanic’s lien is impermissible in the first place. DeGraw confirms that Lien Law Section 39-a remedies are only available if the subject mechanic’s lien is otherwise valid. Thus, if a mechanic’s lien is filed in contravention of an enforceable agreement precluding it, as it was in DeGraw, remedies for willfully exaggerated liens are unavailable.

In Degraw, a subcontractor and general contractor entered into a settlement agreement which provided that if either party breached the agreement, the other party’s sole remedy would be to enforce the agreement. Nonetheless, when the general contractor failed to make certain payments under the agreement, the subcontractor filed mechanic’s liens against the relevant properties and commenced lien foreclosure actions.

The general contractor moved for summary judgment, which the trial court granted, finding that the mechanic’s liens were invalid because they were barred by the settlement agreement. That court awarded the general contractor damages representing the amount of premiums for the bonds given to discharge the mechanic’s liens. The general contractor appealed, claiming it was also entitled to additional damages and attorneys’ fees based on its claim that the subcontractor willfully exaggerated the mechanic’s liens.

April 27, 2020

The Challenge of Proving Willful Exaggeration Under The Lien Law

By Steven Cramer

In J. T. Magen & Co., Inc. v. Nissan North America, Inc., 178 A.D.3d 466 (First Dep’t 2019), the court applied some basic principles concerning willful exaggeration under the Lien Law to an unusual set of facts. While the court did not explicitly refer to Lien Law Section 39, it underlies the entire case. Section 39 permits a court to cancel a mechanic’s lien that is found to have been willfully exaggerated.

The unusual facts are these: defendant Nissan sought to dismiss plaintiff contractor J. T. Magen’s (“JTM”) lien foreclosure action where JTM’s lien was filed against the entire building in which both Nissan and a non-party, BICOM, had leasehold interests. To confuse matters, JTM’s construction contract was with non-party BICOM only, but called for JTM to perform construction work on both BICOM’s and Nissan’s spaces.

Nissan argued that the lien was willfully exaggerated because JTM failed to differentiate and apportion its lien based on the work it performed for the two separate tenants, Nissan and BICOM. Nissan also claimed JTM had walked off the job before it ever performed any work on Nissan’s space, so that Nissan did not benefit from the work that was the basis for JTM’s lien.

April 20, 2020

Validity Of No Damage For Delay Clause In Construction Contracts

By Trista W. McConnell

It is becoming increasingly evident that “no-damage-for-delay” provisions in construction or building contracts will be strictly enforced except in rare instances. This principle was recently reiterated by the First Department in WDF Inc. v. Turner Constr. Co., 177 A.D.3d 513, 112 N.Y.S.3d 133 (1st Dept. 2019), which held that a prime contractor’s internal e-mail assessing potential delay damages was irrelevant to the enforceability of the broad no-damages-for-delay clause in the subcontract. Id., 177 A.D.3d at 514. The Court rejected the argument that the email constituted a party admission of liability, stating that it was apparent from the email that the prime contractor was assessing the costs claimed by the subcontractor, rather than the viability of the subcontractor’s claims under the terms of the subcontract. Id. Based on this reasoning, the Court stated that “[t]he fact that [the prime contractor] evaluated whether [the subcontractor] incurred delay damages is irrelevant to the enforceability of the no-damages-for-delay clause.” Id.

The First Department also noted that the case was “strikingly similar” to a separate action brought by the subcontractor seeking delay damages, wherein the Court concluded that alleged poor administration or planning was insufficient to overcome a no-damages-for-delay clause in a construction contract. WDF, Inc. v. Trustees of Columbia Univ. in the City of N.Y., 170 A.D.3d 518, 96 N.Y.S.3d 42 (1st Dept. 2019). As a result, the Court found that the no-damage-for-delay provision in the contract was still applicable, as a matter of law.

Recent standard construction contracts issued by the City of New York for its public projects have eliminated the no-damages-for-delay clause, although they still have stringent notice provisions. Nonetheless, many construction contracts with private owners contain this provision. Contractors presented with this kind of exculpatory clause should attempt to remove this language or at least limit the terms.

April 13, 2020

Contractors Cannot Use Contractual Limitations Periods to Wholly Preclude Actions

By Daniel J. Swayze

Digesare Mechanical, Inc. v. U.W. Marx, Inc. stands for the principle that while parties are free to contract to to shorten the six-year statute of limitations period for breach of contract they cannot use such a limitation to effectively preclude such a claim in its entirety. 176 A.D.3d 1449, 112 N.Y.S.3d 306 (3d 2019).

The case effectively concerned a dispute between a subcontractor and a contractor in which the subcontractor alleged that the contractor had not fully paid it for work completed on a project. The relevant subcontract contained a limitations period provision stating that the subcontractor was required to bring any claim within six months of its last day of work.

Additionally, the subcontract contained a provision providing that the subcontractor would be paid by the contractor when the contractor was paid by the owner. The court determined that this provision was a permissible pay-when-paid provision rather than an unenforceable pay-if-paid clause. However, it was the combination of the pay-when-paid provision in conjunction with the shortened contractual limitations period that rendered the limitations clause unenforceable.

January 2, 2020

Second Department Upholds Mechanic’s Lien for Pre-Construction Services

By Daniel E. Katz

The New York Lien Law provides broad categories for the type of work, labor, or services for which a contractor can file a mechanic’s lien if it is not paid. Owner’s typically argue that a contractor, construction manager, or design professional which perform preconstruction services cannot file a mechanic’s lien if it is unpaid. Not surprisingly, contractors, construction managers, and design professionals take the opposing position. Courts have continued to grapple with this issue. The Second Department recently adopted a nuanced opinion, finding that certain preconstruction services were lienable, but others were not. This blog also updates a previous posting of ours (September 27, 2018), where we discussed the lower court opinion which is now the subject of this appeal.

In Old Post Road Associates, LLC v. LRC Construction, LLC, 177 A.D.3d 658 (2d Dept. 2019), a construction manager, LRC Construction, LLC (“LRC”), filed a mechanic’s lien based upon the preconstruction services it had performed. The owner (“Old Post Road”) moved to dismiss the lien pursuant to Lien Law Section 19(6) because it alleged the services in question did not permit a lien, and thus the lien contained a “facial defect.” Lien Law Sections 2(4) and 3 state, in substance, that a lien may only be filed if the work, labor or services were for “demolition, erection, alteration or repair of any structure” which constitutes a “permanent improvement” upon the property in question. Drawings, plans, or specifications prepared by an architect, engineer, or designer can also qualify in certain instances.

Old Post Road argued in support of its application that LRC’s lien included a claim for services such as consulting for construction phasing and the preparation of budgets. Various cases support the conclusion that those services are not lienable. (see, e.g., Goldberger-Raabin, Inc. v 74 Second Ave. Corp., 252 N.Y. 336, 341-342 (1929).