Privity is Alive and Well in New York Construction Law Breach of Contracts Matters

The sponsor of a condominium complex attempted to hold a subcontractor responsible for various construction defects in 610 West Realty, LLC v. Riverview West Contracting, LLC (N.Y. Sup. Ct. Co. Index No. 15537/2013).  The Court, in a decision dated May 24, 2016, upheld the concept of privity in granting the subcontractor’s motion for summary judgment.

The sponsor had hired BFC Construction, which in turn hired A-1 Testing Laboratories Inc., to provide fire proofing inspection for the building.  The sponsor alleged that A-1 had failed to detect and report certain defective work performed by another subcontractor and thus was liable to the sponsor in contract and for negligence.   The sponsor also made a fraudulent conveyance claim against A-1.

A-1 moved for summary judgment, arguing that it could not be liable for breach of contract to the sponsor because there was no privity between it and the sponsor, and the sponsor was not a third party beneficiary of A-1’s contract with BFC.  It also argued that it could not be liable to the sponsor for negligence because the sponsor’s claims were solely founded upon economic loss.  Lastly, A-1 alleged that the sponsor’s claims were barred by the statute of limitations.

The court, by the Honorable Debra James, largely accepted A-1’s arguments and dismissed the complaint.  The sponsor was only seeking the benefit of its bargain under the subcontract rather than any damages to its property.  Thus, because this only constituted a claim for economic loss, the negligence claim must be dismissed.

The breach of contract claim was also summarily disposed.  There was no privity of contract between A-1 and the sponsor, and there was no language in A-1’s contract with BFC in which A-1 made any direct promises to the sponsor.  Neither could the sponsor set forth any facts establishing that it was a third party beneficiary of A-1’s contract with BFC.

The sponsor was able to create a question of fact regarding A-1’s statute of limitations defense, but that was not enough to sustain the complaint because the underlying claims for breach of contract had no merit.

Lastly, the sponsor’s cause of action for a fraudulent conveyance between A-1 and another defendant was dismissed for lack of specificity.

This case is another in a long list of examples which establish that privity is alive and well in New York, at least as it relates to breach of contract claims in the construction law context.