New York Commercial and Construction Lawyer Blog

Recent Decision Highlights the Fact that Contractually Shortened Statute of Limitations Provisions Are Enforceable

July 1, 2016 | by Daniel E. Katz

One should always be aware of contractually shortened statute of limitation provisions in insurance contracts, as was highlighted in the recent case of Chandler Management Corp. v. First Specialty Insurance (Sup. Ct. N.Y. Co. Docket No. 509677/15).

In this case, Chandler purchased insurance coverage for an apartment complex it owned in Dallas, Texas. The policy specifically stated that the parties submitted to the exclusive jurisdiction of the New York courts, and that the laws of the State of New York would govern. More importantly, the policy stated that any lawsuits regarding coverage must be commenced within twelve months of the date of the physical loss or damage.

According to Chandler, its apartment sustained roof damage on or about May 24, 2011. On June 25, 2012 it commenced a lawsuit in the District Court of Dallas, Texas, apparently unaware of the above noted provisions. The case was dismissed by the trial level court because of the New York forum selection clause and this holding was affirmed on appeal.

New York Court Clarifies Various Issues Regarding Cooperatives and the Lien Law

June 14, 2016 | by Megan Gardner

On April 28, 2016, Justice Robert R. Reed’s decision in Chase et al. v. 360 General Contracting, (Supreme Court, County of New York Index No. 152275/2016) dismissed and vacated two separate mechanic’s liens filed against a cooperative unit. In doing so, Justice Reed clarified two issues with respect to cooperative units and the Lien Law.

First, Justice Reed’s decision in Chase clarified that for purposes of the Lien Law, cooperative apartments are considered single family dwellings subject to the four month filing requirement. In Chase, a mechanic’s lien was filed five months after the last day that work, labor and services were performed in connection with the construction of an individual unit within a cooperative building. Justice Reed, noting that previous courts applied the four month filing period to individual cooperative apartments (as opposed to the eight month filing period for commercial projects), also applied the four month filing period in Chase. He held that under Lien Law §10(1), the four month filing period applied to individual cooperative apartments, so long as the work is done by mechanics solely on the individual unit, and not to common areas of the building as a whole. Accordingly, the mechanic’s lien filed against the individual cooperative unit beyond the four year filing period was vacated and dismissed.

Second, Justice Reed’s decision in Chase clarified that under the Lien Law, a mechanic’s lien filed against a cooperative unit must name the cooperative corporation as the owner of the real property. In Chase, Justice Reed dismissed a second mechanic’s lien, which, although filed within the four month period, incorrectly named the proprietary leaseholders as the owners of the real property. Justice Reed indicated that even though leaseholders are not immune from the requirements of the Lien Law, it is improper and erroneous to identify such leaseholders as owners of the real property with respect to that location. Individuals are merely leaseholders of units and the real property is owned by a separate corporation. Accordingly, because the failure to name the cooperative corporation as the real property owner constitutes a total misidentification of the property owner, the second mechanic’s lien was vacated and dismissed. It is insufficient to merely list the leaseholders as owners of a cooperative unit in a mechanic’s lien.

Blanket Endorsement or Law Coverage Endorsement Requires Direct Connection

June 13, 2016 | by Daniel E. Katz

Insurance issues, especially regarding construction and flood related claims, continue to draw heightened interest by the appellate courts. In St. George Tower v. Ins. Co. of Greater N.Y. (1st Dep’t, April 21, 2016), the First Department was presented with whether a claim was covered by a “blanket endorsement or law coverage endorsement.”

Plaintiff cooperative corporation purchased a commercial general liability policy from Defendant insurer covering the relevant time period. After a pump ruptured and damaged the ceiling and floors in a certain apartment, Plaintiff submitted a claim to Defendant, and Defendant provided coverage for the damages sustained to certain apartments. The flooding also caused mold to develop in certain other units. As a result, Plaintiff’s architect filed an application pursuant to Directive 14 of the New York City Department of Buildings.

During the architect’s inspection it was discovered that certain concrete slabs were in a deteriorated condition and required repairs pursuant to the New York City Administrative Code. The condition of the slabs was not caused by the flooding. Rather, it was apparently caused by poor construction practices during the initial installation.

Court Finds That Contractor Demonstrated Good Cause to Allow Extension of Mechanic’s Lien Nunc Pro Tunc

May 25, 2016 | by Trista W. McConnell

The Nassau County Supreme Court recently held that a contractor demonstrated good cause allowing the Court to extend the contractor’s mechanic’s lien nunc pro tunc.

The action was initially commenced by the property owner, who sought an order pursuant to Lien Law Section 19 discharging and vacating a mechanic’s lien filed by All Sons Electric Corp. (“All Sons”) against a single family residence on the ground that the mechanic’s lien expired by operation of law. Pursuant to Section 17 of the Lien Law, a mechanic’s lien automatically expires one year after filing unless (i) an extension is filed with the County Clerk or (ii) an action is commenced to foreclose the lien and a notice of pendency is filed. Section 17 further provides that a lien filed against a single family dwelling may only be extended by court order. Here, All Sons filed an extension of lien and paid the appropriate fee within the one year time period, but failed to obtain a court order authorizing the extension.

In response to the owner’s application to discharge the lien, All Sons cross-moved for leave to file its extension of lien nunc pro tunc. The Court, recognizing that a lien automatically expires by operation of law if an extension is not timely filed or a foreclosure action commenced, focused on the fact that All Sons had filed an extension with the County Clerk within the one year period. This distinguished All Sons’ situation from that presented in the case relied on by the owner, wherein the contractor failed to do anything within the one year period (see Aztec Window & Door Mfg., Inc. v. 71 Vill. Rd., LLC, 60 A.D.3d 795, 875 N.Y.S.2d 528 (2^nd Dept. 2009)).

Spoliation Of System Metadata Is Sanctionable Despite Delayed Request For Information

May 13, 2016 | by Victor Rivera Jr.

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.

Non-Resident Attorney Office Requirement Survives Constitutional Challenge

May 10, 2016 | by Victor Rivera Jr.

The Second Circuit, acting after receiving guidance from the New York State Court of Appeals, has rejected the assertion of a New Jersey attorney that New York’s “working office” requirement was unconstitutional. In Schoenfeld v. Schneiderman, et al., 2016 WL 1612845 (2^nd Cir. 2016), decided on April 22, 2016, a divided panel upheld the requirement of N.Y. Judiciary Law § 470 that a nonresident member of the state bar could only conduct the business of law in the State of New York if she had a physical office for the transaction of business within the State. For now, the ruling clarifies the type of office needed to meet this requirement beyond merely having an address at which to receive service.

In Schoenfeld, the plaintiff was a resident and attorney of the State of New Jersey who had passed the New York bar and believed that the working office requirement was a violation of the Privileges and Immunities Clause of Constitution (U.S. Cons., art. IV, § 2) prohibiting discrimination by one State against the citizens of another State. Plaintiff argued that, insofar as New York residents could fulfill the office requirement with a home office, it was discriminatory against non-resident attorneys who could not similarly practice law out of their homes. After a judge in the Southern District of New York agreed, the New York Attorney General (“NYAG”) appealed the decision to the Second Circuit. The NYAG argued that the no constitutional impediment should be found because (1) the office requirement could be met by having an address at which service could be made within the State and, (2) even if non-resident attorneys were treated differently, any burden was insubstantial and substantially related to the oversight of service of papers within the State. Upon the filing of the appeal, in order to determine if there was a threshold constitutional question, the Second Circuit certified a question for the New York Court of Appeals to answer: what are the minimum requirements necessary to meet the working office requirement of Judiciary Law § 470? In an opinion that tracked the history of the statute and its predecessors, the New York Court of Appeals determined that, since the original requirement that an office was needed for service of process concerns had been severed from later versions of § 470, the wording of the statute at present could only mean that a physical office located within the State of New York, and not just an address for service of papers, was required. Schoenfeld v. State of New York, et al., 25 N.Y.3d 22 (2015).

Having received the answer to its certified question, the Second Circuit then ruled, based on its interpretation of the U.S. Supreme Court opinion in McBurney v. Young, 133 S. Ct. 1709 (2013). The Second Circuit held that, in the absence of any “protectionist” intent with respect to the passage of the original version of the statute, the mere fact that citizens of other states may be treated differently did not automatically result in a violation of the Privileges and Immunities Clause. 2016 WL 1612845, at *5. With specific regard to Judiciary Law § 470, the Second Circuit found that the statute had been enacted to ensure that non-resident attorneys could practice in New York, not to protect New York attorneys from non-resident attorneys. Thus, no protectionist intent was shown. Id., at *5 – *7. The Second Circuit further noted that the working office requirement was not a substantial burden on a non-resident attorney’s ability to practice law. Id., at *8. Indeed, the Second Circuit argued that plaintiff herself was seeking favoritism in light of her request to be freed from a restriction that applied to every member of the New York State Bar wishing to practice law in the State. Id., at *9.

Supreme Court Addressees indemnification Issue of First Impression

April 26, 2016 | by Daniel E. Katz

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 Court of Appeals Issues Decision on Spoliation for Negligently Destroyed ESI

February 18, 2016 | by Trista W. McConnell

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.

Summary Judgment Denied Where Issue Of Fact Exists As To Whether Seller Was “Ready, Willing And Able” To Close

December 28, 2015 | by Victor Rivera Jr.

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 (1^st 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.

First Department Upholds Contractual Indemnification Claim

December 21, 2015 | by Victor Rivera Jr.

The First Department has reversed a trial court ruling dismissing a third-party action where an architect claimed that a contractual indemnification clause in its agreement with the sponsor of a condominium development was of no consequence.

In Board of Managers of Hester Gardens v. Well-Come Holdings, LLC, 128 A.D.3d 601, 10 N.Y.S.3d 72 (1st Dep’t 2015), the First Department considered a lower court dismissal of a third-party complaint brought by the sponsor of a condominium development (the “Sponsor”) against, among others, the architect retained by the Sponsor to design the development and inspect the on-going construction (the “Architect”). The Sponsor had already been sued by the Board of Managers of the development (the “Board”) for numerous alleged defects in the design and construction of the development. As is typically the case, many of the claims of the Board sounded in negligence and fraud due to the alleged failure of the development to conform to the statements and plans published in the offering documents and other advertising materials. The Architect was also sued by the Board, but successfully obtained dismissal of the claims against it because there was no contract between itself and the Board (or any of the individual unit owners).

After the Architect was dismissed from the main action for lack of privity, the Sponsor brought a third-party action against the Architect (and others) alleging that, under the relevant contract, the Architect was liable to indemnify the Sponsor for the Architect’s own “intentional acts, errors and omissions” and breaches of the contract. The Architect moved, pre-answer, to dismiss the third-party complaint, alleging, among other things that, due to the nature of the primary claims against the Sponsor, i.e, negligence and fraud, the third-party action actually sought indemnification from the Architect for the Sponsor’s own bad acts.