Construction Law Blog

Violation of the New York Prompt Payment Act Does Not Bar Defenses

Posted on Wed, Jul, 22, 2015


General Business Law Section 756 (and the sections that follow it), commonly known as the Prompt Payment Act, establish requirements for how soon a construction contractor or subcontractor must be paid and allow expedited arbitration in the event that prompt payment is not made for qualifying projects. Not all projects however fall under the requirements of the PPA, and the act specifically limits its application to non-public projects, having specific square footage and residential unit limitations, and does not apply to reconstruction, alteration, demolition or relocation of an existing structure.

In Donninger Construction, Inc. v. C.W. Brown, Inc.,[1] a subcontractor sued a general contractor for amounts which were claimed to be due under a construction contract. The subcontractor claimed that the contractor’s failure to issue a written disapproval of the subcontractor’s invoices, as required by the Prompt Payment Act, should bar the contractor from raising any defense in the lawsuit.

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Reviewing the available remedies in the Prompt Payment Act, which include the imposition of interest and referral to arbitration, the court observed that “nothing in General Business Law § 756–b provides that a contractor's failure to timely disapprove or make payment on an invoice prevents the contractor from contesting, acts as a waiver of a contractor's ability to contest, or constitutes an admission that the contractor owes the invoiced sum.”

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It allowed the contractor’s defenses and deducted for, among other things, back charges, incorrect invoicing, and improper performance of certain contract work, reducing the subcontractor’s damages from $216,000.00 to $18,479.00.

[1] 113 A.D.3d 724, 979 N.Y.S.2d 133 (2nd Dep’t 2014) 

Your comments and future article topic suggestions are invited in the field below.

John_Caravella_construction_lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice.

Tags: Construction Litigation, Construction Contract, Prompt Payment Act, New York Prompt Payment Act, Payment Act Violation

Top 5 Tips for New York Residential Contractors

Posted on Wed, Jul, 15, 2015

Often times in discussions with contractors I hear many of the same types of issues repeat themselves, and from the perspective of counsel, quite preventable. While not every potential problem on a project can be determined upfront, keeping the following 7 tips for contractors in mind might be helpful in preventing problems, improving business practices, and effectively managing risks.

1.     Be proactive throughout the project. You know that your work is good, and you expect your project owner to be pleased, but some owners may be difficult or unreasonable to please. Sometimes complaints as to work in the trailing end of a project can also be made as a pretext to avoid making full payment. For that reason, don’t wait for problems to arise. You should document the quality, completeness, and progression of your work as you are working on the project. I have seen projects where contractors were no longer allowed access to the project, and obtainng access to document completeness of work can be difficult once a problem arises. 

At a minimum, you should be photographing conditions of all areas of the site within the scope of your work to show (1) existing conditions at the time you begin work, (2) inspection phases, (3) substantial completion, and (4) final completion.

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2.         Develop a good contract. Being proactive in risk management means not only ensuring that you have contracts in place for any work performed, but the terms and conditions of the contract also need to be specifically tailored to meet the project requirements as well as protecting your business interests. Time spent having contracts prepared that properly fit the project can provide significant benefits to the contractor should a dispute actually develop. Benefits such as being able to recover any legal fees and costs, selection of venue, the forum for resolution (mediation, arbitration, or litigation). Only by taking the time to develop enforceable contracts can a contractor take advantage of these provisions.

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3.         File mechanics’ liens promptly. Contractors need to be aware of the relatively short time frame allowed under New York law for them to file a lien. If the contractor spends too much time trying to work with their owner who is not interested in making payment, they may also inadvertently allow their lien rights to expire. (Once they are expired, no nothing can be done to revive those rights).

Mechanics’ liens are quick and easy to file, and, by placing a lien on the project, you may motivate  payment. However, mechanic’s liens are governed by the New York Lien Law, which imposes a strict deadline to file (8 months, 4 months for single family residential projects) from the contractor's last date of work. The requirements of the Lien Law also has strict requirements in form, content, and proper calculation of the lien amount, which may vary from a contract amount. Filing a lien for an amount in excess of the lianable amount can be deemed a wrongful lien. Filing a wrongful lien could expose the contractor to liability and legal fees from the owner in an action to remove the lien, and on complicated projects the contractor is recommended to consult legal advice and assistance in mechanics lien preparation and filing in New York..

4.         Confirm verbal modifications and changes. Although it is not uncommon for an owner to make verbal changes to your contract work, there is always risk when you modify a written contract. For that reason, when a project owner makes verbal modifications or changes to your contract, follow up by composing and sending an email or letter confirming the verbal change and authorization to proceed as stated. Your goal is to create a record at the time of the change so that you are not faced with a your-word-against-theirs situation if trouble arises later. Taking the time to compose and send a short email to confirm the jobsite discussion, what changed work was approved, as well as the agreed upon time and compensation adjustment for the change, including noting who approved the change, can help ensure understandings and prevent miscomunicaiton.

5.        Licenses.   If you anticipate improving any existing residence it falls upon you to confirm all licenses that may be required on the project and ensure that all are obtained and maintained. Depending on the work, licenses could be required from (i) village level; (ii) town level; and/or (iii) county level. The same holds true for any work to be performed by subcontractors. The failure on the contractors part to ensure that all required licenses are obtained leaves you no other definition under the law other than being an unlicesed contractor.

Contractors and their subs who fail to hold all required licenses may find their legal claims being dismissed in court. This true whether the contractor seeks a contract claim for payment or a claim for unjust enrichment. The contractor would also be barred from recovery whether in court litigation or in arbitration under New York law, or foreclosure of a mechanic's lien. Al-Sullami v Broskie, 40 AD3d 102[2d Dept. 2007],  Ellis v Gold, 204 AD2 261 [2d Dept. 1994].

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As always, there is no way to guarantee that your project will be free of issues. By following these tips, however, you may both limit the number of disputes with project owners and put yourself in a betterposition should disputes arise.
Your comments and future article topic suggestions are invited in the field below.
John Caravella, construction attorney The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice.

Tags: Construction Contract, Long Island Contractors, Contractor Liability, Construction, Insurance Coverage Requirements, construction risk evaluation, contractors, lien rights

Protections Provided to New York Architects and Contractors under the Economic Loss Rule

Posted on Tue, Jul, 07, 2015

THE ECONOMIC LOSS RULE IN NEW YORK CONSTRUCTION CONTRACTS:

WHAT IT IS AND HOW IT MAY BENEFIT CONTRACTORS AND ARCHITECTS

     The “economic loss rule” is a rule that New York courts use to prevent a plaintiff from recovering against a defendant for a tort (usually negligence), when the essence of the plaintiff’s claim is for failure to live up to the terms of a contract. This doctrine does, however, have exceptions, and it becomes tricky when applied to service contracts such as construction contracts. Nevertheless, there are circumstances when the economic loss rule might eliminate a contractor or subcontractor’s liability entirely.

     First, “economic loss” includes damage to the value of a product (such as costs to replace or repair the product), lost profits and business opportunities, loss of use of the product, and a product’s failure to perform as expected. One court has said that “the essence of economic loss is that it is occasioned by the failure of the product to perform at the level of performance expected by the buyer, resulting in a loss of the bargain.”[1] Personal injury is not considered economic loss,[2] so this rule does not apply to lawsuits where people have been hurt by a contractor’s alleged error. Also, damage to “other property” is not considered economic loss, but the definition of “other property” is narrow and does not, for example, include the premises in which a product was installed.[3] In the context of construction contracts, the real estate that is improved will therefore generally not be “other property”, and the economic loss rule would bar negligence claims for damage to that property.

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     The economic loss rule is typically applied in the context of product liability suits involving the manufacture and sale of goods, but it also comes up in the context of service contracts such as construction contracts; however, New York law recognizes exceptions to its application to service contracts.[4] For example, the courts of New York have consistently said that professionals—such as architects and engineers—have a separate legal duty imposed by the law and may be sued for malpractice for a failure to exercise reasonable care in performing their contract duties.[5] This duty is considered separate from the duties which the professional assumed under the contract and supports a negligence-based cause of action even where the plaintiff’s injury is considered economic loss.

     With respect to non-professionals such as contractors and subcontractors, there is no hard-and-fast rule, and a close inspection of the facts of an individual case is required to determine whether the economic loss rule might bar negligence and other tort claims. As a rule, the breach of a duty imposed by a contract only gives rise to a suit for breach of contract; however, courts hearing lawsuits by plaintiffs alleging negligence and related claims against defendants look into whether the law imposes a separate duty, the type of damage which the plaintiff has suffered, and the manner in which the injury occurred.[6] Courts have allowed negligence claims to stand alongside or replace breach of contract claims where there was personal injury or damage to property, and where the damage occurred by accident in an “abrupt, cataclysmic occurrence”.[7]

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     The failure of a contractor to act in accordance with regulations governing his or her conduct might also give rise to a separate duty which would support an action for negligence.[8] Ultimately, only an attorney can review the facts of your specific case and advise you whether the economic loss rule might apply, but situations in which a negligence cause of action exists between the parties to a contract remain the exception rather than the rule.

     At this point you may be wondering how this matters to you. After all, if a homeowner can’t sue you for negligence, he can still sue you for breach of contract, can’t he? Actually, where the plaintiff is not a party to your contract, the economic loss rule might defeat his case. A plaintiff in a breach of contract action has to establish either that he was a party to the contract or that the contract was intended to benefit him.[9] This rule applies both to breach of contract suits against contractors or subcontractors and breach of contract or malpractice suits against architects.[10] This defense might benefit a subcontractor or an architect who is hired by a general contractor and therefore did not directly have a contractual obligation to the homeowner, barring a lawsuit entirely.

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     In sum, New York contractors and subcontractors should be aware of the economic loss rule in the event that they find themselves defending against lawsuits by property owners, as, in general, a negligence action against a contractor or subcontractor only exists if a personal injury occurred as a result of the contractor’s alleged failure(s). The rule is less applicable to architects, although the traditional defense that a plaintiff was not a party to the contract with the architect still exists in some instances. Only an attorney can advise you in any given instance whether the economic loss rule applies to the facts of your circumstances and, if it does, what benefit it might confer.

Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorneyThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608–1356 or (516) 462-7051.

     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.


[1] Arell's Fine Jewelers, Inc. v. Honeywell, Inc., 170 A.D.2d 1013, 1017, 566 N.Y.S.2d 505, 509 (4th Dep’t 1991).

[2] Amin Realty, LLC v. K & R Const. Corp., 306 A.D.2d 230, 231-32, 762 N.Y.S.2d 92, 93-94 (2nd Dep’t 2003).

[3] Washington Apts., L.P. v. Oetiker, Inc., 43 Misc. 3d 265, 978 N.Y.S.2d 731, 736 (Sup. Ct. Erie Co. 2013).

[4] See, Consol. Edison Co. of New York, Inc. v. Westinghouse Elec. Corp., 567 F. Supp. 358, 364 (S.D.N.Y. 1983) (reviewing case law).

[5] 17 Vista Fee Associates v. Teachers Ins. & Annuity Ass'n of Am., 259 A.D.2d 75, 83, 693 N.Y.S.2d 554, 559-60 (1st Dep’t 1999).

[6] Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 552, 593 N.E.2d 1365 (1992).

[7] Id.

[8] Id.

[9] Ralston Purina Co. v. Arthur G. McKee & Co., 158 A.D.2d 969, 970, 551 N.Y.S.2d 720, 722 (4th Dep’t 1990).

[10] See, e.g., Key Int'l Mfg., Inc. v. Morse/Diesel, Inc., 142 A.D.2d 448, 453, 536 N.Y.S.2d 792, 795 (1988).

Tags: Construction Litigation, Construction Contract, Architect Liability, New York Construction Law, construction contract law, performance bond, negligent construction, New York Economic Loss Rule

Enforcement of New York Arbitration Awards

Posted on Wed, Jul, 01, 2015

 

An arbitrator has ruled in your favor. What do you do now? In a perfect world, the other side would just pay you and be done with it, but we all know that this world is less than perfect, and you may find yourself having to enforce your arbitration award. Before you can avail yourself of the enforcement techniques that are provided by New York law, you’re going to have to follow some formalities. The followingelements may be necessary for have your arbitration award 'confirmed' and seek collections.

  1. THE ARBITRATION AWARD MUST BE CONFIRMED BY THE COURT

 At the end of the arbitration, the arbitrator issues a written decision and delivers a copy to each party. At this point, the arbitration award does not have the same effect as a judgment issued by a court and cannot be enforced in the same manner, but it can become a judgment. In order to do that, you must first have the award confirmed by a court.[1]

Whenever you ask a court to step into a dispute involving an arbitration, you have to file a type of suit called a special proceeding. The court will schedule a hearing on your request and, unless circumstances warrant a court’s refusing to confirm the award, the court will issue a judgment confirming the award. (Without going too far into it, a court might refuse to confirm an award if the other party is in bankruptcy,[2] if the terms of the award are illegal,[3] or if the arbitrator committed some form of misconduct such as refusing to hear relevant witnesses or evidence.[4]) Assuming that the court confirms the arbitration award, the court will issue a judgment.

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A word of caution is in order: New York law requires that an application to confirm an award be made within one year of the arbitrator’s delivery of the award to the parties.[5] A failure to seek confirmation is one of the grounds for denying a petition to confirm an award,[6] so you would do well to seek legal counsel regarding confirming and enforcing the award promptly after receiving it.

       2. THE JUDGMENT CONFIRMING THE ARBITRATION AWARD MUST BE FILED

Once the award has been confirmed and a judgment issued, the judgment must be entered,[7] which is done by filing it with the county clerk in the county where the judgment was issued. Other documents which must be filed with the county clerk as part of this process are copies of the arbitration agreement, the arbitration award, and each paper that was served by the parties in connection with the special proceeding or motion to confirm the award (these are called the “judgment-roll”).[8] This filing puts your judgment on record and allows you to begin enforcement proceedings.

      3. THE JUDGMENT CREDITOR LOCATES AND FREEZES THE JUDGEMENT DEBTOR'S ASSETS

Now that your arbitration award has been converted into a judgment, you can take advantage of the numerous enforcement techniques that are available under New York’s Civil Practice Law and Rules. At this point, you have become a judgment creditor, and the person who owes you has become a judgment debtor. Your enforcement effort has three steps: identifying assets that belong to the judgment debtor; freezing those assets; and getting them turned over to you.

Possibly the most important factor in enforcing your award is locating assets that might satisfy the judgment. To do this, the Civil Practice Law and Rules allow a court or a judgment creditor’s attorney to issue subpoenas requiring judgment debtors and others in possession of a judgment debtor’s assets, such as banks, to be questioned under oath, to produce documents, or to produce information.[9] Typically, your attorney issues information subpoenas to the judgment debtor and any banks at which you have reason to believe the judgment debtor has accounts; the judgment debtor and banks are required to respond with information regarding the judgment debtor and its assets. Another way for your attorney to attempt to locate the judgment debtor’s property is to question him under oath. If the judgment debtor refuses to respond to your information subpoena or appear to be questioned, you may be able to ask the court to fine and arrest the judgment debtor for contempt.[10]

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To prevent the judgment debtor from hiding or doing away with assets once you locate them, the Civil Practice Law and Rules allow a court or a judgment creditor’s attorney to issue restraining notices. Once a restraining notice has been served on a judgment debtor—or anyone in possession of the judgment debtor’s assets, such as a bank—that person is forbidden to move those assets unless directed to do so by a sheriff or court order until the judgment is satisfied.[11]

Once assets have been located and restrained, the final step is to release those assets into your hands to satisfy the judgment. The judgment creditor may ask the court to order that the judgment creditor or his bank (or other person in possession of his property) give money or property to the judgment creditor to put toward the judgment.[12] The judgment creditor’s attorney can also submit an income execution to the county sheriff to garnish the judgment debtor’s wages until the judgment is satisfied,[13] in which case the sheriff’s office collects periodic payments from the judgment debtor’s wages and forwards them to the judgment creditor’s attorney. Finally, the judgment creditor can place a levy on the judgment debtor’s real estate or personal property (i.e. cars, televisions, etc.) by submitting a property execution to the sheriff’s office[14] and, in some cases, can have the judgment debtor’s property sold to satisfy the judgment.[15]

There are, of course, exceptions to your ability to freeze and obtain the judgment debtor’s assets. The Civil Practice Law and Rules forbid the restraint of certain types of funds in a judgment debtor’s account, including most kinds of public assistance money and 90% of wages earned in the last sixty days; they prohibit the sheriff’s office from taking more than a certain amount of the judgment debtor’s disposable income through an income execution; and they allow a judgment debtor to claim exemptions for certain property so that it cannot be seized to satisfy a judgment, including the judgment debtor’s own home. Your attorney can discuss these in more detail with you. Basically, the judgment debtor is entitled to have a certain amount to live on, and your enforcement efforts can only reach the surplus.

New York law allows the winner of an arbitration to collect on it in the same manner as a judgment issued in connection with a court case. Although there is no guarantee that the other party will have assets from which the award can be satisfied, New York law provides an array of techniques which, in the hands of an experienced attorney, may help you satisfy that debt.

Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorneyThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608–1356 or (516) 462-7051.

     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.



[1] N.Y. C.P.L.R. 7510.

[2] Taylor v. Brodt, 90 Misc. 2d 793, 396 N.Y.S.2d 143 (Sup. Ct. N.Y. Co. 1977).

[3] Meyers v. Kinney Motors, Inc., 32 A.D.2d 266, 301 N.Y.S.2d 171 (1st Dep’t 1969).

[4] Katz v. Uvegi, 18 Misc. 2d 576, 187 N.Y.S.2d 511 (Sup. Ct. Queens Co. 1959) aff'd, 11 A.D.2d 773, 205 N.Y.S.2d 972 (2nd Dep’t 1960).

[5] N.Y. C.P.L.R. 7510.

[6] Salamon v. Friedman, 11 A.D.3d 700, 783 N.Y.S.2d 651 (2nd Dep’t 2004).

[7] N.Y. C.P.L.R. 7514(a).

[8] N.Y. C.P.L.R. 7514(b).

[9] N.Y. C.P.L.R. 5224.

[10] N.Y. C.P.L.R. 5210.

[11] N.Y. C.P.L.R. § 5222(b).

[12] N.Y. C.P.L.R. 5225.

[13] N.Y. C.P.L.R. 5231.

[14] N.Y. C.P.L.R. 5230.

[15] N.Y. C.P.L.R. §§ 5233, 6236.

Tags: arbitration, construction arbitration, long island arbitration

New Contractor Regulation Effective December 2014

Posted on Tue, Nov, 18, 2014

 

Residential contractors in New York will soon be required to provide certain homeowners with information relating to the benefits and costs of having automatic fire sprinkler systems installed.

The New York Legislature, this past August, passed emendments to the General Business Law and the Executive Law. These amendments will require all contractors in New York constructing single or 2 family homes, fewer than three stories, to provide the owner with written materials, to be prepared by the Office of Fire Prevention and Control.

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If the buyer chooses to have such a system installed, the builder is required to install the fire sprinkler system (at the owner’s expense). These changes appear in a new Article 35-F of the General Business Law, Sections 759 and 759-a, and a new Section 156, subdivision 21 of the Executive Law.

They take effect on December 3, 2014. Although the Office of Fire Prevention and Control has not yet released the materials you will need, you can check back at their Web site at http://www.dhses.ny.gov/ofpc/ for those materials to be released in advance of the effective date of the law. The full text of the law, Chapter 201 of the Laws of 2014, is available at http://public.leginfo.state.ny.us/frmload.cgi?MENU-40526013.

Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorney The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice.

Tags: Long Island Contractors, Construction, Pending Legislation, New York Construction Law, Long Island Builders, contractor regulation, Construction Specifications, regulations

John Caravella awarded 2014 Leadership in Law Award

Posted on Sat, Nov, 08, 2014

 

UNIONDALE, NEW YORK (Nov. 8, 2014) – LIConstructionLaw.com attorney John Caravella was recently named 2014 Leadership in Law Award winner in its sole practitioner category as decided by nominating members of the Long Island business community.

This is the second time in two years John Caravella has received recognition from the Long Island business community, having previously been named to its “Ones to Watch in Long Island Law” listing in 2012.

Caravella was one of 32 attorneys across various practice areas selected this year by the Long Island business community for recognition in its Leadership in Law Award, which ‘is dedicated to those individuals whose leadership, both in the legal profession and in the community, have had a positive impact on Long Island.’

“To be recognized by the Long Island business community in this way is a high honor, and I will continue working to maintain and build upon this recognition,” said Caravella. “I am extremely proud to have earned the trust and confidence of my construction industry clientele, who are the Long Island business community.”

The Leadership in Law Awards will be presented Thursday November 13, 2014, at the Crest Hollow Country Club, Woodbury New York. For further information on attending call the Long Island Business News at 631-737-1700.

Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorney The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

This is a general information article and should not be construed as legal advice or legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for specific advice on their concern.

Tags: Construction Litigation, Construction Networking, New York Construction Law, Leadership in Law Award

Punitive Damages Claims in New York Construction Contract Disputes

Posted on Tue, Oct, 14, 2014

     One topic that came up in my practice recently was a contractor's potential exposure to liability for punitive damages under New York law. As the name suggests, punitive damages are awarded above and beyond their contract or property damages, 'where the wrong done was aggravated by circumstances of violence, oppression, malice, fraud, ... on the part of the defendant, and are intended to address the plaintiff's mental anguish or other aggravation, to punish the defendant for its behavior.' Black's Law Dictionary 390 (6th Ed. 1991).

     Such additional damages may be awarded by New York courts against a party as a form of civil punishment or to make an example as to public policy considerations for conduct that is found to be especially wrongful. In other words, if you fail to pay a subcontractor and the subcontractor sues you, the subcontractor will be entitled to the money owed. If your conduct meets certain criteria, you might also face liability for an additional award, above and beyond what is owed, just to punish you. The purpose of this type of damage award is to deter particularly bad conduct.

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     Although you need to consult an attorney to determine whether you may be exposed to liability for punitive damages in any specific situation, some general rules appear in the court decisions. First, punitive damages are generally not available in the realm of a construction contract dispute. Although failing to perform contract requirements will cause liability, it usually will not be enough, in and of itself, to susbstantiate a claim for punitive damages (although the underlying contract obligation remains uneffected).

     Additional conduct must additionally occur which is deemed especially bad, such as committing fraud, misrepresentation, or some other type of wrong—what is called a “tort” in legal circles. New York’s highest court, the Court of Appeals, affirmed some time back that a party who only wants to get what he or she is owed under a contract does not have a tort claim, and, without such a claim, a party cannot obtain punitive damages.[1]

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     With respect to the construction business, plaintiffs in several cases have attempted to obtain punitive damages against a contractor, only to fail because the contractor’s conduct was not wrongful enough to justify punitive damages. In Schneer v. Bellantoni, the court declined to award punitive damages against a contractor even though he was not licensed as the building code required,[2] and, in Heller v. Louis Provenzano, Inc., the court refused to award punitive damages against a contractor that had failed to obey safety regulations when building.[3] Without getting into how morally good or bad these failures are, it seems clear that they are, if anything, careless rather than specifically calculated to do harm, and so punitive damages were not available in those situations.

     Second, even if a party acts wrongfully, punitive damages are not available for misconduct that only affects a private individual. The Court of Appeals has said that a private party seeking punitive damages has to show not only that the person they are suing acted wrongfully “but also that such conduct was part of a pattern of similar conduct directed at the public generally.”[4] Conduct that is the regular practice of a party, as opposed to isolated conduct that was only directed at one individual, is needed for punitive damages to be available.[5] On this theme, at least one court has found that claims against a construction contractor for defective and incomplete work are enough to maintain a claim for punitive damages under the state’s consumer protection statute,[6] but the courts have held that this statute, too, requires a showing that the wrongful conduct was directed at the public rather than just one individual consumer.[7] In practice, this means that you would normally not be liable for punitive damages for one isolated mistake; however, the application of the state’s consumer protection statute to construction contract disputes suggests that conduct that is directed at consumers such as residential homeowners may be monitored by the courts more strictly.

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     On the other hand, there are some circumstances when one isolated act can still affect the public enough to justify an award of punitive damages. To illustrate, in H. Novinson & Co., Inc. v. City of New York,[8] the City of New York was found to have grounds for seeking punitive damages against a contractor who had billed for work that had not been performed. In that instance, public moneys were expended because of the contractor’s false billing, and the tax base—and the public—were harmed. The lesson to take from cases like this is that New York contractors must be extra scrupulous when working on public improvements because the public has an interest in those projects, so the public interest angle of a claim for punitive damages may be easier to satisfy.

     Ultimately, in the punitive damages cases, the courts seems to have distinguished between careless or unintentional conduct, which does not support an award of punitive damages, and conduct which was calculated to cause harm and which was directed either at members of the public in general or at public funds. The rule remains, however, that private contract disputes are generally not a proper case to seek punitive damages.

     Your comments and future article topic suggestions are invited in the field below.

      John Caravella, construction attorneyThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608–1356 or (516) 462-7051.
     This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

[1] New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316 (1995).

[2] 250 A.D.2d 666, 672 N.Y.S.2d 756 (2nd Dep’t 1998).

[3] 303 A.D.2d 20, 25, 756 N.Y.S.2d 26, 31 (1st Dep’t 2003).

[4] Rocanova v. Equitable Life Assur. Soc. of U.S., 83 N.Y.2d 603, 613 (1994).

[5] Walker v. Sheldon, 10 N.Y.2d 401, 406 (1961).

[6] Ma v. Peters Const. Grp., Inc., 30 Misc. 3d 1202(A), 958 N.Y.S.2d 646 (Sup. Ct. Queens Co. 2010).

[7] C=Holdings B.V. v. Asiarim Corp., 12 CIV. 928 RJS, 2013 WL 6987165 (S.D.N.Y. Dec. 16, 2013).

[8] 53 A.D.2d 831, 385 N.Y.S.2d 317, 318 (1st Dep’t 1976).
 

 

 


Tags: Construction Litigation, Construction Contract, Long Island Contractors, Contractor Liability, construction contract terms, Architect Liability, New York Construction Law, construction contract law, Private Construction, construction risk evaluation, subcontractor agreements, subcontractor, Long Island Builders, construction risk management

Homeowner Court Ruling Serves as a Reminder to New York Contractors

Posted on Thu, May, 15, 2014

A recent ruling issued by the Supreme Court, County of Nassau, serves as a reminder to New York contractors performing residential work of the importance and necessity in having a home improvement license if you need legal action to pursue payment on the project.

In this homeowner victory, represented by The Law Offices of John Caravella, P.C. in a matter entitled Holistic Homes ,LLC v. Alan B. Greenfield and Hudson City Savings Bank, the court found unconvincing the various excuses presented in its attempt to portray itself as anything other than a home improvement contractor pursuant to the Nassau County Administrative Code.

The matter concerned work performed on the owner's property to remedy damage caused by Hurricane Sandy. When a dispute as to payment arose, the contractor filed its lien on the owner's property and commenced legal action to seek recovery on its lien.

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When challenged on the status of its license, the contractor then attempted to explain that it was not on the project as a contractor, rather based on some alleged personal form, as "fraternal brother", which failed to be persuasive nor did it relieve the contractor's statutory licensing requirement. The Court was further reluctant to excuse the statutory licensing requirement when the work performed was emergency repair work as made necessary across Long Island resulting from Hurricane Sandy.

Subsequently through litigation, the contractor admitted that it was not licensed as a home improvement contractor in Nassau County.

Without having a valid Nassau County Home Improvement Contractor's License, contractor's complaint for damages was dismissed and the lien vacated.

"Thus, a contractor who does not possess a license required by local law may not enforce a home improvement contract. This is true irrespective of whether the suit sounds in breach of contract or quantum meruit (Al-Sullami v Broskie, 40 AD3d 102[2d Dept. 2007]) or a claim made in the context of a lien foreclosure (Ellis v Gold, 204 AD2 261 [2d Dept. 1994] or an arbitration. Al-Sullami v. Broskie, supra.

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Not even the necessity of prompt remedial efforts needed in the immediate aftermath of Hurricane Sandy is enough for the strict requirement for a licensure to seek legal action on any claims for payment.

New York contractors are reminded of the importance to regularly ensure that their licenses, contracts, and insurance coverages are properly tailored to serve the needs of your business and project types.

In addition to litigating construction issues, this office routinely provides review and consultation services to contractors to ensure their contracts, business practices as well as their required licenses and insurance policies are in proper working order or identify areas of potential exposure which could be better managed.

Your comments and future article topic suggestions are invited in the field below.

John Caravella construction lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Offices of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051. 

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

Tags: Construction Litigation, New York Construction Liens, New York Contractor Liens, lien foreclosure, contractor regulation, Licensing

Subcontractor Challenges under the New York Lien Law

Posted on Mon, Sep, 09, 2013

The adage that you can not get blood from a stone may have its place in the rationale of New York Lien Law. Not that you will find this term included in any of the sections of the law, but this concept of reality is reflected in the hierarchy, structure, and availability of funds in the occurrence of a construction dispute.

With the understanding that an owner should not be required to pay for the same work twice, the owner's maximum liability or financial obligation on the project is the amount owed to the general contractor, or the 'Lien Fund.' For the contractor seeking payment this is not a tremendous burden, as the contractor most likely has a contract directly with the owner, and has its monthly administration files available to establish any amounts that may be owed.

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But the same can not be said for the subcontractor, who typically will not have a contract directly with the owner, nor does it have access to all of the contract administration between owner and contractor. Being further down the chain of construction and without direct contact to the owner causes additional challenges to the subcontractor or supplier in seeking to enforce their New York lien rights.

  • Challenge 1:  Must be a 'Lien Fund' of available funds to claim against

Of the money due and owing to the contractor by the owner, there must be some portion still available to satisfy the claims of any subcontractor or supplier. The New York Lien Law definition of Lien Fund is available here

"[The] critical issue is whether there are funds due and owing from the owner to the general contractor." DiVeronica Bros. Inc. v. Basset, 213 A.D.2d 936

  • Challenge 2:  Burden of proving existence of Lien Fund belongs to subcontractor

It falls on the subcontractor, or any party seeking to enforce their lien, to prove that money was due, or thereafter became due, from the owner to the contractor at the time the lien is filed, the lien would be void as there is no fund to which the lien can attach.

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A 2011 decision of the New York Appellate Court confirms the uphill burden placed on those down-chain from the owner. For a subcontractor in New York seeking to enforce its lien, establishing that there remained a balance owing is insufficient to establish a lien fund. JMP Plumbing and Heating Corp. v. 317 East 34th Street, LLC, 89 A.D.3d 593, 933 N.Y.S.2d 252 (1st Dep't 2011).

"A subcontractor's lien can only be satisfied out of funds 'due and owing from the owner to the general contractor.....[Subcontractor(s) bear] the initial burden of showing that funds were, in fact, due and owing.'

A subcontractor's failure or inability to prove the amount due and owing to the general contractor can be a bar to the subcontractor's ability to collect on its lien. The existence of a remaining balance due subcontractor does not establish that the owner is obligated to pay those funds, especially where the owner may also be asserting a claim against the general contractor.

Each subsequent tier of contractors, subcontractors, and suppliers has its own 'Lien Fund' available for recovery of its claims (and only to the extent a 'Lien Fund' exists). A Lien can only attach to the funds owed to the party directly above the claiming party. Philan Dept. of Borden Co. v. Foster-Lipkins Corp.

For the New York Subcontractor, you must not only have a Lien Fund available for you to claim against, but you also have to be able to establish those amounts as Due and Owing as beyond just an open balance. Additional research is required to confirm that the owner has no valid reasons for any non payment to the contractor.

Your comments and future article topic suggestions are invited in the field below.

John Caravella construction lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

Tags: New York Lien Law, Long Island Contractors, New York Construction Law, construction risks, Private Construction, subcontractor agreements, Defective Liens, New York Construction Liens, New York Contractor Liens, Homeowner lien dispute, subcontractor, lien rights, lien foreclosure, burden of proof, lien fund, lien trust fund

Design Professional Liability on Completed Work

Posted on Mon, Feb, 11, 2013

For New York Architects, Landscape Architects, Engineers, and Land Surveyors, exposure to liability on their completed projects may extend long beyond the completion of the project itself. Exactly how long design professionals can be 'on the hook' for claims has been a bit of a moving target in New York, with changes and proposed additional changes to this timeframe.

How long a design professional can be liable for claims, including claims from third-parties, has been goverened by the Statute of Limitations. Generally this has provided three years for a design professional malpractice action, and six years for a breach of contract claim.

 

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The New York State Court of Appeals in 1995 clarified this in holding that claims against design professionals is time barred three years after completion of construction. Newburgh v. Hugh Stubbins & Associates, 85 NY2d 535.

Subsequently the New York State Legislature passed CPLR 214-d, which allows a third party (any injured person who was not the client of the design professional) to bring forth claims against the design professional within three years of their loss or injury, even if such loss or injury occurs 40 or more years from completion. In fact, this regulation only looked at the length of time from the date of injury and made no reference to when the construction actually was completed.

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"... a design professional ... is goverened by a three year statute of limitations and the cause of action does not accrue until the injury takes place - even if the plaintiff is injured 20, 30, 50, or 100 years after the design professional has completed work on the building or structure."

The effect of this is to cause New York design professionals to be potentially liable for any injuries suffered to third persons on the completed work, even where the architect is not responsible for long term maintenance. Further, often times the design professional may not have been additionally retained to supervise the actual construction itself, and in defending such a claim so many years beyond completion witness memories may fade, or witnesses may no longer be available and can have the effect of forcing New York design professionals to maintain their malpractice insurance coverage indefinitely.

In seeking to address these unintended consequences, in 2011 the New York Senate introduced S4782-2011 seeking to amend the effects of section 214(d) by among other things establish a new ten year statute of repose for professional injury or wrongful death actions brought against professional engineers, architects, landscape architects, land surveyors or construction contractors. This would eliminate the current legal landscape where the design professional has no effective time limit on how long it could remain liable to third parties beyond project completion.

S4782-2011 is still a pending bill in senate subcommittee, and has not yet been enacted into law. Design professionals in New York are encouraged to maintain their records forever, as you could need them in defending against such claims.

Design professionals are also encouraged to reach out to your New York State Senators and Assemblymen to explain the unintended and harsh consequences caused by CPLR 214-d, and urge their support on S4782-2011.

Your comments and future article topic suggestions are invited in the field below.

John Caravella construction lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

Tags: Construction Litigation, design defects, Pending Legislation, Architect Liability, New York Construction Law, land surveyor liability, land surveying malpractice, professional liability, construction risks