Construction Law Blog

Architects Will See Greater Demand in Services as More Construction Projects Get Underway

Posted on Wed, Nov, 16, 2016

John Caravella, a Construction Attorney at The Law Offices of John Caravella, P.C. and a former architect, says a recent report showing a lower demand for architects’ services last month is part of the business cycle and that, in some parts of Long Island, demand has been steady, especially for the construction of high-end and luxury homes. He adds that the improving economy will mean architects will be in greater demand as more money will be spent on construction projects.

architects.jpg

 The American Institute of Architects (AIA) recently reported that the Architecture Billings Index (ABI) — a leading economic indicator of construction activity — fell to 49.7 last month, compared to the mark of 51.5 in July. This is the second time this year and the first time in seven months that demand for design services declined. Any score below 50 indicates fewer requests for architectural services. The ABI measures demand for commercial and industrial facilities such as hotels, office buildings, multi-family residential buildings, schools, hospitals and other institutions.

Click me

 The report cited a labor shortage in the construction sector in which 25,000 jobs were lost in the second quarter of 2016, and fewer contractors being able to hire or retain skilled workers.

 “The billing index and the construction industry are cyclical,” Mr. Caravella says. “The periods of expansion, contraction and additional expansion are typical and much of the basis of future forecasts. For a period of contraction, however, the relatively slight amount of the contraction speaks to the overall underlying strength and demand in the sector.”

 One bright spot in the report is that the index for design contracts went up in August to 52.7, compared to 51.8, meaning more construction firms are looking to work with architects or architectural firms in the coming months. Further, the report showed more balanced levels of design activity among the commercial/industrial, institutional and residential sectors, with scores of 50.8, 50.7 and 50.9, respectively. Mr. Caravella says that an improvement in the economy will spur demand for architectural services, citing Long Island as an example.

 “In many areas of Long Island, especially in the East End communities, such residential demand and activity is at consistent levels,” Mr. Caravella says. “Some areas of high-end or luxury residential construction have increased, but those are not reflected in the ABI.”

 Mr. Caravella is a former project architect and currently a practicing construction attorney who represents architects, engineers, contractors, subcontractors and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. Mr. Caravella has been selected to serve as a member of the Construction Industry Panel of Neutrals to the American Arbitration Association. The Law Offices of John Caravella P.C. has locations in Manhattan, Uniondale and Fort Lauderdale, Florida.

 For more information on The Law Offices of John Caravella, P.C., visit www.LIConstructionLaw.com

Nassau County Bar Association Offers Alternatives To Litigation

Posted on Mon, Oct, 24, 2016

     Construction disputes are not going away any time soon, so every contractor will eventually be faced with the prospect of deciding whether to go to court to get paid for its work. Litigation in the court system has been the traditional collection method for contractors, but the length and costs of litigation mean that recovering might take years and absorb a chunk of your recovery, and the backlog in the court system has led courts to encourage litigants to seek other means of getting paid. Mediation and arbitration are viable alternative methods of resolving construction disputes, and the Nassau County Bar Association Alternative Dispute Resolution, or ADR, program offers both services from qualified neutrals at competitive prices.

Click me

 

     Mediation is useful because it dispenses with the time-consuming, costly discovery practice and trial that are required in litigation. In mediation, the parties mutually select an impartial person from a pool of approved mediators with special training and, with the aid of the mediator, attempt to negotiate a binding agreement to resolve their differences. Rather than issuing a binding decision regarding who is right or wrong, a mediator facilitates communication and provides an impartial viewpoint to assist the parties in coming to their own resolution, so that the parties have flexibility in determining a mutually agreeable outcome.

 ncba image.png

     Arbitration, meanwhile, has the benefit of a shorter process much like mediation, but like litigation it involves a neutral third-party hearing each side’s case and issuing a binding decision in much the same manner as a judge. The procedure is streamlined, which saves costs, and the arbitrator’s decision, or award, can be enforced like a court’s judgment. Thus, arbitration is a good alternative for parties who want the benefit of a judgment on the merits of their cases without going to the time and expense of litigation.

     Traditionally, organizations such as the American Arbitration Association (the AAA) have dominated the provision of mediation and arbitration services, but the AAA’s administrative fees for an arbitration can run in the thousands of dollars (for example, $3,000 for a $75,000-$150,000 claim),[1] plus the hourly fees for the arbitrator. The Nassau County Bar Association’s fees, on the other hand, consist of a $500 administrative fee for each case, plus a set $300 per hour charge for the arbitrator or mediator. The Nassau County Bar Association panel of mediators and arbitrators consists of attorneys with a minimum of 10 years’ experience, qualified by a Judiciary Committee of the Nassau County Bar Association itself. The parties select their mediator or arbitrator, so they even have the opportunity to choose someone with knowledge of construction law and the unique issues it presents.

      The bottom line for contractors is getting paid in the quickest and least expensive manner, so the Nassau County Bar Association ADR services are worth considering. You can learn more about the benefits of mediation and arbitration by consulting with a construction law attorney, and you can learn more about the ADR programs offered by the Nassau County Bar Association by visiting its web site, www.nassaubar.org, or by calling (516) 747-4070 or emailing info@nassaubar.org.

 

John_Caravella_construction_lawyer.jpgThe 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.

 1] Information retrieved from https://www.adr.org/aaa/ShowPDF?doc=ADRSTAGE2031504

 

The Home Improvement Licensing Rule: A Shield And Not A Sword

Posted on Tue, Oct, 18, 2016

 

            If you have read previous articles of this blog, you may be aware that New York construction contractors can be barred from suing or enforcing a mechanic’s lien if they do not possess required home improvement licenses, which has resulted in the dismissal of many contractors’ claims. On the other hand, project owners sometimes argue that a contractor’s failure to possess a license should not only prevent the contractor from recovering more money but should require the contractor to return all monies already paid for the work. Courts’ responses to this argument have been mixed.

  Click me

            Many courts have ruled that project owners cannot recover money they have already paid to a contractor, even if the contractor is unlicensed. In Host v. Gauntlett,[1] a homeowner sued an unlicensed contractor for the return all of the money that she had paid him, basing her request only on the absence of a home improvement license, but did not allege that the work had been defective. The court found in favor of the contractor, noting that ordering the return of all monies might unfairly enrich the homeowner at the contractor’s expense.[2] A similar result was reached in Voo Doo Contracting Corp. v. L & J Plumbing & Heating Co., Inc.[3]

 construction-zone-1351759675pK2.jpg

            Nevertheless, it seems that the courts will order the return of monies if the project owner can prove that the work was not performed properly. In Maltese v. New England Contractors,[4] homeowners hired a contractor to perform construction work, including electrical and plumbing, on their Brooklyn property, but the contractor was not licensed. The homeowners sought the return of the money they had paid to the unlicensed contractor, and they provided proof that the unlicensed electrical and plumbing work were defective and needed to be redone.[5] Relying on the “disparity between the sums paid and value received,” the court ordered the return of the homeowners’ payments.[6]

             Judging from these cases, the return of payments made to an unlicensed contractor is not automatically mandated by the consumer protection laws. While the unlicensed provision of home construction work must not be encouraged, the courts will not be persuaded that a homeowner should benefit from acceptable construction work without paying, either. The difference will therefore depend upon proof of the quality of the work and the costs of correction.

John_Caravella_construction_lawyer.jpgThe 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.

 

[1] 73 Misc. 2d 96 (N.Y. City Civ. Ct., Queens Co. 1973).

[2] Id. at

[3] 264 A.D.2d 361 (1st Dep’t 1999).

[4] No. 21884/06, 17 Misc.3d 1134(A), 2007 N.Y. Slip Op. 52259 (Sup. Ct. Kings Co. Nov. 28, 2007).

[5] Id. at *2.

[6] Id. at *4.

Invalidating Choice of Law or Forum Selection Clauses

Posted on Tue, Sep, 06, 2016

          Contracts commonly provide for a specific state’s law to apply (choice of law) or for disputes to be litigated or arbitrated in another state (forum selection). Unfortunately, out-of-state contractors often make subcontracts with New York subcontractors on New York projects subject to the laws of, and requiring disputes to be resolved in, other states, using the added expense and inconvenience as a means to dissuade subcontractors from pursuing claims. This unfair side effect of choice of law and forum selection clauses begs the question: must a New York subcontractor pursue his remedies in another state or under another state’s law where its contract says so? The answer may be no.

Click me

             Courts frequently grapple with the enforceability of choice of law and forum selection clauses. With respect to choice of law, New York courts follow a general rule that parties are free to make the contract subject to the law of whatever state they want, but the law of the state with the most “significant contacts” with the contract should ultimately be applied.[1] Applying this rule, a federal court in S. Leo Harmonay, Inc. v. Binks Manufacturing Company, a lawsuit by a New York subcontractor against an Illinois contractor involving a New York construction project, refused to enforce an Illinois choice of law because the only contact with Illinois was the home state of the contractor, while the work was performed in New York, the prime contract was subject to New York law, and the subcontractor was a New York corporation.[2] This situation is remarkably similar to the situation of many New York subcontractors faced with an out of state choice of law, so such a clause will probably not be enforceable in most situations.

NYC_-_New_York_County_Supreme_Courthouse.jpg

             On the other hand, forum selection clauses are upheld by the courts unless it can be shown that “enforcement would be unreasonable or unjust or that the clause is invalid because of fraud or overreaching, i.e., a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging part would, for all practical purposes, be deprived of his or her day in court.”[3] In Bell Constructors, Inc. v. Evergreen Caissons, Inc., the court refused to invalidate a forum selection clause requiring a construction contract dispute to be litigated in New York, even though the contract was performed in Colorado and the defendant subcontractor was a Colorado corporation and would face expense and loss of business time in litigating the dispute in Colorado.[4] Thus, absent extremely unusual circumstances, forum selection clauses have been upheld by New York courts, a rule that has led to unfair results and created substantial expense and inconvenience for New York subcontractors.

             More recently, however, the New York State Legislature has taken action to protect the rights of New York subcontractors by enacting the Prompt Payment Act.[5] The Prompt Payment Act contains provisions relating to timing of payments that go beyond the scope of this article, but importantly the Prompt Payment Act declares that contract provisions that impose the law of another state or that require dispute resolution to be conducted in another state are void and unenforceable,[6] meaning that a New York subcontractor under a contract subject to this law cannot be required to litigate in another state or under another state’s law. The Prompt Payment Act does not govern all contracts, and only an experienced construction law attorney can review your subcontract to determine whether the Prompt Payment Act applies, but it may nevertheless provide a means to avoid oppressive forum selections and choices of law by out-of-state contractors that would otherwise be enforced by the courts.

John_Caravella_construction_lawyer.jpgThe 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.

 [1] See, Compania de Inversiones Internacionales v. Industrial Mortgage Bank of Finland, 269 N.Y. 22, 198 N.E. 617 (1935); Haag v. Barnes, 9 N.Y.2d 554, 175 N.E.2d 441 (1961).

[2] 597 F. Supp. 1014, 1025-26 (S.D.N.Y. 1984).

[3] Bell Constructors, Inc. v. Evergreen Caissons, Inc., 236 A.D.2d 859, 860, 654 N.Y.S.2d 80, 81 (4th Dep’t 1997).

[4] Id.

[5] N.Y. Gen. Bus. Law. §§ 756 et seq.

[6] N.Y. Gen. Bus. Law § 757.

Top 5 Mechanic's Lien Waiver Pitfalls for Contractors and Subs

Posted on Mon, Apr, 11, 2016

     For contractors and subcontractors in New York, Mechanic’s Lien Waivers are a part of life, but the potential risks to the contractor in waiving more than intended or understanding of the terms are not always as common. Owners (and often their lender) require that the project be kept lien free through progression of the work to final completion. This means that, as a contractor or subcontractor, you will undoubtedly be asked to execute a Mechanic’s Lien Waiver at some time or another, often in conjunction with applying for payment. If you do so however without paying attention to the specific language of the Waiver, you might lose more than you bargained for.

     In general, there are two types of Mechanic’s Lien Waivers: those that are part of a contract, and those that are seperate and executed later during the progress of your work (i.e. with the receipt of progress payments). As a practical matter, you don’t need to worry about waiving your right to file Mechanic's Liens pursuant to contract terms, as any contract seeking to limit (or pre empt) a contractor's right to file liens would be unenforceable under New York construction law.

In High Tech Enterprises & Electrical Services of N.Y., Inc.,[1] a subcontractor sued a prime contractor to recover for breach of contract and to collect under a bond that had discharged its mechanic’s lien. The court dismissed the contractor’s counterclaim for attorneys’ fees, which was based on a clause of the subcontract which provided that the subcontractor would not file any lien and would reimburse the contractor for attorneys’ fees in the event that one was filed, stating that this clause was “unenforceable as against public policy.” New York Lien Law Section 34 is clear that “any contract, agreement or understanding whereby the right to file or enforce any [mechanic’s] lien is waived, shall be void as against public policy and unenforceable.”

Click me      A contractor, subcontractor, material supplier, or laborer however can be required to execute and deliver a Waiver at the same time as, or after, payment is made.[2] For that reason, you can be required to waive and release your lien rights when payment is made to you. The problem in those cases becomes satisfying your owner without waiving more of your rights than you should. Here are some tips to avoid common contractor pitfalls with respect to New York Mechanic's Lien Waivers

  1. Use your own Waiver of Mechanic’s Lien form. Whenever possible, submit your own Waiver of Mechanic’s Lien, which you can develop with your attorney’s advice to guard you against these and other pitfalls. This allos the contractor to retain control over your waiver of lien rights and ensure that you keep your Waiver language narrow enough to preserve other potential claims.

  2. Be wary of waiving subsequent lien rights in connection with partial payments. In all fairness, when you release lien rights in connection with progress payments, you should only be releasing your right to lien for the work that you have already completed. However, some owners use forms which contain wording to the effect that you waive claims that you “now or hereafter may have” to a lien on the property. This language, unfortunately, can be construed to waive your right to all liens—even those lien rights which arise due to subsequent outstanding payments. This language should be avoided in most situations. (another good reason to have and use your own waiver of mechanic’s lien form).

  3. Make the Waiver conditional. Although the economy has greatly improved over recent history, it is still not impossible that your project owner could go bankrupt sometime after paying you. This becomes an issue, however, if your project owner files for bankruptcy within 90 days of your payment clearing, because, in that case, the payment might be looked upon as a “preference”—unfairly paying one creditor at the expense of others on the eve of a bankruptcy—and can be cancelled, requiring you to repay the money. In that case, you would have waived your right to lien, but you would also not have the money. A better route is to insist on language in your Waiver of Mechanic’s Lien that makes your Waiver conditional not only on the receipt of the money, but also conditioned upon the owner not filing for bankruptcy within 90 days of funds clearing.

    construction_plans_helmet
  4. The Waiver should apply only to lien rights. Ideally, you want to appease your owner (and their lender) with a Waiver of Mechanic’s Lien while preserving as broad rights as possible to allow other potential claims. For that reason, avoid signing a Waiver of Mechanic’s Lien that waives your right to “any and all claims” or that releases the owner from “all liability”. A better Waiver of Mechanic’s Lien language for contractors and subcontractors in New York would waive only lien rights while also preserving contractor's other potential claim rights.

  5. The Waiver should relate to payment, not performance. To explain, a Payment Waiver waives your lien rights only to the amounts for which payment is acknowleged (in other words, the amount of the payment that you’re receiving at the time of the waiver), while a Performance Waiver relates to all work performed up to a certain date. One concern for the contractor with a Performance waiver is that it could be interpreted to waive your right to lien for retention on the progress payment, among other things. Your best bet for a Waiver of Mechanic’s Lien is to acknowledge receipt of your current payment and waive and release your lien rights in an amount equal to that payment: look for a specific dollar amount, and be wary of Lien Waivers that refer instead to “all work up to” a certain date. Contractors should also be wary of signing and delivering a Waiver of Lien indicating contractor's receipt of payment when if in fact contractor has not actually recieved the claimed payment as if payment is not actually provided the contractor may no longer be able to claim a lien for such payment.

    Click me

     When executing Mechanic’s Lien Waivers, following these steps and understanding what is being waived is essential for the New York contractor. Although courts do sometimes find a way around lien waivers on behalf of contractors and subcontractors, the result is not guaranteed and not a place a contractor wants to be defending their claim for payment. Starting off on the right foot is the best way for the contractor to take control of their lien rights and be positioned for a better outcome. The language in legal documents can be tricky; if a project owner will not allow you to use the Waiver of Mechanic’s Lien form that you’ve developed, having legal review of the proposed language may be requried to protect your rights.

     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.

_______________

 
[1] 113 A.D.3d 546, 980 N.Y.S.2d 387 (1st Dep’t 2014).
 

[2] Id.


Tags: Construction Litigation, New York Lien Law, New York Construction Law, Defective Liens, New York Construction Liens, New York Contractor Liens, lien rights, Validity of Lien, Partial Waiver and Release of Mechanics Lien, Lien Waiver, Conditional Lien Waiver, Partial Waiver of Mechanics Lien, Partial Waiver and Release of Lien

Homeowner Liability for Contractor Injuries in New York

Posted on Mon, Apr, 04, 2016

Can homeowners be held responsible for injuries that may occur to contractors while work is being done on their property? Many homeowners enjoy having work done to their homes. Whether it is minor yard maintenance, painting, window installation or it is major construction work being performed. Homeowners reach out to landscapers, painters and contractors of all sizes for assistance. What happens if such a worker is injured while working? Who is responsible for their medical and other costs?

construction-zone-1351759675pK2.jpg

 

With respect to homeowner liability for contractor injuries in New York, owners of one or two family dwellings  are exempt from liability from any contractor injuries suffered while work performed on their property under labor law § 240 & § 241, unless he or she has directed or controlled the work being performed. Jumawan vs. Schnitt, 35 A.D. 3d 382 (2006).

Under New York State Law §§ 240 and 241 a homeowner can be found liable for any resulting contractor injuries only if their contractor can show the homeowner provided specific instruction as to how work is to be performed or the homeowner provided certain tools or equipment to be used. Tilton vs. Gould, 303 A.D. 2d 491, 756 N.Y.S. 2d 757. Incidental homeowner interactions are not sufficient to invoke homeowner liability for injuries, a showing of more of a role in directing the actual work performance is necessary. Mai Rem Jiamg v. Yeit, 95 A.D. 3d 970 (2012).  

Click me

Homeowners in New York are also well advised to not provide substantial direction and involvement in how work should be performed. Let the contractor decide how the work is to be performed. Otherwise excessive homeowner involvement and directing work itself can lead to homeowner liability for contractor injuries suffered while on your property.  Working with a construction attorney in advance to verify these issues, as well as review and approval of all contract terms greatly increase the chances of homeowner satisfaction with the project, and decreases the chances of misunderstandings or disputes.

Homeowners, prior to signing any agreements for construction or home improvement services, should request  copies of any proposed contractor’s insurance(s) and license(s) as required. Owners should be provided proof of :

  • (i) Contractors Commercial General Liability (“CGL”) policy,
  • (ii) Workers Compensation coverage, and
  • (iii) and any required licenses required for the proposed project.

While these general recommendations may apply to many homeowners, all project considerations and requirements vary by project.  Working with a construction attorney in advance to verify these issues for any particular project, as well as review and approval of all contract terms greatly increase the chances of homeowner satisfaction with the project and decreases the chances of contractor misunderstandings.

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, Construction, New York Construction Law, Construction Contract Drafting, Home Renovation, contractors, owner requested changes, Construction law, Labor Law, homeowner liability, contractor injury, homeowner recommendations

Protections Provided to Contractors and Architects Under New York's Economic Loss Rule

Posted on Thu, Oct, 15, 2015

        In a nutshell, the  “economic loss rule” is a rule that courts use to prevent a plaintiff from against a defendant for a tort (usually negligence) when the essence of the 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, some explanation is in order: what constitutes “economic loss”? 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 recovery for negligence claims for damage to that property.

constructiondispute

        The economic loss rule is typically applied in the context of product liability claims involving the manufacture and sale of goods, but it also comes up in the context of service contracts such as construction contracts. New York law, however, recognizes exceptions to its application to service contracts.[4] 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. 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, however,  the breach of a duty imposed by a contract only gives rise to a suit for breach of contract. 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] 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.

Click me

        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.

        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 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 (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.

[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, Long Island Contractors, Architect Liability, New York Construction Law, Contractors and Architects, Economic Loss, Economic Loss Rule, Construction Contracts, Design Professionals, Design Professional Liability, Negligent Design, Construction law, Construction Attorney

Potential Liability With Cost-Plus Construction Contracts

Posted on Tue, Oct, 06, 2015

constr_k-resized-600

           What is a cost-plus construction contract? A cost-plus construction contract is a contract in which a contractor agrees to be paid for all of his costs including a certain percentage for his expenses and profit. The pros vs. the cons of cost-plus construction contract format are a business decision, but cost-plus construction contract also raises legal issues contractors should be aware of before agreeing.

           One of the most commonly litigated issues with cost-plus construction contracts is that of contractors inflating their costs in order to increase their profits. In the recent case of Stern v. H. Dimarzo, Inc., a pair of homeowners agreed to pay their contractor its costs plus 15% for expenses and 10% for profit, but the contractor allegedly overcharged them and failed to perform in a workman-like manner.[1] They committed both breach of contract and fraud, and, although the court stated that minor overbilling would only constitute breach of contract, it maintained that the homeowners’ allegations that the contractor used the funds for its own purposes and for other projects might amount to a claim for fraud against the contractor.[2]

           In another similar case, Mora v. RGB, Inc. involved an alleged agreement by a plaintiff with a corporate contractor to construct a new home, with change orders to be paid at the contractor’s actual costs plus 22%.[3] An issue arose when the plaintiff became suspicious in regards to the price changes, and the plaintiff ultimately filed a lawsuit alleging, among other things, that the corporate contractor’s president committed fraud against the plaintiff by convincing him to sign off on change orders containing raised prices.[4]

Click me

            Ultimately, the court stated that, if the plaintiff could prove his allegations at trial, he would have a claim for fraud against the contractor’s president, so that cause of action could not be dismissed.[5] This is highly unusual because, as a general rule, corporate officers cannot be liable to parties who deal with the corporation, but the specific wrongdoing of the corporate president in this case justified a departure from the general rule as an exception.

            Therefore, the biggest concern with cost-plus construction contracts has been and continues to be the propriety of the costs from which operational expenses and profit are calculated. Because of the potential exposure to personal liability for corporate officers if they should submit intentionally increased or incorrect estimates of costs. Conscientious calculation and good record-keeping are a must for your corporate and individual protection when you work under a cost-plus agreement.

            Meanwhile, the cost-plus construction contract raises practical issues as well, with respect to filing mechanics’ liens. The Lien Law requires a notice of mechanic’s lien to state, among other things, the agreed price of the project.[6] In the recent case of Sullivan Contracting, Inc. v. Turner

           Construction Co., this was at issue because the plaintiff subcontractor had failed to state the agreed price of its work in its notice of mechanic’s lien, evidently having been confused as to how to describe the agreed price of its cost-plus contract.[7] The court refused to overlook the omission, finding the notice of mechanic’s lien to be defective, and observed that “the requirement that a notice of mechanic's lien state the price agreed upon or value may be satisfied by the inclusion of an agreed-upon cost plus percentage if there is no specific dollar amount indicated in the contract”.[8] Therefore, when filing a mechanic’s lien with respect to a cost-plus construction contract, the proper course is to be very specific with the language of your contract regarding the agreed price.[9] It is always a good idea to seek advice of an experienced construction law attorney when preparing a notice of mechanic’s lien for filing so as to avoid this and similar problems.

 

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.

 

[1] 19 Misc. 3d 1144(A), 867 N.Y.S.2d 20 (Sup. Ct. Westchester Co. 2008).

[2] Id.

[3] 17 A.D.3d 849, 850, 794 N.Y.S.2d 134, 136 (3rd Dep’t 2005).

[4] Id.

[5] Id. at 852, 794 N.Y.S.2d at 137.

[6] Lien Law § 9.

[7] 60 A.D.3d 1315, 1316, 875 N.Y.S.2d 695, 697 (4th Dep’t 2009).

[8] Id.

[9] See also, Fyfe v. Sound Dev. Co., 235 N.Y. 266, 269, 139 N.E. 263 (1923).

Tags: Corporate and individual, Potential Liability, Cost Plus Construction Contracts, Contractor Price Changes, Construction Contracts, Construction law, Construction Attorney

Top 3 New Construction Arbitration Rules That Expand Powers and Challenge Assumptions

Posted on Fri, Sep, 18, 2015

     When it comes to construction contracts, arbitration and mediation (Alternate Dispute Resolution) are both commonly specified for out of court dispute resolution.  The use of mediation and arbitration  in construction contracts, both for small and large construction, has been increasingly common over the past decade.

Click me

    Lawyers often debate between themselves whether mediation, arbitration, or litigation in court is their preferred choice for resolution, or more importantly, which is the best clear forum for the dispute. Due in part to prior restrictions on enforcement ability, some steered shy of ADR. Recently, however, newly effective  Construction Industry Arbitration Rules seek to address these  shortcomings . While these new rules have several changes both in administration and authority, the following are the top 3  which enhance the ADR process:

Arbitration_Clause

  • New Rule 25 - Enhanced Arbitrator Enforcement

            Prior to July, 2015, arbitrators were limited to having only the legal authority provided to them in the contract, itself, if any, for resolution of motions or discovery disputes. For example, the compliance by parties for such pre hearing disputes was in large part voluntary. If a party failed to adhere to any discovery dispute with respect to ordering parties compliance, unless the parties contract happened to give permission providing authority to issue such orders, there was little other authority an arbitrator could call upon to issue enforcement orders that were enforceable.

         The new rules provide the arbitrator with the "authority to issue any orders necessary ... to otherwise  achieve a fair, efficient and economical resolution of the case". Examples of some of these newly expanded powers include protection of confidential information, and discovery production. The new rule further provides authority and support to the arbitration process by allowing the arbitrator to award costs incurred as a result of a party not cooperating, as well as being allowed to draw an adverse inference from such party failures in the resolution of the case.
  • New Rule 34 - Motions

     Due to the prior absence of any specific authority of an arbitrator to enforce discovery motions, arbitrators also often lacked authority to entertain or rule upon motions on the value of the claim itself, such as a motion to dismiss. Included in these recently improved arbitrator authority is the ability to entertain motions seeking to get rid of of all or part of a claim itself or narrowing of issues. As well as ruling on any disputes or motions that may be brought.

law-books1

 

  • New Rule 60 - Sanctions
         
    • In the past, arbitrators also lacked sufficient authority to maintain order and progression of the case. With arbitrators previously having a lack in authority, some parties would not act as they would act in a court setting, as there was no risk of penalty or sanction. Obstructionist conduct that counsel would not consider in traditional litigation was not necessarily out of the question for arbitration conduct.

       However, now since the new arbitrator rules are in effect, this conduct may be less likely to be a problem, as the arbitrator is now authorized  to 'order appropriate penalties' in response to the failure of a party to comply with an arbitration order or rules.

          By expanding the authority of the arbitrator under the July 2015 rules to hear and rule on pre-hearing motions, The American Arbitration Association seeks to address a long standing history of lack of enforcement authority in arbitration, and cause those who discount ADR to reexamine their basic longstanding overall assumptions of arbitration and mediation.

     Available for download here is copy of The full Construction Industry Arbitration Rules and Mediation Procedures (Rules), effective July 1, 2015.  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 (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.

Tags: Construction Contract, Construction Contract Drafting, construction contract administration, arbitration, construction arbitration, long island arbitration, New Arbitrator Rules, July 2015 CIAR, July 2015 Construction Industry Arbitration Rules, AAA Construction Industry Rules, arbitrator authority, mediator authority, arbitration sanctions, arbitration motions, Alternate Dispute Resolution, Construction Contracts, Arbitrator Enforcement

What Design Professionals Should Consider Before Filing a New York Mechanic's Lien

Posted on Tue, Sep, 08, 2015

     Like contractors and material suppliers, architects and engineers are provided lien rights under New York law to secure payment for authorized professional services rendered. Although the architect or engineer has provided professional services, as compared to materials or labor, their need to comply with the same timeframes and filing requirements still apply. Failing to comply with either however can cause loss of the entire lien, and/or could subject the filing design professional to potential liability legal fees and costs.

Click me

       The design professional should really consider the following prior to filing their Notice of Mechanic's Lien in New York. Where any lien claim is considerable, however, seeking qualified legal advice for  specific lien law compliance is encouraged prior to filing any New York Mechanic's Liens. Both in making sure the lien is filed in compliance with the New York Lien Law, but also to minimize legal exposure.

 1.         A Mechanic’s Lien Must Be Filed Timely  

      A mechanic’s lien can be filed in New York anytime while a project is in progress when payment becomes due, or after it is completed. For private projects, a mechanic’s lien must be filed within eight months from the date the project is completed, unless the project is a one-family residence, in which case you only have four months.[1] For public improvement projects, you can file at any time before the project is completed and accepted and up to thirty days after the project is completed and accepted.[2] Therefore, your consultation with a construction law attorney should be prompt if you are to maintain your right to lien.

 2.         Lien Amount & Contract Amount May Vary

      As a preliminary caution, keep in mind that your mechanic’s lien may not necessarily include every item to which you’re entitled under your contract, some of which might be recoverable only in a separate contract claim.

      The following are important items for a design professional to include in a mechanic’s lien amount:

 Preparing plans or specifications for use in a construction project.[3] This includes preliminary plans, even if the project is not ultimately constructed, as long as they are “sufficiently formal to be called plans”, and not just rough sketches;[4] and

  • Supervising construction work, including the demolition of old buildings and/or new construction.[5]

      However, the following services which an architect may provide in connection with a project cannot be made part of a mechanic’s lien:

 Applying for building permits and civil approvals;[6]

  • Obtain bids;[7]
  • Negotiating contracts;[8] and
  • Attorneys’ fees.

 3.         Do Not Ask For More Than You Are Entitled To

      Like contractors and suppliers, architects, engineers and other design professionals must be cautious of willfully exaggerating their liens (i.e. intentionally claiming more than they are actually entitled to). Willful exaggeration takes more than just being incorrect in what you claim in a lien; it requires intentional acts that you undertake to make the amount of your lien seem greater than it really is.[9] You have to be careful when calculating the amount of your lien, because the consequences of willfully exaggerating a lien include the cancelation of the lien, as well as the responsibility for attorneys’ fees, bond sums (if the lien is discharged by a bond), and additional damages equal to the amount by which the lien is found to have been exaggerated.[10] In this manner, you need to keep in mind what types of items can be included in your lien, and you need to make sure you are estimating the amount that is owed to you in good faith, in which case you should avoid the consequences of willful exaggeration claims.

 4.         A Mechanic’s Lien Is Effective For A Limited Time

              You must also keep in mind that you will not be able to sit on your claim just because you’ve filed your lien. Under the Lien Law, both private and public improvement mechanic’s liens are only good for a year unless a lawsuit to foreclose the lien is begun before then or the lien is extended.[11] Because of this brief time period, if your lien does not prompt your uncooperative owner or contractor to make payment on its own, you will need to retain qualified counsel to commence a legal action seeking foreclosure of the lien.

Click me

  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 legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for specific advice on their concern.

 [1] N.Y. Lien Law § 10.

[2] N.Y. Lien Law § 12.

 [3] N.Y. Lien Law § 2(4).

 [4] Bralus Corp. v. Berger, 307 N.Y. 626, 628, 120 N.E.2d 829, 830 (1954).

 [5] Goldberger-Raabin, Inc., v. 74 Second Ave. Corp., 252 N.Y. 336, 341-42, 169 N.E. 405, 406 (1929); Henry & John Associates v. Demilo Const. Corp., 137 Misc. 2d 354, 355, 520 N.Y.S.2d 340, 341-42 (Sup. Ct. Queens Co. 1987).

 [6] Chas. H. Sells, Inc. v. Chance Hills Joint Venture, 163 Misc. 2d 814, 815-16, 622 N.Y.S.2d 422, 423 (Sup. Ct.  Westchester Co. 1995). Note, however, that the court in this case stated that professional services which assist an owner in obtaining municipal approval, as opposed to filling out applications or attending planning board meetings, can be part of a mechanic’s lien.

 [7] Henry & John Associates, supra.

 [8] Id.

 [9] See, e.g., A & E Plumbing, Inc. v. Budoff, 66 A.D.2d 455, 457, 413 N.Y.S.2d 776, 777 (3rd Dep’t 1979) (holding that lienor willfully exaggerated lien where lienor falsified invoices to increase amounts due).

 [10] N.Y. Lien Law §§ 39, 39-a.

 [11] N.Y. Lien Law §§ 17, 18.

  

Tags: New York Lien Law, professional liability, Defective Liens, New York Construction Liens, New York Contractor Liens, lien rights, lien trust fund, Architecture, Validity of Lien, architectural services