Construction Law Blog

Subcontractor's Arbitration Action Stayed by Supreme Court

Posted on Thu, Aug, 27, 2015

The Supreme Court, New York County, recently clarified the impact of contractual language specifying litigation as the forum for resolution in the subcontract, and impact of New York's Prompt Payment, providing for arbitration of disputes where it applies.

Again discussing the Prompt Payment Act, but this time in the context of a subcontractor’s attempt to refer a contract dispute to binding arbitration as provided for by the Prompt Payment Act, the New York County Supreme Court recently reaffirmed the validity of alternative dispute resolution clauses in construction contracts, even where the Prompt Payment Act applies. In Turner Construction Co. v. J & A Concrete Corporation,[1] a construction contractor asked the court to permanently stay an arbitration which its subcontractor had initiated under the Prompt Payment Act.

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In that case, the subcontract provided that disputes that could not be resolved through voluntary and non-binding Alternative Dispute Resolution (ADR) would be resolved at the contractor’s sole option “according to law”. The subcontract also provided that the subcontractor would waive its right to a trial by jury in the event that the contractor chose litigation as the means of dispute resolution.

Although the language “according to law” suggested that the Prompt Payment Act, which allows for arbitration, would apply, the court found that the language which mentioned the contractor electing to resolve the dispute in litigation provided context.

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Applying rules of contract interpretation, the court found that allowing the subcontractor to unilaterally decide to refer the dispute to arbitration would rob the litigation provision of any effect. Additionally, the court observed that the Prompt Payment Act allows “the terms and conditions of a construction contract [to] supersede the provisions of [the Prompt Payment Act]” unless the Act otherwise provides so, so there was no reason to refuse to enforce the contract provision in question. The court found that the arbitration provisions of the Prompt Payment Act could be superseded by contract and stayed the arbitration.

[1] 44 Misc. 3d 217, 984 N.Y.S.2d 579 (Sup. Ct. N.Y. Co. 2014) 

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 Litigation, Construction Contract, New York Construction Law, construction contract law, Prompt Payment Act, New York Prompt Payment Act

The Implied Warranty on the Sale of New Homes: What Homeowners & Contractors Need to Know

Posted on Thu, Aug, 13, 2015

The traditional maxim of “let the buyer beware” is softened in the context of Article 36-B of the New York General Business Law, which imposes a warranty in favor of the buyers of new homes and holds construction contractors to a standard of skilled workmanship. Contractors, meanwhile, must be aware of the circumstances in which the law implies such a warranty, which exists regardless of whether it is stated in a contract: the warranty that arises upon a sale of a new home underscores the need for contractors to act scrupulously—and work skillfully—in transactions with residential home buyers.

            Article 36-B of the General Business Law imposes a “housing merchant implied warranty”. But when does this warranty apply? The law imposes the warranty on “the contract or agreement for the sale of a new home.”[1] A “new home” is defined as a single family house or a for-sale unit in a multi-unit residential structure (such as a condominium) which is five stories or less, but not a dwelling constructed to be leased, a mobile home, or a house or unit in which the builder has resided for more than three years.[2] Thus, the warranty has a broad application to residential construction projects. It must be noted, however, that the Appellate Division of New York State’s Supreme Court, in Sharpe v. Mann,[3] decided that the warranty does not apply to the construction of a custom home on vacant land which the customer already owns.

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            The housing merchant implied warranty guarantees that a new home will be free of certain defects for a set period of time which varies as follows:

  • The home must be free of defects due to poor workmanship (including violations of state and local building codes and deviations from accepted building practices) for one year;[4]

  • The home must be free of defects in the installation of the plumbing, electrical, heating, cooling, and ventilation systems for two years;[5] and

  • The home must be free of physical damage to load-bearing portions of the home such as the foundation, walls, floors, and roof framing for six years.[6]

The building or seller can exclude items from the housing merchant implied warranty by replacing it with a written limited warranty, but the standard of workmanship must nonetheless meet or exceed relevant building codes and ensure that the home is safe, and the limited warranty cannot reduce the warranty period or require the homeowner to submit to arbitration.[7] For that reason, even a business-savvy contractor with the assistance of an attorney must, at a minimum, construct a residential property in a skillful, workman-like manner and conform to the building code. However, the General Business Law is clear that the warranty excludes defects in work or materials that were not performed or supplied by the builder or its subcontractors and employees and defective designs provided by the builder’s design professional.[8] Essentially, a home buyer cannot use the warranty to hold a contractor accountable for acts or omissions that are the fault of third parties that the contractor cannot control.

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Finally, the law establishes a procedure which homeowners must follow in order to make a claim under the warranty. First and foremost, the homeowner must provide the builder of the home with written notice, which must be received within thirty days of the expiration of the relevant warranty period.[9] At that point, the builder is entitled to a chance to inspect the home and repair the defect.[10] The court in Finnegan v. Brooks Hill, LLC[11] established that failure to comply with this procedure is fatal to any lawsuit, requiring dismissal.

Second, the homeowner must file a lawsuit to enforce the warranty within a set period of time. This period depends, like the timeframe for written notice, on the type of defect, and requires a homeowner to file suit within one year after the expiration of the applicable warranty period or within four years of the warranty coming into effect, whichever is later.[12] This basically means that a lawsuit for a breach of the warranty involving general defects due to poor workmanship or poor workmanship in the installation of the plumbing, electrical, heating, cooling, or ventilation systems will need to be filed within four years of the purchase of the home, and a lawsuit for a breach of the warranty involving defects to load-bearing portions of the home will need to be filed within seven years. On the other hand, if the builder makes repairs after being given notice of the defect, the lawsuit must be filed within one year after the last of the repairs are performed,[13] which could, theoretically, extend the limitations period even further.

In the event that a court finds that a builder breached the housing merchant implied warranty, the damages will be the costs of repairing or replacing the defective items, up to the value of the house, or the amount by which the value of the home is reduced by the defect, if the court finds this to be more proper.[14]

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Article 36-B of the General Business Law substantially alters the rights and responsibilities to the parties in contracts for the construction of new homes. For homeowners, the housing merchant implied warranty means that they have a right to expect their homes to be constructed skillfully, safely, and in conformity with applicable building codes, but they must follow a strict procedure if they wish to enforce the warranty. For contractors, the housing merchant implied warranty establishes a basic level of skill which is required in the construction of new homes but codifies their right to notice and an opportunity to cure any alleged defects. In any event, the advice of an experienced attorney is recommended both when contracting for the sale of a new home and in the event of a dispute.

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] N.Y. Gen. Bus. Law § 777-a(1).

[2] N.Y. Gen. Bus. Law § 777(5).

[3] 34 A.D.3d 959, 960, 823 N.Y.S.2d 623, 624 (3rd Dep’t 2006).

[4] N.Y. Gen. Bus. Law §§ 777-a(1)(a) and 777(3).

[5] N.Y. Gen. Bus. Law § 777-a(1)(b).

[6] N.Y. Gen. Bus. Law §§ 777-a(1)(c) and 777(4)

[7] N.Y. Gen. Bus. Law § 777-b.

[8] N.Y. Gen. Bus. Law § 777-a(2).

[9] N.Y. Gen. Bus. Law § 777-a(4).

[10] Id.

[11] 38 A.D.3d 491, 833 N.Y.S.2d 107 (2nd Dep’t 2007).

[12] N.Y. Gen. Bus. Law § 777-a(4)(b).

[13] Id.

[14] Id.

Tags: New York Construction Law, Construction Warranties, Long Island Builders, New York New Home Warranty

Appellate Court Upholds Contractor Indemnification

Posted on Wed, Aug, 05, 2015

Indemnification is an important legal concept which impacts nearly all construction contracts. It has several forms and types, but generally amounts to a contract requirement where one party party agrees to restore the other party from any losses. Where an anticipated loss should occur, the damaged party can expect reimbursement for the loss. The use of indemnification clauses in construction contracts, when properly tailored, can often provide protection to owners or general contractors from certain claims of subcontractors.

In a recent case, Guzman v. 170 West End Avenue Associates,[1] the Appellate Division of the Supreme Court, First Department, ruled that an indemnification clause in a construction contract was not void merely because it was written in a way that could have potentially required a construction contractor to indemnify an owner for the owner’s own negligence.

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As a matter of background, General Obligations Law § 5-321 makes any indemnification provision in a construction contract void if it requires a party to be indemnified for its own negligence. In Guzman, a construction worker was injured when 100 pounds of electrical cable fell on him from a height of 27 stories, and the worker brought suit against the property owner, who sought indemnification from its contractor. The contract provided that the contractor would indemnify “the Owner Parties” for “liability or claims for damages [or] injuries … arising … as the result of any event or occurrence which arises in connection with the Work.” The contract provided that this indemnification would be available “to the fullest extent permitted by law”.

The First Department observed that, while the contract language might appear to indemnify the project owner even for its own negligence, the language allowing indemnification “to the fullest extent permitted by law” acted as a “savings clause”, meaning that the contract clause could be enforced at least as much as the property owner was not being indemnified for its own negligence. As the court found no evidence that the property owner had been negligent, it held that the property owner was entitled to indemnification from its contractor.

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[1] 115 A.D.3d 462, 981 N.Y.S.2d 678 (1st Dep’t 2014)

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 contract terms, New York Construction Law, Construction Contract Drafting, construction contract law, Contractor Indemnification, contractual indemnification

Architect and Contractor Liability for New York Building Code Violations

Posted on Thu, Jul, 30, 2015

CAN I BE SUED FOR VIOLATING THE BUILDING CODE?

CLAIMS AGAINST CONTRACTORS AND ARCHITECTS FOR CODE VIOLATIONS

      In my construction law practice, I’m often confronted with instances of building code violations and questions of whether building code violations should subject a contractor or architect to liability. The short answer is that building code violations can lead to civil liability, albeit in a roundabout way.

     The Appellate Division of the New York State Supreme Court, First Department, in the case of Koch v. Fox,[1] observed that ordinances such as local building codes might impose a penalty but did not create a private cause of action (a legal basis for bringing a lawsuit). Instead, local building codes impose a duty which might make the person violating them liable under another legal theory. The three main legal theories under which a construction contractor or architect might be sued for violating state and local building codes are breach of contract, negligence, and professional malpractice.

     Breach of Contract. In practice, better-written construction contracts address a contractor’s responsibility for complying with local building codes. Even if the contract is silent on the issue of code compliance, however, the law may impose such a requirement on a contractor anyway. In Reale v. Linder,[2] the court stated that “in every home improvement contract, the contractor has an implied duty to perform the contract in accordance with fire prevention and building code requirements.” In that case, a contractor had built an extension for a homeowner with numerous violations. When the contractor sued the homeowner for nonpayment, the homeowner countersued for breach of contract based upon the violations—and was awarded $15,000.00.

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      This rule becomes fuzzy, however, when the contractor performs his work in accordance with the plans, but the plans are not up to code. There are court decisions to the effect that a contractor is not responsible for defective plans or specifications,[3] suggesting, at least, that a contractor is only liable for code violations that deviate from the plans he is given. In that instance, of course, the designer would have breached the contract by failing to design in accordance with the building code.

     Negligence. It has also been recognized by the highest court of New York State, the Court of Appeals, that building code violations constitute evidence of negligence.[4] In such instances, it seems that the building code establishes a duty, and it is the failure to live up that duty that makes the contractor or architect liable.

      I must emphasize, however, that a negligence action only exists for personal injury or damage to property other than the building that the contractor or architect produced. For that reason, the project owner would also have to prove that the particular code violation caused the injury or property damage (as opposed to contract situations, where the failure of the building to meet the project owner’s requirements is in and of itself damaging to the owner).

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     Professional Malpractice. This last is of more concern for architects in their capacity as project designers. A homeowner’s allegations that an architect failed to design a project in accordance with “accepted architectural and building standards” have given rise to a claim for architectural malpractice.[5] The term “building standards” would naturally include local building codes.

      There is, however, one instance in which a violation of local building codes may create a private cause of action per se. New York General Municipal Law § 205-a gives a cause of action to firefighters who are injured as the result of a negligent violation of any law or ordinance (including state and local building codes).  Interestingly, such a lawsuit can only be brought against a defendant who is in control of the premises at the time of the injury. In the case of Zanghi v. Niagara Frontier Transp. Comm'n,[6] one firefighter was injured and another killed when a section of building collapsed on them, and a lawsuit was commenced against the contractor who built the building, alleging that it had not been built to code and that this had cause the injury and death.

     The Court of Appeals dismissed the lawsuit against the contractor because it had completed the work more than 12 years before but allowed that the property owner could still be liable. Although this result is based upon the words of the statute, which refers to the negligent violation of the building code “at the time of the firefighter’s injury”, it leads to the possibly inequitable situation of allowing the party that failed to comply with the building code to go free and heaping responsibility on a homeowner who did not have a part in making the building noncompliant.

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      As you can see, building code violations can have significant legal consequences for contractors and architects, although, as always, whether or not you may be liable will defend on the facts of your case and the terms of your contract. For contractors, complying with plans and specifications may provide a defense. For architects, the duty to make plans in accordance with building codes is the rule, and strict compliance is necessary if architects are to avoid liability.

     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 on a particular circumstance.

 

 


[1] 71 A.D. 288, 75 N.Y.S. 913 (1st Dep’t 1902)

[2] Reale v. Linder, 135 Misc. 2d 317, 514 N.Y.S.2d 1004 (Dist. Ct. Nassau Co. 1987) aff'd as modified, 143 Misc. 2d 496, 544 N.Y.S.2d 702 (App. Term 1988)

[3] Mohawk Int'l, Inc. v. Zangrilli, 161 A.D.2d 1169, 555 N.Y.S.2d 962 (4th Dep’t 1990)

[4] Elliott v. City of New York, 95 N.Y.2d 730, 747 N.E.2d 760 (2001)

[5] See, e.g., Kung v. Zheng, 73 A.D.3d 862, 901 N.Y.S.2d 334 (2nd Dep’t 2010)

[6] 85 N.Y.2d 423, 649 N.E.2d 1167 (1995)

Tags: Construction Litigation, Contractor Liability, defective construction, new york construction defects, Architect Liability, New York Construction Law, professional liability, construction risks, project performance risks, regulations, building code violations

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