Goetz Fitzpatrick Successfully Obtains Recovery for A Subcontractor Despite A Contractual “Pay When Paid” Clause

Benjamin BlumBlog Post

Goetz Fitzpatrick Attorneys Donald J. Carbone, Gary M. Kushner, and Benjamin Blum of Goetz Fitzpatrick LLP had a major victory securing a partial summary judgment award of $954,519.50 plus 3.5 years of pre-judgment interest at 9% per annum on behalf of a subcontractor for the New York City Build It Back Programs.

Goetz Fitzpatrick represented ATANE ENGINEERS, ARCHITECTS AND LAND SURVEYORS, D.P.C., f/k/a HAKS ENGINEERS, ARCHITECTS AND LAND SURVEYORS, P.C (“Atane”), an engineering/surveying firm in connection with nonpayment claims during the Build Build Back Projects.  Atane served as a subcontractor to the City’s prime contractor Camp Dresser McKee & Smith/CDM Smith. During the performance of its work and after completing its work in 2018, Atane continually submitted its invoices to CDM Smith who adopted these invoices and submitted those invoices to the City for payment. Since the outstanding invoices for this project were all owed to subcontractors, CDM Smith/Camp Dresser McKee & Smith had no impetus to seek approval of Atane’s invoices.  Instead, the genius of Atane’s strategy was to go around CDM Smith by working directly with New York City Mayor’s Office of Housing Recovery to obtain the City’s approval of $954,519.50 in Atane invoices.

As a result of Atane’s strategy, Goetz Fitzpatrick filed a motion for partial summary judgment against CDM Smith on behalf of Atane seeking the recovery of these “approved invoices”.  For over four years, CDM Smith refused to pay Atane any portion of its unpaid invoices (whether “approved” by the City or not) based upon a subcontract clause which purported to tie Atane’s rights to receive payment to CDM Smith’s receipt of payments from the City.  As part of Atane’s motion, Goetz Fitzpatrick argued that: 1) this subcontract clause constituted an unenforceable “pay when paid” under New York Law as set forth in the seminal West- Fair Electrical Contractor case and its progeny and 2) CDM Smith’s four year payment delay was unreasonable in any event, which would prevent CDM Smith from using this clause to avoid its payment obligations to Atane.

Although CDM Smith attempted to claim that it was not obligated to pay Atane because: 1) CDM Smith contended that its subcontract clause wasn’t an illegal “pay when paid” clause and 2) Atane had filed a public improvement lien against the project funds, the Court wholeheartedly rejected these arguments.  In fact, the Court, in rendering its decision at oral argument found that the four-year delay in payment was unreasonable, that CDM Smith could not avoid its payment obligations because it was not paid by the City. Notably, the Court went as far to say “[T]he clause as applied is unenforceable …there is no excuse”.

Also, the Court granted Atane’s request for pre-judgment interest to begin accruing in June 2019 (when the lawsuit was started) at the legal rate of 9% per annum because the invoices underlying Atane’s nonpayment claims had been submitted on a rolling basis from 2016 through 2019.

The bottom line is that a general contractor cannot avoid paying a subcontractor for over four years by resorting to a flow-down clause which purports to permit the general contractor to wait to pay its subcontractors until it receives payment from an upstream party.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


Goetz Fitzpatrick Defeats Motion to Dismiss Petition to Invalidate Trust

Alison Arden BesunderBlog Post, Insight

FOR IMMEDIATE RELEASE
November 10, 2022

Contact:
Alison Arden Besunder
212-695-8100, ext. 289
[email protected]

 

 

Goetz Fitzpatrick Defeats Motion to Dismiss Petition to Invalidate Trust

NEW YORK, NY—Goetz Fitzpatrick LLP recently defeated a motion to dismiss GF’s clients’ petition to invalidate a trust and transfers to a trust disinheriting GF clients’ from their father’s estate.

Our client is one of four children and the only daughter of a decedent who died at the age of 101 and ½ years old. The father had four prior wills, including one as recent as 9 months before he died, all of which left his sizable estate equally to each of his four children and naming them all as co-executors. Decedent’s daughter and his granddaughter were both excluded from the home or from visiting her father by Decedent’s son, with whom he lived and was his caretaker. Four months before his death, the decedent signed a new will, leaving his daughter only $100,000, and the remainder to his three sons. A month later, decedent supposedly signed a 12-page revocable trust echoing the will provisions leaving only $100K to our client. Both documents were signed with an “X.” The son then transferred all the father’s assets into the Trust using a “springing” power of attorney. Decedent died three months later.

In addition to filing objections to the probate of decedent’s will, Goetz Fitzpatrick petitioned to invalidate the Trust and bring the assets back into the probate estate. The three brothers moved to dismiss, claiming that our client lacked standing because she would inherit $100K under either the will or the trust; and that she failed to sufficiently allege fraud because our client did not rely on any false statements (an element for proving a claim of damages for fraud but not necessarily to invalidate a document). The Surrogate rejected the son’s arguments as presuming validity of both documents, neither of which had yet been established at the initial pleading stage. The Surrogate denied the motion to dismiss, noting that the petition alleged sufficient facts that, if established, would state causes of action to invalidate the trust and the transfers to it.

The case was especially interesting from a historic viewpoint in that the father lived on a farm in Warwick, NY which is one of the oldest continuously owned family farms in the US; also, by marriage, the family lineage includes Lincoln’s Secretary of State William Henry Seward.

Alison Arden Besunder represented the interests of our client along with associate Andrew P. Herrera and Senior Counsel Sean Flanagan.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


Surviving Spouses Have the Opportunity to Increase Their Estate Tax Exemption

Alison Arden BesunderBlog Post

FOR IMMEDIATE RELEASE
October 20, 2022

Authors:
Alison Arden Besunder, 212-695-8100, ext. 289, [email protected]
Christopher Canfield, 212-695-8100, ext. 313, [email protected]

 

Surviving Spouses Have the Opportunity to Increase Their Estate Tax Exemption

The IRS recently extended the time for an estate to file a tax return to 5 years from the date of death. This means that a surviving spouse of a decedent who died in the last 5 years can file an estate tax return (a “706”) to preserve the Decedent Spouse’s Unused Exemption (the “DSUE”). What’s a DSUE? (We estate planners love our acronyms). The DSUE is the amount of the federal estate tax exemption that was not used by the decedent. In other words, if the decedent died with a gross taxable estate under $12 million (for 2022; roughly $11 million going back to 2017) but did not file a tax return or did not have a taxable estate, the surviving spouse can recapture that unused exemption amount by having the estate file the 706. Why is this helpful? Because the historically high federal estate tax exemption will be reduced to $6 Million in 2025 when the 2017 Tax Act expires. So, for example, if in 2026 the new federal estate tax exemption is $6mm for everyone else, the surviving spouse who has the benefit of the DSUE would have an exemption of ~$ $17-18 million.

BUT (there’s always a but). The extended time only applies if a 706 was not otherwise required and was only being filed to obtain the portable DSUE. This means that if an estate had a gross taxable estate that exceeded the exemption for the year of death, a timely (meaning within 15 months of death with a valid extension) 706 return would have been required and this special 5-year extension would not apply. Keep in mind that the gross estate includes assets in the Decedent’s name plus one-half of any assets held jointly with the spouse.

As with all tax matters, you should consult with an attorney and your accountant to assess whether you are eligible to take advantage of this extension and whether it is right for your particular situation.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


Another Big Business Corporation Law Win by Goetz Fitzpatrick

Howard RubinBlog Post, Insight

FOR IMMEDIATE RELEASE
October 19, 2022
Contact:
Howard M. Rubin, 212-695-8100, ext. 334, [email protected]

Another Big Business Corporation Law Win by Goetz Fitzpatrick

Manhattan — Attorney Howard Rubin from Goetz Fitzpatrick, a law firm in Manhattan, had a major victory in Business Corporation Law.

This case was a dispute involving several commercial properties in Brooklyn that were inherited by the four (4) children of the two (2) brothers that purchased the properties in the 1950s. Each of the 4 children owned 25% of the corporations that owned the properties and two (2) of which managed them and were employed by the corporations. The properties were purportedly valued at $40M and one (1) of the non-manager shareholders sued to force the sale of the properties because of the lack of distributions to her. The other non-manager shareholder supported the decision of the managing shareholders to reinvest in the properties and not sell and felt the compensation received by the managing shareholders was fair and justified.

After a 2-week non-jury trial conducted before the Honorable Lawrence Knipel, the court ruled that the petitioner’s claims against the victorious managing shareholders were without merit and that there was no basis in law or fact to force the sale of the properties. The Appellate Division Second Department unanimously affirmed this Decision. The managing shareholders were represented by Howard M. Rubin, a Senior Partner at Goetz Fitzpatrick LLP.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


General Contractor Concerns: Does a Lien Discharge Bond Expand Liability to Downstream Parties?

Benjamin BlumBlog Post

Here is the scenario: you are a general contractor who has hired numerous subcontractors for a project you’re working on. Those subcontractors have, in turn, hired subcontractors or materialmen (who may also have hired sub-subcontractors or other materialmen).  Somewhere down the line, a sub-subcontractor or materialman is owed money by downstream parties – parties that you are not in privity with, whatsoever. The sub-subcontractor or materialman decides to preserve their rights for payment by filing a mechanic’s lien.

What do you do?  Do you obtain a lien discharge bond to ensure that you can continue to receive payments from a project owner? Or do you worry that obtaining a lien discharge bond might create another source of funds for the lienor to collect from you? Although New York law generally only permits a lienor to collect the funds to the extent that monies are owed to those it is directly in privity with, would the availability of a surety bond create a new “fund” available to the lienor from you or your surety?

Luckily, the answer to that question is an unequivocal “no”. The filing of a lien discharge bond does not expand your liability as a general contractor beyond the monies that you owe to your subcontractor – the party you are directly in privity with. The only lien fund available would be the amount of money owed by the general contractor to its subcontractor at the time the subject liens were filed. The fact that a general contractor obtains a lien discharge bond does not create a new lien fund available to a sub-subcontractor or materialman.

New York law follows the subrogation doctrine for mechanic’s liens filed by downstream parties on a construction contract. Each tier of subcontractors, materialmen, and laborers has its own lien fund and may only look to its own lien fund for recovery.

A lien attaches only to the funds owed to the party directly above the lienor. Thus, if a materialman cannot establish that monies were due or thereafter became due from the contractor to the subcontractor with whom the materialman dealt, no fund exists to which the materialman’s lien can attach.1

The court held that a materialman’s mechanic’s lien as a sub-subcontractor is based upon the subrogation doctrine and is valid and enforceable only up to the amount, if any, still due and unpaid to the subcontractor with which it is in privity.2

New York Courts, in reviewing similar situations, have found that the lien discharge bond does not revive any “lien fund” and thus, does not make a fund available to lower tier subcontractors.

Peri Formwork Cases

In two cases concerning Peri Formwork3, the Second Department reversed judgment(s) entered in favor of a sub-subcontractor against the lien bond surety. These two cases also re-iterate and re-establish the long-standing principal that “each party is subrogated to the rights of the contractor or subcontractor on the contracting tier above him”, thus a lower-tier subcontractor cannot collect more than is owed to the party to whom it is in privity.

In both cases, the Second Department held that the lien discharge bond did not create a “new” lien fund. The Second Department explicitly held that a materialman/sub-subcontractor’s lien is only as to any amount(s) due and unpaid to the subcontractor (ie: the party whom the sub-subcontractor is in privity with) at the time that the lien was filed.

Therefore, if the lien fund is depleted at the time of the filing of a lien, a discharge bond will not resuscitate the lien fund. A sub-subcontractor will not be able to recover on a surety bond filed by a general contractor/project owner unless it shows that the subcontractor is still owed money by its general contractor at the time of the filing of the lien.

Dean Builders and Montfort Bros Cases

Likewise, this reasoning was followed by the Court in two more cases4.  In Dean Builders, which was filed by a materialman, the Court granted summary judgment to a general contractor and its lien discharge bond surety holding that no “lien fund” existed since the general contractor had paid its subcontractor in full at the time that the lien was filed. Since a sub-subcontractor/materialman’s lien is valid only as to any amount still due and unpaid to the subcontractor, and since the lien fund was depleted at the time the lien was filed, the lien did not attach and the filing of a lien discharge bond did not create a new fund for the lien to attach to.

Similarly, In Montfort Bros., Inc., the court dismissed a lien foreclosure claim against a general contractor and its surety since the subcontractor was paid in full at the time that the lien was filed.

Moreover, it is black-letter law that a party must establish the validity of a mechanic’s lien before a surety may be made to pay pursuant to its lien discharge bond.5 Therefore, if you, as a general contractor, do not owe any monies directly to your subcontractor, there is no lien fund for the downstream party’s lien to attach to and, therefore, the mechanic’s lien will not be valid.  Even if you post a bond (and do owe some funds to your direct subcontractor), the lien will only be valid and the surety is only liable for the funds that you owe your direct subcontractor.

If you owe no funds to your subcontractor, there is no lien fund and the sub-subcontractor will not have any available lien fund to foreclose its lien. Even if you do owe any monies to your direct subcontractor, the only available lien fund available will be the amount of monies owed to your direct subcontractor. The bond surety cannot be held liable for the full amount of the monies claimed by the lienor.

Conclusion

As a general contractor, you can file a lien discharge bond without any worry that you are expanding a potential available lien fund since a materialman/sub-subcontractor’s lien is only valid to the extent of the available lien fund when the liens were filed. If your sub-contractor refuses to bond the lien (even though it may be required to do so under your subcontract), you can still bond the lien without having to worry about expanding your potential liability to downstream parties that you are not in privity with.

Are you unsure whether the documents and processes you have in place are sufficient to protect you against costly claims? Contact Goetz Fitzpatrick’s construction law experts today. We will review your current practices and recommend strategies to protect you and your company moving forward.

1 Philan Dept. of Borden Co. v. Foster-Lipkins Corp., 39 A.D.2d 633 (4th Dep’t 1972)
2 Philan, in National Lighting Co., Inc. v. 111 Chelsea Commerce, LP, 2008 WL 3847329 (Sup. Ct. N.Y. Co. 2008)
3 Peri Formwork Sys., Inc. v. Lumbermens Mut. Cas. Co., 112 A.D.3d 171, 177, 975 N.Y.S.2d 422, 426 (2d Dept 2013) and Peri Formwork Sys., Inc. v. Lumbermens Mut. Cas. Co., 65 A.D.3d 533, 535, 884 N.Y.S.2d 129, 130 (2d Dep’t 2009)
4 Dean Builders Group, Inc. v. Crew Contracting of NJ Inc., 2017 WL 4517772, at *4 (Sup. Ct. Kings Co.  2017) and Montfort Bros., Inc. v. Northeast Landscape & Masonry Associates, Inc., 2019 WL 8685092(Sup. Ct. Dutchess Co. May 30, 2019)
5 G. Rama Const. Enterprises, Inc. v. 80-82 Guernsey St. Assocs., LLC, 43 A.D.3d 863, 865, 841 N.Y.S.2d 669, 672 (2d Dep’t 2007). 


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


Can One File a Lien Against a Project Owned by a Utility Company Such as Con Ed?

Benjamin BlumBlog Post

As a contractor, you might conduct work on both public projects and private projects.  You receive a contract from the utility to conduct work at a site which you believe to be owned by the utility.  Then – what happens?  You proceed to work on the contract.  Ultimately, the utility stops payment. You’re either still working on the project (without being paid) as required by your contract or you finished working on the contract within the last few months.What do you do? Do you attempt to file a breach of contract suit against the utility for non-payment? Or is there another option?

In fact, there is another option – to file a lien against the project. Before you file the lien, you must ascertain who the actual owner of the project is and the nature of the project, i.e., are you a direct contractor for the owner utility or is the utility conducting work on behalf of a public entity?

If you’re conducting work for Con Ed at a Con Ed-owned project, then you’re in luck!  You can file a mechanic’s lien with the County Clerk directly against the real property where the project is located. If Con Ed is the actual owner of the real property, then you would file the mechanic’s lien directly with the County Clerk.

If your underlying contract is a contract for a private improvement, then the project would not qualify as a public improvement under Lien Law 12 since Con Ed neither qualifies as the “state” or a “public corporation” for the purposes of the statute, per the Bergassi holding.1

In fact, the Bergassi holding is instructive as to the type of lien that could be filed. The filing of a mechanic’s lien for public improvement on a Con Ed project (or other utility project) would only be appropriate if the utility with which you contracted itself contracted with either the state or a public corporation to perform the work in question. In particular, Courts have held that when the property at issue is owned by a private utility such as Con Ed (which may be deemed a “public service corporation” even though it is privately owned), a private mechanic’s lien would be filed, not a public improvement lien.2

However, what if the property where the project is located is owned by a public corporation, i.e, the State or a subdivision thereof, in fee with the plant where the work being performed is either owned by the utility or leased from the State? In that case, if the contract is ultimately a private contract to perform work solely for the private utility, you would file a lien against the leasehold interest. The filing of a public improvement lien would be wholly inappropriate if the utility is the sole party to request the performance of work and owns the premises.

A public improvement lien is only appropriate where the work is ultimately being performed for a public corporation, e.g., if your company, as a contractor, is performing work for Con Ed or National Grid, who in turn, is performing work for New York City or New York State.

Do I need to file a Notice of Claim?

Another question that may be raised is whether you would need to file a Notice of Claim against the utility for work performed.

The answer is no. Although privately-owned utilities such as Con Ed have been referred to at times as a “quasi-public” entity, these entities do not generally qualify as any of the categories requiring the service of a formal statutory notice of claim under the General Municipal Law or otherwise under statute. The statutory notice of claim, which is a strict condition precedent that must be met prior to the filing of a lawsuit against a municipality, would be in addition to any contractual provisions requiring a contractor to submit claims.

There are various categories of public corporations under General Construction Law 66.  However, a privately-owned utility such as Con Ed or PSEG (with shareholders and dividends payable to the private shareholders) does not fit any of these categories under New York law.3 Quite simply, all of these categories for a statutory notice of claim require that a company either be the “state” or a “public corporation”.

Entities which do not qualify as public corporations under General Construction Law 66 are not subject to the statutory notice of claim requirements.4 Thus, even corporations which seem like a public corporation may not actually be a one as a matter of law.

Under General Construction Law 66, the following three types of corporations qualify as public corporations:

  1. a municipal corporation, defined as a county, city, town, village, and school district.
  2. a district corporation, defined as a territorial division of the State which can assess taxes.
  3. a public benefit corporation, defined as a corporation organized to construct or operate a public improvement wholly or partly within the state, the profits from which inure to the benefit of this or other states, or to the people thereof.

Clearly, a private utility does not fit within the first two categories. Thus, the only category which could even potentially be applicable to such a utility is the public benefit corporation. However, per these General Construction Law 66 definitions, in order to be a public corporation, its benefits must flow to “this or another state, or the people thereof”.5 Where the benefits of a corporation do not flow to the State or to the people of the State, it generally cannot be considered a public benefit corporation. Thus, a corporation which does not qualify as a public benefit corporation is not subject to the statutory notice of claim requirements.

General Municipal Law 50-e requires a notice of claim for all tort claims against a public corporation. However, generally contract-related claims either fall under a local ordinance/regulation, e.g., New York City Administrative Code 7-201 requirement that notice of claim be filed for all claims against New York City, or fall under the provisions of the Town Law, Public Authorities Law, or Education Law requiring that notice of claim be given for contract-related claims and not just tort claims.

Without a specific statute or ordinance mandating the service of a notice of claim for a contract claim against a municipality or other municipal corporation, a notice of claim would not be required for such a contract claim (particularly for a public benefit corporation).

Even a quasi-public corporation (which is defined as a private corporation that owes a duty to the public and may also be known as a “public service corporation”) does not qualify as a public corporation within the meaning of the General Construction Law. Thus, it is not subject to any of the notice of claim requirements under the General Municipal Law or otherwise.

Since privately-owned utilities such as Con Ed and PSEG are private corporations owned by shareholders with benefits that do not flow to the State or to the people of the State, these corporations do not fit within the ambit of a public benefit corporation for purposes of statutory notices of claim.  A “quasi-public” corporation with stockholders who receive the benefits of the corporation does not qualify as a “public benefit corporation” for purposes of New York law and notices of claim.

Therefore, no statutory notice of claim is required for a claim against a privately-owned utility, although a contractual notice of claim may be required pursuant to the terms and conditions of the governing contract, as these contractual notice provisions are read literally and are strongly favored under New York law.

New York courts have repeatedly held that the failure to strictly comply with a construction contract’s notice-of-claim requirements for extra work, disputed work, or delay damages may be deemed a waiver of such claims.6

Therefore, even if you have conducted work for a private utility and are not required to file a statutory notice of claim, you must remain mindful of the contractual notice of claim provisions and strictly comply therewith to avoid waiving such claims.

If you are uncertain whether you are able to file a lien or need to file a notice of claim in a construction-related dispute, contact Goetz Fitzpatrick’s construction law experts today.

1 Bergassi Group LLC v. Consolidated Edison Co. of New York, Inc., 2013 NY Slip Op 30398(U)(Sup. Ct. Westchester Co. 2013)Index No 56860/2012 (Sup. Ct. Westchester Co. 2013
2   BBH Solutions, Inc. v. S. Digiacomo & Son Inc., No. 650131/2013, 2013 WL 6506811, at *1 (N.Y. Sup. Ct. Dec. 10, 2013) (allowing private mechanic’s lien foreclosure action to proceed); Van Name v. Marcus Substructure Corp., 53 A.D.2d 607, 607, 384 N.Y.S.2d 14, 15 (2d Dep’t 1976 )(contractor entitled to recovery on a mechanic’s lien against real property owned by Con Ed).
3 Bergassi Group LLC v. Consolidated Edison Co. of New York, Inc., 2013 NY Slip Op 30398(U)(Sup. Ct. Westchester Co. 2013).
4 Laroc v. City of New York, 2014 WL 10296926 (Sup. Ct. Kings Co. 2014)(holding New York City Economic Development Corporation did not qualify as a “public corporation” for purposes of a notice of claim).
5 Seneca Nation Housing Authority v. Flynn Battaglia Architects, P.C., 167 Misc.2d 1040 (Sup. Ct. Erie Co. 1996).
6 Promo-Pro Ltd. v Lehrer McGovern Bovis, Inc., 306 AD2d 221, 222 (1st Dept 2003); F. Garofalo Elec. Co. v New York Univ., 270 AD2d 76, 80 (1st Dept 2000).


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


New Wage Liability for General Contractors and Construction Managers in New York

Michael FleishmanBlog Post

Effective January 4, 2022, New York State amended its wage theft laws which makes contractors and construction managers jointly and severally liable for wages and benefits owed to employees of its subcontractors.

Specifically, pursuant to New York Labor Law Section 198-e (NYLL 198-e) general contractors, prime contractors, and construction managers (hereinafter “contractors”) that hire a subcontractor directly are now strictly liable for that subcontractor’s failure to pay its employees standard wages, prevailing wages, and overtime. Accordingly, wage actions may be brought directly against the contractor by employees of the subcontractor, as well as a union, another representative acting on the employee’s behalf, or the New York State Attorney General’s office. The limitation period for such claims against the contractor is three (3) years, while the general limitation period for wage claims is six (6) years.

Notably, the law applies to contracts entered into, renewed, modified, or amended with a subcontractor on or after the effective date of the new law. Thus, any amendment or revisions to applicable construction contracts which occur after January 4, 2022, even changes in the contract unrelated to issues concerning subcontractors or wages, may trigger liability for contractors. That said, the law excludes from the definition of “construction contracts”:

a) home improvement contracts with the owner of an occupied dwelling and
b) construction contracts for one or two family dwelling units, except where such contractor or contracts involve the construction of more than ten (10) units at one project site.

In connection with the aforementioned changes to the New York Labor Law, and to ensure that wage and hour records of subcontractors are properly maintained, Section 756-f of the New York General Business Law (GBL 756-f) now requires subcontractors, at a contractor’s request, to provide certified payroll records containing:

  • Information regarding wages and benefits paid to workers;
  • The names of all subcontractors’ employees, and those of any sub-subcontractors working on the project, including the names of all those designated as independent contractors;
  • The anticipated contract start date and duration of the work under the subcontract;
  • The name of the local union(s) with whom the subcontractor and each sub-subcontractor is a signatory contractor (if applicable);
  • The name, address, e-mail address, and phone number at which the subcontractor can be reached.

Given these new changes to labor law making general contractors and other upstream contractors strictly liable for the subcontractor’s failure to pay its employees proper wages and benefits, contractors may consider withholding payment from subcontractors who fail to provide the above referenced information for each employee on the job site, and to consider such compliance in selecting subcontractors for future projects. In that regard, contractors should take the following precautions and safeguards to monitor their subcontractors’ compliance with paying their employees proper wages and benefits in order to avoid potential liability by the contractor:

  • Contractors should document all requests to their subcontractors for employee information, as well as any responses to such requests. Contracts with subcontractors should clearly state that subcontractors must provide all relevant employee wage information as outlined in GBL 756-f.
  • While NYLL 198-e prohibits contracts that prevents the subcontractors’ employees from exercising their rights to collect lost wages and benefits, contractors should include in all their subcontracts provisions that subcontractors shall indemnify the contractor for all damages brought an employee of the subcontractor against the contractor under NYLL 198-e, including for interest, liquidated damages, attorneys fees and costs, resulting from the subcontractor’s failure to comply with wages and benefits due its employees under the New York Labor Law.
  • Contractors should retain their subcontractors’ employee and related records for a minimum of three (3) years following completion of the operative construction contract.

As you can see, these recent changes to the New York Labor law can have significant implications with respect to a contractor’s potential liability relating to wage claims by the subcontractor’s employees. Thus, general contractors, construction managers, and other upstream contractors should immediately review their contracts and relationships with subcontractors to ensure compliance with this new law. If you would like further guidance in that regard, please do not hesitate to contact Michael Fleishman, Esq. at Goetz Fitzpatrick, LLP to discuss further.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


Goetz Fitzpatrick LLP Establishes Case Law Relating to Construction Manager as Agent for Owner

Goetz FitzpatrickBlog Post

Goetz Fitzpatrick, LLP recently prevailed on a cross-motion to compel a construction manager (CM) as agent for a disclosed principal to arbitrate the Third-Party claims of a trade contractor client, even though direct privity of contract between the CM and trade contractor was questionable.

Where the CM acts as agent for a disclosed principal (the owner), standard language in the construction management agreement (CMA) usually provides:

Notwithstanding anything to the contrary which may be set forth in this Agreement, it is expressly acknowledged and agreed that the Construction Manager is acting as agent for Owner and all benefits of this Agreement shall run to the Owner as if the Owner were a signatory hereto.

It is also standard form that trade contracts entered into between the CM as agent for owner are signed by the “[the CM] As Agent for Owner.”

The obvious purpose of such language and manner of execution of the CMA is to attempt to shield the CM as agent from any direct claims and/or liability asserted by any of the trade contractors since it is long-established that an agent which signs a contract on behalf of a known principal cannot be held to have made a commitment in its individual capacity. (See e.g., Shoenthal v. Bernstein, 276 A.D. 200, 205, 93 N.Y.S.2d 187 (1st Dept 1949), appeal dismissed 276 A.D. 831, 93 N.Y.S.2d 908). This principle has been consistently applied in the context of arbitration. (See e.g. Matter of Metamorphosis Constr. Corp. v. Glekel, 247 A.D.2d 231, 668 N.Y.S.2d 594 (1st Dept 1998).

However, that consistency is no longer a constant, thanks to the compelling arguments provided to the Commercial Division of the New York County Supreme Court by attorneys from Goetz Fitzpatrick.

In Sciame Construction, LLC v. Accurate Specialty Metal Fabricators, Inc., NY Co. Index No. 655666/2021, Sciame Construction LLC (“Sciame”) commenced an arbitration “on behalf of owner” against Accurate Specialty Metal Fabricators, Inc. (“Accurate”). Accurate, in turn, asserted Third-Party claims against Sciame for breach of the trade contract. Sciame then filed a Petition to stay the Third-Party claims in arbitration based on the premise that Sciame was merely an agent for a disclosed principal and, as such, there was no contract between Sciame and Accurate which would subject Sciame to arbitrate the claims directly with Accurate.

Goetz Fitzpatrick filed a cross-motion to the Sciame Petition and argued, among other things, that Sciame cannot avoid arbitration of Accurate’s Third-Party claims because Sciame obtained direct benefits from both the construction management agreement and the subcontract, both of which contained arbitration clauses. In other words, Sciame was stopped from avoiding arbitration. The Court agreed and specifically ruled that “even if Sciame was not in privity with Accurate due to it having entered into the Subcontract as agent of Owner, Sciame received direct benefits from the CMA and the Subcontract – serving as the Construction Manager and being entitled to a Construction Services Fee based on work performed by Accurate under the CMA – such that it is estopped from disputing that it is subject to the broad arbitration clauses [citations omitted].”

In short, there is now clear case law from the Commercial Division, New York County, that a CM as agent for owner cannot avoid arbitration of direct claims asserted by a trade contractor where the CM has received a benefit from the CMA and/or trade contract.

The attorneys on the case were Donald J. Carbone and Gerard S. Strain.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram


The New iPhone Feature for Your Digital Legacy

Alison Arden BesunderBlog Post

A (relatively) new concept has entered the realm of estate planning: a digital legacy. With so much of your information stored in the cloud, where will it go when you die? Will everybody have access to it? Will anybody have access to it? In the WSJ+ webcast earlier this year, Joanna Stern interviews Goetz Fitzpatrick Partner and Trusts & Estates attorney Alison Arden Besunder about how to prepare your digital legacy. Recently, Joanna and Alison revisit the topic in Joanna’s Wall Street Journal article, “The iPhone Feature to Turn on Before You Die”. This article gives step-by-step instructions on how to set up this new legacy setting in iOS 15.2 that allows you to specify who can access the information in your iCloud if you die.

And how do you know if you’re on iOS 15.2? Go to Settings > General > About and look at your software version. If you’re not on the latest version, you can easily update by going to Settings > General > Software Update and agreeing to the terms.

As 2022 approaches, it’s time to make a New Year’s Resolution to get your estate in order. You can start today by setting your legacy contacts in your iPhone, then calling the Trusts & Estates team at Goetz Fitzpatrick LLP at 212.695.8100 ext. 28 to set up a consultation.

Explore more articles from our Trusts & Estates team:

Selecting Your Beneficiaries

What to Expect When Meeting with an Estate Planning Attorney

The Perfect New Year’s Resolution: Developing Your Estate Plan

SLATs: The Hot New Estate Planning Technique for 2021

Now is the Perfect Time to Add a GRAT to Your Estate Plan


Construction Delays Due to COVID—Who Bears the Costs?

Benjamin BlumBlog Post

You’re a general contractor who signed an AIA form contract to perform certain specified work at a construction project. Then, the calendar turns to March 2020. A global pandemic rears its head and each day, the government puts more and more restrictions in place regarding your work. Then, the construction project that your company is working on gets shut down. Months later, once the construction industry is allowed to re-commence its work, your work is subject to new governmental restrictions and protocols which, in turn, increase both labor and material costs (such as costs for personal protective equipment and other new equipment to “monitor” potential outbreaks at a project).

These costs were clearly not anticipated when you signed your contract pre-pandemic. What do you do now? Since you signed an AIA form contract, look to the force majeure clause. Article 8.3.1 of the AIA form contract sets forth the force majeure provision which states “[i]f the Contractor is delayed at any time in the commencement or progress of the Work…..by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor’s control; or by delay authorized by the Owner; or by other causes that the Owner determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Owner may determine.” Such a claim must be made in accordance with Article 15 of the AIA form contract – which would allow for an extension of time to complete the project due to delay.

But, this clause is silent as to damages. Section 8.3.3 of the standard form contract does not state that an extension of time is the sole remedy for delays – it in fact states that the force majeure provision “does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents”.

However, if you want to submit a claim for damages due to COVID-19 related costs – any claim that is submitted must strictly comply with the terms of the AIA form contract which requires that any claim for “delay/disruption damages” must be submitted in detail with the nature, extent, and amount of the damages and must include all relevant documentation. Moreover, the claim for these damages must be submitted within the time period set forth in AIA Article 8 and AIA Article 15, which requires that claims must be initiated within ten days after the occurrence of the event giving rise to such claim or within ten days after the contractor first recognizes the condition, whichever is later. This provision is strictly enforced – a failure to give such notice in a timely fashion would constitute a waiver and release of any and all claims arising from such event and would be a waiver of any right to recovery for “delay/disruption” damages.

Under Section 3.2.4 of the AIA form contract, one would argue that they are entitled to damages for these items because “additional costs or time is involved because of clarifications or instructions”. Section 3.9.2.3 of the AIA form contract actually mandates the issuance of a change order as a result of increased costs and requires that the amount of the change order shall reflect (1) the difference between actual costs and the allowances under Section 3.9.2.1 and (2) changes in Contractor’s costs under Section 3.9.2.2.

Although Section 8.3 of the AIA form contract clearly allows for extensions of time as a result of COVID-19, it does not explicitly entitle a contractor to damages for delay, i.e., the increased costs incurred as a result of the delay, and thus, the contractor would be likely required to bear the costs during the delay period until the parties adjudicate a claim for delay damages.

But – what if you want to claim that you’re entitled to an equitable adjustment for the increased costs under your AIA form contract due to pandemic costs? In reviewing a claim for increased costs by a government contractor, the Civilian Board of Contract Appeals allowed an equitable adjustment of a contract price for increased “outbreak” costs in Valerie Lewis Janitorial v. Dep’t of Veterans Affairs, CBCA 4026, 2020 WL 2507940 (May 5, 2020).  In that matter, the contractor was permitted damages for increased costs due to new and more stringent protocols which increased the time and resources needed to meet new requirements, for example, cleaning. The “more stringent “ protocols resulted in cost increases for labor—costs which were not originally contemplated at the time that the contract was made. One could argue that the AIA form contract allows for a claim for these increased COVID-19 costs due to the equitable adjustment doctrine in addition to the other provisions of the contract allowing for potential recovery.

However, as set forth above, one needs to strictly comply with the notice of claim provisions contained within the contract. A failure to strictly comply will bar the recovery of these costs – with you, as the contractor, bearing the increased costs due to these new protocols.

Please feel free to contact the attorneys of the Construction Group at Goetz Fitzpatrick LLP at 212.695.8100 to discuss any questions you may have regarding your commercial construction contract.


Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram