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
