Subcontractors News
One of the most common questions asked by contractors is whether or not they may recover their attorney’s fees in connection with litigation. Unfortunately for the contractor, generally the answer is no.
Under the American Rule, unless there is a statute or an express contractual provision between the parties for attorney’s fees, they are ordinarily not recoverable. New York Courts follow the American Rule, and hold that because attorney’s fees are the “ordinary incidents of litigation” they may not be awarded to the “prevailing party” unless by agreement or statutory authority. The law then begs the next question—who is a prevailing party. Is a party which sues for $400,000 and is awarded $50,000 the prevailing party? Such a determination requires an initial consideration of the true scope of the dispute and what was achieved within that scope. In other words, a court may determine a party as the “prevailing party” if it recovers the majority of the damages claimed.
However, in connection with litigations involving payment bonds, New York State Law provided two statutes which have been underutilized but which, under the proper circumstances, may allow the contractor to recover its attorney’s fees. A contractor on a private improvement project may recover from an owner its attorney’s fees in connection with an action involving a payment bond. General Obligation Law § 5-322.3 entitled “Payment Bonds to be Filed” states: “A copy of any payment bond executed in connection with a contract for the improvement of real property other than a contract for a public improvement, shall be filed within thirty days of such execution by the owner of the improvement in the office of the county clerk in the county in which the improvement is to be undertaken; provided, however, that such fi ling shall be required only where the contract for the improvement of real property is for an amount in excess of one hundred thousand dollars. Any owner failing to file such payment bond as provided herein shall be liable for the reasonable attorney’s fees, as determined by the court, of any claimant successfully bringing an action or proceeding on the bond.” This statute applies to private projects in excess of $100,000.
While there is no doubt that owners routinely fail to comply with this statute by failing to file the payment bonds with the appropriate County Clerk, contractors and subcontractors are advised to ascertain prior to commencing litigation whether the owner has fi led the payment bond with the County Clerk. In addition, a subcontractor can utilize this statute to bring pressure upon a non-paying contractor by an Owner who has not filed the payment bond with the County Clerk and who may now be liable for the subcontractor’s attorney’s fees.
Prior to the summer of 2009, this law was referenced in a single case wherein the court determined that a claim for violating G.O.L. 5-322.3 was non-arbitrable. However, last summer the application of G.O.L. 5-322.3 was a central issue of a New York case. The court held that the claimant did not establish its entitlement to recover on the payment bond and was not entitled to attorney fees under G.O.L. 5-322.3 due to the failure of the owner to file the payment bond with the County Clerk. However, the holding does affirm the corollary, that a subcontractor which ultimately prevails against the payment bond should be entitled to recover attorneys fees against the owner who did not file the bond.
A contractor may recover from attorney’s fees from a payment bond surety in connection with public improvement projects. New York State Finance Law § 137(3)(c) provides: “In any action on a payment bond furnished pursuant to this section, any judgment in favor of a subcontractor or material supplier may include provision for the payment of interest upon the amount recovered from the date when demand for payment was made pursuant to the labor and material payment bond and provided further that the court may determine and award reasonable attorney’s fees to either party to such action when, upon reviewing the entire record, it appears that either the original claim or the defense interposed to such claim is without substantial basis in fact or law.” This statute applies to public payment bonds required under the New York State Finance Law.
This law, while imposing a high threshold for the recovery of attorney’s fees has similarly been underutilized. The author of this article has obtained for his client attorneys fees pursuant to N.Y.S. Finance Law § 137(3) (c) in a successful litigation against a payment bond surety. There has been scant law in connection with this matter. In one instance, the contractor was denied relief under this law because the surety properly questioned the contractor’s claim which was supported by delivery tickets appearing more than once and some tickets indicated that material was delivered to different job sites. However, a court awarded attorneys fees to a prevailing subcontractor in an action on a contractor’s payment bond where there was no plausible ground for the surety’s defense that a change order under which the subcontractor performed services fell outside the surety’s obligations under the bond.
Therefore, a contractor who familiarizes himself with these two statutes may be fortunate in being awarded attorneys fees in a successful litigation, where most other contractors would bear the cost of its litigation.
Michael is a graduate mechanical engineer who has worked as project engineer on numerous public and private construction projects over the past ten years. He is a construction attorney who has given frequent lectures to both contractors and attorneys on various construction law topics. Mr. Ganz may be reached at (516) 822-4400.
