Thursday, January 22, 2015

Case Summary: U.W. Marx, Inc. v. KoKo Contr. Inc. (conditions precedent in construction contract)

The Appellate Court affirmed the holding of the lower court, finding in favor of Koko Contracting, Inc.  U.W. Marx, Inc. was the general contractor on a construction project and entered into a subcontract with Koko for roofing work.  Marx failed to pay Koko for 3 consecutive months, wherein Koko, on October 31, 2007, ceased performance on the roof.  Marx gave Koko 3 days’ notice to cure its alleged default (failing to provide workers) wherein, on November 6, 2007, Koko provided Marx with the 7 days’ notice of its suspension of work based on nonpayment as called for in a section of the subcontract.

Marx argued that Koko should be precluded from recovery due to its non-compliance with the provision in its subcontract (a standard provision clause drafted by the American Institute of Architects) which required 7 days’ notice to be given prior to ceasing performance of the contract.  The Court held that Marx’s material breach, i.e. non-payment, was an “uncured failure of performance,” and therefore Koko was relieved from its remaining obligations under the contract.  Essentially, Marx’s material breach excused Koko from any of its own obligations set forth by the contract.  Furthermore, the Court explained that such a provision is not meaningless, as it is there to protect the subcontractor and to compensate it in the event it has to stop work for lack of payment and then remobilize. 

Decided 1/21/15 at App. Div. 2d Dept.

Case Summary: Staviski v. Christa Constr. Inc. (ADR provision in construction contract)

The parties entered into a subcontract for plaintiff to perform certain remediation work upon the discovery of mold during construction.  An alternative dispute resolution (“ADR”) provision was included in the subcontract, which provided that the contractor’s representative could decide all questions arising from the subcontract and the decision shall be binding and conclusive.  A law suit could be commenced if the subcontractor disagreed with the representative’s finding, but the court shall be limited to determining whether the representative acted arbitrarily, capriciously, or grossly erroneous to evidence bad faith. 

This suit arose out of the representative’s rejection of plaintiff’s claim that it was due certain payments on the subcontract.  The representative determined that plaintiff was 30% responsible for the outbreak of mold and therefore the unpaid balance owed to plaintiff was to be offset by 30% of the total damages that defendant incurred to remediate the mold.  The lower court found questions of fact remained and therefore denied both parties’ motions for summary judgment. 

            On appeal, defendant claimed that pursuant to the ADR provision, only a limited review was to occur and that by the court finding questions of fact, the court was required to find that the determination had a factual basis and therefore was not arbitrary and capricious.  The Appellate Court disagreed with this conclusion.

            The Court found that the provision at issue called for broader judicial review, similar to that under CPLR 78, not the stricter standards of arbitration review under CPLR 75.  The Court ruled that since the contract embraced a claim of bad faith, it would be inappropriate to accord the representative’s determination the same deference accorded to a discretionary determination made by an administrative agency.  

Decided 1/22/15 at App. Div. 3d Dept.

Case Summary: Barklee 94 LLC v. Oliver (claims arising from common wall construction dispute)

The Appellate Court modified the lower court’s decision.  Parties are the owners of adjoining townhouses and defendants made changes to the common structural wall, which is the basis for this suit.  The lower court found that plaintiff’s breach of contract claim was barred by the 3 year statute of limitations.  However, plaintiff’s claim for trespass resulting from the placement of wiring, along with plaintiff’s statements that defendants routinely trespassed and made changes to plaintiff’s property without permission, and that defendants violated property and easement rights with regard to the common structural wall was found to be sufficient to state a cause of action for trespass.  Furthermore, defendants failed to establish that they were subject to any of the exceptions which would make them not liable for their independent contractor’s negligent acts.

            The Court did not find defendants’ claim that violations of plaintiff’s easement and property rights were time-barred, as defendants’ architect’s application for payment did not conclusively establish the project completion date.  The Court further found that defendants were in violation of Building and Landmarks Code provisions as adequate lateral support was not provided for plaintiff’s property after excavation took place, and that contrary to defendants’ argument, the DOB’s inspection did not conclusively establish that the excavation did not violate such provisions.    

Decided 1/15/2015 at App. Div. 1st Dept.

Wednesday, December 3, 2014

Architect that substantially contributes to excavation design in NYC may have strict liability for adjacent property damage

When the Court of Appeals decision in Yenem Corp. v. 281 Broadway came down in 2012 it signaled a potential avalanche of strict liability claims against persons that "cause an excavation to be made."  The question remained: who causes an excavation to be made?  Clearly the owner of the property and the contractor that performs the excavation "cause it to be made."  The more interesting question has been whether and architect and/or engineer that are involved with excavation "cause the excavation to be made" and, as such, may be held strictly liable under Yenem and Section 3309 of the NYC Building Code.

While the question remains open, the First Department sent out a signal last week in what may be the first appellate division commentary on the issue.  In 87 Chambers, LLC v. 77 Reade, LLC the First Department stated that the engineer's motion for summary judgment dismissing the 3309.4 claim against it was properly denied.  The decision indicates that an engineer may face strict liability under Section 3309, and be a person who "causes an excavation to be made" where the evidence establishes that the design professional "substantially contributed to the design and methodology employed during the excavation process."  In this instance, the court found there were questions of fact as to whether the engineer was such a substantially contributing factor.  However, the reasoning, in this writer's opinion, is a loud signal that design professional do indeed face strict liability and the First Department may have just given us the first outline of the test for liability.  Stay tuned as other departments chime in on this critical issue.

Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law.  With offices in the New York City metropolitan area and Buffalo, KP serves the construction industry across the State of New York.

Friday, November 28, 2014

Court enforces 6 month contractual limitations period against NYC

Generally, a claim for breach of contract in New York has a 6 year limitations period.  However, parties are generally free to negotiate and shorten the limitations period in their contract.  Such was exactly the case in Dart Mech. Corp. v. City of New York where the contract limited the period to bring claims to 6 months.  In upholding and enforcing the 6 month limitations period, the Court found that six months is not an unreasonably short period (as would have permitted the Court to void the provision).  Dart Mech. Corp. is a good lesson for contractors:  always read your contracts!  Don't assume that what you have experienced in the past is the "rule" in your current and future situations.  

Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law.  With offices in the New York City metropolitan area and Buffalo, KP serves the construction industry across the State of New York.