Wednesday, January 2, 2013

Material Supplier Clobbers Surety Under Payment Bond in Third Department

In Erie Materials, Inc. v. Universal Group of N.Y., Inc. a material supplier brought a claim under a payment bond issued pursuant to State Finance Law Section 137.  After discovery, the material supplier filed a motion for summary judgment against the surety that issued the payment bond.  The trial court found that the surety established a prima facie case that the materials were delivered and were not paid for.  In opposition, the surety argued that there were issued of fact at as to whether the materials for which the plaintiff sought payment were "actually delivered to and used on the project site."  However, the Appellate Division ruled that "we have never required a supplier to demonstrate that it actually delivered the materials to the project site in order to recover on a bond pursuant to State Finance Law Section 137."  Therefore, the fact that materials were later diverted away from the site by the contractor was not a defense to the material supplier's claim against the payment bond.

The icing on the cake for the material supplier was that the trial court awarded it attorneys' fees and the Appellate Division refused to disturb the award.  The decision noted that the surety "aggressively defended against plaintiff's entire claim, although only a relatively minor portion thereof was actually in dispute."  This case could be a stark warning to New York sureties to beware how they approach defending a payment bond case.  While many defendants in New York will try the defense of "outspending the plaintiff", the surety takes that course at its own risk because it may be hooked for attorneys fees.

Vincent T. Pallaci is a partner at the law firm of Kushnick | Pallaci, PLLC. With offices in Long Island and Buffalo, New York, Kushnick | Pallaci, PLLC offers legal services to the construction industry across the State of New York.

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