Punitive Damages for Trust Diversion: More Than a Disputed Payment Is Required

Reviewed September 7, 2026.

Not every construction trust violation supports punitive damages. The facts supporting civil recovery, punitive relief and criminal liability must be evaluated separately.

In Jorge v. Piola Property Management LLC, 2017 NY Slip Op 50837(U), the New York Supreme Court in Nassau County dismissed the punitive-damages portion of a homeowner’s Article 3-A claim at the pleading stage. The remaining contract and trust claims survived the motion, subject to the applicable representative-action requirements.

The court applied Second Department authority requiring facts showing larcenous intent for the punitive claim. Bare assertions of knowing diversion and failure to pay a disputed amount were insufficient. The ruling did not hold that a prior criminal conviction was required, or that the absence of punitive damages eliminated a civil trust claim.

Separate the remedies and supporting proof

Lien Law § 77 provides broad civil trust-enforcement remedies. Section 79-a separately addresses criminal misappropriation and includes a good-faith-dispute provision. That provision should not be treated as permission to apply trust assets to unrelated purposes.

Review the payment records, authorized uses, disputed obligations and evidence of intent before asserting or defending enhanced damages. Surviving a pleading motion is also distinct from proving liability at trial.

Kushnick Pallaci PLLC assists clients throughout New York with construction trust fund litigation. Contact 631-752-7100 or vtp@kushnicklaw.com.

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