Opinion
Index No. 652218/2017 Motion Seq. No. 007
03-21-2023
TURNER CONSTRUCTION COMPANY Plaintiff v. NASTASI & ASSOCIATES, INC., Defendant.
Unpublished Opinion
MOTION DATE 03/21/2023
DECISION + ORDER ON MOTION
SABRINA KRAUS, JUSTICE
The following e-filed documents, listed by NYSCEF document number (Motion 007) 192, 193, 194, 195, 196, 197, 198, 199, 200, 201,202, 203, 204, 205, 206, 208, 209 were read on this motion to/for PARTIAL SUMMARY JUDGMENT.
BACKGROUND
This matter arises out of five construction projects in New York in which plaintiff served as the general contractor and defendant served as a subcontractor for performing carpentry and other interior work.
ALLEGED FACTS &PROCEDURAL HISTORY
Defendant has asserted 15 counterclaims against plaintiff based on breach of contract, account stated and diversion of trust funds pursuant to Article 3-A of the Lien Law. The counterclaims are asserted in connection with each of five construction projects: the New York University College of Nursing, Dentistry and Bioengineering project; the Memorial Sloan-Kettering project; the West Village Residences project; the Conde Nast project; and the Lenox Hill Hospital project (collectively, the "Projects").
In 2012 and 2013, defendant entered into five contracts with plaintiff, one for each Project, pursuant to which defendant agreed to furnish drywall and carpentry work for the Projects.
Regarding payments, the contracts provided that "[t]he obligation of Turner to make a payment under this Agreement, whether a progress or final payment, or for extras or change orders or delays to the Work, is subject to the express condition precedent of payment therefor by the Owner." The contract further provides that final payment "shall be made only with funds received by Turner from the Owner, the Construction Lender, or the Owner's agent as final payment for work under the contract. Final payment to Turner by the owner shall be an express condition precedent that must occur before Turner shall be obligated to make final payment to the subcontractor." Payments for charge orders were also subject to owner payment."
The contracts contained an early termination provision giving plaintiff "the right at any time and for any reason, by written notice to the subcontractor, to terminate this agreement without cause and require the subcontractor to cease work hereunder." In the event plaintiff terminated the contract prior to completion, the contracts provided that "the subcontractor shall be entitled to payment pursuant to the terms of the Agreement only for work performed as of the date of termination, together with reasonable costs of demobilization, and other reasonable costs."
In the event of a dispute, the contracts contained a claim limitation period requiring defendant bring any claims against plaintiff "... within the earlier of one year following the subcontractor's achieving substantial completion for the subcontractor's work or within one year of Turner's notice of default ...".
In the Spring of 2015, the parties fell into dispute. Defendant was demanding payment for completed work which was not provided. Instead, Plaintiff issued notices of termination for the subcontract on May 4, 2015. The parties negotiated regarding the payment due to defendant for the completed work over the next two years, but never reached an agreement.
Plaintiff commenced the instant action in April 2017 seeking damages in the amount of $4,777,310 for the additional costs of labor, material, and other damages incurred as a result of defendants' alleged breaches of contract.
Defendant filed an answer on July 25, 2017, asserting eight affirmative defenses including that plaintiff materially breached the contracts, set off and recoupment, and failure to state a cause of action. Two years later, defendant moved to file an amended answer to assert counterclaims. The motion was not addressed by the court (Reed, J) until October 2019, when it was denied as "deemed abandoned".
Shortly thereafter, defendant renewed its motion, and the court (Reed, J) granted the motion holding:
In this Court's view there has not been anything that would to be considered legal prejudice that has been demonstrated by Turner in opposition to the motion to file an amended answer to the counterclaims.
There has been a lengthy period of time between when the Defendant knew, could raise or wanted to raise the new counterclaims. But, here Turner has been on notice of something that had been in consideration by the Defendant. So, there is no unfair surprise.
From a prejudicial standpoint, again, the Defendant is correct that if the Court were not to permit the amendment sought the Defendant could simply file a separate action, plenary action. And that matter would simply be assigned as a related case. And so it would come right back to the Court.
So, in the matter of judicial economy it makes sense for the Court to allow this amendment.
In January 2020, plaintiff moved to dismiss defendant's counterclaims pursuant to CPLR §3211(a)(5), arguing that the claims were untimely because they were not interposed within the one-year limitation in the parties' contracts. The court (Reed, J) granted the motion finding that the clause in the subcontract limiting claims to one year was unambiguous, and there was no condition precedent in dispute.
In March 2020, the Appellate Division issued a ruling reversing Judge Reed's decision.
The Appellate Division held that issues of fact were raised as to whether the contractual limitation period was reasonable. The Appellate Decision further held:
Here, the provisions setting a one-year limitation period for claims arising out of the contracts between Turner and Nastasi are reasonable on their face. However, the contracts also provide that payments by the owner are conditions precedent to any sums owed by Turner to Nastasi. As observed in D&S Restoration, it was neither fair nor reasonable to impose such a condition precedent, which was not within Nastasi's control, but had the capability of nullifying its claim (D&S Restoration, 160 A.D.3d at 926)
......
At the pleading stage, we should not be making factual findings as to why Turner terminated Nastasi. In any event, the record contradicts the claimed basis on which Turner's action is brought.
At oral argument, Turner's counsel acknowledged payment was made by the owner but refused to state when Turner was actually paid by the owner. The record contains no evidence to determine when the owners paid Turner, when the claims accrued, and whether the claims accrued before they were barred under the limitations provision. Given the foregoing, Turner failed to make a showing that the contractual limitation was reasonable as applied, and, moreover, such factual issues cannot be decided at the pleading stage (see Executive Plaza, 22NY3d at 518-519; Greystone Bldg. &Dev. Corp, v Makro Gen. Contrs., Inc., 181 A.D.3d 468 [1st Dept 2020]; D&S Restoration, 160 A.D.3d at 926)
In March 2021, defendant again moved to amend its answer to add five causes of action to enforce the 3-A Trusts pursuant to the Lien Law of New York, alleging plaintiff had diverted trust fund assets. The motion as granted by the court (Kelly, J) on October 5, 2021, pursuant to an order find that the proposed counterclaims were "not so patently devoid of merit" as to warrant denial of the motion to amend.
On November 30, 2022, plaintiff filed its note of issue.
PENDING MOTIONS
On February 27, 2023, plaintiff moved for summary judgment and dismissal of defendant's counterclaims and third-party complaint, and defendant cross-moved for an order pursuant to CPLR §902 to allow defendant to proceed as a class for the purpose of pursuing its counterclaims under Article 3-A of the Lien Law.
On March 21, 2023, the court heard oral argument and reserved decision. For the reasons stated below, the motion to dismiss defendants' counterclaims as time barred is denied, except as to the Article 3-A claims, and the cross-motion for class certification is also denied.
DISCUSSION
To prevail on a motion for summary judgment, the moving party must establish its cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in its favor. Wine grad v. New York Univ. Med. Ctr., 64 N.Y.2d 851 (1985); Zuckerman v. City of New York, 49 N.Y.2d 557 (1980). Absent such a prima facie showing, the motion must be denied, regardless of the sufficiency of the opposing papers (Alvarez v Prospect Hospital, 68 N.Y.2d 320, 324 [1986]).
However, "[o]nce the movant makes the required showing, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of a material issue of fact that precludes summary judgment and requires a trial" (Dallas-Stephenson v Waisman, 39 A.D.3d 303, 306 [1st Dept 2007], citing Alvarez, 68 N.Y.2d at 324)." [A]ll of the evidence must be viewed in the light most favorable to the opponent of the motion" (People v Grasso, 50 A.D.3d 535,544 [1st Dept 2008]).
The Counterclaims Are Not Time Barred Because the One-Year Period Of Limitations In the contracts Is Not Reasonable As Applied In This Action
The one-year period would have expired on May 4, 2016. However, plaintiff received payment from the owner between 2017 and 2019, depending on the project. Thus, as applied in this action, the claims would have expired before they accrued.
Accordingly, the one-year limitation in each of the contracts was neither fair nor reasonable, and therefore unenforceable, consistent with First Department precedent, including the First Department's decision in this case. See, e.g., D&S Restoration, Inc., 160 A.D.3d at 926; Executive Plaza, LLC v. Peerless Ins. Co., 22 N.Y.3d 511, 518(2014).
The court rejects plaintiffs argument that the clause herein is reasonable because the provision linking plaintiffs payment to defendant to owner's payment to plaintiff is unenforceable. Plaintiff cannot include provisions in its contracts, expect subcontractors to rely on these provisions, and then argue that the provisions it required be included are unenforceable on public policy grounds only when it helps plaintiff. This argument further assumes that the First Department decision in this action and in Greystone Bldg &Dev Corp v Makro Gen Contractors, Inc. 181 A.D.3d 468 (1st Dept 2020) where counsel for plaintiff made the same argument, was premised on mistakes, an assumption this Court is not inclined to make.
Nor does the Court find a basis to make a different decision as to the Account Stated claims. The "Payments in General" section of the contracts provided that the: "obligation of Contractor to make a payment under this Agreement... is subject to the express condition precedent of payment therefor by the Owner." Later in the contracts, it also provides, "the Subcontractor agrees that it shall not be entitled to nor claim any cost reimbursement, compensation, damages or extensions of time attributable to any changes, additions, and/or omissions directed by Turner except to the limited extent that Turner has actually recovered corresponding cost reimbursement compensation. . . from the Owner . . . ". Pursuant to these provisions, plaintiff did not owe defendant anything until it was paid by the owners. These clauses prohibited defendant from making any claim for compensation or damages until plaintiff was paid by the owners, and this would include a claim for account stated. See Enviroclean Servs., LLC v. CEM, Inc., 12 A.D.3d 1042, 1043-44 (4th Dep't 2004).
Counterclaims Eleven Through Fifteen Are Dismissed as They Were Not Filed Within the One Year Period of Limitations Set Forth in Lien Law § 77(2)
Section 77 (2) of Article 3-A of the New York Lien Law provides that an action for enforcement of the trust created by the law must be commenced no later "than one year after the completion of such improvement or, in the case of subcontractors or materialmen, after the expiration of one year from the date on which final payment under the claimant's contract became due, whichever is later..." See also, Robert B. Samuels, Inc. v. CSG Const. Corp., 257 A.D.2d 474, 474 (1st Dept. 1999). Defendant's trust diversion Counterclaims (Eleven through Fifteen) are untimely whether measured from the dates of completion of the Projects or from the dates on which final payment under the contracts became due.
Nor does the Court find that the claims are timely under the relation back doctrine of CPLR §203(f) as neither defendant's Answer nor Amended Answer gave notice of the Article 3-A Lien Law claims, the alleged the existence of the Lien Law trusts, that other construction parties had not been paid with trust funds, and/or that Article 3-A of the Lien Law had been violated. See Aug. Bohl Contracting Co. v. L.A. Swyer Co., 74 A.D.3d 1649, 1650-51 (3rd Dept. 2010.
Assuming arguendo the claims were not time barred, the Court would still deny the cross-motion to certify defendant as a class of one. Defendant failed to take any action prior to the filing of the Note of Issue to advance its class theory. To maintain a class action, the class representative must move for an order certifying the class within 60 days after the trustee's time to serve a responsive pleading has expired (See CPLR § 902). The CPLR 902 requirement that a motion for class action certification be made no later than 60 days after the time expires for the service of all responsive pleadings is designed to promote an early determination of whether class action relief is appropriate (see O'Hara v Del Bello, 47 N.Y.2d 363, 368 [1979]). Not only did defendant fail to timely file, but defendant acknowledges that it cannot satisfy the numerosity requirement of CPLR §901. Nor has defendant established that a class action is the superior method of addressing defendant's claims for nonpayment in this action. [See Solomon v. Bell Atlantic Corp. 9 A.D.3d 49 (1 Dept. 2004)].
WHEREFORE it is hereby
ORDERED that plaintiffs motion is granted to the extent of dismissing defendant's counterclaims numbered 11 through 15 and otherwise denied; and it is further
ORDERED that defendant's cross-motion to certify the class is denied; and it is further
ORDERED that, within 20 days from entry of this order, plaintiff shall serve a copy of this order with notice of entry on the Clerk of the General Clerk's Office (60 Centre Street, Room 119); and it is further
ORDERED that such service upon the Clerk shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address www.nycourts.gov/supctmanh);]; and it is further
ORDERED that any relief not expressly addressed has nonetheless been considered and is hereby denied; and it is further
ORDERED that this constitutes the decision and order of this court.