Subcontractor was hired to perform masonry and rough carpentry work on a university project by the construction manager. Subcontractor submitted monthly statements of work performed and, upon receipt of 90 percent of the approved monthly payment, signed lien waivers. After the work was substantially completed, a dispute arose over work remaining to be performed. The construction manager terminated the subcontract.

The subcontractor brought an action to recover in quantum meruit and to foreclose on a mechanic's lien. The subcontractor contended that its subcontract was terminated for default without the required notice of default being given, entitling the subcontractor to recovery in quantum meruit. The construction manager responded that the subcontractor had been terminated for convenience, that its notice was proper and that the subcontractor could not recover in quantum meruit because of the periodic lien waivers.

The trial court found for the subcontractor, and the Appellate Division affirmed. Based on the termination letter's references to the subcontractor's "lack of job performance" and "disregard of contract obligations" and subcontract provisions governing default terminations, the court held that the termination was for default and not for convenience. A default termination required a written notice 10 days before termination. Here, the termination was made effective on the date of the notice, rendering it defective and wrongful. As for the quantum meruit claim, while generally not permissible when there is an undisputed contract, the court permitted the claim because of the contract's termination. MCK Building Associates, Inc. v. St. Lawrence University, 301 A.D.2d 726, 754 N.Y.S.2d 397 (3rd Dept. 2003); Motion for Leave to Appeal Dismissed, 99 N.Y.2d 651, 760 N.Y.S.2d 104 (2003).


Subcontractor's Pass-Through Claim for Delays Against Public Authority Allowed Despite No-Damage-for-Delay Clause

Contractor sued the Metropolitan Transportation Authority over costs for delays and additional work in connection with renovation of Grand Central Terminal. An electrical subcontractor asserted claims for delays due largely to design changes that had been liquidated under a liquidating agreement with the contractor.

Contractor sought to dismiss the electrical sub's delay claims on the basis of prime contract clauses providing that certain delays were to be expected and under subcontract provisions barring claims for delay damages. The electrical sub contended that there was a mid-job "global settlement" of changes and delays. During negotiations, the sub contended, representations were made, and relied upon by it, that there would be no further time extensions or changes requiring additional time. The representation turned out to be unachievable, and changes, with resulting delays, continued.

The contractor's motion for summary judgment was denied by the trial court, which found triable issues of fact. The trial court concluded that if delays were caused by the contractor and unanticipated by the sub or if they were caused by the bad faith or intentional abandonment of the contract, the bar against delay damages would not apply. Bovis Lend Lease LMB, Inc. v. GCT Venture, Inc.; Supreme Court, New York County, Justice Ramos; Index No. 105398/00; November 14, 2003.

On appeal, the Appellate Division affirmed the finding that there was sufficient evidence of factual disputes as to three of the four recognized exceptions to no-damage-for delay clauses to preclude summary judgment. Evidence of delays of 2½ years and "dramatic" changes in dollar amounts "(value of the work performed was more than twice the original contract price)" raised questions about whether the delays were beyond the contemplation of the parties or reflected an intentional abandonment of the contract. Further, continued changes in the work raised questions of whether resulting delays were caused by owner bad faith or by willfully or grossly negligent conduct. Bovis Lend Lease LMB, Inc. v. GCT Venture, Inc., 6 A.D.3d 228, 775 N.Y.S.2d 259 (1st Dept. 2004).


Savings Clause Applied to Limit Scope of Full Indemnification Clause, Preserving Its Enforceability

In a motion for leave to reargue a denial of summary judgment for contractual indemnification, a trial court was asked to determine whether an indemnification agreement containing a standard savings clause -- "to the fullest extent permitted by the law" -- avoided the effects of General Obligations Law §5-322.1, which voids an agreement that seeks indemnification for the indemnitee's own negligence.

Citing Agricultural Insurance Co. v. Ace Hardware, the court ruled that a careful reading of the decision of the Court of Appeals in Itri Brick v. Aetna indicated that the savings clause in a broad indemnification agreement removed the agreement from the proscription of GOL §5-322.1 despite conflicting lower court authority, which this court was not constrained to follow. The court also relied on the principle of contract interpretation that when faced with two reasonable constructions of an indemnification clause, it is more appropriate to adopt the one that renders the clause legal and gives it effect. The motion to reargue was granted, and the motion for summary judgment was granted conditionally. Bush v. City of New York, 195 Misc.2d 882, 762 N.Y.S.2d 775 (2003), Supreme Court, Bronx County, Justice Renwick.


Under AAA Rules, Arbitrator Resolves Issues as to Arbitrability of Claims

Petitioners were partners in two partnerships to develop and operate shopping centers. Respondent was a general partner in both partnerships. Each partnership agreement called for resolution of "any dispute" by arbitration under AAA rules. Petitioners moved under CPLR §7503 (b) to stay arbitration, which respondent had demanded.

The court noted that while the arbitrability of a particular claim ordinarily is an issue for judicial determination, the parties had expressly agreed to proceed under the AAA Commercial Arbitration Rules. AAA Rule 8 (a) grants the arbitrator the power to decide the scope of what is arbitrable.

Relying on federal decisions interpreting Rule 8 (a) as a delegation of questions of arbitrability to the arbitrator, the court denied the petition to stay arbitration, ruling that any questions concerning the arbitrability of claims should be resolved by the arbitrator.

The court pointed out in a footnote that while Rule 8 (a) was adopted after the parties executed the partnership agreements in 1984, it was in effect at the time the demands for arbitration were served in 2002. Under Rule 1 of AAA's Commercial Arbitration Rules in effect in 1984, the parties agreed that the applicable rules would be those "in the form obtaining at the time the arbitration is initiated." Those provided for the arbitrator to decide arbitrability. Current Construction Industry Arbitration Rule 8 (a) has the same provisions regarding the arbitrator's powers. Matter of RD Management Corp.; Supreme Court, New York County, Justice Cahn; Index No. 116754/02; July 16, 2003.


Notice of Lien Filed Against Condominium Building Lot Number Held Defective

Lienor commenced an action to foreclose on its mechanic's lien filed against a residential condominium project. Project owner/developer moved to dismiss the lien and the action on grounds the lien improperly described the property it sought to encumber. The notice of lien identified the subject property by using the single lot number for the entire property, which had been superseded by the condominium declaration filing. It provided separate lot numbers for each unit.

The trial court agreed and granted summary judgment for the developer. The Appellate Division affirmed. It further noted that under Real Property Law §339-1 (1), a post-condominium-declaration lien against the building's common elements is invalid when filed without the unanimous consent of all unit owners.

The court also refused to permit retroactive amendment of the lien because such amendments are not allowed to revive an initially invalid notice of lien. Here, an "inadvertent failure to make a thorough search of the relevant public records" was the cause of the defect. A title search would have revealed the new lot numbers for the units unsold and still in the hands of the developer, which could have been encumbered by the lien. Northeast Restoration Corp. v. K&J Construction Co., L.P., 304 A.D.2d 306, 757 N.Y.S.2d 542 (1st Dept. 2003).


Notice of Lien that Gave Lienor's Address as P.O. Box and Failed to Identify Its Partners Held Defective

An out-of-state partnership had a notice of mechanic's lien filed on property in New York State. The description of the lienor stated it was a partnership with an address at a Post Office box in Massachusetts. The notice was verified by one person identified as a "partner."

Petitioner moved to dismiss the lien because it failed to: (a) name the partners of lienor; (b) provide the lienor's business address; and (c) state the lienor's principal place of business. Lienor opposed the petition, contending the lien substantially complied with the lien law's filing requirements and, if it did not, it could be amended to comply.

The court noted that the lien law required the names of partners if the lienor was a partnership, the business address of the partnership and its principal place of business. Lien Law § 9 (1). The court found that because a Post Office box is not the same as or a proper substitute for a business address, the lien was defective. ("Because a lienor cannot be physically located at a post office box, an owner. seeking to verify the lien's validity, or to serve process to vacate the lien, would not be able to do so.")

The court further found that while the failure to name all partners was not by itself a material defect, that along with failure to give a business address and a principal place of business rendered the lien materially defective.

The court rejected the lienor's attempt to amend the lien retroactively, holding that it could not permit amendment of a lien that was jurisdictionally defective. Fibernet Telecom Group, Inc. v. East Coast Optical Services, 195 Misc.2d 461, 760 N.Y.S.2d 621 (2002); Supreme Court, New York County, Justice Goodman.


Owner Satisfies Obligation Merely by Including Additional Insured Provision in Contract

Plaintiff was hired by the Dormitory Authority of the State of New York (DASNY) to provide construction management services and, by a separate agreement, to perform certain general conditions work in connection with a new college campus. Both contracts required DASNY to include in prime construction contracts language requiring additional insured coverage for plaintiff.

Plaintiff sued for breach of contract, alleging that some prime contractors failed to name plaintiff as an additional insured on their policies. The trial court dismissed the action for failure to state a recognizable claim. The decision was affirmed on appeal. The Appellate Division agreed that the contract merely required DASNY to include the described insurance requirements in the prime contracts and did not require DASNY to enforce the contracts on plaintiff's behalf. Nor was there any implied obligation to do so based on the principle of good faith and fair dealing. The court did note, however, that plaintiff, as an intended third party beneficiary of the prime contracts, could enforce the provisions against and seek damages for breach of contract from the prime contractors. TDX Construction Corp. v. Dormitory Authority of the State of New York, 306 A.D.2d 115, 759 N.Y.S.2d 878 (1st Dept. 2003).


Contractor's Negligent Misrepresentation Claim Denied; Relationship Not Sufficiently Close

Contractor brought an action for fraud and negligent misrepresentation against engineer, seeking additional costs allegedly incurred as a result of inadequate or inaccurate subsurface information in bid documents. The trial court dismissed the fraud claim but permitted the negligent misrepresentation claim to proceed. On appeal, that claim also was dismissed.

The Appellate Division noted that to maintain a negligent misrepresentation claim, there must be privity or some relationship close to privity. Without privity, there must be: (1) awareness by the maker of a statement that the statement would be used for a particular purpose; (2) reliance by a known party; and (3) some conduct by the maker linking it to the relying party.

The Appellate Division determined that the contractor satisfied the first element but not the latter two. Contractor was not a "known party," only a member of an indeterminable class of persons who might rely on the statement. That the engineer met the contractor at a pre-bid meeting did not change this. The court also noted that the engineer's contract specifically provided that it created no duties between engineer and the contractor.

As to the third element, the court could find no conduct evidencing an understanding by the engineer that the contractor had, in fact, relied on the subsurface information in preparing its bid. The bid documents advised bidders that they were required to conduct their own investigation. Apparently influencing the court was evidence that the contractor knew another bidder conducted subsurface explorations, but the contractor elected not to.

The court noted that it would have dismissed the claim even if the contractor had established a relationship close to privity because the contractor presented no evidence in opposition to the summary judgment motion that identified what in the 28 test boring logs constituted a misrepresentation or reflected negligent performance of professional services. Marcellus Construction Co., Inc. v. Village of Broadalbin, 302 A.D.2d 640, 755 N.Y.S.2d 474 (3rd Dept. 2003).

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