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Thelen Reid Brown Raysman & Steiner LLP The
New York Supreme Court, New York County, recently reaffirmed that a subcontractor's
private improvement mechanic's lien foreclosure claim must be dismissed as a matter
of law when the property on which the private improvement is built is owned by
a public benefit corporation. Rathe Productions, Inc. v. BPC Site 25 Associates,
LLC and Lehrer McGovern Bovis, Inc., Index No. 600320/01 (Oct. 16,
2001). The court also affirmed that a subcontractor may not sue an owner on a
quasi-contract theory when the subcontract between the general contractor and
the subcontractor precludes quasi-contractual claims, even if the owner is not
a party to the subcontract and even if the subcontract does not expressly state
that quasi-contract claims against the owner are waived. The
case involves work done at a hotel/retail/theater complex built in Battery Park
City on Manhattan's Lower West Side. The owner of the 92-acre tract on which the
project was built is the Battery Park City Authority, a public benefit corporation
established to develop a commercial and residential community in Battery Park
City. Portions of Battery Park City have been subdivided and leased, under long-term
ground leases, to private entities for redevelopment. In 1998, the authority ground-leased
a parcel to a limited liability company, which hired a general contractor to build
an Embassy Suites Hotel and adjoining retail/theater complex. The general contractor,
in turn, engaged Rathe Productions to design and build an atrium water feature
for the hotel lobby. Apparently
unhappy with its progress payments and claiming unpaid extras, Rathe filed a private
improvement mechanic's lien against the property. Rathe then proceeded to attempt
to foreclose on its lien by suing the ground lessee/developer in addition to the
general contractor. Rathe also asserted two quasi-contract claims against the
ground lessee/developer on the theory that the ground lessee/developer, as opposed
to the general contractor, which had hired Rathe, was the party that truly benefited
from what Rathe added to the project. The
ground lessee/developer moved to dismiss all of Rathe's claims against it. The
ground lessee/developer argued that the lien was invalid because although the
party that contracted with the general contractor and that was improving the property
was a private entity, title remained in the authority, a public entity. The ground
lessee/developer also argued that the quasi-contract claims were invalid because,
among other things, Rathe had waived its right to pursue such claims. The
court agreed with the ground lessee/developer on all counts. First,
the court held that a private improvement mechanic's lien cannot attach to a private
improvement located on public land even if the land is leased to a private entity.
The court also held that the authority does not fall within the Lien Law's limited
exception allowing the filing of private improvement mechanic's liens against
public property owned by an Industrial Development Agency. The court, citing Jersey
Electrical Supply Co., Inc. v. MJR Electrical Contracting Co., Nov. 29, 2000
N.Y.L.J. 28 No. 6056201999 (Sup. Ct. N.Y. Co. Nov. 29, 2000) 1/, concluded
that although the authority was a public benefit corporation, it was not an Industrial
Development Agency. Therefore, the Rathe lien was invalid, and the lien foreclosure
claim was dismissed. Second,
the court held that Rathe could not recover from the ground lessee/developer on
a quasi-contract theory. A quasi-contract claim is one in which the plaintiff
admits that it has no contract with the defendant (and thus cannot sue for breach
of contract) but contends that the defendant unfairly benefited from something
that the plaintiff gave to the defendant. In construction, that something usually
is work, labor and materials. In this case, the court held that because the subcontract
precluded all quasi-contractual claims, without limitation, the subcontractor
had waived any quasi-contractual claims against the ground lessee/developer. Therefore,
the quasi-contract claims were dismissed. (Thelen Reid & Priest LLP, a predecessor to Thelen Reid Brown Raysman & Steiner LLP, represented the ground lessee/developer in this case.)
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