Category Archives: contract

What Constitutes Home Improvement Under The Administrative Code of City of New York?

In Great Am. Restoration Services, Inc. v. Patricia Lenti, et al., 2012 NY Slip Op 03140 (N.Y.A.D. 2 Dept., April 24, 2012), the Supreme Court of New York, Appellate Division (Second Judicial Department), addressed whether, under New York City’s Administrative Code, a contractor is required to possess a license to perform work on a house.

The facts were straightforward. After a fire at the defendants’ house, they hired Plaintiff to temporarily “cover holes in the roof, remove water from the premises, remove both salvageable and unsalvageable personal property, store such property, and remove debris.” Id. at 2.  One of the issues was whether the Plaintiff needed to be licensed under the NY Administrative Code.

In that case, the Supreme Court (Nassau County) had granted the Contractor’s (“Plaintiff”) motion for summary judgment on the issue of liability in an action to recover damages for breach of contract.  The lower Court also denied defendants’ cross motion to dismiss the complaint pursuant to CPLR 3211(a)(7).  The Plaintiff appealed.

The Appellate Division upheld the lower Court’s decision because the Appellate Division felt Plaintiff established its prima facie entitlement to judgment as a matter of law. Id.  Plaintiff submitted the contract between the parties that laid out the work that Plaintiff was to perform.  The contract clearly stated that defendants would be responsible for any charges not covered by the defendants’ insurance policy.  Plaintiff also submitted proof that it satisfactorily completed the work and never got paid for that work pursuant to the contract.  Id.

The Appellate Court stated that since the defendants failed to “raise a triable issue of fact in response [to the evidence Plaintiff submitted for review], the Supreme Court properly granted the plaintiff’s motion for summary judgment on the issue of liability.” Id.   The Appellate Division also stated that the lower Court properly determined that the work Plaintiff performed on the defendants’ home did not constitute “home improvement” as defined in Administrative Code of City of New York (“Code”) § 20-386(2).  Under § 20-386(2), “home improvement” is defined as

“The construction, repair, replacement, remodeling, alteration, conversion, rehabilitation, renovation, modernization, improvement, or addition to any land or building, or that portion thereof which is used or designed to be used as a residence or dwelling place and shall include but not be limited to the construction, erection, replacement, or improvement of driveways, swimming pools, terraces, patios, landscaping, fences, porches, garages, fallout shelters, basements and other improvements to structures or upon land which is adjacent to a dwelling house.  “Home improvement” shall not include (i) the construction of a new home or building or work done by a contractor in compliance with a guarantee of completion of a new building project, (ii) the sale of goods or materials by a seller who neither arranges to perform no performs directly or indirectly any work or labor in connection with the installation of or application of the goods or materials, (iii) residences owned by or controlled by the state or any municipal subdivision thereof, or (iv) painting or decorating of a building, residence, home or apartment, when not incidental or related to home improvement work as herein defined.  Without regard to the extent of affixation, “home improvement” shall also include the installation of central heating or air conditioning systems, central vacuum cleaning systems, storm windows, awnings or communication systems.”

Administrative Code of City of New York § 20-386 (2).

As determined by the lower Court, since Plaintiff did not perform work that rose to the level of that constituting home improvement, it was not required to possess a license pursuant to the Code § 20-387(a).  Consequently, Plaintiff was not required to plead that it was duly licensed by the Department of Consumer Affairs of the City of New York as a home improvement contractor.  This finding justified the lower Court’s denial of defendants’ cross motion to dismiss the complaint “pursuant to CPLR 3211 (a)(7) for failure to plead that it was so licensed.”  Great Am. Restoration Services, Inc. v. Patricia Lenti, et al.,  2012 NY Slip Op 03140 (N.Y.A.D. 2 Dept., April 24, 2012).

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What is a “Pay if Paid” Contract Clause and Can it Apply to a Construction Subcontractor?

What constitutes a “pay-if-paid” construction contract clause? The United States Court of Appeals for the Third Circuit recently addressed this question in Sloan v. Liberty Mutual Insurance Company, 653 F.3d 175 (3d Cir. 2011).

That case involved a waterfront condominium in Philadelphia.  Isla of Capri Associates LP, the developer of the condominiums (“IOC”), contracted with Shoemaker Construction Co. (“Shoemaker”) to be the contractor for the project (“Contractor Contract”).  Subsequently, Shoemaker hired subcontractor Sloan & Co. (“Sloan”) to perform construction involving drywall and carpentry (“Subcontract”).  Liberty Mutual Insurance Co. (“Liberty”) issued a surety bond guaranteeing payment for the subcontractors work.  After the work was completed, IOC refused to pay Shoemaker for monies owed under the contractor contract because IOC was unhappy with some of the subcontractors’ work.  As a result, Shoemaker withheld the remaining balance due to Sloan.

Sloan filed a claim against Liberty for payment pursuant to the surety bond. Id. at 177.  Liberty denied any payment obligation under the premise that Paragraph 6.f of the subcontract contained a provision that conditioned Sloan’s right to payment on IOC’s payment to Shoemaker (a pay-if-paid clause). See id.  Therefore, Sloan was not entitled to payment since Shoemaker never received payment from IOC. Id.  The United States District Court for the Eastern District of Pennsylvania entered partial summary judgment for Sloan, rejecting Liberty’s view of the contract. Id. at 178.

The dispute here centered on the interpretation of Paragraph 6.f of the subcontract, which dealt with final payment.  The first subparagraph provided: ‘Final payment shall be made within thirty (30) days after the last of the following to occur, the occurrence of all of which shall be conditions precedent to such final payment . . .’ Id. at 179.  There were seven (7) conditions precedent, one of which was that ‘[IOC] shall have accepted the Work and made final payment thereunder to [Shoemaker].’ Id.  Another provided that Shoemaker “shall have received final payment from [IOC] for [Sloan’s] work.’ Id.

Paragraph 20’s liquidating provision in the subcontract further clarified the extent of Shoemaker’s responsibility for payment to Sloan:

“In the event [Sloan] asserts a claim for payment of the Subcontract Sum or a portion therof . . . and in the event that [Shoemaker] in its sole, exclusive and arbitrary discretion submits said . . . Claim to [IOC] . . . for a decision or determination, then all decisions and determinations made by [IOC] or its representative shall be binding upon [Sloan] even though [Sloan] may not be a party thereto.”

Id. at 182.

When Liberty appealed the United States District Court for the Eastern District of Pennsylvania’s judgment, the Third Circuit was satisfied that the contract stipulated a pay-if-paid compensation policy for Sloan. See id. at 184.  The Third Circuit concluded that “Paragraphs 20 and 6.f create a mechanism for passing through Sloan’s remaining claims for final payment and peg Sloan’s recovery to the amount that Shoemaker receives from IOC for Sloan’s work.” Id.   Sloan, therefore, received a proportional/pro rata share of the recovery Shoemaker gained from its separate lawsuit against IOC rather than receiving the full balance it was owed under the contract. See id.

The lesson here for subcontractors is to be aware of the pay-if-paid issue when drafting the subcontractor agreement.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What Are the Benefits of Drafting An Indemnification Clause In A Construction Contract?

May contractors limit their responsibility for paying another party’s legal fees in situations where that other party’s fault precipitates the cause of action? Recent court decisions suggest that, if the contractor has a narrow indemnification clause in his contract, courts might be less likely to find him liable in situations where the contractor was not at fault.

In a recent case considered by the Appellate Division of the Second Department of the Supreme Court of New York, a plaintiff was allegedly injured when his motorcycle struck a pothole in a Brooklyn street. Sand v. City of New York, 2011 NY Slip Op 3226, 2 (N.Y. App. Div. 2d Dep’t 2011). The plaintiff brought suit against the City of New York. The City had issued a permit to Verizon New York Inc. (“Verizon”) to open the roadway at that location. Accordingly, it commenced a third-party action for indemnification against Verizon. That company then commenced a fourth-party action for contractual indemnification against S. DiFazio and Sons Construction, Inc. (“DiFazio”), the construction company that had performed the work for Verizon under the permit.     

DiFazio claimed that it was not required to pay Verizon’s legal fees or any other costs of defending the action because it was not at fault. However, the Court determined that the agreement did not include any writing that would make DiFazio’s obligation contingent on fault. The Court held that “[p]ursuant to the contract between DiFazio and Verizon, DiFazio agreed to defend and indemnify Verizon for all claims arising out of DiFazio’s ‘actual or alleged acts or omissions.’ The plain and unambiguous terms of the contract do not condition DiFazio’s obligation for attorneys’ fees and costs on a finding of fault.” Id. at 2.    

The Sand Court might have decided differently if the indemnification provision were limited to a more specific and narrow variety of claims. For example, in a recent Second Department case, the Court held the contractor was not liable because the indemnification clause was narrowly tailored. Farrell v. City of New York¸ 2011 NY Slip Op 2839, 1 (N.Y. App. Div. 2d Dep’t 2011). That case stemmed from a 2002 incident on the Gowanus Expressway where a piece of road debris allegedly went through a windshield and struck the plaintiff driver in the face, rendering her unconscious. At the time, defendants Grace Industries, Inc. and Grace Industries Inc./El Sol Contracting & Construction Inc., J.V. (the “defendants”) were performing re-decking and structural steel replacement work on the expressway pursuant to a contract with the State of New York. The plaintiff sought to recover damages for personal injuries. Importantly, the indemnification clause was a narrow one. As the Court observed, “[T]heir contract with the State was limited and did not entirely displace the State’s duty to maintain the roadway.” Id.

The defendants submitted a motion for summary judgment, which was granted by the lower court and affirmed by the Appellate Division.      

The Farrell Court held that a party who enters into a contract to render services may be said to have assumed a duty of care (and thus be potentially liable in tort to third persons) only where:

1) the contracting party, in failing to exercise reasonable care in the performance of its duties, launches a force or instrument of harm,

2) the plaintiff detrimentally relies on the continued performance of the contracting party’s duties, or

3) the contracting party has entirely displaced the other party’s duty to maintain the premises safely.

Church v. Callanan Indus., 99 N.Y.2d 104 (N.Y. 2002).

However, the Farrell Court determined that, although the contract between the defendants and the State included an indemnity clause, it did not entirely remove the State’s duty to maintain a safe roadway. In other words, it had not “entirely displaced the other party’s duty to maintain the premises safely.” Additionally, the defendants demonstrated that they did not cause the debris to be on the roadway; they did not know how long it had been there; and that they did not have a duty to remove non-construction roadway debris. Hence, they would not have to pay the State’s legal fees and costs of defending the suit.

These two decisions demonstrate the consequences of having a broad versus narrow construction contract indemnification clause. The second decision also indicates the benefits a construction company may enjoy by including a narrow indemnification clause in its contracts because it might enable a company to avoid the obligation of paying for another party’s attorneys’ fees in situations where they are not at fault.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Can a Licensed Home Improvement Contractor Enforce a Contract Entered into Under a Name Other Than the one on his License?

The New York Court of Appeals recently considered whether a licensed home improvement contractor is barred from enforcing a contract that was entered into in his individual name. The reason this became an issue was because the license was under his company’s name.

Anthony Marraccini, a licensed home improvement contractor entered into a contract with John and Pam Ryan to perform construction and maintenance work. He used his own name on the contract in spite of possessing a home improvement license under the name of  “Coastal Construction Development”. After the work was completed, a dispute arose between the parties about payment, and Marraccini sued John and Pam Ryan in his own name. John and Pam Ryan moved for summary judgment on the grounds that the home improvement license was under the company’s name and that the company was licensed to perform home improvement business, not Marraccini individually.

The Court held that although Marraccini may have violated Westchester County Code § 863.319 (1) (b), neither the Westchester County Code nor the common-law bar a violator of the County Code from bringing a lawsuit under a contract entered into under his individual name. It appeared that Coastal Construction Development and Marraccini were not separate legal entities. The case seems to indicate that the name, Coastal Construction Development, was simply a trade name. Therefore, there would be no forfeiture of the right to receive payment for the work done when the violation of the County Code seems to have been “inadvertent and harmless” and the other party was neither deceived nor prejudiced.

The Court distinguished its decision in B & F Bldg. Corp. v. Liebig (72 NY2d 689, 693) (1990) in which a contractor who was not licensed at the time the work was performed was barred from recovery. In the present case, Marraccini was already licensed when he did the work for the Ryans, and hence he is not barred from recovery. Marraccini v. Ryan, 17 N.Y.3d 83, 85, 2011 N.Y. Slip Op. 04543, 2 (2011).

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC