GOLDBERG & CONNOLLY CLOSES OUT 2014 WITH TWO APPELLATE VICTORIES!

By Henry L. Goldberg,

Managing PartnerIn two appellate decisions, within twenty days of each other in December (one being handed down on December 11 and one on December 31), Goldberg & Connolly finished the year right, making a statement for preserving and protecting construction claims.

FIRST APPELLATE DECISION

In the first appeal, we sought to set aside the dismissal of a $9 million claim (in a case previously lost by another law firm). As a result of one of the two recent appellate court decisions we obtained, the lawsuit has now been fully reinstated and the dismissal by the trial court below reversed.

As is so very often the case, the date when work on a project was last performed or materials last supplied to a project can be of significant legal import. A matter of days could spell the difference between, for example, a mechanic's lien, or a payment bond claim, being recognized, or not. Similarly, it could spell the difference between the ability to sue for monies justly earned on a project, or not.

In this last regard, we have been sounding the alarm with respect to an unfortunate trend towards the increasing use of "COFEDS" in construction contracts. This is a pejorative acronym we have coined referring to Contractor Forfeiture Enhancement Devices. COFEDs are the unnecessary and unfair, but increasingly resorted-to, provisions in construction contracts. This applies to both prime contracts and subcontracts. They are designed to trap the unwary to waive or forfeit valuable contract rights. They are a bad faith "gotcha" approach to construction contract drafting. Fundamentally changing the industry for the worse, they are unnecessarily increasing risk at every turn. This appeal involved yet another example of the dangers caused by COFEDS.

The statute of limitations for any breach of contract action in New York State is a full six years, unless otherwise agreed upon by the parties. That means that the New York Legislature, in its wisdom, believed this to be a reasonable amount of time within which to preserve the right for an aggrieved party to bring a contract action. In this instance, the contract required an action to be commenced within only one year. The contract specifically provided that:

[n]o action on the contract may be brought after the expiration of one (1) year from the date that contractor ceases to work on the project.

A question arose as to when work was actually last performed. The lower court agreed with the defendant that our client, the plaintiff, had last performed work on or before April 23, 2009, but did not start its action until May 18, 2010, or, twenty-five days late. Recalling that the normal statute of limitations for breach of contract is six years, a mere twenty-five days is put into perspective. Nonetheless, the plaintiff's $9 million claim/litigation was dismissed in its entirety for having been started after the COFED-type, drastically reduced, suit limitation period. Substituting for plaintiff's prior law firm, G&C was able to successfully argue on appeal that "real" or meaningful work was actually performed by plaintiff on the project during the week of May 18 through May 24, 2009, and, if so, the plaintiff's case, commenced on May 18, 2010, would have been timely "by a hair."

We successfully argued that the court below had given short shrift to alleged work performed by the plaintiff/appellant. We demonstrated from a "Job Cost Report" in evidence and, therefore, in the appellate record of the proceedings before the lower court, that welding work may have been performed that critical week of May 18. That raised a legitimate question of fact, in our opinion, that could only be resolved, definitively, at a trial before a jury. Plaintiff was entitled to proceed in such manner and would then be able to offer its full evidence, by testimony or otherwise, as to what was performed and when. It was not for the lower court, we argued, to find, on motion papers alone, that the alleged welding work was or was not "substantial."

G& C COMMENTARY (FIRST APPELLATE DECISION)

We are extremely pleased to have saved this case.

However, we urge you now, as we have many times in the past on these pages, to be aware of all COFEDS in your contracts. Protect your rights in the first instance. Do not rely on legal heroics to save your claim. Obviate the need for avoidable litigation and appeals that should not be necessary to "save" a case. By analogy, it is clear that preventative health measures are far superior to surgery. Similarly, "COFED vigilance" is far superior to litigated appeals seeking to reverse the dismissal of your case. Consider a nine million dollar claim almost "blown" for want of twenty-five days vigilance. You be the judge. Know your contract.

SECOND APPELLATE DECISION

The other appeal won, as indicated, was decided on December 11, 2014. This appellate decision held that the failure of prior counsel to fulfill a technical, Lien Law-mandated requirement to maintain a successful mechanic's lien foreclosure action, should not, in fact, be fatal, nor necessarily result in a dismissal of the case, nor of the underlining mechanic's lien itself. As a result of our appeal, the mechanic's lien remained in force, and the dismissed lien foreclosure action was ordered to proceed.

In this case, a steel fabricator appeared in a mechanic's lien foreclosure action started by another lienor on the project. The fabricator filed its formal appearance or "Answer" in the action, admitted and set forth its lien, interposed affirmative defenses asserting the priority of its lien and requested judgment determining its lien rights. However, it did not, as required by Lien Law §44(5), assert a formal counterclaim against the plaintiff, nor cross claims against any and all other defendant/lienors in the action. This, as indicated, would ordinarily be a fatal error resulting in dismissal of the action and loss or waiver of all mechanic's lien rights.

When "correctly" challenged by a motion to dismiss the case for this reason, the plaintiff/fabricator moved to amend its Answer to assert the required counterclaims and cross claims. We successfully argued on appeal that motions to amend pleadings, such as an Answer, should be freely granted, provided there was neither prejudice nor surprise caused by such amendment to the Answer. Furthermore, the particular lien, its amount and alleged priority, were "substantially" alleged in the Answer, albeit not with a formal counterclaim or cross claim. Furthermore, we argued that the fabricator had demanded judgment on its lien and that no pretrial discovery (e.g., depositions or document requests) had as yet taken place in the lawsuit so that there would be no prejudice in that regard. We also successfully argued the theoretical merits of the fabricator's mechanic's lien. Finally, we argued that there was, in fact, legal precedent establishing that courts should accord the language of Lien Law §44(5) a "liberal interpretation to preserve the rights of lienors." The appellate court acknowledged that mechanic's lien rights, which are the creature of a statutory framework, are "remedial in nature and intended to protect those who have directly expended labor and materials to improve real property at the direction of the owner or a general contractor."

Thus, the fabricator's mechanic's lien was preserved and its mechanic's lien foreclosure action was protected.

G&C COMMENTARY (SECOND APPELLATE DECISION)

As the appellate court admonished: "Certainly, the better practice is to include any counterclaim and/or cross claim at the time of the original answer and before the lien expires. Failure to do so could result in a loss or waiver of lien rights."

Here, the problem was not caused by not "knowing your contract," since the technical provisions involved were a function of the Lien Law itself. Thus, as a corollary to "knowing your contract," it is imperative that the individual handling your mechanic's liens know, of course, what he or she is doing. Mechanic's liens offer considerable protection, but their application is often technical in nature.

COFEDs present more than enough unfair and unreasonable challenges. Never let requirements of the Lien Law, which exist to assure payments are properly made for improvements to real property, nor, for that matter, the requirements of State Finance Law §137 with regard to payment bond claim protections, be compromised by neglect. They all can be essential to preserving your rights in these difficult times in our increasingly challenging industry.