Select Constr. Corp. v 502 Old Country Rd. LLC

[*1] Select Constr. Corp. v 502 Old Country Rd. LLC 2006 NY Slip Op 50609(U) [11 Misc 3d 1078(A)] Decided on April 4, 2006 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 4, 2006
Supreme Court, Nassau County

Select Construction Corp., Plaintiff,

against

502 Old Country Road LLC, PATIO.COM.LLC, R&R POOL AND PATIO OF NEW YORK, LLC, EPS IRON WORKS INC., COMPLETE CONCRETE CORPORATION, Defendants.



10420-05



Counsel for Plaintiffs & Third-Party Defendant

Law Offices of Robert J. La Reddola, P.C.

666 Old Country Road - Suite 810

Garden City, New York 11530

Counsel for Defendant /Third-Party Plaintiff

Gutman & Gutman, LLP

19 Roslyn Road Mineola, New York 11501-4521

(For EPS Iron Works, Inc.)

Harras Bloom & Archer, LLP

445 Broad Hollow Road - Suite 127

Melville, New York 11747-3601

Leonard B. Austin, J.

Plaintiff moves to dismiss the first, second, third, fourth, sixth and seventh counterclaims. Third-party Defendant Walter Diaz moves to dismiss the third-party complaint of Defendants 502 Old Country Road LLC and Patio.Com, LLC.

BACKGROUND

By agreement dated December 16, 2003, Defendant 502 Old Country Road , L.L.C. ("Old Country") retained Plaintiff Select Construction Corp. ("Select") as the general contractor for the construction of a building at 502 Old Country Road, Garden City, New York. The project was for Defendant Patio.Com's ("Patio") ultimate use and occupancy.

During the course of the construction disputes arose between Select and Old Country regarding the work. More specifically, Old Country's engineer was critical of the work performed by the steel subcontractor, EPS Iron Works, Inc. ("EPS") and the concrete subcontractor, Complete Concrete Corp. ("Complete").

When Select received reports that EPS and Complete's work was being criticized by Old Country's engineer, it stopped paying these sub-contractors for their work.

Select asserts that it attempted to resolve the issues involving the work performed by EPS and Complete with the engineer and Old Country. The parties were unable to resolve these disputes.

Select asserts that the issues with its subcontractors work were a subterfuge used by Old Country as a means to attempt to renegotiate the contract price. It further asserts that it was owed money by Old Country for work performed in connection with the construction which Old Country refused to pay.

Select commenced this action seeking to recover the sum due for work performed on the job, lost profits and other damages resulting from its termination.

Old Country's answer to the amended complaint alleges seven counterclaims. The [*2]counterclaims are also alleged as third-party causes of action against Walter Diaz.

("Diaz"), the president of Select.

Select moves pursuant to CPLR 3211(a)(6) and (7) to dismiss the first, second, third, fourth, sixth and seventh counterclaims. Diaz moves to dismiss the third-party complaint of Old Country and Patio.Com, LLC.

DISCUSSION

A. CPLR 3211(a)(6)

CPLR 3211(a)(6) permits the court to dismiss a counterclaim that is not properly interposed.

This provision provides that the counterclaim should be interposed only against the Plaintiff in the same capacity in which the Plaintiff brings the action. Siegel, New York Civil Practice 4th §264; and McKinney's Practice Commentaries, C:3211:22.

B. CPLR 3211(a)(7)

CPLR 3211(a)(7) permits the court to dismiss a counterclaim that fails to state a cause of action.

When deciding such a motion, the court must determine whether the plaintiff has a legally cognizable cause of action and not whether the action has been properly plead. Guggenheimer v. Ginzburg, 43 NY2d 268 (1977); Rovello v. Orofino Realty Co., 40 NY2d 633 (1976); Well v. Yeshiva Rambam, 300 AD2d 580 (2nd Dept. 2002); and Frank v. DaimlerChrysler Corp., 292 AD2d 118 (1st Dept. 2002). The counterclaim must be liberally construed with Plaintiff being given the benefit of every favorable inference. Leon v. Martinez, supra; and Paterno v. CYC, LLC, 8 AD2d 544 (2nd Dept. 2002). The court must also accept as true all of the facts alleged in the answer and any factual submissions made in opposition to the motion. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); and Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409 (2001); and Also Enterprises, Ltd. v. Premier Lincoln-Mercury, Inc., 11 AD3d 493 (2nd Dept. 2004).

If, from the facts alleged in the answer and the inferences which can be drawn from those facts, the court determines that the pleader has a cognizable cause of action, the motion must be denied. Sokoloff v. Harriman Estates Development Corp., supra; and Stucklen v. Kabro Assocs., 18 AD3d 461 (2nd Dept. 2005).

While factual allegations contained in the counterclaim are deemed true, legal conclusions and facts contradicted on the record are not entitled to a presumption of truth. In re Loukoumi, Inc., 285 AD2d 595 (2nd Dept. 2001); and Doria v. Masucci, 230 AD2d 764 (2nd Dept. 1996).

C. Lien Law - First and Second Counterclaims

The first and second counterclaims are premised upon violation of Lien Law Article 3-A The first counterclaim alleges a violation of the Lien Law. The second counterclaim asserts conversion of the Lien Law trust money.

Lien Law Article 3-A provides that money received by a contractor in connection with improvements or construction on real property is received in trust to be used to pay for expenses incurred arising out of the improvements on the real property. See, Lien Law §§70, 71. The purpose of the Article 3-A of the Lien Law is to create a fund to assure payment of [*3]subcontractors, suppliers, architects and engineers as well as payment of certain taxes and expenses of construction. Aspro Mechanical Contracting, Inc. v. Fleet Bank, N.A., 1 NY3d 324 (2004); and Caristo Const. Corp. v. Diners Financial Corp., 21 NY2d 507 (1969).

Lien Law §71(2) sets forth who the beneficiaries of the Lien Law trust assets are and establishes the other purposes for which trust fund money may be used. An owner is not the beneficiary of the trust assets. In re Griffin, 111 B.R. 42 (W.D.NY, 1990). The only statutory exception to this rule is found in Lien Law §71(2)(f), which makes the owner a beneficiary of trust fund money paid in connection with executory contracts for the sale and improvement of real property. Lien Law §71-a. This exception is not applicable to this action.

Since Old Country is not a beneficiary of the trust provisions of Lien Law Article 3-A, the first counterclaim alleging violation of the Lien Law fails to state a cause of action and must be dismissed.

The second counterclaim alleges that Select converted Lien Law trust funds. Since Old Country is not the beneficiary of the Lien Law, it lacks standing to assert this claim.

Conversion involves exercising control over specific items of personalty contrary to the rights of the owner or one with a superior right of possession. Fiorenti v. Central Emergency Physicians, PLLC, 305 AD2d 453 (2nd Dept., 2003); and Hart v. City of Albany, 272 AD2d 668 (3rd Dept., 2000). The sub-contractors, architects, engineers, surveyors, laborers and materialman have an interest in the Lien Law trust fund money. Lien Law §71(2)(a). The owner does not have an interest in the Lien Law funds. For this reason, the second counterclaim must also be dismissed.

D. Third Counterclaim - Breach of Fiduciary Duty

The third counterclaim alleges that Select breached a fiduciary duty by failing to pay trust fund money to sub-contractors. Old Country alleges that this is a duty separate and apart from the duty imposed by the Lien Law.

A fiduciary relationship exists when one party "...reposes confidence in another and relies on the other's superior expertise or knowledge (citations omitted)." WIT Holding Corp. v. Klein, 282 AD2d 527, 529 (2nd Dept. 2001). Arm's length business transactions do not give rise to fiduciary relationships. Id. at 529. See also, Wiener v. Lazard Freres & Co., 241 AD2d 114 (1st Dept. 1998). The relationship between Old Country and Select is contractual.

A trustee is a fiduciary. In re Heller, 23 AD3d 61 (2nd Dept. 2005). A contractor, as the trustee under the Lien Law, has a fiduciary duty to the beneficiaries of the trust. Aspro Mechanical Contracting, Inc. v. Fleet Bank, N.A., supra; and Atlas Building System, Inc. v. Rende, 236 AD2d 494 (2nd Dept. 1997). The Lien Law fiduciary duty is created by statute. A contractor does not have a fiduciary duty to a sub-contractor except for that which is created by Lien Law Article 3-A.

Only a beneficiary of a trust may assert a breach of a fiduciary duty. See, DeNatale v. Mazza, 145 AD2d 404 (2nd Dept. 1988). Old Country, as the owner, is not the beneficiary of the trust. Therefore, it lacks standing to assert this claim.

Thus, the third counterclaim fails to state a cause of action and must be dismissed.

E. Fourth Counterclaim

This counterclaim alleges that Select submitted a false or altered lien waiver from one of its subcontractors by which the subcontractor allegedly acknowledged payment in full from the [*4]contractor. Old Country asserts that it paid $62,500 to Select in reliance upon this document.

The false or altered document has not been provided to the Court either as part of the counterclaim or the papers submitted in opposition to Select's motion. Additionally, Old Country has not identified the sub-contractor from whom Select submitted an altered or false lien waiver.

CPLR 3013 requires that pleadings be sufficiently particular so as to give the court and parties notice of the transactions which the party intends to prove. The primary purpose of a pleading is to advise the adverse party and the court of the pleaders claims and the elements of the cause of action being pled. Goodman v. Reisch, 220 AD2d 383 (2nd Dept. 1995); Catli v. Lindenman, 40 AD2d 714 (2nd Dept. 1972); and Foley v. D'Agostino, 21 AD2d 60 (1st Dept. 1964). The fourth counterclaim fails this test. It does not provide either the Court or Select with sufficient information regarding the allegedly false or altered document. If Select submitted a false or altered lien waiver to Old Country, the complaint should allege information such as the name of the subcontractor in whose name the false or altered lien waiver was submitted, the date of submission of the document and the amount paid on account of the false or altered document.

In this circumstance, dismissal of this counterclaim must be granted with leave to replead. If Select submitted a false or altered lien waiver upon which Old Country relied to make payment, it should be permitted to establish the claim at trial. The repled fourth counterclaim against Select must contain sufficient specificity as to the name of subcontractor on whose behalf the false or altered document was submitted and the date of the submission of the false or altered document. CPLR 3211(e).

F. Sixth Counterclaim - Negligence

A breach of contract claim does not give rise to a separate cause of action in tort unless the defendant breached a legal duty that is separate and apart from the Defendants contractual obligations. Clark-Fitzpatrick v. Long Island Rail Road Co., 70 NY2d 382 (1987); Old Republic National Title Ins. Co. v. Cardinal Abstract Corp., 14 AD3d 678 (2nd Dept. 2005); and Muldoon v. Blue Water Pool Services, Inc., 7 AD3d 496 (2nd Dept. 2004).

The relationship between Select and Old Country was contractual. The sixth counterclaim alleges that Select negligently constructed portions of the premises.

A complaint that alleges "... the work performed under the contract was performed in a less than skillful and workmanlike manner" states a cause of action for breach of contract; not negligence. Westminster Construction Co., Inc. v. Sherman, 160 AD2d 867, 868 (2nd Dept. 1990). See also, Gordon v. Teramo & Co., Inc., 308 AD2d 432 (2nd Dept. 2003); and Merritt v. Hooshang Construction, Inc., 216 AD2d 542 (2nd Dept. 1995).

This counterclaim alleges that Select "...negligently constructed a partial structure on the Property with structural defects, misalignments, improper framing and sheathing, contrary to the plans." (Verified Answer ¶102). These allegations, although denominated as negligence, allege a claim from breach of contract. Therefore, the sixth counterclaim fails to state a cause of action and must be dismissed.

G. Seventh Counterclaim - Loss of Use of Property

This counterclaim seeks to recover the loss of profit sustained as a result of the construction not being completed by the anticipated completion date. Select asserts that this cause of action is duplicative of the cause of action for breach of contract and should be [*5]dismissed. This Court agrees.

In order to recover such damage, the Plaintiff must establish that "...the parties contemplated economic loss as a potential basis for damage in the event of construction delays (Kenford Co. v. County of Erie, 73 NY2d 312)." Maimis-Knox Group, LTD. v. Grand Central Zocala, LLC, 5 AD3d 129 (1st Dept. 2004). If such damages are recoverable, they are recoverable as part of the cause of action for breach of contract. Atkins Nutritionals, Inc. v. Ernst & Young, LLP, 301 AD2d 547 (2nd Dept. 2003).

Thus, the seventh counterclaim is duplicative of the fifth counterclaim which is for breach of contract. Since this theory of damages is cognizable, Defendant is granted leave to replead the fifth counterclaim which alleges a breach of contract so as to include a claim for lost income resulting from the construction delays.

H. Third-Party Action

Old Country and Patio have brought a third-party action against Diaz.

The claims against Diaz are premised upon his controlling Select in connection with the performance of its contractual duties. (Third-Party Complaint ¶ 66). Essentially, Defendants are asserting a claim to pierce the corporate veil. If successful on a claim to pierce the corporate veil, the corporate principal is held personally liable for the corporate obligations. See, Matter of Morris v. New York State Dept. of Taxation and Finance, 82 NY2d 135 (1993); and Old Republic National Title Ins. Co. v. Moskowitz 297 AD2d 724 (2nd Dept., 2002).

Old Country's answer designates the counterclaims as the causes of action of the third-party complaint. Since Diaz' liability is premised upon the liability of Select and the first, second third and sixth counterclaims fail to state a cause of action against Select, they also fail to state a cause of action against Diaz and must be dismissed.

The only counterclaim subject to the motion that survives dismissal is the claim of submission of a false lien waiver. That survives only to the extent that the Court granted Old Country leave to replead that cause of action to make sufficiently specific allegations as to the altered or false lien waiver. This allegedly false lien waiver was submitted by Select to obtain payment from Old Country. However, the answer and the papers submitted in opposition to the motion do not indicate any basis upon which Diaz could be held liable on this claim. Therefore, to the extent that Old Country has been granted leave to replead, such leave is granted only as to Select. The cause of action against Diaz must be dismissed.

Diaz also seeks dismissal of the fifth and seventh causes of action.

When a corporate officer signs an agreement in his or her corporate capacity, the corporate officer will not be held personally liable on the contract unless he or she personally binds him or herself. Metropolitan Switch Board Co., Inc. v. Amici Assocs., Inc., 20 AD3d 455 (2nd Dept. 2005); and Maranga v. McDonald & T. Corp., 8 AD2d 351 (2nd Dept. 2004); and Gold v. Royal Cigar Co., Inc., 105 AD2d 831 (2nd Dept. 1984).

"A corporate officer is not subject to personal liability for action taken in furtherance of the corporation's business under the well settled rule an agent for

a disclosed principal will not be personally bound unless there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal (citations omitted)." (Internal quotes omitted.) Worthy v. New York City Housing Auth., 21 AD3d 284, 286 (1st Dept. 2005). See also, Metropolitan Switch Board Co., Inc. v. Amici Assocs, Inc., supra; and Gordon v. Teramo & Co., Inc., supra. [*6]

In this case, Diaz clearly signed the agreement in his capacity as president of Select. The typed name under the signature line for Select is "Walter Diaz, President." Old Country has failed to establish that Diaz intended to personally bind himself on the contract. Thus, the fifth and seventh causes of action in the third-party complaint must also be dismissed.

The fifth and seventh causes of action must also be dismissed as to Patio. One cannot maintain a cause of action for breach of contract in the absence of privity. La Barte v. Seneca Resources Corp., 285 AD2d 974 (4th Dept. 2001); and M. Paladino, Inc. v. J. Lucchese & Sons Contracting Corp., 247 AD2d 515 (2nd Dept. 1998).

The agreement was between Select and Old Country. Therefore, Patio was not in privity with Select. Therefore, Patio cannot maintain a cause of action for breach of contract.

Since the third-party complaint fails to state a cause of action, it must be dismissed.

Accordingly, it is,

ORDERED, that Plaintiff's motion to dismiss the first, second, third, fourth, sixth and seventh counterclaims is granted; and it is further,

ORDERED, that Defendant is granted leave to replead the fourth and fifth counterclaims consistent herewith by serving an amended answer within twenty (20) days of the date of this Order; and it is further,

ORDERED, that Third-Party Defendant's motion to dismiss the third-party complaint is granted; and it is further,

ORDERED, that counsel for the parties are directed to appear for a Preliminary Conference on May 9, 2006 at 9:30 a.m.

This constitutes the decision and Order of this Court.

Dated: Mineola, NY _____________________________

April 4, 2006 Hon. LEONARD B. AUSTIN, J.S.C.