Matter of Blue Diamond Group Corp. v Klin Constr. Group Inc.

[*1] Matter of Blue Diamond Group Corp. v Klin Constr. Group Inc. 2009 NY Slip Op 50871(U) [23 Misc 3d 1120(A)] Decided on May 6, 2009 Supreme Court, Kings County Schack, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 6, 2009
Supreme Court, Kings County

In the Matter of the Application of Blue Diamond Group Corp., Petitioner-General Contractor,

against

Klin Construction Group, Inc., Respondent-Lienor,



32979/08



Appearances:

Petitioner

The Scher Law Firm LLP

Carle Place NY

Respondent

Wang Law Office

Flushing NY

Arthur M. Schack, J.

Petitioner-general contractor BLUE DIAMOND GROUP CORP. (BLUE DIAMOND) seeks discharge and cancellation of a $109,762.98 mechanic's lien [exhibit D of petition], docketed in the Office of the Kings County Clerk on November 21, 2008, by respondent-lienor KLIN CONSTRUCTION GROUP, INC. (KLIN), for labor performed for the improvement of property at 142 North 6th Street, Brooklyn, New York, owned by NORTHSIDE TOWER REALTY, LLC (NORTHSIDE). KLIN was a subcontractor for excavation and foundation work at the subject premises. NORTHSIDE [*2]made final payment on October 7, 2008 of the $1,900,000.00 contract amount owed to its general contractor, BLUE DIAMOND, for the excavation and foundation work at 142 North 6th Street. This exhausted and satisfied the NORTHSIDE to BLUE DIAMOND contractual obligation 45 days prior to the filing of KLIN's mechanic's lien. Thus, the KLIN mechanics's lien must be discharged and cancelled because the lien attached to nothing, with the contract sum for excavation and foundation fully paid before the filing of the KLIN mechanic's lien.

Further, subsequent to the commencement of the instant action, BLUE DIAMOND, on December 17, 2008, posted a bond discharging KLIN's November 21, 2008-mechanic's lien, for $120,739.28. KLIN, on December 18, 2008, filed a claim with the Kings County Clerk against the bond for the lien amount of $109,762.98. However, the discharge of KLIN's mechanic's lien renders KLIN's claim to the bond a nullity.

Background

Petitioner BLUE DIAMOND, a domestic corporation, on or about November 1, 2007, entered into a general contractor's agreement (THE AGREEMENT) [exhibit A of petition], with NORTHSIDE, to improve NORTHSIDE's real property at 142 North 6th Street, Brooklyn, New York. THE AGREEMENT was retroactive to and effective from April 18, 2007. Pursuant to the terms of THE AGREEMENT, NORTHSIDE was obligated to pay BLUE DIAMOND $1,900,000.00 for the "Excavation and Foundation" (E & F) portion of the construction project. The "Schedule of Values" (SOV) [exhibit I of THE AGREEMENT] describes this in detail. The SOV established the maximum lienable value for the E & F work, for BLUE DIAMOND, as the general contractor, and for any subcontractors that might make claims through the general contractor for payment of outstanding amounts for E & F work performed at the subject property.

KLIN, on or about November 27, 2007, entered into a subcontract (THE SUBCONTRACT) with BLUE DIAMOND to perform a substantial portion of the E & F work, for $1,850,000.00 [exhibit B of petition]. THE AGREEMENT was incorporated by reference into THE SUBCONTRACT [§ 1.1]. Thus, KLIN was on notice that the maximum lienable value was $1,900,000.00 for E & F work at the subject premises.Petitioner BLUE DIAMOND claims that it received full payment of the $1,900,000.00 contractual obligation from NORTHSIDE for the performance of the E & F work at the subject property and there weren't any change orders between NORTHSIDE and BLUE DIAMOND for the E & F work. Respondent KLIN attempts to refute this solely by an attorney's affirmation, which lacks evidentiary value. KLIN fails to tender evidentiary proof in admissible form that there were change orders. BLUE DIAMOND, in contrast, submitted detailed documentary proof, in admissible form, detailing NORTHSIDE's payment of the contractual $1,900,000.00 for E & F work to BLUE DIAMOND, including payments that BLUE DIAMOND directed to be paid directly to KLIN [exhibit E of petition]. The E & F work was completed on or about July 31, 2008.

Subsequent to July 1, 2008, a dispute arose between NORTHBROOK and BLUE [*3]Diamond as to whether the entire $1,900,000.00 for E & F work had been paid. NORTHSIDE, to resolve the dispute, retained a forensic accountant [exhibit E of petition] to verify if the full $1,900,000.00 had been paid to BLUE DIAMOND for the E & F work. On or about October 7, 2008, the forensic accountant determined that NORTHSIDE owed a final payment of $77,105.00 to BLUE DIAMOND to exhaust and completely satisfy its contractual obligations. NORTHSIDE made the final payment of $77,105.00 on October 7, 2008, and the payment was acknowledged by BLUE DIAMOND [exhibit E of petition].

On November 21, 2008, 45 days subsequent to NORTHSIDE's final payment to

petitioner BLUE DIAMOND for E & F work, KLIN filed and docketed the subject mechanic's lien, for $109,762.98, with the Office of the Kings County Clerk, claiming that this sum was due from NORTHSIDE and BLUE DIAMOND, in that the "labor performed was excavation and foundation."

Petitioner contends that the KLIN November 21, 2008-lien must be discharged and cancelled because, pursuant to THE AGREEMENT, the $1,900,000.00 for E & F work was fully paid on October 7, 2008, prior to the filing of the mechanics's lien. Thus, pursuant to Lien Law § 4 (1), the mechanic's lien was untimely filed and does not attach to any monies unpaid by NORTHSIDE to BLUE DIAMOND for "excavation and foundation" work at the subject property.

KLIN opposes the petition on both procedural and substantive grounds. KLIN's attorney alleges that BLUE DIAMOND appointed its attorney as its agent for service, and thus personal service by BLUE DIAMOND's attorney, as a party to the action who delivered the notice of petition upon respondent and respondent's attorney, is barred by CPLR Rule 318. Substantively, relying on Lien Law § 19 (6), respondent contends that any dispute regarding the validity of its mechanic's lien must await a foreclosure trial.

After the commencement of the instant action, BLUE DIAMOND, on December 17, 2008, posted a bond for 110% of KLIN's mechanic's lien. BLUE DIAMOND never admitted the validity of KLIN's mechanic's lien. KLIN filed on the next day, December 18, 2008, with the Office of the Kings County Clerk a notice of claim for the lien amount against the bond.

Discussion KLIN's challenge to jurisdiction, based upon alleged improper service, is baseless

and devoid of merit. KLIN's counsel, in ¶ 3 of his affirmation in opposition to the petition, alleges " . . . papers may be served by any person not a party of the age of eighteen years or over.' CPLR 2103 (a). Petitioner is a corporation whose agent designated for service is Mr. Scher [petitioner's counsel] and thus the party to the action. CPLR 318. Service of process by the party itself is a jurisdictional defect, which renders the action subject to dismissal." Petitioner presents a New York State Department of State website search revealing that petitioner's authorized agent for service of process is [*4]Richard Holowchak, and not Jonathan L. Scher, Esq. [exhibit 1 of reply affirmation]. Respondent's counsel cites CPLR Rule 318 to support his argument of improper service, but presents no proof that petitioner appointed its law firm "in a writing, executed and acknowledged in the same manner as a deed, with the consent of the agent endorsed thereon," or that "the writing . . . [is] filed in the office of the clerk of the county in which the principal to be served resides or has its principal office."

Respondent's counsel admitted receipt of personal service of the notice of petition on December 9, 2008, in ¶ 4 of his affirmation in opposition to petition, and in a December 18, 2008-letter to Mr. Scher [exhibit 2 of reply affirmation].

A mechanic's lien by a subcontractor is a statutory creation, operating much like attachment and garnishment, to make sure that a subcontractor who supplies labor or materials for a construction project and does not have a contractual relationship with the owner of the property will receive the amount due to himself or herself. The mechanic's lien secures the amount due to the subcontractor by a lien on the real property improved. (Lien Law § 3; Modern Era Const., Inc. v Shore Plaza, LLC, 51 AD3d 990 [2d Dept 2008]; Zimmerman v Carlson, 293 AD2d 744 [2d Dept 2002]; Martens v O'Neill, 121 AD 123 [2d Dept 1909]).

Petitioner BLUE DIAMOND correctly argues in its moving papers that, pursuant to Lien Law § 4 (1), the rights of a subcontractor are derivative of the rights of the general contractor, and a subcontractor's lien must be satisfied out of any funds due and owing from the owner to the general contractor at the time the lien is filed. Lien Law § 4 (1) states:

If labor is performed for, or materials furnished to a contractor or

subcontractor for an improvement, the lien shall not be for a sum

greater than the sum earned and unpaid on the contract at the time

of filing of the notice of lien, and any sum subsequently earned

thereon. In no case shall the owner be liable to pay by any reason of

all liens created pursuant to this article a sum greater than the value

or agreed price of the labor and materials remaining unpaid, at the

time of filing notices of such liens. [Emphasis added]

The Appellate Division, Third Department, discussed the derivative rights of a lienor in Electric City Concrete Co. Inc. v Phillips (100 AD2d 1, 4 [3d Dept 1984], holding:

Pursuant to the Lien Law, a mechanic's lien is valid to the

extent of "the sum earned and unpaid on the contract at the time of

filing the notice of lien, and any sum subsequently earned thereon"

(Lien Law § 4; see, also, Albert J. Bunce, Ltd, v Fahey, 73 AD2d

623 [2d Dept 1979]). In the case of a subcontractor, a mechanic's

lien will attach only to those funds due and owing to the general

contractor at the time of its filing, or which may thereafter become [*5]

due and owing (Hartman v Travis, 81 AD2d 692, 993 [3d Dept

1981]; Albert J. Bunce, Ltd, v Fahey, supra). Indeed, it is well

established that the rights of lienors are "derivative of those of the

general contractor and are restricted to satisfaction out of the amount

established to be due and owing from the owner to the general

contractor" (Strain & Son v Baranello & Sons, 90 AD2d 924, 925 [3d Dept 1982]; see, also, Central Val. Concrete Corp. v Montgomery

Ward & Co., 34 AD2d 860, 861 [3d Dept 1970]; 37 NY Jur., Mechanic's

Liens, §§ 17, 18, pp 134-137). [Emphasis added]

(See Timothy Coffey Nursery/Landscape, Inc. v Gatz, 304 AD2d 652, 653-654 [2d Dept 2003]; 104 Contractors, Inc. v R.T. Golf Associates, L.P., 270 AD2d 817, 818 [4th Dept 2000]; Di Veronica Bros. v Basset, 213 AD2d 936, 937 [3d Dept 1995])

"Moreover a subcontractor bears the burden of demonstrating that there is money due and owing to the general contractor from the owner based on the primary contract (See GCDM Ironworks v GCH Constr. Corp., 292 AD2d 495 [2d Dept 2002]; Falco Constr. Corp. v P & F Trucking, 158 AD2d 510 [2d Dept 1990])." (Timothy Coffey Nursery/Landscape, Inc. v Gatz, at 654). (See Franco Belli Plumbing and Heating and Sons, Inc. v Imperial Development & Const. Corp., 45 AD3d 634, 637 [2d Dept 2007]).

Respondent-lienor KLIN failed to present any facts that preclude judgment, including documentary evidence, demonstrating that there was any money due and owing to petitioner-general contractor BLUE DIAMOND from owner NORTHSIDE on the day that it filed the instant mechanic's lien. Petitioner, on the other hand, provided extensive documentary evidence demonstrating that no money was due and owing to the general contractor for E & F work prior to the filing of the instant mechanic's lien. "No lien may attach if the owner has discharged his obligation to the contractor, and it appears that has been done." (W.E. Blume Inc. v Postal Tel. Cable Co., 265 AD 1062 [2d Dept 1943]). The Court, in Perma Pave Contracting Corp. v Paerdegat Boat and Racquet Club, Inc. (156 AD2d 550, 552 [2d Dept 1989]), held that to establish, as a matter of law, that full payment had been made by the owner to the general contractor, the owner must provide the court with checks and/or any other financial documents demonstrating the date of full payment. BLUE DIAMOND, in the instant case, submitted proof to the Court in the form of "copies of checks or similar financial documents which demonstrated the date of full payment [Perma Pave at 552]," that BLUE DIAMOND is entitled to the full payment defense.

Respondent KLIN, in opposition to BLUE DIAMOND's petition, quotes from Retek v City of New York (14 AD3d 708, 709 [2d Dept 2005]), claiming that the Court "has no inherent power to vacate or discharge a notice of lien except as authorized by [*6]

Lien Law § 19 (6) (see Matter of Lowe, 4 AD3d 476 [2004]; Dember Const. Corp. v P & R Elec. Corp., 76 AD2d 540 [1980])." Further, citing Retek at 709, respondent alleges that "[w]here there [is] no defect upon the face of the notice of lien, any dispute regarding the validity of the lien must await trial thereof by foreclosure' Dember Constr. Corp. v P & R Elec. Corp., supra)."

Respondent's reliance on Lien Law § 19 (6) to defeat the instant petition is correct when unpaid money owed to a subcontractor exists. However, in the instant action, the full payment for E & F work by NORTHSIDE was made to BLUE DIAMOND on October 7, 2008. When KLIN filed its mechanic's lien on November 21, 2008, 45 days later, no money was owed by NORTHSIDE to BLUE DIAMOND for E & F work. In the absence of any unpaid money for E & F work owed by the owner to the general contractor, KILN's lien attached to nothing but thin air. The Appellate Division, Second Department, in Timothy Coffey Nursery/Landscape, Inc. v Gatz, supra at 304 AD2d 652, 653-654, instructed that:

the rights of a subcontractor are derivative of the rights of thegeneral

contractor and a subcontractor's lien must be satisfied out of funds

"due and owing from the owner to the general contractor" at the time

the lien is filed (Electric City Concrete Co. Inc. v Phillips (100AD2d 1,

4 [1984], quoting Strain & Son v Baranello & Sons, 90 AD2d 924,

925[1982]; see also Di Veronica Bros. v Basset, 213 AD2d 936,

937 [1995]; Tibbetts Contr. Corp. v O & E Constr. Co., 15 NY2d

324 [1965]; 104 Contractors, Inc. v R.T. Golf Associates, L.P., 270

AD2d 817, 818 [2000]; Falco Constr. Corp. v P & F Trucking, 158

AD2d 510 [1990]).

Petitioner-general contractor BLUE DIAMOND has clearly established the

absence of any funds "due and owing from the owner to the general contractor [Strain & Son v Baranello & Sons, supra at 925]" for E & F work on November 21, 2008. Respondent-lienor KLIN failed to demonstrate that "there is money due and owing to the general contractor from the owner based on the primary contract [GCDM Ironworks v GCH Constr. Corp., supra at 496]." Therefore, the Court must grant BLUE DIAMOND's petition to discharge and cancel KILN's instant mechanic's lien for $109,762.98 for labor performed for E & F work at 142 North 6th Street, Brooklyn, New York.

Further, KLIN's opposition papers are nothing more than a three-page affirmation by its counsel, with attached exhibits. While respondent's counsel states, in ¶ 1 of her affirmation in opposition, that "I am fully familiar with the facts and circumstances [*7]herein," it does not state that KLIN's counsel had personal knowledge of the facts. An affirmation by an attorney who lacks personal knowledge of the facts "is without evidentiary value and thus unavailing." (Zuckerman v City of New York, 49 NY2d 557, 563 [1980]).

The Court's analysis of BLUE DIAMOND's petition is similar to an analysis of a summary judgment motion. BLUE DIAMOND has met its burden of coming forward with admissible evidence to prove that KLIN's mechanic's lien must be

discharged and cancelled. With the burden shifting to KLIN, "the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue requiring the trial of the action or tender an acceptable excuse for his failure to do so, and the submission of a hearsay affirmation by counsel alone does not satisfy this requirement." (Zuckerman at 560). (See Ferluckaj v Goldman Sachs & Co., ___ NY2d ___, 2009 NY Slip Op 02483 [April 2, 2009]; Gonzalez ex rel. Gonzalez v 98 Mag Leasing Corp., 95 NY2d 124, 129 [2000]; Alvarez v Prospect Hospital, 68 NY2d 320, 325-327 [1986]; GTF Marketing, Inc. v Colonial Aluminum Sales, Inc., 66 NY2d 965, 967-968 [1985]; Lancer Ins. Co. v Whitfield, ___ AD3d ___, 2009 NY Slip Op 02975 [2d Dept April 14, 2009]; Shickler v Cary, 59 AD3d 700 [2d Dept 2009]; Hirsch v Morgan Stanley & Co., 239 AD2d 466, 467 [2d Dept 1997]; Pierson v Good Samaritan Hospital, 208 AD2d 513, 513-514 [2d Dept 1994]; Murphy v Stein, 156 AD2d 546 [2d Dept 1989]).

With respect to respondent KILN's December 18, 2008 claim to the lien amount in the December 17, 2008-bond posted by petitioner BLUE DIAMOND, Lien Law § 19 (4) allows a lienee to substitute one security for another. The Court, in Harley v Plant (149 AD 719, 725 [2d Dept 1912]), observed:

Subdivision 4 of section 19 of the Lien Law (Consol. Laws, chap. 33;

Laws of 1909, chap. 38), in providing for bonds for the discharge of

liens, says that such bonds shall be "conditioned for the payment of

any judgment which may be rendered against the property for the

enforcement of the lien." Such a bond takes the place of the property

and becomes the subject of the lien, the same as moneys paid into

court, or securities deposited after suit brought to foreclose the lien.

(Morton v Tucker, 145 NY 244 [1895]).

"The issuance of the lien bond . . . does not constitute an admission of its validity." (Spring Sheet Metal & Roofing Co., Inc. v County of Monroe Indus. Development Agency, 226 AD2d 1064, 1065 [4th Dept 1996]." Further, a "valid lien must be judicially established before a surety may be made to pay pursuant to its bond." (J. Castronovo, Inc. v Hillside Development Corp., 160 AD2d, 763, 765 [2d Dept 1990]). "The filing of the bond, by itself, does not establish the validity or timely filing of the lien." (Outrigger Const. Co., Inc. v Nostrand Ave. Development Corp., 217 AD2d 589, 690 [2d Dept [*8]1995]). The purpose of posting a bond for a mechanic's lien "is to relieve the contractor

. . . from the embarrassment of the lien without waiting for the result of an action to enforce the lien." (Berger Mfg. Co. v City of New York, 206 NY 24, 30 [1912]). In the instant action, the December 17, 2008-bond discharging the mechanic's lien is rendered moot by the cancellation of KLIN's November 21, 2008-mechanic's lien. Thus, KLIN's claim to the bond is a nullity. (See Sexauer & Lemke v Luke A. Burke & Sons Co., 228 NY 341, 345 [1920]; Milliken Bros. v City of New York, 201 NY 65, 74 [1911]; G. Rama Const. Enters., Inc. v 80-82 Guernsey St. Assoc., LLC, 43 AD3d 863, 865 [2d Dept 2007]; Royal Ins. Co. of America v Citizen Developers of Oneonta, 200 AD3d 804, 806 [3d Dept 1994]; J. Castronovo, Inc. at 765).

Conclusion Accordingly, it is

ORDERED, that petitioner-general contractor BLUE DIAMOND GROUP CORP.'s petition for the discharge and cancellation of the $109,762.98 mechanic's lien, docketed in the Office of the Kings County Clerk on November 21, 2008, by respondent-lienor KLIN CONSTRUCTION GROUP, INC., for labor performed for the improvement of the property at 142 North 6th Street, Brooklyn, New York, owned by NORTHSIDE TOWER REALTY, LLC, is granted; and it is further

ORDERED, that the Kings County Clerk is directed to mark the Lien Docket to reflect that the above-referenced November 21, 2008 mechanic's lien for $109,762.98, docketed by respondent-lienor KLIN CONSTRUCTION GROUP, INC., for labor performed for the improvement of the property at 142 North 6th Street, Brooklyn, New York, owned by NORTHSIDE TOWER REALTY, LLC, is discharged and cancelled; and it is further

ORDERED, that the December 17, 2008 "Bond Discharging Mechanic's Lien" for $120,739.28, filed on behalf of BLUE DIAMOND GROUP CORP., "conditioned for the payment of any all judgments which may be rendered . . . in favor of KLIN Construction Group, Inc., . . . to enforce their alleged lien" of November 21, 2008 is moot, and the

December 18, 2008 claim filed by respondent KLIN CONSTRUCTION GROUP, INC. for $109,762.98 against said "Bond Discharging Mechanic's Lien," is discharged; and, it is further

ORDERED, that the Kings County Clerk is directed to mark the Lien Bond Docket to reflect that the above-referenced December 17, 2008 "Bond Discharging Mechanic's Lien" for $120,739.28, filed on behalf of BLUE DIAMOND GROUP CORP., is discharged and cancelled.

This constitutes the decision and order of the Court.

ENTER

__________________________

HON. ARTHUR M. SCHACK

J. S. C.