Matter of OTG JFK T5 Venture LLC v IBEX Constr. LLC
Annotate this CaseDecided on August 11, 2009
Supreme Court, New York County
In the Matter of OTG JFK T5 Venture, LLC, Petitioner, for an Order Summarily Cancelling, Vacating, and Discharging of Record a Notice of Lien Dated November 17, 2008, Vacating a Demand for Terms of Contract, and Vacating a Demand to Examine Books or Records Filed and Swerved by
against
IBEX Construction, LLC, Respondent.
115994/08
Zetlin & DeChiara LLP, by Raymond T. Mellon, Esq., for petitioner
Cole, Schotz, Meisel, Forman & Leonard, P.A., NY NY, by Leo V. Levya, Esq., for respondent
Milton H. Pachter, Esq., NY NY, for Port Authority of NY and NJ, intervenor
Nicholas Figueroa, J.
Petitioner OTG JFK T5 Venture, LLC ("OTG"), seeks an order summarily granting various forms of relief under the Lien Law in connection with a construction project at Terminal 5 of JFK Airport, Queens, New York (the "construction project"). The Port Authority of New York and New Jersey moves to intervene as a co-petitioner. Respondent IBEX Construction, LLC, cross-moves for leave to take discovery unless the court summarily dismisses the petition.The following facts are undisputed. JFK Airport is operated by the Port Authority under a long-term lease from the City of New York. The Authority subleases the area designated as Terminal 5 to JetBlue Airways Corporation. Under a December 2005 financing arrangement with the Authority, JetBlue undertook to "manage design and [the] construction" of, among other things, a new Terminal 5 passenger building.
In May 2008, JetBlue in turn subleased some 40,000 square feet of space in the new passenger building to OTG, an affiliate of a company that operates airport restaurants and other food and beverage outlets. Under the terms of the JetBlue/OTG sublease, OTG agreed to be responsible for "Concessionaire's Work," including the design, furnishing, and installing of fixtures and "other leasehold improvements," as well as the "equipping of [its leased spaces] to [*2]prepare such space for" occupancy by restaurants and shops. Incorporated into the sublease by reference was, among other things, OTG's proposal in response to JetBlue's RFP.
In June 2008, OTG entered into a contract with respondent IBEX Construction, LLC, under which IBEX agreed to do the construction work needed to establish the contemplated concessions at their respective sites. In the same month, a lender filed a Notice of Lending (under section 73 of the Lien Law) indicating that OTG had received some $32,000,000 in financing earmarked for the construction project. Indeed, although the initial "contract sum" was approximately $17,395,000, IBEX's charges for added work ultimately increased the total charges to some $30,800,000. During the course of the project, OTG paid IBEX about $21,400,000. In September 2008, however, OTG advised IBEX that it was without funds to defray any part of the $9,400,000 unpaid balance.
On October 23, 2008, JetBlue gave written notice to OTG acknowledging that "OTG has achieved substantial completion" of specified venues (for what appears to have been all of the contemplated concessions). Nevertheless, by letter dated November 11, 2008, OTG sent to IBEX a "Seven Day Notice of Termination for Cause," alleging that IBEX had committed "substantial breaches" of the OTG/IBEX contract.
On November 17, 2008, IBEX filed with the Port Authority a Notice of Lien in the amount of its unpaid balance due, citing section 5 of the Lien Law ("Liens under contracts for public improvements"). By Notices of the same date, IBEX formally demanded from OTG (1) under section 8 of the Lien Law, a statement of the terms of the JetBlue/OTG contract concerning the construction project and (2) under section 76(1) of Article 3-A of the Lien Law, the production of "Books and Records for Examination." Petitioner OTG thereupon commenced the present proceeding.
OTG seeks vacatur and cancellation of the lien, which it maintains is not supported by the terms of the Lien Law. It also asks that both of IBEX's formal demands be vacated, on the same ground. IBEX's submissions in opposition address OTG's legal arguments, but ask that, if the petition is not summarily dismissed, IBEX be permitted to take discovery.
As a threshold matter, the Port Authority's motion to intervene invokes sections 1012 and 1013 of the CPLR. The lien at issue purports to encumber funds of the Authority to the extent they are due under a contract in respect of the construction project. The Authority's interest in property could thus be adversely affected if OTG's request for vacatur of the lien were denied. Regardless of whether intervention is as of right (under CPLR 1012[a]) or permissive (under CPLR 1013), it is appropriate if the proposed intervenor's interest in the outcome of the proceeding is "real and substantial" (Sieger v Sieger, 297 AD2d 33, 36). The Authority clearly has such a stake in the proceeding. Accordingly, its motion, unopposed, is granted.
The merits of the parties' respective positions must be assessed by reference to the provisions of the Lien Law upon which IBEX relied in filing its Notice of Lien and two Notices of Demands. To the extent relevant here, those provisions are reproduced below:
Section 5 of the Lien Law reads as follows:
A person performing labor for or furnishing materials to
a contractor, [or] his or her subcontractor ..., for the
construction ... of a public improvement pursuant to a
contract by such contractor with the state or a public [*3]
corporation ... shall have a lien for the principal and
interest of the value or agreed price of such labor ...
or materials upon the moneys of the state or of such
corporation applicable to the construction ... of such
improvement, to the extent of the amount due or to
become due on such contract ....
The Port Authority maintains that the above provision does not support IBEX's claim to a lien for each of two reasons.
First, the Authority maintains that it is not a "public corporation" within the meaning of section 2(6) of the Lien Law. In relevant part, that subsection provides that, "The term public corporation,' when used in this chapter, means a ... public benefit corporation as such corporations are defined in section three of the general corporation law." Although the General Corporation Law was repealed by chapter 451 of the Laws of 1973, its definition of "public benefit corporation" was carried over to subdivision 4 of section 66 of the General Construction Law. That provision in turn defines a "public benefit corporation" — and thus a public corporation for purposes of the Lien Law — as "a corporation organized to construct or operate a public improvement wholly or partly within the state, the profits from which inure to the benefit of this or other states, or to the people thereof."
The Authority argues that it is of pivotal significance that the bi-State legislation enacted with respect to it has never referred to it as a "public corporation." But the absence of any such reference has not in the past deterred the Authority from claiming (successfully) to be a "public corporation" for purposes of at least one other statute (see Ardsley Constr. Co. v The Port of New York Authority, 99 Misc 2d 945; Copeland Constr. Co. v The Port of New York Authority, 64 Misc 2d 436). To be sure, the definition of "public corporation" involved in those precedents (under section 2501 of the Unconsolidated Laws) is not identical to the definition supplied by the General Construction Law, applicable here. But that hardly prevents the General Construction Law definition, as quoted above, from applying any less clearly to the Authority.
The Authority further argues, however, that, as a bi-State agency, it is not in any event subject to section 5 of the Lien Law. In this connection, the Authority rests on statutory and decisional law. The statute in question is section 6408 of the Unconsolidated Laws of New York, which provides that, "The port authority shall have such additional powers and duties as may hereafter be delegated to or imposed upon it from time to time by the action of the legislature of either [New York or New Jersey] concurred in by the legislature of the other ...." That provision has been construed to require that "the internal operations of the Authority be independent of the direct control of either State acting without the concurrence of the other" (Agesen v Catherwood, 26 NY2d 521, 525). In the only appellate decision directly on point, the Second Department has squarely ruled that section 6408 in effect insulates the Authority from any lien that would otherwise attach to its "contracts for public improvements" under section 5 of the Lien Law (Twin County Steel Service, Inc. v Port Authority of New York and New Jersey, 242 AD2d 303).
Accordingly, precedent establishes that IBEX's Notice of Lien to the Authority was invalid.It remains to be determined, however, whether the Lien Law nevertheless supports [*4]one or both of IBEX's other two Notices.
Respondent's Notice under section 8 of the Lien Law relies on the following statutory terms:
A statement of the terms of a contract made between an owner
and a contractor, pursuant to which an improvement of real
property is being made, and ... of the amount due or to become
due thereon shall be furnished upon demand in writing by the
owner ... to a subcontractor ... performing labor for or furnishing
Materials to a contractor, or subcontractor, under such contract.
IBEX proposes that the above provisions are basis for it to demand from OTG, as "contractor," a copy of the latter's contract with JetBlue, as "owner." But certain definitions supplied by section 2 of the Lien Law are enough to refute IBEX's contentions in this connection. First, under section 2(3) of the Lien Law, an "owner" includes a lessee. Thus, construction work at Terminal 5 constituted an improvement of real property belonging to a public corporation, i.e., the Port Authority. Accordingly, such work by definition did not constitute an "improvement of real property," a term which, under section 2(8), excludes "an improvement of real property belonging to a public corporation." Moreover, IBEX's assertion that OTG is a "contractor" for purposes of section 8 runs afoul of the section 2(9) definition of that term, i.e., "a person who enters into a contract with ... a public corporation for a public improvement." OTG did not enter into any contract with the Authority. Accordingly, IBEX's Notice of Demand under section 8 is also invalid.
Finally, IBEX maintains that OTG is obliged to produce to IBEX books and records under Article 3-A of the Lien Law. Section 70 of that part of the Lien Law provides in relevant part that,
The funds described in this section received by a ... subcontractor under or in connection with a subcontract made with [a] contractor for [a] ... public improvement [in this State] ... shall constitute assets of a trust ....
The central purpose of such a trust is to safeguard funds held by contractors or subcontractors for ultimate payment to (among others) subcontractors (RLI Ins. Co. v New York State Dept. of Labor, 97 NY2d 256). Section 76, also under Article 3-A, is designed to add teeth to such provisions by affording the trust beneficiaries access to information about the assets of such trust. Thus, section 76 provides in relevant part that, "Any beneficiary of the trust holding a trust claim shall be entitled ... to examine the books or records of the trustee with respect to the trust, and to make copies of any part or parts thereof relating to the trust...."
It should be noted in this connection that the Port Authority has not argued that section
76 (1) is unavailable to IBEX because the dealings between OTG and IBEX
implicate Authority interests. In other words, the Authority has not claimed that it would in some
way be impermissibly affected (under section 6408 of the Unconsolidated Laws) if IBEX were
allowed relief against OTG under section 76(1).
IBEX's Demand pursuant to section 76(1) therefore stands or falls on the terms of the statute and on the facts of the parties' relationships to the construction project. The record [*5]indicates that, prior to executing its sublease to OTG, JetBlue had contracted with the Port Authority to be responsible for, among other things, project design and construction at Terminal 5. In relation to the construction project, JetBlue therefore appears to have been a "contractor" within the meaning of section 2(9). As noted above, the JetBlue/OTG sublease in turn gave OTG responsibility for "Concessionaire's Work," including design and construction in its premises at the passenger building. In relation to the construction project, OTG was therefore a subcontractor, and, by force of its subcontract with IBEX, the latter was a subcontractor as well. This is so notwithstanding the fact that the OTG/IBEX agreement identified IBEX as "Contractor." Such designation is hardly conclusive, since "we must look not to the terms by which the parties refer to themselves, but rather to all , of the facts constituting the relationship" (Burns Elec. Co. v Walton Str Assocs., 136 AD2d 291, 295). In other words, to determine which section 2 categories apply to the entities involved in the construction project, the substance of their relationships is controlling rather than the labels that they choose to adopt.
In view of the record, the above-quoted provisions of section 76 appear to support IBEX's demand for the disclosure specified in its Notice of Demand. OTG would resist the demand for production, however, on the theory that OTG is not a "subcontractor," but instead, merely an "owner." OTG concedes that as a matter of law it is possible to be both (Matros Automated Electrical Constr. Corp v Libman, 37 AD3d 313; Burns Elec. Co. v Walton St. Assocs., 136 AD2d 291, aff'd 73 NY2d 738).
OTG argues that it cannot be deemed to be a subcontractor, as opposed to merely a sublessee or Lien Law "owner," because JetBlue did not "hire" it to do the work of a subcontractor under a contract separate from the sublease. In this connection, OTG points to precedents in which a lessee or vendee in possession had been retained as a contractor under an instrument separate from the lease or purchase contract (Canron Corp. v City of New York, supra; Burns Elec. Co. v Walton St. Assocs., supra). The decisions in those cases, however, did not cite such separate-instrument factor as significant to, much less determinative of, their conclusion that the lessee or vendee in possession was a contractor as well. Indeed, in those cases, the separateness of the instruments in question appear to have been mere incidents of the circumstances, unrelated to the substance of whether the lessee or vendee was to serve as a contractor. Thus, in Canron, the cranes that were the subject of the lessee-contractor's repairs became damaged after the lessee was already in possession; in Burns, the owner hired the contractor to develop the real estate in question before the two agreed that the latter would purchase the property. In the instant case, on the other hand, circumstances required only one instrument — a sublease contemplating both (1) a demise of the premises and (2) its immediate development. But the existence of single or separate instruments per se does not appear to have any material bearing on whether an "owner" functions as a contractor or subcontractor for purposes of the Lien Law.The substance of OTG's role under its sublease is drawn instead from all of the facts outlined above, reflecting the same type of oversight responsibilities as had been undertaken by the contractors in Burns and Canron, as well as in the Matros case (where, indeed, "the general contractor was ... also a tenant whose premises were the subject of its work under its lease," supra, at 128 [emphasis added]).
OTG also argues that section 76(1) relief is unavailable here because there is no "fund" to form the corpus of an Article 3-A trust. But section 70(1) provides that, "The funds described in [*6]this section received by ... a subcontractor ... in connection with a subcontract made with the contractor...shall constitute assets of a trust " under Article 3-A. Loan proceeds received by OTG in connection with its subcontract with JetBlue clearly fall within the statutes' terms. Accordingly, IBEX is entitled to inspect and copy OTG's books and records with respect to such trust funds.
Finally, by its cross-motion under CPLR 408, IBEX asks that, if the petition is not summarily dismissed, IBEX be given leave to take certain discovery. The discovery it seeks, however, is not warranted for at least two reasons. First, in light of the court's conclusion that OTG is a "subcontractor" in relation to the project, the motion is moot to the extent that IBEX would seek further information to reinforce its contention that OTG is not merely an "owner." Second, in light of the court's conclusion that OTG is entitled to production under Article 3-A, the motion is moot to the extent that IBEX would seek "all Article 3-A trust records."
On the basis of the foregoing, the petition is granted in part and denied in part. The portions of the petition seeking to vacate IBEX's Notice of Lien and Demand for a copy of the contract between JetBlue and OTG are granted. The portion of the petition seeking to vacate IBEX's Demand for Production is denied.
This constitutes the decision and judgment of the court.
Dated: August 11, 2009
ENTER:
_____________________________
J.S.C.
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