Marcor Constr., Inc. v Bil-Ray Aluminum Siding of Queens, Inc.

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Marcor Constr., Inc. v Bil-Ray Aluminum Siding of Queens, Inc. 2012 NY Slip Op 32734(U) October 26, 2012 Sup Ct, Suffolk County Docket Number: 705-12 Judge: Thomas F. Whelan Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SHORT FORM OR.DER INDEX No. IAS. 705-] 2 SUPREME COURT - STATE OF NEW YORK COMMERCIAL PART45 - SUFFOLK COUNTY PRESENT: Hon. THOMAS F. WHELAN Justice of the Supreme Court MOTION DATE 8/10/12 9/28/12 ADJ. DATES Mot. Seq. # 001 - Mot D CDISPY_ N X ---------------------------------------------------------------X MARCOR CONSTRUCTION, INC., Plaintiff, KING & KING, LLP Attvs. For PlaintifI 27--12 37th Ave. Long Island City, NY I I 101 -againstBIL-RA Y ALUMINUM SIDING OF QUEENS, INC. and CHARLES LEPORIN, OFECK & HEINZE, LLP Attys. For Defendants 130 Madison Ave. New York, NY 10002 Defendants. ---------------------------------------------------------------X Upon the following papers numbered I to _11_ read on this motion byplain tifTfor summary judgmenton certain of ils causes of action ; Notice of Motion/Order to Show Cause and supporting papers ..l..:..1..; Notice of Cross Motion and supporting papers ; Answering Affidavits and supporting papers_~4 __ . __ ; Replying Affidavits and supporting papers 5; 6 ; Other 9-10 (memorandum); 11 (memorandum) (<'It,d<'Ihe! I,emillg eotll,~el ill 3tlPPOtt mid 0ppl"J.icd t~tile ",otion) it is, ORDERED that those portions of this motion (#001) wherein the plaintiff seeks summary judgment on its FIRST cause of action for damages from the corporate defendant, Bil~Ray Aluminum Siding of Queens, Inc., by reason of its failure to pay amounts due [$59,601.00] for construction work performed by the plaintiff is considered under CPLR 3212 and is granted to the extent that partial summary judgment on the issue of the liability of the corporate defendant is awarded to the plaintiff~ with a reservation of the determination of the issue of damages pending a trial thereon that shall be scheduled by further order of the COUlt;and it IS fmther ORDERED that those portions of this motion (#001) wherein the plaintiff seeks summmy judgment on its fOURTH cause of action against both defendants for recovery of damages in the amount 0[$59,601.00 by reason of their violations of the provisions of Article 3-A of the Lien Law is considered thereunder and is granted to the extent that partial summary judgment on the issue of the defendant's liability is awarded to the plaintift~ v·,Iitha reservation of the determination of the issue of damages pending a trial thereon that shall be scheduled by fm1her order of the court; and it is further ORDER£1J that the remaining pOltions of this motion wherein the plaintiff seeks summary judgment on its SECOND cause of action against the corporate defendant to recover the sum of $59,601.00 under theories of an account stated is denied. [* 2] Marcor Construction, Inc. v Bil-Ray Aluminum Siding Corp. et al Index No. 705-]2 Page 2 This action arises oul orscries of agreements entered into by the plaintiff and defendant, Bil-Ray Aluminum Siding or Queens, Inc. [heremafter Bil-Ray J in 20] 1. Pursuant thereto, Bil-Ray retained the plaintiff to perform roofing and siding work on homes owned by customers of delendant Bil Ray. 'l·he jobs were funded directly by the homeowners or by a third-party lender who extended credit to the homeowners. Payment to the plaimifffor its \vork was premised upon invoices submitted to defendant Bil-Ray after the job was "funded" by delivcry of payment in whole or in part to Bil-Ray from the homeowner or from the third-party lender and some confirmation of the performance of the work invoiced by the subcontractors. From January of20] 1 through February 01'2012, when Bil-Ray ceased its business operations, defendant, Charles LePorin, was Eil-Ray's chief operating officer and as such or as an employee, issued the checks constituting payment of outstanding invoices submitted by the plaintiff and other subcontractors and/or suppliers. Determination of which subcontractor invoices would be paid each week was allegedly left to the discretion of co-defendant LePorin, the sale issuer of Bil-Ray's checks at that time. Following service of the defendants' joint answer and service of their June 6, 2012 joint response to the plaintiffs Notice To Admit, the plaintiff served this motion wherein it seeks summary judgment on the FIRST, SECOND and FOURTH causes of action set forth in its complaint. The defendants oppose the motion by opposing papers which target, principally, the plaintiffs demands for summary judgment on iis Lien Law Article 3-A trust diversion claims against defendant LePorin. For the reasons stated herein, the motion is granted to the extent set forth below. Claims against general contractors for recovery of the value of work, labor and services performed by subcontractors are actionable by such subcontractors under common-law theories of contract (see Norherto & SOilS, fllc. v County of Nassau, 16 AD3d 642, 793 NYS2d 75 f2d Dept 2005]; South Carolina Steel Corp. vMiller, 170 AD2d 592, 595, 566 NYS2d 368 [2d Dcp' 1991]). The elements of such a claim are: the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of that contract, and resulting damages (see Elisa Dreier Reporting Corp. v Global NAPs Networhs, 84 AD3d 122, 921 NYS2d 329 [2d Dept2011];.lP Morgan C"ase vJ.H. Elec. o/N. Y., inc., 69 AD3d 802, 893 NYS2d 237 [2d Dcpt 201 OJ; Palmetto Partners, L.P. vAJW Qualified Portlier.<, 83 AD3d3d 804, 921 NYS2d 260 [2d Dcp' 20 II D. Here, the plaintiffs moving papers demonstrated, prima facie, the existence of the subcontract between it and the corporate defendant Bil-Ray, the plaintiffs performance thereunder, and a default on the part of the corporate defendant in making payment of all amounts due and owing. The plain tifTthus established a prima facie entitlement to summary judgment on the issue ofEil-Ray's liability under the FIRST cause of action wherein the plaintiff sceks the recovery of damages by reason of the defendant's breach of the subcontract that is the subject of this action. However, this award of summary judgment is limited to a partial award on the issue of liability only, since questions of fact regarding the amount of damages recoverable by the plaintiff are apparent from the record. Such questions are derived (i'om the inclusion of admittedly incorrect items sel forth in some of the invoices on which the plaintiJT relies. A trial on the issue ofthe plaintiffs damages oCthe type contemplated by CPLR 3212( c) is thus required and it shall be held upon issuance of a further order once the conditions imposed by the terms of this order have been satisfied. Denied are those portions of this motion wherein the plaintiff seeks summary judgment on its claims for recovery from the corporate defendant, Bil-Ray, amounts demanded in the plaintiff's SECOND cause or action under theories of an account stated. «An account stated is an agreement between parties to an account baso.:d upon prior transactions between them with respect to the correctness of the account itcms and bulance due" (Fleetwood Agency, inc. v Verde Elec. Corp., 85 AD3d 850, 925 [* 3] MarcoI' Construction, Inc. v Bil-Ray Aluminum Siding Corp. et at Index No. 705-12 Page 3 NYS2d 576 [2d Dept 20 II D. A review of the rccord indicates that insufficient proof of the existence of the clements of such claims was submitted by the plaintiff on this motion (see Ray tOile Plumbillg Specialities, fllc. vSallo COllstr., 92 AD3d 855, 939 NYS2d 116[2d Dept 2012J; Digital Ctr., S.L. v Apple lIllIIlS., Inc., 94 AD3d 57 I, 942 NYS2d 488 [1st Oept 2012]). Morever, errors in cerwin of the items invoiced, some of which were admitted by the plaintiff in its reply papers, sustained some of the corporate defendant's objections to the accounts that were advanced in their opposing papers (see M&A Cow;tr. Corp. v McTague, 21 AD3d 610, 800NYS2d 235 [3d Dept 2005]). Since those objections were not challenged as belatcd or otherwise delinquent by the plaintiff: the court finds that the plaintitT failed to establish its entitlement to summary judgment all its SECOND cause of action against defendant, BilRay. The remaining portions of this motion, wherein the plaintiff seeks summary judgment on its FOURTH cause of action is granted to the extent that partial summary judgment is awarded to the plaintiff with respect to the liability of the corporate defendant and defendant, Charles LePorin, individually, for the damages arising from their respective breaches of Article 3-A of the Lien Law. Article 3-A of the Lien Law creates "trust funds out of certain construction payments or funds to assure payment of subcontractors, suppliers, architects, engineers, laborers, as well as specified taxes and expenses of construction" (Caristo Com;tr. Corp. v Diners Fin. Corp., 21 NY2d 507, 512, 289 NYS2d 175 [19681; see Lien Law §§ 70, 71). Its primary purpose is to ensure that those who have directly expended labor and materials to improve real property [or a public improvement] at the direction of the owner or a general contractor receive payment for the work actually performed (see Aspro Meclt. COlltr' Inc. v Fleet Balik, 1 NY3d 324, 773 NYS2d 735 [2004]). To ensure this end, the Lien Law establishes that designated funds received by owners, contractors and subcontractors in connection with improvements of real property are trust assets and that a trust begins "when any asset thereof comes into existence, whether or not there shall be at that time any beneficiary of the trust" (Lien Law § 70[1], [3]; see City of New York v Cross Bay Contr. Corp., 93 NY2d 14, 19, 686 NYS2d 750 (1999]). Funds received by an owner under building loan contracts and building loan mortgages are trust assets and the statute requires owner-trustees to apply such assets for payment of the "cost of improvement (see Lien Law § 70[5]; § 71[1 D. The use of trust assets for any purpose outside the scope of the cost of improvement is deemed "a diversion of trust assets, whether or not thcre are trust claims in existence at the time of the transaction, and irthe diversion occurs by the voluntary act of the trustee or by his consent, such act or consent is a breach of trust" (Licn Law § 72). J Diversions of trust assets thus give rise to strict liability on the part of the trustee, a'5 such diversions may be made with or without volition or consent on the part of such tmstee (see Lien Law § 72[1]; [2]; [3][alll); Callroll Corp. v City o{New York, 89 NY2d 147,652 NYS2d 211 [1996];ARA Plumbing & Heating Corp. v Abcoll Assoc.) 44 Al)3d 598, 843 NYS2d 154 l2d Oept 2007]). "Lien Law § 72( 1) declares any other use of contract funds "before payment or discharge of all trust claims" to be an improper diversion of trust assets, regardless of the propriety orthe trustee's intentions'- (Matter of RLI filS. Co. v New York State Dept. of Labor, 97 NY2d 25, 740 NYS2d 272 rzOOl]). In contrast, a statutory trustee commits a breach of trust only when, through a voluntary act. it uses or permits the use, of a trust asset for any purpose other than those specifically permitted by the statute (see Lien Law § 72[1]) OfJicers and directors of a corporate trustee are under a duty to the beneficiaries of a trust administered by the corporation not to cause the corporation to misappropriate trust property and will bc personally liable for participation in a breach of trust. Corporate officers may thus be held -' liable for trust funds otherwise diverted by their corporation provided that the corpornte officer charged [* 4] Marcor Construction, Inc. v Bil-Ray Aluminum Slding Corp. et al Jndex No. 705-12 Page 4 knowingly participated in the diversIOn by the corporation" (Edgewater Constr. Co., Inc. v 81 & 3 of Watertown, 1 AD3d 1054,769 NYS2d 343 [4th Dept 2003]; see also L.D. Wenger COllstr., Co., Inc. v UnBuildit, Inc., 73 AD3d 864, 899 NYS2d 885 [2d Dept 20 1OJ; Greellway Plaza Office Park-i, LLC v Metro Com;tr., 4 AD3d 328,771 NYS2d 532 [2d Dept 2004]; ("}I'here ([director or officer commits, or particljmtes in the commission ofG fort, whether or not it is also by orfor the corporation, he is liable to third persons injured thereby"); Atlas Bldg. ~)'S. VRende, 236 AD2d 494, 653 NYS2d 694 [2d Dcpt 1997]; SOllth Carolina Steel Corp. v Miller, 194 AD2d 782, 599 NYS2d 1016[2d Dcpt 1993]; Fleck v Perla, 40 AD2d 1069, 1070, 339 NYS2d 246 [4th Dept 1972]). Moreover, persons or entities that receive ,",,'[ongfu!!ydiverted trust funds '''knovving [them] to be the subject ofa trust, and to have been transferred in violation of the trustee's duty or power, takcs [the funds] subject to the right of the trustee, and also of the cestui que trust, to reclaim possession thereof~ or to recover for [their] conversion'" (Edgewater C(ll1str. Co., /I1C.v 81 & 3 o/Wafertown, 1 AD3d 1054, supra, quoting Fleck v Perla, 40 AD2d at 1070, supra; see also Ippolito I' T.JC Dev., LLC, 83 AD3d 57, supra). An action to enforce a trust is available to beneficiaries and certain others under 1)77 of Article 3~A of the Lien Law. Among the types of relief that may be sought in such action are the following: 1) determination of the validity of a trust claim; 2) an accounting by the trustee; 3) identification, enjoinment, tracing, setting aside voluntary or involuntary diversions, and/or recovery of trust assets in the hands of any transferee; 4) damages for breach oftrust, or participation therein, including punitive damages; 5) an order directing distribution of trust assets; and 6) such other relief as the court deems necessary and proper including, attorney's fees in cases where the beneficiary brings a representative action. A party may pursue these claims in addition to all otherremedies including claims of contractual breaches (see Bette & Cring, LLC v Brandle Meat/ows, LL(~ 81 AD3d 1152,917 NYS2d 717 [3d Dept 2011];Lave Drywall, Inc. v Harbor LightDev., 72 AD3d 1034,898 NYS2d 872 [2d Dept 20 10]; SOllth Carolina Steel Corp. v Miller, 170 AD2d 592, 566 NYS2d 368 [2d Dept 1991J). Upon review of the record, the court finds that the plaintiff established by sufficient due proof in admissible fDrm, that a voluntary diversion of trust assets in the hands of the corporate defendant occurred when its chief operating officer and/or employee, defendant LePorin, failed to pay trust funds owing to the plaintiff. Such proof included the anidavits submitted by Mr. Viscoso, a former employee of defendant Bil-Ray detailing the existence of trust assets in the hands of the corporate defendant and the voluntary diversion thereof on the part of its onicer, director and/or employee, Charles Porin, who J:ailedto pay the plaintifl~ out of such trust assets, amount due for work it perJDrmed under the terms of its subcontract. '1"heplaintiJTthus made a prima facie showing of an improper diversion of trust assets in violation of Lien Law § 72 on the part of the corporate defendant in which defendant LePorin actively participated occurred for which the defendants are liable to the plaintiff. The court further finds that no genuine questions of fact were raised by the opposing papers submitted by the defendants as they included nothing but innuendo, surmise and sel f-serving conclusory assertions that someone other than defendant LePorin was responsible for the diversion of trust assets. These assertions were insufficient to raise a questio n of act regarding an absence of knowing participation on the part ofdefcndant LePorin in the conduct constituting the improper diversion of trust assets. The defendants' reliance upon the purported waiver ofthe plaintiff's liens are wholly unavailing, as such waivers, under the circumstances existent herein, are inconsistent with the spirit, ifnot the letter. of the prohibition agamst such waivers set forth in 1)37of the Lien Law. The plaintilT"s failed, however, to establish the accuracy of the amount of the damages demanded. Such a 1'ailure requires the court to limit its award of partial summary judgment to the issue [* 5] Marcor Construction, Inc. v Bil-Ray Aluminum Siding Corp. et al Index No. 705-12 Page 5 ofthe defendants' liability to the plainti If under its FOURTH eause of action. An immediate trial on the issue oC such damages as contemplated by CPLR 3212( c) shall be held upon Issuance of a further order following satisfaction of the conditions imposed by the terms of this order have been satisfied. The seheduhng of an immediate trial on the issue of the plaintiff's damages is precluded by certain procedural failings in the posture of the plaintiffs FOURTH cause of action for relief under Article 3-/\ of the Lien Law. Pursuant to Lien Law § 77(1), trust divcrsion actions must be brought as representative actions for the benefit of all beneficiaries of the trust and "the practice, pleadings, fonns and procedure shall conform as nearly as may be to the practice, pleadings, forms and procedure in a class action as provided in Article nine of the civil practice law and rules". Nevertheless, the failure to comply with CPLR Article 9 or to seek an order waiving its application or extending the time to certify is not fatal to the action, as the representation aspects of any such action may be cured aftcr commencement or the requirements therefor arc waived by the court (see ADCO Elec. Corp. v McMailoll, 38 A03d 805, 835 NYS2d 588 [2d OcP! 20071; Atlas Bldg. Sys. v Rellde, 236 A02d 494, supra; Brooklyn Navy Yard Dev. Corp. v J.M. Dennis COllstr. Corp., 12 AD3d 630,785 NYS2d 521 [2d Ocp! 20041). Under these circumstances and pursuanllo CPLR 32l2(e), the court hereby severs the claims upon which partial summary judgment have been granted to the plaintiff, namely, the FIRST, SECOND and FOURTH causes of action set forth in its complaint. These claims shall be the subject of a trial on damages once readied therefor following satisfaction of the procedural class action requirements imposed upon the plaintiffs FOURTH cause of action and such other requirements as may be imposed by further order of the court. The court grants the plaintiff nmcty (90) days leave from the date of this order to move for an order exempting the FOURTll cause of action from applicable class certification rcquirements or for an order certifying such class in accordance with the requirements of CPLR Article 9 and/or such other relief it deems appropriate aner identifying the existence, if any, of the members or the class of beneficiaries and the method of their joinder in this action as contemplated by Lien Law ~ 77(1) and CPLR Article 9. oa!Cd~4R /

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