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Author: Austin S. Brown

Stopping a Disloyal Employee: Temporary Restraining Orders and Injunctions

Written by Austin S. Brown on . Posted in Legal Alerts.

Introduction

Construction businesses rely on employee trust, but disloyal insiders can misuse confidential information to cause significant harm. When this happens, immediate action is crucial. This alert explains how contractors can use Temporary Restraining Orders (TROs) and Preliminary Injunctions to prevent further damage.

Obtaining a TRO and Preliminary Injunction

While lawsuits typically take time, TROs and Preliminary Injunctions provide swift relief by temporarily halting harmful actions. To secure this relief, courts require the following:

  1. Likelihood of Success: Strong evidence supporting your claims.
  2. Irreparable Harm: Damage beyond monetary loss, such as harm to reputation or trade secrets.
  3. Balance of Hardships: The harm to you outweighs the harm to the defendant.
  4. Public Policy: No broader societal harm results from the relief.

A TRO freezes harmful actions until a hearing, where the court decides on issuing a Preliminary Injunction. If granted, this remains in place until the lawsuit is resolved, potentially becoming permanent.

A Real-World Case

A construction manager discovered a project manager colluding with a subcontractor to manipulate bids. Evidence included suspiciously similar errors in competing bids and sudden email deletions by the project manager. The manager demonstrated irreparable harm, including potential reputational damage and liability for price-fixing. The court granted a TRO and later a Preliminary Injunction, stopping further misuse of insider information. The case resolved with a Permanent Injunction, avoiding prolonged litigation.

Best Practices

Confidentiality agreements can strengthen your case, as they simplify proving breaches of sensitive information. Contractors should consult experienced legal counsel to address such issues promptly and effectively.

If you would like more information regarding this topic please contact Austin S. Brown at abrown@wbgllp.com or call (914) 607-6435

General Contractor Granted Dismissal of Unjust Enrichment Claim as Not Legally Cognizable

Written by Austin S. Brown on . Posted in Legal Alerts.

Under well settled New York law, if a valid and enforceable contract governing a dispute exists, then a claim for unjust enrichment does not lie. However, just because a piece of paper was signed, such does not necessarily mean that a contract was truly formed—and formation is often a heavily fact intensive issue. Accordingly, it is vitally important that the lawsuit be properly plead to give the contractor the ability to pursue an unjust enrichment claim if there are formational issues affecting the viability of the contract, or in the event that quantum meruit damages are more appropriate1. This issue was recently discussed in the case of Senator Construction Group Inc. V. T.G. Nickel & Associates, LLC and MP Owner LLC, where a general contractor’s motion to dismiss was granted against its subcontractor on this principle.  

Here, subcontractor Senator entered into a contract with general contractor TG Nickel to perform masonry work at a construction project in Brooklyn. When TG Nickel stopped paying Senator, Senator sued to foreclose a mechanic’s lien, and under both breach of contract and unjust enrichment theories. TG Nickel moved to dismiss Senator’s unjust enrichment claim, arguing it was barred by documentary evidence (the controlling contract) that was acknowledged by Senator in the complaint.  

In its opposition to the motion, Senator argued that its unjust enrichment claim was permissible even though it had already admitted that the contract was valid and enforceable as procedural law allows claims to be asserted alternatively or hypothetically. Accordingly, argued Senator, it should be entitled to assert such claim if the contract sued upon was ultimately held to be void. However, the Court held that parties effectively conceded that the unjust enrichment claim was not viable because they acknowledged that the contract’s validity was not at issue. By making such a concession, Senator barred its own form of alternative relief—before discovery was even had to flesh out the facts. 

Especially at the pleadings stage, lawyers rely on the facts given to them by their client. However, this creates two major problems: 1) the lay client may not know what facts are legally relevant; and 2) there are often material facts unknown even to the client before discovery is conducted. In that regard, if there is even a hint of a contract formation or validity issue, then such a concession should not be made at the pleadings stage. The more appropriate route is to proceed to discovery, and then choose the form of relief that is more appropriate based on the facts and circumstances of the particular case as they develop. That way, if the contractor’s unjust enrichment claim is not a viable one, it can be abandoned.

It is absolutely vital for all owners, developers, contractors, and others to understand the pitfalls involved in litigation, including that the facts as alleged may or may not be true. Even so, such does not mean a cognizable legal theory does not exist. Accordingly, it is important to preserve your rights to proceed under alternative theories of recovery. Reliable legal advice from experienced construction litigators can help avoid these potential pitfalls. 

1For example, if damages are exceedingly hard to prove “standing on the contract,” then damages in quantum meruit may be an excellent strategic alternative.

If you would like more information regarding this topic please contact Austin S. Brown at abrown@wbgllp.com or call (914) 607-6435

The Corona Virus Pandemic: Analysis of Force Majeure

Written by Michael E. Greenblatt on . Posted in Legal Alerts.

The invocation of force majeure is an extreme measure, the last time the United States faced large scale force majeure disputes was the terrorist attacks on September 11th, 2001 and Hurricane Katrina in 2005. Contractors will notice that many of the force majeure clauses in their respective contracts contain a “terrorist attack” provision, before 9/11, this was not the status quo. The Pandemic is an event that has such a large scale impact on New York, the United States and the World, that force majeure law will likely change, throughout the World, forever. Whether in a private or public context, there will be billions to trillions of dollars at stake from disputes stemming from force majeure being claimed throughout the World in the years to come.

Assuming your contract contains a force majeure clause in the first place, the burden of proving that force majeure applies to excuse performance is placed on the party claiming that it cannot perform under the contract due to the Pandemic; even worse, under Kel Kim Corp. v. Cent. Markets, Inc., 70 N.Y.2d 900, 902–03, 519 N.E.2d 295, 296–97 (1987), the New York Court of Appeals has held that the contract’s respective force majeure clause can only be invoked to excuse performance if the event is explicitly referenced in the contract’s force majeure clause. Of course, whether a contractor will succeed in invoking force majeure will also depend on whether the respective force majeure clause is narrow or broad.

For example, invocation of force majeure is an extreme measure, so force majeure clauses may be narrow, especially in a public works contract, in the sense that it will highlight specific instances that excuse performance such as extreme weather, an earthquake, war or a terrorist attack, to name  a few. You’d have to review your contract to determine if  sickness, virus, pandemic or any variation thereof will be referenced in your respective force majeure clause.

Conclusion

It is absolutely essential for contractors to review their respective force majeure clauses. Reliable legal advice from experienced construction litigators can help contractors avoid these potential pitfalls and exposure to liability stemming from the Pandemic. As always, Welby, Brady & Greenblatt, LLP remains available to answer questions you may have as the legal landscape evolves during this Pandemic.  

If you would like more information regarding this topic please contact Michael E. Greenblatt at mgreenblatt@wbgllp.com or call (914) 607-6420

The Corona Virus Pandemic: The Importance of Proper Notice

Written by Michael E. Greenblatt on . Posted in Legal Alerts.

The Corona Virus Pandemic (“Pandemic”) has dashed the global economy sending shockwaves through virtually every industry;  New York has now become the epicenter of the Pandemic, not just in the United States, but possibly the World. In order to combat the Pandemic, Governor Cuomo issued Executive Order 202 on March 7th, 2020, declaring a State of Emergency in New York. Not only did this unlock funding to combat the Pandemic, but this also provided Governor Cuomo with broad ranging authority to “issue any directive during a disaster emergency to cope with the disaster” (Executive Law; Article 2-B (Section 29-a)), this includes the authority to heavily regulate both public and private business in New York.

In situations such as this, providing proper notice of delays/impacts and requests for extension of time under the respective contract is very important. However, what is commonly known as a “force majeure” clause will also be at issue. Force majeure (“superior force” in French), is a contract provision that relieves the parties from performing their respective contractual obligations when certain circumstances beyond their control arise, such as the Pandemic, make performance inadvisable, commercially impracticable, illegal, or impossible.

The purpose of this Legal Alert is to highlight the importance of proper notice, whether that be in a private or public context.

The Importance of Proper Notice: Private v. Public Contracts

Virtually every construction contract contains notice provisions that should be adhered to by the contractor in the event of a delay/impact, request for an extension of time or invocation of force majeure; if available, however, depending on whether the contract is private or public, there is an enormous difference between the way these notice provisions are construed by New York Courts. Many of these distinctions, which are dictated by public policy, are discussed in further detail in Huff Enterprises, Inc. v. Triborough Bridge & Tunnel Auth., 191 A.D.2d 314, 316–17, 595 N.Y.S.2d 178 (1st Dep’t 1993).

1. Notice in a Private Context 

In a private context, the contractor should put the owner or upstream contractor on notice of delays/impacts, requests for an extension of time or invocation of force majeure pursuant to the terms and conditions of the contract; however, under Barsotti’s, Inc. v. Consol. Edison Co. of New York, 254 A.D.2d 211, 212, 680 N.Y.S.2d 88 (1st Dept 1998), among other authority, the general course of conduct between the parties can modify the terms and conditions of the private contract. So, as is incredibly common, if not thestatus quo, modern construction administration is generally performed via email. Depending on the facts and circumstances, emailing notice should be enough to preserve the contractor’s entitlement to an extension of time, claims for delay/impact costs or invocation of force majeure, if applicable.

2. Notice in a Public Works Context

    Under the landmark New York Court of Appeals Decision in A.H.A. Gen. Const., Inc. v. New York City Hous. Auth., 92 N.Y.2d 20, 31, 699 N.E.2d 368, 374 (1998), providing notice in strict conformance with the terms and conditions of the respective public works contract is a condition precedent to recovery. Generally, a condition precedent is an act or event which must occur before a duty to perform a promise in the agreement even arises. So, a public entity’s promise to give the contractor an extension of time, additional funding for delays/impacts or not to assess liquidated damages due to unforeseen circumstances (i.e. the Pandemic), does not even come into fruition unless the contractor stringently conforms to the respective notice provision in the public works contract.

    In essence, if a contractor does not strictly conform to the public contract’s notice provisions, to the letter, the contractor risks forfeiting its entitlement to an extension of time, delay/impact damages and even invocation of force majeure. Even worse, if the contractor is not issued an extension of time for failure to strictly comply with notice provisions, liquidated damages can be assessed for the contractor’s failure to deliver the public works project on time.

    Conclusion

    Disaster can shape a generation; the Pandemic is unique in that it has impacted the entire World and New York appears to be hit the hardest so far. It is absolutely essential for contractors to provide proper notice. Reliable legal advice from experienced construction litigators can help contractors avoid these potential pitfalls and exposure to liability stemming from the Pandemic. As always, Welby, Brady & Greenblatt, LLP remains available to answer questions you may have as the legal landscape evolves during this Pandemic. 

    If you would like more information regarding this topic please contact Michael E. Greenblatt at mgreenblatt@wbgllp.com or call (914) 607-6420

    The Expansion of the New York State Harassment Statute: Third-Party Claims Against General Contractors

    Written by Austin S. Brown on . Posted in Legal Alerts.

    Recently, Governor Cuomo signed Bill S. 6577/A. 8421 (the “Harassment Statute”) into law. The Harassment Statute will significantly expand potential liability for all New York employers for any form of unlawful harassment—not just sexual harassment. If you are an employer in New York, it is strongly recommended that you thoroughly review the Harassment Statute in detail.

    In the construction context, upstream contractors generally do not have extensive control over their subcontractors’ means and methods of construction, nor direct control over their subcontractors’ employees. As is inherent in the name itself, subcontractors are not employees, but independent contractors. Now, with the passing of the newly expanded Harassment Statute, upstream contractors will have increased exposure to liability because they can now be held liable for third-party harassment claims for any form of unlawful harassment whatsoever—despite having very little control over their subcontractors.

    The Harassment Statute

    First, it is important to note that the Harassment Statute is now applicable to all employers; previously, it generally only applied to employers with four or more employees. Further,  unlawful harassment is now considered harassment based on any protected characteristic, such as age, race, creed, color, national origin, sexual orientation, military status, sex, disability, marital status, domestic violence victim status, gender identity, and even criminal history. Lastly, and most importantly, the Harassment Statute permits non-employees, such as the employees of a subcontractor or supplier, to bring a claim for any unlawful discriminatory practice against non-employers, such as an upstream contractor on a construction project, as long as the upstream contractor, its agents or supervisors knew or should have known that the non-employee was being subjected to an unlawful discriminatory practice in the workplace, and the defendant failed to take immediate and appropriate corrective action.

    This significant expansion of the Harassment Statute will have a significant impact on the amount of harassment claims filed against employers in New York. We can anticipate that this will include upstream contractors on construction projects.

    An Example: Third-Party Claims Against General Contractors

    Previously, the Harassment Statute was only applicable to sexual harassment. Accordingly, such claims on a construction site were few-and-far-between. Now, with the expansion of the Harassment Statute to any form of unlawful discrimination, it substantially increases an upstream contractor’s potential exposure to third-party liability on construction projects in New York. For example, the following hypothetical set of facts and circumstances could now subject an upstream contractor to a third-party harassment claim:

    1. An upstream contractor is working on the construction of a large project, with many different subcontractors simultaneously working on the project at any given time;
    2. The upstream contractor and the subcontractor enter into a lump sum contract whereby the subcontractor agrees to lay the foundation for the project;
    3. The subcontractor, in turn, enters into a lump sum contract with a supplier to deliver the concrete to the project;
    4. For one month, the supplier’s employee delivers concrete to the project for the subcontractor. The supplier’s employee, a disabled veteran, is continuously subjected to anti-war rhetoric from an employee of the subcontractor when he is onsite delivering the concrete;
    5. At the food truck during the lunch break, the supplier’s employee verbally complains to the subcontractor in the presence of the upstream contractor’s superintendent, but the upstream contractor took no action against subcontractor; and
    6. After the supplier completes its work, its employee makes a claim against the supplier, the subcontractor and the upstream contractor for unlawful discrimination based on his protected status as a disabled veteran.

    Unlike many other industries, there can be several degrees of separation between an upstream contractor and a supplier on a construction project. An upstream contractor cannot possibly be responsible for the subcontractor’s hiring, firing and workforce; this would make the subcontractor an employee, not a contractor. However, under the newly expanded Harassment Statute, this type of harassment claim would likely survive as long as the supplier alleges that the upstream contractor knew or should have known about the subcontractor’s unlawful harassment. While the Harassment Statute has not yet been construed by the courts, it would appear that this type of claim, even when the alleged notice is verbal, would survive a pre-answer motion to dismiss.

    Very importantly, even if the upstream contractor took timely action against the subcontractor, the question remains as to what would be appropriate? The subcontractor in this example is laying the foundation on the project. Terminating the subcontractor in the middle of its work would cause extensive delays to the critical path, resulting in additional costs and expenses related to retaining a replacement contractor.

    However, despite the significant expansion of the Harassment Statute, there was some attempt to scale back some of the issues described above by including the following language in the law:

    “In reviewing such cases involving non-employees, the extent of the employer's control and any other legal responsibility which the employer may have with respect to the conduct of the person who engaged in the unlawful discriminatory practice shall be considered.”

    Of course, this language may help to shield an upstream contractor from liability from to the supplier’s employee in our example. However, until this language is construed by a court, it is anyone’s guess as to how much protection this actually affords. Notably, even if a harassment claim is bogus, the upstream contractor would still have to defend against the claim.

    It is absolutely vital for all employers, not just contractors, to review the newly expanded Harassment Statute in detail. Contractors should be cognizant of statutory requirements and amend their construction contracts accordingly.  Reliable legal advice from experienced construction litigators can help contractors avoid these potential pitfalls and exposure to liability stemming from the Harassment Statute.

    N.Y. Labor Law §220: The Burden of the Prevailing Wage on Closely-Held Business Entities

    Written by Austin S. Brown on . Posted in Legal Alerts.

    Many construction contractors throughout the State of New York derive a substantial portion of their revenue from public construction projects. Contractors on these jobs need to be wary of what is known as N.Y. Labor Law §220(3)(a) (a/k/a the “Prevailing Wage”). The Prevailing Wage was enacted to ensure that workers on public works projects are properly classified and receive what the State determines to be the “prevailing wage” from their employers; however, what happens when one of these workers is also the owner of their own company? Must the Prevailing Wage still be paid and all of the associated taxes and expenses incurred?

    Here, we will be discussing the impact that the Prevailing Wage has on the principal of a contractor who is also the sole-owner (“principal”) of his own corporation or limited liability company (“LLC”) and is performing work on a public works project. However, before addressing this rather unique issue, it is first necessary to explain some background information.

    The Prevailing Wage

    An employer that fails to pay a worker the Prevailing Wage could face extensive criminal and civil liability, including debarment from being awarded future work on public works projects. Of course, with such serious repercussions for failure to comply with Prevailing Wave requirements, the paperwork necessary for contractors to prove that all of their employees (and, in some cases, the employees of their subcontractors) are in compliance is time-consuming, and the associated costs are expensive; for example, some expenses include, but aren’t limited to: a) taxes; b) payroll expenses; c) increased insurance premiums; and d) administrative expenses.

    Closely-Held Business Entities

    Corporations and LLC’s are separate legal entities that shield individuals from personal liability while they are operating their respective business. There are countless ways for a contractor to be sued within the State of New York, which is why contractors often form corporations or LLCs. Without the protections afforded by a business entity, doing business might not be worth the risk. When a business entity is only owned by a small number of members, or even one member, it is known as a closely-held corporation or LLC. So, in the eyes of the law, even if a business entity is owned and operated by a single principal, that business entity is still entirely separate-and-apart from the principal, even though the entire business runs through him or her. These closely-held business entities are often smaller construction contractors with a principal that is self-employed and is performing labor him or herself.

    The Issue

    When a principal performs work on a public works project without paying him or herself a wage, it would seem entirely fair because the principal owns and operates the company.Why should that principal have to pay him or herself a wage, and incur the correlating taxes and expenses, when the principal will be the party receiving the profits at the end of the day?

    For example, if the closely-held business entity is an excavation subcontractor on a public works project, a heavy equipment operator will likely be needed. Since a heavy equipment operator receives a higher average wage rate than a laborer, it would make perfect sense that the principal would want to operate the heavy machinery him or herself – thereby reducing labor expenses and all taxes and expenses associated with the Prevailing Wage. Of course, any other worker employed by the excavation subcontractor on the public works project would be receiving the Prevailing Wage. In theory, this business strategy makes perfect sense and does not cut against the legislative intent of the Prevailing Wage whatsoever. After all, the money is coming from the principal’s profits, and simultaneously going back to the principal as wages. However, while this is fair in theory, the reality is quite different.

    When the principal, on behalf of the excavation subcontractor, submits payment applications for approval to the general contractor on a public works project, it is currently a requirement that the principal pay the Prevailing Wage to him or herself. If the principal does not have the proper paperwork to present to the general contractor, it is likely that processing of the payment applications will be delayed, and there will be a risk of non-payment and potential exposure to liability for failure to pay the Prevailing Wage.

    Many contractors on public works projects are unaware of the numerous pitfalls that arise when dealing with the Prevailing Wage. This is especially true here, where the principal’s conduct is not necessarily morally wrong, but still constitutes a violation of the Prevailing Wave requirements. Contractors on public works projects should be cognizant of both contractual and statutory requirements as the failure to understand the Prevailing Wage can subject contractors to extensive civil and criminal liability.  Reliable legal advice from experienced construction litigators can help contractors avoid these potential pitfalls and the avoid exposure to liability.