Question.        Carrier asserts a claim against Surety and General Contractor, (collectively "Surety and GC") pursuant to "the Miller Act" as well as a state law claim based on consignee liability for goods delivered but rejected.  Does Carrier have a claim?

Answer. No.

The National Park Service, contracted with General Contractor as the general contractor to perform improvements at a National Historic Site, ("the Project"). For the Project, Surety, as surety, issued a payment bond with General Contractor as the principal, pursuant to which Surety agreed to pay any claims by parties who performed work or supplied materials for the Project but were not paid by General Contractor

According to Carrier, General Contractor entered into a subcontract agreement with Subcontractor, under which Subcontractor agreed to custom manufacture pavement for the Project. According to Carrier, "[t]he proposal and contract between [Subcontractor] and General Contractor was akin to a subcontract agreement and did not look like a purchase order for general off-the-shelf construction material."

Carrier, through contracts with common carriers, transported Subcontractor's material to the Project. According to the bill of lading for the transportation of the goods, General Contractor was the consignee (recipient of the goods). The delivery was made to the Project in two truckloads on September 4, 2013 and September 6, 2013, with a transportation cost of $13,100, which Subcontractor did not prepay. The pavement was, however, rejected. Thereafter, Carrier demanded payment for the shipping charges from Subcontractor, but Subcontractor did not pay. Carrier also made claims for the shipping costs to Surety pursuant to the payment bond and to General Contractor as the consignee, but neither party has paid the amount.

Miller Act Claim

Carrier claims that it is entitled to payment for its shipping charges from Surety under the payment bond provided to General Contractor under the Miller Act in the amount of $13,100 plus interest and attorneys’ fees, as allowed for under Carriers contract with Subcontractor.

The Miller Act requires a prime contractor of a federal project to furnish a payment bond to insure payment to individuals who supply labor and/or materials for federal projects. Although the Miller Act is to be construed liberally, it is limited by a proviso that the payment bond protects only those persons who have a contractual agreement with a prime contractor or subcontractor engaged in a federal project. Persons supplying labor or material to a mere materialman are not protected.

Here, Carrier had a contractual relationship with Subcontractor to transport the pavement. However, it is entitled to protection under the Miller Act only if Subcontractor was a subcontractor of General Contractor. Thus, the main issue in dispute is whether or not Carrier has adequately alleged that Subcontractor is a subcontractor of General Contractor, rather than a materialman.

The following factors weigh in favor of a subcontractor relationship:

(1) the product supplied is custom fabricated; (2) the product supplied is a complex integrated system; (3) a close financial interrelationship exists between the companies; (4) a continuing relationship exists with the prime contractor as evidenced by the requirement of shop drawing approval by prime contractor or the requirement that the suppliers representative be on the job site; (5) the supplier is required to perform on site; (6) there is a contract for labor in addition to materials; (7) the term subcontractor is used in the agreement; (8) the materials supplied do not come from existing inventory; (9) the suppliers contract constitutes a substantial portion of the prime contract; (10) the supplier is required to furnish all the material of a particular type; (11) the supplier is required to post performance bond; (12) there is a backcharge for cost of correcting suppliers mistakes; and (13) there is system of progressive or proportionate fee payment.

On the other hand, the following factors weigh in favor of a materialman relationship:

(1) a purchase order form is used by the parties; (2) the materials come from preexisting inventory; (3) the item supplied is relatively simple in nature; (4) the contract is a small percentage of the total construction cost; and (5) sales tax is included in the contract price.

Based upon the above factors the Carrier has not made out a claim under the Miller Act.

Question.        Is individual entitled to a finder’s fee where the ultimate transaction only came about through the intervention of a third party?

Answer. No.

In May 2007, Chairman, then chairman of Promoter, became aware that a Building was for sale. In June 2007, Promoter submitted the winning bid for the opportunity to purchase the Building. Promoter, however, never intended to purchase the Building on its own, nor did it have the means to do so. Rather, Promoter's intent was to win the bid and then procure investors to purchase the Building. In July 2007, Chairman was introduced to Investor by a mutual friend. Chairman proposed that Buyer Investor Group  participate in the purchase of the Building, for which there was a letter of intent in place contemplating a $348 million purchase price. In exchange for the right to participate in this deal, Promoter proposed being paid an $8 million finder's fee. Investor advised Promoter that this was unreasonable and rejected the offer. Promoter then proposed a finder's fee equal to 1 percent of the purchase price (i.e., approximately $3.5 million). Investor again rejected the offer. Investor was not interested in investing in real estate deals as a minority or passive partner and wanted to take the lead on any investment deals. Further, Investor was not willing to agree upon the amount of a finder's fee until an agreement to purchase the Building was in place. A final proposed version of a finder's fee agreement, dated August 6, 2007 — which was never agreed to and never signed — provides:

[Promoter has referred in the facilitation of the acquisition by [Buyer Investor Group of the fee simple interest in [the Building from [the seller which opportunity [Buyer Investor Group acknowledges is directly the result of the introduction by [Promoter. [Promoter shall receive and [Buyer Investor Group agree to pay, a referral fee later than date of the closing of [Buyer Investor Group' acquisition of [the Building ("Fee"). Fee shall be deemed fully earned and payable without setoff of any kind only if closing occurs and upon closing of title. [Buyer Investor Group agree[ to provide [Promoter with [7 days prior written notice of the contemplated date of closing of said acquisition. The Fee shall be [$2 million.

In January 2008, the proposed deal for Buyer Investor Group to purchase the Building fell through when the seller terminated negotiations. Promoter and Buyer Investor Group had no further discussions about the Building.

In January 2010, non-party Real Estate Investor, a real estate investor and developer unaffiliated with Promoter, came to Buyer Investor Group with an unsolicited proposed transaction involving the Building. Promoter had no involvement in this proposal, which never reached fruition.

In January 2011, three years after the initial proposed deal fell apart, Realtor, a real estate, due diligence professional unaffiliated with Promoter, approached Buyer Investor Group with a new proposed deal involving the Building.

Realtor explains that she was the principal of her own real estate due diligence firm (Realtor Associates, Inc.), was never employed or retained by Promoter, and does not even recall meeting or speaking with anyone associated with Promoter. Rather, in July 2007, Realtor states she was retained by Buyer Investor Group to perform due diligence on materials provided by the seller of the Building. In January 2010, she explains, she was retained by Real Estate Investor to provide due diligence in connection with his proposed deal. Realtor avers that the 2007 due diligence performed by Promoter "was of no use whatsoever in 2010." Realtor further explains that in January 2011, a minority owner in the Building, called Realtor to inform her of tax issues preventing him from remaining on as a partner in the Building. Upon learning this information, Realtor says she called Investor about the Building. Realtor further explains that she had actually closed Realtor Associates back in August 2010 and was no longer providing due diligence services. However, remembering Investor's prior interest in the Building, she made the call.

As a result of Realtor' call, Buyer Investor Group again commenced negotiations to purchase the Building, and, this time, a sale contract was entered into on February 10, 2011. Promoter had no involvement in the 2011 negotiations. The sale price was $250 million, plus $39 million in tenant improvements, $60 million less than the proposed deal in 2007. The sale closed on April 15, 2011.

Promoter seeks to recover a fee related to the 2011 sale of the Building.

When analyzing claims for a fee allegedly earned in connection with the sale of real estate, one must distinguish between a finder and a broker, as each are entitled to a fee under difference circumstances. The finder is required to introduce and bring the parties together, without any obligation or power to negotiate the transaction, in order to earn the finders fee. While a broker performs that same introduction task, the broker must ordinarily also bring the parties to an agreement. A finder has far less involvement in the ultimate transaction quantitatively and qualitatively, and thus has significantly fewer and different responsibilities to the hiring client. Often, for example, the finder may accomplish work in as little as two phone calls.

The parties here do not dispute that Promoter was a finder and not a broker, nor do the parties dispute that for Promoter to be entitled to a finders fee, it must have brought the sale of the Building to Buyer Investor Group. It is further undisputed that in 2007, Promoter brought the opportunity to purchase the building to Buyer Investor Group. Hence, the question here is not whether the quantum of work performed by Promoter was sufficient to merit a finders fee — it clearly was. Rather, the relevant inquiry is whether the introduction Promoter made in 2007 entitles it to a finders fee for the sale that occurred in 2011, after the 2007 negotiations fell through and after the prospect of the 2011 deal was brought to Buyer Investor Group in a manner wholly uncaused by anything reasonably attributable to Promoter. The question is causation.

To establish causation on a finders fee claim, it is well settled that merely establishing but for causation is insufficient. Rather, there must be some continuing connection between Promoters initial efforts and the transaction that came about.

There is no bright-line rule setting forth what constitutes the requisite continuing connection, nor is there a definitive, minimal amount of time elapsed that would preclude establishing such causation. On the contrary, these are ordinarily questions of fact.

Promoter was unconnected to Realtor due diligence and Promoter had no continuous involvement. No reasonable finder of fact could conclude otherwise. For these reasons, Buyer Investor Group are not obligated to pay a finders fee.

Whether Promoter was a but for cause of the 2011 sale is not dispositive. Nonetheless, in the absence of any involvement after January 2008, no reasonable finder of fact could conclude that a continuing connection exists. To satisfy this element, at a minimum, some meaningful aspect of the prospective deal attributable to Promoter must bridge the gap between the original introduction and the eventual deal. No such nexus exists here.

To the extent anyone can be said to be the link between the 2007 and 2011 negotiations, no one fits this bill more than Realtor, whose repeated involvement is more akin to the continual presence that ordinarily warrants a finders fee. Promoter had nothing to do with Realtor involvement. The mere fact that Realtor was involved both in 2007 and 2011 does not vicariously create involvement on the part of Promoter. All subsequent iterations of a prior, unconsummated deal will necessarily share some commonalities with the original deal. A Promoter can always point to something or someone involved in the first deal to claim a continuing connection. The only sensible way to find that common elements establish a continuing connection is for that similar variable to have a nexus to Promoter. That is not the case with Realtor, nor is any other aspect of the 2011 deal attributable to Promoter in this way.

Question.        Florida resident Sunny's action against New York-based Stone Inc. alleging contract breach and quasi-contract claims arose from Stone Inc.'s failure to pay him for his services in helping Stone Inc. obtain Big Bucks Corp. as a client for Stone Inc.'s financial services. Sunny claimed entitlement to $20,000—10 percent of Big Bucks’ $200,000 advisory fee to Stone Inc.—and at least $300,000, the "minimum total fee" he would receive from Stone Inc.'s sale of $1.2 million worth of Big Bucks’ securities. Although Sunny's alleges that he and Stone Inc. formed a "binding agreement," he did not specify whether that agreement was oral or in writing. Does Sunny's contract breach claim fall within New York's statute of frauds?

Answer. Yes.

Sunny's alleges that in 2012, Stone Inc., a financial advisory firm, sought an engagement to provide banking and advisory services to Big Bucks, in connection with the "planned sale of one or more of Big Bucks’ businesses." Sunny entered into a "binding agreement" with Stone Inc., pursuant to which Sunny agreed to assist Stone Inc. in procuring Big Bucks as a client. In return, Stone Inc. agreed to pay Sunny: (1) 10 percent of Stone Inc.'s "initial and subsequent retainer fees" from Big Bucks, (2) 10 percent of Stone Inc.'s success fee up to 2 percent of its total transaction with Big Bucks, and (3) 50 percent of any success fee earned by Stone Inc. in excess of 2 percent of the total transaction.

In February 2012, Sunny "initiated the relationship" between Stone Inc. and Big Bucks and "effectuated an introduction" between Big Bucks’ CFO and Stone Inc. representatives. He also facilitated the execution of a non-disclosure agreement and the exchange of information between Stone Inc. and Big Bucks. In March 2012, Sunny attended in-person meetings with Stone Inc. in New York, and arranged and participated in teleconferences between Stone Inc. and Big Bucks. In February and March 2012, and "throughout the third quarter of 2012," Sunny participated in meetings with Stone Inc. and Big Bucks in Florida. Sunny "forewent employment opportunities" in order to perform services for Stone Inc.

In April-May 2013, Big Bucks retained Stone Inc. in connection with the sale of Big Bucks securities. Big Bucks has "paid retainer fees to Stone Inc." and has agreed to pay Stone Inc. a success fee "upon the consummation of a transaction." On June 21, 2013, Sunny's counsel sent a letter to Stone Inc. demanding payment of "[Sunny's] portion of the retainer fees" that Big Bucks had paid Stone Inc., Sunny also sought Stone Inc.'s acknowledgement that it would honor its "payment obligations to [Sunny] going forward." Stone Inc. refused Sunny's demands. On "numerous subsequent" occasions, Sunny sought payment from Stone Inc., but Stone Inc. continued to "withhold [Sunny's] compensation."

Stone Inc. argues that New York's statute of frauds bars Sunny's breach of contract claim. New York's statute of frauds provides that certain contracts must be in writing, including: [C]ontract[s] to pay compensation for services rendered in… negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein. N.Y. Gen. Oblig. Law §5-701(a)(10). The statute defines "negotiating" to include "procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction." The statute of frauds therefore applies when an "intermediary" seeks compensation for providing "'know how' or 'know-who,' in bringing about between principals an enterprise of some complexity or an acquisition of a significant interest in an enterprise."

Sunny argues that the statute of frauds does not apply to his agreement with Stone Inc. because he "has played — and will play — no part whatsoever in effecting the sale of Big Bucks's business." It is clear however, that Sunny's actions fall squarely within those contemplated by the New York statute of frauds. Indeed, Sunny alleges that he "initiated the relationship" between Stone Inc. and Big Bucks, that he "effectuated an introduction," and that he "facilitated the execution [of a non-disclosure agreement] by Big Bucks and Stone Inc.."

Accordingly, Sunny must plead that there was a written agreement that satisfies the statute of frauds. Yet while Sunny alleges that Sunny and Stone Inc. formed a "binding agreement," he does not specify whether the agreement was oral or written. Nor does he provide or describe any written documents that may partially or fully satisfy the statute of frauds.

Sunny also asserts claims for quantum meruit and unjust enrichment. New York's statute of frauds, however, "extends to a contract implied in fact or in law." Because the statute of frauds applies to Sunny's agreement with Stone Inc., "the requirement of a writing cannot be circumvented by an action for compensation in quantum meruit" or by a claim of unjust enrichment.

Because Sunny has pointed to no written documents that would even arguably satisfy the statute of frauds with respect to either his quantum meruit or unjust enrichment claims, his claims fail.

Under New York law, promissory estoppel requires (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance by the party to whom the promise is made, and (3) an injury sustained in reliance on the promise. When a plaintiff's promissory estoppel claim seeks relief as a way to circumvent the Statute of Frauds, plaintiff must demonstrate unconscionable injury. Unconscionable injury is harm beyond that which flows naturally from the non-performance of the unenforceable agreement. Allegations that plaintiff expend[ed] various sums of money and time, and forewent other business opportunities elsewhere do not constitute unconscionable injury.

Sunny has not alleged that Stone Inc.'s actions caused him unconscionable injury. His assertions that he expended time and money and "forewent employment opportunities" while working on Stone Inc.'s behalf are insufficient.

Question.        This claim arises from a written home repair agreement Agent entered into on behalf of Construction Co. Agent asserts he could not be held individually liable as he was an agent acting on behalf of a corporate entity. Is Agent bound in contract breach action without piercing corporate veil.

Answer. No.

Agent, who signed the contract on behalf of Construction Co., contends that he could not be held individually liable since he was an agent acting on behalf of a corporate entity.

A contract negotiated by an agent for a known principal does not become the contract of the agent simply because he signs his own name without taking the precaution to tell the other party to the contract that he is acting for his principal, which fact is already fully understood. Here, the record demonstrates that Homeowner, the party alleging personal liability on Agent's part, failed to offer clear and explicit evidence of Agent's intention to be personally bound by the contract particularly since the agreement, which was drafted on a letterhead containing Construction Co.'s name, provided that Construction Co. would perform the repairs. Thus, the plain language of the agreement established that Agent was acting as an agent for Construction Co. and, as an agent, Agent was not susceptible to personal liability without a piercing of the corporate veil.

Accordingly, the Agent is not personally bound.

Question.        Are oral settlement agreements binding?

Answer. Yes.

The parties engaged in negotiations to settle. An oral agreement was reached in a June, telephone conversation involving claimant, his attorney, and defense counsel. They agreed that the oral agreement was an immediately binding contract. Material terms of a July 1 written settlement drafted by defense counsel were consistent with the June oral agreement. On July 14, through new counsel, claimant informed the other side that he did not agree to the terms of the proposed settlement.

Although the decision to settle a case rests with the client alone, a client may authorize his attorney to enter into a settlement agreement on his behalf.  Based on claimant's own affirmative representations and conduct in participating in the settlement discussions and agreeing to the settlement's terms, it was reasonable for defendants' counsel to believe that claimant’s attorney had the authority to settle this case on claimant's behalf.

A settlement agreement is a contract that is interpreted according to general principles of contract law.  It is an elementary principle of contract law that a party's subsequent change of heart will not unmake a bargain already made. Thus, once a court concludes that the parties reached a binding settlement agreement, the agreement is enforceable, even if a party has a change of heart between the time he agreed to the settlement and the time those terms are reduced to writing.

Here, shortly after orally agreeing to the terms of their settlement in June, counsel for both sides exchanged a series of emails in which they listed and confirmed their agreement to each term of the parties' settlement. Agreements that address all negotiated terms in an email are generally enforceable in the same manner as more formal written agreements. 

In deciding whether parties intended to be bound in the absence of a formal written agreement, courts consider the following factors: (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.

Where there is no final document on which to rely, the controlling factor in determining whether parties are bound by an agreement is whether a court has evidence of the parties' intent to be bound.

Here, while the parties intended to memorialize the agreement's terms in a writing, the parties have explicitly agreed that, even in the absence of such a writing, the parties are bound by the terms of the oral agreement that has been reached

Calling the Court together with defendants' counsel to advise the Court of their settlement and to request the dismissal of the action, constitutes partial performance of a settlement agreement.

The record also demonstrates that the parties reached an agreement as to all of the material terms of their settlement.  Simply because the parties did not set forth the language of certain provisions verbatim does not signify that they had not agreed to be bound until a writing containing the wording of those provisions was agreed to and signed.

Settlements of any claim are generally required to be in writing or, at a minimum, made on the record in open court. In analyzing whether the parties intended that a particular settlement agreement be reduced to a writing, the correct question is whether the settlement agreement terms are sufficiently complex or involve long time periods, such that there should be a formal writing. Here, the parties' June settlement agreement is not particularly complex. For the most part, the agreement involves straightforward and fairly standard terms, such as Defendants' provision of a lump sum payment, Claimant’s dismissal of his claims and provision of a release, and confidentiality and non-disparagement provisions.

For the foregoing reasons, the parties' June settlement agreement is enforceable.

Question. Electrical Subcontractor claims it is owed money from Tenant and General Contractor for certain work it performed.  Can Electrical Subcontractor pursue a mechanic’s lien if Tenant, at the time the lien was filed, had paid General Contractor in full?

Answer. No.

The relevant facts are as follows. Tenant is a commercial tenant in a building located in New York City (the Property).  Tenant contracted with General Contractor to perform certain work involved in the renovation of Tenant's corporate offices on the fifth floor of the Property (the Project). General Contractor then contracted with Electrical Subcontractor to perform certain electrical work on the Project. It is undisputed that Electrical Subcontractor did not maintain a contract with Tenant for any of the work it performed. When General Contractor allegedly failed to pay Electrical Subcontractor pursuant to their contract Electrical Subcontractor filed a mechanic's lien against the Property (the Lien). Tenant posted a cash undertaking pursuant to Lien Law §20 to discharge the Lien against the Property. Electrical Subcontractor then commenced an action seeking to foreclose the Lien. Tenant now moves for an Order dismissing Electrical Subcontractor's complaint.

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.  Absent a direct contractual relationship between an owner and a subcontractor, the rights of a subcontractor are derivative of the rights of the general 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. Further, in the absence of any balance due to the general contractor from the owners, a subcontractor is required to look to the contractor that engaged its services for payment.

As an initial matter, Tenant has provided an affidavit indicating that it did make, all required payments to General Contractor for the work performed. Additionally, Tenant has provided records which demonstrate that there was no amount due and owing from Tenant to General Contractor at the time the Lien was filed. Specifically, Tenant has provided General Contractor's invoices for the work completed, receipts demonstrating wire transfers from Tenant's bank to General Contractor in payment for that work, proof that General Contractor received and acknowledged full payment from Tenant including waivers and releases of any claims based on the amounts set forth in the invoices and proof that the work performed by General Contractor was completed. Thus, as Tenant has produced documentary evidence demonstrating that no money was due to General Contractor pursuant to their contract when the Lien was filed, the complaint must be dismissed as against Tenant.

In response, Electrical Subcontractor has failed to produce evidence or an affidavit by an individual with knowledge of the facts contradicting the evidence provided by Tenant which establishes that there was no amount due and owing from Tenant to General Contractor at the time the Lien was filed.

Question.       Prime Contractor worked on public improvement under a contract with the U.S. General Services Administration. Under the Davis-Bacon Act, the contract required Prime Contractor and its subcontractors to pay laborers wages and benefits at the prevailing rate. As required by the Miller Act, Prime Contractor obtained a payment bond from Surety. Prime Contractor allegedly did not pay purported bricklayer Mr. X wages and benefits under the prevailing rate. The principal dispute is whether Mr. X was properly classified as a "laborer" and "cement mixer".  Can Mr. X simply sue the Surety on the Miller Act bond to recover prevailing wages due under the Davis-Bacon Act?

Answer. No.

For the reasons discussed below, Mr. X cannot maintain his claim unless (1) there has been an administrative determination that his employer failed to pay the prevailing wage rates required by the Davis-Bacon Act, and (2) any funds administratively withheld by the government are insufficient to reimburse him.

The Contract called for Prime Contractor to perform construction work on the Project, including "bricklaying, masonry, stone setting and other construction trades." Pursuant to the Davis-Bacon Act, 40 U.S.C. §§3141 et seq., the Contract contained a provision requiring Prime Contractor, and any subcontractors of Prime Contractor, to pay laborers who worked on the Project wages and benefits at the prevailing rates for the type of labor performed. In addition, the Contract included a schedule of prevailing rates (the "Prevailing Rate Schedule") for various job classifications. As required by the Miller Act, 40 U.S.C. §§3131 et seq., Prime Contractor obtained a payment bond, issued by Surety, to guarantee payment to laborers and suppliers.

Plaintiff Mr. X performed labor at the Project and alleges Prime Contractor failed to pay the prevailing wages and benefits they were due under the classifications of labor they performed.

Mr. X seeks to sue, on behalf of himself and a putative class of all laborers who worked for Prime Contractor on the Project, to recover prevailing wages due under the Davis-Bacon Act, on the Miller Act bond issued by Surety. The issue is whether Mr. X may maintain this claim at all, unless (1) the U.S. Department of Labor (the "DOL") or the contracting federal agency — here, the GSA — has made an administrative determination that Mr. X's employer — here, Prime Contractor — failed to pay prevailing wages due under the Davis-Bacon Act, and (2) any funds withheld from the employer by the federal government are insufficient to pay Mr. X the owed wages. Surety argues that because the Davis-Bacon Act is enforced administratively, the above requirements are prerequisites to suit. Without disputing this characterization of the Davis-Bacon Act, Mr. X argues that because his suit is brought under the Miller Act, any limitations on Davis-Bacon Act suits are inapplicable.

The Davis-Bacon Act requires federal contracts "in excess of $2,000, to which the Federal Government…is a party, for construction, alteration, or repair…of public buildings and public works of the Government" to contain a provision requiring contractors and subcontractors to pay their laborers and mechanics minimum wages that are "based on the wages the Secretary of Labor determines to be prevailing for the corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work in [the relevant locality]." 40 U.S.C. §§3142(a)-(b). The Act further requires covered contracts to include a provision permitting the federal agency to withhold accrued payments from noncompliant contractors and subcontractors and to use those withheld payments to pay laborers and mechanics the wages they are due. Id. §3142(c)(3). The Comptroller General must pay laborers directly from such withheld funds. Id. §3144(a)(1). Covered contracts must also include a provision allowing the federal agency to terminate the right of any noncompliant contractor or subcontractor to continue work on the contract. Id. §3143.

The Davis-Bacon Act is enforced administratively by the contracting federal agency and the DOL. The DOL issues both general and project-specific wage determinations for use by contracting agencies. 29 C.F.R. §§1.5, 1.6. Disputes between the contracting agency and contractors "concerning payment of prevailing wage rates, overtime pay, or proper classification" are resolved, in the first instance, by the Administrator of the Wage and Hour Division of the DOL's Employment Standard Administration ("Administrator"), with a right of appeal to an administrative law judge or administrative review board. Id. §§5.11(a)-(d). Contracting agencies and the DOL are jointly responsible for ensuring that prevailing wages are paid. Contracting agencies "shall cause such investigations to be made as may be necessary to assure compliance with [the Davis-Bacon Act]," id. §5.6(a)(3), and the DOL may conduct its own investigations, id. §5.6(b).

Although the Davis-Bacon Act exists for the benefit of laborers who perform work on federal contracts, the ability of laborers to bring suit under the Act is limited in that it does not include a general, implied right of action for laborers, even if the contract is covered by the Act, and, moreover, that laborers cannot recover Davis-Bacon Act wages by bringing state law contract claims or claims under the federal Fair Labor Standards Act ("FLSA").

Laborers who perform under contracts governed by the Davis-Bacon Act are not entirely without remedy, however. Section 3 of the Act ("section 3") provides that:

If the accrued payments withheld [by the federal agency] under the terms of the contract are insufficient to reimburse all the laborers and mechanics who have not been paid the wages required under this subchapter, the laborers and mechanics have the same right to bring a civil action and intervene against the contractor and the contractor's sureties as is conferred by law on persons furnishing labor or materials.

40 U.S.C. §3144(a)(2).

The Miller Act requires any contractor performing on a "contract of more than $100,000…for the construction, alteration, or repair of any public building or public work of the Federal Government" to furnish a "payment bond with a surety satisfactory to the [contracting federal] officer for the protection of all persons supplying labor and material in carrying out the work provided for in the contract." 40 U.S.C. §§3131(a)-(b). The Miller Act confers on "[e]very person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished" a right to "bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought" if that person has not been fully paid within 90 days of the date on which work was last performed or materials furnished. Id. §3133(b)(1).

A laborer may sue to recover prevailing wages due under the Davis-Bacon Act by bringing a claim against the surety of a Miller Act bond. However, a claim on a Miller Act bond to recover Davis-Bacon Act wages must comply with section 3, regardless of whether the cause of action arises under section 3 itself or the Miller Act. That makes sense, since the Miller Act itself creates no liability for failure to pay prevailing wages. The source of such liability is the Davis-Bacon Act. The requirements of the Davis-Bacon Act would be meaningless if a party could bring a suit based on Davis-Bacon Act violations while bypassing the extensive administrative regime enforcing that statute simply by pleading a cause of action under the Miller Act.

A “section 3” claim must meet two requirements. First, as the text expressly states, laborers may bring a claim only if funds withheld by the agency are insufficient to fully reimburse all laborers who are entitled to prevailing wages. Second, a laborer may bring a claim only if the federal government — that is, either the contracting agency or the DOL — has administratively determined that the contractor or subcontractor has failed to pay prevailing wages. Although this second requirement is not expressly stated, it is strongly implied by both the text and the structure of the statute.

Mr. X cannot bring a “section 3” claim because he does not allege that (1) the contracting agency or the DOL made an administrative determination that his employer, Prime Contractor, failed to pay prevailing wages, and (2) any withheld funds are insufficient to reimburse him.

If you would like more information regarding this topic please contact Thomas S. Tripodianos at TTripodianos@wbgllp.com, or call him at 914-607-6440.

Please understand that this column provides the information only, and should not be construed as legal advice to anyone under any circumstances. The author reserves the right to modify any questions submitted so as to broaden their appeal. While we encourage you to contact us, you should not disclose to us any information that you consider confidential unless and until we have formally established an attorney-client relationship, and agreed to represent you in your particular matter. The opinions expressed in this column are of the individual author, and not necessarily those of the Hudson Valley Builders and Remodeler’s Association. Citations to legal authority have been omitted.

Question.        Subcontractor claims a violation of the Prompt Payment Act (PPA). Subcontractor alleged it submitted invoices to Contractor for work that was completed, but Contractor failed to remit payment on the invoices within 30 days of their issuance, nor object to them, or advise of any reason for the non-payment. There is no record of any objections to Subcontractor's demand for payment, and invoices, and payment was not timely made.  Is Contractor in violation of the PPA?

Answer. Yes.

Subcontractor alleges a violation of New York's Prompt Payment Act (the "PPA").

Subcontractor and Contractor entered into an oral agreement whereby Contractor hired Subcontractor to perform certain work on two projects, (“Project A" and "Project B"). Subcontractor alleges that pursuant to the oral agreement, the parties did not agree to a billing cycle for the work on the projects. However, Contractor contends that the parties agreed to a bi-weekly billing cycle.

Subcontractor alleges that it submitted invoices to Contractor for the work performed as the work was completed but that Contractor failed to remit payment on all the invoices. Specifically, Subcontractor alleges that it submitted to Contractor the invoices for Project A but that Contractor failed to remit payment on the invoices within thirty days of their issuance. Additionally, Subcontractor alleges that Contractor failed to object to the invoices or advise of a reason for non-payment of the invoices, in writing, within twelve business days after the invoices were issued, and failed to approve or disapprove the invoices within twelve business days after the invoices were issued.

Subcontractor alleges that it submitted to Contractor the invoices for Project B but that Contractor failed to remit payment on the invoices within thirty days of their issuance. Subcontractor alleges that in response to receiving the Project B invoices, Contractor advised Subcontractor of an alleged discrepancy in certain invoices related only to the rates being charged for labor but that Contractor did not object to any other portion of the invoices. Subcontractor submitted revised invoices to Contractor to reflect a slight change in the rate being charged for labor on the Project B. Subcontractor alleges that Contractor did not object to, provide a reason for non-payment of or approve or disapprove the revised invoices within twelve business days after their issuance.

Contractor paid Subcontractor over $220,000 for work performed on the Project A and over $100,000 for work performed on the Project B but failed to remit payment on the remaining invoices totaling over $565,000.  

The New York State Legislature enacted the PPA in an effort to help contractors secure timely payment on private construction projects.  Pursuant to the PPA, "[t]he parties to a construction contract may, by mutual agreement, establish a billing cycle for the submission of invoices requesting payment for work performed pursuant to a construction contract. In the absence of an agreement by the parties as to the billing cycle, the billing cycle shall be the calendar month within which the work is performed." GBL §756-a(1). Additionally, pursuant to GBL §756(1), "'[c]onstruction contract' means a written or oral agreement for the construction, reconstruction, alteration…of any building, structure…and where the aggregate cost of the construction project…exceeds one hundred fifty thousand dollars." The PPA further provides that

Upon delivery of an invoice and all contractually required documentation, an owner [or contractor] shall approve or disapprove all or a portion of such invoice within twelve business days. Owner [or contractor] approval of invoices shall not be unreasonably withheld nor shall an owner [or contractor], in bad faith disapprove all or a portion of an invoice. If an owner [or contractor] declines to approve an invoice or a portion thereof, it must prepare and issue a written statement describing those items in the invoice that are not approved.

GBL §756-a(2)(a)(i).

"An owner [or contractor] may decline to approve an invoice or portion of an invoice for" reasons which include, inter alia, unsatisfactory or disputed job progress; defective construction work or material not remedied; disputed work materials; and failure to comply with other material provisions of the construction contract. Id. However, "[i]f any interim or final payment to a contractor is delayed beyond the due date established in paragraph (a) of subdivision three of seven hundred fifty-six-a of this article, the owner [or contractor] shall pay the contractor interest beginning on the next day at the rate of one percent per month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract." GBL §765-b(1)(a).

Contractor's assertion that it agreed to pay Subcontractor on a price per square foot basis for each project but that Subcontractor improperly invoiced Contractor on a time and materials basis and that Subcontractor inflated its time costs on the invoices is not a defense to payment of the invoices pursuant to the PPA. The PPA requires that any objections to the invoices be made within twelve business days of their receipt. See GBL §756-a. However, it is undisputed that Contractor failed to make any objections to the invoices and thus, it has now waived those objections pursuant to the PPA.

Contractor's assertion that it was not required to pay the invoices or respond to the invoices in the time frame provided by the PPA because Subcontractor did not deliver the "invoice and all contractually required documentation," as required by GBL §756-a(2)(a)(ii), is without merit. Specifically, Contractor alleges that the parties agreed that Subcontractor would supply Contractor with an executed partial waiver and release with each invoice and that it failed to do so. As an initial matter, even if such contention is true, Contractor should have objected to the invoices on that basis in the time frame provided for in the PPA. Indeed, the PPA provides that "[f]ailure to comply with…material provisions of the construction contract" is a basis for withholding approval of an invoice. GBL §756-a(2)(a)(i)(4). Moreover, Contractor has failed to establish that the waivers and releases constitute "contractually required documentation" pursuant to the PPA as it has failed to allege that such documentation was required as a condition precedent to Contractor making payments on the invoices. Indeed, even if it had made such allegation, it cannot be substantiated as it is undisputed that Contractor paid over $300,000 to Subcontractor on invoices which did not include executed partial waivers and releases. Thus, such agreement was clearly not a condition precedent to payment on the invoices and therefore, such documentation cannot be "contractually required documentation" as provided for in the PPA.

If you would like more information regarding this topic please contact Thomas S. Tripodianos at TTripodianos@wbgllp.com, or call him at 914-607-6440.

Please understand that this column provides the information only, and should not be construed as legal advice to anyone under any circumstances. The author reserves the right to modify any questions submitted so as to broaden their appeal. While we encourage you to contact us, you should not disclose to us any information that you consider confidential unless and until we have formally established an attorney-client relationship, and agreed to represent you in your particular matter. The opinions expressed in this column are of the individual author, and not necessarily those of the Hudson Valley Builders and Remodeler’s Association. Citations to legal authority have been omitted.

Question.        Subcontractor alleged General Contractor's breach by failing to pay for additional change order work at two school renovation sites done under Notices of Direction from the Owner. The Article 9-Change Orders section in the parties' contracts specified that the Subcontract Price and time adjustments hereunder shall be limited to the amount and extent of the adjustments actually allowed by the Owner.  Is the Subcontractor’s recovery limited to the significantly lesser amounts approved by the Owner?

Answer. Yes. Rather than the combined $373,976 Subcontractor claimed entitlement to, the General Contractor's liability for change order work at the two projects was limited to $27,622 and $17,886, the respective amounts approved by the Owner.

Background

Subcontractor alleges that General Contractor breached contracts between the parties by failing to pay Subcontractor for certain asbestos abatement work it performed at two public school renovation sites for the Owner. Subcontractor alleged that in addition to the base contract work it performed for General Contractor, Subcontractor also performed additional, change order work, for which Subcontractor has not been paid by General Contractor.

The parties reached an agreement to settle the base contract claims.  The only unresolved issue is General Contractor's liability, if any, with respect to additional or change order work performed by Subcontractor.

Subcontractor contends that (i) based upon the parties' written contract for the Elementary School Project, it should be allowed the full amount of its claim arising from the additional work it performed on the Elementary School Project, and thus be awarded $79,101.09; and (ii) as there is no written contract governing the parties' rights and obligations relating to Subcontractor's work on the Middle School Project, Subcontractor is entitled to $294,874.86 for the additional work it performed at Middle School under a theory of quantum meruit.

General Contractor contends that (i) pursuant to the (written) contracts between the parties for the Elementary School Project, General Contractor is not liable to the Subcontractor for any amounts claimed by the Subcontractor for additional work which exceed the amounts recovered by General Contractor from the Owner; and (ii) with respect to Middle School, Subcontractor cannot bring a quantum meruit claim because there exists a contract governing how payment for extra work will be determined.

There are three relevant construction subcontract agreements, two for the Elementary School Project, and one for the Middle School Project.

Elementary School Project

During the course of its base contract work on the Elementary School Project, Subcontractor was instructed by General Contractor to do additional asbestos abatement work pursuant to a Notice of Direction (NOD) issued by the Owner.

The established practice in performing change order work for the Owner is for the contractor or subcontractor to proceed immediately with the work as described in the NOD.  The Owner regularly issues change orders for its projects and often determines that the value of work performed pursuant to change orders is less than the amount requested by subcontractors.

Subcontractor attended meetings with the General Contractor and the Owner at which General Contractor negotiated in good faith with the Owner for the Subcontractor's claims of additional work at the Project. In the end, the Owner determined that the fair and reasonable value of such additional work by the Subcontractor was $27,622.37, and issued a change order authorizing payment to Subcontractor in that amount.

The Elementary School Contracts between General Contractor and Subcontractor, contain a section entitled Article 9-Change Orders, which specifically provides that the Subcontract Price and time adjustments hereunder shall be limited to the amount and extent of the adjustments actually allowed Contractor under the Contract Documents, i.e., by the Owner.

Each of the three written contracts between Subcontractor and General Contractor referred to above defines Contract Documents as (a) this Subcontract and the exhibits, schedules and other supporting materials to which the Subcontract refers, some of which are attached hereto, and (b) the prime contract between the Owner the Owner, whether directly or through an agent such as the Contract Manager, and the General Contractor or Contractor, as the case may be, and the documents to which the Prime Contract refers.

In this case, Subcontractor, as subcontractor, actually attended and participated in such settlement negotiations. Pursuant to the provisions of Article 27-Disputes of the Elementary School Contracts, General Contractor is not liable to the Subcontractor for any amounts claimed by the Subcontractor which exceed the amounts recovered (or agreed to) by General Contractor from the Owner for that work: In no event shall Contractor be liable to the Subcontractor for Subcontract Work performed or for any cause whatsoever, except to the extent that Contractor may recover therefore, from the Owner.  That amount was $27,622.37 for the Elementary School Project.

Middle School Project

While neither party signed the Middle School Contract on the signature page Subcontractor did sign the Middle School Contract on three separate pages, specifically the Equipment Use Release, Project Labor Agreement, and Safety Rider.

Subcontractor states that it performed its services on the Middle School Project in good faith and that those services were accepted by General Contractor and Owner. Subcontractor concedes that it performed what was intended to be the base contract work for the Middle School Project, and has been paid for such.

The Middle School Contract contains the same provisions regarding Change Orders and Disputes, respectively, as are contained in the Elementary School Contracts.

During the course of its base contract work on the Middle School project, Subcontractor was instructed by General Contractor to perform additional work pursuant to an NOD issued by the Owner. Subcontractor furnished, provided and supplied the work, labor and services required on its part to be supplied and performed pursuant to the Change Order Work for the Middle School Project.

Subcontractor attended meetings with General Contractor and representatives of the Owner to negotiate Subcontractor's claims for additional work on the Middle School Project. During the meeting, the Owner and General Contractor came to an agreement that the additional compensation due to the Subcontractor for additional work associated with NOD was $17,886.89. The Owner subsequently issued a change order authorizing payment to Subcontractor in that amount.

The Elementary School Contracts are valid and enforceable and the parties are bound by their terms. When interpreting a contract under New York law, the intention of the parties should control, and the best evidence of intent is the contract itself. If an agreement is complete, clear and unambiguous on its face, it must be enforced according to the plain meaning of its terms.

The Elementary School Contracts limit Subcontractor's payment for its change order work to the amount that General Contractor recovered from the Owner for such work. As noted, the contracts contain a section entitled Change Orders, which provides that the Subcontract Price shall be limited to the amount and extent of the adjustments actually allowed Contractor and/or GC under the Contract Documents. Pursuant to the provisions of 'Article 9-Change Orders' of the Agreement, General Contractor is entitled to settle subcontractor claims with the Owner, the results of which settlement are binding on the Subcontractor.

Article 27 of the Elementary School Contracts provides that in no event shall Contractor be liable to the Subcontractor for Subcontract Work performed or for any cause whatsoever, except to the extent that Contractor may recover therefore, from the Owner the Owner.

Accordingly, based upon the unambiguous language of Articles 9 and 27 of the Elementary School Contracts Subcontractor's recovery against General Contractor for the change order work it performed at the Elementary School is limited to $27,622.37, i.e., the amount that General Contractor was able to recover from the Owner.

General Contractor's liability to Subcontractor for change order work performed for the Middle School Project is limited to $17,886.89 (the amount approved by the Owner)

Subcontractor's contention that there is no binding agreement fails. Clearly the parties intended to be bound by the Middle School Contract. Subcontractor concedes that it performed its services on the Middle School Project in good faith and that those services were accepted by General Contractor and Owner. The parties conducted themselves as though there was a signed contract between them regarding Subcontractor's work on the Middle School Project.

There was a binding, written agreement between Subcontractor and General Contractor for the Middle School Project. Subcontractor cannot recover under a theory of quantum meruit, which only applies in the absence of an express agreement.

Based upon the parties' clear intention to be bound by the Middle School Contract, and the unambiguous language of Articles 9 and 27 of the Middle School Contract Subcontractor's recovery against General Contractor for the change order work it performed at Middle School is limited to what General Contractor was able to recover from the Owner, i.e., $17,886.89.

Question.        Sureties issued a performance bond to the Public Owner in connection with Contractor's contract. The Sureties claim the Public Owner made an improper post-termination payment to Contractor to the detriment of their rights as potential subrogees. The sureties neither performed the contract themselves nor financed the project's completion.  Is the Sureties claim proper?

Answer. Not at this time.

The Sureties issued a performance bond in connection with a public improvement project. The Contractor has alleged the Public Owner is in material breach of the contract seeks to withdraw from the same.  The Public Owner has declared the Contractor in default and asserts that the Sureties have breached their obligations under the performance bond. The Contractor contests the Public Owner's claims of default. The Sureties assert that the Public Owner improperly made a post-termination payment to Contractor to the detriment of the Sureties' rights as potential subrogees.

In the Bond, the Sureties agreed,

if requested to do so by the [Public Owner], to fully perform and complete the Project to be performed under the Contract, pursuant to the terms, conditions and covenants thereof, if for any cause the Contractor fails or neglects to so fully perform and complete such Project…. [and] to commence the work of completion within twenty (20) days after written notice thereof from the [Public Owner] and to complete such Project within such time as the [Public Owner] may fix.

At the conclusion of the 20-day period, the Sureties notified the Public Owner that they have been unable to conclude that Contractor is, in fact, in material breach of the subject Contract such that it could properly be terminated for default under the terms and conditions of that Contract. Therefore, the Sureties have been unable to conclude that the conditions triggering any obligation under the Bond have been met.

The Sureties further contend that the Public Owner made a post termination payment to the Contractor and in doing so the Public Owner failed to mitigate its damages, to the ultimate detriment of the Sureties.  The Sureties never notified the Public Owner that it should not make further payments to Contractor or that doing so would impair their interests.

The Sureties assert that the Public Owner's post-termination payment to Contractor was improper, notwithstanding that the payment was approved before Contractor's termination. They argue that any balance the Public Owner owes Contractor under the Contract serves as the Sureties' collateral in the event that they are required to pay or otherwise perform under the Bond. According to the Sureties, if the Public Owner is correct that Contractor materially breached the Contract, then payment was an overpayment that impaired their interests in the unpaid balance of the contract price. The Sureties further contend that, in the event that Contractor is found liable and they are compelled to fulfill their obligations under the Bond, they are entitled to a damages offset under the doctrine of equitable subrogation.

Subrogation is the right one party has against a third party following payment, in whole or in part, of a legal obligation that ought to have been met by the third party. The doctrine of equitable subrogation allows insurers to "stand in the shoes" of their insured to seek indemnification by pursuing any claims that the insured may have had against third parties legally responsible for the loss. In short, one party known as the subrogee is substituted for and succeeds to the rights of another party, known as the subrogor. The doctrine of subrogation, which is based upon principles of equity, has a dual objective as stated by New York courts: It seeks, first, to prevent the insured from recovering twice for one harm, as it might if it could recover from both the insurer and from a third person who caused the harm, and second, to require the party who has caused the damage to reimburse the insurer for the payment the insurer has made.

Generally in a public improvement contract, the contractor is required to find a surety that will secure the performance of his contract. Upon default by the contractor, the surety, pursuant to a performance bond, completes the contract, at its own cost and expense. It then becomes equitably subrogated to the rights of the contractor and certain of the rights of the owner in the unpaid balance of the contract price.

Here, it is undisputed that the Sureties have neither undertaken performance of the Contract themselves nor financed the project's completion. The Sureties' lack of performance to date precludes them from asserting an equitable subrogation claim at this time for any improper payments that the Public Owner purportedly made to Contractor.