Question. The dispute between the parties, the Heating and Ventilating (“HVAC”) Subcontractor and its Sub-Subcontractor arises out of a public construction project. The contract price of the first sub-subcontract (contract # 1) was $3,550,000.00. Under the terms of both subcontracts, the sub-subcontractor was required to perform both modifications requested by the Owner, referred to as MODs and Contractor Proposed Changes, referred to as CPC’s, which represent claims of the contractor for work they believed to be changes in the original contract documents. Four years into the project, the Owner held Contractor in default of its prime contract and terminated the same.

Contractor’s Performance Bond Surety (“Surety”) stepped in to complete the project. In the interim, Subcontractor, Sub-Subcontractor, Sub-Subcontractor’s surety (“Sub-sub-Surety”), and Surety and Contractor engaged in negotiations concerning the completion of the work. Ultimately, Subcontractor entered into a second sub-subcontract (contract # 2) with Sub-Subcontractor to complete the project. However, prior to entering into this second agreement, Subcontractor wrote to Sub-Subcontractor, informing Sub-Subcontractor that Subcontractor would be required to provide Contractor with releases for all of subcontractors. The letter also informed Sub-Subcontractor that it was required to provide Subcontractor with a release both for Contractor and for Subcontractor and to provide Subcontractor with labor, material and performance bonds. In return, Sub-Subcontractor would receive a new contract for completion of the project in the amount of $2,100,000.00. The letter also states that Subcontractor will pay Sub-Subcontractor $253,817.00 and that it will repay Subcontractor its retainer balance in the amount of $80,748.00 as that amount is received from Surety. Attached to the new subcontract is a “Rider # 2” which states both of these above amounts will be paid to Sub-Subcontractor upon Sub-Subcontractor signing a completion contract with Subcontractor and providing Subcontractor with a release. The second subcontract is clearly signed by the presidents of Subcontractor and Sub-Subcontractor. The payments were made as set forth and the new sub-subcontract for the amount set forth was signed. Also attached is a General Release by Sub-Subcontractor in favor of Subcontractor containing the apparent signature of President of Sub-Subcontractor.

The second subcontract also contains a provision that Sub-Subcontractor will provide Subcontractor with a General Release to enable Subcontractor to conclude its prior contract with Contractor. In addition, the second subcontract states as follows at paragraph 23: “Sub-Subcontractor authorizes Contractor and Surety to deduct 20% of Sub-Subcontractor’s portion of any MOD or CPC resolved by and paid for by the Owner to the extent that Owner includes an allowance for Sub-Subcontractor”.

Contractor, Subcontractor and Sub-Subcontractor all, as set forth in various letters, negotiated their various claims for extra work with Owner. By letter, Sub-Subcontractor set forth in writing its claims in the amount of $2,338,973.71 that would be passed through Subcontractor to Contractor and ultimately to Owner. The Owner adjusted its contract with Contractor by recognizing over $10 million in extra work claims. Many of the claims submitted were valued by the owner at $0.00. The total allowed for Sub-Subcontractor’s extra work claims, when the attorney’s fee percentage is deducted, was $87,086.65. Article 4.6 of both contracts signed by Sub-Subcontractor states that “(t)he determination of the Owner or Owner’s Representative as to the extent or value of the Work performed and materials and equipment furnished by the Subcontractor shall bind the Subcontractor”. As Sub-Subcontractor’s current complaint contains claims against Subcontractor for extra work, which the owner valued at zero and a delay claim which the owner included within the $87,086.65 already mentioned, Subcontractor asserts that all other and duplicative claims should be denied.

Sub-Subcontractor alleges that it was influenced to return to the jobsite and complete its work based on certain misrepresentations. These included assertions that no entity had yet been paid its MODs or CPC’s and Sub-Subcontractor would receive all its extra work claims, less 20% for attorney’s fees for everything it had supplied prior to the termination of Contractor. Sub-Subcontractor states that such promises were made to it by Subcontractor and by Sub-sub-Surety, which he now questions, since he later learned that Subcontractor’s surety had become a wholly owned subsidiary of Sub-sub-Surety. He then alleges that he has no recollection of signing any releases. He states that he entered into the second agreement only based on assurances that Contractor and Subcontractor would seek to collect his pre-termination claims; that Sub-sub-Surety would finance its completion and that Sub-Subcontractor would be paid timely for its work on the second contract. Sub-Subcontractor asserts that none of these promises were valid. He later discovered that Subcontractor had collected over $7 million on its signing with Surety, much of which belonged to Sub-Subcontractor. He asserts further that he has since learned that Subcontractor was submitting Sub-Subcontractor’s extra work claims in the first contract and collecting them without passing through payment. This continued, according to Sub-Subcontractor throughout Sub-Subcontractor’s work on the second contract. In large part, Sub-Subcontractor appears to be arguing that it entered into the second agreement, believing it was owed over $4 million, because it was promised that Subcontractor and Sub-sub-Surety would be collecting much of this sum from the owner. It later learned that such monies could not be collected because Subcontractor had already been paid for Sub-Subcontractor’s work and, therefore, would not be paid again in a dispute with the Owner.

Now, Sub-Subcontractor argues he has learned that Subcontractor received $550,000 from Contractor as part of the settlement of a mediation between Subcontractor and Contractor but that Sub-Subcontractor was not told about this, nor did it receive any pass thorough from Subcontractor. Subcontractor, he asserts, has no real excuse for this and its latter day claim that Sub-Subcontractor owes Subcontractor $268,986 for work not completed by Sub-Subcontractor on the second contract is simply made up. Sub-Subcontractor asserts that there is no proof that Subcontractor paid a second subcontractor for uncompleted work on the second contract. Based on Subcontractor’s misrepresentations and conversion of funds belonging to Sub-Subcontractor, the sub-subcontractor asserts that Subcontractor cannot deny the claims.

In reply to Sub-Subcontractor’s allegations, Subcontractor relies upon documentary evidence that belies each and every one of Sub-Subcontractor’s claims. First, by letter Sub-Subcontractor received a summary of all the extra work payments that Subcontractor was receiving on the first contract; second, by the time of the termination of contract # 1, Sub-Subcontractor had received $190,124 in extra work payments; third, there exists no written agreement setting forth that Sub-Subcontractor will be paid in full for all its extra work claims in return for entering into the second contract and it is obvious from the written agreements that Sub-Subcontractor would only get paid for that extra work approved by the Owner; fourth, it is undisputed that Sub-Subcontractor was to furnish a General Release of the First Contract as a condition to receiving the Second Contract; fifth, contemporaneous documents issued prior to this lawsuit from Surety to Sub-Subcontractor state that the Release from Sub-Subcontractor was indeed executed. Sixth, Sub-Subcontractor cannot dispute the clear provision of its written agreement, paragraph 4.6 to both agreements which makes the owner the final arbiter of extra work claims and binds the subcontractor to its determination With regard to the second contract, Subcontractor states that Sub-Subcontractor does not refute that certain of its claims; the $150,000 was already paid. The Subcontractor reiterates its grounds for defeating Sub-Subcontractor’s claims that were for work sought by Surety and certain claims as being duplicative of a claim made pre-termination and rejected by the Owner.

Do Sub-Subcontractor’s claims survive?

Answer. No as to pre-termination claims. Yes as to post-termination claims.

In the commercial world, where parties are sophisticated entities, negotiating at arm’s length, enforcement of their agreements preserves the necessity for commercial clarity. Where the language of a release is clear and it is accompanied by valuable consideration, the allegation of economic duress will not lie.

Viewing the writings of the parties, including Subcontractor’s letter to Sub-Subcontractor; the signed second subcontract agreement, specifically requiring and agreeing to the release of all claims against Subcontractor and Contractor; the reference in the signed subcontract to the attached release, the contemporaneous writing prior to any litigation to the release signed by Sub-Subcontractor; the consideration, with proof that payment was made, of the amounts set forth in the letter to Sub-Subcontractor, the receipt by Sub-Subcontractor of a second subcontract in the amount of $2,100,000, the intent of the parties is far from ambiguous. Sub-Subcontractor released Subcontractor from any and all claims relating to contract # 1 (the pre-termination phase) and Subcontractor granted Sub-Subcontractor $253,817 and $80,748 in payments plus a new agreement for over $2 million. In that same written agreement, it is made clear that the release is necessary in order “(t)o enable Subcontractor (to) conclude our prior contract with Contractor” and that any claims for MODs and CPCs, to the extent determined in Sub-Subcontractor’s favor, will require a deduction of 20% in attorney’s fees. Both agreements state that the determination of the owner as to the extent of the value of any work performed by the subcontractor “(s)hall bind the Subcontractor”. The moving papers contain Owner’s final determination on contract # 1, which, when subtracting the agreed upon percentage for attorney’s fees, equals $87,086.65. Accordingly, other than for that amount, Sub-Subcontractor’s claims for the pre-termination contract are invalid pursuant to the clear meaning of the parties’ agreement.

With regard to the post termination claims, Subcontractor has been unable to demonstrate the same kind of clear agreement, which would entitle it to judgment. There remains a dispute as to whether some were for work performed directly for Surety or whether they were for work performed for Subcontractor when Sub-Subcontractor merely contacted Surety because it was not receiving timely payment from Subcontractor. It is also unclear whether the claims for review of shop drawings in the post termination phase is for new work or for work, for which a claim had already been rejected. Those claims, the claims as well as Subcontractor’s claim allegedly relating to payments made due to Sub-Subcontractor’s default prior to leaving the job on contract # 2 will be preserved. Accordingly, the Sub-Subcontractor’s and Subcontractor’s claims with regard to contract # 2 survive.

Question. The Builder is a residential home builder in New York. In the course of its business, the Builder engages licensed architects to provide services related to home designs and approval of proposed home plans.

The Architects are New York-licensed architects specializing in home designs and home plans. Specifically, the Architects are in the business of designing, drafting and modifying home plans, as well as marketing, advertising, and selling home plan designs through traditional print and Internet media. The Builder engaged the Architects for architectural services and the Architects provided services to the Builder. During that time period, prospective clients approached the Builder with proposed plans for home designs. Some of these proposed plans bore no indication of their original source. Others indicated that they were created by Generic Plans, a popular national licensor of home designs. As a matter of course, the Builder passed along all of the proposed home plans that it received to the Architects for them to review, modify for compliance with local regulations, and approve.

The Builder provides the following representative example of its dealings with the Architects. The Builder received a photocopy of a proposed home design from a prospective client, through a broker. The photocopy was of a home design by Generic Plans known as “Basic McMansion.” The design drawings included markings indicating that the design was the property of Generic Plans. The Builder contracted with the Architects to produce construction drawings from the photocopy. The Builder raised with the Architects the possible need to obtain a license from Generic Plans to use the Basic McMansion design. The Builder made inquiries as to whether the Architects’ software was compatible with that of Generic Plans. The Architects assured the Builder that there was no need to purchase a license from Generic Plans, because the finished plans would be significantly different from any version given to the Builder by the prospective client. The Architects modified the design drawings, and Architect filed his own copyright applications for the modified designs. Architect advised the Builder to use the modified plans, and officially approved the plans. The Builder proceeded to construct multiple homes using the drawings.

Generic Plans filed a copyright infringement action against the Builder. Generic Plans did not file suit against the Architects, but did accuse them of copyright infringement, and reached a settlement with them prior to commencing the action against the Builder. The Builder incurred legal fees and other business expenses as a result of defending the action. The Builder ultimately chose to settle the action.

Generic Plans brought a second action against the Builder for copyright infringement, based on additional homes that the Builder had built that were not covered by the settlement in the first action. The home designs at issue in this second action had been approved by the Architects in the same manner that the home designs in the first action had been approved. In the second action, Generic Plans sued the Architects for infringement as well as the Builder. Once again, the Builder incurred legal fees and other business expenses in defending the suit. Once again, it chose to settle the suit, agreeing to make a payment to Generic Plans through its insurance carrier. Following this settlement, Generic Plans voluntarily dismissed the action, with the result that the Architects did not pay a judgment or a settlement in the second action.

Is the Builder entitled to contribution from the Architects under New York State common law for its expenses in connection with the Generic Plans litigations?

Is the Builder entitled to indemnification from the Architects under New York State common law for its expenses in defending the two Generic Plans actions?

Answer. No.

Contribution

There is no right to contribution under the Federal Copyright Act. The Builder’s effort to find a right to contribution in New York State law is unavailing. Whether contribution is available in connection with a federal statutory scheme is a question governed solely by federal law.

Even if the Court allowed the Builder to invoke New York State law to support its claim for contribution in this case, the Builder would still fail to state a claim. The right to contribution under New York State law is governed by N.Y. C.P.L.R. ¬ß 1401. Section 1401 of the C.P.L.R. provides: “Except as provided in section[ ] 15-108 [of the GOL]… two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought.”. GOL ¬ß 15-108 provides, in relevant part: “A tortfeasor who has obtained his own release from liability shall not be entitled to contribution from any other person.”GOL ¬ß 15-108(c).

In this case, the Builder settled both of the litigations brought by Generic Plans for which it now seeks contribution from the Architects. Therefore, the Builder’s claim is barred by GOL ¬ß 15-108(c). There is an exception to GOL ¬ß 15-108(c) for parties who reached a settlement post-judgment. See GOL ¬ß 15-108(d) (“A release or covenant not to sue between a plaintiff or claimant and a person who is liable or claimed to be liable in tort shall be deemed a release or covenant for the purposes of this section only if … (3) such release or covenant is provided prior to entry of judgment.”). However, the Builder settled both Generic Plans litigations before any judgment or any apportionment of liability by a finder of fact. Indeed, there was never any judgment or apportionment of liability by a finder of fact in either Generic Plans litigation, for the very reason that the Builder chose to settle rather than defend the actions. Thus, the exception to GOL ¬ß 15-108(c) does not apply in this case.

For all of the foregoing reasons, the Builder cannot state a claim for contribution in this case.

Indemnification

The Builder’s claim for indemnification is unaffected by the success or failure of its claim for contribution.

Indemnification is a claim by which the party held legally liable shifts the entire loss to another. It arises out of a contract which may be express or may be implied in law to prevent a result which is regarded as unjust or unsatisfactory. The Builder does not claim that it had a contractual right to indemnity. In order for indemnification to be implied under common law, a party must establish that it cannot be held responsible for the underlying injuries to any degree

In this case, the Builder cannot establish that it was without fault with respect to the underlying injuries to Generic Plans. The Builder knew that the plans at issue in both Generic Plans lawsuits originated from designs that belonged to Generic Plans, even before it gave the plans to the Architects for modification and approval. Indeed, the Builder alleges that it raised copyright concerns with the Architects, suggesting to the Architects that it might be necessary to obtain a license from Generic Plans to use the designs.

It is plain that the Builder in this case was aware of potential copyright issues but chose to ignore them, provided the copyrighted designs to the Architects, and proceeded with the construction of the homes upon receiving the Architects’ approval. Therefore, it is clear that the Builder bore at least some fault for any infringement of Generic Plans’ copyrights.

For all of the foregoing reasons, the Builder cannot state a claim for indemnification in this case.

Question. Mechanics lienor entered into a contract with the debtor whereby lienor was to be a general contractor providing contracting services in the construction of certain improvements on real property owned by the debtor.

The debtor is the owner of the premises with respect to which the lienor desires to perfect its mechanic’s lien. Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code.

Lienor alleges that its services for the debtor are near completion and that under Sections 9 and 10 of the New York State Mechanics’ Lien Law, a mechanic’s lien must be filed within four months of the last day of work or furnishing of materials to the debtor in order to sustain its validity. May the lienor file the mechanics lien without first seeking relief from the automatic stay?

Answer. Yes.

This case illustrates the manner in which the relation-back principle for lien perfection under 11 U.S.C. s 546(b) operates as an exception to the automatic stay by reason of its incorporation by reference in 11 U.S.C. s 362(b)(3).

The automatic stay imposed under the Bankruptcy Code ordinarily prevents the perfection of a lien after the petition has been filed. Code s 362(a)(4) expressly stays “any act to create, perfect or enforce any lien against property of the estate.” The reason for such restraint is stated in 1 Norton Bankruptcy Law and Practice, s 20.08, Part 20-Page 9 as follows:

“The restraint on creating postpetition liens against the debtor’s estate was intended to prevent the giving of preferential treatment to certain creditors by making them secured instead of unsecured. Thus the automatic stay operates to restrain unsecured prepetition creditors from improving their position as against the trustee.”

Consistent with the restraint expressed in Code s 362(a)(4) the courts have uniformly held that the post-petition filing of liens are not only stayed but any such filings are null and void.

However, Code s 362(b)(3) makes an exception for post-petition filing “to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title.” Hence, reference must be made to the latter section, which concerns the limitations placed on the trustee’s avoiding powers and reads in relevant part as follows:

“s 546. Limitations on avoiding powers.

(b) The rights and powers of the trustee under section 544, 545, or 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection.”

Under s 10 of the New York Mechanics’ Lien Law, the notice of lien must be filed in the clerk’s office where the property is situated.

There is a relation-back provision that is set forth at s 13(5) of the New York Mechanics’ Lien Law, which provides in pertinent part that:

“(5) No instrument of conveyance recorded subsequent to the commencement of the improvement, and before the expiration of four months after the completion thereof, shall be valid as against liens filed within four months from the recording of such conveyance, unless the instrument contains a covenant by the grantor that he will receive the consideration for such conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and that he will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose.”

“An examination of s 13 of the Lien Law indicates that the mechanic’s lienor will have priority over any type creditor, unrecorded or recorded, after commencement and within four months of completion of improvements to the property except for the case where there is another mechanic’s lien. In such case, the liens will be on a parity. N.Y. Lien Law s 13(1).

Since the availability of the relation-back procedure under the Mechanics’ Lien Law is recognized under Code s 546(b) as effective against a debtor in possession in its capacity as trustee under 11 U.S.C. s 1107(a), so as to allow mechanics lienors to perfect their liens within the statutory four month period, notwithstanding the intervention of a Chapter 11 petition, it follows that the lienor should be allowed to file its notice of lien in accordance with the state law. The automatic stay is no bar because Code s 362(b)(3) expressly exempts such filing from the conduct otherwise proscribed under Code s 362(a). In referring to Code s 546(b).

However, the lienor may take no action to enforce its mechanic’s lien, since any conduct beyond the perfection of the lien may tend to interfere with the reorganization process and is stayed under Code s 362(a)(5).

Accordingly, the lienor is permitted to file its mechanic’s lien as provided by the applicable New York Mechanics’ Lien Law, but is not authorized to take any further enforcement action.

Question. Prior to closing on their home, the Purchasers hired an Engineer who performed an inspection of the house. The inspection revealed the presence of termites in the crawl space in front of the house. In his inspection report, the Engineer noted, in addition to the termite condition, among other things, the boiler was in “good shape, showing no sign of leaking activity.”

In accordance with certain provisions in the Rider attached to the Contract of Sale, upon being advised of the results of the inspection, the Seller hired a Pest Control Company to treat the termite condition, which it did by spraying in the crawl space and placing termite baits around the perimeter of the house. After taking possession of the premises, the Purchasers discovered extensive termite damage throughout the house and a leak in the oil line feeding the boiler tank, resulting in contamination of the soil under the house, (which ultimately had to be removed by a specialty company, monitored by the Department of Environmental Conservation). The Purchasers would like to sue the Pest Control Company, the Seller, and the Engineer for breach of contract with regard to all, negligence with regard to the Engineer and the Pest Control Company, and fraud in the inducement with regard to the Seller. May they do so?

Answer. NO as to the Seller. MAYBE as to the Engineer. NOT LIKELY as to the Pest Control Company.

The Seller made the premises fully available for inspection by the Purchasers and their agents without restriction as to length or scope of inspection. Under these circumstances, the facts represented were not matters peculiarly within the Seller’s knowledge and the Purchasers had the means available to them of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation. It was their responsibility to make use of those means, (which they did through the Engineer) and cannot now complain that they were induced to enter into the transaction by misrepresentations Since, the Seller or his agents did not thwart the Purchasers efforts to fulfill their responsibilities fixed by the doctrine of caveat emptor (buyer beware) they have no claim against the Seller.

In addition, pursuant to the Contract of Sale the Purchasers specifically disclaimed reliance on any representations, written or oral, of the Seller and/or his representative. and declared that the buyers had inspected the premises and agreed to accept it “as is”, and understood that no representations were made as to its condition. Any claim of fraud against the Sellers was therefore extinguished upon closing.

As to the Pest Control Company, there can be no breach of contract claim against them by Purchasers since they were hired by Seller. There is also no indication that there were any representations made to the Purchasers by the Pest Control Company or that there continues to be a termite infestation problem so it would seem that a negligence (or third party beneficiary) claim would not survive either.

As to the Engineer however there remains a question fact as to whether he properly executed his duties to the Purchasers. In other words, a claim may be stated against the Engineer but it remains to be seen whether he actually did anything wrong. Nor can the Engineer avoid the claim by relying on his invoice which is entitled an “inspection agreement”. Neither the invoice nor the inspection report, which also contained a provision limiting liability, was signed by either of the Purchasers. Absent documentary proof of the Purchasers’ agreement to these provisions limiting liability the claim would be allowed.

Question. Lienor entered into an agreement to provide ready-mix concrete to subcontractor. Following nonpayment Lienor filed a mechanic’s lien against the property on February 2nd. Lienor deposited in the mail a summons and complaint seeking to foreclose its lien and to recover damages from Subcontractor to the County Clerk between 4:30 P.M. and 5:00 P.M. on January 31st. It is undisputed that the summons and complaint were date/time stamped by County Clerk on February 3rd. Was the action timely commenced?

Answer. NO. Here, in order to be timely, plaintiff was required to commence an action to foreclose its lien on or before February 1st of the year following the filing of the lien. Lienor failed to provide clear and unequivocal evidence to rebut the presumption that the summons and complaint were received by the County Clerk on February 3rd, 2005-the date they were date stamped. Shame on the Lienor for waiting till the last minute to foreclose on its lien and then being too lazy to hand deliver the summons and complaint to the County Clerk.

The relevant New York statute (CPLR 304) provides that “An action is commenced by filing a summons and complaint ‚Ķ[F] iling shall mean the delivery of the ‚Ķ summons and complaint ‚Ķ to the clerk of the court in the county in which the action ‚Ķ is brought or any other person designated by the clerk of the court for that purpose ‚Ķ. At such time of filing, the original and a copy of such papers shall be date stamped by a court clerk who shall file the original and maintain a record of the date of the filing and who shall immediately return the copy to the party who brought the filing.”

The relevant date for commencement purposes is the date that the papers to be filed are received by the county clerk, not the date that the papers are mailed A “presumption exists that the actual filing date is the date the summons and verified complaint are stamped filed by the County Clerk. However, extraordinary circumstances may exist establishing that the actual filing of these documents occurred on an earlier date than that reflected on the stamp and, if clear and unequivocal evidence exists establishing that fact, it will serve to rebut the presumption”

There is one saving grace afforded the Lienor though. Pursuant to Lien Law § 54, even if a lien is invalid, a lienor may recover in an action on a contract against any party to the action ( see Lien Law § 54). The statute of limitations for such an action is six years ( see CPLR 213). By losing the lien though, Lienor is unable to reach the pockets of the owner or the surety on the bond given to discharge the lien.

“If you would like to submit a question to Mr. Tripodianos for consideration in upcoming issues of the BAHV newsletter please click here.”

Question. Does an untimely petition to permanently stay arbitration brought by Subcontractor fall under the exception to the statutory limitation period where the contract containing the parties’ agreement to arbitrate was rescinded?

Answer. It does not; thus, the petition is time-barred and the parties’ dispute must be submitted to arbitration.

Contractor entered into two virtually identical agreements with Subcontractor. The parties agreed to arbitrate √í[a]ny controversy, dispute or claim arising out of, or relating to [the agreements] … or the execution, validity or breach thereof.√ì

Disputes over performance arose and Contractor served Subcontractor with a demand for arbitration, alleging that the Subcontractor breached the contracts.

More than three months later, Subcontractor commenced an action in Court seeking to permanently stay the arbitration. Subcontractor alleged that the contracts had been rescinded and therefore the arbitration clause contained therein was of no effect. In response, Contractor argues that the petition was time-barred since pursuant to the applicable statute, any proceeding to stay arbitration must be commenced within 20 days of the arbitration demand. Contractor further argued that, as required by the contracts’ arbitration clause, the issue of whether the rescission was proper was a question for the arbitrator.

According to a New York Court of Appeals decision, a court may consider an untimely petition to stay arbitration where Òthe parties never agreed to arbitrateÓ. Subcontractor primarily argues that, despite its untimely petition under the statute, arbitration should nevertheless be stayed pursuant to the exception articulated by the Court of Appeals because it demonstrated that the contracts containing the agreement to arbitrate were rescinded.

The Court’s long-standing rule is that √ían arbitration clause in a written agreement is enforceable when it is evident that the parties intended to be bound by the contract. Indeed, it is well settled that a party to an agreement may not be compelled to arbitrate its dispute with another unless the evidence establishes the parties’ clear, explicit and unequivocal agreement to arbitrate.
Generally, whether there is a clear, unequivocal and extant agreement to arbitrate the claims is for the court and not the arbitrator to determine. Pursuant to the statute, however, a party served with a proper demand for arbitration must apply to stay arbitration within 20 days after service of the demand or it will be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time.

The exception to the statutory rule prohibiting courts from considering untimely objections to arbitration says that an untimely application may be entertained where its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with. In situations where the parties never agreed to arbitrate, it was clear that the Legislature did not intend to bind persons to the arbitral process by their mere inaction for 20 days where no agreement to arbitrate has ever been made.

Here, Subcontractor commenced this proceeding to permanently stay arbitration well beyond the 20-day time period to object to arbitration. As such, the petition is time-barred unless the basis for Subcontractor’s objection falls within the exception. Because the contracts at issue in this case contain an arbitration provision, it cannot be said that the parties never agreed to arbitrate or that no agreement to arbitrate has ever been made. Indeed, Subcontractor does not assert that the parties never entered into an arbitration agreement; rather, it simply attacks the present viability of the contracts containing the agreement to arbitrate. Thus, the exception is inapplicable under the circumstances of this case.

Question. On July 1st the parties entered into a contract under which Supplier agreed to provide Builder over the course of two years, various building supplies needed for a multi-unit development. Supplier provided Builder with materials on various dates between September 27th and November 20th but failed to do so thereafter. Builder seeks to fix the date of interest as of July 1, the contract date. Supplier, in turn, argues that interest should be computed on a monthly basis between December of the first year and December of the second year or from January 1, of the second year, the intermediate date of the contract. What’s the correct date?

Answer. It depends on how the judge feels that day. The statute vests the court with broad discretion in determining a reasonable date from which to award interest

CPLR 5001(b) provides that in a case like this where damages are incurred at various points in time, pre-verdict interest “shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date”.

In the case at hand, January 1st, is the approximate halfway point between the time that Builder initially began to incur damages due to Supplier’s breach of the contract and the time that Builder ceased to incur damages due to the expiration of the contract. Arguably, the selection of this date makes logical sense under the facts of this case.

Question. Since we’re all coming back from our summer break and did not have a newsletter to supplement our summer reading last month I’ll present two simple questions this month.

1. Are E-mail exchanges between a prospective purchaser of real property and a prospective seller sufficient to constitute a “signed writing,” for purposes of the statute of frauds?
2. Does the Martin Act bar common-law fraud claims by condominium buyers?

Answer. NO ON BOTH COUNTS.

E-mail

This is a claim by Purchaser for specific performance for the purchase of real property. Purchaser alleges that on or about March 22, 2007, the parties began negotiations regarding the property.

Purchaser claims that he originally thought he had a deal on or about April 16, 2007, to purchase the property for five million ($5,000,000) dollars, when he received a copy of Seller’s memo to his attorney to prepare a contract. Later, on April 24, 2007, Purchaser received a copy of another memo sent to Seller, indicating that there were other offers.

Later, that same day, Purchaser received an e-mail from

Seller which stated as follows:

Sent: Tuesday, April 24, 2007 9:33 PM

To: Purchaser

Subject: Real Property

I just finished speaking to my two partners. In order to short-stop the other two deals we agreed that if you agree with the following we will consummate the deal: $5.4 million; no due diligence; 5% deposit hard on contract; closing on or before 12/31/2007 TOE. If all in agreement no need to call me back just e-mail me that it is agreed to and I will instruct counsel to finish the contract (and you do the same with your attorney) and possibly have a sit-down this week to lock it up. Let me know.

The following morning, Purchaser responded by e-mail as follows:

From: Purchaser

Sent: Wednesday, April 25, 2007 9:41 AM

To: Seller

Subject: RE: Real Property

I agree to your terms as stated herein below. As a courtesy, please provide me with the Phase I and soil borings you have for your site as well as the soil borings you may have for the other site. FYI, our attorney left a message for your attorney yesterday (who was away from the office) to discuss the contract. I don’t object to a sit down, however, to make it effective, both attorneys should talk to each other today to flush out the issues in which they are in agreement.

Seller maintains that negotiations continued past the date Purchaser claims, and that on May 13, 2007, Seller informed Purchaser that they would be looking to sell the property to another purchaser.

Seller relies on General Obligations Law ¬ß 5-703(2), which holds in relevant part: “A contract … for the sale, of any real property or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.” GOL ¬ß 5-703(2).

To satisfy the statute of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.

Seller maintains that there is no signed writing evidencing a contract for the sale of real property, and that Purchaser, therefore, can have no claim for specific performance.

Purchaser responds that the e-mail exchanges between Seller and Purchaser constitute a “signed writing” within the meaning of the statute of frauds making said agreement enforceable under a claim for specific performance.

The explosive growth of e-mail as a method of both personal and business communication, often to the exclusion of conventional written documents, has raised the question whether e-mail messages allegedly indicating an agreement between the sender and receiver can constitute writings satisfying the requirements of the Statute of Frauds.

Courts addressing this question have largely declined to state any general rule, and have instead determined on a case-by-case basis whether the particular e-mail messages asserted by a party as evidencing an agreement satisfy the elements of the applicable Statute of Frauds provision, an approach which may imply acceptance of the general proposition that e-mails can satisfy the Statute of Frauds in a proper case.

While the legislature specifically allowed e-mail messages to satisfy the statute of frauds in transactions involving qualified financial contracts, the legislature did not create such a rule for transactions involving real property.

The purpose the statute of frauds is to remove uncertainty and to distinguish in real estate sales, provisional “agreements to agree” from final binding contracts.

Martin Act

The Martin Act (General Business Law art. 23-A) does not preclude a private party from prosecuting an otherwise valid common-law fraud claim in connection with the sale of securities whenever the alleged fraudulent conduct is such that the Attorney General would be authorized to bring an action against the defendant under the Martin Act

Some support for the contrary conclusion-that such claims are barred by the Martin Act-appears in prior case law wherein the appellate court dismissed a fraud claim brought by a cooperative against a sponsor notwithstanding a jury verdict in favor of the cooperative. The Court stated that although a prior decision “does not foreclose a cause of action for common-law fraud, private plaintiffs will not be permitted through artful pleading to press any claim based on the sort of wrong given over to the Attorney-General under the Martin Act”

To prevail on a claim of fraudulent practices under the Martin Act, the Attorney General need not allege or prove either scienter or intentional fraud. Accordingly, to prevent an end run around the rule prohibiting a private right of action under the Martin Act, a private plaintiff cannot be permitted to bring a cause of action that, although styled as one for common-law fraud, lacks proof of an essential element of common-law fraud.

When a plaintiff pleads all the elements of fraud with particularity, no end run around the Martin Act would be entailed by granting the plaintiff an opportunity to prove the truth of the allegations. But to throw the plaintiff out of court merely because the Attorney General would be entitled to relief under the Martin Act on the strength of the same allegations, or a subset of those allegations, makes no sense. To construe the Martin Act to have abolished the right of purchasers of condominium and cooperative interests (and purchasers of other securities) to sue sellers for common-law fraud is to give the Martin Act a construction that is antithetical to its remedial purpose. Nor does anything in the text of the Martin Act lend any support to such a construction.

Question. I am supplier who has not received payment for the materials I furnished on a construction project. I am concerned that I may spend more on collection than the amount already due. Can I recoup the costs of collection if I sue?

“Costs of collection” is a broad term which may encompass attorneys’ fees, court fees, and other miscellaneous expenses (e.g. photocopies, process server fees, etc.) Court fees and some miscellaneous expenses may be added to the principal amount due at the time judgment is entered by the court. Often, these costs are preset by statute and are presented to the court for approval as part of the proposed judgment in what is called a “Bill of Costs”. Rarely does the Bill of Costs amount equal the actual “out-of-pocket” expenses incurred by the judgment creditor.

Attorneys’ fees can only be recouped if your agreement with the debtor specifically provides that the debtor will be responsible for attorneys’ fees if the matter goes to collection. In the event your agreement contains such a clause, it may provide that attorneys’ fees are calculated as a percentage of the sum due. Some courts will accept this calculation, but others may require you to provide proof of the actual amounts expended. In any event, the court may reduce the amount you request for attorneys’ fees if it deems the fees to be unreasonable.

Ultimately, the lesson to be learned is that everyone is a potential “judgment creditor.” The first line of defense is to have an attorney look over your agreements to make sure they contain all the protections afforded by the law, thereby maximizing the likelihood of payment in full.

Question. Does a general contractor waive the requirement of a signed formal written agreement by verbally awarding a contract to a proposed subcontractor for a particular price and verbally instructing a proposed subcontractor to proceed with its work according to an expedited schedule? A preliminary term sheet previously supplied by the contractor to proposed subcontractors specifically addressed such an occurrence of events and provided that such events would not give rise to liability against the contractor, the contractor did not make any statement, either written or verbal, expressly waiving that condition, and the contractor otherwise did not engage in any conduct inconsistent with its reliance on the term sheet.

Answer. NO. General contractor did not waive requirement of signed formal written agreement by verbally awarding contract. It is well settled that, if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both, they are not bound and may not be held liable until it has been written out and signed. In this case, in which subcontractor claims the general contractor revoked an alleged oral award of a subcontract, undisputed documentary evidence establishes that the general contractor advised the subcontractor -in writing, and in terms that left no room for doubt-that defendant did not intend to be contractually bound to hire the subcontractor until both of these highly sophisticated parties had signed the contemplated written agreement. Specifically, the general contractor plainly and explicitly notified the subcontractor, in a preliminary term sheet that the potential subcontract would not be binding on the general contractor, even after any initial award of the job to the subcontractor, and even after the subcontractor’s signing of the contemplated written agreement, until the general contractor had also signed that agreement, an act the general contractor reserved the right to do (or not do) until a specific date in the future.

This dispute arises from the effort by the general contractor to obtain and then perform the contract to build a steel hangar and technical operations facility. The project required the general contractor, through its subcontractors, to both design and build the hangar. Before it was awarded the contract, the general contractor solicited bids from several subcontractors, including this subcontractor to design and construct the hangar’s structure and cladding, which was the largest component of the project.

This subcontractor submitted a competitive bid, and negotiations between the general contractor and the subcontractor commenced in the summer. In the course of these negotiations (and before the general contractor allegedly told the subcontractor it had been chosen), the general contractor sent the subcontractor, among other documents, the aforementioned term sheet.

The subcontractor alleges that, in July, a conference call was held between the general contractor and the subcontractor. Prior to that conference call, according to the subcontractor, the parties had agreed on all material terms of the subcontract except for price. During the conference call, the parties agreed that the subcontractor would perform the subcontract for a price of $3.9 million. After that agreement was reached, the subcontractor alleges, the general contractor’s representatives, in the same telephone conversation, “advised the subcontractor that it had been awarded the structure/cladding subcontract,” and “directed the subcontractor to proceed with its design development work, to accommodate the Project’s ‚Äòfast track’ schedule.”

Promptly after the July conference call, the subcontractor commenced the design work (there is no claim that physical construction was performed) called for by the term sheet. A “kickoff meeting” for the project was held in July, which was attended by representatives of the subcontractor and the general contractor. The representatives of the subcontractor left that meeting believing it had gone well.

Only two days later, however, the subcontractor’s president attended a meeting with the general contractor at which he was told that the general contractor was terminating the subcontractor’s involvement in the project, and the (as yet unwritten) subcontract was being transferred to a competitor). Although the competitor was originally, regarded as the preferred vendor of steel building components, the competitor’s bid for the subcontract had been rejected because it was priced substantially higher. After the July meeting the general contractor had turned over the subcontractor’s work product to the competitor and had persuaded the competitor to take over the subcontract at the price and terms to which the subcontractor had agreed. The next day, the general contractor sent the subcontractor a letter confirming that the job was being awarded “to a subcontractor that more closely meets the requirements of the contract documents and schedule.”

The term sheet means exactly what it says, namely, that the general contractor did not intend to become bound by any subcontract until that subcontract had been memorialized in a complete, formal writing and the general contractor itself had signed that writing-a condition that was never satisfied. A manifestation of mutual assent by both the general contractor and the subcontractor was required to create a binding agreement between them.

There is no reason to allow the subcontractor, a sophisticated corporate entity, to seek to have the benefits of a putative contract judicially bestowed on it based on a set of circumstances that the subcontractor had been told, in the plainest of terms, would not give rise to an agreement binding on the general contractor. To do so would be to negate the general contractor’s prior express limitation of its intent to contract, thereby making, by judicial fiat, a contract that the parties never made for themselves. In this regard, it should be borne in mind that the concept of freedom of contract includes the “[f]reedom to avoid oral agreements,” a freedom that “is especially important when business entrepreneurs and corporations engage in substantial and complex dealings.”

If the subcontractor, before it commenced work on the project, wished to have a real assurance from the general contractor that the general contractor in fact regarded the requirement of a signed writing as a technicality that had been superseded, the subcontractor easily could have requested that the general contractor expressly waive the conditions of the term sheet. Having chosen to begin work at a point when it knew that neither party was contractually bound (neither having executed a subcontract), the subcontractor voluntarily assumed the risk that the general contractor would ultimately enter into a subcontract with another company.