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STA LEGAL LOG – October 2020

 

Court Refuses to Dismiss Subcontractor’s Claim as Untimely – Holds More than Date of Substantial Completion Payment Application Relevant

By Henry L. Goldberg, Esq., STA General Counsel and Robert J. Fryman, Esq

 



Henry L. Goldberg
Subcontractors Trade Association
Partner,

Moritt Hock & Hamroff LLP

Robert J. Fryman, Esq
Partner
Moritt Hock & Hamro

In prior legal logs we have addressed issues regarding conditions precedent and time limitations for filing a claim or commencing an action in court, including the issue of when claims and/or causes of action “accrue” for the purposes of determining the last date to provide notice or to commence an action. We have also discussed and examined the various mechanisms for accrual of a claim such as a substantial completion payment requisition and/or final payment requisitions.

In a recent decision by the Supreme Court of the State of New York, the court took a more expansive and extremely factually detailed look at when a cause of action accrues for the purposes of determining whether a lawsuit is timely, leading to a favorable outcome for the subcontractor/claimant.  The court, importantly, found that, notwithstanding the passage of more than six years from the submission of the subcontractor’s “substantial completion” payment application, because “substantial physical work” continued after the submission of the payment application, the subcontractor’s claim was still timely.  The court refused to dismiss the subcontractor’s claim as barred by the statute of limitations, allowing the subcontractor’s claim to continue.

In March 2011, Subcontractor signed an agreement with General Contractor (on a NYC School Construction Authority project). On June 20, 2013, Subcontractor submitted a “98%” substantial completion payment application to the General Contractor.

During the performance of the subcontract, numerous issues arose between Subcontractor and General Contractor, both before and after submission of the so-called substantial completion payment application.  Ultimately, Subcontractor sued General Contractor seeking nearly six million dollars in damages for contract work, change orders and extras for all of the labor and materials it expended in performance of the project, including those incurred as a result of delays alleged to have been attributable to the General Contractor.

Subcontractor commenced its action against General Contractor on July 21, 2019, more than six years after it submitted its “98% substantial completion” payment application. General Contractor filed a motion to dismiss Subcontractor’s lawsuit arguing that because the action was commenced more than six years after submission of the substantial completion payment application, it was time barred by the statute of limitations.

However, after reviewing the Subcontractor’s extremely detailed 80-page complaint in the action, as well as the factual affidavit submitted by the Subcontractor in opposition to the General Contractor’s motion to dismiss, the court recognized that the work performed by Subcontractor after it had submitted the “98% substantial completion” payment application, raised issues of fact as to when the Subcontractor’s performance was “substantially complete” so as to start the running of the six-year statute of limitations.

Although the parties disagreed on virtually everything, they did agree upon one issue: that a claim based upon breach of a construction contract “accrues”, for the purpose of calculating a statute of limitation, upon the substantial completion of the project. However, General Contractor argued that substantial completion occurred on June 20, 2013 when Subcontractor sent its “98% substantial completion” payment requisition; Subcontractor contended that the statute of limitations began to run “on completion of the actual physical work”.

The court examined the detailed factual allegations of the Subcontractor in its complaint and in its affidavit in opposition to the GC’s motion to dismiss.  The court found that the scope and extent of the work performed by Subcontractor after it submitted its “98% substantial completion” payment application included “repairs to auditorium ceilings; changing and raising soffits; changing and raising framing; changing metal panels and waterproofing; changing and fixing hundreds of doors; installing louvers and doorstops; installing aluminum sills; removing ceilings to permit cable installation; and patching sheetrock ceilings.”   The court ruled that there were material questions of fact as to “whether substantial physical work continued” after the submission of the substantial completion payment requisition such that the cause of action for breach of contract did not accrue until January 2014 (when the Subcontractor ceased performing work at the project), which would render the filing of the complaint in July of 2019 timely as within six years. As such, the court denied General Contractor’s motion to dismiss the complaint as untimely, allowing Subcontractor’s claim to continue.

In addition to the crucial refusal of the court to dismiss the Subcontractor’s claim as untimely, the court also refused to dismiss Subcontractor’s delay claims pursuant to a “no damage for delay” clause in the subcontract as part of the motion to dismiss. The court found that the detailed “voluminous complaint verified on personal knowledge, coupled with an extensive affidavit from the [subcontractor’s] project manager” warranted denying the motion to dismiss.

MHH Commentary

This recent case continues an important and promising trend in recent trial and appellate court decisions refusing to dismiss claims at the initial pleading stage on statute of limitations and/or “no damage for delay” provisions. Although factually intensive and dependent on the particular facts and circumstances of the claim, this recent trend of several courts refusing to dismiss contractor and subcontractor claims at the initial pleading stage is an important and crucial development providing subcontractors and contractors with much needed ability ad leverage to pursue and potentially resolve claims.

This case also highlights the importance of the STA’s legislative efforts (in conjunction with ESSA, the Empire State Subcontractor’s Association) with regard to a proposed substantial completion bill.  The bill would, if passed, impose time limitations on a municipal owner to closeout the project, and make final payment.  These time limitations would be tied to “substantial completion” as defined by the bill and eliminating much of the uncertainties addressed by the court here.

The proposed Substantial Completion bill (S.7664/A.9117) was vetoed by the governor in 2019. However, STA believed the veto was incorrect factually, so it worked with ESSA to reintroduce the bill again in the 2020 legislative session. Despite the challenges of Covid-19 and a legislature that was only convening remotely (and virtually!), STA successfully lobbied the full legislature to pass the bill in July.  As a result of STA’s efforts, the Substantial Completion bill will again be presented to the Governor for consideration. STA and ESSA are working with the bill’s sponsors (Senator Neil Breslin and Assemblyman Mike Cusick) to provide information to the Governor’s staff in an attempt to convince them that the 2019 veto was not accurate, along with other meritorious arguments in favor of its adoption.

It is always best to review your contract and ascertain all applicable notice provisions, conditions precedent and time limitations to filing claims and commencing suit before signing the contract and again as soon as possible upon recognition of a potential dispute or claim.  However, even if the time limitations may have, on their face, elapsed, consideration and review of the detailed factual basis of the claims and the project with experienced construction counsel may provide some basis for, and leverage to, the claim resolution process and/or provide you with your “day in court” to have your claim heard and determined.

As always, if you have any questions regarding this decision, or wish to discuss a similar matter, please do not hesitate to contact us directly.