Opinion
18070/00.
Decided January 13, 2005.
Heiko Law Offices, P.C., New York, New York. ATTORNEY FOR PLAINTIFF.
Lichtenstein Schindel, Mamaroneck, New York, ATTORNEY FOR DEFENDANTS.
Plaintiff H. Verby Company, Inc. moves for an order, pursuant to CPLR 3212, awarding summary judgment on its causes of action for a mechanic's lien foreclosure, violation of trust provisions of the Lien Law Article 3-A and upon a surety bond. Defendants RG Equities Ltd., Plainview Associates, Plainview Enterprises Inc. and Utica Mutual Insurance Company cross-move for summary judgment dismissing the action as against them.
BACKGROUND
This action arises out of a remodeling/construction project of a Holiday Inn located at 215 Sunnyside Boulevard in Plainview New York. Plaintiff H.Verby Company supplied materials to now bankrupt Defendant and subcontractor Constructure Corporation ("Constructure"). Plaintiff claims that it was not paid for certain materials delivered to Constructure Corp. for use at the project, and seeks summary judgment on an Article 3-A trust and equitable lien foreclosure claims.
Defendants RG Equities Ltd. ("R G"), Plainview Associates and Plainview Enteprises, Inc. (collectively "Plainview Defendants") and Utica Mutual Insurance Company ("Utica Mutual") cross-move for summary judgment. RG was the general contractor on the project. The Plainview Defendants own the premises. Utica Mutual bonded the various mechanic's liens filed against the premises, including that of Plaintiff. Defendants aver that Plaintiff does not have a valid lien or trust claim. They contend that Constructure was fully paid, as was RG, the general contractor, and that payment constitutes a complete defense.
In support, Defendants submit evidence demonstrating that, beginning in November 1998, RG made regular and periodic payments to Constructure for the work performed. They submit a check detail of payments running from October 29, 1999 through April 11, 2000, totaling $993,500. They contend that Constructure failed to complete the work pursuant to contract and withdrew from the job on May 5, 2000. Defendants further claims that Constructure was entitled to only $881,088.05 for the work performed, and that it was, in fact, overpaid. Defendants also submit evidence to show that the Plainview Defendants paid RG in full by checks made payable to Gino Lucadamo Jr., the president of RG.
DISCUSSION
Plaintiff's Article 3-A trust claim depends upon a valid mechanic's lien or contractual privity. Quantum Corp. Funding Ltd. v. L.P.G. Assocs., 246 AD2d 320, 322 (1st Dept.) lv. app. den., 91 NY2d 814 (1998). The lien of a material supplier such as Plaintiff is derivative. It is limited "in the sense that it is derived from what is owed" to the subcontractor with whom it is in privity. Regal Lumber Co. v. Buck, 157 Misc 2d 376, 379 (Co. Ct., Chautaugua Co. 1993); Ace Contracting Co., a Div. of Cell-San Const. Co., Inc. v. Garfield Arma Assocs., 148 Misc 2d 475, 477 (Sup.Ct. NY Co. 1990), cited with approval, Clifford Broman Son, Inc. v. Town of Babylon, 222 AD2d 643 (2nd Dept. 1995); Chelsea Equipment Serv. Corp. v. New York City Health Hosp. Corp., (n.o.r.) 1997 WL 790581 (S.D.NY).
So too, a subcontractor's claim is limited to what is owed to the general contractor. DiVeronica Bros. v. Basset, 213 AD2d 936, 937 (3rd Dept. 1995); Central Valley Concrete Corp. v. Montgomery Ward Co., 34 AD2d 860, 861 (3rd Dept. 1970); Tibbetts Contr. Corp. v. O E Contr. Co., 15 N.Y. 2d 324, 338 (1965). Accordingly, if the amounts due the general contractor and subcontractor have been paid, there is no derivative claim in favor of a sub-subcontractor; to wit: Plaintiff herein. See, Onandaga Commerical Dry Wall Corp. v. Sylfan Glen Co., 26 AD2d 130, 133 (4th Dept. 1966), aff'd., 21 NY2d 739 (1968); and Chelsea Equipment Serv. Corp. v. New York City Health Hosp. Corp., supra at *2. Both Plainview Associates and RG offer evidence showing that those to whom they were obligated were paid.
Plaintiff does not challenge this evidence, nor does it contend that RG and Constructure were not fully paid. Rather Plaintiff, in reply, proffers several legal arguments which do not withstand scrutiny.
First, Plaintiff argues that RG, as the general contractor and trustee, had a duty to inquire and to insure that subcontractor Constructure paid its materialmen. There is no authority to support this contention, indeed the Court of Appeals has ruled otherwise. See, Onandaga Commercial Dry Wall Corp. v. Sylvan Glen Co., supra.
The primary purpose of Article 3-A of the Lien Law is "to ensure that 'those who have directly expended labor and materials to improve real property * * * at the direction of the owner or a general contractor' receive payment for the work actually performed." Atlas Bldg. Sys. v. Rende, 236 AD2d 494, 495 (2nd Dept. 1997). However, contrary to Plaintiff's contention, the fiduciary duty of a trustee, such as an owner or general contractor, extends only to its own contractual obligations. Addressing a proposition similar to that made here by Plaintiff, the Fourth Department rejected any suggestion that an owner who has paid a contractor "becomes a cotrustee or fiscal manager of the fund with the obligation to make certain that the fund is disbursed to those entitled thereto." Onondaga Commercial Dry Wall Corp. v. Sylvan Glen Co., supra at 133. The Appellate Division indicated that there was no manifested legislative intent to require oversight of funds once disbursed to a beneficiary under the trust. See also, In re Grosso, 9 B.R. 815, 824 (N.D.NY 1981) ("regardless of the trust created by Article 3-A, it never was the intent of the New York legislature that an owner, as a statutory trustee paying the proceeds of moneys received to a contractor, has an obligation to make certain that funds be disbursed by the contractor to those entitled thereto, or even that the owner be a guarantor of payment to a contractor's creditor."); and Eminon Acoustical Contractors Corp. v. Richkill Assocs., 89 Misc 2d 992, 994-5 (Sup.Ct. Queens Co. 1977).
Plaintiff next contends that there has been a diversion of trust assets, which diversion nullifies any defense of payment by the Plainview Defendants. Plaintiff contends that the Plainview Defendants did not disburse trust funds to RG, stating, "If the owner, Plainview, [had] paid all of the contract amounts due to the General Contractor to RG, Verby would have no argument against the owner as diverting Trust Funds."
It is undisputed that certain disbursements were made payable to RG's principal, Gino P. Lucadamo. However, RG and Lucadamo have submitted evidence, which Plaintiff neither addresses nor refutes, supporting their contention that all payments from the Plainview Defendants and due to RG were deposited into the accounts of RG. It is noted that the last deposit slip in Cross-Motion Exhibit "E" does not bear the name of the account, as do the rest. However, but in the absence of any challenge, the sworn submission that the account was that of RG remains uncontroverted.
Lien Law article 3-A mandates that once a trust comes into existence, its funds may not be diverted for non-trust purposes. Use of trust assets for any purpose other than the expenditures authorized in Lien Law § 71 before all trust claims have been paid or discharged constitutes an improper diversion of trust assets, regardless of the propriety of the trustee's intentions. RLI Ins. Co. v. New York State Dept. of Labor, 97 NY2d 256, 263 (2002). Notably, a claim of diversion under the Lien Law requires an allegation that the trust funds were used for a "nontrust purpose" before a trust beneficiary "may enforce its rights against [a] nonbeneficiary who receives trust assets." Canron Corp. v. City of New York, 89 NY2d 147, 154 (1996). Where, as here, there has been a "technical" diversion funds briefly diverted but used for trust purposes, there is no diversion as defined in the statute. Rather, what is required is a diversion of trust funds "which by reason of such diversion are not used to pay creditors on such jobs." Travelers Indem. Co. v. Central Trust Co. of Rochester, NY, 47 Misc 2d 849, 853-854 (Sup.Ct. Monroe Co. 1965), aff'd., 27 AD2d 803 (4th Dept. 1967).
In sum, Plaintiff's allegation that there has been a statutory diversion of trust funds to which its lien may attach must be rejected. The individual payee did not thwart the primary purpose of article 3-A and the intended beneficiary received the payments. There is no evidence to establish the crucial and central element of the diversion claim; to wit: that trust funds were diverted to a non-trust purpose.
Thus, Plaintiff's reliance upon Caristo Const. Corp. v. Diners Financial Corp., 21 NY2d 507 (1968) is misplaced. In Caristo Construction, a subcontractor owing its suppliers assigned money due to it under construction contracts to a third party (a factor), which then issued checks in like amounts to the subcontractor which were used to pay debts to entities other than beneficiaries specified in Lien Law § 71. No such circumstances are presented here.
Accordingly, it is,
ORDERED, that Plaintiff's motion for summary judgment is denied; and it is further,
ORDERED, that Defendants' motion for summary judgment if granted. The verified complaint herein is hereby dismissed.