| Franco Belli Plumbing & Heating & Sons, Inc. v Imperial Dev. &Constr. Corp. |
| 2007 NY Slip Op 08991 [45 AD3d 634] |
| November 13, 2007 |
| Appellate Division, Second Department |
| Franco Belli Plumbing and Heating and Sons, Inc.,Respondent, v Imperial Development & Construction Corp., Respondent, et al.,Defendants, and New York City School Construction Authority,Appellant. |
—[*1] Goetz Fitzpatrick, LLP, New York, N.Y. (Bernard Kobroff and Thomas S. Finegan ofcounsel), for plaintiff-respondent.
In an action, inter alia, to recover damages for breach of contract, the defendant New YorkCity School Construction Authority appeals from an order of the Supreme Court, Queens County(Schulman, J.), dated May 30, 2006, which denied its motion pursuant to CPLR 5015 (a) (1) tovacate a prior order and judgment (one paper) of the same court (LeVine, J.), dated November22, 2005, granting the plaintiff's motion to preclude it from offering any evidence at trial as tosetoffs or back charges against its contract with the defendant Imperial Development &Construction Corp. and, in effect, for a judgment declaring that the defendant New York CitySchool Construction Authority had withheld the sum of $243,536.38 from the proceeds of thatcontract, upon its default in opposing the motion.
Ordered that the order is reversed, on the facts and in the exercise of discretion, with costspayable by the plaintiff-respondent, the motion of the defendant New York City SchoolConstruction Authority to vacate the order and judgment is granted, the order and judgment isvacated, and the matter is remitted to the Supreme Court, Queens County, for a newdetermination on the plaintiff's motion.[*2]
The defendant New York City School ConstructionAuthority (hereinafter the SCA) entered into a contract with the defendant Imperial Development& Construction Corp. (hereinafter Imperial), a general contractor, in connection with a schoolrenovation project. Imperial subcontracted with the plaintiff to perform certain plumbing work.The project was subject to Public Authorities Law § 1735 (6), which provides, in relevantpart, that in the event of a payment dispute between the general contractor and a subcontractor,the SCA will withhold moneys due and payable to the general contractor and deposit such fundsin an account pending resolution of the dispute.
A dispute subsequently arose between the plaintiff and Imperial, in which the plaintiffclaimed that it was owed $243,536.38 by Imperial and Imperial asserted that it had paid theplaintiff in full. Pursuant to Public Authorities Law § 1735 (6), the plaintiff requested thatthe SCA withhold the disputed amount from any funds due to Imperial pending resolution of thedispute. The SCA responded that its finance department would be advised to withhold that sumfrom any moneys due to Imperial and deposit them in an account.
The plaintiff then brought this action alleging, inter alia, breach of contract and for ajudgment against the SCA declaring its entitlement to the withheld $243,536.38. In its answer,the SCA did not deny the allegation that it had deposited $243,536.38 in an account and did notrespond to interrogatories seeking information about setoffs and back charges and default withrespect to its contract with Imperial, maintaining that it was merely a stakeholder in the action.After the plaintiff filed its note of issue, the SCA disclosed that it was not holding any moneys onthe plaintiff's behalf. According to the SCA, Imperial breached its contract with the SCA and theremaining moneys allocated to the contract had been spent to complete the project with anothercontractor, and thus, there were no funds due and payable to Imperial from which the disputedamount could be withheld.
The plaintiff moved to preclude the SCA from introducing any evidence at trial as to setoffsor back charges against its contract with Imperial and, in effect, for a judgment declaring that theSCA had withheld $243,536.38. The plaintiff thereby sought to preclude the SCA fromcontesting that $243,536.38 was due and payable to Imperial from the SCA at the time theplaintiff first notified the SCA of its claim. The SCA failed to oppose the motion and the motionwas granted in an order and judgment (one paper) dated November 22, 2005. The SCA'ssubsequent motion to vacate its default was denied. We reverse.
A party seeking to vacate a default is required to demonstrate both a reasonable excuse forthe default and a meritorious defense (see CPLR 5015 [a] [1]; Valure v Century 21 Grand, 35 AD3d591, 592 [2006]). Under the circumstances of this case, the Supreme Court improvidentlyexercised its discretion in rejecting the excuse of law office failure proferred by the SCA.Counsel for the SCA explained that the default in opposing the motion resulted from confusionover the return date, which was listed incorrectly on two notices of motion served by the plaintiff.Thus, counsel's failure to oppose the motion was neither "willful nor deliberate" (Weekes vKarayianakis, 304 AD2d 561, 562 [2003]). Moreover, the SCA acted promptly to cure itsdefault, and there was no prejudice to the other parties (see Rockland Tr. Mix, Inc. v Rockland Enters., Inc., 28 AD3d 630[2006]; Hospital for Joint Diseases vELRAC, Inc., 11 AD3d 432, 433 [2004]; Eastern Resource Serv. v Mountbatten Sur.Co., 289 AD2d 283 [2001]). Accordingly, and in light of the strong public policy ofresolving controversies on the merits, the Supreme Court should have accepted the SCA's excuseof law office failure (see Storchevoy v Blinderman, 303 AD2d 672, 673 [2003]).
In addition, the SCA demonstrated a meritorious defense to the plaintiff's motion. [*3]Pursuant to Public Authorities Law § 1735 (6), when notifiedby the plaintiff of Imperial's alleged failure to pay it for the work performed on the project, theSCA was required to withhold the disputed sum "from amounts then or thereafter becomingdue and payable to the contractor" (emphasis added). Thus, as under the Lien Law, theplaintiff's claim to the disputed sum may only be enforced against the SCA to the extent that theSCA owed money to Imperial at the time that the plaintiff made its request for direct paymentand the SCA was not required to expend its own moneys to satisfy the plaintiff's claim (seePublic Authorities Law § 1735 [6]; cf. West-Fair Elec. Contrs. v Aetna Cas. & Sur.Co., 87 NY2d 148, 157-158 [1995]; Hempstead Concrete Corp. v Elite Assoc., 203AD2d 521, 523 [1994]). However, the plaintiff's claim is not defeated by the abandonment of theproject by the general contractor subsequent to the plaintiff's Public Authorities Law§ 1735 (6) notice, even though payments to third parties in excess of the original contractprice may be required by the owner to complete the construction (cf. 104 Contrs. v R.T. GolfAssoc., 270 AD2d 817, 818 [2000]; Albert J. Bunce, Ltd. v Fahey, 73 AD2d 632[1979]). The burden is on the subcontractor to establish that there was money due and payable tothe general contractor from the owner based on the primary contract (cf. Timothy CoffeyNursery/Landscape v Gatz, 304 AD2d 652, 654 [2003]; GCDM Ironworks v GJF Constr.Corp., 292 AD2d 495, 496 [2002]). Here, the SCA submitted evidence raising a question offact as to whether there were back charges and/or setoffs against its contract with Imperial suchthat $243,536.38 was not due and payable to Imperial at the time of the plaintiff's PublicAuthorities Law § 1735 (6) notice to the SCA. Since the Supreme Court should havevacated the SCA's default, the matter must be remitted to the Supreme Court, Queens County, fora new determination of the plaintiff's motion. Miller, J.P., Ritter, Covello and McCarthy, JJ.,concur.