| Anthony DeMarco & Sons Nursery, LLC v Maxim Constr.Serv. Corp. |
| 2015 NY Slip Op 06394 [130 AD3d 1409] |
| July 30, 2015 |
| Appellate Division, Third Department |
[*1]
| Anthony DeMarco & Sons Nursery, LLC,Respondent, v Maxim Construction Service Corporation, Appellant, et al.,Defendants. |
Cote & Van Dyke, LLP, Syracuse (Joanne Van Dyke of counsel), forappellant.
Sheats & Bailey, PLLC, Brewerton (Jason B. Bailey of counsel), forrespondent.
Egan Jr., J. Appeal from an order of the Supreme Court (Guy, J.), entered August 6,2014 in Broome County, which, among other things, partially granted plaintiff's motionfor summary judgment.
The underlying action concerns a construction project at the State University of NewYork at Binghamton—a property located in the Town of Vestal, Broome Countyand owned by defendant Dormitory Authority of the State of New York. LeChaseConstruction Services, LLC was the general contractor for the project and defendantMaxim Construction Service Corporation was the site contractor. Insofar as is relevanthere, Maxim entered into a subcontract with plaintiff to provide certain landscapingservices for the project.[FN*] Although Maxim paid plaintiff a totalof $192,126.40 for its work on the project, plaintiff claimed that it was owed anadditional $106,994.27 for labor and materials provided in connection therewith.Plaintiff filed a mechanic's lien in this amount in May 2012, in [*2]response to which LeChase apparently withheld$160,491.41—a sum representing 1
Plaintiff commenced this action in May 2013, and Supreme Court granted Maxim'ssubsequent motion to extend its time to answer the complaint. Upon appeal, this Courtaffirmed (126 AD3d 1105 [2015]). In the interim, plaintiff demanded that Maxim furnisha verified statement (see Lien Law § 76 [1]) and, when thatstatement was not forthcoming, moved to compel its production. By order enteredJanuary 3, 2014, Supreme Court, among other things, directed Maxim to respond toplaintiff's demand within 10 days of notice of entry thereof. Although Maximsubsequently supplied a verified statement, plaintiff deemed it to be deficient andthereafter moved to, among other things, compel Maxim to fully respond to its demand.Supreme Court agreed that the verified statement provided by Maxim failed to complywith the provisions of Lien Law § 76 and, among other things, awardedplaintiff summary judgment on the issue of liability. Maxim now appeals.
Pursuant to Lien Law article 3-A, owners, contractors and subcontractors arerequired to maintain funds in trust in order to "provide[ ] protection to certain partiesinvolved in the improvement of real property, ensuring that they will be properlycompensated for their services" (Sabol & Rice v Poughkeepsie Galleria Co.,175 AD2d 555, 556 [1991]; see Lien Law §§ 70, 71; NY Professional Drywall of OC,Inc. v Rivergate Dev., LLC, 100 AD3d 216, 218 [2012]; Kemper Ins. Cos. v State of NewYork, 70 AD3d 192, 196 [2009]). Specifically, and insofar as is relevant here,"[t]he funds received by a contractor or subcontractor . . . shall be a separatetrust and the contractor or subcontractor shall be the trustee thereof" (Lien Law§ 70 [2]). A trustee, in turn, is required to, among other things, maintainbooks or records with respect to each trust, detailing the trust assets receivable, trustaccounts payable, trust funds received, trust payments made with trust assets andtransfers in repayment of or to secure advances made pursuant to a notice of lending(see Lien Law § 75 [2], [3] [A]-[E]; Matter of Bette & Cring, LLCv Brandle Meadows, LLC, 81 AD3d 1152, 1153-1154 [2011]). A beneficiary ofsuch a trust is entitled to, among other things, "receive a verified statement setting forththe entries with respect to the trust contained in such books or records" (Lien Law§ 76 [1] [b]; see NY Professional Drywall of OC, Inc. v Rivergate Dev.,LLC, 100 AD3d at 218; Matter of Bette & Cring, LLC v Brandle Meadows,LLC, 81 AD3d at 1153-1154). "Any use of the trust funds other than the payment ofclaims under the contract . . . is an improper diversion of trust assets"(Kemper Ins. Cos. v State of New York, 70 AD3d at 196 [citation omitted];see NY Professional Drywall of OC, Inc. v Rivergate Dev., LLC, 100 AD3d at218), and the trustee's failure to keep the statutorily required books and records "shall bepresumptive evidence that the trustee has applied or consented to the application of trustfunds . . . for purposes other than a purpose of the trust" (Lien Law§ 75 [4]).
Initially, to the extent that Maxim contends that plaintiff is not entitled to demand averified statement in the first instance because no trustee-beneficiary relationship existedbetween plaintiff and Maxim, we need note only that this argument is raised for the firsttime on appeal and, hence, is unpreserved for our review (see Liere v State of New York,123 AD3d 1323, 1324 [2014]; Matter of Prevratil, 121 AD3d 137, 142 n 1 [2014]). In anyevent, inasmuch as Maxim's project manager averred—in the context of theverified statement tendered—that Maxim entered into a subcontract with plaintiff,and the table of trade accounts appended thereto reflects that Maxim maintained fundsfrom which it paid plaintiff for work performed on the project, we are satisfied thatMaxim was a subcontractor trustee. Hence, Maxim was required to maintain the statutorytrust (see Lien Law §§ 70 [1], [3]; 71). Moreover, evenassuming—as Maxim contends—that LeChase has bonded plaintiff'smechanic's lien, plaintiff still "is entitled to a verified statement setting forth trust entries"(Matter of Bette & Cring, LLC v Brandle [*3]Meadows, LLC, 81 AD3d at 1155).
As for the substance of Maxim's verified statement, we agree with Supreme Courtthat the statement provided is deficient in a number of respects. As a starting point, theverified statement fails to set forth the dates and amounts of the trust assets receivable,trust accounts payable or trust funds received as required by Lien Law § 75(3) (A)-(C). Indeed, Maxim concedes that "the [v]erified [s]tatement . . .does not set forth the exact date each payment was made." Additionally, the verifiedstatement does not provide a sufficiently detailed breakdown of the total amount ofpayments made with trust funds (see Lien Law § 75 [3] [D]). In thisregard, Maxim's submissions reflect that it received a total of $10,644,066.42 fromLeChase and, in turn, paid a total of $6,485,269.19 to the various trades employed inconnection with the project. Although a portion of this more than $4 million gap may beattributable to direct labor and equipment costs paid by Maxim, a sizeable sum remainsunaccounted for, and the tabular data contained in the verified statement simply lacks thelevel of detail required by the statute. Finally, Maxim failed to provide a completeaccounting of its trust assets receivable as required by Lien Law § 75 (3)(A). Although Maxim indeed attached a dollar figure to the total open change order itemsthat had been submitted, it again failed to provide the level of specificity required by thestatute.
As noted previously, a trustee's failure to keep the statutorily required books andrecords "shall be presumptive evidence that the trustee has applied or consented to theapplication of trust funds . . . for purposes other than a purpose of the trust"(Lien Law § 75 [4]). In light of the documented deficiencies in Maxim'sverified statement—deficiencies that Maxim has failed to remedy despite ampleopportunity to do so—and absent any reasonable explanation for Maxim'sshortcomings in this regard (seegenerally Medco Plumbing, Inc. v Sparrow Constr. Corp., 22 AD3d 647, 648[2005]), Maxim failed to overcome the statutory presumption of an improper diversion oftrust assets; hence, Supreme Court properly awarded plaintiff summary judgment on theissue of liability (see e.g. L.D.Wenger Constr. Co., Inc. v UnBuildIt, Inc., 73 AD3d 864, 864-865 [2010]).Maxim's remaining contentions, to the extent not specifically addressed, have beenexamined and found to be lacking in merit.
Garry, J.P., Rose and Lynch, JJ., concur. Ordered that the order is affirmed, withcosts.
Footnote *:The precise form of thiscontractual relationship is not clear from the record. Maxim contends that its agreementwith plaintiff was reduced to a written contract, whereas plaintiff asserts that, aftersubmitting a written proposal, it received verbal authorization to proceed with the work.