In public construction projects, disputes over payment obligations between contractors and subcontractors often depend not only on the terms of the contract but on the resolution of underlying factual questions. A recent decision from the Appellate Division, First Department in Brownie Companies of Long Island, LLC v. Volmar Construction, Inc., illustrates the court's cautious approach to summary judgment where material facts remain unresolved. The case, arising from work performed under New York City's Build It Back Program, underscores the issues that can arise when payments are withheld due to alleged delays and potential liquidated damages. This blog examines the court's reasoning and considers its implications for payment disputes arising from public construction contracts.
The subcontractor had entered into an agreement with the contractor to perform house lifting and repair services for homes damaged by Superstorm Sandy. The subcontractor alleged that the contractor breached the subcontract by failing to pay $474,000 for work performed and invoiced.
The court found that the subcontractor established a breach of contract, as the contractor failed to pay for work that had already been paid for by the City. It further held that, under established case law, contractors are obligated to pay subcontractors amounts received from the owner for their work. However, unresolved factual issues precluded summary judgment.
The court noted that key factual issues remained unresolved, including how damages should be calculated and whether the City had reduced its payments to the contractor due to delays caused by the subcontractor. The contractor had withheld payments in anticipation of liquidated damages the City intended to impose. The court acknowledged that such delays if proven could justify the withholding. As a result, the judgment in favor of the subcontractor was vacated, and the matter was remanded for further proceedings to address factual questions.
The court also held that the contractor's motion for leave to amend its answer should have been granted. Through the proposed amendment, the contractor sought to assert counterclaims for indemnification, contending that if the City's deductions were upheld and exceeded the amount remaining unpaid to the subcontractor, the subcontractor should be liable for the difference.
The decision highlights the importance of resolving factual disputes prior to summary judgment. By vacating the judgment and permitting amended pleadings, the court left open questions regarding the parties' payment obligations, requiring further proceedings.
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