New York State Court of Claims

New York State Court of Claims
NOVA CASUALTY CO. v. THE STATE OF NEW YORK, # 2010-015-139, Claim No. 117765, Motion No. M-77835

Synopsis

Claim under article 3-A of the Lien Law was dismissed for lack of subject matter jurisdiction.

Case information

UID: 2010-015-139
Claimant(s): NOVA CASUALTY COMPANY
Claimant short name: NOVA CASUALTY CO.
Footnote (claimant name) :
Defendant(s): THE STATE OF NEW YORK
Footnote (defendant name) : The caption is amended sua sponte to reflect the only properly named defendant.
Third-party claimant(s):
Third-party defendant(s):
Claim number(s): 117765
Motion number(s): M-77835
Cross-motion number(s):
Judge: FRANCIS T. COLLINS
Claimant's attorney: Neil B. Connelly, PLLC
By: Aaron A. Mitchell, Esq.
Defendant's attorney: Honorable Andrew M. Cuomo, Attorney General
By: Frederick H. McGown, Esq.
Assistant Attorney General
Third-party defendant's attorney:
Signature date: April 13, 2010
City: Saratoga Springs
Comments:
Official citation:
Appellate results:
See also (multicaptioned case)

Decision

Defendant moves for dismissal of the claim pursuant to CPLR 3211 (a) (2), (7) and (8) on the grounds the Court lacks jurisdiction to enforce a trust under Lien Law article 3-A and that the claim fails to meet the pleading requirements of Court of Claims Act 11 (b).

Claimant, as surety of DJH Mechanical, Ltd., asserts a claim against the State pursuant to article 3-A of the Lien Law as follows:

"Defendant, The New York State Department of Labor (hereinafter "DOL"), with offices located at W. Averell Harriman State Office Campus, Building 12 in Albany, New York improperly requested and received from Mount Vernon City School District (hereinafter "MVCSD"), and further upon information and belief, remains in possession of diverted trust funds under Article 3-A of the New York Lien Law in the sum of $214,000.00. Claimant Nova Casualty Company is entitled to those funds, as surety for DJH Mechanical, Ltd., the Mechanical Contractor on the project known as the Reconstruction on the A.B. Davis Middle School."

Article 3-A of the Lien Law creates "trust funds out of certain construction payments or funds to assure payment of subcontractors, suppliers, architects, engineers, laborers, as well as specified taxes and expenses of construction" (Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507, 512 [1968]). "[T]he primary purpose of article 3-A and its predecessors [is] to ensure that those who have directly expended labor and materials to improve real property [or a public improvement] at the direction of the owner or a general contractor receive payment for the work actually performed" (Matter of RLI Ins. Co., Sur. Div. v New York State Dept. of Labor, 97 NY2d 256, 264 [2002] [internal quotation marks and citations omitted]; see also Lien Law 71). Toward this end, application of a trust asset for any purpose other than a purpose of the trust as stated in Lien Law 71 (1) or (2) "before payment or discharge of all trust claims . . . is a diversion of trust assets" (Lien Law 72 [1]). A trust arising under article 3-A may be enforced by "the holder of any trust claim, including any person subrogated to the right of a beneficiary of the trust holding a trust claim" (Lien Law 77 [1]). The relief available under the statute includes inter alia, an accounting; identification and recovery of trust assets "in the hands of any person"; the setting aside of unauthorized payments, assignments or transfers; injunctive relief; recovery of damages for breach of the trust; enforcement of any right of action on behalf of the trust; determination of the existence of trust assets, and an order for distribution and retention for future distribution of trust assets (Lien Law 77 [3] [a]). Article 3-A provides relief for the benefit of the entire class of trust beneficiaries and expressly permits the intervention of "any beneficiary of the trust" in an action or proceeding thereunder (Lien Law 72 [3] [b]; 77 [3] [a] and [b]).

In Fidelity and Deposit v State of New York (2009-015-177, Claim No. 113357, Motion Nos. M-76003, M-76274; CM-76192 [Ct Cl, July 7, 2009], Collins, J.) and Lumbermens Mutual Casualty Co. v State of New York (2006-015-077, Claim No. 109321, Motion Nos. M-70880; M-70960; CM-71015 [Ct Cl, March 29, 2006], Collins, J) this Court concurred with the holding of Judge Benza in Higgins-Kieffer, Inc. v State of New York (165 Misc 2d 425, 430 1995]), which recognized that an action brought pursuant to article 3-A of the Lien Law cannot be maintained in the Court of Claims. Judge Benza reasoned as follows:

"It is quite conceivable that persons and entities other than the State may hold funds that have been improperly paid out from an article 3-A trust, but this court can have no jurisdiction over those parties and would not be able to issue a judgment removing funds from their control and restoring them to the trust. Nor can this court order an accounting, enforce a right of action on behalf of the trust, or oversee the actions of a trustee. For the Court of Claims to exercise its power with respect to the one type of trust asset--an asset in possession and control of the State--and to distribute that one asset among the trust beneficiaries, without being able to reach other types of assets or perform other duties delegated to the court by section 77 (3), would undermine the function and purpose of the statutory cause of action: achieving a comprehensive gathering of all trust assets and fairly distributing those assets among all trust beneficiaries."

Thus, where a claim arises under article 3-A of the Lien Law, as it does here, the Court of Claims lacks subject matter jurisdiction to entertain the matter.(2)

Based on the foregoing, defendant's motion is granted and the claim is dismissed.

April 13, 2010

Saratoga Springs, New York

FRANCIS T. COLLINS

Judge of the Court of Claims

The Court considered the following papers:

1. Notice of motion dated December 21, 2009;

2. Affirmation of Frederick H. McGown III dated December 21, 2009 with exhibit;

3. Undated Affirmation of Aaron A. Mitchell, Esq.


2. Kemper Ins. Cos. v State of New York (70 AD3d 192 [2009]) does not hold to the contrary as the Court there held that claimant, as surety for a defaulting contractor, was entitled to summary judgment on its cause of action for breach of contract arising from the State's obligations under the takeover agreement.