New York Appellate Division Holds That Contractor’s Assertion That No Payments Were Due to Subcontractor Until a Separate Prevailing Wage Action Was Resolved Precludes Application of Contractual Limitations Period

AWI Sec. & Investigations, Inc. v. Whitestone Constr. Corp., 2018 N.Y. App. Div. LEXIS 5867 (August 23, 2018)

A subcontractor, AWI Security and Investigations, Inc. (“AWI”), sued a general contractor, Whitestone Construction Corp. (“Whitestone”), for unpaid contract payments for providing security services on four separate construction projects.  A separate prevailing wage action (“Wage Action”) was also filed by AWI employees who worked on the projects, against both AWI and Whitestone.  Whitestone notified AWI that it was invoking the subcontract indemnity provision to withhold funds from AWI pending the outcome of the Wage Action.

Whitestone moved to dismiss AWI’s suit for payment based on a contractual limitations period requiring the suit to be brought within 6 months of: the cause of action accruing; the termination or conclusion of the contract; or the last day AWI performed work at the site, which Whitestone alleged had all occurred.  The court granted Whitestone’s motion to dismiss, finding that AWI had completed its work more than six months prior to filing its lawsuit and that AWI’s suit was barred by the contractual limitations period.  AWI appealed.

AWI argued that Whitestone had not established the last date of work for AWI on the project.  The Appellate Division, however, found that AWI had sent a letter to Whitestone more than two years before bringing suit, in which it demanded full payment for AWI’s services.  This was sufficient to prove that AWI’s last services were provided more than six months before the suit.

AWI next argued that the contractual limitations period should not apply given Whitestone’s position that no payment was due until the Wage Action was resolved.  The Court, citing Executive Plaza, LLC v. Peerless Ins. Co., 22 NY3d 511 (2014), held that where a limitation period expires before a claim can even be brought nullifies the limitation because it would never allow a timely claim.  In Executive Plaza an insured was limited to two years to bring suit, but the insurance policy stated no suit could be brought until replacement of the property occurred.  The insurer attempted to bar the claims at the limitations deadline even though the replacement had not occurred.  The Court of Appeals held that the insurer’s assertion that no suit could be brought until the replacement had occurred in effect wiped out the insured’s ability to seek its claims within the limitation period, which was an unacceptable result.  Here, the Appellate Division held that AWI was in a similar position as the insured in Executive Plaza.  Because of Whitestone’s position that the conclusion of the Wage Action was a condition precedent to payment, the contractual limitations period could not preclude AWI’s claim.

The Appellate Division reversed the lower court’s order granting Whitestone’s motion to dismiss.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

John H. Conrad

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