L.C. Whitford Co., Inc., et al. v. Babcock & Wilcox Solar Energy, Inc., et al.
Attorneys and Parties
Brief Summary
Construction law—New York Lien Law Article 3-A trust funds arising from settlement proceeds on solar energy construction projects.
Granted a preliminary injunction barring the general contractor from disbursing settlement proceeds absent further court order and required a $50,000 undertaking.
Nothing; the preliminary injunction was affirmed.
Settlement proceeds paid to the contractor are Article 3-A trust assets under Lien Law § 70 [statute impresses with a trust any funds paid or payable under or in connection with a contract for the improvement of real property], and a contractor-trustee may not use trust funds to reimburse itself for “costs of improvement” or earlier advances before paying statutory beneficiaries under § 71(2)(a); proposed self-reimbursement would be a diversion and breach of fiduciary duty. Injunction was a proper exercise of discretion under § 77(3)(a).
Background
Babcock & Wilcox Solar Energy, Inc. (BWS), the general contractor on multiple solar photovoltaic projects in St. Lawrence County, settled disputes with the project owners for $4,978,477, including $1,264,470 attributable to three projects (409 Ferris Road, 641 Ferris Road East, and 641 Ferris Road West). The settlement required BWS to indemnify owners against subcontractor liens. Plaintiffs, subcontractors who had filed liens and seek $6,910,317 for labor and materials, learned BWS intended to use the settlement funds to reimburse itself for project costs it had advanced to pay subcontractors and others. Plaintiffs commenced a Lien Law § 77 trust enforcement action and sought to enjoin disbursement of the settlement funds.
Lower Court Decision
Supreme Court (St. Lawrence County) granted plaintiffs a preliminary injunction prohibiting BWS from disbursing the settlement funds without further court order and required plaintiffs to post a $50,000 undertaking.
Appellate Division Reversal
Affirmed. The court held the settlement proceeds are contractor trust funds under Article 3-A and cannot be used by the contractor to reimburse itself for advances until all statutory beneficiaries are paid; enjoining disbursement pending court oversight was proper. A two-judge dissent would have permitted reimbursement from later-received trust assets for earlier proper payments to subcontractors.
Legal Significance
Clarifies that settlement proceeds paid to a contractor in connection with an improvement are Article 3-A trust assets and that a contractor, as trustee, lacks authority to self-reimburse from trust funds for prior advances made to pay subcontractors until trust beneficiaries have been satisfied, reinforcing fiduciary duties and anti-diversion principles under Article 3-A.
In New York, contractor-settlement proceeds are Article 3-A trust funds; a contractor cannot use those funds to reimburse itself for earlier advances and may be enjoined from disbursing them until subcontractors and other trust beneficiaries are paid.