December 7, 2018

SSRGA’s Stephen Orel on Licensed Home Improvement Contractor May Not Recover Disputed Invoice Amount From Cooperative Shareholder Where It Did Not Have Direct Relationship With Apartment Owner

Licensed home improvement contractor may not recover disputed invoice amount from cooperative shareholder where it did not have direct relationship with apartment owner.

In Core Group v. Jackson, a developer/contractor (Core) that did not have a home improvement contractor’s or salesperson’s license contracted with a cooperative shareholder for the renovation of her Manhattan apartment (in fact, a combination of two units), a project that clearly comes within the ambit of the laws governing home improvement contracting in NYC. All negotiations concerning the terms of the construction contract took place between Core’s principal and the apartment owner’s architect. The resulting contractual terms were agreed by email; the parties signed no single document labeled “contract.”

The apartment owner paid bills (over $1 million) as the project went along. Core sent all invoices, used its letterhead, and requested that payment be sent to Core. The apartment owner made all checks payable to Core, and sent them to Core. However, after a dispute arose over the final invoice, Core filed a notice of mechanic’s lien, but the lien was ultimately dismissed as untimely. When Core filed a lawsuit, the apartment owner argued that because Core was unlicensed, it could not recover. Implicitly recognizing the force of this argument, rather than dismiss its complaint, Core instead amended its complaint to add a new plaintiff, Royal, who allegedly did, or subcontracted out, the actual work and who, unlike Core, had a home improvement contractor’s license. Core eventually conceded it could not recover, but Royal argued that it could sue both in contract and quasi-contract for unjust enrichment and quantum meruit (essentially, payment for work done). The amended complaint essentially added “and Royal” to all of Core’s allegations, and changed “plaintiff” to “plaintiffs.”

The court held that as far as the apartment owner was concerned, Royal was no more than a subcontractor, with no direct contractual relationship to the owner. Royal relied on the fact that its owner had been copied on some emails sent by Core’s principal during the contract negotiations, but the court held that merely being copied on emails does not make one a party to a contract. Royal’s claims were thus derivative of Core’s; and because Core could not recover against the owner, neither could Royal. This ruling also foreclosed Royal’s claims for quantum meruit or unjust enrichment, because the lack of a direct contractual relationship meant Royal had no expectation of being paid by the owner (as opposed to Core).

On appeal, affirming dismissal of the amended complaint, the First Department held that Royal could not recover in contract because it had no contractual relationship with the defendant. At most, Royal was copied on emails between Core and defendant’s architect negotiating the terms of the contract. But all invoices came from Core, all payments went to Core, and only Core filed notices of mechanic’s liens. The court also held that the facts did not support an inference that Royal had a reasonable expectation of compensation from defendant, as opposed to from Core, and thus affirmed dismissal of Royal’s quasi-contract claims.

SSRGA was counsel to defendant in this action. Some of these facts recited above are in the record, but are not necessarily in the opinions of the respective courts.