Default Judgment Overturned Due to Law Firm Error

Franco Belli Plumbing & Heating & Sons, Inc. v. Imperial Dev. & Constr. Corp., 845 N.Y.S.2d 446 (N.Y. App. Div. 2007)

In this case, the appellate court reversed a default judgment entered against defendant New York City School Construction Authority (“SCA”).  Plaintiff had claimed that Imperial Development & Construction Corp., the general contractor, owed over $253,000 to it as the sub-contractor for plumbing work on the project.  Imperial disputed the claim.  Pursuant to Public Authorities Law § 1735(6), plaintiff notified SCA, as the owner of the property where the disputed work took place, of its dispute with Imperial.  Also pursuant to that law, SCA was required to withhold the disputed amount of money from any payments it made to Imperial pursuant to the construction contract.  After plaintiff filed a note of issue, SCA disclosed that it had failed to withhold any money on plaintiff’s behalf.  Consequently, plaintiff moved to preclude SCA from introducing evidence regarding setoffs and back-charges with respect to its contract with Imperial on the basis that SCA had failed to respond to interrogatories seeking such information.  The Supreme Court granted this motion upon SCA’s default.

On appeal, the Second Department reversed the default judgment.  The court reasoned that SCA had provided a satisfactory reason for its default, which it had promptly cured; specifically, SCA defaulted due to its counsel’s confusion over the motion’s return date, which was listed incorrectly on two notices of motion served by plaintiff.  Because SCA’s default was not willful or deliberate, it was subject to reversal.  The court also noted that SCA had presented (albeit late) a meritorious defense to plaintiff’s motion; SCA had submitted evidence sufficient to raise an issue of fact regarding whether there were back-charges and/or setoffs against its contract with Imperial such that no money was owed to plaintiff at the time it notified SCA of its need to withhold funds.