Dispute Provision in Subcontract was Void Because It prevented Sub from Asserting Lien Rights

Where a subcontract provided that the contractor was “the sole arbiter of all claims, disputes, and questions of any nature whatsoever arising out of the … subcontract,” the dispute clause was found to be void where the contractor attempted to use its authority under the contract to deny a subcontractor payment claim that could otherwise be enforced by a mechanics lien.  The subcontractor filed suit to enforce a mechanics lien, and the prime contractor moved to dismiss the complaint based upon the subcontractor’s alleged failure to meet certain terms of the subcontract and conditions precedent to filing claims, and based upon the alleged finality of the dispute under the disputes clause.

The trial court (and appellate court) found that the dispute provision purporting to give the prime contractor the right to act as sole arbiter of all claims went too far by preventing a subcontractor from asserting a claim pursuant to its legal rights under the Lien Law and the State Finance Law.  American Architectural, Inc. v. Marino, 109 A.D.3d 773 (N.Y. 2013).

According to the trial court, vesting such power to the prime contractor, “violates the principles of trusteeship as reflected in the Len Law by creating an inherent conflict between [contractor’s] duty to the trust beneficiaries and its own self interest….”  In affirming the decision, the appellate court quoted from the state Lien Law that provides: “any contract, agreement or understanding whereby the right to file or enforce any lien created under article two is waive, shall be void as against public policy and wholly unenforceable.”

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 16, No. 4 (Apr 2014).

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