The opinion of the court was delivered by: SWEET
Interpleaded defendants United States of America ("the government"), and Peninsula National Bank ("the Bank") have moved for summary judgment. Cross motions for similar relief have been made by plaintiff Marv Laxer Associates, Inc. ("Laxer") and by interpleaded defendants Carneco, Inc. ("Carneco"), Carney Electric Construction Corp., Debtor-in-Possession ("Carney DIP") and Finkel, Goldstein & Berzow ("Finkel"), and defendants Carney Electric Construction Corp. ("Carney"), Fire Control, Inc. ("Fire Control"), and Avon Electrical Supplies, Inc. ("Avon"). Defendant Joint Industry Board of the Electrical Industry ("Joint Industry Board") has submitted opposition to the Bank's motion. These motions, cross-motions and opposition submissions properly present for resolution by the court the priorities between claimants to funds which resulted from the construction of various improvements to real property at the J. C. Penney Building in midtown Manhattan. The claimants are subcontractors, materialmen, a bank, the government, attorneys and union representatives. Skilled counsel have greatly assisted the court in unravelling what initially appears to be a complicated tapestry of parties, facts, and contentions. The motions are granted in part and denied in part in accordance with the findings of fact and conclusions of law which follow. In the absence of an agreement of the parties, a Magistrate will calculate any amounts to be paid in accordance with this opinion, after which a final judgment will be entered.
This is an action to foreclose mechanics' liens arising from electrical work consisting of labor and services and furnishing of materials at the Penney building, located at 1633 Broadway, New York City ("the Premises"). It was originally instituted in November, 1978 in the Supreme Court of the State of New York, County of New York by Laxer. Thereafter, answers were interposed on behalf of J. C. Penney Company, Inc. ("Penney"), James King & Sons, Inc. ("King"), Fire Control and Morell-Brown Plastering Corp. An action was also instituted in the same court by Avon. Thereafter by stipulation dated February 20, 1980, this action was discontinued against the defendants J. J. Hass Co., Inc. and Morell-Brown Plastering Corp.
In or about April, 1980, the defendant and interpleading plaintiff Penney served an interpleader summons and complaint upon the remaining defendants with an order to show cause tendering the sum of $ 285,000 into court, pursuant to § 55 of the New York Lien Law, to satisfy the liens and claims of all the parties thereto. By a notice of removal dated May 6, 1980, the government on its petition removed this action from the state court.
The $ 285,000 settlement fund has been deposited with the registry of this court, pursuant to a stipulation and order dated September 16, 1980, filed herein on September 23, 1980. The relevant effect of these proceedings is to terminate this action against the defendants Moredall Realty Corp., King and Penney, to discharge all liens and claims, as of record or otherwise, and to have them attached in lieu of the Premises to the $ 285,000 settlement fund, preserving for the court the determination of the claims and rights and respective priorities of the remaining parties in that fund.
In October, 1977, Carney and Carneco entered into a written subcontract with defendant King and agreed to furnish and supply all labor and materials needed in connection with the electrical work to be performed within the Premises. These premises were leased to and occupied by Penney, which had earlier entered into a written contract with King, as general contractor, to perform and complete construction work at the Premises. Carney and Carneco were the electrical subcontractors selected by King and Penney.
Carney and Carneco were separate corporations maintaining separate offices but having some of the same officers and shareholders. Carney was not licensed to perform electrical work within New York City, while Carneco was so licensed. Carney and Carneco employed different individuals to perform labor. Carney and Carneco arranged that Carney would perform all supervisory and managerial functions upon the Penney project, including the purchasing of all necessary materials, the preparation of all plans and change orders, and all invoicing to King. Carneco provided the manpower and labor required. Carneco charged Carney for the labor it provided, and Carney in turn paid Carneco for the cost of the labor.
The amount of the original subcontract between Carney and Carneco on the one hand and King on the other was $ 675,000. Between October 1977 and August 1978 there were more than 300 separate change orders changing the requirements and specifications under the original subcontract and in the aggregate totalling approximately $ 678,475. Carney sent invoices to King up to July 14, 1978 when it filed a petition under Chapter XI of the Federal Bankruptcy Act. Thereafter, the contract was performed and all further invoicing was rendered by Carney DIP.
The Bank had accepted an assignment of accounts receivable by Carney and in March, 1975 filed UCC-1's with respect to these assignments and its security interest. Assignments of accounts receivable and financing statements accepted by the Bank from Carneco (UCC-1's) were filed in January, 1977.
On March 7, 1978 the government filed a notice of levy in the amount of $ 34,215.38 with respect to moneys payable by King to Carney and in the amount of $ 163,256.57 with respect to moneys payable by King to Carneco. These actions by the government resulted from the failure of Carneco in 1977 to pay $ 90,742.84 in federal withholding taxes arising out of wages for work on the Penney project in 1977, and a similar failure by Carneco in 1978 to pay $ 6,301.50, as well as assessments for unpaid taxes, arising from work performed on other unrelated projects, as of February 15, 1980 against Carneco in the amount of $ 212,916.51 and Carney in the amount of $ 216,760.60. On June 2, 1978 the government served two notices of final demand on King which have not been honored. No suit for wrongful levy or request for return of property has been made in response to these levies.
During the course of its performance under the subcontract, Carney (and after July 14, 1978 Carney DIP) purchased necessary materials and supplies from various suppliers including, but not limited to Laxer, Avon and Fire Control. All three of these suppliers furnished materials and supplies to Carney and subsequently filed mechanics' liens pursuant to Article 2 of the New York Lien Law, prior to the time that Carney filed its petition under Chapter XI of the Bankruptcy Act, in the respective amounts of $ 15,100.43, $ 22,787.93 and $ 4,662.00. In March, 1978, following some controversy between it and King over the amount due on work performed on the Premises, Carney itself had filed a mechanic's lien in the amount of $ 322,419.28.
In addition, the Joint Industry Board filed a mechanic's lien in the amount of $ 48,652.24 as assignee of its members, claiming that certain pension and welfare benefits owing to the individual members have not been paid by Carney.
By October 1978 Carney (and subsequently Carney DIP) had invoiced King for a total of $ 1,353,474 (representing the amount of the original subcontract and all change orders). Of this amount a total of approximately $ 871,000 was paid by King. As a result, Carney DIP claimed that there was due and owing from King approximately $ 482,000. This amount was subsequently reduced to approximately $ 408,000 through the issuance of credits and adjustments.
Unable to collect the amount which it claimed was due, Carney DIP obtained an order from the Bankruptcy Court (Judge Parente) to commence an arbitration against King as required under the terms of the subcontract. Finkel was retained as attorney for Carney DIP in the arbitration. The order of retention signed by the Bankruptcy Court provided that ...