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Mid Atlantic Framing, LLC v. Ava Realty Ithaca, LLC

United States District Court, N.D. New York

March 29, 2018

MID ATLANTIC FRAMING, LLC, on behalf of itself and all other similarly situated beneficiaries of trust funds received, or to be received by defendant Varish Construction, Inc. Under Article 3-A of the New York Lien Law, Plaintiff,
AVA REALTY ITHACA, LLC; AVA DEVELOPMENT, LLC; TOM VARISH, individually; AJESH PATEL, individually; 359 HOSPITALITY ASSOCIATES, LLC; and "JOHN DOE NO. 1" through "JOHN DOE NO. 20", inclusive, as those persons and entities having an interest in real property located at 359 Elmira Road, Ithaca, New York, and being designated as Tax Parcel Nos. 128.-1-8 and 129.-1-9 on the Land and Tax Map of the City of Ithaca, Tompkins County, New York, and a portion of Tax Parcel Nos. 129-1-10.2, 129.-1-1-1, 129.-1-6.2 and 129.-1-7.2 on the Land and Tax Map of the City of Ithaca, Tompkins County, New York, and/or the trust funds received, or to be received by VARISH CONSTRUCTION, INC. for the improvement of said property, Defendants.






          Mae A. D'Agostino, U.S. District Judge


         Plaintiff commenced this action on November 5, 2013, seeking damages in connection with a construction project in which Plaintiff performed work as a subcontractor of Varish Construction, Inc. (together with owner/principal, Tom Varish) on property owned at the time by AVA Realty Ithaca, LLC (together with AVA Development LLC and Ajesh Patel, collectively "AVA"). See Dkt. No. 1. In a July 24, 2015 Memorandum-Decision and Order, the Court granted in part and denied in part AVA's motion for judgment on pleadings and granted Plaintiff's cross motion for leave to file a second amended verified complaint. See Dkt. No. 68.

         On August 4, 2015, Plaintiff filed its second amended complaint. See Dkt. No. 69. In the second amended complaint, Plaintiff added Wilmington Savings Fund Society, FSB ("WSFS") as a Defendant in this action. See Id. Currently before the Court is Defendant WSFS's motion to dismiss the claims asserted against it in the second amended complaint. See Dkt. No. 82.

         Thereafter, Plaintiff sought leave to file a third amended complaint. See Dkt. No. 115. On December 7, 2016, Magistrate Judge Peebles heard oral argument in connection with the motion. See Dkt. No. 129. At the close of argument, Magistrate Judge Peebles issued an oral decision denying Plaintiff's motion to amend and to join a party. See id.; see also Dkt. No. 128. Thereafter, on September 11, 2017, the Court affirmed Magistrate Judge Peebles' order and further granted Plaintiff's motions for default judgment against Defendants Tom Varish and 359 Hospitality. See Dkt. No. 151.

         Currently before the Court are the following motions: (1) Defendants AVA Realty Ithaca, LLC, AVA Development, LLC and Ajesh Patel's motion for summary judgment (Dkt. No. 140); (2) Plaintiff's motion for summary judgment (Dkt. No. 141); and (3) Plaintiff's motion to strike the declaration of Tom Varish (Dkt. Nos. 159 & 160).


         A. The Parties

         Defendant AVA Realty Ithaca, LLC, is a foreign limited liability company organized and existing under the laws of the State of Pennsylvania. See Dkt. No. 140-53 at ¶ 1. AVA Realty Ithaca was the owner of the property that is the subject of this case at the time Plaintiff's Notice of Mechanic's Lien was filed. See Id. Defendant AVA Development, LLC, is a limited liability company organized and existing under the laws of the State of New Jersey. See Id. at ¶ 2. Defendant 359 Hospitality Associates, LLC, is a domestic limited liability company and the owner of the property located at 359 Elmira Road, Ithaca, New York. See Id. at ¶ 4. Defendant Ajesh Patel is a member of AVA Realty Ithaca, LLC, AVA Development, LLC, and 359 Hospitality Associates. See Id. at ¶ 3.[1] Defendant Varish Contractors International, Inc. ("VCI") eventually became the general contractor in a contract entered into with Defendant AVA Realty Ithaca, LLC (the "Prime Contract"), for the construction of a Fairfield Inn & Suites Hotel at 359 Elmira Road, Ithaca, New York (the "Property"). See Id. at ¶ 5.

         B. The Building Loan

         On March 1, 2012, AVA Realty Ithaca, LLC and Wilmington Savings Fund Society ("WSFS") entered into a construction loan agreement (the "CLA") for the construction of the Fairfield Inn & Suites. See Dkt. No. 141-47 at ¶ 1. Under the CLA, WSFS agreed to loan AVA Realty the principal sum of $6, 725, 000. See Id. at ¶ 2. The CLA was evidenced by a promissory note in the principal amount of $6, 725, 000, and secured by a building loan mortgage on the Property. See Id. at ¶ 3. Defendant AVA Realty was the fee owner of the Property pursuant to a deed dated December 29, 2011. See Id. at ¶ 4.

         C. The Prime Contract

         On March 1, 2012, AVA Realty, as owner, entered into a prime contract with its affiliate, AVA Development, as "Contractor, " for the construction of the project for the sum of $5, 200, 000 (the "AVA Development Contract"). See Dkt. No. 141-47 at ¶ 8. Since Defendant Patel is the owner and operator of both AVA Development and AVA Realty, he executed the AVA Development Contract on behalf of both entities. See Id. at ¶ 9.

         AVA Realty entered into a contract with VCI dated May 12, 2012, wherein VCI, as general contractor, agreed to build the hotel project for AVA Realty for the lump sum price of $5, 700, 000. See Id. at ¶ 12. The VCI Contract included "General Conditions of the Contract for Construction, AIA Form A201-2007" (the "General Conditions"). See Id. at ¶ 13. Under Article 3 of the VCI Contract, the dates for the commencement and completion of work were left blank. See Id. at ¶ 14.

         D. The Mid Atlantic Subcontract

         On September 24, 2012, VCI entered into a subcontract with Mid Atlantic where Mid Atlantic agreed to provide labor and materials for the construction of the building shell and framing work for the price of $721, 000.00 (the "Mid Atlantic Subcontract"). See Dkt. No. 141-47 at ¶ 15. Mid Atlantic submitted six payment applications to VCI totaling $732, 740.00, which included the original contract amount of $721, 000.00, plus change orders for additional work in the amount of $11, 740.00. See Id. at ¶ 16.

         According to Mid Atlantic, as of its fourth payment application, which covered work through January 31, 2013, Mid Atlantic had completed 99% of its subcontract work. See Id. at ¶ 17. The AVA Defendants, however, contend that substantially less than 99% of Mid Atlantic's work was completed as of January 31, 2013. See Dkt. No. 147 at ¶ 17. Moreover, Mid Atlantic contends that it received only one payment from VCI in the amount of $115, 000, pursuant to VCI Check # 3277 dated December 26, 2012. See Dkt. No. 141-47 at ¶ 18. The AVA Defendants disagree, and contend that, "[a]s of February 8, 201[3], Plaintiff certified that it had been paid $421, 480.00." Dkt. No. 147 at ¶ 18.

         On February 13, 2013, Mid Atlantic's attorney, Charles Ahern, Esq., sent a letter to Varish, with copies sent to the AVA Defendants and WSFS, demanding payment in the sum of $600, 960.00, and warning that if Mid Atlantic is not paid by Friday, February 22, 2013, Mid Atlantic will stop work and demobilize. See Dkt. No. 141-47 at ¶ 19. Mid Atlantic left the project on March 1, 2013. On March 28, 2013, Mid Atlantic filed a Notice of Mechanic's Lien on the Property in the amount of $600, 960.00. See Id. at ¶ 23.

         At some point in either late February or early March, the certain aspects of the work completed on the building failed an inspection by the City of Ithaca Building Inspector. See Dkt. No. 140-53 at ¶¶ 15-16; Dkt. No. 148 at ¶¶ 15-16. Although the parties dispute the amount of the deficiencies attributable to Mid Atlantic, at least some of the deficiencies were related to work within the scope of Mid Atlantic's subcontract. See Id. The AVA Defendants contend that the deficiencies in Mid Atlantic's work needed to be remedied before any other work on the Project could proceed. See Dkt. No. 140-53 at ¶¶ 19-20. Mid Atlantic, however, contends that the only work left to be completed in order to remedy the deficiencies were "punch list" items, the value of which was $2, 440.00. See Dkt. No. 148 at ¶¶ 19-20, 22.

         E. The AVA Defendants Agreed to Make Direct Payments to VCI's Subcontractors

         On February 12, 2013, VCI and Ajesh Patel, as owner of AVA Realty, signed a letter amending the terms of their May 12, 2012 Contract (the "Amendment Letter"). See Dkt. No. 140-26 at 4. The Amendment Letter provides in pertinent part as follows:

This letter will confirm you are hereby requesting the Owner to make certain payments directly to sub-contractors that have performed work on the Project under either a contract or agreement to which Contractor is a party. Any payments made shall only be on behalf of Contractor and shall not be an assumption of any responsibility for future payments nor shall it be an assumption of any other duties or obligations of the Contractor under the Agreement. Attached exhibit A lists the payments to be made and to whom.
Owner shall have the right to deduct the sum of payments made from any pending or future AIA draw request made by Contractor.

Dkt. No. 140-26 at 4. Although the Amendment Letter indicates that it includes an "exhibit A" listing the payment to be made and to whom, "exhibit A" was never produced in discovery in this action. See Dkt. No. 141-47 at ¶ 44.

         In a different version of this letter that was signed by Varish but not by Patel, reference is made to an "Exhibit B, " which was the revised schedule of values relating to the work on the Project. See Dkt. No. 141-23 at 2. Again, this revised schedule of values in "Exhibit B" was not produced during discovery. See Dkt. No. 141-47 at ¶ 45. Moreover, the AVA Defendants did not produce the February 12, 2013 email and this version of the Amendment Letter that was attached to it during discovery. See Id. at ¶ 46. Rather, the copy of the February 12, 2013 email attaching the incomplete version of the Amendment Letter were produced by WSFS in response to a subpoena issued by Mid Atlantic. See Id. at ¶ 47.

         WSFS hired ConTech Services, Inc. ("ConTech"), an independent inspection company, to perform periodic inspections of the Project. See Dkt. No. 141-47 at ¶ 50. ConTech's president, Herb Grant, performed site visits and submitted "Construction Monitoring Reports" to WSFS to report his observations following each inspection. See Id. at ¶ 51. ConTech's Construction Monitoring Report from the February 28, 2013 site inspection noted the following: "1. The project owner/borrower has taken over the project management and invoicing for the project. Varish Construction will remain on site to project management [sic] of the construction trades. 2. All subcontractors are being paid by the owner" and that "[i]t is our understanding that the interim project superintendant(s) [sic] is Kevin Varish and Tom Varish." Dkt. No. 141-29 at 355. Herb Grant testified at his deposition that the notation that "project owner/borrower has taken over project management and invoicing" meant that VCI would no longer submit owner now became the person responsible to pay people." Dkt. No. 141-47 at ¶ 53 (quoting Dkt. No. 141-28 at 39). ConTech's report from the April 2, 2013 site inspection again noted that "[a]ll subcontractors are being paid by the owner." Dkt. No. 141-47 at ¶ 54.

         WSFS generated "Review Checklist and Approval Sheets" ("Draw Approval Sheet") for each draw request under the building loan. See Id. at ¶ 55. WSFS's March 5, 2013 Draw Approval Sheet noted that "[b]orrower will become the project manager. The borrower will pay all sub-contractors directly." Id. at ¶ 56 (emphasis omitted). WSFS's Draw Approval Sheet signed on April 5, 2013 noted that "[a]s of the last draw AJ Patel has taken over as the project manager, all invoices and payment requests will not come through him . . . and payments are come [sic] directly out of his operating account." Id. at ¶ 57. WSFS's Draw Approval Sheets dated May 29, 2013, June 19, 2013, and July 1, 2013, each contained a similar notation referencing the fact that AJ Patel is now managing the funding for the Project. See Id. at ¶ 58.

         F. AVA Defendants' Maintenance of Trust Records

         Ajesh Patel did not maintain a ledger or accounting records showing the receipt or disbursements of funds advanced to the AVA Defendants under the building loan. See Dkt. No. 141-47 at ¶ 60. When asked, "[d]id you maintain a separate ledger or accounting every time you received a building loan proceed to show how that particular advance was disbursed?", Patel answered "No." Id. at ¶ 61. In Pay Application 7R, Line Items 6 and 30 represented work done by Mid Atlantic and amounted to $225, 000. See Dkt. No. 141-7 at 62-63. Patel testified that the $225, 000 that AVA Realty received for Line Items 6 and 30 in Pay App. 7R was paid to "various subcontractors." Id.; see also Dkt. No. 141-47 at ¶ 62.[2]

         Request #6 in Mid Atlantic's Request for Production of Documents ("Request #6") requested "[a]ll books, records and/or ledger of trust assets showing trust assets receivable, trust assets payable, trust funds received, trust payments made with trust assets . . . as per Section 75 of the Lien Law." Dkt. No. 141-47 at ¶ 64. The AVA Defendants responded to Request #6 by attaching partial copies of bank statements and copies of miscellaneous checks for the period from September 2012 through February 2013. See Id. at ¶ 65.[3] WSFS "Disbursement/Release Summary Sheet" shows that through January 8, 2014, WSFS made 20 advances to AVA Realty under the building loan totaling $6, 096, 981.52. See Id. at ¶ 66. The copies of checks annexed to the AVA Defendants' response to Request #6 total $1, 040, 208.25. See Id. at ¶ 67.

         Patel is the only employee of the AVA Defendants. See Id. at ¶ 70. Patel prepared all checks and payments on behalf of AVA Realty and AVA Development in relation to the Project. See Id. at ¶ 71. Patel is the only authorized signatory on AVA Realty's and AVA Development's bank accounts at WSFS. See Id. at ¶ 72.

         G. Mid Atlantic's Mechanic's Lien

         On March 28, 2013, Mid Atlantic filed a Notice of Mechanic's Lien with proof of service in the Tompkins County Clerk's Office. See Dkt. No. 141-47 at ¶ 76. On March 20, 2014, Defendant AVA Realty, as owner, and Aegis Security Insurance Company, as surety, duly filed a Lien Law § 19(4) lien discharge bond in the amount of $661, 056.00, with the Tompkins County Clerk, discharging Mid Atlantic's Lien as against the Property. See Id. at ¶ 77.


         A. Mid Atlantic's Motion to Strike

         On August 23, 2017, the AVA Defendants submitted a Declaration of Tom Varish along with their opposition papers to Mid Atlantic's motion for summary judgment. See Dkt. No. 147-5. This same document was submitted by the AVA Defendant's in support of their motion for summary judgment. See Dkt. No. 140-25. In its opposition to the AVA Defendants' motion for summary judgment, Mid Atlantic argued that this undated declaration was inadmissible. Thereafter, on August 29, 2017, the AVA Defendants submitted a second version of this declaration in their reply papers, which was now dated August 28, 2017. See Dkt. No. 149-2. Mid Atlantic objected to the submission of this new declaration because, not only was Tom Varish in default in this action, but he evaded Mid Atlantic's subpoena, despite their diligent efforts to gain his compliance. See Dkt. No. 152 at 1-2. The AVA Defendants, however, argued that the request for any relief sought should be denied because the AVA Defendants and their counsel did not exercise any influence or control over Tom Varish. See Dkt. No. 153 at 2. Counsel for the AVA Defendants contended that they were not in direct contact with Mr. Varish, and that they simply asked Defendant Patel to forward the declaration that counsel drafted to Mr. Varish for his signature. See id.

         In an October 25, 2017 Decision and Order, the Court found that consideration of Tom Varish's declaration would be unfairly prejudicial to Plaintiff. See Dkt. No. 155 at 4. Specifically, in support of this decision, the Court noted as follows:

Although the AVA Defendants contend that they did not exercise any authority or control over Tom Varish, Defendant Patel was still able to communicate with him and have him sign a declaration in support of his position. While the AVA Defendants attempt to make light of this accomplishment, the signing of that declaration, which is prejudicial to Plaintiff's position, is the only contribution that Tom Varish has made to this litigation to date.
Plaintiff attempted to depose Tom Varish, but its subpoena was ignored. See Dkt. No. 148-14. Further, between April 13 and 18, 2017, Plaintiff's counsel attempted to call Mr. Varish sixteen times, both on his mobile phone and office phone. See Dkt. No. 148-20. Mr. Varish did not return any of these calls. See Dkt. No. 152 at 1-2. Additionally, Plaintiff attempted to reach Mr. Varish through his daughter and current employee, Megan Evans. See Id. at 2. Ms. Evans was served a subpoena and appeared for a deposition, wherein she confirmed that she currently works in Tom Varish's office, and that she provided him with a copy of the subpoena and spoke with him about the case before attending her deposition. See id.; see also Dkt. No. 148-15 at 3-5. Further, when Ms. Evans informed Tom Varish that Plaintiff's counsel had been trying to contact him for the past few weeks, Mr. Varish simply responded that "Varish Construction is bankrupt so he has nothing to do with it." Dkt. No. 148-15 at 4.
While the AVA Defendants and their attorneys may not technically have "control" over Tom Varish, Defendant Patel was able to get his signature on the declaration at issue. To permit its use at summary judgment without Plaintiff having an opportunity to depose Mr. Varish would be patently unfair. As such, the Court will reopen discovery for ten (10) days for the limited purpose of deposing Mr. Varish. If the AVA Defendants are unable to produce Mr. Varish for such a deposition, the declaration will be stricken and not considered at summary judgment. See Plains Pipeline, L.P. v. Great Lakes Dredge & Dock Co., 54 F.Supp.3d 586, 590-91 (E.D. La. 2014) (holding that a declaration that was introduced in reply to the motion for summary judgment of an individual that was not available for deposition and who would remain unavailable through the trial date would be stricken because it would be unfairly prejudicial to the plaintiff). Upon taking Mr. Varish's deposition, the Court will permit the parties to make necessary revisions to their pending motions.

Dkt. No. 155 at 4-5.

         On November 3, 2017, counsel for the AVA Defendants filed a letter informing the Court of its attempts to comply with the Court's October 25, 2017 Decision and Order. See Dkt. No. 159. The AVA Defendants describe for the Court the efforts they made in attempting to subpoena Tom Varish to appear for a deposition on November 2, 2017, including hiring two different private investigators to serve the subpoena on Varish, having Ajesh Patel call Varish, emailing Varish, and sending him a letter via certified mail. See Id. at 1-3. Further, the AVA Defendants argue that for almost four years Mid Atlantic made no efforts to subpoena Varish to appear for a deposition. See Id. at 3. In fact, Mid Atlantic did not attempt to subpoena Varish until April 14, 2017, two weeks before the close of discovery. See Id. The AVA Defendants note that, after Varish failed to appear for his deposition, ...

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