United States District Court, N.D. New York
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.
& SITARAS, PLLC ATTORNEYS FOR PLAINTIFF
& CORWIN, LLP ATTORNEYS FOR PLAINTIFF
ERVING & SAVAGE, LLP ATTORNEYS FOR DEFENDANTS AVA REALTY
ITHACA, LLC, AVA DEVELOPMENT, LLC, AND AJESH PATEL
SITARAS, ESQ. PUJA SHARMA, ESQ. CHARLES F. AHERN, ESQ.CARLO
ALEXANDRE C. DE OLIVEIRA, ESQ. DAVID C. ROWLEY, ESQ.
MEMORANDUM-DECISION AND ORDER
D'Agostino, U.S. District Judge
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.
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.
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.
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).
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 ¶
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
The Building Loan
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.
The Prime Contract
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
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
The Mid Atlantic Subcontract
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.
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,
Plaintiff certified that it had been paid $421, 480.00."
Dkt. No. 147 at ¶ 18.
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.
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.
The AVA Defendants Agreed to Make Direct Payments to
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
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.
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 ¶
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.
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.
AVA Defendants' Maintenance of Trust Records
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.
#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. 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
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
Mid Atlantic's Mechanic's Lien
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.
Mid Atlantic's Motion to Strike
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.
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.
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, ...