In a significant decision for New York construction contractors and subcontractors alike, the Supreme Court, New York County, recently denied a petition by Tishman Construction Corporation to vacate a Lien Law § 76 demand made by its former subcontractor, Agir Electrical, Ltd. d/b/a Pinnacle Electrical (represented by Kushnick Pallaci). The ruling reinforces the strength and reach of Article 3-A of the New York Lien Law, particularly the rights it affords subcontractors to demand transparency from general contractors (or in Tishman’s case here Construction Managers) in the management of construction trust funds.
Background: Termination and the § 76 Demand
The dispute arose out of a major construction project at 32 West 48th Street in Manhattan. Pinnacle Electrical entered into a subcontract with Tishman in July 2022 to perform electrical work. As is common on large projects, Pinnacle obtained a $13.3 million performance and payment bond and later entered into a fund-control agreement with its surety. The subcontract was terminated by Tishman in December 2024, shortly before Pinnacle made a demand under Lien Law § 76 for a verified statement of Tishman’s books and records related to trust funds for the project.
Tishman sought to vacate the demand, arguing that Pinnacle lacked standing as a trust beneficiary and that any trust claim was not yet payable, rendering the § 76 demand premature.
Understanding Lien Law § 76
Section 76 of the Lien Law is part of Article 3-A, which creates statutory trusts over funds received for the improvement of real property. These trusts protect subcontractors, laborers, and suppliers by ensuring that funds are used only for project-related purposes. Under § 76, a beneficiary of the trust holding a claim payable for more than 30 days has the right to request a verified accounting from the trustee—typically the general contractor.
This mechanism serves to protect against diversion of funds and enables beneficiaries to determine whether the trust is being properly administered.
Court’s Reasoning: Pinnacle Is a Beneficiary with a Valid Trust Claim
Justice Gerald Lebovits rejected Tishman’s arguments on multiple grounds:
- Pinnacle Remains a Trust Beneficiary: The Court held that Pinnacle Electrical qualified as a beneficiary under Lien Law § 71(4), even though it had assigned its payment rights to a surety under a fund-control agreement. The assignment of payments did not extinguish Pinnacle’s trust rights, nor did it equate to an assignment of lien rights. The Court emphasized that under Lien Law § 15, such rights cannot be waived or assigned away by contract.
- Claim Was Payable More Than 30 Days Before Demand: The Court found that Pinnacle had a valid right to pursue a trust claim in excess of $1 million for completed work that remained unpaid. Even though the subcontract had a termination provision, the Court reiterated that contractual conditions delaying payment cannot override the statutory rights under Article 3-A. Following precedent from Conforti & Eisele, Inc. v. R. Salzstein & Co., the Court held that such contractual provisions are void to the extent they interfere with a subcontractor’s Lien Law rights.
- Right to § 76 Statement Is a Matter of Public Policy: The decision underscores the public policy favoring transparency in the administration of trust funds. The Court resolved any doubt in favor of the subcontractor’s right to access the trustee’s books, noting that permitting trust beneficiaries to inspect trust records is central to the purpose of Article 3-A.
Implications for Contractors and Subcontractors
This decision is a powerful reminder that general contractors, construction managers and all Lien Law Trustees must remain vigilant in their fiduciary obligations under the Lien Law. Even where payment claims are disputed or assigned to a surety, subcontractors may still retain statutory rights to demand an accounting under § 76. Attempts to contractually delay or nullify these rights will likely be deemed void by the courts.
For subcontractors, the ruling reaffirms the strength of their trust protections—even in the face of termination or bonding agreements. When payments are withheld beyond 30 days, beneficiaries should not hesitate to assert their rights under § 76 to determine whether trust funds have been diverted or misused.
Conclusion
The Tishman v. Pinnacle Electrical decision serves as a critical precedent for interpreting Lien Law § 76 in a post-termination context and clarifies that subcontractors retain powerful tools to protect their right to payment. For anyone involved in New York construction projects—owners, contractors, sureties, and subcontractors alike—this case is a must-read.
If you have questions about your rights under the New York Lien Law or need assistance enforcing a trust fund demand, contact Kushnick Pallaci PLLC at (631) 752-7100 or visit www.nyconstructionlaw.com to speak with an experienced construction law attorney.