In construction law, few issues are as serious—or as misunderstood—as the misappropriation of trust funds. New York’s Lien Law Article 3-A was created to protect owners, contractors, and suppliers from having construction funds wrongfully diverted. But who actually qualifies for protection under the statute? Can a homeowner sue a subcontractor if they never dealt with them directly?
A recent appellate decision from the Second Department—Treskas v. Style & Care, Inc., et al.—helps clarify the limits of trust fund claims in the homeowner context and reminds us that Article 3-A has strict requirements.
Background: The Construction Project and Dispute
This case began like many residential renovation disputes: with a home improvement project gone wrong. Omorfoula Treskas hired contractors to perform work on her property in Queens. A general contractor, CSPN Builders, and its related entity CSPN Paliuras Construction Corp. (“the CSPN defendants”), were involved in the job. They, in turn, hired a subcontractor—Persi Contracting Corp.—to handle part of the work.
At some point, the relationship between the homeowner and the CSPN defendants soured. Treskas alleged various breaches of contract and filed suit. Later, she tried to amend her complaint to add Persi Contracting and its principal, Michael Persichilli, as defendants. The basis? She claimed they misappropriated construction funds in violation of Article 3-A of the Lien Law.
What Is Article 3-A of the Lien Law?
Article 3-A is designed to ensure that money paid for construction projects—whether by owners to contractors, or by contractors to subcontractors and suppliers—is held in trust for the benefit of those working on the project. It protects against diversion of funds that are supposed to be used to pay workers, suppliers, and others who contributed labor or materials.
For residential projects, the law even gives homeowners limited rights to sue if the contractor they hired misuses the money they paid.
The Legal Issue: Can a Homeowner Sue a Subcontractor for Trust Fund Diversion?
In Treskas, the plaintiff was not in direct privity with Persi Contracting or its owner. She never hired them, and she never paid them. Instead, the CSPN defendants allegedly paid Persi. Still, the plaintiff attempted to bring a claim under Article 3-A, arguing that trust funds were misused somewhere down the chain.
The trial court originally allowed the amendment to go through. But Persi appealed—and the Appellate Division reversed.
The Ruling: No Direct Contract, No Trust Claim
The Second Department made its reasoning clear: because Treskas never had a contract with Persi, and never paid them any money, she had no standing to assert a trust claim under Article 3-A. In the court’s words, the proposed causes of action were “patently devoid of merit.”
The Court cited the relevant statute (Lien Law § 71-a[4][a]), which states that payments received from a homeowner under a home improvement contract must be held in escrow. But in this case, the payments at issue came from the CSPN defendants—not the homeowner. And Persi’s role was limited to that of a subcontractor, hired by someone else. That distinction proved fatal to the trust fund claim.
The Appellate Division also noted that allegations of defective or negligent work—even if true—do not automatically give rise to liability under the Lien Law.
Why This Case Matters
This case carries significant weight for anyone involved in home construction in New York—especially homeowners, contractors, and subcontractors.
For Homeowners:
You only have trust fund protection under Article 3-A if you advanced funds directly to a contractor (note there are situations where the trustee, not the beneficiary, can assert teh claim but that “privity” must still exist). You cannot sue a subcontractor for trust fund diversion unless you paid them directly or have a clear legal relationship with them. If a general contractor misuses your payments, your claim must be directed at that contractor—not someone further down the line.
For Contractors and Subcontractors:
This case reaffirms an important safeguard: subcontractors are not liable to homeowners under Article 3-A unless there is a direct contractual and financial link. If you’re a downstream contractor, you’re generally not exposed to trust fund claims from the owner of the property unless you received their money directly.
For Attorneys and Litigants:
The decision is a reminder that New York courts take the elements of trust fund diversion seriously. You cannot rely on broad accusations or defective work to bring a claim under the Lien Law. You must establish the statutory elements—including privity and payment.
Key Takeaway
If you’re a homeowner dealing with unpaid contractors or suspect misused funds, it’s critical to trace where your money went. Article 3-A gives strong remedies—but only when its requirements are met. Without a direct contract or payment, even legitimate grievances may fall outside the scope of the Lien Law’s protections.
Need Help With a Construction Dispute?
Contact Kushnick Pallaci PLLC at (631) 752-7100 or visit www.nyconstructionlaw.com for a consultation.