By Marina S. De Rosa of Ernstrom & Dreste LLP
Originally published Spring 2023
Most construction project owners require contractors to sign waivers and lien releases throughout the project, typically as a condition of receiving periodic payments, and before final payment. These executed waivers and releases help owners manage financial risk and reduce potential claim exposure. Typically, these waivers and releases are printed on or in conjunction with payment applications or certificates of payment, often in fine print, among other dense text. The placement means these important terms can be easily overlooked, viewed as simply an acknowledgement of receipt of payment, which the contractor is in a hurry to receive. Depending on the language and timing of the waivers and releases, however, execution can result in forfeiture of otherwise valid claims. Such was the unfortunate result for a contractor in a recent case out of New York’s First Department Appellate Division.1
The matter arose from a 2016 New York City residential building construction project for which X-treme Concrete Inc. (“X-treme”) was a concrete subcontractor and Pizzarotti, LLC (“Pizzarotti”) was the construction manager. During construction in 2017, X-treme’s steel suppliers alleged non-payment and filed mechanic’s liens on the project. Immediately thereafter, Pizzarotti claimed X-treme had stopped work and terminated its subcontract. X-treme then filed its own lien. Pizzarotti hired a replacement contractor and filed suit against X-treme and others for damages, including increased costs to finish the job. X-treme asserted counterclaims for underpayment, based upon previously claimed extra work, and damages related to owner delays. The lower court granted Pizzarotti’s motion to dismiss X-treme’s counterclaims, and X-treme appealed. Unfortunately for X-treme, not only did its subcontract contain an enforceable “no damage for delay” clause, X-treme also executed waiver and release forms as a part of the payment process that proved fatal to X-treme’s counterclaims, even as to prior apparently properly asserted claims. The appellate court affirmed the dismissal.
The court first found that the “no damage for delay” clause applied because the basis for the delay - incomplete drawings - was expressly mentioned in the subcontract and thus, by definition, was contemplated by the parties.2 Similarly, the court ruled that the specific language of the waiver and release forms operated to release whatever claims X-treme may have had on the project. X-treme argued that the executed documents were “mere receipts for payment” or “conditions precedent to payment” a commonly used defense to such waivers/releases by contractors and subcontractors. The court rejected that argument based upon the specific language used in the forms beginning in September 2016 that expressly stated that X-treme:
“agrees that the waiver of lien and release is neither a receipt of payment nor a condition precedent to payment, but a knowing and willful acknowledgement that subcontractor has been fully paid throughout the above referenced date.”3
Also, X-treme apparently made no attempt to except from or reserve in those waivers and releases any of its previously asserted claims. The court further relied on additional language in the February 2017 final waiver and release forms executed by X-treme, acknowledging that it had been paid in full through that date, and that it “waived and released all claims whatsoever, whether in law or in equity, arising in connection with its work up through the date of the waiver of lien and release.” The court reasoned that for each set of forms executed starting with its September 2016 requisition, X-treme released all claims arising under prior requisitions, which included claims contained in the lawsuit. Since X-treme was paid the full amounts of the requisitions, and all other claims were waived or released, even those previously asserted through the claim/change order process, X-treme’s counterclaims were dismissed in their entirety. The court found the language of the waivers and releases to be unambiguous and saw no evidence of conduct by Pizzarotti demonstrating an intent to treat the waivers and releases as mere receipts of payments.
The Pizzarotti case is a true cautionary tale for contractors and subcontractors who could unintentionally forfeit their rights to claims. Of course, the contractor should know and follow the contract’s procedures to properly assert and preserve claims, including timely compliance with notice provisions and change order requirements. But, as demonstrated in this case, contractors and subcontractors must also be vigilant when signing waivers and releases, in particular those related to payment application processes. Pre-contract, request that waiver and release forms be attached to the contract as exhibits so they can be reviewed or even negotiated upfront to include a reservation of rights for previously asserted claims. If that is not an option, pay special attention to all waiver and release language in the contract, and that contained in payment requisition forms received or required post-contract execution. Most importantly, at the time of payment requisition, and at project end, the contractor MUST reserve its rights by identifying in writing, either on the forms themselves, or with reference therein to an attachment, those claims and rights that are not being waived or released. Specify claims already made and/or anticipated under the contract, to include requested change orders. Be sure to review and submit that reservation of rights each and every time a payment requisition is submitted and any other time waiver or release forms are required. This practice does not guaranty a claim recovery, but it should go a long way towards avoiding claim forfeiture.
1 Pizzarotti, LLC v X-Treme Concrete Inc., 205 AD3d 487 [1st Dept 2022].
2 It is now common for contracts to list extensive potential reasons for owner-caused delay, seemingly for the very purpose of showing that each was “contemplated” so as to bolster likelihood of “no damage for delay “enforcement against contractor delay claims.
3 X-treme noted that this language was not present in the first few waiver and release forms for payment and was added, without notice, to subsequent forms beginning in September 2016.
Marina De Rosa is an Associate at Ernstrom & Dreste, LLP, in Rochester, New York. Her primary areas of practice focus on construction and surety law as well as complex commercial litigation. Her Juris Doctor degree is from Syracuse University College of Law, where she was an associate editor of the Journal of Science and Technology. She is a member of the ABA TIPS FSLC. De Rosa can be reached at mderosa@ed-llp.com or 585.242.4960.