In the Matter of Mayrich Construction Company, Appellant,v.Oliver LLC,, Respondent.

Brief

N.Y.February 12, 2013

State of New York Court of Appeals BRIEF OF PETITIONER-APPELLANT DICK BAILEY SERVICE (212) 608-7666 (718) 522-4363 (516) 222-2470 (914) 682-0848 Fax: (718) 522-4024 1-800-531-2028 - Email: appeals@dickbailey.com -Website: www.dickbailey.com Appellate Division, First Department Supreme Court, New York County, Index No. 116517/09 In the Matter of the Petition of MAYRICH CONSTRUCTION COMPANY, Petitioner-Appellant, -against- OLIVER LLC, c/o ALEXICO GROUP, LLC, Respondent-Respondent. TO BE ARGUED BY: HOWARD S. JACOBOWITZ, ESQ. TIME REQUESTED: 10 MINUTES COURT OF APPEALS NO. 2012-129 THE MCDONOUGH LAW FIRM, LLP Attorneys for Petitioner-Appellant Mayrich Construction Company 145 Huguenot Street New Rochelle, New York 10801 (914) 632-4700 KRMarcus@mmcthk.com Dated Completed: June 19, 2012 DISCLOSURE STATEMENT Pursuant to Rule 500.1 (f) of the Rules of Practice of the Court of Appeals, Mayrich Construction Company (hereinafter, “Mayrich”), hereby states that it does not have a parent, subsidiary nor affiliate company. STATEMENT OF RELATED LITIGATION On August 13, 2009, The Bank of America, N.A., commenced an action in the Supreme Court of the State of New York, County of New York , Index No. 109397/09, to foreclose certain mortgage loans it had made to Oliver, LLC (hereinafter, “Oliver”), encumbering certain real property owned by Oliver that was designated as Lots 26, 27, 28 and 29, correspondingly, premises numbered 953, 957, 959 and 961 First Avenue, (at 52nd Street) New York City. The mortgages (hereinafter, the “Mortgages”), encumbering the real property are the same Mortgages for which Mayrich seeks a verified statement concerning Oliver’s distribution of the proceeds of the Mortgages (hereinafter, the “Mortgage Proceeds.”) Mayrich, by virtue of filing a notice of mechanic’s lien against the above real property, was made a party defendant in the foreclosure action. i TABLE OF CONTENTS Page No. DISCLOSURE STATEMENT ...................................................................................i STATEMENT OF RELATED LITIGATION ...........................................................i TABLE OF CONTENTS..................................................................................... ii, iii TABLE OF AUTHORITIES ....................................................................................iv JURISDICTIONAL STATEMENT ..........................................................................v PROCEDURAL HISTORY............................................................................... vi, vii QUESTIONS PRESENTED FOR REVIEW ........................................................ viii STATUTES INVOLVED.....................................................................................ix, x STATEMENT OF THE CASE..................................................................................1 (a) PRELIMINARY STATEMENT..............................................................1 (b) STATEMENT OF FACTS ......................................................................6 POINT I THE PROCEEDS OF THE MORTGAGES WERE ASSETS OF A LIEN LAW TRUST...........................................................10 (a) The proceeds of the Mortgages Were Trust Funds Pursuant to the Trust Fund Covenants set forth in Section 1.17 of the Mortgages.............................................................10 (b) The Proceeds of the Mortgages Were Trust Funds Pursuant to the Lien Law ....................................................................13 ii CONCLUSION........................................................................................................17 iii TABLE OF AUTHORITIES Page No. New York State Cases Aspro Mech. Contracting, Inc. v. Fleet Bank, N.A., 1 N.Y.3d 324 (2004).............14 Augman & Candarelli, Inc. v. Bernard Assoc. #3, Inc., 234 N.Y.S.2d 156 (Sup. West. Co. 1962).....................................................................................15 Collard v. Incorporated Village of Flower Hill, 52 NY 2d 594 (1981)...................12 Glazer v. Allison Homes Corp., 62 misc. 2d 1017 (Sup. Kings Co. 1970).............14 Mount Vernon City School Dist. v. Nova Cas. Co., 2012 NY Slip Op 2415 (NY 2012)........................................................................................14 RLI Ins. Co. v. New York State Dept. Labor, 97 N.Y. 2d 256 (2002)..............13, 14 Roland J. Down, Inc. v. Park-Clif Enterprises, Inc., 86 A.D. 2d 741 (3d Dep’t 1982)......................................................................................................12 R/S Assocs. v. New York Job Development Auth., 98 NY 2d 29 (2002) ........11, 12 Signature Realty, Inc. v. Tallman, 2 NY 3d 810 (2004)..........................................11 Weber v. Welch, 246 A.D. 2d 782 (3d Dep’t 1998)................................................11 West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 156-157 .........14 W.L. Development Corp. v. Trifort Realty, Inc., 44 NY 2d 489 (1978).................15 Federal Cases County of Suffolk v. Alcorn, 266 F. 3d 137 (2d Cir 2001) .....................................12 Hanil Bank v. PT Bank Negara Indonesia, 148 F. 3d 127 (2d Cir. 1998)...............16 iv JURISDICTIONAL STATEMENT The Court of Appeals has jurisdiction to review the questions raised herein pursuant to CPLR 5602(a)(1), since this proceeding originated in the Supreme Court of the State of New York, County of New York and the order and judgment of the Appellate Division, First Department, entered December 15, 2010, is not appealable as of right. Such order and judgment finally determined and disposed of the proceeding by affirming the superseding judgment of the Court below (Sherwood, J.) that dismissed Mayrich’s petition to compel Oliver’s compliance with Lien Law § 76. The issues raised on this appeal, i.e.: whether the proceeds of the Mortgages were trust funds, were preserved for this Court’s review by reason that such issues were raised below as follows: (a) that the Mortgage Proceeds were Lien Law trust funds pursuant to the trust fund covenants set forth in the Mortgages: see, record on appeal (hereinafter “R”) [R 32]; and (b) that the Mortgages Proceeds were Lien Law trust funds pursuant to the Lien Law. [R 31] v PROCEDURAL HISTORY 1. On November 23, 2009, Mayrich commenced the instant special proceeding in Supreme Court, New York County, seeking an order to compel Oliver to respond to a Lien Law §76 request as to how certain Lien Law trust funds were disbursed. [R 27-29] 2. On December 21, 2009, Oliver served and filed an affidavit and affirmation in opposition to Mayrich’s petition. [R 141-150] 3. By Decision, Order & Judgment (hereinafter, the “Judgment”), entered on March 19, 2010, the Hon. Justice O. Peter Sherwood granted Mayrich’s petition. [R 331-335] 4. By order to show cause entered on April 9,2010, the Hon. Sherwood, J. granted reargument of the Judgment. [R 345-347] 5. Upon reargument, by Superseding Decision, Order and Judgment (hereinafter, the “Superseding Judgment”), entered on September 22, 2010, the Hon. Sherwood, J. vacated the Judgment and dismissed the petition. [R 20-24]. 6. On September 23, 2010, Mayrich timely filed a notice of appeal and pre-argument statement appealing the Superseding Judgment of the Hon. Sherwood, J. [R 3-8] vi 7. Mayrich perfected its appeal and by Decision and Order (hereinafter, the “Order”), entered on December 15, 2011, the Appellate Division, First Department affirmed the Superseding Judgment. [R 400-405] 8. By order dated April 6, 2012, the Court of Appeals granted Mayrich’s motion for leave to appeal to the Court of Appeals. [R 406] vii QUESTION PRESENTED FOR REVIEW The question presented for review on this appeal is whether the proceeds of two (2) mortgages received by an owner of real property are trust funds under circumstances where (a) the proceeds of the mortgages were received by the owner in connection with the improvement of its real property and were recorded subsequent to the commencement of an improvement to the real property; and (b) the mortgages contained a covenant, providing that the “[m]ortgagor will receive the advances secured hereby... as a trust fund to be applied first for the purpose of paying the ‘cost of improvement’....” viii STATUTES INVOLVED Lien Law §13(3) provides in applicable part that: ... every mortgage recorded subsequent to the commencement of the improvement and before the expiration of the period specified in section ten of this chapter for filing of notice of lien after the completion of the improvement shall contain a covenant by the mortgagor that he will receive the advances secured thereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the cost of improvement and that he will apply the same first to the payment of the cost of improvement before using any part of the total of the same for any other purpose.... Lien Law §70(1) provides in applicable part that: The funds described in this section received by an owner for or in connection with an improvement of real property in this state ... shall constitute assets of a trust for the purposes provided in section seventy-one of this chapter. Lien Law §70(5) provides in applicable part that: The assets of the trust of which the owner is trustee are the funds received by him and his right to action for payment thereof. • • • (c) under a mortgage recorded subsequent to the commencement of the improvement and before the expiration of four months after completion of the ix x improvement. Lien Law §71(1) provides in applicable part that: The trust assets of which an owner is trustee under subdivision five (a) to five (f), inclusive, of section seventy of this chapter shall be held and applied for payment of the cost of improvement. STATEMENT OF THE CASE (a) PRELIMINARY STATEMENT This appeal rises out of the respondent-respondent, Oliver’s refusal to comply with the petitioner-appellant, Mayrich’s demand for a verified statement to disclose the disbursement of certain Lien Law trust funds made pursuant to Lien Law § 76 (hereinafter the, “Demand”). [R36-38] Mayrich performed work, labor and services to permanently improve the real property owned by Oliver at Oliver’s direction and, as a consequence, Mayrich is a beneficiary of any trust funds received by Oliver and is entitled to enforce the trust. Lien Law § § 71(4), 77(1). [R 27] Oliver is a trustee of the Lien Law article 3-A trust funds received by it pursuant to two (2) Bank of America, N.A. Mortgages that were recorded subsequent to the commencement of the improvement to its real property and before the expiration of four (4) months after completion of the improvement.1 Lien Law § 70(5)(c). [R 31-32] Statutory authority for the Demand is set forth in: Lien Law § 76(1) that provides: 1 Due to the lack of funding the Project has not been completed. 1 Any beneficiary of the trust holding a trust claim shall be entitled ... to receive a verified statement setting forth the entries with respect to the trust contained in such books or record. Lien Law § 75(2) that provides: Every trustee shall keep books or records with respect to each trust of which he is trustee.... And, pursuant to subsection (3) thereof: The book or records with respect to each trust shall contain the following entries ... • • • D. Trust payments made with trust assets. (1) the name and address of each person to whom a payment for the purposes of the trust has been made ... (4) with respect to each such payment a statement of the nature of the trust claim ... sufficient in any case to identify the payment as a payment for a trust purpose.... Oliver refused to respond to the Demand, claiming: Oliver has not received funds and has no right of action for the payment of funds constituting assets of a trust of which an owner is a trustee as set forth in Article 3-A of the lien law. [R 36-38] As a result, Mayrich petitioned the Court below to direct Oliver to respond to the Lien Law § 76 Demand. [R 27-29] Mayrich contended that the Mortgage proceeds were assets of a Lien Law 2 trust, pursuant to Lien Law §§ 70(5)(c) and 71(1) and/or a trust fund covenant (hereinafter, the “Trust Fund Covenant”), set forth in section 1.17 of each of the two (2) Mortgages. [R 99] Section 1.17 provides: Mortgagor will receive the advances secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the “cost of improvement,” as such quoted term is defined in the New York Lien Law, and will apply the same first to the payment of such costs before using any part of the total of same for any other purpose.... Oliver contended that the Mortgage Proceeds were not assets of a Lien Law trust because it did not “intend” to use the Mortgage proceeds for a trust fund purpose, but to purchase another contiguous parcel of real property, the 953 First Avenue parcel, and to purchase certain air right. Oliver also argued that the Mortgage proceeds were not received by it... “in connection with an improvement of real property....” as required by Lien Law § 70(1). Oliver attempted to explain the presence of the Trust Fund Covenants in the Mortgages, stating that such provisions were “mere boilerplate,” [R 358] ... the documentary evidence submitted to the Court demonstrated that the “trust fund” language contained in paragraph 1.17 of the two subject mortgages was mere 3 boilerplate contained in Bank of America’s standard form mortgage document. And, that the Covenant “had no relevance to the actual intended purpose of the loans.” [R 379]: ... the language in paragraph 1.17 of the two mortgage instruments was nothing more than standard language of its lender, Bank of America, and had no relevance to the actual intended purpose of the loans. However, the intent of the parties concerning the distribution of the proceeds of the Mortgages, stated by Oliver to be solely for the acquistion of the 953 parcel, is belied by the documents relied on and submitted by Oliver to the Court below. To demonstrate that the Trust Fund Covenant within the Mortgages was “mere boilerplate” and of “no relevance,” Oliver submitted other mortgages of The Bank of America and stated that such other mortgages “demonstrate, a trust fund provision is simply something that Bank of America includes as a matter of course....” [R 149]. However upon reading these other mortgages, it is clear that The Bank of America, intended that the proceeds of the mortgages would first be used to pay the “cost of improvement,” before using the proceeds thereof for any other purpose. Section 24 of each such mortgage [R 309, 315, 319, 322, 328] reads: 4 I will receive all amounts lent to me by Lender subject to the trust fund provisions of Section 13 of the New York Lien Law. This means that I will (a) hold all amounts which I receive and which I have a right to receive from Lender under the Note as a trust fund, and (b) use those amounts to pay for “Cost of Improvement” (as defined in Section 13 of the New York Lien Law) before I use them for any other purpose. The fact that I am holding those amounts as a trust fund means that for any building or other improvement located on the property I have a special responsibility under the law to use the amount in the manner described in this Section 24. The intent of the parties is clear, that the Trust Fund Covenant was not “mere boilerplate” or of “no relevance,” but such covenant required, and all the parties agreed, that contractors would be paid out of the proceeds of the Mortgages first, and “before I [Oliver] use them for any other purpose.” After granting Mayrich’s petition to compel Oliver to provide a Lien Law § 76 statement, the lower Court, upon reargument, (Sherwood, J.) vacated his original order and denied Mayrich’s petition, holding: [R 21-23] ... because the parties to the mortgage agreements did not intend to create a trust fund for the benefit of the contractors who do work of the property or to require any portion of the proceeds to be used to fund improvement to the property, respondent has no contractual duty to provide petitioner a statement of the use of the proceeds of the loans. Upon appellate review, the Appellate Division, First Department affirmed 5 Justice Sherwood’s superceding decision, order and judgment [R 400-403], noting: ... no funds were received by respondent “under or in connection with a contract for an improvement of real property,” as required by Lien Law § 70(1).... And: Nor does the presence of Lien Law § 13(3) language in the mortgages transform the underlying acquistion loans into trust funds.... Lien Law § 13(2) and 13(3), read together, govern the priority between mechanic’s liens and mortgages; they do not govern the creation of trust funds.... (b) STATEMENT OF FACTS Mayrich entered into a contract with Oliver to perform, and did perform, certain demolition and foundation work to permanently improve the real property owned by Oliver located on contiguous lots designated as lots 26, 27, 28 and 29 (hereinafter, the “Lots”), and correspondingly known as individual premises address numbers 953, 957, 959 and 961 First Avenue (at 52nd Street) New York City. [R 143] There remains outstanding to Mayrich the sum of $2,321,552, for the demolition and foundation work it performed for Oliver. [R 27] The Court below found that “[t]he work performed by petitioner constitutes improvements as that term is defined in the Lien Law.” [R 23] Oliver had commenced the assembly of the real property necessary for its 6 improvement in 1996 when it purchased premises 957, 959 and 961 First Avenue. It completed the assembly of the real property necessary for the improvement thereof on October 12, 2007, with the purchase of premises 953 First Avenue. [R 143] As stated by Oliver, its intention in assembling the lots was “... to construct a mixed-use, residential and retail tower at 953-961 First Avenue, New York, New York, to be known as ‘The Oliver’ (the “Project”).” [R 375] In order to assemble all the real property necessary to construct the Project, and to finance the purchase solely of premises 953, Oliver entered into two (2) Mortgages with The Bank of America, N.A., one in the amount of $19,111,079.06, recorded on November 9, 2007, [R 123, 124] and the second in the amount of $2,300,000, recorded on May 9, 2008. [R 125] The Mortgages not only encumbered premises 953, (Lot 26), the parcel purchased, but in addition, they encumbered premises numbered 957, (Lot 27); premises numbered 959, (Lot 28); and premises numbered 961, (Lot 29) [R 123,124] (hereinafter, Lots 27, 28 and 29 are referred to as the, “Additional Premises”). The Additional Premises had a direct relationship to the purchase of Lot 26, the 953 premises, in that the purchase of the 953 parcel was made in connection with the improvement of Oliver’s real property and such parcel was 7 necessary to complete Oliver’s intended use of the real property, the construction of the “The Oliver.” [R 375, 376] The Mortgages’ encumbrance on the otherwise unencumbered Additional Premises diminished Oliver’s equity in such parcels by $21,411,079.06. It further reduced the monies that would have been available to satisfy Mayrich’s mechanic’s lien and/or its entitlement as a trust fund beneficiary. Oliver does not dispute that the improvement to the project commenced prior to the recording of the two (2) Mortgages. See, Oliver’s counsel’s affirmation [R 391] reading: There is also no dispute that, because Oliver’s design professionals commenced their services before November 2007, the two mortgages at issue here were recorded after the commencement of the improvement. [R 391] Mayrich was a third party beneficiary of the Trust Fund Covenants and had a right to rely on the clear and unambiguous language contained in both Mortgages, i.e.: that the proceeds of the Mortgages were Lien Law trust funds to be applied first for the purpose of paying for Mayrich’s and other contractors’ work before using any part thereof for any other purpose. The Mortgage proceeds were received by Oliver for or in connection with 8 the “improvement.” Premises 953 was a necessary part of the Oliver’s plan to improve the property and the Project could not be completed without the purchase of such parcel. As affirmed by Oliver: (a) ... the two mortgages on which Mayrich relies were intended and used solely to finance (i) Oliver’s purchase of a portion of the property on which it has intended to build the Project.... [R 374]; (b) Mayrich’s Petition arises from a project to construct a mixed-use, residential and retail tower at 953-961 First Avenue, New York....” [R 375]; and (c) The real property on which the Project is to be built encompasses several contiguous parcels on which smaller buildings formerly stood. Specifically, the Premises include the contiguous lots located at 953, 957, 959 and 961 First Avenue ....” [R 375] Oliver’s use of the proceeds of the Mortgages to purchase premises 953 First Avenue violated both the Lien Law and the terms of the Mortgages’ Trust Fund Covenants, as such proceeds were used to purchase real property, which use is not a “cost of improvement.” With reference to the Trust Fund Covenant set forth in the Mortgages, the Appellate Division held that such provisions were inserted in the Mortgages pursuant to Lien Law §§13(2) and 13(3), and such sections “govern the priority 9 between mechanic’s liens and mortgages; they do not govern the creation of trust funds....” The Bank chose to avail itself of the priority afforded by Lien Law §13(3) by inserting The Trust Fund Covenant in the Mortgages. However, the quid pro quo was that the Covenant mandates that the proceeds thereof be used first to pay the “cost of the improvement.” The Bank had the option of not inserting such Covenant in the Mortgages, thereby making the Mortgages inferior to contractors’ mechanic’s liens for work performed after the commencement of the improvement and prior to the recording of the Mortgages. Once Oliver and the Bank elected to insert the Trust Fund Covenants in the Mortgages, the proceeds thereof were trust funds and Oliver was required to comply with the clear terms of the Covenant and to apply the proceeds first to pay the cost of improvement. POINT I THE PROCEEDS OF THE MORTGAGES WERE ASSETS OF A LIEN LAW TRUST (a) The Proceeds of the Mortgages Were Trust Funds Pursuant to the Trust Fund Covenants set forth in Section 1.17 of the Mortgages. Section 1.17 of the Mortgages, infra at “3,” set forth a Trust Fund Covenant 10 which provided, in clear and unambiguous terms, that the proceeds of the Mortgages were, “a trust fund to be applied first for the purpose of paying the ‘cost of improvement’....” As noted in Weber v. Welch, 246 A.D. 2d 782, 783 (3d Dep’t 1998): Trust funds for which an owner is deemed to be a trustee include money received by him or her under a mortgage recorded subsequent to the commencement of the improvement and before the expiration at four months after completion of the improvement. The Weber Court continued and stated that the funds: received by the defendants under the mortgage clearly constituted trust funds. The monies were received within four months of the completion of the improvements by plaintiff and denominated as trust funds by the terms of the mortgage agreement. (emphasis added) As in Weber, the proceeds of the Mortgages herein were clearly trust funds as they were “denominated” as trust funds by the terms of the Mortgages. Trust Fund Covenant, set forth in section 1.17 of the Mortgages, clearly and unambiguously “denominated” that the proceeds of the Mortgages are trust funds. Section 1.17 is definite, precise and not susceptible to another meaning. Where the parties have set down their agreement in terms that are clear and unambiguous, their agreement should be enforced according to the plain meaning of its terms. Signature Realty, Inc. v. Tallman, 2 NY 3d 810, 811 (2004); and R/S 11 Assocs. v. New York Job Development Auth., 98 NY 2d 29, 32 (2002). The plain meaning of the Mortgages’ Trust Fund Covenant is that the proceeds thereof were trust funds. Where the terms of a mortgage are clear and unambiguous, the parties’ rights under the mortgage should be determined solely by the terms expressed therein, and not from extrinsic evidence. County of Suffolk v. Alcorn, 266 F. 3d 137 (2d Cir 2001). And, where the language of a mortgage is not ambiguous, additional requirements to further one party’s interest should not be implied under the guise of contract interpretation. Collard v. Incorporated Village of Flower Hill, 52 NY 2d 594, 604 (1981). The proceeds of the Mortgages under consideration herein were trust funds by virtue of clear and unambiguous language set forth in the Trust Fund Covenant. Mayrich was a third-party beneficiary of the Mortgages’ Trust Fund Covenants and entitled to rely on, and enforce their terms, to declare that the Mortgage Proceeds were trust funds. Roland J. Down, Inc. v. Park-Clif Enterprises, Inc., 86 A.D. 2d 741, 742 (3d Dep’t 1982): Upon receipt of the proceeds of their mortgage, the Zorzis became trustees of the money, which pursuant to a clause in their mortgage mandated by subdivision (3) of 12 section 13 of the Lien Law was to be applied first for the purpose of paying the costs of the improvements to the premises. Moreover, under the pertinent statutes ... plaintiff as a subcontrator, was clearly a third-party beneficiary of the mortgage agreement.... (b) The Proceeds of the Mortgages Were Trust Funds Pursuant to the Lien Law. Lien Law §§ 70(5)(c) and 71(1), infra at “ix-x,” provide that the funds received by an owner, such as Oliver, under a mortgage recorded subsequent to the commencement of an improvement of real property, as herein, are assets of a Lien Law trust. Oliver argued, below, and the Appellate Division agreed, that such sections are subject to the language of Lien Law §70(1) requiring that the proceeds of the Mortgages must have been, but weren’t, received “... in connection with an improvement of real property,” as Oliver intended and used the proceeds to purchase the 953 parcel and not to finance the construction of the Project. However, as noted by this Court in RLI Ins. Co v. New York State Dept. of Labor, 97 N.Y.2d 256, 263 (2002), what Oliver had “intended” to use the Mortgage Proceeds for does not change their character as trust funds: Use of trust assets for any purpose other than the expenditures authorized in Lien Law §71 before all trust claims have been paid or discharged constitutes an 13 improper diversion of trust assets, regardless of the propriety of the trustee’s intentions (see Lien Law §72[1]; Canron [89 NY 2d 147], supra, at 154; Aquilino v United States, 10 NY 2d 271, 279-280[1961]). (emphasis added) To the same effect, Mount Vernon City School Dist. v. Nova Cas. Co., 2012 N.Y. Slip Op 2415 (NY 2012). As noted in Glazer v. Allison Homes Corp., 62 Misc. 2d 1017, 1018 (Sup. Kings Co. 1970), Oliver’s argument that the Mortgages were not “in connection with” the improvement disregards the basic purpose of Lien Law article 3-A: To adopt defendants’ micrometic construction of section 70 and 71 of the Lien Law is to afford papier mache protection to a contract vendee and disregards the basic purpose of the Legislature in completely revising article 3-A of the Lien Law which includes sections 70 and 71. This Court noted the primary purpose of Lien Law article 3-A in Aspro Mech. Contracting, Inc. v. Fleet Bank, N.A., 1 N.Y.3d 324, 328 (2004): We have repeatedly recognized that the primary purpose of Lien Law article 3-A ... [is] to ensure that “those who have directly expended labor and materials to improve real property ... at the direction of the owner or general contractor” receive payment for the work actually performed (Matter of RLI Ins. Co. v. New York State Dept. Labor, 97 N.Y. 2d 256, 264...quoting Canron Corp. V. City of New York, 89 N.Y.2d 147, 155 ...; see also West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 156-157....) As the Law Revision Commission noted in its 1959 Report recommending 14 numerous amendments to the law, “enactment of the trust fund provisions was prompted by the frequency of cases in which laborers and materialmen were in fact not paid. The trust concept was intended precisely to forbid that an owner, contractor or subcontractor act merely as entrepreneur and was intended to require that he act, instead, as fiduciary manager of the fixed amounts provided for the operation” (1959 Report of NY Law Rev Comm, at 214, reprinted in 1959 NY Legis Doc No. 65, at 30). In Augman & Candarelli, Inc. v. Bernard Assoc. #3, Inc., 234 N.Y.S.2d 156, 157 (Sup. West. Co. 1962), the Court stated that the Legislature intended the trust to include every conceivable asset which the owner might come into possession of in connection with an improvement of real property. And, this Court, in Aquilino, id. at 281, has held that: Our construction of the trust fund provisions of the Lien Law is consonant with this State’s legislative policy of protecting laborers and materialmen ... including indeed those enacted in 1959 – designed to make them more effective. While the phrase “in connection with” as used in Lien Law §70(1) is expansive, and has not been clearly defined, in W.L. Development Corp. v. Trifort Realty, Inc. 44 NY 2d 489 (1978), the Court opined that Lien Law article 3-A should be liberally construed and that where the work performed by the contractor was necessary to the subdivision plan, it was “in connection with” the 15 improvement. The Court stated, id., at 497, that: Our statue defines an improvement as including the “erection, alteration, or repair of a structure connected with any real property (Lien Law, §2, subd 4). Giving the statute a liberal interpretation, as we must (Lien Law, §23), the construction work performed by plaintiff clearly constitutes an improvement. The work was not only “connected with” but necessary to the subdivision plan and the individual lots were benefitted thereby. Under the circumstances in the instant matter, the purchase of the 953 parcel was “in connection with” the improvement of Oliver’s real property as the 953 parcel was necessary to Oliver’s intended purpose, the construction of “The Oliver.” In a non-related action, Hanil Bank v. PT Bank Negara Indonesia, 148 F. 3d 127, 131 (2d Cir. 1998), the court defined “in connection” and stated that: Acts are “in connection” with such commercial activity so long as there is a “substantive connection” or a “casual link” between them.... In the instance matter there is more than a “casual link” between use of the Mortgage Proceeds, to complete the land requirement on which Oliver’s high rise tower was to be constructed, and the intended improvement of the property. Without the acquisition of the 953 parcel, Oliver’s intended use of the property, the development and construction of “The Oliver,” could not have been 16 17 accomplished. Accordingly, it is clear that the proceeds of the Mortgages were received by Oliver as trust funds, and were, “for or in connection with an improvement of real property” within the frame-work of Lien Law Section 70(1). CONCLUSION The Proceeds of the Mortgages were Lien Law article 3-A trust funds requiring Oliver, as trustee, to respond to Mayrich’s Demand for a Lien Law § 76 statement; the order and judgment of the Appellate Division, First Department should be reversed; and judgment should be granted directing Oliver to comply with Mayrich’s demand for a verified statement pursuant to Lien Law § 76. Dated: Westchester, New York June 18, 2012 Respectfully submitted, The McDonough Law Firm, LLP By: ___________________________ K. Richard Marcus Attorneys for Appellant Mayrich Construction Company 145 Huguenot Street, Suite 320 New Rochelle, New York 10801 (914) 632-4700 Of Counsel: Howard S. Jacobowitz, Esq.