L.C. Whitford Co., Inc. v. Babcock & Wilcox Solar Energy, Inc.

Summary

The New York Appellate Division, Third Department, affirmed a preliminary injunction preventing Babcock & Wilcox Solar Energy, Inc. from using settlement funds to reimburse itself for amounts it had advanced to subcontractors. The majority held that the settlement proceeds were trust assets under Lien Law article 3-A and that a contractor-trustee could not apply them to its own reimbursement before satisfying statutory trust claims. Two judges dissented, concluding that later-received trust funds could reimburse earlier payments made for proper trust purposes.

Holdings

1. Settlement funds paid to BWS in connection with the construction projects constituted trust funds under Lien Law article 3-A.
2. A contractor-trustee may not use Article 3-A trust assets to reimburse itself for money advanced on the project before receipt of the trust assets; doing so would breach its fiduciary duties and improperly divert trust assets.
3. Supreme Court properly exercised its discretion by enjoining BWS from utilizing or dispersing the settlement funds pending further court approval.

Questions Presented

1. Whether settlement funds paid to a general contractor in connection with construction projects constitute trust assets under New York Lien Law article 3-A.
2. Whether a contractor-trustee may use subsequently received trust assets to reimburse itself for funds it previously advanced to pay subcontractors and other project-related costs.
3. Whether Supreme Court properly enjoined BWS from dispersing the settlement funds pending further court approval.

Disposition

affirmed