In A Class of One’s Own
The New York Lien Law provides, in Article 3A, that money received from a project owner by a general contractor must be held in trust for the benefit of all those subcontractors and suppliers performing work for the general contractor on that project.
The funds must be paid first to those “beneficiaries” of the trust and may not be diverted by the general contractor for its own purposes, or used by it on another project, until all those beneficiaries have been paid in full. Any such “diversion” can result in both civil and criminal liability and can subject the principals of the general contractor who were responsible for the diversion to personal liability.
Where it is alleged that a diversion has occurred, any beneficiary (be it a subcontractor or supplier or employee) may bring a trust fund diversion action against the general contractor or its responsible principals. But the Lien Law provides that all beneficiaries have an equal right to recover the amounts diverted. Thus, the action must be brought “for the benefit of all beneficiaries of the trust” and must conform “as nearly as may be” to a class action commenced under Article 9 of the CPLR [the typical “class action” statute]. But what if there is only one unpaid beneficiary? Must there still be a class action?
In a recent case in the Supreme Court in New York County, a drilling subcontractor (NY Drilling) entered into a subcontract with a general contractor (L&L) to perform foundation work. When it could not get paid, NY Drilling prevailed on the owner to make payment directly to it, which then assigned its rights as a Lien Law beneficiary to the owner. The owner then brought a trust diversion action against L&L “on behalf of all trust fund beneficiaries.” But there was really only one beneficiary owed money—the owner itself (standing in the shoes of NY Drilling). The owner then sought to have the case certified as a class action (as required by the Lien Law). L&L opposed the action on the grounds that it lacked the “numerosity” typically required by class actions.
In ordinary class actions, the court will not certify the class unless there are so many plaintiffs in the same situation as to make it impractical for each one to proceed singularly. In other words, there must be “numerosity.” This typically involves dozens or hundreds or even thousands of plaintiffs. But one? Is that enough?
Yes, held the court. In the lien law setting, there could be many unpaid trust fund beneficiaries or there could be only one. One was enough. However, to ensure that there weren’t others lurking out there, the court directed the owner to give notice to all subcontractors and vendors who supplied work, labor or materials to the project—even if they had not filed a lien or made a claim—just to see if they might also be owed money.
The net result is that the action could proceed as a class action, even if the plaintiff proved to be the only member of the class.