FILED: NEW YORK COUNTY CLERK 05/30/ :26 PM INDEX NO /2016 NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 05/30/2017

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK R.C. BAAS CONSTRUCTION CORP., -against- Plaintiff, FM KELLY CONSTRUCTION GROUP, INC., FREDRICK M. KELLY, JOSEPH F. BARBERA, 63 MADISON OWNER LLC, CBS INTERACTIVE INC. and BANK OF CHINA, NEW YORK BRANCH, Defendants X X Index No /2016 PRE-ARGUMENT STATEMENT PLEASE TAKE NOTICE that defendant Joseph F. Barbera ( Barbera ), by and through his undersigned counsel, hereby submit the following Pre-Argument Statement pursuant to of the Rules of the First Judicial Department. 1. Title of Action The title of this action is as shown in the caption above. 2. Parties The sole original plaintiff was R.C. Baas Construction Corp. ( RC Baas ). The original defendants were FM Kelly Construction Group Inc. ( FM Kelly ), Fredrick M. Kelly ( Kelly ), Joseph F. Barbera ( Barbera ), 63 Madison Owner LLC, CBS Interactive Inc. ( CBS ), and Bank of China, New York Branch. A stipulation of discontinuance releasing defendants 63 Madison Owner LLC, CBS, and Bank of China, New York Branch was filed on June 13, Defendant FM Kelly filed for bankruptcy protection on May 12, Defendant Kelly filed for bankruptcy protection on March 22, of 7

2 3. Counsel for Defendant Joseph F. Barbera-Appellant Harry W. Lipman, Esq. C. Zachary Rosenberg, Esq. Rottenberg Lipman Rich, P.C. 230 Park Avenue, 18 th Floor New York, New York (212) Counsel for Defendant and Third-Party Plaintiff-Respondent Kevin Scully, Esq. Quinn McCabe LLP East 40 th Street, 14 th Floor New York, New York (212) Court and County or Administrative Body from Which the Appeal is Taken Supreme Court of the State of New York, County of New York 6. Nature of the Action Principally at issue on this appeal is a claim by RC Baas seeking enforcement of a trust fund pursuant to New York Lien Law Article 3-A. RC Baas claims that it entered into a subcontractor agreement with FM Kelly, whereby RC Baas would perform the work (the Project ) stipulated in the subcontract, including drywall, carpentry, and ceiling work in connection with construction activities at 28 East 28 th Street, 11 th Floor, New York, New York (the Premises ). RC Baas further claims that it performed all work pursuant to the conditions of the subcontractor agreement, that there is due and owing the sum of $200, to RC Baas, that there is a sum of money paid to FM Kelly by CBS applicable to payment of RC Baas s claim that created a trust fund of which Kelly and Barbera were trustees for the benefit of RC Baas, and that Kelly and Barbera misappropriated the funds contained in the trust fund. RC Baas s claim is deficient and improperly before the Supreme Court. First, it failed to bring the action as a class action, which is required for an action to enforce a trust -2-2 of 7

3 pursuant to the Lien Law. Second, the broad arbitration clause in the parties subcontract agreement provides that all claims and disputes arising out of the agreement are to be decided by the American Arbitration Association upon the contractor s sole option. Upon receipt of the summons and complaint, FM Kelly, Kelly, and Barbera notified RC Baas of their election to arbitrate the matter. RC Baas agreed to extend FM Kelly s, Kelly s, and Barbera s deadline to respond to the complaint until it responded to their arbitration demand. To date, RC Baas has not responded to FM Kelly s, Kelly s, and Barbera s arbitration demand. FM Kelly filed for bankruptcy protection on May 12, 2016, and RC Baas has not filed any motion to sever the claims against Kelly and/or Barbera. RC Baas s motion in the trial court sought default judgment against Kelly and Barbera on its claim seeking enforcement of a trust fund pursuant to New York Lien Law Article 3-A. 7. Result Reached Below By order dated April 21, 2017 filed in the office of the Clerk of the New York County Supreme Court on April 25, 2017, the trial court granted in part RC Baas s motion for default judgment holding that (1) because Kelly filed for bankruptcy protection, the action must be stayed against him; (2) Barbera defaulted in answering the complaint; (3) RC Baas did not submit evidence that it would be prejudiced in this matter by the minor delay in appearance; (4) and Barbera did not offer a meritorious defense. The trial court issued an order (1) severing and staying the case as to defendants FM Kelly and Kelly, except for an application to vacate or modify said stay, and continuing the case as to remaining defendant Barbera; (2) permitting any party to make an application by order to show cause to vacate or modify this stay upon the final determination of, or vacatur of the stay in the proceedings brought by FM Kelly and Fred Kelly -3-3 of 7

4 in the Bankruptcy Court; (3) directing RC Baas to serve a copy of the order with notice of entry on the Trial Support Office; (4) granting the motion for default judgment against Barbera on the issue of liability only on RC Baas s cause of action pursuant to Lien Law Article 3-A, Section 77; and (5) otherwise denying the motion. 8. Grounds for Reversal This Court should reverse the Order because (1) RC Baas failed to plead a valid claim because it failed to bring the action as a class action; (2) RC Baas agreed to extend Barbera s deadline to answer the complaint until after it responded to his demand for arbitration, which never happened; (3) FM Kelly s bankruptcy filing stayed the case and RC Baas failed to make a motion to sever; (4) even if Barbera had defaulted, he had reasonable excuses in that he relied upon RC Baas s promise to respond to his demand for arbitration before requiring an answer to its complaint and reasonably believed the action was staying in light of FM Kelly s bankruptcy filing, and he has meritorious defenses that the action is stayed in light of FM Kelly s bankruptcy filing, that the claim is subject to the arbitration clause in the subcontract, and that RC Baas improperly failed to bring the claim as a class action. Under New York law, an action to enforce a trust pursuant to Section 77 of the Lien Law must be brought as a class action. The caption of the case, on the summons and complaint filed by RC Baas, bears no indication that the claim was brought as representative of a class; and the complaint likewise is devoid of any class-action allegations. Therefore, RC Baas cannot show proof of a valid claim and cannot make a prima facie showing for a default judgment. RC Baas also fails to make a prima facie showing for a default judgment because it cannot show that Barbera defaulted in answering its complaint. RC Baas agreed to extend -4-4 of 7

5 Barbera s deadline to answer the complaint until May 16, 2016 and promised to provide a response to the demand for arbitration well before that date. FM Kelly filed for bankruptcy protection on May 12, On May 13, 2016, counsel for RC Baas left a voic for counsel for Barbera asking to discuss arbitration and the deadline to answer the complaint. Counsel for Barbera returned the call immediately and informed counsel for RC Baas that FM Kelly filed for bankruptcy. Counsel for RC Baas then ended the call without responding to the demand for arbitration or otherwise indicating that his promise to extend Barbera s time to answer until RC Baas responded to the demand for arbitration had been revoked. Barbera heard nothing further from RC Baas until he was served with supplemental service on September 12, In order to prevent the needless instant motion, Barbera filed an answer the next day on September 13, Barbera, therefore, did not default in answering the complaint. There also was no default because FM Kelly s bankruptcy filing stayed the case and precluded any default. RC Baas did not file a motion to sever claims under N.Y. C.P.L.R. 603 and proceed with its claim against Barbera. Even if RC Baas had made such a motion, it would have failed because a bankruptcy filing by one defendant stays claims against a codefendant where, as here, the bankrupt is obligated to indemnify a non-bankrupt defendant or where liability against the third-party would be imputed to the bankrupt debtor by law. FM Kelly s articles of incorporation provide for indemnification of Barbera, and any liability against Barbera would be imputed to FM Kelly by law, both because Barbera acted as FM Kelly s agent and because the Lien Law claim against Barbera can only succeed if it is found that FM Kelly failed to pay amounts due to RC Baas. The bankruptcy stay, therefore, applies to Barbera and precludes any default until FM Kelly s bankruptcy proceeding is resolved or the stay is lifted of 7

6 Even if Barbera did default, he has shown a reasonable excuse and meritorious defenses. Barbera s reliance on RC Baas s promise to respond to the demand for arbitration before requiring an answer to the complaint, was, at a minimum, reasonable. Barbera s belief that the case was stayed in light of FM Kelly s bankruptcy was also, at a minimum, reasonable. Barbera filed an answer just one day after receiving supplemental service, demonstrating that he had every intent to answer and no intent to delay. Further, as the trial court held, RC Baas has not presented any evidence that it would be prejudiced in this matter by what it held was a minor delay in appearance. Barbera also has numerous meritorious defenses. First, as discussed above, the action is stayed in light of FM Kelly s bankruptcy filing. Next, RC Baas s claim is subject to the broad arbitration clause in the subcontract agreement, which states that All claims and disputes between the parties to this Agreement arising out of or relating to this Agreement, the Project, the Work, the Contract Documents, or the breach thereof may, at Contractor's sole option, and only at the exercise of that option, be decided by arbitration in accordance with the Construction Industry Arbitration rules of the American Arbitration Association. The identical arbitration clause was held to be valid twice by the Supreme Court of the State of New York, first in a decision and order by Justice Barry R. Ostrager in October 2015, and again in a decision and order by Justice Carol R. Edmead in December The decision by Justice Carol R. Edmead, in particular, held that the subcontractor s identical Lien Law claim in that case against Kelly fell within the scope of the arbitration clause in the parties subcontracts. Finally, Barbera has an additional meritorious defense in that the action was improperly brought by RC Baas individually rather than as a representative of a class of 7

7 9. Related Actions or Appeals The decision from which this appeal is being taken was also issued in a related case pending in the Supreme Court of the State of New York, County of New York, captioned R.C. Baas Construction Group, Inc. v. FM Kelly Construction Group, Inc., Index No /2016. A related appeal is also being taken in that action. Dated May 30, 2017 New York, New York ROTTENBERG LIPMAN RICH, P.C. To Clerk of the Supreme Court New York County By Harry W. Lipman, Esq. C. Zachary Rosenberg, Esq. 230 Park Avenue, 18 th Floor New York, NY (212) Attorneys for Defendant-Appellant Joseph F. Barbera Kevin Scully, Esq. Quinn McCabe LLP 9 East 40 th Street, 14 th Floor New York, New York Attorneys for Plaintiff-Appellee R.C. Baas Construction Corp of 7