Key Points

  • The First Department unanimously affirmed summary judgment for Waterworks Operating Co. on liability for breach of contract and lien foreclosure against 514 West 24th Owner LLC.
  • The court held that the owner impliedly ratified $390,605.51 in change orders by accepting the delivered materials without objection, even though its construction management agreement required the owner's prior written approval of change orders.
  • Waterworks met its prima facie burden for $2,340,098 in delivered materials through invoices the defendants did not specifically dispute.
  • The court disregarded an accounts receivable manager's affidavit offered only in reply to prove the remaining $237,069 in deliveries, because the defendants had no opportunity to rebut it.
  • The $1,396,058.74 judgment, premised on the unpaid balance of the full $2,577,166.99 contract price, was vacated and the case remitted to Supreme Court on damages only.

A New York appeals court on Oct. 15 vacated a $1.4 million judgment that high-end bathroom-fixture supplier Waterworks Operating Co. won against the owner of a Chelsea redevelopment project. The court held that Waterworks had proved delivery of most, but not all, of the materials it contracted to supply.

The Appellate Division, First Department, unanimously upheld summary judgment against the building's owner, 514 West 24th Owner LLC, on Waterworks' claims for breach of contract and foreclosure of its lien. But the panel sent the case back to the trial court on damages, because Waterworks offered an affidavit to prove the final $237,069 in deliveries only in reply papers that the owner had no chance to rebut. The panel consisted of Justices Webber, Friedman, Kapnick and Pitt-Burke.

The ruling keeps the owner liable for change orders, even though the owner said its construction manager had no authority to approve them. The court held that the owner ratified those orders by accepting the materials without objection. The ruling also undoes an award that rested on the full $2,577,166.99 contract price, when Waterworks' motion papers proved deliveries worth $2,340,098.

Waterworks manufactures and supplies high-end bathroom fixtures, according to the decision. It sold bathroom and cabinet materials to the owner for the redevelopment of a building in Chelsea under a series of purchase orders and change orders that set the total price. Both sides agree that the owner has paid Waterworks $1,608,827.37 for goods actually delivered and accepted.

Waterworks then filed a mechanic's lien for $968,339.62. Waterworks asserts that figure is the balance still owed under the contract. It sued the owner and the owner's surety for breach of contract, lien foreclosure and account stated.

Justice Joel M. Cohen of Supreme Court, New York County, granted Waterworks summary judgment on the contract and lien claims in an order entered June 12, 2024. He dismissed the remaining cause of action as duplicative. A judgment entered Dec. 5, 2024, awarded Waterworks a principal amount of $1,396,058.74. According to the appellate decision, Justice Cohen based damages on the outstanding balance under the full contract price and added pre-judgment interest, costs and disbursements.

On appeal, the owner and its surety first argued that they could not be held liable for change orders totaling $390,605.51. They said Michael Ohman of Sunrise Construction LLC, the project's original construction manager, lacked authority to bind the owner to those orders. The owner relied on its construction management agreement with Sunrise, which barred Sunrise from entering into change orders without the owner's "prior written approval."

The panel rejected that argument. "Defendants' argument lacks merit because the Owner's acceptance of materials delivered pursuant to the change orders, without objection, constituted an implied ratification of those agreements," the court wrote.

For that rule, the panel relied on the First Department's 2001 decision in Matter of Cologne Life Reinsurance Co. v. Zurich Reinsurance (North America). The panel quoted that case for the principle that "an affirmance of an unauthorized transaction can be inferred from a failure to repudiate it." It also cited, by analogy, the 1997 decision in Standard Funding Corp. v. Lewitt.

The owner's second argument succeeded in part. The owner and its surety contended that factual disputes remained over total damages because Waterworks had not shown that it delivered all the materials the contract required.

With its summary judgment motion, Waterworks submitted invoices for delivered materials totaling $2,340,098. The panel noted that the defendants did not identify any specific invoiced item that went undelivered or failed to conform to the governing purchase orders. That showing, the court held, met Waterworks' prima facie burden for $2,340,098 in materials.

The court held that Waterworks did not meet that burden for the remaining $237,069 in materials the contract required. Waterworks had offered an affidavit from its accounts receivable manager to show that all contract items reached the owner. But Waterworks filed the affidavit only in reply in further support of its summary judgment motion.

"Because defendants did not have an opportunity to rebut the evidence submitted by plaintiff in its reply papers, the affidavit must be disregarded," the panel wrote, citing its 2013 decision in Doyaga v. Camelot Taxi Inc.

With that evidence set aside, the award could not stand. "Accordingly, the judgment, which is premised on the unpaid balance of the full contract price, is vacated and the matter remanded for further proceedings on damages," the court wrote. The panel said it had considered the defendants' remaining arguments and found them unavailing.

The decision modified the judgment "on the law" and otherwise affirmed it, without costs. The panel dismissed the defendants' separate appeal from the June 2024 summary judgment order as subsumed in the appeal from the judgment. The caption also lists 514 West 24th Owner as a third-party plaintiff, but the decision does not describe that claim.

Lawyers for the appellants included Joshua D. Liston of Liston LLP. Waterworks was represented by Adam M. Swanson of McCarter & English LLP.

The decision does not set a new damages figure. The First Department remitted the case "to Supreme Court on the issue of damages only consistent with this decision," leaving the summary judgment on liability in place.