On July 19, 2022, Justice Ruchelsman of the Kings County Commercial Division issued a decision in Aki Renovations Group, Inc. v. 38 PPSW, LLC, 2022 NY Slip Op. 32412(U), holding that a property owner lacked standing to assert a claim for diversion of Lein Law trust funds, explaining:
Turning to the issue whether an owner has standing to assert a claim for trust fund diversion pursuant to Article 3-A of the lien law, it is clear that only a trustee may pursue such claims. An owner is not a trustee of funds received by third parties and thus have no standing to pursue claims of the diversion of such funds. The court in Ferro acknowledged that pursuant to Lien Law §75(5) there are seven instances where an owner can be considered the trustee of an Article 3-A trust and that the mere pursuit of claims on behalf of subcontractors does not confer standing. Article 38 of the contracts does not demand a contrary result. That article states that the Contractor is a fiduciary and shall treat all monies received on account of the Work as trust funds for the benefit of the Owner, subcontractors, suppliers, and others providing work, labor, services and materials required under this Agreement and all applicable laws, rules and regulations, including the applicable lien law. The inclusion of the owner as receiving the benefit’ of trust funds does not mean the owner has the right to pursue claims for the diversion of such funds. As Article 38 continues to state, that simply means that in the event the contractor withholds funds to subcontractors, the owner shall be indemnified. Further, Article 38: concludes by noting that the Contractor must notify the owner in writing of any monies the Contractor intends to withhold from its subcontractors, suppliers, and vendors and provide reasonable explanation for so doing, which shall be subject to the Owner’s approval. Thus, the trust funds are held for the benefit of the owner to the extent enumerated within the article and does not confer upon the owner the right to act as trustee and pursue diversion claims.
(Internal quotations and citations omitted).