In the world of construction litigation, the New York Lien Law—and in particular, Article 3-A—plays a crucial role in protecting the interests of subcontractors, material suppliers, and other beneficiaries of construction trust funds. The recent appellate decision in Park East Construction Corp. v. Uliano, 2023-00046 (2d Dep’t), serves as a strong reminder of the burden plaintiffs must meet to succeed on claims of trust fund diversion.

Case Background
This case arose out of a construction project involving the installation of a stormwater filtration system. Park East Construction Corp. (“Park East”), the general contractor, had remitted funds to a subcontractor corporation owned by Anthony Uliano for the purchase of necessary materials. However, the supplier allegedly was never paid. Park East sued Uliano, asserting that the funds were trust assets under Article 3-A of the Lien Law and that Uliano had improperly diverted those funds.

The trial court initially denied summary judgment without prejudice, allowing the plaintiff to renew after issue was joined. Upon renewal, the Supreme Court (Suffolk County) granted summary judgment in favor of Park East on the trust fund diversion claim and awarded $78,066.62 in damages. Uliano appealed.

The Appellate Division’s Reversal
The Appellate Division, Second Department, reversed the trial court’s decision. It held that Park East failed to meet its prima facie burden of proving a diversion of trust funds under Lien Law Article 3-A. The Court emphasized a fundamental principle of trust fund litigation: before a trustee can be found liable for diversion, the plaintiff must show that the funds were used for purposes not authorized under Lien Law § 71.

While it was undisputed that Uliano’s company received trust assets and failed to pay the supplier, the Court noted that this alone was insufficient. The plaintiff needed to prove that the funds were misapplied—used for something other than the authorized expenses enumerated in the Lien Law. Because Park East did not eliminate all factual questions about how the funds were used, summary judgment was improper. Practioner’s Note here: The reported decision does not discuss whether a demand pursuant to Lien Law Section 76 was served or whether the presumption of diversion for failure to maintain proper Lien Law Section 75 books and records was available.

The Court further reiterated that summary judgment cannot be granted unless the moving party establishes their claim with evidence that removes any genuine issue of material fact. Since Park East failed to do so, the sufficiency of Uliano’s opposition papers was irrelevant.

Legal Significance
This case is significant for several reasons:

1. Strict Standards for Summary Judgment on Article 3-A Claims
   The decision underscores the high burden plaintiffs face in proving trust fund diversion. Simply showing nonpayment to a vendor is not enough. Plaintiffs must demonstrate that trust assets were affirmatively used for unauthorized purposes before trust claims were satisfied. This requires detailed financial tracing and documentary evidence.
2. Trustee Intent is Irrelevant
   The Court reaffirmed that the trustee’s intent does not matter. Even well-meaning misapplications of trust funds are deemed diversions if they are not among the permissible expenditures listed in the statute. This strict liability standard continues to make Article 3-A a powerful tool—but only if properly supported by evidence. This is a crucial point in trust cases as often the diversion is not intentional but it is still illegal.
3. Personal Liability Issues
   Although the decision did not address it directly, the fact that Uliano was sued personally for actions taken by his corporation raises a common issue in construction trust litigation: when and how an individual officer can be held personally liable. Plaintiffs must be prepared to pierce the corporate veil or otherwise establish personal responsibility for the diversion.
4. The Role of Procedural Precision
   This case also serves as a reminder that procedural errors—such as premature or inadequately supported summary judgment motions—can doom even potentially meritorious claims. Plaintiffs must ensure that they meet the full burden of proof before seeking summary relief.

Practical Takeaways for Contractors and Construction Attorneys
Maintain Clear Accounting: Contractors and subcontractors handling trust assets must maintain meticulous records to demonstrate proper use of funds. Commingling or undocumented expenditures can be fatal.

Audit Trail is Key: If you are pursuing a trust fund diversion claim, be prepared to present bank records, invoices, canceled checks, and proof of payment to all beneficiaries. Without this, your motion for summary judgment will likely fail.

Personal Exposure: Business owners and officers should be aware of the personal liability risks that come with trust fund mismanagement, even where the business is the named recipient of funds.

Know When to Litigate vs. Settle: Given the evidentiary burden and the need for detailed financial tracing, early mediation or negotiated resolution may be more cost-effective in close cases.

Use Lien Law Section 76. If a diverion occured, the response to the Seciton 76 Demand should give you what you need to establish that. If the records were not properly kept, the diversion is established as a presumption of law that is suffiicent to shift the burden of proof to the defendant on a summary judgment motion.

Conclusion
Park East Construction Corp. v. Uliano serves as a cautionary tale for construction litigants. It reinforces that Article 3-A of the Lien Law is a potent remedy—but only when properly invoked with clear, thorough evidence. Whether you are enforcing trust rights or defending against such claims, this case illustrates the critical importance of documentation, financial transparency, and procedural diligence in New York construction disputes.