This matter is before the court on 1) the motion by Plaintiffs D & A Structural Contractors, Inc. ('D & A') and Alexander Wall Corporation ('AWC') (collectively 'Plaintiffs') for partial summary judgment, filed on March 13, 2009, and 2) the cross motion by Defendant Jeanne Unger ('J. Unger') for summary judgment dismissing Plaintiffs' verified complaint, filed on April 1, 2009, both of which were submitted June 5, 2009. The Court 1) denies Plaintiffs' motion for partial summary judgment; and 2) grants J. Unger's cross motion in part and denies it in part. With respect to J. Unger's cross motion, the Court 1) grants the motion for summary judgment dismissing Plaintiffs' breach of contract claims; and 2) denies the motion for summary judgment dismissing Plaintiffs' claims for an account stated, unjust enrichment, foreclosure of the mechanic's lien and breach of fiduciary duty.

BACKGROUND

A. Relief Sought

Plaintiffs D & A and AWC move for partial summary judgment, pursuant to CPLR ' 3212 and the doctrine of collateral estoppel, with respect to the first, second, third, fifth, sixth, seventh, eighth and ninth causes of action in the verified complaint ('Complaint'). Defendants J. Unger and Arthur Unger ('A. Unger') oppose Plaintiffs' motion.

Defendant J. Unger moves for summary judgment, pursuant to CPLR §3212, dismissing the Complaint. Plaintiffs oppose that motion.

B. The Parties' History [*2]

This is an action for breach of contract and to foreclose a mechanic's lien. J. Unger, and her estranged husband, A. Unger, previously maintained their marital residence at 39 Sherwood Gate in Oyster Bay ('Property'). Title to the Property was in J. Unger's name. In May 2004, A. Unger commenced a divorce action against J. Unger in this court. The Ungers acquired the Property during their marriage, and it was therefore a marital asset subject to equitable distribution in their matrimonial proceeding.

On May 11, 2007, the Property was destroyed by fire. At the time of the fire, the Property was insured by Nationwide Insurance Company ('Nationwide'). On May 29, 2007, J. Unger entered into a contract ('Contract') with D & A for the restoration of the Residence. The Contract price was the 'Proceeds Of Insurance.' In the Contract, J. Unger represented that she was the 'record owner' of the property and was authorized to enter into the Contract. The Contract further provided that if J. Unger was not so authorized, she would be 'personally obligated for the contract.' Nevertheless, J. Unger did not seek A. Unger's consent, or the approval of the Matrimonial Court, to use the insurance proceeds to renovate the Property.^[FN1]

The Contract provided that work was to commence 'approximately two weeks after insurance company approval and receipt of building permit.' Payment was to be made according to a 'payment schedule, which will be provided upon settlement of insurance claim.' The Contract further provided that all payments would be placed in an escrow account 'to be held in trust for the customer ' pursuant to Lien Law §70.

The Contract also provided that 'any breach of this agreement...shall... render [customer] indebted to the contractor for a sum equal to 30 percent of the total price agreed upon herein, as and for liquidated damages and not as a penalty....' The liquidated damages were to be 'in addition to any and all out-of-pocket costs incurred by contractor for labor, services and materials in preparation for part or full [performance] of this agreement....'

On the same date that she signed the Contract, J. Under signed an 'authorization to perform restoration' form agreement ('Restoration Contract '), authorizing AWC to perform restoration of the Property. AWC is an affiliate of D & A; both companies are owned by William Anderson and share the same address of 60 Raynor Avenue, Ronkonkoma, New York, although they have different telephone numbers. Although the authorization form does not describe the restoration work that AWC was to perform, the parties understood it to refer to furniture refinishing.

In the authorization form, J. Unger irrevocably assigned to AWC 'any and all sum or sums' due or to become due from Nationwide. In the authorization, J. Unger appointed AWC as her attorney-in-fact to endorse insurance company checks and to deposit checks from the insurance [*3]company. In the authorization, J. Unger agreed to pay AWC for any services not covered by insurance and also to pay her $2,500 deductible.

On July 23, 2007, J. Unger entered into a debris removal contract with AWC, covering property and material destroyed by the fire. The debris removal contract did not set a price for this service or make any reference to insurance proceeds.

On July 24, 2007, Nationwide submitted a damage estimate in the amount of $1,315,538.05, after deducting the policy's $2,500 deductible. On September 17, 2007, Nationwide issued two checks, each in the amount of $659,019.02, for a total payment of $1,318,038.04 on J. Unger's claim. Although the checks were made payable to J. Unger and AWC, the funds were held by D & A. J. Unger also endorsed over to AWC three insurance checks, corresponding to work performed on the furniture refinishing and debris removal contracts. On September 18, 2007, she executed a 'certificate of satisfaction,' stating that AWC's restoration work had been completed in a satisfactory manner. In the certificate of satisfaction, J. Unger authorized Nationwide to pay AWC directly the portion of the proceeds corresponding to the work that it had performed.

On September 25, 2007, J. Unger and D & A agreed to a 'payment schedule,' providing for a total price of $1,555,497.21 for the Restoration Contract, payable in seventeen progress payments. The payment schedule also provided that J. Unger would pay $265,416.21 for 'upgrades,' and this sum was payable in ten progress payments. Plaintiffs allege that, between July 25 and October 16, 2007, they furnished work, labor, and materials to the project in the amount of $246,008.99. Plaintiffs further allege that, between September 25 and October 2, 2007, they purchased $126,911.29 worth of materials which were specially manufactured for, but not delivered to, the project.

By order to show cause dated October 4, 2007, A. Unger moved in the matrimonial action for the appointment of a temporary receiver of J. Unger's real and personal property. The order to show cause contained a temporary restraining order, which the Matrimonial Court granted, prohibiting J. Unger from transferring any of her assets, including the proceeds of the insurance policy. In light of the temporary restraining order preventing J. Unger from making any further payments to D & A, the contractor suspended work on the project on or about October 16, 2007.

On October 23, 2007, D & A submitted to J. Unger a detailed statement showing a balance due on the Contract of $372,920.28. The Court notes that this figure includes separate charges for 'overhead' and 'profit,' both apparently based on 10 percent of the cost of labor and materials provided to the project. On the same date, AWC submitted to J. Unger two invoices, one reflecting $13,795.38 due for furniture refinishing work, and the other reflecting total charges of $19,018.50, and a net due of $8,190.27, for debris removal.

In the related matrimonial action, by Order dated October 15, 2007, Justice Iannacci appointed John Ciotti, Esq. ('Receiver') as receiver of J. Unger's real and personal property. On October 18, 2007, Justice Iannacci issued a restraining order, enjoining J. Unger from alienating or encumbering any of her assets. D & A transferred to the receiver the balance in the escrow [*4]account, $1,307,173.80, on November 5, 2007.

On December 12, 2007, D & A filed a notice of mechanic's lien against the Property in the amount of $362,056.04, which is allegedly the balance outstanding on the Contract. By Order dated December 17, 2007, Justice Iannacci granted A. Unger's motion to restrain the Receiver from disbursing any funds to D & A for the reconstruction of the property. In its decision, the Court granted A. Unger's motion for a preliminary injunction based on its determination that rebuilding the Property would result in 'lesser distribution upon the divorce of the parties.'

Plaintiffs commenced this action on January 17, 2008. The Complaint contains eleven (11) counts which are as follows:

First—By D & A against J. Unger for breach of contract

Second—By D & A against J. Unger to foreclose a mechanic's lien

Third—by D & A against J. Unger for an account stated

Fourth—by D & A against J. Unger based on unjust enrichment

Fifth—by D & A against J. Unger based on breach of fiduciary/Lien Law violation

Sixth—by AWC against J. Unger for breach of the furniture restoration contract

Seventh—by AWC against J. Unger for breach of the debris removal contract

Eighth—by AWC against J. Unger for an account stated (furniture restoration contract)

Ninth—by AWC against J. Unger for an account stated (debris removal contract)

Tenth—by AWC against J. Unger for unjust enrichment (furniture restoration contract)

Eleventh—by AWC against J. Unger for unjust enrichment (debris removal contract)

D & A seeks damages in the sum of $362,056.04, and AWC seeks damages of $13,795.38 with respect to the furniture restoration contract and $8,190.27 with respect to the debris removal contract. Although none of the claims have been formally asserted against A. Unger, Plaintiffs apparently named him as a defendant because of his interest in the Property.

Subsequent to the commencement of this action, A. Unger, J. Unger, and Receiver entered into a stipulation in the divorce action ('Stipulation') to permit the sale of the Property. The Stipulation authorizes the Receiver to list the property for $975,000 and to accept an offer of $850,000. The Stipulation refers to D & A's mechanic's lien and provides that the Receiver will hold [*5]$362,056.04 pending resolution of this action. The Court (DeStefano, J.) so-ordered the Stipulation on April 2, 2008.

C. The Parties' Positions

D & A moves for partial summary judgment on its claims for breach of contract, foreclosure of the mechanic's lien, an account stated, and breach of fiduciary duty. AWC moves for partial summary judgment on its claims for breach of contract and an account stated as to both of its contracts. Plaintiffs note that J. Unger, in her opposition to A. Unger's application for the restraining order in the matrimonial action, asserted that D & A's mechanic's lien should be paid. Thus, Plaintiffs submit, J. Unger is judicially estopped from taking a contrary position in this action.

J. Unger cross-moves for summary judgment dismissing the Complaint. She argues that she did not breach the restoration contract because she had no 'control' over the insurance proceeds and Plaintiffs should have taken action to protect their interests. She further argues that her assertion that Plaintiffs should be paid from the insurance proceeds is not tantamount to an admission that she breached the Contract. She also submits that Plaintiffs may not enforce the mechanic's lien against her, or recover against her on a theory of account stated, because she is not indebted to Plaintiffs. She argues, further, that Plaintiffs cannot recover in unjust enrichment because the subject matter of their dispute is covered by a valid, enforceable contract. Finally, she argues that she is not a trustee within the meaning of the Lien Law.

RULING OF THE COURT

A. Summary Judgment Standards

The party seeking summary judgment must establish an entitlement to judgment as a matter of law. Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); Zuckerman v. City of New York, 49 NY2d 557 (1980). If the party moving for summary judgment fails to establish a prima facie entitlement to judgment as a matter of law, the motion must be denied. Winegrad v. New York University Medical Center, 64 NY2d 851 (1985); Widmaier v. Master Products, Mfg., 9 AD3d 362 (2d Dept. 2004); and Ron v. New York City Housing Auth., 262 AD2d 76 (1st Dept. 1999). CPLR §3212(b) further requires that, in ruling on a motion for summary judgment, the court must determine if the movant's papers justify holding as a matter of law 'that there is no defense to the cause of action or that the cause of action or defense has no merit.' In making this determination, the Court must view the evidence submitted by the moving party in a light most favorable to the non-movant. Marine Midland Bank, N.A. v. Dino & Artie's Automatic Transmission Co., 168 AD2d 610 (2d Dept. 1990). The Court may only grant summary judgment when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. Friends of Animals, Inc. v. Associated Fur Mfrs., 46 NY2d 1065 (1979). [*6]

B. The Restraining Order Frustrated the Purpose of the Contract

The defense of impossibility to perform under a contract is available when there is an unanticipated event that could not have been foreseen or guarded against in the contract. Estates at Mountainview v. Nakazawa, 38 AD3d 828, 829 (2d Dept. 2007), quoting Kel Kim Corp. v. Central Mkts, 70 NY2d 900 (1987). The somewhatrelated doctrine of frustration of purpose applies when the frustrated purpose is so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. Crown IT Services, Inc. v. Olsen, 11 AD3d 263, 265 (1st Dept. 2004). The doctrine of frustration of purpose does not apply unless the frustration is substantial. Rockland Development v. Richlou, 173 AD2d 690 (2d Dept. 1991). The doctrine of impossibility or impracticability of performance is frequently asserted by a party who has contracted to perform work, labor, and services. The defense of frustration of the venture is frequently asserted by the party who has contracted to pay for it. Corbin on Contracts §77.1. Whether a party will be excused from performance on the ground of impracticability or frustration turns on the foreseeability of the event occurring, the fault of the nonperforming party in causing or not providing protection against the event occurring, the severity of harm, and other circumstances affecting the just allocation of the risk. Id.

Here, the central element of the Restoration Contract was the renovation of the home. The Restoration Contract designated the base price for restoration of the home as the 'Proceeds of Insurance.' Moreover, D & A was to commence the restoration work after receiving Nationwide's approval, and the payment schedule was to be agreed upon after settlement of the insurance claim. In sum, J. Unger's objective was to renovate her home with the insurance proceeds, and this was the basis upon which J. Unger and D & A contracted.

Similarly, in the contract with AWC, J. Unger's irrevocable assignment of insurance proceeds confirms that payment with insurance monies was the basis of the furniture refinishing contract. Moreover, while the debris removal contract does not mention insurance, the certificate of satisfaction that authorized Nationwide to pay AWC directly does not distinguish between the furniture refinishing and debris removal contracts. In view of the parties' course of dealing, the Court concludes that payment with insurance monies was also the basis of the debris removal contract.

Justice Iannacci's restraining order prevented J. Unger from using any part of the $1.3 million insurance proceeds to pay for the renovation of the Property. Additionally, D & A has in effect conceded that the venture had been frustrated by ceasing work on the project upon the issuance of the restraining order. Thus, the Court concludes that the issuance of the restraining order was an unanticipated event that frustrated the contracts' purpose, thereby discharging J. Unger's obligation to make payment pursuant to the various contracts. Accordingly, the Court denies Plaintiffs' motion for partial summary judgment as to their breach of contract claims, and grants Defendant J. Unger's motion for summary judgment, dismissing Plaintiffs' breach of contract claims, which are counts one, six and seven of the Complaint. [*7]

C. Plaintiffs' Quantum Meruit Causes of Action May Proceed to Trial

When a contract has been discharged for impracticability or frustration, it is often necessary, in the interests of justice, to adjust the rights of the parties. Calamari & Perillo, Law of Contracts, 6th Ed. §13.23. Thus, the parties must make restitution for benefits conferred on them. The concept of 'benefit' may include expenses incurred by plaintiff in preparation for performance under the contract. Id. Restitution, when employed to 'unwind' a contract that cannot be performed, is thus concerned with equitable adjustment of gains and losses sustained by the parties and not merely the redressing of unjust enrichment. The Court may grant relief on such terms as justice requires, including protection of the parties' reliance interests. Id. In addition, the Court may supply a term that is necessary for a determination of the parties' rights and duties. Id.

Where the parties executed a valid and enforceable written contract governing a particular subject matter, recovery on a theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded. IDT Corp. v. Morgan Stanley, 12 NY3d 132, 142 (2009). Here, however, because the express contracts covering the subject matter of restoration work were frustrated, and thus are not enforceable, Plaintiffs are not barred from recovery in unjust enrichment. As D & A partially performed, and AWC fully performed, their obligations under the respective contracts, Plaintiffs have valid claims for unjust enrichment. Indeed, absent such a claim, J. Unger would receive a significant windfall. Pursuant to its unjust enrichment claim, D & A may recover not only the reasonable value of the work performed, but also the reasonable value of the materials purchased in preparation for the renovation project. Accordingly, the Court denies Defendant J. Unger's motion for summary judgment dismissing Plaintiffs' claims for unjust enrichment, which are counts four, ten and eleven of the Complaint.

D. Factual Issues Preclude Summary Judgment on the Account Stated Claim

An account stated assumes the existence of some indebtedness between the parties, or an express agreement to treat the statement as an account stated. Erdman Anthony & Assoc. v. Barkstrom, 298 AD2d 981 (4th Dept. 2002). Thus, an essential element of an account stated is an agreement with respect to the amount of the balance due. An account stated cannot be used to create liability where none otherwise exists. Id.

Whether a bill has been held without objection for a period of time sufficient to give rise to an inference of assent, in light of all the circumstances presented, is ordinarily a question of fact, and becomes a question of law only in those cases where only one inference is rationally possible. Arrow Employment Agency v. Rosen Bakery Supplies, 2 AD3d 762 (2d Dept. 2003). In light of the fact that D & A had already ceased working on the project when Plaintiffs' invoices were submitted, the Court infers that J. Unger has established a factual issue as to whether she objected to the amount of their charges, as well as the extras for which she would be personally responsible.

On a motion for summary judgment, it is the proponent's burden to make a prima facie showing [*8]of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. JMD Holding Corp. v. Congress Financial Corp., 4 NY3d 373, 384 (2005). Failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers. Id. However, if this showing is made, the burden shifts to the party opposing the summary judgment motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial. Alvarez v. Prospect Hospital, 68 NY2d 320, 324 (1986).

On Defendant J. Unger's motion for summary judgment, it is her burden to make a prima facie showing that she did not owe any liability to Plaintiffs.

Under the standards set forth above, the Court concludes that neither Plaintiffs nor Defendant J. Unger have established prima facie entitlement to judgment on the claims for an account stated, as there is a factual dispute regarding J. Unger's objections to Plaintiffs' charges. Accordingly, the Court denies both Defendant J. Unger's motion for summary judgment dismissing Plaintiffs' claims for an account stated and Plaintiffs' motion for partial summary judgment as to those claims, which are counts three, eight and nine of the Complaint.

E. Mechanic's Lien and Lien Law/Fiduciary Claims May Proceed

Lien Law §3 provides, in pertinent part, that 'A contractor...who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof,...shall have a lien for the principal and interest of the value, or the agreed price, of such labor...or materials upon the real property improved...from the time of filing a notice of lien...' The consent required by the Lien Law is not mere acquiescence and benefit, but some affirmative act or course of conduct establishing confirmation. Modern Era Construction v. Shore Plaza, 51 AD3d 990 (2d Dept. 2008). Here, although the restoration contract was frustrated by the issuance of the restraining order, J. Unger clearly consented to the renovation work being performed by D & A. Thus, a mechanic's lien may be enforced against the property specified in the notice of lien and against any person liable for the debt upon which the lien is founded. Lien Law §24.

In an action to foreclose on a mechanic's lien, the Court must deny a contractor's application for summary judgment if there exists a question of fact as to the owner's underlying liability. See Timothy Coffey Nursery v. Gatz, 304 AD2d 652 (2d Dept. 2003). The Court understands J. Unger's position in the matrimonial action to have been that D & A should be paid out of the insurance proceeds. While this position arguably estops her from contesting the validity of the lien, it does not preclude her from litigating the amount of her liability. Moreover, in light of the Court's decision, J. Unger's potential liability is based upon quantum meruit rather than breach of contract. In light of the foregoing, the Court denies Defendant J. Unger's motion for summary judgment dismissing D & A's claim for foreclosure of the mechanics' lien, which is count two of the Complaint. In addition, as there is a question of fact as to the value of the work that D & A performed, the Court also denies Plaintiffs' motion for partial summary judgment on D & A's claim for foreclosure of the mechanic's lien. [*9]

With respect to count five, which is described in the Complaint as based on a breach of fiduciary/lien law violation, §70(1) of the Lien Law provides that certain funds received by an owner 'for or in connection with an improvement of real property' shall constitute assets of a trust. The assets of the trust of which the owner is trustee include funds received by him 'as proceeds of any insurance payable because of the destruction of the improvement or its removal by fire or other casualty....' (Lien Law §70(5)(f). When an owner receives insurance proceeds as a result of damage to the property, the owner must hold the funds in trust for the contractor whom it has requested to perform the repair. Canron Corp. v. New York, 89 NY2d 147 (1996). Lien Law §72 provides, in pertinent part, that 'Any transaction by which any trust asset is paid, transferred, or applied for any purpose other than a purpose of the trust...before payment or discharge of all trust claims with respect to the trust, is a diversion of trust assets,...and if the diversion occurs by the voluntary act of the trustee or by his consent such act or consent is a breach of trust.' Accordingly, on J. Unger's motion for summary judgment, it is her burden to make a prima facie showing that she did not voluntarily consent to the restraining order, which prohibited her from paying Plaintiffs with the insurance proceeds. In light of J. Unger's opposition to A. Unger's application for the restraining order and her appeal from the restraining order, the Court concludes that she has met that burden.

Nevertheless, J. Unger is not entitled to summary judgment because there is a triable issue of fact as to whether she committed a voluntary act constituting a breach of trust. Indeed, on November 24, 2008, J. Unger stipulated in the matrimonial action to disposal of $344,000 of the insurance proceeds. Pursuant to that stipulation, J. and A. Unger each received $100,000 of the insurance proceeds, their attorneys each received $50,000 of the proceeds, and $32,000 was to be used to pay real estate taxes on property located at 45 W. John Street in Hicksville, New York in which A. Unger had an interest. ^[FN2]$12,000 was to be paid to a heating company, apparently for services to be performed for A. Unger.

Each of these payments arguably constitutes a breach by J. Unger of the fiduciary duty that she owes to D & A, regardless of whether she herself received any benefit. The Court thus denies J. Unger's motion for summary judgment dismissing count five of the Complaint.

All matters not decided herein are hereby denied.

This constitutes the decision and order of the Court.

The Court reminds counsel of their required appearance at a conference before the Court on