GBL § 349, Article 36‑A, and Lien Law Article 3‑A Do Not Create an Independent Tort Duty for Contractors: Second Department Refines Pleading Boundaries in Home-Renovation Disputes

Case: Kovalenko v. Bhatti General Contracting & Development, LLC, 2025 NY Slip Op 05071 (App. Div. 2d Dep’t Sept. 24, 2025) (uncorrected opinion)

Court: Appellate Division of the Supreme Court, Second Department

Panel: Miller, J.P., Dowling, Ventura, and Golia, JJ. (Barry, J., at Supreme Court)

Index No.: 505994/23 (Kings County)

Parties: Plaintiff-Respondent: Yosef Simcha Kovalenko; Defendants-Appellants: Bhatti General Contracting & Development, LLC (BGCD) and its principal, Farhan Ali Bhatti

Introduction

This appeal arises from a home-renovation dispute in which the homeowner alleged a range of contract and tort claims against a contractor and its principal. After the Supreme Court denied a CPLR 3211(a)(7) motion to dismiss several claims and to dismiss the principal from the suit, the Second Department modified the order, pruning certain causes of action while allowing others to proceed.

The case is doctrinally significant for three principal clarifications:

• General Business Law (GBL) § 349 and GBL Article 36‑A (home improvement contracts), and Lien Law Article 3‑A (trust funds) do not, without more, impose an additional negligence-based standard of care on contractors; negligence claims require a duty independent of the contract.
• “Single-shot” home-renovation disputes typically are not “consumer-oriented” for GBL § 349 purposes absent allegations of a broader public impact.
• At the pleading stage, homeowners may maintain claims for fraudulent inducement and unjust enrichment (particularly where licensing noncompliance may render a contract unenforceable), and may pursue veil-piercing allegations to keep a corporate principal in the case.

Summary of the Opinion

The Appellate Division modified the trial court’s order as follows:

• Veil Piercing (as to Farhan Ali Bhatti): The complaint adequately alleged domination and abuse of the corporate form; dismissal as to the principal was properly denied.
• Fraudulent Inducement (First Cause of Action): Adequately pleaded with particularity under CPLR 3016(b) based on alleged misrepresentations concerning licensing and familiarity with regulatory and safety codes; survives.
• Unjust Enrichment (Fourth Cause of Action): Properly pleaded as an alternative to contract; survives, especially in light of allegations that defendants were unlicensed, potentially rendering the contract unenforceable.
• GBL § 349 (Second Cause of Action): Dismissed. The complaint alleged a private, single-shot transaction, not consumer-oriented conduct.
• Negligence (Fifth Cause of Action): Dismissed. No independent duty beyond the contract was alleged, and GBL § 349, GBL Article 36‑A, and Lien Law Article 3‑A do not create an additional standard of care.
• Implied Covenant of Good Faith and Fair Dealing (Eighth Cause of Action): Duplicative of the breach of contract claim; dismissed.
• Implied Warranty of Workmanlike Performance (Ninth Cause of Action): Not applicable to renovation services; dismissed.

Analysis

Precedents Cited and Their Role in the Decision

1) Veil Piercing

• Louis Monteleone Fibres, Ltd. v Hudson Baylor Brookhaven, LLC, 228 AD3d 641, 644 – Reaffirmed the two-prong standard: complete domination and use of that domination to commit a fraud or wrong causing injury.
• Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d 30, 46–47 – Court of Appeals articulation of the veil-piercing framework, emphasizing abuse of the corporate form to perpetrate a wrong or injustice.
• Gold v 22 St. Felix, LLC, 219 AD3d 588, 590 – Recent Second Department application sustaining veil-piercing allegations at the pleading stage.

The court relied on these authorities to hold that plaintiff sufficiently alleged domination and misuse of BGCD by Bhatti, justifying denial of dismissal as to him personally at the pleading stage.

2) Fraudulent Inducement

• New Hackensack Realty, LLC v Lawrence Dev. Realty, LLC, 226 AD3d 799, 801 – Sets out the elements of fraudulent inducement: knowing misrepresentation of material present fact, intent to induce reliance, causation of injury.
• CPLR 3016(b) – Requires particularity in pleading fraud; the complaint must allege the circumstances constituting the wrong in detail.
• Robles v Patel, 165 AD3d 858, 859 – Illustrates application of CPLR 3016(b)’s particularity requirement.

Because the plaintiff alleged misrepresentations about licensing status and familiarity with applicable codes and regulatory requirements—quintessential present facts—the court found the fraud claim sufficiently particularized and non-duplicative at this stage.

3) Unjust Enrichment and Licensing Defects

• Berkovits v Berkovits, 190 AD3d 911, 917 – Elements of unjust enrichment: enrichment at plaintiff’s expense and equity and good conscience favor restitution.
• Travelsavers Enters., Inc. v Analog Analytics, Inc., 149 AD3d 1003, 1007 – Confirms those elements.
• El-Nahal v FA Mgt., Inc., 126 AD3d 667, 668; F & R Goldfish Corp. v Furleiter, 210 AD3d 643, 646 – Permits unjust enrichment as an alternative pleading where the existence or enforceability of a contract is in dispute (see CPLR 3014).
• San Sung Korean Methodist Church of N.Y. v Professional USA Constr. Corp., 14 AD3d 501, 502 – Unlicensed home improvement contractors under NYC Administrative Code § 20‑387 render contracts unenforceable.
• Tzu Yen Cheung v Dolar Shop Rest. Group, LLC, 229 AD3d 738, 740 – Supports alternative pleading where contract enforceability is uncertain.

The allegation that defendants lacked required licensing (Administrative Code of the City of New York § 20‑387) supported alternative quasi-contract recovery, permitting the unjust enrichment claim to move forward in parallel with the contract claim at the pleading stage.

4) GBL § 349: Consumer-Oriented Conduct Requirement

• Singh v City of New York, 40 NY3d 138, 147 – Confirms the statutory prohibition on deceptive acts and practices.
• Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew Bender & Co., Inc., 37 NY3d 169, 176; Abraham v Torati, 219 AD3d 1275, 1280–1281 – State the elements and reiterate the consumer-oriented threshold requirement.
• Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25 – Foundational Court of Appeals decision: conduct must be consumer-oriented.
• Tiffany Tower Condominium, LLC v Insurance Co. of Greater N.Y., 164 AD3d 860, 863 – Private disputes unique to the parties typically fall outside § 349.
• New York Univ. v Continental Ins. Co., 87 NY2d 308, 320–321 – “Single-shot” bespoke transactions are not consumer-oriented without broader impact.
• Katsorhis v 718 W. Beech St, LLC, 234 AD3d 744, 749; Sakandar v American Tr. Ins. Co., 231 AD3d 759, 760; Eva Chen Fine Jewelry, Inc. v Recovery Racing IX, LLC, 222 AD3d 840, 842; JP Morgan Chase Bank, N.A. v Hall, 122 AD3d 576, 581 – Illustrate the “single-shot” principle in analogous contexts.

Applying these, the court dismissed the § 349 claim: the complaint described a private, tailor-made construction arrangement without allegations of a broader consumer-facing practice or recurring public impact.

5) Negligence vs. Contract: The Independent Duty Requirement

• Katsorhis v 718 W. Beech St, LLC, 234 AD3d 744, 747; Davila v Orange County, 215 AD3d 632, 633–634 – Elements of negligence.
• Kollatz v KOS Bldg. Group, LLC, 188 AD3d 1175, 1178–1179; 431 Conklin Corp. v Rice, 181 AD2d 716, 717 – A simple breach of contract is not a tort absent an independent duty.
• Dormitory Auth. of the State of N.Y. v Samson Constr. Co., 30 NY3d 704, 711; Sommer v Federal Signal Corp., 79 NY2d 540, 551–553 – Independent tort duties may arise where services are affected with a significant public interest and failures risk catastrophic consequences (e.g., fire alarm services; professional design services).
• Michael Davis Constr., Inc. v 129 Parsonage Lane, LLC, 194 AD3d 805, 806–807 – Construction-related tort claims can lie where a distinct duty exists; otherwise they sound in contract.

Here, plaintiff alleged no duty independent of the contract, and the court squarely rejected the argument that GBL § 349, GBL Article 36‑A, or Lien Law Article 3‑A create an additional negligence standard for contractors. The negligence claim therefore failed.

6) Implied Covenant of Good Faith and Fair Dealing

• 25 Bay Terrace Assoc., L.P. v Public Serv. Mut. Ins. Co., 144 AD3d 665, 667; Elmhurst Dairy, Inc. v Bartlett Dairy, Inc., 97 AD3d 781, 784 – Every contract has an implied covenant covering promises a reasonable promisee would understand to be included.
• Cortazar v Tomasino, 150 AD3d 668, 670; Tiffany Tower Condominium, LLC v Insurance Co. of Greater N.Y., 164 AD3d 860, 862; Hymowitz v Nguyen, 209 AD3d 997, 1002; BT Holdings, LLC v Village of Chester, 189 AD3d 754, 759 – If the implied covenant claim is based on the same conduct and harm as the contract claim, it is duplicative and must be dismissed.

Because the implied covenant claim mirrored the breach of contract claim in conduct and injury, it was dismissed as duplicative.

7) Implied Warranty of Workmanlike Performance vs. Housing Merchant Warranty

• Caceci v Di Canio Constr. Corp., 72 NY2d 52, 56 – Recognizes the implied housing merchant warranty for the sale of newly constructed homes.
• Milstein v Incorporated Vil. of Port Jefferson, 154 AD2d 442, 443 – Confirms the scope of the housing merchant warranty.
• Milau Assoc. v North Ave. Dev. Corp., 42 NY2d 482, 488; Town of Poughkeepsie v Espie, 41 AD3d 701, 706 – No warranty attaches to the performance of services (such as renovations), absent statutory provision.

Because this case involved a renovation of an existing home, not the sale of a newly constructed home, no implied warranty applied; the ninth cause of action was dismissed.

Legal Reasoning: How the Court Reached Its Result

• Pleading stage posture (CPLR 3211[a][7]): The court accepted the complaint’s facts as true and granted plaintiff the benefit of every favorable inference. Within that framework, it distinguished between claims sounding in contract and those that, under New York law, may proceed in tort or quasi-contract.
• Veil piercing: The complaint alleged sufficient facts of domination and misuse of BGCD by its principal to perpetrate a wrong (e.g., licensing misrepresentations; alleged abusive corporate conduct). At the pleading stage, this sufficed to keep the principal in the case.
• Fraudulent inducement: Alleged misstatements about license status and regulatory compliance are misrepresentations of “material present fact,” not mere promises of future performance, and were pleaded with the detail CPLR 3016(b) requires. That made the fraud claim non-duplicative of contract at this stage.
• Unjust enrichment as alternative: Because plaintiff alleged defendants were unlicensed—potentially rendering the contract unenforceable under NYC Admin. Code § 20‑387—CPLR 3014 permitted alternative quasi-contract pleading. Plaintiff alleged payment of $260,000 and incomplete work, sufficiently stating a restitutionary claim.
• GBL § 349: The court enforced the consumer-oriented threshold. A tailored, one-off home renovation, without facts showing offerings to the broader public or recurring practices affecting consumers at large, is outside § 349’s ambit.
• Negligence vs. contract duty: Absent an independent duty—such as a professional duty or services implicating significant public safety concerns with potential for catastrophic harm—construction disputes sound in contract. The court expressly held that GBL § 349, GBL Article 36‑A, and Lien Law Article 3‑A do not impose an additional negligence-based standard of care on contractors.
• Implied covenant and implied warranty: The covenant claim duplicated the breach claim and thus was dismissed. The implied warranty of workmanlike performance is not recognized for renovation services; only the statutory housing merchant warranty applies to new home sales, rendering the ninth cause untenable.

Impact and Practical Implications

A. For Litigants in Home-Renovation Disputes

• Pleading fraud effectively: Specific, pre-contract misrepresentations of present fact (e.g., license status, code compliance expertise) can sustain fraudulent inducement separate from contract claims.
• Use unjust enrichment strategically: When licensing defects may render a contract unenforceable, unjust enrichment remains a viable alternative theory to recover funds paid for incomplete or deficient work.
• Think twice before adding § 349: Unless you can plead consumer-oriented conduct with broader public impact—advertising to the general public, standardized deceptive practices, multiple consumer victims—§ 349 claims risk early dismissal.
• Avoid duplicative claims: Claims for breach of the implied covenant and implied warranty of workmanlike performance are likely to be dismissed when tied to the same conduct as the contract claim and when the work involves services or renovations, not the sale of a newly constructed home.

B. For Contractors and Their Principals

• Corporate formalities matter: Plaintiffs can keep principals in a case at the pleading stage with well-supported veil-piercing allegations. Maintain separateness, capitalization, and lawful use of company funds to mitigate this risk.
• Licensing is critical: Working without required home improvement licenses can render contracts unenforceable and enable restitutionary claims from homeowners.
• Tort exposure: Routine renovation disputes will generally remain in contract. However, where services involve significant public safety or professional obligations (e.g., engineering, architecture, fire protection), independent tort duties may arise—raising exposure.

C. Doctrinal Clarifications Likely to Influence Future Cases

• No “negligence-by-statute” under GBL § 349, Article 36‑A, or Lien Law Article 3‑A: Parties cannot repackage statutory noncompliance into a negligence standard of care without an independent common-law duty. Statutory remedies (e.g., trust fund liability under Lien Law Article 3‑A) may exist, but they do not transform contract breaches into torts.
• Consumer-oriented showing for § 349: Trial courts now have fresh, on-point authority to dismiss § 349 claims in bespoke home-renovation disputes lacking broader public impact allegations.
• Renovations vs. new home sales: The court reiterates the sharp line between services (no implied warranty of workmanlike performance) and sales of new homes (statutory housing merchant warranty).

Complex Concepts Simplified

• CPLR 3211(a)(7): A pre-answer motion to dismiss for failure to state a claim. The court assumes the pleaded facts are true and asks whether, as a matter of law, the complaint states a cognizable claim.
• Veil Piercing: A way to hold a company’s owners personally liable by showing they dominated the entity and misused it to commit a wrong that caused injury.
• Fraudulent Inducement: Lying about an important present fact to get someone to enter a contract. Must be pleaded with extra detail (who, what, when, where, how) under CPLR 3016(b).
• Unjust Enrichment: A fairness-based claim to recover money when someone received a benefit they should not keep—often used when a contract is invalid or unenforceable.
• GBL § 349 (Deceptive Practices): Protects consumers from deceptive business practices affecting the public at large. Private, one-off disputes rarely qualify unless there is broader consumer impact.
• Independent Duty (Contract vs. Tort): To sue in negligence (tort) alongside breach of contract, you must show the defendant owed duties beyond the contract—often arising in professional or public-safety contexts.
• Implied Covenant of Good Faith: Every contract includes a promise not to undermine the bargain. But a separate claim will be dismissed if it just repackages the breach of contract.
• Implied Housing Merchant Warranty vs. Workmanlike Performance: New York recognizes a statutory implied warranty only for the sale of newly constructed homes, not for renovation services.
• NYC Home Improvement Licensing (Admin. Code § 20‑387): Requires a license to perform home improvements. Lack of a license can make the contractor’s contract unenforceable and open the door to restitution claims by homeowners.

Conclusion

Kovalenko delivers a careful recalibration of the boundary lines between contract, tort, and statutory regimes in the home-renovation context. The Second Department:

• Preserved claims that rest on pre-contract misrepresentations and equitable restitution (fraudulent inducement and unjust enrichment), and allowed veil-piercing allegations to keep the principal in the case at the pleading stage.
• Eliminated claims that overreach beyond the contract without an independent legal duty (negligence), and rejected attempts to bootstrap duty from GBL § 349, Article 36‑A, or Lien Law Article 3‑A.
• Confirmed that bespoke home-renovation disputes typically do not meet § 349’s consumer-oriented requirement and that no implied warranty attaches to renovation services.

The opinion will guide trial courts in streamlining pleadings in construction disputes: claims sounding in contract proceed; duplicative covenant and nonapplicable warranty theories fall away; and tort claims survive only where a distinct duty exists. For practitioners, Kovalenko underscores the importance of precise pleading—especially regarding licensing representations, consumer orientation for § 349, and corporate formalities relevant to veil piercing.