Decided and Entered: October 06, 2026

Index No. 657290/19|Appeal No. 7140-7141|Case No. 2025-07418 2025-07940|

Before: Mendez, J.P., Rodriguez, Pitt-Burke, Rosado, O'Neill Levy, JJ.

[*1]

Judgment, Supreme Court, New York County (Andrew Borrok, J.) entered December 11, 2025, awarding judgment against plaintiffs in favor of defendant in the amount $850,000 plus prejudgment interest, and bringing up for review an order, same court and Justice, entered November 1, 2024, which granted defendant's motion for disgorgement and return of retained funds, unanimously affirmed, with costs. Order, same court and Justice, entered on or about October 29, 2025, which, to the extent appealed from, held plaintiffs in civil contempt for failure to turn over the money awarded in the judgment, unanimously affirmed, with costs.

The action underlying this appeal arises out of an allegedly defective HVAC system installed by defendant. In its complaint, plaintiffs alleged that the HVAC system leaked, damaging the property of plaintiff 5 Beekman Property Owner, LLC and requiring plaintiffs to incur expenses in mitigating the damage. During the course of settlement negotiations, one of defendant's insurers, apparently in the mistaken belief that the parties had reached a settlement, paid $850,000 to plaintiff Broadway Construction Group, LLC even though a full settlement agreement was not actually in place. By order entered November 1, 2025, Supreme Court ordered plaintiffs to return the $850,000 to defendant, with interest.

Initially, under the doctrine of implied severance, the appeal from the December 11, 2025 judgment brings up for review the nonfinal November 1, 2025 order of disgorgement, as the dispute resolved by the disgorgement order does not arise out of the same continuum of facts as the unresolved causes of action (see Burke v Crosson, 85 NY2d 10, 16-17 [1995]). In the pleadings, plaintiffs allege breach of contract and defendant interposes counterclaims for nonpayment and foreclosure on a mechanic's lien, matters that all arise from installation of the allegedly defective HVAC system and are entirely separate from the dispute over the purported settlement payment. Thus, the order resolves a dispute — namely, whether the parties reached a final settlement and whether plaintiffs were entitled to keep the insurance company payment — different from the ones presented by the underlying action (id.).

[*2]

As to defendant's standing, we may reach the issue even though plaintiffs did not raise it before Supreme Court, as it turns on a question of law and may be resolved on the face of the existing record (see Vanship Holdings Ltd. v Energy Infrastructure Acquisition Corp., 65 AD3d 405, 408 [1st Dept 2009]). Defendant has shown that it has an interest in the $850,000 payment, which was made by defendant's insurer on its behalf and came out of the proceeds paid by defendant for its insurance policy (see Silver v Pataki, 96 NY2d 532, 539 [2001]). In addition, defendant has shown an injury-in-fact inflicted by plaintiffs' retention of the settlement payment even though no settlement had actually been reached (id.). These showings are sufficient to confer standing.

The voluntary payment doctrine, which "bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law," does not apply on these facts (Dillon v U-A Columbia Cablevision of Westchester, Inc., 100 NY2d 525, 526 [2003]). Under the doctrine, the payor — here, defendant's insurer — must object or reserve rights at the time of payment in order to avoid the effect of the doctrine (see DRMAK Realty LLC v Progressive Credit Union, 133 AD3d 401, 403 [1st Dept 2015]). The insurer made such a reservation here, noting on the check that it was a "Settlement Payment for" defendant. However, there was no such settlement, and therefore, no voluntary payment, as the payment was based on the insurer's mistake (Dillon, 100 NY2d at 526).

Supreme Court correctly held plaintiffs in civil contempt for failing to disgorge the funds. Although contempt may not be used to enforce the payment of a money judgment (Judiciary Law § 753[A][3]), there was no judgment entered at the time the court issued the contempt order. Furthermore, we reject plaintiffs' assertion that the original order directing disgorgement cannot form the basis for a contempt finding against plaintiff Broadway Construction Group (BCG) because the order did not name BCG. Plaintiffs' corporate representative stated in an affidavit that both plaintiffs jointly received and deposited the settlement check.

We have considered plaintiffs' remaining contentions and find them unavailing.

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: October 6, 2026