A recent Appellate Division, Second Department decision highlights an unfortunate truth when trying to rid yourself of a defaulting subcontractor – even after you terminate the subcontractor for cause, the subcontractor can continue to cost you significant money by tying you up in litigation for years. In All Nations Steel Corp. v. KSK Construction Group, LLC, the Second Department underscored just how difficult it is to dismiss a breach of contract claim at the pleading stage in construction litigation unless the documentary record conclusively defeats the claim as a matter of law.

The dispute arose out of a construction project in which the plaintiff-subcontractor alleged that it was wrongfully terminated by the defendants, the general contractor and owner. The defendants contended that termination was proper, because the subcontractor failed to procure insurance in strict compliance with the subcontract requirements. Relying on that alleged noncompliance, the defendants, in lieu of filing an answer to the summons and complaint, moved to dismiss the complaint or, in the alternative, issue a determination on summary judgment that the subcontractor’s potential recovery was limited to $50,000 based on a liquidated damages provision in the Subcontract. The Supreme Court denied the defendant’s motion, and the defendants appealed.

On appeal, the Second Department affirmed the Supreme Court’s decision, providing a pointed reminder of the high burden governing pre-answer motions to dismissal. While there are several specific grounds upon which a defendant may move to dismiss a cause of action, seeking dismissal based on “documentary evidence” is often most popular. New York courts, however, have consistently interpreted the phrase “documentary evidence” narrowly. To succeed, the movant must produce evidence that is unambiguous, authentic, and essentially undeniable—and that “utterly refutes” the plaintiff’s factual allegations, conclusively establishing a defense as a matter of law (e.g., contracts, judicial records, deeds, etc.).

In this case, the defendants relied in part on affidavits and related submissions to argue that the subcontractor failed to obtain the required insurance. The Court reiterated that affidavits, deposition testimony, and letters do not constitute “documentary evidence” within the meaning of the applicable statute. Even where an insurance policy or contract is submitted, dismissal is inappropriate if the documents are subject to interpretation or do not conclusively negate the plaintiff’s claims. Here, the materials relied upon by the defendants did not definitively establish noncompliance with the subcontract’s insurance provisions. Because the evidence did not utterly refute the complaint, the motion to dismiss was denied.

The Court also addressed another popular basis for a motion to dismiss: failure to state a cause of action. The standard here is equally as plaintiff-friendly. On such a motion, courts must liberally construe the complaint, accept the alleged facts as true, and accord the plaintiff the benefit of every possible favorable inference. The inquiry is not whether the plaintiff could ultimately prove the allegations, but whether the facts as pleaded fit within any cognizable legal theory.

Applying that standard, the Second Department concluded that the subcontractor-plaintiff adequately pled the elements of a breach of contract claim: the existence of a contract, its own performance, the defendants’ alleged breach in wrongfully terminating the subcontract, and resulting damages. Whether the subcontractor’s allegations within the complaint were true, including whether the subcontractor ultimately complied with the insurance requirements, was a factual dispute not resolvable at this stage of litigation. Simply stated, as long as the complaint alleges performance and breach in legally sufficient terms, dismissal for failure to state a claim is not appropriate.

The defendants’ alternative request for summary judgment fared no better. Unlike a motion to dismiss, summary judgment requires the movant to establish prima facie entitlement to judgment as a matter of law by eliminating all triable issues of fact (the evidence a court may consider on summary judgment is not confined to the strict “documentary evidence” for a motion to a dismiss). Only if that burden is met does the burden shift to the opposing party. In construction cases—where performance, compliance, notice, and termination often turn on nuanced factual questions—this is a substantial hurdle.

For construction contractors and owners, the practical takeaway is clear: the threshold for dismissing a breach of contract claim in New York is intentionally high. A motion to dismiss is not a vehicle for resolving competing interpretations of contractual provisions or factual disputes over performance. This reality has strategic implications.

First, parties should not assume that a perceived technical default—such as alleged noncompliance with insurance or notice provisions—will justify early dismissal before the discovery stage of litigation. If the contractual language is open to interpretation or if compliance can reasonably be disputed, the case is likely to survive.

Second, contractors should understand that termination decisions, even when made in good faith, are frequently scrutinized in litigation. Courts are reluctant to resolve those disputes without a full factual record. As this decision illustrates, New York’s procedural standards strongly favor allowing breach of contract claims to proceed unless a defense is conclusively established on the face of authentic, unambiguous documentary evidence.

In short, the Second Department’s ruling reinforces a fundamental principle of New York construction law: early dismissal of a breach of contract claim is the exception, not the rule. Contractors facing such claims should be prepared for litigation beyond the pleading stage—and should plan their project documentation, risk management, and termination strategies accordingly.