Opinion
00-CV-1003E(Sc)
November 21, 2001
MEMORANDUM and ORDER
Plaintiff Cleveland Wrecking Co. commenced this diversity action for breach of contract November 30, 2000 against defendant Nova Casualty Co. Plaintiff is incorporated in California with its principal place of business in that state. Defendant is a resident of New York with its principal place of business here. The amount in controversy exceeds $75,000 and this case is therefore properly before this Court pursuant to 28 U.S.C. § 1332.
On September 9, 1998 the City of Elmira N.Y. and third-party defendant Cedar Wrecking and Salvage ("Cedar") entered into a contract referred to as "1998-99 Demolition of Residential Commercial Structures for the City of Elmira" (the "Sept. 1998 Contract") for the public improvement project commonly known as 117-169 North Main Street, Elmira, N.Y. (the "Project").
Under the Sept. 1998 Contract Cedar agreed to act as the general contractor and was permitted to hire subcontractors to furnish materials and labor for the Project. Cedar then subcontracted part of the work out to plaintiff. As part of Cedar's contract with Elmira, it was required to secure a Labor and Materials Payment Bond to ensure that all those supplying labor, materials and/or equipment on the Project would be paid. Cedar secured such a bond from defendant in the amount of $150,000 on September 10, 1998 (the "Bond").
Plaintiff then began working on the project, eventually completing it in a workmanlike manner. After Cedar had filed for bankruptcy on February 6, 2001, plaintiff made a demand for payment from defendant for $87,097.05, the amount it claimed was due for the labor and materials used in the work it had completed. Pl.'s Mem. in Supp. for Mot. for Summ. J. ("Pl.'s Memo") at 5.
Plaintiff provided necessary documentation for all its claims. After its demand had been refused, plaintiff instituted the present action.
Following discovery, plaintiff sought summary judgment on the ground that, because it had completed all that was required of it under the Sept. 1998 Contract, it was entitled to payment under the Bond. Pl.'s Memo at 9-16.
Plaintiff has also asked this Court for interest calculated from June 22, 2000, along with attorneys fees and punitive damages for defendant's bad faith investigation and adjudication.
Following plaintiff's motion for summary judgment, defendant made its own motion on the following grounds — viz., (1) the Bond is limited to work for the Sept. 1998 Contract which expired on June 30, 1999 and therefore it does not cover work performed by plaintiff after August 31, 1999, (2) plaintiff is not a subcontractor and/or materialman as defined by the Bond and therefore is not a claimant under such, (3) defendant conducted a good faith investigation so plaintiff is not entitled to interest, attorneys fees or punitive damages.
Defendant then filed a third-party complaint against Cedar arguing that it should be indemnified by Cedar for any money that it has to pay plaintiff. For the reasons that follow, plaintiff's motion for summary judgment will be granted to the extent that it asks this Court to award plaintiff the $87,097.05 due under the Bond and to the extent it asks for interest. It will be denied to the extent that it asks for attorneys fees and for punitive damages. Defendant's motion for summary judgment will be granted on the grounds that plaintiff is not entitled to attorneys fees and punitive damages and will be denied as to all other grounds. Rule 56(c) of the Federal Rules of Civil Procedure ("FRCvP") states that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The party seeking summary judgment bears the burden of demonstrating to the court the "lack of a genuine triable issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). A fact is material if it "might affect the outcome of the suit under the governing law" and is genuine if it "is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, 477 U.S. 242, 247-248 (1986). When ruling on a motion for summary judgment the court must view the facts in the "light most favorable to the opposing party." Adickes v. Kress Co., 398 U.S. 144, 157 (1970). However, the opposing party may not rest upon conclusory statements in its pleadings, but rather is required to "set forth specific facts showing that there is a genuine issue for trial."
As noted supra Cedar filed for bankruptcy protection on February 6, 2001 and defendant's third-party claim would facially violate the automatic stay. This Court will not dismiss the third-party claim however.
FRCvP 56(e). In diversity actions federal courts apply the substantive law of the forum state including its choice-of-law rules. Klaxon Co. v. Stentor, 313 U.S. 487, 496 (1941); Day Zimmermann, Inc. v. Challoner, 423 U.S. 3, 4 (1975). Accordingly, this Court will apply New York's choice-of-law rules.
New York utilizes the "center of gravity" or "grouping of contacts" choice-of-law rule in contract cases. In re Allstate Ins. Co. and Stolarz, 81 N.Y.2d 219, 226 (1993); Brink's Limited v. South African Airways, 93 F.3d 1022, 1030-1031 (2d Cir. 1996), cert. denied, 519 U.S. 1116 (1997). Under this rule the pertinent factors to be considered are "the place of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile of the contracting parties." Allstate, at 227. Based on these factors, this Court will apply New York law.
Internal citations omitted.
Cleveland has moved for summary judgment on the ground that, under New York law, a surety is obligated to pay the beneficiary of that bond when it submits documentary proof of entitlement. Capitol Refrig. Co. v. Mass. Bonding Ins. Co., 19 A.D.2d 667 (3d Dep't 1963); State Plastering Co. v. Mass. Bonding Insur. Co., 19 A.D.2d 683 (3d Dep't 1963) This is an accurate statement of the law; however, the undersigned deems it appropriate to first address the grounds for summary judgment raised by defendant because, if any of these raises a genuine issue of material fact as to whether plaintiff is entitled to payment, summary judgment for plaintiff would not be proper.
Defendant argues that the Bond is limited to the Sept. 1998 Contract which expired June 30, 1999 and does not cover the work performed by plaintiff after August 31, 1999. Def.'s Mem. of Law in Opp'n to Summ. J. ("Def.'s Memo") at 10-11. According to defendant, Cedar entered into two contracts with Elmira — the first one for demolition ending on June 30, 1999 and the second one for demolition commencing some time after June 30, 1999. As proof of this proposition, defendant points to affidavits by Frailey, one of its assistant vice presidents and managers, attesting to this fact. Frailey Dep. at 8-9.
In addition, defendant points to a statement made by Cedar's president where she stated that the contract between Elmira and Cedar would only be for one year. Plaintiff rebuts this assertion on the ground that there was never a second contract on June 30, 1999. Rather, the second contract which defendant claims superceded the agreement between Elmira and Cedar was only a work order to be performed under the Sept. 1998 Contract and not at all a separate contract. Robert Gogick's Reply Brief ("Gogick's Brief") at ¶ 5, DeFranks Supp. Aff. at ¶¶ 13-14. Therefore, the work performed by plaintiff was still covered by the Bond although it occurred after the stated expiration date of the Sept. 1998 Contract. The Bond reads:
"Principal has by written agreement dated September 9, 1998, entered into a contract with [Elmira] for 1998-1999 Demolition of Residential Commercial Structures in accordance with the Drawings and Specifications prepared by (here insert the name and address or legal title of Architect) which contract is by reference made a part hereof, and is hereinafter referred to as the Contract.
"NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION is such that if Principal shall properly make payment to all claimants as hereinafter defined, for all labor and materials used or reasonably acquired for use in the performance of the Contract, then this obligation shall be void; otherwise it shall remain in full force and effect, subject, however, to the following conditions * * *."
The conditions listed are not pertinent.
Under New York law "when the terms of a written contract are clear and unambiguous, the intent of the parties must be found therein." Nichols v. Nichols, 306 N.Y. 490, 496 (1954). If, however, there is uncertainty in the terms of the written agreement, the court is then permitted to turn to parol evidence to help in determining the meaning of such. Loch Sheldrake Assoc. v. Evans, 306 N.Y. 297, 304 (1954). The Bond does clearly refer to the Sept. 1998 Contract so non-observance of the cut-off dates in the Sept. 1998 Contract coverage would be precluded by the parol evidence rule itself and not any cut-off dates perceived by defendant.
Section 30-03 of the Sept. 1998 Contract states: "The terms of this contract shall begin on July 1, 1998 and continue through June 30, 1999. The City [of Elmira] may, upon mutual consent with the successful contractor(s), extend this contract for a period of up to one (1) year, at the same price bid, and under the same terms and conditions as set forth in the original contract."
On June 10, 1999 Elmira and Cedar entered into an agreement to perform demolition services after June 30, 1999. Def.'s Rule 56 Statement at ¶ 1(b).
Defendant argues that this constitutes a second agreement and therefore that any work performed thereunder would not be covered by the surety. Plaintiff argues that the June 30, 1998 document which defendant claims is a second contract is a work order requesting that plaintiff perform services for Cleveland under the original terms of the contract. Gogick's Brief at ¶ 5. Therefore, according to plaintiff, it is part of the Sept. 1998 Contract so work performed under the agreement is covered by the Bond issued by defendant.
Under New York law notices to proceed are prerequisites to commencing municipal construction jobs. P.T. L. Construction Company, Inc., v. State of New York, 179 A.D.2d 850, 852 n. 2 (3d Dep't 1992). The Sept. 1998 Contract provided in sections 30-11 and 80-02 that notices to proceed would be given at different stages. Because notices to proceed were required under the agreement in order to proceed, any notice would not be a separate contract and would therefore be covered under the Bond.
Section 30-11 provides: "After execution of the Contract a Notice to Proceed form will be issued to the Contractor which shall clearly and accurately set forth the structure(s) which are to be demolished and the time in which such demolition and all work associated therewith shall be completed. * * * The Contractor will not be permitted to commence any work prior to the receipt of a Notice to Proceed for a given parcel(s). Furthermore, the Contractor may not start work until a pre-start meeting is held between the Contractor and the Owner of each individual parcel."
Section 80-02 provides: "The notice to proceed for each parcel shall state the date on which it is expected the contractor will begin their work and from which date contract time will be charged. The contractor shall begin the work to be performed under the contract within 10 days of the date set by the inspector in the written notice to proceed, but in any event, the contractor shall notify the inspector at least 24 hours in advance of the time actual construction operations will begin. No work may begin at a parcel without a pre-start meeting between the contractor and the inspector at the parcel."
The instant issue is complicated by the fact that the notice to proceed was given after the date that the contract was supposed to terminate. Contrary to defendant's assertion, this Court opines that the Bond covers any work done under the Sept. 1998 Contract and is not limited to a specific time period. The express terms of the Bond state that it is for the "1998-1999 Demolition of Residential and Commercial Structures". Therefore, by referencing the prior contract the Bond incorporates the terms of the Sept. 1998 Contract. By the express terms of such contract, the work was supposed to last for one year; however, there was the possibility to extend it for another year. Any incorporated time limits did not definitively limit the term of the Sept. 1998 Contract. In addition and because the Bond is unambiguously limited only by the terms of the original contract, this Court will not read any additional time limitations into it. Therefore, work performed after June 30, 1999 was covered by the Bond.
Defendant next moves for summary judgment on the grounds that plaintiff is not a subcontractor or material man as defined by the Bond and therefore is not a claimant under such. Specifically, defendant claims that plaintiff did not supply labor and/or material to Cedar but rather that plaintiff's work on the Project was as a joint venturer, sublet or alter ego of Cedar or by some other relationship of dominion and control. Def.'s May 4, 2001 Memo of Law ("Def.'s May 4, 2001 Memo") at 12. In support of this allegation, defendant points out that Samuel DeFranks — Northeast Project manager of Cleveland — and Jack Malcolm — a Cleveland employee — assumed the entire management of the job and represented themselves as Cedar from the pre-bid meeting through the conclusion of the job. Ibid.
The Bond defines a claimant as "one having a direct contact with the Principal or with a Subcontractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the Contract * * *."
There is nothing under the laws of New York, either cited by defendant or found by this Court, which supports the proposition that a joint venturer, sublet or alter ego of the principal cannot collect on the Bond and defendant's reliance on United States ex rel. Briggs v. Grubb, 358 F.2d 508 (9th Cir. 1966) and American Cas. Co. v. Assiran, 289 F. Supp. 645, 646 (D.Mass. 1968), is misplaced. These are federal question cases decided under the Miller Act and are inapplicable to the present case. Therefore and notwithstanding that plaintiff may have assumed the role alleged by defendant, there is nothing which would preclude it from recovering.
Next defendant has argued that Cleveland and Cedar have become so intertwined that Cleveland is not a subcontractor, laborer or materialman, and therefore not a claimant as defined in the Bond. Def.'s May 4, 2001 Memo at 13. Assuming — without deciding — that plaintiff and Cedar did in fact become partners, this Court opines that such would not prevent plaintiff from collecting under the Bond. Contrary to defendant's assertion, a claimant under the terms of the Bond is not limited to a subcontractor, laborer or materialman; rather a claimant is defined as someone having a "direct contact with the principal or with a subcontractor of the principal for labor, materials or both * * *." While the term "direct contact" has an element of ambiguity, this Court sees no reason to read into this phrase the requirement that, in order to have direct contact, one cannot become a partner. In addition, if anything, becoming partners or a joint enterprise suggests more direct contact than does non-partners. Therefore, Cleveland is not precluded from recovering under the surety agreement whether or not it and Cedar have more than a general/sub-contractor relationship.
This Court will therefore deny all of defendant's grounds for summary judgment as far as liability under the surety agreement is concerned and now looks to plaintiff's grounds for summary judgment.
As stated above, plaintiff argues that it has completed all the work required under the contract and is therefore entitled to payment from the defendant. Plaintiff has submitted documentation to this Court proving that it has in fact provided services worth the $87,097.05 which it claims. Therefore, under section 137 of New York's Finance Law, plaintiff is entitled to summary judgment on its claims for such amount.
Plaintiff has also asked for interest, attorneys fees and punitive damages.
Under section 5001(b) of New York's Civil Practice Law and Rules, interest "shall be computed from the earliest ascertainable date the cause of action accrued." Here that date would be June 22, 2000, the date plaintiff made a demand for payment from defendant and this Court orders that the plaintiff be awarded interest from said date. Attorneys fees are only awarded where "the defense interposed is without substantial basis in fact or law" — N.Y. Finance Law § 137(4)(c) — and punitive damages are awarded only upon an "extraordinary showing of a disingenuous or dishonest failure to carry out a contract." Walker v. Sheldon, 10 N.Y.2d 410, 404 (1961). Although this Court has rejected defendant's defenses, the undersigned opines that plaintiff has not put forth sufficient proof to raise a genuine issue of material fact that defendant's acts in contesting the payments rose to either of these standards.
Therefore summary judgment will be awarded in favor of defendant on these two claims.
Accordingly, it is hereby ORDERED that plaintiff's motion for summary judgment is granted to the extent that it asks this Court to award plaintiff the $87,097.05 due under the surety agreement and to the extent it asks for interest and is denied to the extent it asks for attorneys fees and for punitive damages, that defendant's motion for summary judgment is granted on the grounds that plaintiff is not entitled to attorneys fees and punitive damages and denied as to all other grounds and that defendant's third-party claim against Cleveland shall be allowed to proceed as long as it does not violate the automatic stay.