Opinion
115699/04.
July 29, 2009.
Motion sequence numbers 002 and 003 are herein consolidated for disposition.
In motion sequence 002, the defendant the City of New York (the "City") moves for partial summary judgment against the plaintiff North Star Contracting Corp. ("North Star"), pursuant to CPLR 3212. In motion sequence 003, North Star moves for partial summary judgment against the City, pursuant to CPLR 3212.
This is a breach of contract action arising out of a contract (the "Contract") between North Star and the City to reconstruct three pedestrian bridges, which span the Franklin D. Roosevelt Drive (the "FDR") in New York County (the "Project"). North Star seeks to recover consequential damages for lost profits, unabsorbed overhead, and costs allegedly incurred when the City deleted one of three the bridges from the Contract.
Background
On October 22, 2001 the City executed the Contract with North Star to reconstruct the three pedestrian bridges spanning the FDR at East 10th Street (the "East 10th Bridge") and East 78th Street (the "East 78th Bridge"), and West 37th Street (the "West 37th Bridge", collectively the "Bridges") (Complaint ¶ 3). The Contract provided that the Bridges were to be reconstructed concurrently, with the East 78th Bridge, East 10th Bridge, and phase one of the West. 37th Bridge to be built between April and October of 2002 and phase two of the West 37th Street Bridge to be completed in 2003 (Fisher Aff., ¶¶ 4-6). The cost of the scheduled work was $9,485, 185.00 (Complaint, ¶ 4).
On December 8, 2003, while work had already commenced on the East. 10th Bridge and West 37th Bridge, but before work began on the East 78th Bridge, the City officially deleted it from the Project via letter from the Commissioner of the Department of Transportation (the "DOT"). The effect of deleting the East 78th Bridge was allegedly a decrease in value of the Contract by $3,880,178.00 or forty-one percent (Piccorelli Aff., ¶¶ 22 3). The City agreed to pay North Star $269,917.00 for certain costs North Star incurred because of the deletion of the East 78th Bridge (Perahia Aff., ¶ 28). On March 3, 2004, North Star accepted payment from the City pursuant to Article 29 of the Contract but reserved its right to claim payment for "impact and unabsorbed costs." (Spielberg Aff., ¶ 34).
On November 5, 2004 North Star commenced this breach of contract action against the City for damages in the amount of $2,787,72 9.90, on the ground that the deletion of the East 78th Bridge from the Contract amounted to a cardinal change forcing North Star to cover the cost of its overhead and equipment. Additionally, it resulted in substantial losses because North Star was unable to share the expenses of reconstructing the all the Bridges concurrently, as it originally contemplated ( Id. at ¶ 17). On February 4, 2005, the City answered and asserted three counterclaims for liquidated damages.
Discussion
The City moves for partial summary judgment to dismiss the complaint on the basis that Articles 29, 30, 33, 56, and 64 of the Contract that purportedly precludes the payment of damages incurred from the deletion of the East 78th Bridge (Def. Opp., pp. 5-6, 15). North Star moves for partial summary judgment, on its claim for breach of contract, seeking an award of $1,433,686.00 in damages stemming from the deletion of the East 78th Bridge from the Contract (P1. Aff. Supp., ¶ 4). This Court will address arguments for both motions concurrently.
Cardinal Change
The City argues that Article 29 of the Contract precludes North Star from making a claim for lost profits and overhead because the deletion of the East 78th Bridge is an omission of work, and the DOT is allowed to omit work covered by the Contract without paying damages (Def. Opp., pp. 5-6).
North Star argues that deletion of the East 78th Bridge is not a mere omission but amounts to a cardinal change, and therefore, the claim is not precluded by Articles 29 and 33 of the Contract (Pl. Memo, pp. 5, 12).
Article 29 states that. "[t]he Contractor agrees to make no claim J or damages or for lost overhead and profit with regard to any omitted Work" (Contract, p. 31)
"Work shall mean all services required to completed the [Project] in accordance with the Contract Documents, including without limitation, labor, material, superintendence, management, administration, equipment, and incidentals and shall include both Contract Work and Extra Work" (Spielberg Aff., Exhibit A, p. 4).
Article 33 states that "[t]he Commissioner . . . shall have the power. . . [t] o modify or change this Contract so as to require the performance of Extra Work . . . or the omission of Contract Work" (Spielberg Aff., Exhibit A, p. 33).
"Extra Work shall mean Work other than that required by the Contract at the time of award which is authorized by the Commissioner pursuant to Chapter VI of this Contract" ( Id. at p. 2).
"Contract Work shall mean everything required to be furnished and done by the Contractor by any one or more of the parts of the Contract referred to in Article I, except Extra Work as hereinafter defined" (id.).
Generally, "whether an omission is incidental does not depend on the percentage of the work or the cost involved, but on the character of the work omitted." ( Del Balso Constr. Corp. v City of New York, 278 N.Y. 154, 160). Therefore, North Star's argument that the deletion of the East 78th Bridge is a cardinal change on the basis that it decreased the value of the Contract by forty-one percent, is not, by itself, dispositive.
The Court of Appeals held in J. Smith McMaster v State of New York ( 108 NY 542, 551 2 [1888]) that a contractual provision reserving the State's right to make changes "authorizes such changes as frequently occur in the process of constructing buildings, in matters of taste, arrangements and details; but it does not authorize a change in the general character of the building. If it does, a contract carefully entered into could be mainly if not entirely frustrated." The court found that the deletion from the contract of eight out of ten buildings, as well as additional out buildings, and the change of materials from sandstone to brick amounted to a cardinal change, in light of the contractual requirement that the contractor own or lease quarries in order to furnish sufficient sandstone to the State for the project ( Id. at 552).
Furthermore, "where one party to a contract breaks the same, the other party may stop and refuse further performance. But instead of doing so he may perform so far as he is permitted and then claim the damages he has suffered from the breach" ( Id. at 553) .
However, the Court of Appeals held in Litchfield Constr. Co. v City of New York ( 244 N.Y. 251, 273) that a contractor was not entitled to damages resulting from the deletion of 187 feet of a spur in a contract for construction of a section of a subway line. There, the court determined that "[c]hanges in the drawings might alter the manner in which such work was to be performed, but. changes in the drawings could not change the description of the work itself as contained in the contract" ( id.). Therefore, because the spur was described in the contract, the court reasoned that "it is part of the work as described in the contract which the contractor was bound to do and which the city was bound to pay for" and denied the recovery of damages ( id.). Additionally, during bidding, the contractor was warned that the estimated approximate quantities of the work were approximate, and only for the purpose of comparing on a uniform basis the bids offered for the work. On this basis the Court denied recovery for damages cause by "overestimation."
Here in contrast, the deletion of the East 78th Bridge from the Contract constitutes a cardinal change because it is a material change that alters the very nature of the Contract. There is no dispute that the Contract called for the concurrent reconstruction of three bridges. Clearly, the deletion of the East 78th Bridge does not change the method of reconstruction, but the description of the contracted work altogether. Consequently, it was not unreasonable for North Star to have anticipated a benefit in sharing resources for its interrelated reconstruction of the Bridges concurrently and calculate that costs in its bid for the Project, and under the Contract as a while, Articles 29 and 33 are inapplicable to a claim for breach of contract based on cardinal change.
Termination
The City asserts that, even though Article 64 of the Contract, entitled Termination by the City, was not invoked, North Star would still not be entitled to the damages it seeks (Def. Opp., p. 11). Article 64 of the Contract permits the Commissioner to "terminate this Contract by written notice to the Contractor" and outlines a payment schedule and costs to be paid in the event of a termination (Spielberg Aff., Exhibit. A, p. 53).
The City erroneously cites Nesbitt v United States ( 345 F.2d 583 [Ct. C1. 1965]) to support its contention that Article 64 of the Contract limits the damages that are recoverable irrespective of whether the provision was invoked (Def. Opp., pp. 13-4), Nesbitt pertains to termination provisions that could have been invoked, but were not. Nesbitt held that a party may "justify an asserted termination, rescission, or repudiation, of a contract by proving that there was, at the time, an adequate cause, although it did not become known to him until later" ( Nesbitt at 670). However, Nesbitt is inapplicable, because in the instant action, Article 64's termination provision does not permit the City to limit a contractor's recovery based upon a partial termination of the Contract. Moreover, the City never purported to actually terminate the Contract as whole. Rather, North Star completed the entire Contract except for the East 78th Bridge.
Consequently, the City cannot seek to invoke the terms of the termination provision in an attempt to limit North Star's recovery. Article 64 is inapplicable where the City did not actually terminate the Contract, and thus, it cannot claim constructive termination to limit breach of contract damages.
Notice
Additionally, the City argues that North Star is precluded from seeking damages, because it failed to provide adequate notice of its damages for lost profits, unabsorbed overhead, and costs pursuant, to Section 30.1 of the Contract (Def. Opp., p. 16).
Section 30.1. of the Contract states:
"If the Contractor shall claim to be sustaining damages by reason of any act or omission of the City or its agents, it shall submit to the Commissioner within forty five (4b) days from the time such damages are first incurred, and every thirty (30) days thereafter for as long as such damages are incurred, verified statements of the details and the amounts of such damages, together with documentary evidence of such damages . . . On failure of the Contractor to fully comply with the foregoing provisions, such claims shall be deemed waived and no right to recover on such claims shall exist" (Spielberg Aff., Exhibit A, pp. 32-2).
Furthermore, the City argues that North Star's failure to comply with Section 30.1 renders it non-compliant with Section 56.1 of the Contract, which states:
"Any claim, that is not subject to dispute resolution under the [Procurement Policy Board Rules or this Contract, against the City for damages for breach of Contract shall not be made or asserted in any lawsuit, unless the Contractor shall have strictly complied with all requirements relating to the giving of notice and of information with respect to such claims, as herein before provided" ( Id. at 49).
"Procurement Policy Hoard" shall mean the Agency of the City of New York whose function is to establish comprehensive and consistent procurement policies and rules which shall have broad application throughout the City." (Spielberg All., Exhibit A, p. 3)
First, North Star asserts that the damages, including the lost profits and unabsorbed overhead costs, were not incurred and could not. be ascertained until the Project was complete (Pl. Reply, p. 17). Additionally, North Star asserts that, during the Project, it provided detailed and timely notice to the City of the costs that it incurred from the delay and ultimate deletion of the East 78th Bridge (Pl. Opp., pp. 14-7). Moreover, North Star contends that the City waived the notice requirements contained in Sections 30.1 and 56.1 of the Contract, by paying North Star $269,917.00, purportedly for costs North Star incurred by the City's deletion of the East 78th Bridge (Pl. Reply, p. 12) .
In support of its contentions, North Star submitted numerous written communications between the parties. The communications clearly provide sufficient notice of North Star's damages, including its lost profits, unabsorbed overhead, and costs (Lovece Aff., Exhibit G-K), Arguably, the City deemed tins notice adequate, because it initially did not raise these objections when it paid North Star $269,917, purportedly as compensation for its damages. Therefore, this Court finds that North Star tendered sufficient notice to the City to satisfy both Sections 30.1 and 56.1 of the Contract.
Timeliness
The City argues that North Star's claim for lost profits and unabsorbed overhead costs is untimely. It alleges that North Star had a six month period to commence this action, which expired on October 5, 2004 pursuant to Section 56.2.2 of the Contract. The section states that "[a]ny claims for monies deducted, retained or withheld under the provisions of this Contract shall be asserted within six (6) months after the date when such monies become due and payable hereunder" (Spielberg Aff., Exhibit A, p. 49).
North Star counters that the six month period relevant for determining if any amounts are due under Section 56.2.2 began the date that the Certificate of Substantial Completion was issued, May 20, 2004, under Section 56.2 of the Contract, which states that "[n]or shall any lawsuit be instituted or maintained on any such claims unless such lawsuit is commenced within six (6) months after the date the Commissioner issues a Certificate of Substantial Completion . . ." (Spielberg Aff., Exhibit A, p. 49).
This Court finds Section 56.2.2 of the Contract inapplicable here, because North Star is not seeking the payment of monies that were deducted, retained, or withheld. Here, North Star is seeking damages stemming from the deletion of the East 78th Bridge from the Project, constituting a breach of the Contract. In any event, Section 56.2 of the Contract clearly states that the six month period begins the date the Certificate of Substantial Completion was issued. Therefore, the commencement of this action on November 5, 2004 would be timely, if the Section were applicable.
Contemplated Damages
Finally, the City argues that North Star cannot recover damages for lost profits and unabsorbed overhead costs because those damages are not specifically provided tor in the Contract and are speculative. However, lost profits and other consequential damages are recoverable for a cardinal change breach of contract ( McMaster at 55%). Furthermore, there is evidence that some of North Star's damages may have been mitigated, if the City informed North Star of the decision to delete the East 78th Bridge sooner. It is undisputed that the City noticed North Star of the deletion on December 8, 2003, although it had decided to deleted the reconstruction of the East 78th Bridge on May 29, 2003 (Perahia Aff., ¶ 12). Therefore, this argument is unpersuasive.
Accordingly, it is
ORDERED that the motion for partial summary judgment by the defendant the City of New York is denied; and it is further
ORDERED that the motion for partial summary judgment by the plaintiff North Star Contracting Corp. is granted; and it is further
ORDERED that the measure of plaintiff North Star Contracting Corp's damages incurred as a result of the deletion of the East 78th Bridge is referred to a Special Referee to hear and report with recommendations, except that, in event of an upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further
ORDERED that this motion is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judical Support Office to arrange for the reference to a Special Referee; and it is further
ORDERED that the remainder of the action shall continue.
This constitutes the decision and order of the Court.