Opinion
99 Civ. 10631 (AKH)(FM)
December 17, 2001
REPORT AND RECOMMENDATION TO THE HONORABLE ALVIN K. HELLERSTEIN
This action arises out of a contract between plaintiff Sinco, Inc. ("Sinco") and defendant Metro-North Commuter Railroad Company ("Metro-North"). On March 1, 2001, the Court granted Metro-North's motion for summary judgment, denied Sinco's cross-motion, and referred the matter to me for an inquest regarding Metro-North's damages. After reviewing the parties' submissions, I recommend, for the reasons detailed below, that Metro-North be awarded damages in the amount of $112,294.79 plus court costs in the amount of $1,157.72, or a total of $113,452.51.
Neither Sinco nor Metro-North requested an evidentiary hearing.
I. Factual Background
A. The Contract and Its BreachThe contract that Metro-North awarded to Sinco called for Sinco to be paid $197,325 to install a "fall protection" system in three separate areas of Grand Central Terminal (the "Terminal"). (Affidavit of Brian Bell, sworn to on April 28, 2001 ("Bell Aff."), ¶ 3). This system was intended to ensure the safety of workers who would be performing maintenance and renovation work at the Terminal. (Id. Ex. C).
Sinco began the installation of the fall protection system by drilling anchors into the Terminal's superstructure and walkways. (Affidavit of Robert Sturdevant, sworn to on May 7, 2001 ("Sturdevant Aff."), ¶¶ 5,6). From these anchors, horizontal lifelines evidently were to be suspended so that construction workers could tether themselves to avoid unprotected falls. (See Affidavit of Rick Guenette, sworn to on May 30, 2001 ("Guenette Aff."), Exs. 1, 2).
On June 29, 2001, Sinco held a training session at the Terminal to demonstrate its safety equipment for Metro-North employees. See Sinco v. Metro-North, 133 F. Supp.2d 308, 310 (S.D.N.Y. 2001). Remarkably, during the session, a safety sleeve, which was an important part of the system, fell apart in a Metro-North employee's hands. Id. Three additional Sinco sleeves also proved to be defective. As a consequence, Metro-North wrote to Sinco the following day to inform it that the entire fall protection system was "unacceptable." Id. After rejecting Sinco's subsequent attempts to cure, Metro-North sent Sinco a formal default notice, dated August 11, 1999, which also directed Sinco to remove its system from the Terminal. (Bell Aff. ¶ 6 Ex. C). On September 16, 1999, Metro-North terminated the contract and notified Sinco that the system would be removed at Sinco's expense. (Id. ¶ 5 Ex. B).
B. Efforts to Effect "Cover"
Rather than rebidding the job, Metro-North turned to the other original bidders in an effort to secure a replacement contractor as quickly as possible. (Id. ¶ 7 n. 1). Although Gravitec Systems was the next lowest original bidder, Metro-North decided not to award it the work because Gravitec intended to use the same equipment as Sinco. (Id. ¶ 7). The next lowest bidder was Surety Manufacturing Testing Ltd. ("Surety"), which originally had proposed to do the required work for $277,439. (Id. ¶ 8 Ex. A).
On November 23, 1999, Surety sent Metro-North a revised bid. Relying on drawings prepared by a Sinco subcontractor, Surety assumed that it would have to add 47 additional intermediate supports and 510 feet of additional horizontal cable line. (Id. ¶ 9 Exs. C, E). To account for this increase, and labor escalation costs, Surety proposed to inflate its original bid by six percent, resulting in a $294,085.99 price for the work previously bid and the additional supports and cable. (Id. Ex. E). In addition to this amount, Surety requested $29,600 to remove Sinco's previously-installed system and $24,211 to provide protection from falling objects while its crews were working. (Id.). In total, Surety requested, and Metro-North subsequently agreed to pay, $347,896.99 for Surety's work. (Id. ¶ 8). The contract was awarded as a lump-sum contract which did not allocate Metro-North's payments to specific unit items of work. (Guenette Aff. ¶ 6).
As a consequence of several adjustments, the replacement contract value was eventually reduced to $310,415.99, an amount which Metro-North has paid. (Bell Aff. ¶ 11 Ex. F). Metro-North therefore seeks to recover as its damages the $113,090.99 difference between the cost of the Surety replacement contract and the $197,325 cost of the original Sinco contract. (Affidavit of Richard L. Gans, sworn to on June 1, 2001 ("Gans Aff."), ¶ 5).
In its papers, Metro-North has made a typographical error, based upon which it sets forth the amount requested as $113,360.99. (Id.).
C. Taxable Costs
Pursuant to Rule 53 of the Federal Rules of Civil Procedure and Local Civil Rule 54.1, Metro-North also seeks to recover as costs the court reporters' fees for the transcripts of twelve depositions and one oral argument before this Court. These fees total $1,229.96. (Affidavit of Sofia Hubscher, sworn to on April 25, 2001, ("Hubscher Aff."), ¶ 2).
D. Sinco's Contentions
In its papers, Sinco maintains that the reasonable cost of cover is considerably less than the amount sought by Metro-North for several reasons. First, Sinco seeks to establish that the cost of certain items of work covered by the replacement contract are either inflated or bogus. (Sturdevant Aff. ¶¶ 8-11). For example, Sinco contends that 172 of the 252 anchors required for the Sinco fall protection system were reused by Surety in its system, resulting in a lower cost to cover. (Sinco Mem. of L. at 7; Sturdevant Aff. ¶¶ 5-6). Sinco similarly contents that a number of expenses projected by Surety, such as the cost of removing the Sinco system and lodging and carfare for Surety's workers, are inflated. (Sturdevant Aff. ¶¶ 8-11).
Second, Sinco alleges that the additional supports and cable lines installed by Surety were not part of the original Sinco contract and therefore constitute extras for which Sinco is not liable. (Sinco Mem. of L. at 5).
Based upon these arguments, Sinco has recalculated the damages to which Metro-North is entitled. Sinco contends that once the appropriate adjustments are made Metro-North is only entitled to recover $5,363.61 (exclusive of court costs). (See id. at 10).
II. Discussion
A. Cost of Cover
The Court's prior decision granting Metro-North's motion for summary judgment establishes that this case involves a transaction in goods which, in accordance with the terms of Sinco's contract, is governed by Article 2 of the New York Uniform Commercial Code. Sinco, 133 F. Supp.2d at 311. Pursuant to Section 2-712 of the Code, an aggrieved buyer may "cover" its loss by promptly entering into a second contract and holding the seller liable for any excess cost incurred, less any expenses saved. "The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover was not the cheapest or the most effective." Official Comment to N.Y.U.C.C. § 2-712 (McKinney 1993). As one learned treatise suggests, this liberal standard is consistent with the goal of the Code that aggrieved parties "be put in as good a position as if the other party had fully performed." See N.Y.U.C.C. § 1-106 (McKinney 1993); James J. White Robert S. Summers, Uniform Commercial Code, § 6-3, at 299 (4th ed. 1995).
Section 2-712, in relevant part, provides:
"Cover"; Buyer's Procurement of Substitute Goods.
(1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages . . ., but less expenses saved in consequence of the seller's breach.
N YU.C.C. § 2-712 (McKinney 1993).
In keeping with this provision, Article 7.03 of the Sinco contract contained a damages clause stating that Sinco "shall be liable for all damages resulting from Default, including the difference between the total Contract price and the amount actually expended by Metro-North to complete the work . . . ."
Metro-North concedes that Surety was never required to install, and Metro-North therefore never had to pay for, any devices to prevent construction debris from falling during Surety's work. (Bell Aff. ¶ 10). In addition, because Surety's original bid included $13,270 for a two-year maintenance contract which was not part of Sinco's competing bid, Metro-North admits that the value of the replacement contract should be further reduced by that amount. (See Affidavit of Gary J. Levy, sworn to on May 8, 2001 ("Levy Aff."), Ex. 4; Gans Aff. ¶ 2). In fact, because the cost of the maintenance contract in Surety's original proposal was inflated by six percent to arrive at the replacement contract value, Sinco is actually entitled to receive a credit in the amount of $14,066.20 ($13,270 x 1.06). After making the proper deductions for the debris removal system and the maintenance contract, the adjusted cost of the Surety replacement contract is $309,619.79 ($347,896.99 — $24,211 — $14,066.20). Accordingly, on its face, Metro-North's cost of cover appears to be $112,294.79 ($309,619.79 — $197,325).
Sinco takes issue with this cost of cover on several grounds. First, Sinco contends that Metro-North has not given it any credit for such cost savings as the 172 anchors installed by Sinco which were reused by Surety. To consider whether Metro-North's damages are reasonable, however, Sinco's allegations must be considered in context. At the time that Metro-North awarded the replacement contract, Sinco had established through its June 29, 1999 demonstration that a system which was purchased to save lives instead appeared to pose a substantial risk of harm to the workers who might be asked to use it. Given Sinco's apparently poor quality control with respect to its sleeves, Metro-North also had no reason to be confident that Sinco's anchors, or any other previously-installed components of its system, would prove to be useable. In these circumstances, it was reasonable for Metro-North to assume that its new vendor would have to replace the entire Sinco system. Moreover, because it initially had relied on an outside vendor to ensure that a suitable fall protection system was installed, Metro-North had no reason to have the integrity of the existing anchors tested before turning to another third-party vendor to install an entire replacement system.
As Surety's work progressed, it apparently was able to reuse many of the existing Sinco anchors. Nevertheless, this did not result in any financial windfall for Metro-North because the Surety contract was awarded on a lump-sum basis. Accordingly, subject to the exceptions noted above, Metro-North paid Surety the full amount of the replacement contract. The decision to award a lump-sum contract may be questioned in hindsight, but it was clearly a reasonable alternative at the time because Metro-North was thereby able to ensure that its total cost to complete the job would not exceed the face amount of the contract. The fact that Surety may have been able to achieve certain cost savings as it performed its work in no way suggests that Metro-North's decision was unreasonable when made or that Sinco should now be entitled to a credit.
Sinco also advances the related argument that it should be directly compensated for the 172 anchors that it installed which were accepted and used in the fall protection system furnished by Surety. According to Sinco, the paperwork that it submitted in connection with its proposal projected the total cost to design, fabricate and install the necessary anchors as $109,000. (Affidavit of Matthew Blackford, sworn to on May 4, 2001 ("Blackford Aff."), ¶¶ 5-6). Thus, because Surety used 172 of the 252 anchors drilled by Sinco, Sinco argues that it should be paid for sixty-eight percent of this cost, or $74,460, (id. ¶ 7), in accordance with the requirements of N.Y.U.C.C. § 2-712. (See Sinco Mem. of L. at 8). From the paperwork submitted by the parties, I am unable to determine whether Sinco's contract was a unit price or a lump-sum contract. In any event, even if Sinco were able to show that Metro-North agreed to reimburse Sinco based upon unit prices, Sinco once again has not shown that the buyer — Metro-North — saved any money by using the previously-installed anchors. Accordingly, there is no basis for Sinco to be awarded the unit price value of those anchors.
In its opposition papers, Sinco also seeks to dissect Surety's actual costs with the assistance of a former Surety "subcontractor" who is now on Sinco's payroll. (See Sturdevant Aff. ¶¶ 8-11). For example, the subcontractor avers that the proposal submitted by Surety lists the cost of equipment rental for the removal of the Sinco system at $550.40 whereas the actual total rental charges for the removal and installation were only $375. (Id. ¶ 9). He also suggests that Surety's labor and supervisor charges for the removal of the Sinco system are grossly inflated and were never incurred. (Id. ¶ 8). Here again, however, Metro-North did not achieve any savings even if Surety incurred less expense. There also has been no showing that the "actual" costs that the subcontractor allegedly recalls include any allowance for such items as overhead and profit. See United States v. Kokolakis Contracting, Inc., No. 93 Civ. 6369, 1995 WL 539742, at *5 (S.D.N.Y. Sept. 8, 1995) (Sand, J.) (concluding that ten percent add-on for overhead and ten percent for profit is normal and reasonable in addition to base labor cost on construction contract); Peru Assocs., Inc. v. New York, 70 Misc.2d 775, 780, 334 N.Y.S.2d 771, 779 (Ct.Cl. 1971) (awarding construction contractor an additional ten percent for overhead on several items, including equipment purchases).
Sinco also complains that it is entitled to adjustments above and beyond those set forth above because the additional supports and cables installed by Surety were not contemplated by the parties at the time that Metro-North awarded Sinco its contract. When it originally sought proposals from Sinco and others, however, Metro-North was not merely seeking to acquire a set number of supports and cables or hardware of a particular type. (Levy Aff. Ex. 4). Instead, as numerous documents indicate, Metro-North sought to acquire a "system" that would ensure that the construction workers at the Terminal were protected from falls. (Id.; Bell Aff. Exs. A, D; Blackford Aff. Ex. 3). The variance in the number of supports and cables was not between the Sinco system and the Surety replacement system. Rather, Surety concluded that it would have to add more supports and cables than were part of Surety's original quote after examining the "DBI/Sala drawings supplied . . . by Metro-North." (Levy Aff. Ex. 3). As Sinco's papers reveal, "DBI" is evidently "DBI Industries, Inc.[,] a sister company of [p]laintiff Sinco." (Blackford Aff. ¶ 1). Thus, the upward adjustments with respect to supports and cables in Surety's proposal to serve as the replacement contractor were made to conform its original proposal, which had been rejected, to the scope of work that Metro-North previously had engaged Sinco to perform, and which Surety was now being asked to undertake. (Guenette Aff. ¶ 8).
Finally, in assessing the reasonableness of Metro-North's actions, it bears repetition that the actual cost of cover (after deducting the cost of the proposed debris protection system and the two-year maintenance contract) was $309,619.79, only $32,180.79 more than Surety's original bid. This represents a twelve percent increase over Surety's original bid, which was submitted approximately one year earlier and which was based upon a smaller quantity of supports and cables. This modest increase has not been shown to be unreasonable.
Metro-North is therefore entitled to recover $112,294.79 as a consequence of Sinco's breach.
B. Court Costs
Rule 54(d) of the Federal Rules of Civil Procedure provides that "costs other than attorneys' fees shall be allowed as of course to the prevailing party unless the court otherwise directs." These "costs" include only those taxable costs set forth in 28 U.S.C. § 1920 (1994). See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441, 107 S.Ct. 2494, 96 L.Ed.2d 385 (1987); Whitfield v. Scully, 241 F.3d 264, 269 (2d Cir. 2001). The Clerk of the Court therefore may tax as costs several items, including the "[f]ees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case." See id. (quoting 28 U.S.C. § 1920 (1994)). The Second Circuit has held that this authorizes courts to tax as costs expenses related to the taking of depositions. Id. at 270; see also 10 Moore's Federal Practice, § 54.103[3][c], at 54-179-80 (3d ed. 2000). Local Civil Rule 54.1 limits the taxable depositions in circumstances such as these, however, to those that are "used by a court in ruling on a motion for summary judgment or other dispositive motion."
In this case, the Memorandum and Order granting Metro-North's motion for summary judgment does not cite specific deposition transcripts. As a consequence, I am unable to determine which of the deposition transcripts for which reimbursement is sought actually were "used" by the Court in arriving at its decision. On the other hand, the amount sought by Metro-North is only $1,157.72 for twelve depositions, (Hubscher Aff. ¶ 2), and Sinco does not oppose Metro-North's request. For these reasons, it seems appropriate to award Metro-North its full deposition costs. See Whitfield v. Scully, 241 F.3d 264 at 270 (because Rule 54 allows costs "as of course" "losing party has burden to show that costs not be imposed"). Metro-North has not demonstrated, however, that the Court required the parties to order the transcript of the December 4, 2000 court proceeding. (See Hubscher Aff. ¶ 3). Accordingly, this request, in the amount of $72.24, should be disallowed.
III. Conclusion
Metro-North should be awarded damages against Sinco in the amount of $112,294.79 together with costs in the amount of $1,157.72, or a total of $113,452.51.
IV. Notice of Procedure for Filing of Objections to this Report and Recommendation
The parties are hereby directed that if they have objections to this Report and Recommendation, they must, within ten days from today, make them in writing, file them with the Clerk of the Court, and send copies to the chambers of the Honorable Alvin K. Hellerstein, at the United States Courthouse, 500 Pearl Street, New York, New York 10007, to the chambers of the undersigned, at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b). Any requests for an extension of time for filing objections must be directed to Judge Hellerstein. The failure to file timely objections will result in a waiver of those objections for purposes of appeal. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(e), 72(b).