Summary
applying New York law
Summary of this case from G.R. Sponaugle Sons v. Hunt Const. Group, Inc.Opinion
98 Civ. 2536 (CM).
February 22, 2001
MEMORANDUM DECISION AND ORDER DENYING PLAINTIFF AND THIRD-PARTY DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Plaintiff Worth Construction Co. ("Worth") and Liberty Mutual Insurance Company ("Liberty Mutual"), its performance and payment bond surety, move for summary judgment seeking dismissal of the counterclaims asserted by defendant I.T.R.I. Masonry Corp. ("ITRI") against Worth on the grounds of release; discharging a mechanic's lien filed by ITRI as willfully exaggerated; and granting summary judgment on its second claim for relief under § 39-a of the New York Lien Law.
FACTS PERTINENT TO THE MOTION
In 1996, Worth was awarded a general contract by the State of New York for work on a state-owned construction project at the Bedford Correctional Facility in Westchester County. ITRI was a masonry Subcontractor to Worth. Worth and ITRI entered into a written Subcontract made as of November 13, 1996, but not signed by the parties until August 1997, the same month that ITRI commenced performance of its masonry work at the Facility.
The Subcontract provided that the amount of the contract was $3,700,000.00, including all insurance, surety bonds, taxes, overhead and profit. (Dizenzo Aff. at Exh. 2 (Article IV).) ITRI was responsible for providing "all labor, materials, equipment, taxes, licenses, tools, hoisting, protection, coordination, unloading [and] storage as may be required to perform the work in a workmanlike manner and in accordance with all applicable federal, state, and local codes, and comply with all OSHA requirements." (Id. at Article I.) Progress payments were to be made in the following manner: "The Subcontractor shall submit a requisition for payment using special forms provided by the Contractor, no later than the twenty-fifth (25th) day of each month projected to the end of the month in which the Subcontractor has completed work on the premises. The Contractor, after receiving payment from the Authority for the work applied for, shall pay the Subcontractor ninety percent (90%) of the value of the work performed by the Subcontractor." (Id. at Article V.)
During contract negotiations, Rubino expressed concern over the sixty-day spread between the submittal of a requisition by the 25th of the month and payment by Worth of the 90% of the value of work performed. Worth therefore agreed to pay ITRI more frequently to help with cash flow. ITRI contends that Worth agreed to advance to ITRI the funds to pay its payroll on a weekly basis. When Worth received the requisition payment from the New York State Office of General Services ("OGS"), it was to then deduct the advances from the requisition monies payable to ITRI, and then pay the balance to ITRI. Worth vigorously disputes having agreed to any such arrangement. Nonetheless, it is undisputed that ITRI presented its payroll costs (including fringe benefits, payroll taxes, etc.) to Worth. Based on that information, Worth gave ITRI a check every week that was sufficient to cover only the actual wages earned by ITRI's bricklayers and laborers (but not taxes or benefits). That check was deposited into ITRI's payroll account and was used to pay the tradesmen.
According to Worth, vendors supplying ITRI began informing Worth that ITRI was becoming delinquent in its payments. ITRI contends that Worth eventually stopped paying ITRI the balances due on its requisitions, and as a result ITRI became unable to pay its union benefits and suppliers. (Rubino Aff. at ¶ 10.)
Article XII of the Subcontract provides that the Subcontractor "shall be in default hereunder in the event . . . (v) the Subcontractor shall fail to make payments to the persons supplying labor or materials for the work." (Id. at Article XII.) On December 2, 1997, W. Sam Dizenzo, Senior Vice President of Worth Construction wrote to Robert Rubino of ITRI, advising him that he had received complaints from union members that their checks were being returned for uncollected funds. (Dizenzo Aff. at Exh. 11.) He wrote, in pertinent part:
Let this letter serve as formal notice that should this practice continue, of issuing checks to any tradesmen that will be returned for uncollected funds, you will be in violation of Article 12, Contractor's Right to Terminate, (v) whereby it states that the Subcontractor shall fail to make payment to persons supplying labor and material for the work [sic].
Also, we will not tolerate statements by ITRI Masonry Corp. that we have been informed of in the past by the Owner, etc., that ITRI Masonry Corp. is not being paid properly by Worth Construction Co., Inc. Worth Construction Co., Inc. has gone above and beyond to work with ITRI Masonry Corp. on this project and will no longer tolerate these false accusations.
(Id.)
By letter of December 4, 1997, Tippy Petrano, Project Manager of ITRI wrote back to Sam Dizenzo, saying, in pertinent part:
I think you appreciate the fact that we presently have outstanding requisitions totally [sic] approximately $1,131,000.00. In addition there is approximately $200,000 in awaiting the next requisition, for a total of approximately $1,331,000.00 owed at the present time. . . .
Most troublesome has been the fact that you changed the amounts payable to suppliers at the last minute so that we can not even plan our own disbursements. For instance, Requisition #5 called for a balance of $72,223.75 to ITRI according to your own written schedule delivered to us by you.
Nevertheless, for some inexplicable reason, same was reduced unilaterally by you by the sum of $15,000.00. I am sure you can appreciate the confusion that such a last minute adjustment can create.
Finally, we wish to categorically deny that we have made any statement that we have not been properly paid to date by Worth Construction Co., Inc., and will state to all concerned at this time that all payments due have been made. We have expressed dissatisfaction with the 40 to 60 day differential between requisition and payment as same is creating a definite hardship on us and, although we understand that this is beyond your control, we would hope that every effort could be made by all concerned to shorten this payment period.
(Id. at Exh. 12.)
At some point (not specified in the record), Worth began paying ITRI's unions and suppliers by joint checks from Worth, which were made payable to both ITRI and its creditor, pursuant to a provision of the Subcontract that said:
In the event the Contractor determines that the Subcontractor is delinquent in the payment of any monies due and owing for labor, material and equipment, the Contractor shall have the right to satisfy such amounts due and owing form the proceeds of the requisition by either a joint check, payable to the Subcontractor and the person or entity to whom the money is allegedly owing, or direct payment to the person or entity to whom the money is owed.
(Dizenzo Aff. at 2.)
According to ITRI, Worth's payments were just enough to cover the actual wages of the tradesmen, while Worth held the balance of the money ITRI had earned. (Rubino Aff. at ¶ 10.) As a result, ITRI had no funds with which to pay the payroll taxes or to reimburse itself for management salaries and overhead. Also, according to ITRI, the situation put Worth in complete control of ITRI's finances. Nonetheless, because ITRI's tradesmen, unions and suppliers were getting their checks, they continued to work.
On March 6, 1998, ITRI paid its tradesmen their full wages for the work they performed during the week ending March 3, using a check from Worth. On March 12, the day before Worth terminated ITRI's contract and the day on which Worth would normally have given ITRI the payroll money for the week ending March 13, ITRI personnel were told by representatives of OGS that ITRI was no longer going to be working on the project. Worth did not give ITRI money for payroll, and as a result, ITRI was unable to pay its workers for that week.
On March 13, 1998, Worth wrote to ITRI terminating its contract. Worth alleges that it was compelled to terminate ITRI for nonperformance. ITRI responded that Worth completely controlled ITRI's finances and had manufactured the "default." On March 16, Worth hired all of ITRI's tradesmen and supervisors and continued the masonry work.
During the course of its work, ITRI submitted requests for payment twice a month. Pursuant to the terms of the Subcontract, each such request for payment was accompanied by a properly executed Subcontractor's Affidavit and Release of Lien that released "any and all liens, right to lien or claims" for money that ITRI had against Worth arising out of its work on the project through the requisition. Article V of the Subcontract provides in relevant part:
[T]his Subcontractor shall submit waivers of mechanics liens for itself and from its Subcontractors and suppliers for the construction period covered by the previous application prior to submission of any application for payment. Failure to comply with the above will prevent the processing of payment. In the event the Contractor determines that the Subcontractor is delinquent in the payment of any monies due and owing for labor, material and equipment, the Contractor shall have the right to satisfy such amounts due and owing from the proceeds of the requisition by either a joint check, payable to the Subcontractor and the person or entity to whom the money is allegedly owing, or direct payment to the person or entity to whom the money is owed. The Contractor shall also have the right to withhold all further payments from the Subcontractor until the delinquencies in payment are satisfied in full.
(Dizenzo Aff. at 2.) (emphasis added).
ITRI's president signed thirteen such releases without modifying the text. The last release was dated February 27, 1998. It recited in relevant part:
The undersigned does hereby waiver [sic] and release any and all liens, right to lien or claims it may have against Bedford Hills Correctional, the land upon which Health Care Bldg. #126 is situated and Worth Construction Co., Inc. for any and all monies due and owing to it, arising out of work performed, equipment or materials furnished to Worth Construction Co., Inc. through this requisition.
(Dizenzo Aff. at Exh. 3) (emphasis added).
According to Robert Rubino, president of ITRI, he signed the releases because he was told that if he did not, he would not get the checks. He further notes that he was not permitted to alter the releases. "ITRI had no other source of funds and I had no choice but to sign." (Rubino Aff. at ¶ 20.) ITRI contends that the releases were required by Worth as a precondition for the issuance of payroll and joint checks.
On or about April 3, 1998, ITRI filed with the Executive Officer of the New York State Department of General Services and with the Fiscal Officer of the State of New York a Notice of Public Improvement Lien, purported to assert a lien in the amount of $2,597,257. ITRI alleged that the actual value of the work was $5,191,852, and that Worth had paid $2,594,595, leaving a balance of $2,597,257. Subsequently, the mechanics lien was discharged of record by Worth's securing a bond from Liberty Mutual Insurance Company, as surety, which was approved and filed pursuant to order of the Supreme Court of the State of New York, entered on May 28, 1998.
Plaintiff Worth alleges that ITRI had released all prior claims, and that the claim exceeding $2.5 million (asserted by ITRI in this lawsuit as the allegedly unpaid value of work performed on the project) could not have arisen within the last two weeks that ITRI worked on the project, i.e. between the date of the February 27, 1998 release and the termination on March 13, 1998. Defendant ITRI responds that the February 27, 1998 release provided that "the value of the work and materials in place is not less than $3,313,800 as shown on the Request for Payment attached hereto." (Mem. In Opp. to Pl. M. for Summ. J. at Exh. 4.). Worth notes that, while the disputed allegation of $5,191,852 as the value for work, labor, services and material is, quite literally, "not less than" the amount in the February 27 release ($3,313,800), the release called for an accurate statement of the account. Worth argues that it is impossible that a claim of such magnitude ($5,191,852) could have arisen after the date of the last release.
Worth moves for summary judgment on the grounds that (1) ITRI signed valid releases that barred future liens or claims against Worth; and (2) that ITRI's mechanic's lien is willfully exaggerated. Defendant ITRI responds that it was forced to sign the releases under duress and that the mechanic's lien was the proper value of the amount owed by Worth.
For the reasons stated below, Worth and Liberty Mutual's motion for summary judgment is denied.
DISCUSSION
Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50 (1986). A genuine issue for trial exists if, based on the record as a whole, a reasonable jury could find in favor of the non-movant. See Liberty Lobby, 477 U.S. at 248. In making its determination, the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-movant. See id. at 255. To defeat summary judgment, the non-moving party must go beyond the pleadings and "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). When opposing a motion for summary judgment, it is not sufficient for the non-moving party to present evidence that is conclusory or speculative, with no basis in fact. See Liberty Lobby, 477 U.S. at 249-50.
1. The Release
A. Terms of the Release
Defendant ITRI argues that releases are routinely executed in the construction business and are meant to acknowledge that one party is paying a sum of money, and that the other party, to the extent that sum is actually paid, waives its right to lien the project or seek to recover that sum from the party paying. ITRI further argues that it was never the intention of either Worth or ITRI that ITRI's claims be waived. Worth responds by referring to the language of the thirteen releases that were signed by ITRI waiving any liens, right to liens or claims, as provided for in Article V of the Subcontract.
Fundamentally, releases are contracts to be interpreted in accordance with principles of contract law. Zilinskas v. Westinghouse Elec. Corp., 248 A.D.2d 777, 669 N.Y.S.2d 703 (3d Dep't 1998). Therefore, "when the parties to a release express their intent in language that is clear and unambiguous on its face, full effect must be given to that intent in accordance with the language employed." Id. (quoting Murray-Gardner Mgt. v. Iroquois Gas Transmission Systs., 229 A.D.2d 852, 646 N.Y.S. 418 (3d Dep't 1996)). Whether the language set forth in a release unambiguously bars a particular claim is a question of law appropriately determined on a motion for summary judgment based upon the entire release and without reference to extrinsic evidence. Id. at 779 (citing W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157 (1990)). Whether or not a writing is ambiguous is a question of law to be resolved by the courts. Giancontieri, 77 N.Y.2d at 163.
Since a release is a "jural act of high significance without which the settlement of disputes would be rendered all but impossible . . . the traditional bases for setting aside written agreements, namely duress, illegality, fraud or mutual mistake, must be established or else [it] stands." Mangini v. McLurg, 24 N.Y.2d 556, 563 (1969). Yet it is equally well settled that the meaning and coverage of a release depends on the controversy being settled, and that a "release may not be read to cover matters which the parties did not desire or intend to dispose of." Gettner v. Getty Oil Co., 226 A.D.2d 502, 503, 641 N.Y.S.2d 73 (2d Dep't 1996) (citations omitted). ITRI argues that it never negotiated the clause, and never discussed its intention to waive the claim. ITRI further contends that Worth itself did not intend for the document to be a waiver. If it had, ITRI argues, Worth would not have presented ITRI's claims of damages to OGS for compensation.
Courts routinely uphold releases that are clear and unequivocal. In Teller Paving and Contracting Corp. v. City of New York, 72 A.D.2d 694, 421 N.Y.S.2d 364 (1st Dep't 1979), a plaintiff had signed eight consecutive waivers of claims "waiving and releasing all claims which it may have against the City . . . arising out of the aforesaid contract." The court held that this language was clear and to the point, containing no reservations, and that the plaintiff was bound thereby. Id.
Similarly, in Mars Assocs., Inc. v. City of New York, 70 A.D.2d 839, 418 N.Y.S.2d 27 (1st Dep't 1979), in exchange for an extension of time to complete the contract, the plaintiff agreed to "waive and release all claims which we may have against the City of New York arising out of the aforesaid contract except the following: various change orders and work under protest." The lower court had held that the differing interpretations placed on the waiver clause created an issue of fact which required a trial for resolution. The First Department reversed, concluding that the clause was clear upon its face. "By it, plaintiff waived and released all claims which it had against defendant arising out of the contract, save only those arising out of `change orders and work done under protest.'" Id. at 840.
The disputed release language in Kay-R Electric Corp. v. Stone Webster Construction Co., 23 F.3d 55 (2d Cir. 1994) covered claims "of whatever nature for . . . labor performed, or expense incurred to date which is not included in the above amounts or noted in the space above as provided therefor. . . ." The court concluded that the release was not ambiguous. "Taken as a whole, we find that the language in the payment requisition form constitutes a clear and unambiguous manifestation of an intent to release [defendant] from all expenses incurred as of the date of any particular requisition form, other than claims specifically listed on the form. . . ." Id. at 58. In that case, the plain language of the requisition form released any and all claims not expressly reserved. Id.
Similar to the releases in Teller Paving, Mars Assocs., andKay-R, the release in the case at bar stated: "The undersigned does hereby waiver [sic] and release any and all liens, right to lien or claims it may have against Bedford Hills Correctional, the land upon which Health Care Bldg. #126 is situated and Worth Construction Co., Inc. for any and all monies due and owing to it, arising out of work performed, equipment or materials furnished to Worth Construction Co., Inc. through this requisition." (Dizenzo Aff. at Exh. 3) (emphasis added). The Subcontract itself provided that such releases would be signed prior to submission of any application for payment.
There is no ambiguity in this language. ITRI agreed to waive and release any and all right to lien or claims against Worth for any and all monies due and owing to it, up to the point of the signed requisition. Therefore, absent any valid defenses, the releases in this case are enforceable as a matter of law.
B. Defenses
ITRI asserts the affirmative defense of duress in objection to the enforcement of the releases.
In the absence of fraud, duress, illegality or mistake, a general release bars an action on any cause of action arising prior to its execution. Stone v. Nat'l Bank and Trust Co., 188 A.D.2d 865, 591 N.Y.S.2d 609, 611 (3d Dep't 1992). A contract may be voided "on the ground of economic duress where the complaining party was compelled to agree to its terms by means of a wrongful threat which precluded the exercise of his free will." Muller Constr. Co. v. New York Tel. Co., 40 N.Y.2d 955, 956, 390 N.Y.S.2d 817 (1976). It is equally well settled that "[t]he threatened exercise of a legal right cannot constitute duress."Marine Midland Bank v. Stukey, 75 A.D.2d 713, 427 N.Y.S.2d 123 (4th Dep't 1980). The rule has evolved that "[t]he existence of economic duress is demonstrated by proof that one party to a contract has threatened to breach the agreement by withholding performance unless the other party agrees to some further demand . . ." 805 Third Ave. Co. v. M.W. Realty Assoc., 58 N.Y.2d 447, 451, 461 N.Y.S.2d 778, 448 N.E.2d 445 (citing Austin Instrument v. Loral Corp., 29 N.Y.2d 124, 324 N.Y.S.2d 22, 272 N.E.2d 533 (1971)). The proof must establish "more than business or economic inconvenience," Liffiton v. Town of Amherst, 234 A.D.2d 943, 652 N.Y.S.2d 567, 568 (4th Dep't 1996), and a party who seeks to void a contract or release procured by duress "must act promptly, or he will be deemed to have elected to affirm it."Edison Stone Corp. v. 42nd Street Dev. Corp., 145 A.D.2d 249, 254, 538 N.Y.S.2d 249 (1st Dep't 1989).
The evidence in the record raises a disputed issue of material fact concerning the defense of duress. ITRI has submitted evidence from which a reasonable trier of fact could conclude that Worth agreed to a variance from the contractual requisition procedures in order to cover weekly payrolls; that at some point Worth stopped paying ITRI monies due it pursuant to the monthly requisitions; and that, to pay tradesmen (and to avoid defaulting on its obligations), ITRI was forced to sign releases of claims for money that it had earned and requisitioned, but that Worth refused to pay. Viewing this evidence most favorably to ITRI, the non-moving party, there is a question of fact about whether Worth threatened to breach its agreement (to pay 90% of ITRI's monthly requisitions) by withholding performance (payment) until ITRI agreed to release any claim to money it was lawfully owed under the contract. It defies belief that ITRI would have agreed to work on the Bedford project for less than the amount specified in its written contract, or that it would have exposed itself to civil and even criminal liability for unpaid payroll taxes by voluntarily waiving its right to collect the money needed to pay those taxes. Yet, viewing the evidence most favorably to ITRI, that would appear to be the thrust of Worth's and Liberty's argument.
There thus exist disputed facts as to whether ITRI was compelled to sign the releases against its will; whether an opportunity to reserve rights under the releases was denied to ITRI; and whether any threats by Worth of withholding payment under that scheme prevented ITRI from exercising its free will.
Insofar as there is a material issue of disputed fact as to whether ITRI signed the releases under duress, there can be no release of the surety, Liberty Mutual.
2. Willful Exaggeration of the Mechanic's Lien
Worth alleges that ITRI willfully exaggerated the mechanic's lien it filed with the State of New York to the extent of $2,597,257, the entire amount claimed. Worth also asserts that it secured a discharge of mechanic's lien bond at a cost, and that ITRI had taken steps to enforce its mechanic's lien by suing the surety on the bond. Worth seeks a judgment declaring that the ITRI mechanic's lien is void by reason of its willful exaggeration, and to recover the total amount of the lien (since Worth denies owing ITRI anything) together with the amount of the premium for the discharge bond and reasonable attorney's fees for the services in securing the discharge of the lien, as provided for in Section 39-a of the New York Lien law.
Pursuant to Lien Law 39, courts may declare a lien void and deny recovery if the lienor has willfully exaggerated the amount claimed. Lien Law 39-a provides that where the court has declared a lien void "on account of willful exaggeration the person filing such notice of lien shall be liable in damages to the owner or contractor." N.Y. Lien Law 39-a. Lien Law 39-a is penal in nature, and therefore it must be strictly construed in favor of the person upon whom the penalty is sought to be imposed — in this case, ITRI. See Goodman v. Del-Sa-Co Foods, 15 N.Y.2d 191, 195, 257 N.Y.S.2d 142 (1965). Lien Law 39 and 39 — a must be read in tandem, and damages may not be awarded under 39 — a unless the lien has been discharged for willful exaggeration. See Guzman v. Estate of Fluker, 226 A.D.2d 676, 641 N.Y.S.2d 721 (2d Dep't 1996).
N.Y. Lien Law § 39-a provides that a lien willfully exaggerated is void. It states:
Where, in any action or proceeding to enforce a mechanic's lien upon a private or public improvement the court shall have declared said lien to be void on account of wilful exaggeration the person filing such notice of lien shall be liable in damages to the owner or contractor. The damages which said owner or contractor shall be entitled to recover, shall include the amount of any premium for a bond given to obtain the discharge of the lien or the interest on any money deposited for the purpose of discharging the lien, reasonable attorney's fees for services in securing the discharge of the lien, and an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceeded the amount actually to become due thereon.
The willful exaggeration of a Notice of Lien has been defined as an exaggeration which is intentional, deliberate, fictitious or fraudulent. Collins v. Peckham Road Corp., 18 A.D.2d 860, 236 N.Y.S.2d 415 (1963). The burden is on the opponent of the mechanic's lien to show that the amounts set forth in the notice of lien were intentionally and deliberately exaggerated. Fidelity New York, FSB v. Kensington-Johnson Corp., 234 A.D.2d 263, 651 N.Y.S.2d 86 (1996).
In that vein, Worth contends that ITRI's claim for breach of contract damages was based on the total costs incurred by it throughout the course of its work on the Bedford Correctional Facility project. Thus, its "total cost" damage claim for operating losses on the project is a claim that continually accrued over the entire period that it was delivering the semi-monthly releases to Worth. Worth alleges that it is likely that ITRI knew of the loss at the date of its last release, and that the only legitimate amount to claim would be that which accrued between the time of the last release and the alleged breach. ITRI responds that the mechanic's lien was for the difference between the actual amount of its work and the amount it had been paid. It further contends that because ITRI did not waive its right to file a mechanic's lien except with respect to money it had been actually paid, it had the right to file its lien in the amount it did.
There exists a dispute of fact as to whether Worth owes ITRI any money from the Subcontract, and whether ITRI intentionally and deliberately exaggerated the amount set forth in its notice of lien. ITRI's intent in filing its mechanic's lien is a question of fact more appropriately left for a jury to consider — if the jury does not first reject the defense of duress and uphold the release.
For the foregoing reasons, Worth's motion for summary judgment is denied.
This constitutes the decision and order of the court.
Date: February 21, 2001