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October 26, 1984


The opinion of the court was delivered by: COOPER


This is an action by S. Leo Harmonay, d/b/a Harmonay Company (Harmonay), a New York corporation, against Binks Manufacturing Company (Binks), a Delaware corporation with its principal place of business in Illinois, for breach of a construction contract.* *fn1" Plaintiff was the mechanical piping subcontractor to defendant, one of a number of general contractors on the expansion of a General Motors (GM) automobile assembly plant in Tarrytown, New York. Defendant's project involved the construction of two additions to the plant, known as the Body Phosphate Facility and the Body Elpo Dip System; it subcontracted out the mechanical piping work to plaintiff at a cost of approximately two million dollars.

 Plaintiff claims that defendant breached the contract by causing certain project delays which resulted in an increased cost of materials, labor inefficiencies and excess supervision during an acceleration period; that it is entitled to a markup for overhead and profit for overtime work performed; and that it should be compensated for its field office costs incurred after the original job completion date.

 Jurisdiction is vested in this court under 28 U.S.C. § 1332. The amount in controversy exceeds $10,000 exclusive of interest and costs.


 In late 1980, defendant contracted with GM to construct the Body Elpo Dip System and Body Phosphate Facility, a new painting system for the GM automobile plant. The GM project site on which the construction was to occur consisted of two buildings, body and chassis plants, parallel to each other. The extension of the south end of the body plant in order to construct the new facilities was referred to as the "Elpo Building addition." (Tr. 8) *fn2"

 At trial, Edward Klapp, the vice-president of Harmonay, first described the working of a phosphate machine as follows: "[The new partially assembled car] comes on an overhead conveyor, [and] goes through eight stages of washing and cleaning . . . inside of a totally enclosed housing where there are spray headers [and] drain pans to keep the water circulating over the [automobile] body." (Tr. 15) After the car proceeds through the phosphate system, it is a "nice shiny piece of metal . . . and clean."

 The Body Elpo Dip System then paints the cleaned automobile body. As explained by Klapp: "[After the car drip dries on the third floor] [i]t is . . . returned by means of conveyor back down to the second floor, at which point it is put through the Elpo system. It starts by having the body totally immersed into paint substance which is basically a primer . . . [i]t's an electroly [sic] charged painting system." (Tr. 15) Following the phosphate and Body Elpo treatments, the auto is conveyed back to the third floor of the body plant where it moves through a series of drying ovens prior to the application of other accessories onto the automobile.

 The scope of defendant's work on this project was set forth in the GM "Specifications for Body Phosphating Facilities - GMAD Elpo Building -- S-358 and S-359". (Ex. 10) Specification S-358 covered the phosphate facilities and S-359 encompassed the Body Elpo facilities. The GM specifications included instructions to bidders, proposal forms, a time schedule, a scope of work section, technical specifications, and "GM Contract General Conditions". The general conditions set forth, inter alia, basic provisions concerning time extensions, extra work, change orders, and overtime work. *fn3"

 Harmonay's first contact with Binks was a phone call in October, 1980, from Fred Steinhebel, a representative of Binks, who told Klapp that Binks was bidding on a painting system for new cars and requested a bid from Harmonay on the mechanical piping work. (Tr. 13) As was customary bidding procedure among contractors, plaintiff used the GM technical specifications, including bid drawings or schemactics, in order to prepare its bid for defendant. Klapp, whose duties were to oversee the daily office and field operations, testified that this bid was compiled by pricing materials required by types and sizes, adding labor values based on plaintiff's "experience over the years working at General Motors" and finally adding overhead and profit to arrive at the bid price package. (Tr. 17)

 Plaintiff was awarded the contract, and by signed purchase order dated December 9, 1980 *fn4" agreed to perform the general mechanical piping work for a total compensation of approximately two million dollars.(Tr. 8) The October 31, 1980 quotation confirmed plaintiff's verbal quotation to defendant to perform work "in accordance with specifications titled "Specifications for Body Phosphating Facilities' and "Body Elpo Dip System" (i.e., "GM Specifications") and certain enumerated drawings. A second written purchase order, dated January 7, 1983 (Ex. 9) modified the original subcontract only to the extent of eliminating and adding various items of work for the prices therein enumerated.

 It is well known in the construction business that the schemactics set forth in the owner's specifications are approximations used to enable potential subcontractors to make bids; that they often lack, for instance, exact distances. (Tr. 18-23) Accordingly, a subcontractor who is awarded a contract receives from the contractor precise drawings (contract layout drawings) before the construction work begins so that he may order the proper types and amounts of materials. (Tr.31) To that end, Klapp, prior to bidding, discussed with Steinhebel the defendant's responsibility to provide contract layout drawings so that Harmonay could "make take-offs and order materials that would be needed to start the installation of the project." The drawings were to be prepared by another Binks subcontractor, Industrial Finish Engineering, Inc. (IFE), whose principal was Edwin Schacterle, and were to include, inter alia, plan views, elevations, equipment locations, tie-ins between the equipment and piping, and all pipe sizes. In addition, defendant retained IFE and Schacterle to render engineering services for the project as set forth by a purchase order dated December 9, 1980.

 Pursuant to the GM Specification "Time Schedule," bids were due on October 27, 1980; the bid award target date was November 3, 1980; and "Major drawings Submittal (Layouts, Sections, Schemactics and Equipment Data) Complete" were to be submitted from "12/15/80 to 1/15/81." Klapp testified that Steinhebel referred to the "importance [of] hav[ing] the drawings as quickly as possible, hopefully by the first of January, so the [Harmonay] could make our take-offs [drawings] and order the material that would be needed to start the installation of this project." (Tr. 30-31) The GM Specifications further provided that the project site was to be available to defendant and its subcontractors to begin their work by February 1, 1981. Th original date for substantial completion of the project was between August 15 and September 20, 1981. Two "Binks Bar Charts" (Exs. 80 and 80A) mounted over the desk of Mr. Norm Smith, Binks' superintendent, were allegedly used to plan the sequencing of the project work. (Tr. 314-16) A "bar chart" as explained pby Klapp, "is a descriptive means of tying in a piece of work that has to be performed. It will tie it into dates on a calendar, either weekly [or] monthly [and] show when that area of work will start [and] be completed . . . [T]hat will be tied in to dates . . . [to] tell the contractors involved in the project the amount of time that they have within which they must start the project and complete the project . . . or various phases of it." (Tr. 86) At trial, defendant objected to plaintiff's introduction of the Bar Charts, and their use in preparing Exhibits 103, 104 and 105; we reserved decision and address this motion below.

 Pre-Acceleration Period

 Prior to the "Binks job," plaintiff installed mechanical piping on a different portion of the Elpo Building addition as subcontractor to the Polera Building Corporation (Polera). Klapp testified that in January, 1981, the Elpo building was substantially completed. The Binks project was located on the second floor where "3/4 of the floor was ready and prepared." (Tr. 11) Steinhebel and Schacterle promised the delivery of the layout drawings to plaintiff "shortly."

 In February, 1981, the month in which the project site was supposed to be available for construction to begin, Klapp again requested the layout drawings from Steinhebel and told him that plaintiff was hiring a draftsman, Robert Fisher, to develop some fabrication drawings which would allow plaintiff to start ordering material and to fabricate piping. Steinhebel allegedly agreed that this was a good idea. (Tr. 49-50)

 By letter dated March 6, 1981 (Ex. 15), plaintiff requested specific information and drawings from defendant. In pertinent part, the letter reads: "Confirming our phone conversation of this date, it is imperative that we be given sufficient information now to allow us to purchase out the material required for the subject project. To date, we have approximately ten percent (10%) of the total information we need to allow us to purchase pipe, fittings, and valves. We have already been hit with a 12% material escalation [in price] . . ." Plaintiff's job superintendent, Ray Camardella, testified that despite repeated requests to Steinhebel, drawings, piping layout information and dimensions were "very scarce and very few" during this period of time.

 Plaintiff began to install some piping in May of 1981. According to Camardella's job diary entry, GM called a meeting on May 5, 1981 which Camardella attended although no representative from Binks "showed up, therefore, [there was] no meeting."

 The voluminous evidence adduced pointed out that delays relating to the lack of layout drawings and information required for the fabrication and field work continued through June of 1981.Although layout drawings were to be prepared by plaintiff through its draftsman Fisher, or by GM, all modifications and additions to these layout drawings were provided by IFE. (Ex. 75; Tr. 120-121, 126) Furthermore, the project site scheduled to be available on February 1, 1981 was not actually ready for construction to begin until mid-March, resulting at the start in a delay of approximately a month and a half.

 On June 4, 1981, Leo Harmonay, the president of Harmonay, called a meeting attended by both Binks and GM representatives. He testified at trial that he then expressed his concern that only 10 or 15 per cent of the work had been done although they were 2 1/2 to 3 months away from the scheduled date for testing and debugging (the elimination of malfunctioning elements or error in a system). (Tr. 294) Klapp testified that the GM plant manager, Ray Windas, "said that General Motors was aware that there was a problem . . . [and] of the seriousness of that problem, that they had been in constant touch with Binks personnel concerning the lack of drawings, [and] the fact that the job was behind productionwise, installationwise, and they were doing everything possible to try to bring the job back onto schedule." (Tr. 170)

 The record is replete with reference to additional sources of project delay, which included defendant's delay in furnishing, installing, or constructing various tanks, decks and platforms -- all essential steps prior to plaintiff's installation of piping; additionally the revamping or modification of previously installed piping. At trial, Klapp stated that although the GM work order "Bulletins" ( to which were attached written change orders) *fn5" required certain modifications to be made, these GM bulletins did not cause the project to be delayed more than was anticipated. Moreover, Klapp readily acceded at trial that the only extra work performed for GM by Harmonay was done pursuant to these bulletins (Tr. 248), and that Harmonay had no claims concerning these bulletins or the change orders attached thereto. (Tr. 244)

 Instead, the delays due to missing drawings and lack of equipment ready for piping installation continued through July. Various entries in plaintiff's job diaries indicate that Schacterle was still delivering drawings and making changes on the project site in late July through August. Some of these modifications necessitated removal of up to 50 percent of the materials already installed. (Tr. 153-54)

 The Acceleration Period

 The acceleration of the work being done on the project began in early July, 1981 when Harmonay was asked to increase its crew sizes, put on a second shift, and work both crews overtime. In addition, crews were required to sometimes work on weekends and holidays throughout the acceleration period. The parties dispute whether defendant or GM requested the acceleration; nonetheless, the GM Specifications provided for acceleration upon the request of GM under certain conditions of delay.

 Klapp testified that Russell Flood, the erection superintendent and subcontractor coordinator of the project for Binks, orally agreed to pay for the overtime portion of the workmen's wages at that time; though promised, Flood did not at that time or thereafter send a written change order confirming this agreement. (Tr. 175) Nevertheless, it is undisputed that all overtime payments incurred by Harmonay were paid. (Tr. 255-56)

 In addition to overtime, Klapp testified that he also requested that defendant pay plaintiff for the overhead and profit on this premium time work, and received assurances that it would be worked out after discussions with defendant's office. (Tr. 182-83) Specifically, Steinhebel told him that "it would be worked out;" Flood stated that they would have to "discuss it with General Motors or he would have to discuss it also with his office." (Tr. 183) However, only a portion of the total overhead and profit costs that plaintiff incurred due to the delays was paid by Binks -- a 25 percent "premium payments" for a number of days upon which Harmonay performed overtime and/or shift work in October, 1981.

 The Motions

 I. The Binks Bar Charts

 As evidence that delay was incurred despite the target dates set up in the "Time Schedule," plaintiff attempted to introduce into evidence two "Binks bar charts" (Exs. 80 and 80A) which also indicated that the sequencing of the Elpo System project would extend from February 7 through August 15 while the Phosphate facility installation would progress from March 7 through August 15. Defendant moved to strike their admission, apparently for lack of foundation. (Tr. 97)

 We find that the totality of evidence neither rebuts nor refutes the testimony of Camardella that both he and Binks' superintendent Norm Smith consulted these two bar charts mounted over Smith's desk. In addition, defendant's answer to plaintiff's Interrogatory No. 22 admits that defendant prepared the bar charts.Interrogatory 22 reads: "Identify all progress schedules prepared by Binks or any professional for the Project." Defendant (through counsel) answered in pertinent part: "The specifications issued [by GM] for the project, which were incorporated into Harmonay's subcontract by reference, contained a progress schedule which was binding on all contractors and subcontractors on the job. A copy of such schedule is attached hereto as Exhibit 2. BINKS" personnel prepared bar charts for the completion of the Elpo and Phosphate machines. Copies of these schedules [the Binks bar charts] are attached hereto as Exhibits 3 and 4." (Emphasis added) Therefore, we find that these bar charts are admissible in evidence as admissions by a party, Fed. R. Evid. 801(2), and have included them in our examination of the proof. Accordingly, we deny defendant's motion to strike the bar charts and testimony relative thereto.

 II. The Attorneys' Letters

 We have also considered defendant's motion to strike a letter from one of its attorneys. Defendant argues that the letter should not be admitted into evidence as proof of liability because it constitutes a statement made in the course of compromise negotiations. Fed. R. Evid. 408.

 At trial, Klapp testified that in April, 1982, an associate at defendant's law firm, Michael Goergen, Esq., asked to meet with officers of Harmonay and Russell Flood of Binks at Harmonay's offices.

 Goergen allegedly acknowledged that Harmonay "had difficulties and problems on the job that [had] held [plaintiff] up from performing [its] work" which was partially due to the fact that plaintiff "did not receive layout drawings during the course of the job allowing [plaintiff] to purchase, receive, fabricate and install [its] job in a timely fashion." (Tr. 205) According to Klapp's testimony, Binks' attorney then informed him that defendant was contemplating a lawsuit against Edwin Schacterle and he inquired as to whether Harmonay wished to join in this suit.

 By letter to Klapp dated June 3, 1982, Goergen reduced this request to writing. The portion of the letter in dispute reads:

 "You and I also discussed the potential law suit between Binks and its design subcontractor, Edwin Schacterle. While you indicated that you had suffered labor losses resulting from Schacterle's actions or inactions, you also indicated your hesitancy to commit your company's resources to a protracted legal battle. The question which would have to be answered to your satisfaction before you would be willing to make such a commitment is whether or not Schacterle has significant insurance coverage."

 Rule 408, Fed. R. Evid. provides that:

 "[e]vidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible." (emphasis added)

 Defendant argues that the latter portion of the rule bars admission of Goergen's letter into evidence. In order to determine whether the statement in dispute was made in the course of compromise negotiations, we must ascertain first whether any compromise negotiations actually took place, and if so, decide whether that statement was made in the course of these negotiations.23 C. Wright & K. Graham, Federal Practice and Procedure § 5307 at 231 (1977).

 While it is true that a statement is excludible if the party making it is seeking to reach a compromise, we do not find that any compromise negotiations were actually taking place in the instant situation.The statement by Goergen merely refers to the possible institution of suit by both plaintiff and defendant as co-parties against Schacterle. Upon inquiry into the subjective purposes of the parties, we cannot say that this statement, which is figuratively a solicitation to stay on defendant's "side of the fence" in case of possible litigation, is the legal equivalent of a statement made in the course of compromise negotiations. Accordingly, we deny defendant's motion and admit this letter into evidence.

 We find further support for our determination in the fact that the letter was sent to Harmonay prior to the existence of an actual dispute between the instant parties, and is therefore not privileged as an offer of compromise. See Morgan v. Norfolk & Western Railway Co., 473 F.2d 1278 (7th Cir. 1973). It is admissible as an admission by a party.

 Similarly, we have examined a letter to Goergen from plaintiff's attorney, Allen Ross, Esq., dated July 28, 1982, which plaintiff moves to strike. Defendant seeks admission of this letter in order to impeach the testimony of Sidney Hecker, comptroller, which relates to the amount of damages sustained by Harmonay. In contrast, this letter states: "In accordance with our prior discussions and without prejudice to our clients' respective legal positions, I am taking the liberty of setting forth below a summary of the damages suffered by Harmonay in the performance of its subcontract work with the Binks Manufacturing Company . . ." The letter further refers to plaintiff's anxiety that Ross "proceed as expeditiously as possible to resolve these claims." The letter concludes with Ross' request for "your client's [Binks] earliest response." Plaintiffs argues that this letter is not admissible under Fed. R. Evid. 408 because it was written during the course of settlement negotiations.

 At common law, use of the prefatory and "magic" phrase "without prejudice" clearly indicated that the statement was being made in the course of compromise negotiations. Under Fed. R. Evid. 408, employment of this common law phrase is no longer dispositive. However, its use may still be evidence of the intent of the speaker which we may rely upon to determine whether the statement was made "in compromise." See 23 C. Wright & K. Graham, Federal Practice and Procedure § 5315, at 291 (1977).

 In the instant case, we find that the use by counsel for plaintiff of the phrase "without prejudice," coupled with his listing of the damages, the plaintiff's desire to resolve the claims, and a request for Binks' earliest response all indicate that the writer's intent was to send the letter in the course of compromise negotiations. Since we find that the evidence offered is within Fed. R. Evid. 408, we sustain plaintiff's objection to the admission of this letter as evidence. We must add that with or without the Goergen statement and/or the Ross letter, our findings of fact and conclusions of law would remain the same.

 The Law

 Before reaching the merits of plaintiff's claim, we must decide which state law governs this controversy. Toward this end, both parties look to the forum selection clauses in the prime contract (between GM and Binks) and in the subcontract. Plaintiff argues that the prime contract controls, for it provides that "the law of the place of the work shall govern," i.e., New York. Under New York law, incorporation clauses in a construction subcontract, which incorporate by reference clauses in the prime contract into the subcontract, bind a subcontractor only to the prime contract provisions relating to the scope, quality, character and manner of the work to be performed by the subcontractor. See Guerini Stone Co. v. P.J. Carlin Construction Co., 240 U.S. 264, 277, 36 S. Ct. 300, 60 L. Ed. 636 (1916); U.S. Steel Corp. v. Turner Construction Co., 560 F. Supp. 871 (S.D.N.Y. 1983). Despite the incorporation of the GM Specifications (the prime contract in the instant case) into the subcontract by reason of the fact that the agreement of the parties referred to two Harmonay bid quotes of "10-31-80 and 11-21-80," both of which in turn refer to the Specifications, plaintiff contends that the exculpatory "no damages for delay" clause in the Specifications cannot be applied to the subcontract since the clause does not affect the scope, quality, character and manner of the plaintiff's work. The clause, a part of the Contract General Conditions in the Specifications, provides:

 "Contractor agrees that whether or not any delays shall be the basis for an extension of time, he shall have no claim against the Owner for an increase in the Contract price, nor a claim against the Owner for a payment of any kind for damage, loss or expense resulting from delays; nor shall the Contractor have any claim for damage, loss or expense resulting from interruptions to, or suspension of, his work to enable other ...

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