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MIKROPUL CORP. v. DESIMONE & CHAPLIN-AIRTECH

December 28, 1984

MIKROPUL CORPORATION, Plaintiff,
v.
DESIMONE & CHAPLIN-AIRTECH, INC., and VINCENT J. DESIMONE and JAMES E. CHAPLIN, doing business as DESIMONE, CHAPLIN AND ASSOCIATES, CONSULTING ENGINEERS, Defendants.



The opinion of the court was delivered by: SWEET

SWEET, D.J.

This diversity action arises from contractual disputes surrounding the construction of an air pollution control facility at United States Steel's ("USS") Fairless, Pennsylvania plant. Defendants Vincent DeSimone ("DeSimone") and James Chaplin ("Chaplin"), doing business as DeSimone, Chaplin and Associates ("DSC"), have moved for summary judgment pursuant to Fed.R.Civ.P. 56 dismissing that portion of Mikropol's ("Mikropol") fourth and fifth causes of action that seeks recovery of money for an alleged failure of DSC to design piles for tension and also, separately, dismissing the fourth cause of action in its entirety. DSC also seeks an order pursuant to Fed.R.Civ.P. 12(f) striking paragraph 36 of Mikropol's fifth cause of action. All motions are denied.

 Alleged Facts

 Mikropol seeks damages for defendant's fraudulent inducement and breach of contract, negligence, and professional malpractice in connection with a contract awarded by Mikropol to DeSimone & Chaplin-Airtech ("Airtech"). Mikropol, a Delaware corporation with its principal place of business at Summitt, New Jersey, provides services and equipment to industrial customers to aid in insuring compliance with air pollution requirements. Airtech is a New York corporation with its principal place of business in New York, New York. DSC is a partnership whose partners, DeSimone and Chaplin, reside in New York. The principal place of business of DSC is New York, New York.

 On April 1, 1980 Mikropol entered into a contract with USS for the design and construction of an air pollution control system at USS" steel manufacturing facility in Fairless, Pennsylvania. Mikropol invited competing bids from vendors and subcontractors in response to specifications provided by Mikropol.

 One of the competing bids submitted for the design and engineering subcontract was from Airtech. Mikropol alleges that the Airtech bid claimed that Airtech had been in business since 1969, that Airtech employed eighteen engineers, designers, and consultants, that DeSimone and Chaplin were primary technical personnel of Airtech, and that both would be active on the Fairless project. Mikropol also alleges that these representations were reinforced by statements made and appearances set forth by DeSimone in a visit to Airtech's offices by Mikropol officials. Mikropol, in reliance on these statements granted Airtech the subcontract.

 Mikropol now asserts that Airtech has been in business since 1976, not 1969, that Airtech employed fewer than eighteen professionals, that any work performed by DeSimone and Chaplin was not performed directly for Airtech but was performed for DSC in its capacity as a "subcontractor" of Airtech, despite the prior representation that DeSimone and Chaplin were primary employees of Airtech. Mikropol maintains further that although Airtech was presented as a viable engineering firm, it was really an under-capitalized, virtually assetless shell corporation designed to shield DSC from primary liability.

 Mikropol also alleges that Airtech and the other defendants, as "subcontractors," did not use reasonable and professional care in designing the piles for the Fairless plant, causing $650,000 in damage. Mikropol maintains that subsequent to discovering the nature of the design error, Mikropol and USS reached an agreement designed to allocate the immediate costs of corrective measures so that completion of the Fairless plant could be as expeditious as possible. Mikropol maintains that this agreement did not constitute a settlement of the liability resulting from the design errors nor did it contain a release from any further effort by USS to recover damages.

 DSC asserts that no contract existed between DSC and Mikropol, and that any work done by DSC in connection with the Fairless project was done in DSC's capacity as a subcontractor of Airtech. DSC also alleges that the agreement between USS and Mikropol allocating repair costs represented a resolution and settlement of the liabilities resulting from the improper design of the piles for the Fairless plant.

 Discussion

 Motions for summary judgment cannot be granted when material issues of fact remain to be resolved, and the burden is on the moving party to establish that no relevant facts are in dispute. Schering Corp. v. Home Ins. Co., 712 F.2d 4 (2d Cir. 1983). The court cannot try issues of fact, and "[i]ndeed, the court must resolve all ambiguities and resolve all inferences in favor of the party against whom summary judgment is sought." Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir. 1980) (quoting Heyman v. Commerce & Industry Ins. Co., 524 F.2d 1317, 1319 (2d Cir. 1975)).

 An initial hurdle in this case is to determine which state's substantive law to apply. The decision to apply either New York, Pennsylvania, or New Jersey law is not dispositive of these motions, given the near equivilence of these states' laws in the relevant areas and the major factual issues that remain to be resolved. For the reasons set forth below, New York law will be applied, but this conclusion is subject to change upon further evidence concerning the interest and contacts involved. See Am. Elec. Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435, n.36 [Footnote omitted] (S.D.N.Y. 1976).

 The New York substantive law, of course, includes choice of law rules. Day and Zimmermann, Inc. v. Challoner, 423 U.S. 3, 46 L. Ed. 2d 3, 96 S. Ct. 167 (1975); Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). The general rule in New York tort cases is still that of lex loci delicti. Cousins v. Instrument Flyers, Inc., 44 N.Y.2d 698, 405 N.Y.S.2d 441, 376 N.E.2d 914 (1978). The place of the wrong in this case is New York: any alleged negligence or malpractice in the design work occurred either at Airtech or DSC, both located at 20 Waterside Plaza, New York. Moreover, although the Fairless plant is in Pennsylvania, a grouping of contracts test, Miller v. Miller, 22 N.Y.2d 12, 290 N.Y.S.2d 734, 735, 237 N.E.2d 877 (1068), requires that New York law be applied. The defendants reside in New York; the DSC subcontract was executed in New York; the defendants are licensed professionals in New York; and Airtech is incorporated in New York. Finally, the interests of New York in regulating the conduct involved are greater than those of the other states. Delbrueck & Co. v. Mfrs. Hanover Trust Co., 464 F. Supp. 989, 993 (S.D.N.Y.) aff'd, 609 F.2d 1047 (2d Cir. 1979); Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963). New York has the greatest interest in insuring that professionals licensed to practice in this state comply with the standard of care imposed by New York, and New York has a paramount interest in preserving the integrity of the corporate form under New York law by regulating the standards which control piercing the veil of New York corporations.

 The gravamen of DSC's motion for summary judgment on the tension/compression element of the fourth and fifth causes of action is that Mikropol effected a settlement with USS and therfore is precluded by General Obligation Law § 15-108 from bringing an action for contribution. DSC argues that the interchange of letters and the series of meetings which preceded the agreement to divide ...


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