The opinion of the court was delivered by: Leisure, District Judge.
This diversity action is brought by plaintiff for damages
resulting from an alleged overpayment to its subcontractor in
connection with the Marriott Marquis Hotel project. Plaintiff
Morse/Diesel, Inc. ("Morse/Diesel"), alleges, in addition to
its breach of contract claim, fraud and breach of the covenant
of good faith and fair dealing. Defendant Fidelity and Deposit
Company of Maryland ("F & D") has asserted counterclaims of
fraud and bad faith breach against plaintiff and additional
counterclaim defendants, Times Square Hotel Company ("Times
Square") and Marriott Corporation ("Marriott"). Morse/Diesel,
Times Square and Marriott (collectively, the "counterclaim
defendants") now move the Court to: (1) dismiss defendants'
counterclaims pursuant to Fed.R.Civ.P. 12(b)(6), 8(a) and
9(b); (2) strike F & D's ninth affirmative defense pursuant to
Fed.R.Civ.P. 12(f); and (3) impose sanctions upon F & D
pursuant to Fed.R.Civ.P. 11. F & D opposes these motions and
has cross-moved for bifurcation of plaintiff's claims,
pursuant to Fed.R.Civ.P. 42(b), and for a stay of discovery
proceedings.
This dispute concerns events surrounding the construction of
the Marriott Marquis Hotel (the "Project" or the "Hotel") in
midtown Manhattan. The Project was owned by Times Square, a
joint venture composed of Marriott and John Portman, the
Project's architect. Morse/Diesel was the general contractor
for the Project. Under a subcontract executed in 1982, T.
Frederick Jackson, Inc. ("Jackson") agreed to install a
complete electrical system for the Project. F & D issued a
performance bond (the "Bond") on behalf of Jackson, in which
the counterclaim defendants, among others, were named as
obligees. The Bond gave F & D three options for fulfilling its
obligations in the event Jackson was, and was declared to be,
in default on the subcontract: F & D could remedy the default,
complete the subcontract, or arrange for another subcontractor
to complete the work.
In mid-1985, a dispute arose as to whether Jackson's cost of
completion would overrun the amount provided in the
subcontract. On August 6, 1985, a meeting was held at F & D's
Baltimore office, at which Jackson allegedly stated that its
cost of completing the electrical system would be less than
the balance left in the subcontract. Morse/Diesel alleges, and
F & D denies, that F & D joined in Jackson's representation.
Morse/Diesel alleges that, despite its own estimate and
belief that Jackson's cost would exceed the subcontract
balance, it decided to rely on F & D's representation that
Jackson would not exceed that balance, on the ground that F &
D allegedly had superior resources to estimate the costs of
the Project. See Memorandum of Law in Support of Morse/Diesel,
Inc., Marriott Corp. and Times Square Hotel Co.'s Motion to
Dismiss Counterclaims and for Sanctions (hereinafter
"Morse/Diesel Mem.") at 11-12.
On August 8, 1985, Morse/Diesel and F & D entered into a
one-page reimbursement agreement (the "Reimbursement
Agreement"), under which Morse/Diesel agreed to fund Jackson
for the work required to complete the subcontract. F & D
agreed to reimburse Morse/Diesel for any advance payments made
to Jackson that exceeded the adjusted balance of Jackson's
subcontract "as ultimately determined (by litigation or
arbitration or settlement, as the case may be), plus interest
at the legal rate of New York State from the date of each such
payment." Reimbursement Agreement, Morse/Diesel Mem., Exhibit
D.
F & D contends that, as of February 1986, there had been no
ultimate determination that any payments made to or for the
benefit of Jackson exceeded the adjusted subcontract balance,
and that Jackson was still at work on the Project.
Counterclaim ¶ 30. F & D allegedly was awaiting documentation
from Morse/Diesel in support of its claims of overpayment.
Nevertheless, in mid-February 1986, Morse/Diesel instituted
this action against F & D seeking reimbursement for the
purported overpayment to Jackson. After F & D joined Jackson as
third-party defendant, Jackson asserted a claim against
Morse/Diesel alleging that it was owed an additional
$11,000,000 for its work on the Project.
After Morse/Diesel amended its complaint to add claims
against F & D for fraud and for breach of the implied covenant
of good faith and fair dealing,*fn1 F & D filed an answer
containing the counterclaims that are the subject of the
instant motions. F & D alleges that the counterclaim
defendants falsely represented that they believed that
Jackson's cost to complete its work would exceed the remaining
adjusted subcontract balance, and that this misrepresentation
fraudulently induced F & D to enter into the Reimbursement
Agreement. Counterclaim ¶¶ 33, 34. F & D also asserts that this
alleged misrepresentation violated the covenant of good faith
and fair dealing implied in the Bond and deprived F & D of its
rights under the Bond by inducing F & D to assume an additional
obligation. Counterclaim ¶¶ 42, 43, 44.
The counterclaim defendants have now moved to dismiss F &
D's fraud counterclaim on a number of grounds, including
failure to allege essential elements of fraud including
falsity, reliance, and damages; admission by F & D in its
answer that the alleged misrepresentation was true; and
failure to allege specific acts by Marriott or Times Square.
The counterclaim defendants move to dismiss F & D's claim of
breach of the Bond covenant of good faith on the ground that
none of the counterclaim defendants are signatories to the
Bond. Plaintiff also asks the Court to strike F & D's ninth
affirmative defense, which is grounded in the same alleged
misrepresentation. Finally, counterclaim defendants ask the
Court to impose sanctions upon F & D for filing unfounded
counterclaims.
In a separate motion, F & D moves the Court to bifurcate the
trial of the issues arising from the contract dispute between
Morse/Diesel and Jackson from that of the claims of bad faith
breach and fraud arising from the subsequent Reimbursement
Agreement between Morse/Diesel and F & D. F & D also seeks a
stay of discovery relating to the fraud and bad faith breach
claims.
I. Morse/Diesel's Motions to Dismiss
A motion to dismiss under Fed.R.Civ.P. 12(b)(6) must be
denied "unless it appears beyond a doubt that the
[counterclaim] plaintiff can prove no set of facts in support
of his claim which would entitle him to relief." Scheuer v.
Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90
(1974), (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct.
99, 101-02, 2 L.Ed.2d 80 (1957)); see also Rauch v. RCA Corp.,
861 F.2d 29, 30 (2d Cir. 1988). The Court must accept F & D's
allegations of facts as true, together with such reasonable
inferences as may be drawn in its favor. See Scheuer, supra,
416 U.S. at 236, 94 S.Ct. at 16; Murray v. Milford,
380 F.2d 468, 470 (2d Cir. 1967). Fed.R.Civ.P. 8(a) requires only a
"`short and plain statement of the claim' that will give the
defendant fair notice of what plaintiff's claim is and the
ground upon which it rests." Conley, supra, 355 ...