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KAHUNA GROUP v. SCARANO BOAT BLDG.

September 15, 1997

KAHUNA GROUP, INC., Plaintiff,
v.
SCARANO BOAT BUILDING, INC., RICHARD SCARANO and JOHN SCARANO, individually, PORT WELDING SERVICES, INC., a/k/a PORT WELDING FABRICATING AND MACHINING, and STEVEN B. BARBER, individually, Defendants.



The opinion of the court was delivered by: MCAVOY

 I. BACKGROUND

 This case is essentially an action for breach of contract and fraudulent inducement to contract arising out of an agreement to construct a 149 passenger excursion vessel. Defendants include Scarano Boat Building, Inc. ("Scarano") and Port Welding Services, Inc. ("Port Welding"), boat building and shipyard welding corporations located at the Port of Albany, and their officers. The Complaint seeks to hold Defendants liable on several theories, including breach of contract, breach of implied warranties, breach of express warranties, and negligence. In addition, Plaintiff has sued the individual defendants, Richard Scarano, John Scarano, and Steven Barber for fraud, conspiracy to defraud, and prima facie tort.

 In February, 1992, Kahuna Group, Inc., began looking for a boat builder to design and construct a passenger excursion vessel for use in Plaintiff's business; Kahuna provides day and hourly excursion services to the public from Red Bank, New Jersey. In February, 1993, Todd Sanders, President of the Kahuna Group, met with John and Richard Scarano at their facilities in Albany, New York. At that meeting, the Scaranos introduced Sanders to their "fabricator," Steve Barber. According to Plaintiff, John and Rick Scarano and Steve Barber explained to Sanders that they did a lot of boat work together and that they had just built a steel crane barge together. Barber then took Sanders to a nearby building he identified as his and gave Sanders a tour of his facilities.

 During the course of the negotiations with Defendants, Kahuna alleges that Defendants fraudulently induced Kahuna to contract with Defendants for construction of the vessel the " Big Kahuna." Specifically, Todd Sanders alleges that John Scarano and Steve Barber represented to him that John Scarano was a naval architect, when in fact John Scarano had no naval architecture education. (Sanders Aff. P 20). Sanders also alleges that "in spite of the repeated representations by the Scaranos and Steve Barber about how much they worked together in boat construction and design, it turned out that they had not worked together at all." (Sanders Aff. P 21, citing John Scarano Dep. at 30). Sanders also states that contrary to Defendants' representations to him, Scarano Boat Building had not done any work on any steel vessel prior to the Kahuna project, (Sanders Aff. P 22, citing J. Scarano Dep. at 34-35), and Steve Barber was completely unfamiliar with Coast Guard regulations and American Bureau of Shipping standards concerning boat construction. (Sanders Aff. P 29, citing Barber Dep. at 268).

 On February 18, 1993, Scarano and Kahuna entered into an agreement in which Scarano agreed to construct a Coast Guard Certified 149 passenger excursion vessel, 60 feet long, 24 feet wide, and 30 inches draft, to be completed and delivered to Red Bank, New Jersey no later than May 21, 1993, for a cost of $ 233,000. Because Plaintiff's business was seasonal, a contract rider was executed, which provided for liquidated damages in the event the Big Kahuna was not completed by May 21, 1993.

 The vessel was not completed until June 24, 1993. In addition, during the sea trials of the Big Kahuna a number of problems were discovered, including severe vibrations from the engines and excessive "bow down trim." The problems with the vessel resulted in the immediate revocation of the Coast Guard's interim certificate of seaworthiness. As a consequence, Kahuna was required to make extensive repairs to the vessel in order to make the Big Kahuna seaworthy.

 Presently before the Court are Defendants' Motions for Summary Judgment.

 Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, a court may grant summary judgment if it appears "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). It is the substantive law that will determine what facts are material to the outcome of a case. See Anderson, 477 U.S. at 250.

 Initially, the moving party has the burden of informing the court of the basis of its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If the moving party satisfies its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The Court must then resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). However, the non-moving party must do more than simply show "that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Only when the Court concludes that no rational finder of fact can find in favor of the non-moving party should summary judgment be granted. Gallo v. Prudential Residential. Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994).

 Here, Defendants seek dismissal of the Complaint for the following reasons: (1) Port Welding was not a party to the contract; (2) There is no evidence of intent to defraud or conspiracy to defraud; (3) Plaintiffs' prima facie tort claim is without support; (4) The Scaranos have no personal liability; (5) Plaintiff cannot recover for any breach of warranty; (6) Plaintiff's negligence claim is without support; (7) The liquidated damages clause is unenforceable; and (8) Punitive damages are not warranted.

 The Court will address Defendants' arguments seriatim.

 A. Port Welding's Contractual Liability

 Port Welding and Steve Barber (hereinafter the "Port Welding Defendants") assert that they have no liability because Plaintiff only had a contractual relationship with Scarano Boat Building, and not with Port Welding. As Plaintiff properly notes, however, simply because Kahuna Group had a written contractual relationship with Scarano Boat Building does not preclude a contractual relationship with the Port Welding Defendants. This relationship may be based, inter alia, on an oral contract, functional privity, or Defendants' joint venture.

 After reviewing the record here, it is clear that Plaintiff has put forth sufficient evidence to show that, under all of the aforementioned theories of contractual liability, genuine issues of material fact exist. For example, Todd Sanders states that he had an oral agreement for the Scarano and Port Welding Defendants together to design and build the boat. (Sanders Aff. P 14). Sanders also states that he understood the written agreement to encompass the Port Welding Defendants as well, particularly because Sanders was never told that the Port Welding Defendants were not part of the Scarano operation.

 In their motion papers, the Port Welding Defendants incorrectly assert that the written contract precludes Plaintiff from offering evidence of an oral agreement between Kahuna Group and Port Welding. As the New York Court of Appeals has stated, "it has never been held that a written agreement between two parties excludes proof of an additional parol agreement between one of those parties and a third party." Traders' Nat'l Bank v. Laskin, 238 N.Y. 535, 542, 144 N.E. 784 (1924).

 At a minimum, Plaintiff states that it considered Port Welding and Scarano to be joint venturers. Under New York law, a joint venture "is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership." Gramercy Equities Corp. v. Dumont, 72 N.Y.2d 560, 565, 531 N.E.2d 629, 632, 534 N.Y.S.2d 908, 911 (1988). A joint venture exists where

 
the parties have so joined their property, interests, skills and risks that for the purpose of the particular adventure their respective contributions have become as one and the commingled property and interests of the parties have thereby been made subject to each of the associates on the trust and inducement that each would act for their benefit . . . .

 Steinbeck v. Gerosa, 4 N.Y.2d 302, 175 N.Y.S.2d 1, 13, 151 N.E.2d 170, 178 (1958) (quoting Hasday v. Barocas, 10 Misc. 2d 22, 28, 115 N.Y.S.2d 209, 215 (Sup.Ct.N.Y.Co. 1952)).

 Specifically, in order to form a joint venture (1) two or more persons must enter into an agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses. Itel Containers Int'l Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698, 701 (2d Cir. 1990); Independent Energy Corp. v. Trigen Energy Corp., 944 F. Supp. 1184, 1201 (S.D.N.Y. 1996).

 Here, Plaintiff cites to ample evidence supporting its theory of joint venturer liability. According to Plaintiff, the Scaranos approached Port Welding and secured their involvement in the project before Plaintiff contracted with either of them. In fact, Scarano Boat Building never even considered another fabricator other than Port Welding. (Sanders Aff. P 17, citing J. Scarano Dep. at 42-43). Moreover, the Scaranos introduced Steve Barber as their "fabricator." (Sanders Aff. P 10). According to Plaintiff, John and Rick Scarano and Steve Barber explained to Sanders that they did a lot of boat work together and that ...


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