The opinion of the court was delivered by: CONNER
Plaintiff General Insurance Company of America ("General") brought this action against defendants K. Capolino Construction Corp. ("the Capolino firm"), K. Capolino Design and Renovation, Ltd., Kenneth L. Capolino ("Capolino") and Patricia M. Capolino seeking indemnification for costs it incurred in completing construction contracts on two housing developments owned by the White Plains Housing Authority ("the Authority") for which General had issued performance bonds on the Capolino firm's behalf. General stepped in and completed the jobs at the request of the Authority, after several disputes arose between the Authority and Capolino over the nature and scope of the work required to be performed under the contracts, and over payment to Capolino for work he asserts his firm had completed. We have jurisdiction under 28 U.S.C. § 1332.
After our November 9, 1995 Opinion and Order denying cross-motions for summary judgment, on March 6, 1996 General amended its complaint to add claims in the alternative against the Authority in the event that it be determined at trial that the Authority breached the contracts. These claims were: for unjust enrichment (Claim 4); for indemnity against any recovery by Capolino on its counter claims (Claim 5), and for unpaid monies for alleged extra work performed to complete the projects (Claim 6). In its March 29, 1996 Answer to General's Amended Complaint, defendant Authority brought five cross-claims against Capolino. These claims were: for declaratory judgment of the rights of the parties to terminate the Winbrook contract and to call upon General to complete the contract (Auth. Cross-Claim 1); for declaratory judgment of the rights of the parties to terminate the Schuyler contract and to call upon General to complete the contract (Auth. Cross-Claim 2); for restitution against Capolino for monies it was overpaid on the Winbrook contract (Auth. Cross-Claim 3); for damages it incurred as a result of Capolino's breach of the Winbrook contract (Auth. Cross-Claim 4); for damages it incurred as a result of Capolino's breach of the Schuyler contract (Auth. Cross-Claim 5). Capolino then cross-claimed against the Authority for breach of contract (Cap. Cross-Claim 1) and against Anthony Tascione for negligent misrepresentation (Cap. Cross-Claim 2).
Capolino and General have since settled all of their claims and counterclaims. (See 2/27/97 Stip. and Order Dismissing Certain Claims).
This Court conducted a non-continuous eight-day bench trial beginning March 11, 1997 and concluding April 3, 1997. This opinion constitutes the court's findings of fact and conclusions of law pursuant to FED.R.CIV.P. 52(a).
Plaintiff General is a Washington corporation, duly authorized to engage in the business of suretyship in the state of New York.
The Capolino firm is a New York corporation. It is a general contractor with its principal place of business in White Plains. The Capolino firm is owned by Patricia Capolino; its President during all times relevant to this suit was her husband Kenneth Capolino.
In the summer and early fall of 1991, the Authority sought bids from qualified contractors to undertake improvements on Winbrook in accordance with a set of contract documents and specifications. The Capolino firm was the low bidder and on or about February 19, 1992 a $ 263,773 contract for improvements to Winbrook was signed by Kenneth Capolino on behalf of the Capolino firm and by Anthony Tascione, on behalf of the Authority. Additional improvements for the cold water make-up lines were authorized by Board Resolution in the amount of $ 45,000 and by Change Order # 1 in the amount of $ 1,219, for a total contract sum of $ 309,992. In accordance with the contract, the Capolino firm delivered to the Authority performance and payment bonds issued by General. (Stip. # # 10, 12.)
In the late fall of 1991, the Authority sought bids from qualified contractors to undertake improvements to Schuyler in accordance with a set of contract documents and specifications. The Capolino firm was again the low bidder, this time by approximately $ 73,227. (Exh. A86.)
Concerned whether the Capolino firm could perform the contract for that amount, the Authority sent a letter to Capolino and received assurances that it could do so. (Tasc., 635.) On or about May 11, 1992, a $ 235,743 contract for improvements to Schuyler was signed by Kenneth Capolino on behalf of the Capolino firm, and by Anthony Tascione on behalf of the Authority. In accordance with the contract, the Capolino firm delivered to the Authority performance and payment bonds issued by General. (Stip. # # 21-22.)
The Winbrook and Schuyler projects were both funded under HUD CIAP programs. Winbrook was CIAP 1989; Schuyler was CIAP 1990. Mr. Tascione testified at trial that the Authority had two years from the award of the monies under each CIAP to spend the monies awarded, and that it received the money for Winbrook in 1990 and for Schuyler in 1991. (Tasc., 769.) Thus, at the time it accepted bids for the contracts with completion dates in 1993, it knew that the Winbrook funding would expire prior to the completion date. However, Tascione testified that this was simply a "procedural matter, just updating so we continue to have that line of credit open to us." (Id. at 770.)
The contracts each incorporated by reference, among other things: A.I.A. document A201, entitled "General Conditions for the Contract for Construction" (the "A.I.A. General Conditions"); a Department of Housing and Urban Development ("HUD") document entitled "General Conditions of the Contract for Construction -- Public Housing Program (the "HUD General Conditions"); and Division 1 General Requirements ("the General Requirements"). (Stip. # 11.)
At all times relevant to this lawsuit, the Modernization Coordinator for the Authority was Gilbert A. Galli ("Galli") and the architects for the Winbrook and Schuyler contracts were Gismondi and Arnold, P.C., whose principal was Bernard S. Arnold ("Arnold"). The consulting engineers engaged by the Architect for the Winbrook project were Michael K. Dalton, Associates, whose principal was Michael K. Dalton ("Dalton").
Regarding payment to the Contractor, the A.I.A. General Conditions provide:
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least ten days before the date established for each progress payment, the Contractor shall submit to the Architect an itemized Application for Payment for operations completed in accordance with the schedule of values . . . .
18.104.22.168 Such applications may not include requests for payment of amounts the Contractor does not intend to pay to a Subcontractor or material supplier because of a dispute or another reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be made on account of materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work . . . .
9.3.3 The Contractor warrants that title to all Work covered by an Application for Payment will pass to the Owner no later than the time of payment. The Contractor further warrants that upon submittal of an Application for Payment all Work for which Certificates for Payment have been previously issued and payments received from the Owner shall, to the best of the Contractor's knowledge, information and belief, be free and clear of liens, claims, security interests or encumbrances in favor of the Contractor, Subcontractors, material suppliers, or other persons or entities making a claim by reason of having provided labor, materials and equipment relating to the Work.
9.4 CERTIFICATES FOR PAYMENT
9.4.1 The Architect will, within seven days after receipt of the Contractor's Application for Payment, either issue to the Owner a Certificate for Payment, with a copy to the Contractor for such amount as the Architect determines is properly due, or notify the Contractor and Owner, in writing of the Architect's reasons for withholding certification in whole or in part as provided in Subparagraph 9.5.1
9.4.2 The issuance of a Certificate for Payment will constitute a representation by the Architect to the Owner, based on the Architect's observations at the site and the data compromising the Application for Payment, that the Work has progressed to the point indicated and that, to the best of the Architect's knowledge, information and belief, quality of the Work is in accordance with the Contract Documents. The foregoing representations are subject to an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, to results of subsequent tests and inspections, to minor deviations from the Contract Documents correctable prior to completion and to specific qualifications expressed by the Architect. The issuance of a Certificate for Payment will further constitute a representation that the Contractor is entitled to payment in the amount certified.
9.5 DECISIONS TO WITHHOLD CERTIFICATION
9.5.1 The Architect may decide not to certify payment and may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect's opinion the representations to the Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable to certify payment in the amount of the Application, the Architect will notify the Contractor and owner as provided in Subparagraph 9.4.1 If the Contractor and Architect cannot agree on a revised amount, the Architect will promptly issue a Certificate for payment for the amount for which the Architect is able to make such representations to the Owner. The Architect may also decide not to certify payment or, because of subsequently discovered evidence or subsequent observations, may nullify the whole or a part of a Certificate for Payment previously issued, to such extent as may be necessary in the Architect's opinion to protect the Owner from loss because of:
.1 defective Work not remedied ;
.2 third party claims filed or reasonable evidence indicating the probable filing of such claims;
.4 reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum;
.5 damage to the Owner or another contractor;
.6 reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay; or
.7 persistent failure to carry out the work in accordance with the Contract documents.
9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents . . . .
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of payment from the Owner, out of the amount paid to the Contractor on account of such Subcontractor's portion of the Work, the amount to which said Subcontractor is entitled . . . .
9.7.1 If the Architect does not issue a Certificate for Payment through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment . . . then the Contractor may, upon seven additional days' written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. . . .
(Exhs. 1 and 81, emphasis added.)
The HUD General Conditions provide that:
4. Architect's Duties and Responsibilities. . .
e. Review and make recommendations with respect to the PHA payment of progress payment requisitions made by the Contractor.
6. Schedule of Amounts for Contract Payments. . .
c. In order to receive progress payments as the work progresses, the Contractor shall submit to the Architect, on forms supplied by the PHA, periodic estimates showing the value of the work performed during each period based upon the items appearing in the approved breakdown. Such estimates must be submitted not later than 10 days in advance of the date set for payment, and are subject to correction and revision as required. In final form, they must bear the certification of both the architect and the PHA before any payment may be made.
8. Payments to contractor
a. Progress payments will be made at approximately 30 day intervals . . . .
(Exhs. 1 and 81, emphasis added.)
The General Requirements provide:
SECTION 01741 - Method of Payment
1.01 Partial payments will be made as the work progresses not later than fifteen (15) days after the 25th day of each calendar month for work done, materials installed or materials delivered to the site during the preceding fiscal month on estimates certified or approved by the Owner.
(Exhs. 1 and 81, emphasis added.)
The general practice of the Capolino firm and the Authority regarding payment was as follows: the Capolino firm prepared payment applications several days before the end of the month, requesting payment for the amount of work it projected would be completed by the end of the month. (Cap., 70.) These applications were submitted to the Architect (Arnold) for certification, and a copy was given to Galli. Once the applications were certified by Arnold, Galli prepared a report that he presented to the Authority's Board of Commissioners at the Board's regular meeting, held on the second Tuesday of every month.
(Cap., 87.) The Authority and Architect generally held a job meeting during the days preceding the submission of a payment requisition to the Board, so that concerns about the contractor's work and his payment requisition could be considered and the requisition revised in time for submission to the Board at its upcoming meeting. (Arnold, 281.) Once the Board approved an application, it would then be sent to HUD, who would provide the money to the Authority. The Capolino firm was generally paid approximately 5 weeks after it submitted an application. (Cap., 84, 87-88.)
II. THE CONFLICT AT WINBROOK
On or about February 20, 1992 the Capolino firm delivered a set of values on Winbrook to the Authority and to the Architect, which was approved. (Stip. # 13.) Pursuant to a written Notice to Proceed, March 2, 1992 was prescribed as the starting date for the Winbrook Contract, and March 1, 1993 was prescribed as the scheduled completion date. (Exh. 7.)
The Authority paid the Capolino firm's first five applications for payment, which included work through July 31, 1992, totaling $ 249,634.35.
(Stip. # 16.) It withheld a 5% retainage, that by July 31 totaled $ 13,138.65. Thus, by the end of July, the Capolino firm had been paid for approximately 81% of the work, with another 4% held in retainage.
Galli issued a "Construction Update" dated August 4, 1992, which stated that all of the Winbrook work had been completed except for the fire alarm activation, which was to be completed by September. (Exh. 48.) The Capolino firm's July application included $ 17,500 for work on the vacuum pumps and $ 7,500 for work on the heat timers. These amounts were paid. (Exh. A16.)
In its August application, the Capolino firm requested payment for $ 30,000 worth of work, including the remainder of the budget for the vacuum pumps and the heat timers ($ 1,000 for each). Naber Thomas was Capolino's subcontractor for heat timers; National Heating was its subcontractor for the vacuum pumps. A job meeting was held on August 21, where Dalton asked for verification that the heat timer system was operational. (Exh. 14 (Arnold Mtg. Minutes).) On August 25, Arnold approved the requisition. (Cap., 69; Arnold, 282-283; Exh. 26.) He stated that at that time, he fully believed everything had been done, but that it became apparent later that more work was required. (Arnold, 286.) A second "Mechanical Meeting" was held on August 26th, however, at which Dalton raised concerns that the work on the heat timers and vacuum pumps was not complete according to the specifications. (Exh. 16 (Dalton Mtg. Notes).)
Section 15500 of the specifications describes the work to be done on the heat timers and vacuum pumps as follows:
3. Rebuild each vacuum pump with new components of size, type, etc., as recommended by the pump manufacturer, and put in full working order under the supervision of the pump manufacturer. Test each pump and put it in full operation. Replace valves, etc., at each pump.
Section 15520 provides as ...