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INTERNATIONAL FIDELITY INS. v. COUNTY OF ROCKLAND

May 18, 2000

INTERNATIONAL FIDELITY INSURANCE COMPANY, PLAINTIFF,
V.
COUNTY OF ROCKLAND, SWCF ARCHITECTS ENGINEERS PLANNERS, MANIKTALA ASSOCIATED, P.C., AND FIDELITY AND GUARANTY INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Lisa Margaret Smith, United States Magistrate Judge.

    MEMORANDUM DECISION AND ORDER

Plaintiff International Fidelity Insurance Company ("IFIC") and defendant Fidelity and Guaranty Insurance Company ("F & G") have both submitted motions for summary judgment in this action, in which several of the parties involved in a construction project dispute who is liable for which portion of the damages resulting from a construction delay. Pursuant to the provisions of 28 U.S.C. § 636(c), the parties have consented to conduct all proceedings in this case before me.

Plaintiff IFIC is a surety company that took over the construction contract of its principal, a construction company, after that principal defaulted. Defendant County of Rockland (the "County") is the entity for whom the construction was being performed. As a result of the initial default and the ensuing delays, the County now asserts that IFIC is responsible for millions of dollars in delay damages. Plaintiff IFIC, on the other hand, says that it owes the County nothing because the County's claim is time-barred, and that the County owes IFIC over $100,000 in unpaid funds that were due to IFIC under the contracts between them.

IFIC's motion for summary judgment asks three things: (1) that the Court dismiss as time-barred the counterclaims for delay damages brought against it by the County; (2) that the Court award to IFIC the funds, constituting the remaining balance of the initial contract price, that IFIC says are due to it from the County under the contracts between those parties; and (3) that if the County's claims are not dismissed, the Court limit IFIC's liability to the County to the penal sum of the performance bond that IFIC executed as surety to the initial contractor (minus those unreimbursed sums that IFIC has already paid in completion of the project).

Defendant F & G is also a surety company, and it provided the performance bond for the contractor IFIC hired to complete the construction project after IFIC's original principal defaulted. Because F & G's principal also failed to complete its performance on time, IFIC brought "claims over" against F & G, demanding that F & G reimburse IFIC for any money IFIC may ultimately owe to the County because of the construction delays. In F & G's summary judgment motion, F & G reiterates two of IFIC's requests — that the County's counterclaims against IFIC be dismissed, and that alternatively IFIC's liability be limited to the penal sum of its bond — and adds two others: (1) that the Court dismiss any "claims over" that IFIC may ultimately bring against F & G, because IFIC assertedly failed to comply with certain conditions precedent in the F & G bond; and (2) that if those claims over are not dismissed, the Court limit F & G's liability to IFIC to a sum that does not exceed the penal sum of F & G's bond, as well as to damages accrued only during a certain specified time period.

For the reasons discussed below, IFIC's motion for summary judgment is granted in part and denied in part, and F & G's motion for summary judgment is also granted in part and denied in part.

STANDARD FOR SUMMARY JUDGMENT IN A CONTRACT ACTION

In accordance with Federal Rule of Civil Procedure 56(c), "[a] motion for summary judgment may not be granted unless the court determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law." Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995); see generally Celotex Corp. v. Catrett, 477 U.S. 317, 320-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "[A]ll ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988); see also Celotex, 477 U.S. at 330 n. 2, 106 S.Ct. 2548.

In contract disputes, the Second Circuit has repeatedly held that

summary judgment may be granted only where the language of the contract is unambiguous. See, e.g., Sayers v. Rochester Tel. Corp., 7 F.3d 1091, 1094 (2d Cir. 1993). Under New York law, whether a written contract is ambiguous is a question of law for the trial court whose determinations will be reviewed de novo. W.W.W. Assoc., Inc. v. Giancontieri, 77 N.Y.2d 157, 163, 565 N.Y.S.2d 440, 443, 566 N.E.2d 639 (1990). Contract terms are ambiguous if they are
capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.
Sayers, 7 F.3d at 1095 (internal quotation marks omitted). When the relevant language has "a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion," no ambiguity exists. Breed v. Ins. Co. of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 355, 385 N.E.2d 1280 (1978).

Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir. 1996).

In Sayers, the Second Circuit added that, even where parties dispute the meaning of specific contract clauses, a court's task

is to determine whether such clauses are ambiguous when "read in the context of the entire agreement." W.W.W. Assocs., 77 N.Y.2d at 163, 565 N.Y.S.2d 440, 566 N.E.2d 639; see also Williams Press, Inc. v. State, 37 N.Y.2d 434, 440, 373 N.Y.S.2d 72, 335 N.E.2d 299 (1975). By examining the entire contract, we safeguard against adopting an interpretation that would render any individual provision superfluous. See Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 63 N.Y.2d 396, 403, 482 N.Y.S.2d 465, 472 N.E.2d 315 (1984). . . . Parties to a contract may not create an ambiguity merely by urging conflicting interpretations of their agreement.
  Sayers, 7 F.3d at 1095 (some internal citations omitted); see also General Authority for Supply Commodities, Cairo, Egypt v. Ins. Co. of North America, 951 F. Supp. 1097, 1108 (S.D.N Y 1997).

New York courts have held that "The interpretation of a contract of suretyship is governed by the standards which govern the interpretation of contracts in general." General Phoenix Corp. v. Cabot, 300 N.Y. 87, 92, 89 N.E.2d 238 (1949). As far back as 1889, the Court of Appeals said that "No citation of authorities is needed to show that the contracts of sureties are to be construed like other contracts so as to give effect to the intention of the parties. In ascertaining that intention, we are to read the language used by the parties in light of the circumstances surrounding the execution of the instrument, and, when we have thus ascertained their meaning, we are to give it effect[.]" People v. Backus, 117 N.Y. 196, 201, 22 N.E. 759 (1889). The Backus court then added, "when the meaning of the language used has been thus ascertained, the responsibility of the surety is not to be extended or enlarged by implication or construction, and is strictissimi juris." Id.

When applying the Backus standard to a case governed by New York law that involves a compensated surety,

[t]he rule that the liability of a surety is strictissimi juris does not in any sense mean that a suretyship contract is subject to rules of interpretation different from those applicable to any other contract. It simply means that once the intention of the parties to a suretyship agreement has been ascertained, the courts will guard the right of the surety, and protect him [, her, or it] against a liability which is not strictly within the terms of his [, her, or its] contract.

63 N.Y. Jur 2d, Guaranty & Suretyship § 117 (1987) (citing id. at § 88; Argyle v. Plunkett, 226 N.Y. 306 [, 310], 124 N.E. 1 (1919) ("a surety is not entitled to any particular tenderness in the interpretation of the language of a contract which it has executed. . . . When, however, the contract has thus been interpreted the surety is entitled to a strict limitation of its obligations in accordance with such interpretation")). In fact, in cases in which New York courts have suggested that any deviation from the general rules of interpretation should apply when interpreting surety bonds, they have counseled, at least in the case of compensated sureties, interpretation against the surety. See, e.g., McClare v. Massachusetts Bonding & Ins. Co., 266 N.Y. 371, 377, 195 N.E. 15 (1935) ("where a compensated surety has issued a standard form of bond, it is to be interpreted liberally, and all ambiguities are to be resolved in favor of those for whose benefit the bond is given"); see also Novak & Co. v. Travelers Indem. Co., 85 Misc.2d 957, 381 N.Y.S.2d 646 (N.Y.Sup.Ct. 1976), aff'd, 56 A.D.2d 418, 392 N.Y.S.2d 901 (2d Dep't 1977) (bond of compensated surety is to be construed liberally in the interest of promisee and beneficiary rather than strictissimi juris, and ambiguities are to be resolved in favor of beneficiary); Dupack v. Nationwide Leisure Corp., 73 A.D.2d 903, 905, 424 N.Y.S.2d 436 (1st Dep't 1980).

The rule of strictissimi juris is not rigidly to be applied where a surety bond is executed for a consideration by a corporation organized for the purpose of doing business as a surety — that is, in the case of compensated sureties or surety companies — particularly with regard to evaluating the requirements an obligee must satisfy to invoke a surety's liability. 63 N.Y. Jur 2d, id. §§ 118, 522; McKegney v. Illinois Surety Co., 170 A.D. 261, 155 N.Y.S. 1041 (1st Dep't 1915); Hunt v. Bankers & Shippers Ins. Co., 60 A.D.2d 781, 400 N.Y.S.2d 645 (4th Dep't 1977), app. after remand on other grounds, 73 A.D.2d 797, 423 N.Y.S.2d 718 (4th Dep't 1979), aff'd, 50 N.Y.2d 938, 431 N.Y.S.2d 454, 409 N.E.2d 928 (1980). In McKegney, the Court noted that "`The rule of strictissimi juris is a stringent one, and is liable at times to work a practical injustice. It is one which ought not to be extended to contracts not within the reason of the rule, particularly when the bond is underwritten'" for profit by a corporation, id. at 264, 155 N YS. 1041 (quoting United States Fidelity & Guaranty Co. v. United States, 191 U.S. 416, 24 S.Ct. 142, 48 L.Ed. 242 (1903)). Therefore, the McKegney court concluded, "the rule of strictissimi juris does not apply, at least so far as nonessentials are concerned," to compensated surety companies. McKegney, id. In such cases, where the liability of the surety may depend upon the performance by the obligee of some act or the fulfillment of a condition, including performance of a condition precedent, the rule may be relaxed and the surety's liability may be predicated upon substantial performance by the obligee of the act. 63 N.Y. Jur 2d, id., §§ 118 & 522; McKegney, id. (demanding only substantial compliance by obligee with notice requirements in a bond); Hunt, 60 A.D.2d at 783, 400 N.Y.S.2d 645 (requiring only substantial performance by obligee owners of obligations under contracts upon which surety's liability was conditioned); Bennett v. Brown, 20 N.Y. 99 (1859) (rejecting surety's defense as being based on overly-literal construction of words of condition); St. John's College v. Aetna Indem. Co., 201 N.Y. 335, 94 N.E. 994 (1911) (finding that a material alteration of a contract for whose performance a surety is bound must affect the surety adversely to result in release of surety from its obligation); Newark v. James F. Leary Constr. Co., 118 Misc. 622, 194 N.Y.S. 212 (N.Y.Sup.Ct. 1922) (surety company guaranteeing performance of contract is held to rule of substantial performance rather than strict construction of contract).

However, while requirements pertaining to the obligee's performance may be relaxed from the standards that would be required by strict construction of the conditions, New York courts do not apply such flexibility to enforcement of the nature and extent of the surety's obligation. As noted, once the contract has been interpreted "the surety is entitled to a strict limitation of its obligations in accordance with such interpretation." Argyle, 226 N.Y. at 310, 124 N.E. 1 (1919) (interpreting and enforcing bond of surety company, and deciding that where obligee required bond conditioned for the faithful performance of the contract and for the payment of all debts incurred for work and materials, but the surety's undertaking was simply conditioned for the faithful performance of the contract, surety was not liable for payment of debts). See also Bank of Italy v. Merchants' Nat'l Bank, 236 N.Y. 106, 140 N.E. 211 (1923) (refusing to apply surety's payment obligation for "dried grapes" to payment obligation for "raisins," because the two terms might be distinct under trade usage), cert. denied, 264 U.S. 581, 44 S.Ct. 331, 68 L.Ed. 860 (1924); Border v. Frank G. Cook & Sons, 240 A.D. 476, 478, 270 N.Y.S. 229 (4th Dep't 1934) (refusing to extend liability under the contract of suretyship "beyond the limitations fixed by the parties to the undertaking" — in that case, for work done only on a particular building); Buffalo Slag Co. v. H & D Constr. Co., 94 Misc.2d 212, 404 N.Y.S.2d 292 (N.Y.Sup. 1978) (limiting surety's obligation to face amount of bond where surety had not contemplated or consented to increase in amount of liability, or received additional compensation). While ordinarily the liability of a guarantor or surety is equal to the liability of the principal, "the guarantee is a separate undertaking and may impose lesser or even greater collateral responsibility on the guarantor." American Trading Co., Inc. v. Fish, 42 N.Y.2d 20, 26, 396 N.Y.S.2d 617, 364 N.E.2d 1309 (1977); 63 N.Y. Jur 2d, id., § 553. In general, "the surety bonds attaches to the principal contract and must be construed with it," Carrols Equities Corp. v. Villnave, 57 A.D.2d 1044, 1045, 395 N.Y.S.2d 800 (4th Dep't 1977), app. denied, 42 N.Y.2d 810, 399 N.Y.S.2d 1026, 369 N.E.2d 775 (1977), and "the liability of a surety cannot be extended beyond the plain and explicit language of the [bond] contract," Mendel-Mesick-Cohen-Architects v. Peerless Ins. Co., 74 A.D.2d 712, 712, 426 West Page 407 N.Y.S.2d 124 (3d Dep't 1980), or beyond the meaning as ascertained by construction, once that meaning has been ascertained. Richardson v. Steuben County, 226 N.Y. 13, 19-20, 122 N.E. 449 (1919); see also 63 N.Y. Jur 2d, id., § 121 and n. 65 (citing cases).

BACKGROUND

The following facts are taken from the findings of undisputed fact made by this Court (McMahon, J.) in an earlier motion in this case, supplemented by the submissions of the parties for this motion. In those few cases where there is any dispute or uncertainty about a particular fact, that uncertainty is noted along with the source of the pertinent information.

It is undisputed that in February of 1994, Rockland County issued a construction contract (the "Contract" or the "Construction Contract") for the build-out of the ninth floor of the Dr. Robert L. Yeager Health Center (the "Yeager Center"). The Yeager Center is a County-owned nursing facility in Pomona, New York. The original construction contractor was a company called NANCO. Under the Contract, construction was to be substantially completed within 180 days, or by August 8, 1994.

Under the terms of the Contract, NANCO was required to post payment and performance bonds, naming the County as obligee, to secure the construction project. IFIC stood surety under those bonds, but IFIC was not a party to the underlying Contract. Pursuant to the performance bond, IFIC had the right, in the event of default by NANCO and termination by the County of NANCO's right to complete the Contract, to either (1) arrange for NANCO to complete the Contract (if the County approved); (2) obtain bids for completion of the Contract from qualified contractors acceptable to the County, and arrange for a contract to be prepared for execution between the County and the new contractor; (3) take over the contractor's obligations under the original Construction Contract and complete performance through agents or independent contractors; or (4) either waive its right to perform and complete, and tender the amount due to the County, or make a formal denial of liability to the County, citing the reasons therefor. See IFIC's Performance Bond ("IFIC Bond" or "Bond"), attached as Ex. A to Affidavit of Thomas J. Demski, dated September 17, 1999 ("Demski Aff."), at ¶ 4.

On August 4, 1994, after determining that NANCO would be unable to complete the project in a timely manner, the County declared NANCO in default. IFIC then exercised its option, under ¶ 4.2 of the Bond, to "Undertake to perform and complete the Construction Contract itself, through its agents or through independent contractors[.]" See IFIC Performance Bond at ¶ 4.2; Brief in Support of Plaintiff International Fidelity Insurance Company's Motion ("Plaintiff's Brief") at 13. Accordingly, on October 24, 1994, IFIC and the County executed a Takeover Agreement, pursuant to which IFIC agreed to complete the construction contract in exchange for receipt of payment, "in accordance with the payment terms of the contract," of the remaining proceeds due under the Construction Contract (the "Balance of the Contract Price"). Takeover Agreement at ¶ 4. The Takeover Agreement provided that all the terms of the underlying Construction Contract were incorporated into the Takeover Agreement by reference. The Takeover Agreement also provided that nothing in it affected any of the rights and obligations of IFIC or the other parties under the terms of the Construction Contract, or under the performance bond issued thereunder by IFIC. See Takeover Agreement, attached as Ex. C to Demski Aff., at ¶ 6 (entitled "Reaffirm Bonds"). It further provided that nothing in the Takeover Agreement would waive either party's rights with respect to the termination of the Contract by the County, and specifically added that IFIC and the County were entering into the agreement "under a full reservation of all of their rights and defenses and those of the Principal [NANCO]." Id. at ¶ 7.

IFIC engaged a company called Hirani Contracting Corporation ("Hirani" or the "Completion Contractor") to complete the project, and entered into a completion contract (the "Completion Agreement") with it, under which Hirani agreed to complete all work on the Contract on or before 120 days from the date of the Takeover Agreement — that is, by February 21, 1995 — or by any extended date approved by the Owner. See Completion Agreement, attached as Exhibit 3 to Affidavit and Exhibit in Support of Motion for Summary Judgment of Cecil Holland, Jr., dated September 16, 1999 ("Holland Aff."), at ¶ 4. Pursuant to the requirements of its Completion Agreement with IFIC, and as security for the performance of the Completion Agreement, Hirani obtained a performance bond from defendant F & G as surety, naming IFIC as obligee.

Hirani was unable to get the work done by the February date specified in the Completion Agreement. However, the County did not default IFIC when the deadline date passed; rather, according to later correspondence prepared by the County, it extended the completion date to September 12, 1995. Hirani continued to work, and the parties agree that the County continued to pay IFIC under the Construction Contract for some period after the initial February deadline date passed, although the assertions as to when the County stopped making those payments range from May to September of 1995. During that period — in June of 1995, according to F & G's Rule 56.1 statement — Hirani declared bankruptcy but continued to work on the build-out. The September extended completion date, like the initial February completion date, also passed without completion of the project. The project was finally accepted by the County's representative as substantially complete on October 5, 1995. Hirani then ceased work without completing the "punch list" of remaining items that it was contractually obligated to complete. IFIC made demands on Hirani and its surety, F & G, to complete the work, but the work was not completed, although the County was able to occupy the facility in December of 1995. On March 6, 1996, the County gave IFIC notice that it was terminated for its "failure to cure." The County subsequently permitted IFIC to finish the project with yet another contractor. The project was accepted by the County as complete on January 24, 1997.

On September 14, 1995, shortly before substantial completion and just after the passage of the extended completion date, the County served IFIC with a "Notice of Claim" for alleged delay damages, dating from the time of NANCO's initial default, totaling over four million dollars. The Notice of Claim stated that the County intended to submit the matter to its project architect, SWCF Architects Engineers Planners ("SWCF" or "Project Architect"), for resolution. IFIC notified the County that it opposed the proposed submission, asserting that such a claim was not properly submissible to the Project Architect, but rather should be resolved in a court of law. The County took no further action in regard to the claim until April 1, 1997, when, after final completion of the project, the County served IFIC with a more detailed analysis of the claim and forwarded the matter to SWCF for resolution. In response, on May 21, 1997, IFIC brought this proceeding, seeking, inter alia, not only (1) compensatory damages against the County for monies alleged to be due to IFIC under the Takeover Agreement, but also (2) a request for a declaratory judgment that the claims resolution procedure set forth in the original Construction Contract — allowing certain disputes to be submitted to the Project Architect for resolution — was inapplicable to this dispute, and that therefore the County could not submit its damage claim to the project architect. On June 23, 1997, the County filed its answer, as well as its counterclaims against IFIC for delay damages.

IFIC, supported by defendant F & G,*fn1 then moved for summary judgment on its claim for a declaratory judgment preventing the County from submitting the delay damage dispute to the Project Architect. On May 24, 1999, this Court, in a decision by the Honorable Colleen McMahon, granted IFIC's motion, declaring that the Project Architect claims resolution procedure does not apply to this dispute, and permanently enjoining any proceeding before SWCF. In September of 1999, IFIC and F & G submitted the current summary judgment motions to the Court. On October 20, 1999, pursuant to the provisions of 28 U.S.C. § 636(c), the parties consented to conduct all proceedings in this case before me.

DISCUSSION

I. Time Limits on the County's Claims Against IFIC.

IFIC first asserts (with the concurrence of F & G) that the counterclaims for delay damages brought against IFIC by the County in this action are time-barred. It bases this assertion on the time-limitation provision in ¶ 9 of the Performance Bond, which states:

Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction . . . and shall be instituted within two years after Contractor Default or within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform its obligations under this Bond, whichever occurs first.

IFIC Bond at ¶ 9. For the reasons set forth below, I conclude that the County's claim for delay damages resulting from NANCO's delay is an action under the Bond, and is barred by the time limit in ¶ 9 of the Bond, except to the extent that such damages are an offset against damages awarded for IFIC's claims against the County. I further conclude that the County's claim for delay damages resulting from IFIC's delayed performance is not a proceeding under the Bond, and is therefore not time-barred.

Under New York law, which the parties do not dispute applies to this action, parties to a contract are permitted to designate a limitations period shorter than the statutory period for filing actions based upon a contractual obligation. See N.Y. CPLR § 201. However, such an agreement must be in writing, and the shorter period selected must be reasonable. Sapinkopf v. Cunard S.S. Co., 254 N.Y. 111, 172 N.E. 259, cert. denied, 282 U.S. 879, 51 S.Ct. 83, 75 L.Ed. 776 (1930). In addition, contracts of this sort are viewed with caution by the courts, and are construed strictly against the party invoking the shorter period. Hauer Constr. Co. v. City of New York, 193 Misc. 747, 85 N.Y.S.2d 42 (1948), aff'd, 276 A.D. 841, 93 N.Y.S.2d 915 (1st Dep't 1949). See also Comey v. United Surety Co., 217 N.Y. 268, 277, 111 N.E. 832 (1916) (words of doubtful meaning, prescribing a limitation of action, in a surety's performance bond must be construed in favor of the obligee); Menorah Nursing Home, Inc. v. Zukov, 153 A.D.2d 13, 20, 548 N.Y.S.2d 702 (2d Dep't 1989) (under New York law, contractual time limitations contained in a surety's performance bonds are to be strictly construed against the surety (citing Comey)). Therefore, if the limitations period in the Bond does apply to this action, any ambiguities in its language must be construed in the County's favor; and if the interpretation ascribed to the provision (particularly by the surety invoking the shorter period) is not reasonable, the limitation may not stand.

The essence of IFIC's time-limitation argument is that the word "Contractor" in this limitation clause refers only to NANCO; that NANCO's default (and cessation of work) occurred on August 4, 1994; and therefore that any action brought under the IFIC Bond — no matter which underlying contract was allegedly breached, which party allegedly breached it, or when that breach occurred — must be instituted within two years of the date of NANCO's default (that is, by August 4, 1996), or it is time-barred. IFIC argues that because the counterclaims by the County in this action were not filed until June 23, 1997, those claims are time-barred in their entirety.*fn2

The County, on the other hand, asserts two different grounds for its conclusion that its claim is not time-barred. First, it argues that when IFIC stepped into NANCO's shoes after NANCO'S default — by undertaking to perform and complete the Construction Contract itself, and by executing the Takeover Agreement to implement that course of action — IFIC became the "Contractor" for purposes of ¶ 9 of the Bond (the limitations provision). Thus, the County argues, to the extent that the limitations period in the Bond applies to this action at all, that limitations provision should be read to say that any proceeding, no matter which party's breach it may be based on, "shall be instituted within two years after [IFIC's] Default." Consequently, the County asserts, it had two years from the date of IFIC's default (which was certified by the Project Architect on February 28, 1996), or until February 28, 1998, to institute any action under the Bond, making its counterclaim timely.

The County's second argument is that it is not suing IFIC "under the Bond" at all, but rather is suing it for its breach of the Takeover Agreement and the underlying Construction Contract. Thus, the County asserts, the limitations provision in the Bond, which applies only to "[a]ny proceeding, legal or equitable, under this Bond" (emphasis added), does not apply at all; rather, the County argues that it is the six-year statutory limitations period applicable to contract-based actions that should apply, since neither the Takeover Agreement nor the Contract contains any provision for shortening the statutory limitations period. Actually, the Contract, which is incorporated by reference into the Takeover Agreement, does contain a provision for shortening the statutory limitations period.*fn3 However, the threshold question in regard to this issue is whether this action is brought "under the Bond," and thus which limitations provision should apply.

A. Threshold Question: Do the County's Counterclaims Constitute a "proceeding under this Bond"?

The answer to this question hinges on a question of fact that is not clearly answered in any of the parties' submissions: namely, whether the County's claim for monetary damages against IFIC is a single unified claim, or if it is actually a composite claim for several different kinds of damages. The County demands compensation for lost profits, extra interest incurred, and lost depreciation reimbursement due to the delay in completion of the project, as well as prejudgment interest thereon. (See Complaint ¶¶ 65-72.) All of these damages are alleged by the County to be the result of the delay in their ability to move into the building and to begin servicing patients. However, a comparison of the damage allegations with the chronology of events listed above reveals that while some of the delay asserted by the County is presumptively attributable to NANCO's delayed performance and ultimate default, the later portion of the delay is more accurately attributable to Hirani's delayed performance, and therefore, derivately, to the delayed performance of IFIC. Such a distinction may have consequences for IFIC's liability under the specific language of this Bond. While IFIC is obligated, under the Bond, to pay for certain kinds of damages whether those damages were caused by NANCO or IFIC, IFIC's obligation is more limited in regard to other kinds of damages. In regard to the latter categories of damages, IFIC's obligation under the Bond exists only if the damages were caused by NANCO, and not if they were caused by IFIC. Thus, a claim for these last categories of damages, to the extent that the damages were caused by IFIC, could not be brought under this Bond, although the claim might be brought under a separate obligation, such as the Takeover Agreement. A review of the language of the Bond, which is the American Institute of Architect's standard "AIA Document A312" Performance Bond dated December 1984, makes this distinction clear.

B. IFIC's Obligations Under the Bond.

As noted above, there is no dispute between the parties that after NANCO's default, IFIC undertook to act under Subparagraph 4.2 of the Bond, which allows the Surety to "Undertake to perform and complete the construction Contract itself, through its agents or through independent contractors." The responsibilities and monetary obligations of a Surety whose principal has failed to perform its Construction Contract are delineated in ¶ 6 of the Bond, which states:

6. After the Owner has terminated the Contractor's right to complete the Construction Contract, and if the Surety elects to act under Subparagraph 4.1, 4.2, or 4.3 above, then the responsibilities of the Surety to the Owner shall not be greater than those of the Contractor under the Construction Contract, and the responsibilities of the Owner to the Surety shall not be greater than those of the Owner under the Construction Contract. To the limit of the amount of this Bond, but subject to commitment by the Owner of the Balance of the Contract Price to mitigation of costs and damages on the Construction Contract, the Surety is obligated without duplication for:
6.1 The responsibilities of the Contractor for correction of defective work and completion of the Construction Contract;
6.2 Additional legal, design professional and delay costs resulting from the Contractor's Default, and resulting from the actions or failure to act of the Surety under Paragraph 4; and
6.3 Liquidated damages, or if no liquidated damages are specified in the Construction Contract, actual damages caused by delayed performance or non-performance of the Contractor.

Bond at ¶ 6.

The wording of Paragraph 6 of the Bond distinguishes between several different categories of potential damages in the subparagraphs. The Bond distinguishes between, on the one hand, those damages "resulting from" (¶ 6.2) or "caused by" (¶ 6.3) the actions or omissions of the Contractor, and, on the other hand, those resulting from the actions or omissions of the Surety (¶ 6.2). In addition, it addresses three different kinds of damages: those directly related to correcting and completing the Construction Contract (in ¶ 6.1); a variety of additional "costs" that might result from the Contractor's Default or from the Surety's actions or omissions under Paragraph 4 (in ¶ 6.2); and "liquidated damages, or . . . actual damages caused by delayed performance or non-performance" (in ¶ 6.3).

Finally, the Bond assigns liability differently for different categories of damages. In ¶ 6.2, the Bond obligates the Surety for the payment of "legal, design professional and delay costs" resulting both from the Contractor's Default and from "the actions or failure to act of the Surety under Paragraph 4." Id. (emphasis added). However, in ¶ 6.3, the Surety is obligated only for "Liquidated damages, or if no liquidated damages are specified in the Construction Contract, actual damages caused by delayed performance or non-performance of the Contractor." Id. (emphasis added). That is the end of the sentence; the Bond specifically does not obligate the Surety for payment of those liquidated or actual damages caused by its own delayed performance or non-performance under Paragraph 4, even though the sub-paragraph immediately before it specifically does obligate the Surety for payment of the specified "costs" when such costs are caused by its own actions or omissions.

The contrast between ¶ 6.2 and ¶ 6.3 cannot be ignored. See Taracorp, Inc. v. NL Industries, Inc., 73 F.3d 738, 744-745 (7th Cir. 1996) ("we assume that the same words have the same meaning . . . and that the choice of substantially different words to address analogous issues signifies a different approach. . . . This approach also accords with the basic contract principle that the meaning of separate contract provisions should be considered in light of one another and the context of the entire agreement") (citing BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) (expressing the corresponding statutory presumption that Congress acts intentionally when particular language is included in one section of a statute but omitted in another)). The fact that this Bond is a standard American Institute of Architects ("AIA") document is relevant to its interpretation. As New York's Fourth Department noted in Whitacre Construction Specialties, Inc. v. Aetna Casualty & Surety Co., 86 A.D.2d 972, 448 N.Y.S.2d 287 (4th Dep't), aff'd, 57 N.Y.2d 1018, 457 N.Y.S.2d 479, 443 N.E.2d 953 (1982), the AIA forms "were carefully drafted and the terms used were meant to have a consistent meaning throughout the documents." Sophisticated lawyers, such as those drafting standard forms to be used by the construction industry, must be presumed to know how to use parallel construction and identical wording to impart identical meaning when they intend to do so, and how to use different words and construction to establish distinctions in meaning. They must also be presumed to be familiar with standard maxims of contract construction, including the maxim expressio unium est exclusio alterius (the expression of one thing is the exclusion of another). Thus, the drafters must have acted intentionally when they divided these damages into two different subparagraphs, used different words and sentence structures to describe them, and obligated the Surety to pay for the specified "additional . . . costs" resulting from both the Contractors and the Surety's actions in ¶ 6.2, but obligated it to pay only for those liquidated or actual damages that were "caused by delayed performance or non-performance of the Contractor" in ¶ 6.3. By means of the clear distinction in treatment accorded to "liquidated . . . or . . . actual damages caused by delayed performance" in ¶ 6.3, the Bond on its face makes it explicitly clear that such damages constitute a separate category of damages; the Bond also distinguishes between the existence of the Surety's obligation under the Bond for "additional legal, design professional delay costs" resulting from its own actions or omissions under Paragraph 4, and the absence of any obligation to pay liquidated or actual damages caused by its own "delayed performance."

The distinctions apparent in the Bond are supported by the case law and by treatises on construction and surety law. See, for example, 2 Steven G.M. Stein, Construction Law ("Stein"), Chapters 6 & 11 (Supp.Rel.32, 6/98), which provides an overview of damage categories in construction litigation. In a general discussion of damages available after termination of a contract, for example, Stein says:

The measure of the owner's damages following termination are the same whether the basis for termination is the contractor's delay or failure to prosecute the work or some other reason. Those damages are the excess completion costs, . . . [which] are the cost of completing the work with a replacement contractor or the owner's own forces minus any unpaid balance under the terminated contract. Additionally the owner can recover any incidental damages actually sustained as a result of the terminating [sic], together ...

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