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U.S. MARIS EQUIPMENT CO. v. MORGANTI

September 20, 2001

UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF MARIS EQUIPMENT COMPANY, INC., PLAINTIFF,
V.
MORGANTI, INC. AND TRATAROS CONSTRUCTION, INC. D/B/A MORGANTI / TRATAROS JOINT VENTURE, AMERICAN HOME ASSURANCE COMPANY AND SEABOARD SURETY COMPANY, DEFENDANTS. MORGANTI, INC. AND TRATAROS CONSTRUCTION, INC. D/B/A MORGANTI / TRATAROS JOINT VENTURE, AMERICAN HOME ASSURANCE COMPANY AND SEABOARD SURETY COMPANY, PLAINTIFFS, V. LIBERTY BOND SERVICES, INC., DEFENDANT. UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF INDUSTRIAL ACOUSTICS COMPANY, INC., PLAINTIFF, V. MARIS EQUIPMENT COMPANY, INC., MARIS EQUIPMENT COMPANY, INC., INSURANCE COMPANY OF NORTH AMERICA AND LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANTS. MARIS EQUIPMENT COMPANY, INC., THIRD-PARTY PLAINTIFF, V. MORGANTI, INC. AND TRATAROS CONSTRUCTION, INC. D/B/A MORGANTI / TRATAROS JOINT VENTURE, AMERICAN HOME ASSURANCE COMPANY AND SEABOARD SURETY COMPANY, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Block, District Judge.

    DECISION AND ORDER

INTRODUCTION

This litigation arose out of the construction of the new federal detention center in Brooklyn, New York ("Project"). Morganti/Trataros Joint Venture ("Morganti"), the Project's general contractor, and Maris Equipment Company, Inc. ("Maris"), a subcontractor, each claimed that the other had breached their contract.*fn1 On July 7, 2000, following a four-week trial, bifurcated between liability and damages, a jury returned a verdict for Maris in the sum of $8,001,249.*fn2 Pending before the Court are Morganti's Rule 50(b) and 59(a) motions raising a host of issues, as well as a Rule 50(b) motion by Maris challenging an adverse ruling on one of its damage claims. The Court must also rule on two reserved issues — whether Maris established its entitlement to profit and overhead as component parts of the damage award; a stipulated issue of law regarding the application of a certain release, and Maris's request for prejudgment interest. For simplicity of presentation, the Court will address the reserved damage issues in the context of Morganti's Rule 50(b) motion, and will address the release issue under Maris's Rule 50(b) motion since it is inextricably intertwined with the damage claim raised by Maris in that motion.*fn3

I. General Overview of the Litigation

The Project called for the construction of a nine-story, thousand-cell facility at a cost of approximately $103,000,000. The agency in charge of the construction on behalf of the federal government was the Federal Bureau of Prisons ("FBOP"). In 1993, the FBOP chose Morganti as the general contractor. Morganti thereafter entered into a subcontract with Maris, dated September 28, 1993 ("Subcontract"), to fabricate and install the cells. The Subcontract price was $12,725,000 and required Maris to obtain a performance bond. Maris bonded with Liberty Bond Services, Inc. ("Liberty").

Work on the Project was hampered by a series of delays, primarily due to the government's faulty design; consequently, Maris experienced financial strains, which jeopardized its performance. Pursuant to an agreement between Maris and Liberty made in June 1995, Liberty provided financial assistance. It also hired Surety & Construction Consultants ("SCC"), a consulting engineering firm, to monitor Maris's work. Based on reports from SCC that Morganti was mismanaging the Project and not honoring its payment obligations to Maris, Liberty concluded that Morganti had breached the Subcontract and terminated funding Maris's performance. On May 3, 1996, at Liberty's behest, Maris declared Morganti to be in default and walked off the job. These three litigations ensued.

Maris struck first, initiating Action # 1 on the same day it declared Morganti to be in breach. In this litigation, Maris sued Morganti and its sureties, defendants American Home Assurance Company and Seaboard Surety Company, under the Miller Act, and sued Morganti for breach of contract under state law. Morganti counterclaimed for Maris's breach.

On June 7, 1996, Morganti sued Liberty ("Action # 2"). Morganti alleged that Liberty (1) breached its obligations under its performance bond; (2) breached an implied covenant of good faith and fair dealing; (3) tortiously interfered with the Subcontract, and (4) tortiously interfered with Morganti's business expectations.

On March 31, 1997, Industrial Acoustics Company, Inc. ("IAC") filed an action against Maris and Liberty ("Action # 3"), claiming that Maris breached a subcontract with IAC. Maris impleaded Morganti, which, by counterclaim, reasserted its breach of contract claim against Maris.

By Court order dated October 15, 1997, all three actions were consolidated pursuant to Fed.R.Civ.P. 42(a). Action # 3, however, was severed prior to trial.

Because a lien cannot attach to federal property, the Miller Act, 40 U.S.C. § 270a-270d, was enacted to provide subcontractors and suppliers on federal construction projects an alternate remedy to the mechanics' lien ordinarily available on private construction projects. See J.W. Bateson Co., Inc. v. United States ex rel. Bd. of Trs. of the Nat'l Automatic Sprinkler Indus. Pension Fund, 434 U.S. 586, 589, 98 S.Ct. 873, 55 L.Ed.2d 50 (1978). Under the Miller Act, a contractor who performs "construction, alteration, or repair of any public building or public work of the United States" must provide two types of bonds: a "performance bond . . . for the protection of the United States" against defaults by the contractor, and a "payment bond . . . for the protection of all persons supplying labor and material." 40 U.S.C. § 270a(a)(1), (2).

The Miller Act gives a subcontractor "the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him." 40 U.S.C. § 270b(a). "[T]he Miller Act by its terms only gives subcontractors the right to sue on the surety bond posted by the prime contractor, not the right to recover their losses directly from the Government." Department of the Army v. Blue Fox, Inc., 525 U.S. 255, 256, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999). Furthermore, the Miller Act provides the exclusive remedy available to a subcontractor against the surety. See United States ex rel Cal's A/C and Elec. v. Famous Constr. Corp., 220 F.3d 326, 329 n. 8 (5th Cir. 2000); see also United States ex rel Henderson v. Nucon Constr. Corp., 49 F.3d 1421, 1423 (9th Cir. 1995) (Miller Act "authorizes suits solely against the surety as the issuer of the bond").

Nothing in the Miller Act precludes a subcontractor from joining in a single action a state law breach of contract claim against the prime contractor with its Miller Act claim. A subcontractor, however, "must specifically plead a breach of contract claim under state law in addition to raising a Miller Act claim if it wishes to recover damages under a contract theory." Consolidated Elec. & Mechs., Inc. v. Biggs Gen. Contracting, Inc., 167 F.3d 432, 435 (8th Cir. 1999). This is precisely what Maris has done. Its first claim is for common law breach of contract, and, electing the remedy of rescission, Maris sought quantum meruit damages of $5,770,260.38, plus interest. See Compl. ¶¶ 8-13. Its second claim is under the Miller Act for $2,500,000, presumably the principal amount of the payment bond, plus interest. See Compl. ¶¶ 14-16.*fn4

The jury's $8,001,249 damage award, based on quantum meruit, consisted of $6,576,997 for Maris's direct costs, $712,126 for profit and $712,126 for overhead. If allowed to stand, it would result in a judgment against Morganti, after crediting Morganti for its prior payments (see n. 2, supra), of $3,744,828, exclusive of interest, and a judgment for joint and several liability against Morganti's sureties in the sum of their payment bond.*fn5

II. Morganti's Rule 50(b) Motion

At the conclusion of Maris's case on the liability phase of the trial, Morganti asserted two grounds for judgment as a matter of law under Rule 50(a): First, Maris was seeking to hold it responsible for the government's delays. Second, any claimed breaches on Morganti's part occurred well before Maris walked off the job; therefore, Maris's continued performance constituted a waiver of such breaches. See Tr. at 1305-11.*fn6 The Court denied the motion regarding the waiver issue at that time, see Tr. at 1311, and reserved on the first issue, which it denied at the end of the trial. See Tr. at 1322, 2476.

At the conclusion of Maris's quantum meruit damage case, Morganti moved for dismissal pursuant to Rule 50(a) for failure of proof and, moreover, because it would allow for the recovery of costs occasioned by the government's fault. The Court initially denied the motion in its entirety, but thereafter reserved on the issue of sufficiency in regard to the profit and overhead components of the claimed damages. See Tr. at 2360-69, 2496.*fn7

A. Standard

The same standard applies to a Rule 50(b) renewed motion for judgment as a matter of law and a Rule 50(a) motion for judgment as a matter of law. See Raspente v. National R.R. Passenger Corp., 111 F.3d 239, 241 n. 3 (2d Cir. 1997). Action taken by the court under Rule 50 "is a performance of the court's duty to assure enforcement of the controlling law and is not an intrusion on any responsibility for factual determinations conferred on the jury." Fed.R.Civ.P. 50 Advisory Committee Note (1991). Rule 50(a) authorizes the court "to enter judgment as a matter of law at any time during the trial, as soon as it is apparent that either party is unable to carry a burden of proof that is essential to that party's case." Id. Regarding the sufficiency of the evidence, a motion under either section may be granted only if "the evidence, viewed in the light most favorable to the opposing party, is insufficient to permit a reasonable juror to find in [his] favor." Galdieri-Ambrosini v. National Realty & Dev. Corp., 136 F.3d 276, 289 (2d Cir. 1998); see also Vermont Plastics, Inc. v. Brine, Inc., 79 F.3d 272, 277 (2d Cir. 1996). This means that "there is such a complete absence of evidence supporting the verdict that the jury's finding could only have been the result of sheer surmise and conjecture, or . . . the evidence is so overwhelming that reasonable and fairminded persons could only have reached the opposite result." Lambert v. Genesee Hosp., 10 F.3d 46, 53-54 (2d Cir. 1993) (citation and internal quotation marks omitted); see also Galdieri-Ambrosini, 136 F.3d at 289. "[T]he court must give deference to all credibility determinations and reasonable inferences of the jury, and it may not itself weigh the credibility of witnesses or consider the weight of the evidence." Galdieri-Ambrosini, 136 F.3d at 289 (citations omitted).

A Rule 50(b) motion "`is limited to those grounds that were specifically raised in the prior [Rule 50(a) motion].'" Id. at 286 (quoting McCardle v. Haddad, 131 F.3d 43, 51 (2d Cir. 1997) (quotation marks omitted)); see also Fed.R.Civ.P. 50(b); Holmes v. United States, 85 F.3d 956, 962 (2d, Cir. 1996); Lambert, 10 F.3d at 53-54. While the specificity requirement is obligatory, the burden is upon the nonmoving party to raise the issue; otherwise, it is waived. See Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83, 87 (2d Cir. 1998). Regardless, relief from the specificity requirement is available "where necessary to avoid manifest injustice." Doctor's Assoc., Inc. v. Weible, 92 F.3d 108, 113 (2d Cir. 1996) (internal quotation omitted).

B. Liability Issues

1. The Government's Complicity

In support of its contention that Maris was impermissibly seeking to hold it responsible for the government's misdeeds, Morganti relied on paragraph (b) of Article 1 and Article 9 of the Subcontract. See Tr. at 1305-10. Although not explicitly raised in its 50(a) motion, the Court perceives this contention as subsuming Morganti's repeated assertion throughout the trial, as a defense to Maris's claims of late payments, that the Subcontract provided that Morganti had to first be paid from the government for Maris's work before Maris could be paid*fn8

Article 1(b) provides, inter alia, that the "Subcontractor shall assume all obligations, risks and responsibilities which Contractor has assumed towards Owner in the Contract Documents," and that the "Subcontractor shall have the right to enforce its rights and remedies and to defend against claims against it by the Owner as provided in Article 9." Maris Ex. 1. Paragraph (a) of Article 9, referable to the resolution of disputes involving the Contractor, Subcontractor and the Owner, provides in relevant part:

In case of any dispute between Contractor and Subcontractor, due to any action of Owner or involving the Contract Documents, Subcontractor agrees to be bound to the same extent that Contractor is bound to Owner, by the terms of the Contract Documents, and by any and all preliminary and final decisions or determinations made thereunder by the party, board or court so authorized in the Contract Documents or by law, whether or not Subcontractor is a party to such proceedings. In case of such dispute, Subcontractor will comply with all provisions of the Contract Documents allowing a reasonable time for Contractor to analyze and forward to Owner any required communications or documentation. Contractor will, at its option (1) present to Owner, in Contractor's name, or (2) authorize Subcontractor to present to Owner, in Contractor's name, all of Subcontractor's claims and answer Owner's claims involving Subcontractor's work, whenever Contractor is permitted to do so by the terms of the Contract Documents.

Also of relevance is paragraph (b) of Article 7, which governs the Subcontractor's compensation for changes made by the government. It provides, inter alia:

Subcontractor shall submit in writing any claims for adjustment in the price, schedule or other provisions of the Subcontract claimed by Subcontractor for changes directed by Owner, or for damages for which the Owner is liable, or as a result of deficiencies or discrepancies in the Contract Documents, to Contractor in time to allow Contractor to comply with the applicable provisions of the Contract Documents. Contractor shall process said claims in the manner provided by and according to the provisions of the Contract Documents so as to protect the interests of Subcontractor and others including Contractor. Subcontract adjustments shall be made only to the extent that Contractor receives relief from or must grant relief to Owner.

As for payment, paragraph (b) of Article 2 provides that partial payments shall be due to the Subcontractor in an amount as determined by the Owner "and for which payment has been made to Contractor by Owner." Paragraph (d) of Article 2 charges the Contractor with establishing "a reasonable breakdown" of the "total Subcontract Price" to "serve as the basis for partial payments." Finally, paragraph (f) of Article 2 provides that final payment is to be made after acceptance of the Subcontractor's work by the Owner.

All of the above quoted and referenced contract provisions are contained in the printed portion of the Subcontract. There are some modifications in a rider, including paragraph 2(e) therein, which provides that the "Subcontractor agrees that payments to it for work performed by it hereunder will become due within seven days of receipt and to the extent of payment from the Owner to the Contractor."

Morganti is correct that these contract provisions insulate it from liability to Maris for the acts of the government, including the government's non-payment or delayed payment to Morganti for Maris's work, provided Morganti made timely and appropriate submission of Maris's claims for payment to the government.

Mindful of these contract provisions, the Court carefully charged the jury that it could not hold Morganti responsible for the government's acts:

Under paragraph 2b of the printed portion of the contract, Maris was entitled to get paid for its work by Morganti as it progressed in amounts . . . as determined by the government and for which payment has been made to Morganti by the government. [U]nder paragraph 2e of the rider to the parties' contract . . . such payments were to be made by Morganti . . . within 7 days of receipt. . . . And this paragraph repeats that such payments are only to be made . . . to the extent of payment from the government to Morganti.
Now, in short, if Morganti doesn't get paid, Maris doesn't get paid. Maris'[s] recourse, it's not left in the lurch necessarily, if it believed that the government had wrongfully withheld payment is by a dispute resolution . . . which is not part of this lawsuit, and it has the right to go against the government to have these disputes resolved in a different format.

Tr. at 2098-99. The Court further told the jury:

Tr. at 2100-01.

Taking pains to excise the government's conduct from the jury's deliberations, the Court focused the jury on the reasons that Maris believed that Morganti was in breach: "1, Morganti's alleged failure to properly pay Maris; 2, Morganti's alleged failure to provide Maris appropriate access to the work areas necessary for Maris to perform its work; 3, Morganti's failure to properly coordinate and schedule the work." Tr. at 2093. The extensive trial testimony adduced by Maris clearly provided an evidentiary basis to support each of these claims, separate and apart from the government's conduct.

Regarding payment, the jury was advised that there was one exception to the Subcontract provisions that "if Morganti doesn't get paid, Maris doesn't get paid." Tr. at 2099. As for delays caused by the government, the jury was told that under paragraph 6(d) of the rider "Maris had a right to be paid by Morganti for any such delays . . . if Morganti was successful in obtaining an extension of time from the government for Maris'[s] performance," and, "[i]n that respect, there is nothing contained in the rider that requires the government to first pay Morganti before Morganti is responsible for paying Maris." Tr. at 2099. The jury was further instructed that Maris's sole responsibility under this rider paragraph was "to notify Morganti in writing within 5 days of any such delays of all the details of the causes of the alleged delays . . . in sufficient time so that Maris'[s] claim may be timely processed by Morganti against the government." Tr. at 2099-2100.

Paragraph (d) of Article 6 in the original printed portion of the Subcontract provided, inter alia, that the subcontractor "shall not be entitled to any increase in the Subcontract Price or to damages or additional compensation as a consequence of . . . delays, impacts, disruptions or accelerations, unless the Owner is liable and pays Contractor for such delays." This paragraph was deleted in its entirety and replaced in the rider by a new 6(d), which provided:

Should the Subcontractor's performance for this Subcontract be delayed by any acts of the Contractor, other subcontractors or the Contractor's suppliers, or delayed, impacted or disrupted by any acts or causes which would entitle Contractor an extension of time under the Contract Documents, the Contractor shall pay the Subcontractor as a consequence of such delays, impacts, disruptions or accelerations. The Subcontractor will, however, within five (5) days after the commencement of any delay, impact or disruption, or acceleration caused by Contractor, other subcontractors or the Contractor's suppliers, . . . notify Contractor in writing stating full details of the cause of the alleged delay, impact . . . disruptions or accelerations for which the Owner is responsible in sufficient time so that its claim may be timely processed against the Owner.

Considerable discussion during the course of the trial centered on the intended meaning of this provision. The parties disagreed as to whether 6(d) of the rider required Morganti to pay Maris for delays not caused by Maris — provided that an extension of time for Maris's performance was obtained from the government — regardless of when, or whether, Morganti was paid by the government. See Tr. at 209-222. Believing 6(d) of the rider to be unclear, especially when juxtaposed to the original 6(d), the Court questioned Morganti's witness Theodore Catino ("Catino"), who represented Morganti during the contract negotiations, about his understanding of this language:

THE COURT: Here [referring to rider 6(d)], it's talking about any problems that you cause. Here's where I get a little confused — "or if it's caused by other subcontractors or contract supplier" — no mention of the government there — "then the subcontractor shall notify the contractor in writing, stating full details of the cause of the alleged delay, impact, disruption or disruptions or accelerations for which the owner is responsible in sufficient time so that its claim may be timely processed against the owner."
I guess it's that language that doesn't sort of ring the bell in terms of clarity.
THE WITNESS: You are absolutely correct, your Honor. The problem is that Maris's in-house counsel drafted this clause.

THE COURT: It was negotiated between the parties?

THE WITNESS: In all fairness, we both agreed to it.

THE COURT: The form contract is yours; right?

THE WITNESS: That's correct.

THE COURT: We have paragraph 6[(d)], which says that if you get from the government an extension of time . . . the government says, yeah, we messed up an you are entitled to have another six months to perform, it's our fault, this says that Maris is entitled to get paid?

THE WITNESS: Correct.

THE COURT: You have to pay them?

THE WITNESS: But I have to get paid from the government first.

THE COURT: It doesn't say that.

THE WITNESS: That change or delay has to be justified. Just because Maris says they are delayed, it's not a justification enough.
THE COURT: This is a change to paragraph 6. It says: "If there is an extension of time to the contract documents, the contractor" — which is you — "shall pay the subcontractor as a consequence of such" —

THE WITNESS: You are correct.

THE COURT: That seems clear?

THE WITNESS: Yes, but the grantor of time is the federal government.
THE COURT: So, if the federal government grants the extension, you have to pay Maris?

THE WITNESS: Correct.

BY MR. PEPE:

Q. If the federal government doesn't grant the extension you are all in the same boat, and you are not responsible to Maris; is that correct?

THE WITNESS: That's correct.

THE COURT: You may be able to be successful in furthering the dispute with the government and go to some tribunal, say that you are right, the government is wrong. In that situation, you will get money, and I guess at that time, Maris can get paid for its claim, once you go through that process?

THE WITNESS: Right.

THE COURT: If you lose, Maris has no separate claim. Once again, if you get the extension, then you have to pay Maris, regardless what happens with the government?

THE WITNESS: We are not disputing that.

Tr. at 1775-78.

Although Catino testified that "the extensions of time we received from the government were received after Maris abandoned the project," Tr. at 1779, the Court decided that it was best to leave it to the jury to determine from all the testimony and multiple documents in evidence whether there were such extensions and, if so, whether Morganti paid Maris for the costs associated with such delays.

While, based on Catino's testimony, the Court instructed the jury during its liability charge that Maris was entitled to get paid from Morganti once the government granted an extension for delays, it also asked the jury, after the jury returned its liability verdict, whether its verdict would have been the same "if under paragraph 6[(d)] of the rider . . . Morganti did not have to pay Maris for any delays which Morganti received an extension of time from the government until the government first paid Morganti for such delays?" Tr. at 2123-24. The jury responded that it would still have held Morganti in breach. Tr. at 2127-28. This rendered nugatory the controversy over the meaning and application of 6(d) of the rider.

2. Waiver

As for Morganti's claim that its alleged breaches occurred well before Maris walked off the job and that Maris's continued performance constituted a waiver of these breaches, the Court viewed this simply as an issue of fact; accordingly, the Court charged the jury:

I want to explain to you about when a contract is broken in the course of performance, the injured party has a choice of continuing the contract or of refusing to go on. If the injured party chooses to go on, it loses its right to terminate the contract because of the default.
A party can indicate that it has chosen to continue the contract by continuing to perform under the contract or by accepting the performance of the breaching party. Once a party elects to continue the contract, it can never thereafter elect to terminate the contract based on that breach although it retains the option of terminating the contract based on other subsequent breaches.

Tr. at 2097.

There was ample evidence of ongoing problems with Morganti's performance to the date of termination to warrant ...


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