United States District Court, Eastern District of New York
September 20, 2001
UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF MARIS EQUIPMENT COMPANY, INC., PLAINTIFF,
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
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
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
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
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
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
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
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
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
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
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
Tr. at 2098-99. The Court further told the jury:
Let me caution you not to attribute any
responsibility or blame upon Morganti by reason of
the conduct of the
government with respect to payment issues or with
respect to any other issues in this case. We are
talking about Morganti's responsibilities here. The
government is not involved here. You heard a lot
about the government. This is not a trial of whether
the government was right or wrong in any of its
decisions. It may have been right, it may have been
wrong. As I mentioned before, there is a separate
dispute resolution process but that is not this case.
It would be wrong for you to penalize Morganti for
something which it had no fault or responsibility for
and was purely the fault and responsibility of the
government. Bear that in mind. You are to limit your
concern to Morganti's conduct since Maris was not
entitled to leave the job because of any problems
attributable to the government.
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
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
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
THE WITNESS: Correct.
THE COURT: You have to pay them?
THE WITNESS: But I have to get paid from the
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
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
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.
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
Tr. at 2097.
There was ample evidence of ongoing problems with Morganti's
performance to the date of termination to warrant submitting
this charge to the jury.
C. Damage Issues
1. The Government's Complicity
Morganti's contention that it could not be held accountable
for any damages occasioned by the fault of the government is
incorrect. Initially, the Court's view of the evidence was that
"[t]here is nothing here that suggests that the damage claim
seeks anything other than what services have been rendered for
Morganti and the delays that had been caused by the government
have been adjusted so that Morganti got paid for that or was
entitled to get paid for that." Tr. at 2467-68. Even if that
were not the case, while Morganti's breach could not be
predicated on the government's acts, as the jury was advised,
once Morganti breached, Maris was
entitled to its contract remedies. Where one party to a contract
breaches before the non-breaching party has fully performed, the
non-breaching party may continue to perform under protest, and
then sue for its contract damages. See Clark-Fitzpatrick, Inc.
v. Long Island R.R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653,
656, 516 N.E.2d 190 (1987). Alternatively, the non-breaching
party "may timely rescind and seek recovery on the theory of
quasi contract." Id. It is well-settled that rescission of a
contract extinguishes it as effectively as if it had never been
made. See Reilly v. Natwest Mkts. Group Inc., 181 F.3d 253,
264 (2d Cir. 1999) ("A `recision' amounts to the unmaking of a
contract, or an undoing of it from the beginning, and not merely
a termination.") (quoting Black's Law Dictionary 1174 (5th ed.
Maris elected to rescind. Under traditional quantum meruit
damages for rescission, Maris was no longer bound by any of the
terms of the breached contract and could recover its actual job
costs for work, labor and services performed and material
furnished, plus an allowance for overhead and profit. See
Whitmyer Bros. v. New York, 47 N.Y.2d 960, 962, 419 N.Y.S.2d 954,
955, 393 N.E.2d 1027 (1979); Meyers v. Town of Coxsackie,
139 A.D.2d 855, 856, 527 N.Y.S.2d 584, 585 (3rd Dep't. 1988)
(citing cases and authorities); see also Clark v. City of New
York, 4 N.Y. 338 (1850) (seminal case contrasting measure of
damages between rescission under quasi-contract and action for
contract damages). Should a different rule apply because of the
Miller Act, and does the Miller Act preclude the recovery of
damages against a general contractor when the federal
government's fault contributed to these costs? The decisional
law answers each of these questions in the negative.
In respect to the first question, the Second Circuit back in
1944 applied the conventional rule of quantum meruit damages
in an action under the Miller Act, holding "that with the breach
fall all the other parts of the contract;" therefore, plaintiffs
were "not limited to the contract prices." United States ex
rel. Susi Contracting Co., Inc. v. Zara Contracting Co.,
146 F.2d 606, 610 (2d Cir. 1944). More recently, the Ninth Circuit
has explicitly recognized that both "breach of contract and
quantum meruit claims are permitted under the Miller Act."
United States ex rel. Leno v. Summit Constr. Co.,
892 F.2d 788, 791 (9th Cir. 1989).
As for the second question, "the Miller Act does not limit a
subcontractor's recovery to situations where the general
contractor is at fault;" consequently, subcontractors have been
permitted to recover against a Miller Act surety "for labor and
materials furnished to a subcontractor where the general
contractor was blameless." Mai Steel Serv. Inc. v. Blake
Constr. Co., 981 F.2d 414, 419 (9th Cir. 1992) (citing cases).
This holds true even if the government was at fault. See id.
("courts have allowed subcontractors to recover under Miller Act
payment bonds for delay costs caused by the federal government")
(citing cases); see also Consolidated Elec. & Mechs., Inc. v.
Biggs Gen. Contracting, Inc., 167 F.3d 432, 435 (8th Cir. 1999)
(holding general contractor liable to its subcontractor for
delays partially caused by fault of the government); United
States ex rel. T.M.S. Mech. Contractors, Inc. v. Millers Mut.
Fire Ins. Co., 942 F.2d 946, 950-51 (5th Cir. 1991) (holding
general contractor liable for damages for delays attributable to
government's failure to discover asbestos); United States ex
rel. Pertun Constr. Co. v. Harvesters Group, Inc.,
918 F.2d 915, 917-19 (11th Cir. 1990) (holding general contractor liable
for delays caused by discovery by government of toxic wastes).
As explained by the Eighth Circuit in Biggs, "[t]he Miller Act
favors allowing full recovery from a general contractor
regardless of fault because general contractors have privity of
contract with the government and can thus recover delay damages
directly from the government, while subcontractors cannot." 167
F.3d at 435.
There was ample evidence to deny that part of the 50(a) motion
challenging the sufficiency of the evidence regarding Maris's
actual job costs. The Court now turns to the reserved damage
2. Profit and Overhead
Maris asked the jury to include in its damage awards ten
percent of Maris's costs for profit and an additional ten
percent for overhead. The jury essentially obliged.*fn9
Morganti argues that there is no evidentiary support for these
The Court instructed the jury:
Now, in considering overhead, be mindful of the fact
that the testimony offered by Maris is that the
overhead for its field work was included in its
costs; therefore, this type of overhead should not be
considered by you.
In respect to profits, they may be recovered if they
were fairly within the contemplation of the parties
and if they can be proven with reasonable certainty.
In making this determination you may consider such
things as the reasonable contemplation of the parties
with respect to profits and the nature, purpose and
particular circumstances of the contract and the
Now, the damages, if any, which you award must not be
merely speculative, possible and imaginary. Rather,
they must be based upon a definite and logical
connection between what is proven and the damages
sought to be recovered. However, as I have stated,
this does not mean that damages for overhead and
profit must be established with absolute certainty
since by their very nature they are not susceptible
to precise calculation. All damages which you may
award must simply be reasonable under all of the
Tr. at 2483-84.
The charge was in keeping with New York law.*fn10 "A
direct costs has frequently been allowed for overhead and profit
in allocating compensation on a quantum meruit basis in
construction contract cases." Manshul Constr. Corp. v.
Dormitory Auth. of the State of N.Y., 79 A.D.2d 383, 390,
436 N.Y.S.2d 724, 729 (1st Dep't 1981); see also United States ex
rel. Tower Masonry, Inc. v. J. Kokolakis Contracting, Inc., No.
93 Civ. 6369(JBS), 1995 WL 539742, at *3 (S.D.N.Y. Sept. 8,
1995) (finding "10% addon for overhead and 10% for profit . . .
to be reasonable and normal"); Westcott v. State,
264 A.D. 463, 466, 36 N.Y.S.2d 23, 25 (3d Dep't 1942) (sustaining
allowance of fifteen percent for overhead and profit
notwithstanding "absence of a mathematical basis for the
computation").*fn11 Nevertheless, the general rule is
well-settled: quantum meruit damages must be "based upon a
definite and logical connection between what is proven and the
damages sought to be recovered and cannot be speculative or
conjectural." Clifford R. Gray, Inc. v. State, 251 A.D.2d 728,
730, 674 N.Y.S.2d 440, 442 (3d Dep't 1998) (recognizing
application of rule to awards for overhead); Thalle Constr.
Co., Inc. v. Whiting-Turner Contracting, 39 F.3d 412, 418 (2d
Cir. 1994) (in calculating quantum meruit damages "speculation
will not be indulged and damages will be limited to damages
actually proven") (quoting Fehlhaber Corp. v. State of New
York, 69 A.D.2d 362, 370, 419 N.Y.S.2d 773, 777 (3d Dep't
1979)); see also Franklin Pavkov Constr. Co. v. Ultra Roof.
Inc., 51 F. Supp.2d 204, 219 (N.D.N.Y. 1999) (recognizing that
profits can be recoverable in quantum meruit if "fairly within
the contemplation of the parties when contracting") (quoting
Merlite Indus., Inc. v. Valassis Inserts, Inc., 12 F.3d 373,
376 (2d Cir. 1993)) (internal quotation mark omitted); Kenford
Co. v. County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 4,
537 N.E.2d 176 (1989) (court must take a "common sense" approach
to profit damages, and determine what the parties intended by
considering "the nature, purpose and particular circumstances of
the contract known by the parties").
Maris sought to justify its 10% claim for quantum meruit
profits in three ways: (1) its anticipated profit on the entire
job, as reflected in a September 8, 1994 project report, see
Morganti-Mitchell Ex. 3; (2) Morganti's anticipated profit, and
(3) the allowance for profit on change orders contained in
Morganti's prime contract with the FBOP.
In regard to Maris's anticipated profits, Mary Lou Hoover
("Hoover"), Maris's project manager, testified on direct
examination about the September 8, 1994 project report.*fn12
Q: [W]hat is the date of this particular report?
A: September, I think it is, 8th of '94; for the
period ending August '94.
Q: Would you turn to the second page please?
Q: Does the document show how Maris allocated the
contract price of $12,725,000 into direct costs and
A: Yes, it does.
THE COURT: Ms. Hoover is this a Maris document?
THE WITNESS: Yes, it is.
THE COURT: And it reflects the analysis under the
contract that Maris entered into with Morganti as to
what its estimated profit would be?
THE WITNESS: Correct.
THE COURT: What its contemplated profit would be?
THE WITNESS: Correct.
THE COURT: Under the actual contract?
THE WITNESS: Correct.
THE COURT: I will allow it into evidence.
Q: Ms. Hoover, can you tell us please what the
contemplated profit was for the original contract
price of $12,725,000?
THE COURT: How much of a projected profit?
THE WITNESS: $2,145,509.
THE COURT: Do you know who prepared this document?
THE WITNESS: No, I don't. It was the subject of
discussions at our meeting in September I believe of
THE COURT: All you know is this is something that was
generated by Maris as to what they contemplated their
profit would be under the existing contract?
THE WITNESS: Well, it shows the original contract
amount, the original costs, the original profit
anticipated and what that margin is.
Q: Ms. Hoover, under the original profit there was
the notation original profit margin percentage and it
says 16.54 percent; what does that represent?
A: That represents the percentage of profit over the
THE COURT: This is what Maris contemplated hopefully
making on the job, so to speak, way back when?
THE WITNESS: Correct.
THE COURT: This is your document that shows its
aspirations and hopes in that respect?
THE WITNESS: Correct.
Tr. at 2307-10.
On cross-examination, however, Hoover was directed to the
first page of the exhibit:
Q: [A]nd about halfway down there is an entry that
says per ops, O-P-S, correct?
THE COURT: Tell us what "per ops" means.
THE WITNESS: It would have something to do with our
operations department. . . .
Q: And the operations department at this point in
time, October 11, 1994 is not projecting a profit but
a loss of 1.18 million dollars, is that not so?
A: That's what they were projecting yes.
Q: Or 9.3 percent loss, not a profit?
A: As of the date of this, yes, that's what they were
Tr. at 2337-38.
In sum, Hoover testified that the project report projected
both a profit of 16.54% and a loss of 9.3%. This inconsistency
was not explained at trial; nor have the parties addressed it in
their post-trial submissions. However, a careful review of the
project report is illuminating. It is a four-page document
comprised of two financial reports: the first page is a report
titled "Brooklyn" dated October 11, 1994; a second report,
titled "Brooklyn F.B.O.P.", dated September 8, 1994, begins on
the second page. The basis for Hoover's direct testimony that
Maris anticipated a 16.54% profit was the September 8th report.
Her answer on cross-examination that the project report
reflected an anticipated loss of 9.3% was based on the October
11th report. This part of the project report reflects profit
estimates from two sources within the Maris organization — WIP
and OPS. At the foot of the October 11th report, the following
notation appears: "Above analyses reconcile the Brooklyn budget
@6% from WIP @16.5% and from OPS submission showing a 9.32%
loss. This is based on a discussion held with George Mitchell,
Bob Marinick, Bob Betty (?), John Brooks and Mary Lou Hoover on
9/13/94 (?)." Above the notation are two sets of calculations
showing that WIP lowered its profit estimate from 16.5% to 6.3%,
and OPS adjusted its estimate upward from a 9.3% loss to a 6.4%
Maris also elicited testimony from Catino:
THE COURT: What's the practice or custom in your
industry, what's normally to be expected as a profit?
THE WITNESS: It will vary up to ten percent.
THE COURT; And what will the variations depend upon,
give us some sense of it?
THE WITNESS: On the complexities of the project, the
length of the project.
THE COURT: The size of the project?
THE WITNESS: Size of the project of course.
THE COURT: If it was a smaller project, you'd expect
a larger profit; if it is larger, you're making more
money, percentage-wise you would get less?
THE WITNESS: There's a lot of factors involved.
THE COURT: How do you assess this particular job,
give the jury some sense of it?
THE WITNESS: For Morganti's point of view our
anticipated profit on this job was between eight and
ten percent. . . .
THE COURT: What was that based upon?
THE WITNESS: On the risk and complexities of the
project of course.
THE COURT: These are the same risks and complexities
I guess that Maris would have also, same project, I
THE WITNESS: Correct.
Tr. at 2352-53.
The only other evidence in support of Maris's profit claim was
Hoover's reliance on a portion of the prime contract between
Morganti and the FBOP relating to change orders. See Maris Ex.
3021. It provided that a percentage for profit, as well as for
overhead, would be negotiated for changes "and may vary
according to the nature, extent and complexity of the work
involved, but in no case shall exceed . . . 10% overhead and 10%
profit on the first $20,000, 7 1/2% overhead and 7 1/2 % profit
on the next $30,000, 5% overhead and 5% profit on the balance
over $50,000." Id.
Reviewing all this evidence, the Court concludes that it is
sufficient to support an award for profits, but it cannot
support the magnitude of the jury's verdict. The project report
states that Maris anticipated a profit of not more than 6.4%.
Moreover, Hoover's reliance on the formula for change orders in
the prime contract, although of questionable relevance, would
translate to barely over five percent. The only evidence before
the jury at odds with the concrete evidence contained in the
project report and the change order formula was Catino's general
statement that Morganti anticipated a profit in the range of
eight to ten percent, and some passing reference by Catino that
both Morganti and Maris experienced similar risks and
complexities on the Project. When measured against the other
evidence, it is not of sufficient weight to warrant a profit
award in excess of 6.4% of the jury's $6,576,997 award for
Maris's costs. This equates to $409,927.
A trial court has the discretion to grant a new trial if a
jury verdict is against the weight of the evidence. See
Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 433,
116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). "This discretion
includes overturning verdicts for excessiveness and ordering a
new trial without qualification, or conditioned on the verdict
winner's refusal to agree to a reduction (remittitur)." Id.;
see also Textile Deliveries, Inc. v. Stagno, 52 F.3d 46, 49 (2d
Cir. 1995) (directing remittitur or new trial where jury verdict
on breach of contract claim exceeded damages incurred prior to
termination of contract). Where the non-prevailing party has not
formally moved for remittitur, a court may, sua sponte, offer
the prevailing party the remittitur as an alternative to a new
trial. See Peterson v. County of Nassau, 995 F. Supp. 305, 312
(E.D.N.Y. 1998) (citing Bender v. City of New York,
78 F.3d 787, 795 (2d Cir. 1996)). Accordingly, Maris can choose between
a remittitur to the sum of $409,927 for the profit component of
its quantum meruit damages or a new trial on that issue.
Maris contends that the jury's overhead award is supported by
the testimony of Bob Colby, a consultant to Liberty:*fn13
Q: When you reviewed the Maris records during your
investigation did you come across any documentation
that would show what [the overhead] percentage would
Q: What did you find?
A: Maris applied to their estimates ten percent
overhead and an eight and a half percent indirect
costs that they applied and included in their
estimates, that's what they experienced and that's
what they included.
Tr. at 2209-10. However, Catino testified that Maris's itemized
list of direct costs included approximately $800,000 of field
Q: Mr. Catino, showing you Plaintiffs Exhibit 3005,
which is the list of checks compiled by Mr. Colby.
You have seen that before?
A: Yes, I have.
Q: Are there overhead items included on this list,
A: Yes, sir.
Q: Approximately, how much have you identified as
overhead items on that list?
A: Approximately eight hundred thousand.
THE COURT: That represents overhead —
A: Field overhead.
Tr. at 2397-98.
Counsel for Maris conceded that Maris was not seeking a
mark-up for field overhead, see Tr. at 2160, leaving home
office overhead as the only basis for an overhead award.
However, Colby testified that Maris did not incur any costs for
the day-to-day administration of the Project:
it was decided that [Surety & Construction
Consultants ("SCC")] would actually do the paperwork
and write the checks and accumulate all the
documentation for the files because it was going to
be cheaper than paying the people back in Exton,
Pennsylvania, Maris's [home] office, because they had
a high overhead and it was going to be cheaper for
SCC to do it.
Tr. at 2180-81.*fn14
Colby also testified that while Maris
attended to payroll and insurance matters for its employees on
the Project, see Tr. at 973, Maris's payroll department was
simultaneously handling the payroll for "dozens" of other Maris
projects. Tr. at 974. No other evidence was produced by Maris on
its overhead claim.
During the trial, the Court alerted Maris to the need to
adduce sufficient evidence to support its request for damages
just because courts may have from time to time said
that a ten percent . . . overhead factor in the
particularities of a case would not be considered to
be excessive doesn't mean that you can just get ten
percent by asking for it. You have some burdens of
proof here. . . . You just can't ask for ten percent
and expect me to allow a jury to give you ten
Tr. at 2280-81.
Unlike the evidence regarding profits, there is simply no
evidence before the Court that can support any award for
overhead. As noted, all field overhead was included in Maris's
direct costs. As for home office overhead, the day-to-day
operations were handled and paid for by SCC. There is no
evidence that these costs were charged back to Maris; if they
were, testimony to that effect could have easily been adduced.
All that remains is some unspecified overhead incurred by
Maris's payroll department for all of its multiple projects.
This is not sufficient to support an overhead award.
III. Morganti's Rule 59(a) Motion
"`A motion for a new trial ordinarily should not be granted
unless the trial
court is convinced that the jury has reached a seriously
erroneous result or that the verdict is a miscarriage of
justice.'" Atkins v. New York City, 143 F.3d 100, 102 (2d Cir.
1998) (quoting Lightfoot v. Union Carbide Corp., 110 F.3d 898,
911 (2d Cir. 1997) (citation and quotation marks omitted)); see
Song v. Ives Labs., Inc., 957 F.2d 1041, 1046 (2d Cir. 1992).
One example of a miscarriage of justice would be an improper
jury charge that "seriously affected" the jury's understanding
of an issue "to the prejudice of the complaining party." Havoco
of America, Ltd. v. Sumitomo Corp. of America, 971 F.2d 1332,
1343 (7th Cir. 1992); see also 11 Charles A. Wright, Arthur R.
Miller & Mary Kay Kane, Federal Practice & Procedure § 2805 at
54 (2d ed. 1995). "Unlike a [judgment as a matter of law], a new
trial may be granted even if there is substantial evidence to
support the jury's verdict." Song, 957 F.2d at 1047. In
considering a motion for a new trial, a trial court "`is free to
weigh the evidence [itself] and need not view it in the light
most favorable to the verdict winner.'" Id. (quoting Bevevino
v. Saydjari, 574 F.2d 676, 684 (2d Cir. 1978)).
Morganti's Rule 59(a) motion is an unruly, scatter-shot
assortment of complaints setting forth approximately fifty
purported grounds for relief. The Court has endeavored to make
some organizational sense of them, and views them as falling
into the following categories: (1) dismissal of Morganti's
direct claims against Liberty; (2) the jury instructions; (3)
the Court's management of the trial.*fn15
B. Morganti's Claims Against Liberty
Morganti trotted out a number of theories in order to cast
liability against Liberty because Liberty decided to discontinue
funding Maris's performance and told Maris to declare Morganti
in breach. During the course of the trial, the Court rejected
each of these theories. The jury's subsequent determination that
Morganti breached renders them all academic. In any event, the
Court's rulings were correct.
1. Breach of Obligation Under the Bond
Morganti claimed that Liberty's conduct pursuant to a "Post
Default Agreement" it entered into with Maris on June 20, 1995
(Liberty Ex. 279)*fn16 expanded Liberty's liability under its
bond.*fn17 Notably, Morganti never pled such a claim, and an
eve of trial motion to amend its complaint to assert this claim
against Liberty was denied by the Court. See Transcript of
Apr. 14, 2000 Bench Decision. Undaunted, Morganti persisted
during the trial in its attempt to expand the complaint to
embrace this theory. Even if the Court had permitted Morganti to
amend, it would have been to no avail.
In the Post Default Agreement, Maris acknowledged its
inability to complete its bonded contracts "due to its
distressed financial circumstances." Post Default
Agreement at 1 (unnumbered). The agreement provided, inter
alia, that Maris would assign to Liberty "all contract proceeds
on all of the Bonded Contracts," which Liberty would place in a
trust account, id. at ¶ 2(a), and that Maris would "continue
to supply labor, material, equipment, supplies, supervision,
management, as may be required by Liberty for the completion of
any or all of the Bonded Contracts, subject to continued funding
for such items through the trust account." Id. at ¶ 3(b). It
also provided that Maris would "cooperate fully with and follow
the directions of Liberty with regard to the completion of the
Bonded Contracts and the recovery of all monies due under or
relating to the Bonded Contracts, whether Liberty elects to
complete through Maris, by takeover, by relet, or otherwise."
Id. at ¶ 3(a).
Under the heading "Conduct of Business," Maris agreed to
"cooperate fully with Liberty concerning Liberty's on-going
inspection, review and analysis of Maris's books and records,
operations and Bonded Contracts." Id. at ¶ 7(a). This
paragraph also provided that "Maris remains responsible to
conduct and operate its business," and further provided that
Liberty is not, and shall not be deemed to be,
controlling or conducting the business of Maris by
virtue of this Agreement and Maris . . . agree[s]
that Liberty has not, by this Agreement or otherwise,
assumed any liability for any debts or other
liabilities of Maris . . . except for such
obligations as Liberty may otherwise have under the
bonds which it issued for the Bonded Contracts.
When a bonded contractor is in danger of defaulting, its
surety must choose among a number of options, which generally
include: (1) tendering the penal limit of the bond; (2) taking
over the contract and having it completed; (3) tendering a
completing contractor and a new bond; (4) financing the
contractor through completion and curing any defects. See
Bruce C. King, Takeover and Completion of Bonded Contracts by
the Surety, Brief, Fall 1997, at 23 n. 2; see also Insurance
Co. of the W. v. United States, 243 F.3d 1367, 1370 (Fed. Cir.
2001) (performance bond surety has alternative of providing
funds to insolvent contractor to complete performance); John G.
Lambros Co., Inc. v. Aetna Cas. & Sur. Co., 468 F. Supp. 624,
628 (S.D.N.Y. 1979) (Weinfeld, J.) ("[i]t is not unusual" for
performance bond surety to finance contractor's completion of a
bonded project). A takeover by the surety of its principal's
contract pursuant to a performance bond will subject the surety
to liability beyond the penal amount of the bond. See
International Fid. Ins. Co. v. County of Rockland, 98 F. Supp.2d 400,
428 (S.D.N.Y. 2000). In contrast, even when a surety
advances large sums of money to the contractor and becomes
"intimately involved" in the contractor's financial affairs, the
surety will not, without more, face exposure beyond the
parameters of its bond. See John G. Lambros Co., Inc.,
468 F. Supp. at 628.
Liberty opted to finance the project. It did not assume or
takeover the contract. Its actions were not materially different
than the circumstances confronting Judge Weinfeld in Lambros,
including the assignment and control of all funds realized under
the bonded contract. "[A]ny surety under a performance bond who
realizes that his principal is starting to have trouble, will
have progress payments made to it in order that it may monitor
the disbursement of funds because it is apparent at that point
that some of the surety's money will have to be used also."
Copeland Sand & Gravel, Inc. v. Insurance Co.
of N. Am., 288 Or. 325, 607 P.2d 718, 722 (1980). Such an
arrangement does not place the surety in the subcontractor's
shoes. Moreover, Liberty had every right to cease financing
Maris and to instruct Maris to declare Morganti in breach; it
had the right to run the risk of liability under its bond were
Maris to have been found in default.
2. Covenant of Good Faith and Fair Dealing
The Court dismissed Morganti's claim against Liberty for
alleged breach of the covenant of good faith and fair dealing.
While a covenant of good faith and fair dealing is implied in
every contract, see Carvel Corp. v. Diversified Mgmt.,
930 F.2d 228, 230 (2d Cir. 1991), it cannot exist in a vacuum. In
other words, there must be a contract to which it attaches. See
Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 304,
461 N.Y.S.2d 232, 237, 448 N.E.2d 86 (1983) (the implied covenant is
simply "in aid and furtherance of other terms of the agreement
of the parties"); Lakeville Pace Mech., Inc. v. Elmar Realty
Corp., 276 A.D.2d 673, 676, 714 N.Y.S.2d 338, 342 (2d Dep't
2000) ("[T]here can be no covenant of good faith and fair
dealing implied where there is no contract."). The only contract
implicating Liberty was its performance bond, which never came
into play since Maris was not found in breach.
The Court did, however, rule that "Liberty's performance
should be considered [by the jury] to be Maris's and they can
consider the covenant of good faith with respect to that
contract." Tr. at 1837. Consequently, although cautioning the
jury that "[t]here is no separate lawsuit before you against
Liberty that can make Liberty liable to Morganti if you do not
determine that Maris was in breach," Tr. at 2103, the Court told
the jury that it could "consider the acts and conduct of Liberty
during Maris's performance to be [the] acts and conduct of Maris
since Liberty was acting on behalf of Maris." Tr. at 2103. It
further explained to the jury:
whenever you consider whether Maris was in breach of
its duty of good faith and fair dealing under its
contract with Morganti, you may take Liberty's acts
and conduct  on behalf of Maris into consideration.
However, you may not consider whether Maris or
Liberty, acting in Maris's behalf, had any particular
motive to terminate the contract since it is
irrelevant whether Maris or Liberty acting in behalf
of Maris was motivated to terminate the contract for
reasons which would not themselves constitute [valid]
grounds for termination of the contract.
Id.; see Big Apple Car, Inc., v. City of New York, 204 A.D.2d 109,
111, 611 N.Y.S.2d 533, 534 (1st Dep't 1994) (party with
right to terminate may do so "without court inquiry into whether
the termination was activated by an ulterior motive"); Major
Oldsmobile, Inc. v. General Motors Corp., 1995 WL 326475, at *8
(S.D.N.Y. May 31, 1995) ("[S]ince defendant had the right to
terminate the Agreement upon plaintiff's breach, it is legally
irrelevant whether defendant was also motivated by reasons which
would not themselves constitute valid grounds for termination of
the contract.") (citing cases).
3. Tortious Interference With Contract
"A claim of tortious interference [with contract] requires
proof of (1) the existence of a valid contract between plaintiff
and a third party; (2) the defendant's knowledge of that
contract; (3) the defendant's intentional procuring of the
breach, and (4) damages." Foster v. Churchill, 87 N.Y.2d 744,
749-50, 642 N.Y.S.2d 583, 586, 665 N.E.2d 153 (1996). Further,
"economic interest is a defense to an action for tortious
interference with a contract unless
there is a showing of malice or illegality." Id. at 750,
642 N.Y.S.2d 583, 665 N.E.2d 153. Since Liberty was clearly acting
in its own economic self-interest and was exposing itself to
liability under its bond by instructing Maris to walk off the
job, the Court ruled that there could be no malice as a matter
of law. In any event, the Court's trial ruling became academic
once the jury found Morganti in breach.
4. Tortious Interference With Business Relations
To state a claim for tortious interference with business
relations under New York law, plaintiff must allege: (1)
business relations with a third party; (2) defendant's
interference with those business relations; (3) defendant acted
with the sole purpose of harming the plaintiff or, where
defendant acted to advance its own competing interests, the
defendant used dishonest, unfair, or improper means, such as
criminal or fraudulent conduct, and (4) injury to the
relationship. See Universal Marine Med. Supply, Inc. v.
Lovecchio, 8 F. Supp.2d 214, 221 (E.D.N.Y. 1998) (citing
Purgess v. Sharrock, 33 F.3d 134, 141 (2d Cir. 1994)). In
dismissing this claim, the Court noted that Morganti was not
contending that Liberty's actions "were designed solely to harm
Morganti rather than advance [its] own interest. And more
fundamentally, there is nothing here that suggests that there
was any criminal or fraudulent conduct on the part of Liberty."
Tr. at 225. Again, the jury's verdict rendered the claim
C. The Jury Instructions
1. The Liability Charge
With respect to breach for failure to make timely payments,
the Court charged the jury that it could consider certain
aspects of the Prompt Payment Act, 31 U.S.C. § 3901-3907 (1983
& Supp. 2000) (sometimes "the Act"). Morganti objected to this
part of the charge, Tr. at 2077, and renews its objection in its
Rule 59(b) motion. Regarding the Act, the jury was instructed:
on the issue of payment, you may also consider
whether Morganti withheld payments from Maris for
reasons that did not relate to Maris's work or
responsibilities and was not withheld by the
You may consider in that regard the application of
the facts as you find them to the federal Prompt
Payment Act, which is a federal statute that provides
if a contractor intends to withhold any payment from
a subcontractor, the contractor must notify the
government and the subcontractor of the amount to be
withheld, the reason for the withholding, and what
the subcontractor must do to get the monies released
to the subcontractor.
Now remember in all of what I'm saying, you have to
view all of this in the context of what I told you
about materiality and about the covenant of good
faith and fair dealing and about the election of the
remedy to cure a breach. So remember that. That
applies to whatever I'm saying here. That is the
Tr. at 2100.
The Prompt Payment Act provides:
[e]ach construction contract awarded by an agency
shall include a clause that requires the prime
contractor to include in each subcontract for
property or services entered into by the prime
contractor and a subcontractor (including a material
supplier) for the purpose of performing such
construction contract — (1) a payment clause which
obligates the prime contractor to pay the
subcontractor for satisfactory performance
under its subcontract within 7 days out of such
amounts as are paid to the prime contractor by the
agency under such contract. . . .
31 U.S.C. § 3905(b). The Act also requires the contractor to
written notice of any withholding . . . issued to a
subcontractor (with a copy to the Government of any
such notice issued by a prime contractor),
(1) the amount to be withheld;
(2) the specific causes for the withholding under the
terms of the subcontract; and
(3) the remedial actions to be taken by the
subcontractor in order to receive payment of the
Id. at § 3905(g).
Morganti argues that it was error for the Court to reference
the Prompt Payment Act because there is no private right of
action under the Act; consequently, it cannot serve as a
separate basis for liability. The only court directly addressing
this issue has held that the Act does not create a private right
of action between contractors. See United States ex rel.
Virginia Beach Mech. Servs., Inc. v. SAMCO Constr. Co.,
39 F. Supp.2d 661, 677 (E.D.Va. 1999). The Court recognized at trial
that Maris was not bringing a separate claim under the Prompt
Payment Act, Tr. at 2080, and the Court's instructions to the
jury did not state otherwise. In any event, the Prompt Payment
Act does not "limit or impair any contractual, administrative or
judicial remedies otherwise available to . . . a contractor or a
subcontractor in the event of a dispute involving late payment
or nonpayment by a prime contractor. . . ." 31 U.S.C. § 3905(j).
Although referencing the Prompt Payment Act, the Court was
simply advising the jury as to some of the factors it could
consider in assessing whether Morganti appropriately processed
Maris's demands for payment. These were factors that the jury
could consider in the context of the covenant of good faith even
if no mention of the Prompt Payment Act was made. As noted, the
Court instructed the jury that it has "to view all of this in
the context of what I told you about materiality and about the
covenant of good faith and fair dealing." Tr. at 2100; see also
De Falco v. Bernas, 244 F.3d 286, 318 (2d Cir. 2001) (when
considering the propriety of a jury charge, "a single
instruction to a jury may not be judged in artificial isolation,
but must be viewed in the context of the overall charge")
(citations and internal quotation marks omitted). In light of
this cautionary instruction, even if it be deemed inappropriate
to have referenced the Prompt Payment Act, a new trial is not
warranted since this could not have seriously affected the
2. The Damage Charge
Once again Morganti argues, as it did in its Rule 50(a)
motion, that Morganti could not be liable for damages occasioned
by the government's fault. There is no need to revisit this
fallacious argument in the context of Morganti's Rule 59(a)
motion. Morganti does not otherwise appear to be questioning the
correctness of the Court's damage charge other than to contend
that the Court should have charged the jury that Maris had a
responsibility to mitigate its damages.
The appropriateness of the damage charge as to profit and
overhead was in keeping with the law noted in the Court's
discussion and resolution of those reserved issues. As for how
the jury was to discern damages in quantum meruit for "the
fair value of the work, labor and services performed by Maris up
to the date when Maris terminated the contract and left the
job," Tr. at 2478, the jury was instructed that Maris had the
burden of proving:
(1) The performance of work, labor and services by
Maris for Morganti in good faith; (2) The acceptance
of the work, labor and services by Morganti; (3) An
expectation by Maris of compensation for such work,
labor and services, and (4) The reasonable value of
the work, labor and services.
Id.; see Clark v. Torian, 214 A.D.2d 938, 938, 625 N.Y.S.2d 370,
371 (3rd Dep't. 1995) (identifying these four elements).
The Court also charged the jury that Maris "should not be able
to recover damages based upon its own fault." Tr. at 2484; see
Mai Steel, 981 F.2d at 419 n. 8 (recognizing that "[t]here may
be instances when recovery would be inappropriate, such as when
. . . delay is attributable to the subcontractor's own
conduct"). As for mitigation, it is not part of the accepted
quantum meruit framework and, indeed, Morganti does not cite
authority for this proposition. In any event, the legitimacy of
Maris's conduct is subsumed by the "good faith" and "reasonable
value" aspects of the Court's quantum meruit charge.
D. The Court's Management of the Tral
Morganti lists a number of complaints about the Court's
management of the trial. Morganti objects, without elaboration,
to virtually every substantive ruling. In addition, Morganti
believes that the Court (1) unfairly restricted Morganti's time
to present its case; (2) unduly restricted Morganti's right to
introduce documentary evidence and examine witnesses regarding
such documents; (3) unfairly interrupted Morganti's direct and
cross-examinations; (4) inappropriately engaged in an ex parte
conference with counsel for Liberty and Maris on the evening of
June 6, 2000, and (5) unfairly marshaled Maris's damages
evidence for the jury.
This was an exceedingly difficult case for the Court to
manage. The Court has borne witness to the prescient
observations of Judge Parker: "Major construction projects
generate major construction litigation. Management of either is
perilous." Morse/Diesel Inc. v. Trinity Indus., Inc.,
67 F.3d 435, 437 (2d Cir. 1995). The animus that pervaded the courtroom
between the warring parties was palpable. There was little, if
any, spirit of cooperation between the attorneys. If left to the
parties' own devices, hundreds of additional exhibits would have
been submitted to the jury, and the trial probably would still
be going on. Upon its review of the record, the Court is
satisfied that, in spite of these difficulties, it made
painstaking efforts to afford all parties a fair trial, and is
confident that anyone reviewing the record will agree. See
McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 553,
104 S.Ct. 845, 78 L.Ed.2d 663 (1984) ("[A] litigant is entitled
to a fair trial but not a perfect one, for there are no perfect
trials.") (citations and internal quotation marks omitted).
IV. Maris's Rule 50(b) Motion
Included in Maris's claim for costs were two sums which the
Court did not allow the jury to consider: (1) $71,142 of costs
which the parties stipulated were incurred from January 1995
through April 30, 1995; (2) $611,714.71 of costs allegedly
incurred prior to January, 1995. The Court disallowed the
claimed pre-January 1995 costs for lack of evidentiary
support.*fn18 As for the stipulated post-1995 costs through
April of that year, the parties agreed that
their allowance would depend on the Court's interpretation of a
certain document entitled "Partial Release and Waiver of
Mechanic's Lien and Payment Bond Rights" ("Release") executed by
Maris's Vice President on June 21, 1995.
A. The Release
The Release states that Maris
acknowledges receipt of payment for all labor,
materials or services up to and including the date of
30 April 95 . . . the `release date' paid by Morganti
. . . and . . . Trataros, . . . [and Maris] has to
the release date remised, released and forever
discharged . . . Morganti . . . American Home
Assurance Company . . . Trataros . . . and Seaboard
. . . of and from all, and all manner of action and
actions, cause and causes of actions, suits, debts,
dues, sums of money, accounts, reckoning, bonds,
bills, specialities, covenants, contracts,
controversies, agreements, executions, claims and
demands whatsoever, in laws, in admiralty, or in
equity . . . which [Maris against Morganti, American
Home, Trataros or Seaboard] ever had, now had or
which it or its successors, hereafter can, shall or
may have for, upon or by reason of any matter, cause
or thing whatsoever from the beginning of the world
to the `release date', and especially in connection
with any and all claims of any nature whatsoever
arising out of the construction project known as the
Metropolitan Detention Center. . . .
Maris contends that the Release merely acknowledges a partial
payment under the Subcontract. It argues, in any event, that
because damages are in quantum meruit, all of Maris's damages
are outside the Subcontract and, therefore, not subject to the
Under New York law, when a release is clear and unambiguous,
it will be interpreted without resort to parol evidence and
strictly enforced. See Albany Sav. Bank v. Halpin,
117 F.3d 669, 672 (2d Cir. 1997) (citation omitted); see also Mangini v.
McClurg, 24 N.Y.2d 556, 562, 301 N.Y.S.2d 508, 513,
249 N.E.2d 386 (1969) (a release must be given its "full literal effect"
unless it can be shown that the transaction to which the release
is said to apply was not contemplated "despite the generality of
the language in the release form").
Maris's contention that the Release is nothing more than an
acknowledgment of payment runs contrary to the clear language of
the Release. It is a full general release. Maris's reliance on
JRDM Corp. v. U.W. Marx Inc., is unavailing since the release
in that case was "expressly limited to `the extent of the
payment, only.'" 252 A.D.2d 854, 675 N.Y.S.2d 691, 693 (3d Dep't
1998) (slip op.)
Also unavailing is Maris's alternative contention that the
rescission of the underlying contract vitiated the Release. A
party may not recover in quantum meruit where a valid written
agreement exists, the scope of which clearly covers the dispute
between the parties. See Reilly, 181 F.3d 253, 262-63 (2d Cir.
1999) ("Under New York law, the existence of an express contract
governing a particular subject matter ordinarily precludes
recovery in quantum meruit for events arising out of the same
subject matter.") (citing Clark-Fitzpatrick, Inc. v. Long
Island R.R. Co., 70 N.Y.2d 382, 388, 521 N.Y.S.2d 653, 656,
516 N.E.2d 190 (1987)); see also Adler Constr. v. United States,
191 Ct.Cl. 607, 423 F.2d 1362, 1366 (1970) (finding in action
for quantum meruit damages no authority for "novel
proposition" that a "release predicated on the terms of a
provision in a contract that itself is void necessarily vitiates
B. Preclusion of Pre-January 1995 Costs
Notwithstanding the Court's ruling that Maris's claim for
pre-May 1995 costs was barred by the Release, the Court
separately ruled that there was no evidentiary basis for Maris's
claim for costs incurred prior to January 1995. Maris sought to
introduce into evidence a one-page document entitled "Summary of
Maris 12/8/94 Cost Report" (the "cost report summary") in
support of this claim. The court held this document inadmissable
because Maris did not comply with Fed.R.Evid. 1006.
At a hearing outside the presence of the jury, Hoover
testified that the cost report summary was prepared for trial
and was based upon two computer printouts, one of which was "a
summary of all these cost codes and the underlying document is
each payroll person that was paid on a weekly basis, each
expense report that was paid, each invoice that was booked
against the job, labor burden, all of those types of things."
Tr. at 2322. Hoover stated that the documentation referenced in
the computer printouts had been given to Morganti during
discovery, but acknowledged that it consisted of thousands of
pieces of paper. Tr. at 2330. Neither the cost report summary
nor the computer printout contained a specific description or
any sense of organization of the original documents, causing the
Court to comment, in disallowing the cost report summary, that
it was unfair to require Morganti's counsel "to wade through
thousands of pieces of paper" in order to find the information
referred to in that document. Tr. at 2331. The Court thereafter
ruled that Maris's claim for expenses incurred prior to January
1995 would not be permitted to go to the jury because Maris had
not submitted "any documentary evidence at all to support that
in accordance with the rules of evidence." Tr. at 2359. The
Court further commented:
I'm not going to allow [Maris] to go forward with
this part of [its] damage claim. . . . [Maris has]
miserably failed to comply with any pretrial
requirements that I have requested of the parties in
this very complex, burdensome, paper-oriented case
and I'm not going to allow [Maris] to do this at the
eleventh hour and claim that `[Morganti's counsel]
has everything because we gave you these thousands of
pieces of paper over the prior four years.'
The Court's ruling should have come as no surprise because
during pre-trial conferences and, again, at the outset of the
trial, the Court emphasized the need for counsel to make
provident use of Rule 1006 and strictly adhere to its disclosure
I have beseeched Mr. Torre and everybody during our
pretrial conferences to utilize 1006 of the Federal
Rules of Evidence and I thought that I had made
Now, it seemed to me that when I exhorted Mr. Torre
to comply with 1006, it would obviate the need to
present voluminous underlying documents to a lay
jury, and I instructed that this would be the
appropriate case to make good use of 1006.
I was assured that all the underlying documents
dealing with payments, et cetera, have been disclosed
to counsel. I accepted that representation, and then
we received all these cartons in court yesterday,
lined up. I told Mr. Torre, I don't understand why we
have all these
voluminous documents. The whole purpose of my
commentary during pretrial conferences was to avoid
that. Get them out of the courtroom and have for the
jurors the proper use of summaries under 1006. That's
what I asked them to do. Apparently, I wasn't clear
enough, for which I apologize, but perhaps I was
clear enough, but be that as it may, I am now
perfectly clear on the record.
I also explained to you that the common example of
the use of 1006 would be to use checks. Many times we
have commercial cases where there are lots of checks.
Rather than introduce three thousand checks, we can
have a chart that shows in column form the number of
the check, the date of the check, the amount on the
check, the payee on the check. That's fine. That's
factual information that flows from the underlying
documents. That's what you are to use in this case.
Tr. at 157-60.*fn19
Rule 1006 provides:
The contents of voluminous writings, recordings, or
photographs which cannot conveniently be examined in
court may be presented in the form of a chart,
summary, or calculation. The originals, or
duplicates, shall be made available for examination
or copying, or both, by other parties at reasonable
time and place. The court may order that they be
produced in court.
Rule 1006 is "based on the common-law rule that a party may
prove the contents of voluminous writings that cannot be
examined in court without causing inconvenience and waste of
time by presenting evidence of their contents in abbreviated
form." 6 Jack B. Weinstein & Margaret A. Berger, Weinstein's
Federal Evidence, § 1006.02 (2d ed. 1997) ("Weinstein's
Evidence"). A "quintessential summary" is one "used to
facilitate the jury's deliberations and to avoid forcing the
jury to examine boxes of documents in order to make simple
calculations." Fagiola v. National Gypsum Co., 906 F.2d 53
(2d Cir. 1990).
"Summary evidence is admissible as long as the underlying
documents also constitute admissible evidence and are made
available to the adverse party." Tamarin v. Adam Caterers,
Inc., 13 F.3d 51, 53 (2d Cir. 1993). The material must be made
available in sufficient time to permit examination, preparation
of a response to the summary, and avoidance of surprise and
costly delays at trial. See Weinstein's Evidence § 1006.06.
"[T]o satisfy the `make available' requirement, a party
seeking to use a summary under Rule 1006 must identify its
exhibit as such, provide a list or description of the documents
supporting the exhibit, and state when and where they may be
reviewed." Air Safety v. Roman Catholic Archbishop of Boston,
94 F.3d 1, 8 (1st Cir. 1996). Thus, Rule 1006 "operates
independently of the discovery rules." Air Safety, 94 F.3d at
8 (citing Weinstein's Evidence). It is "[not] enough to say
that the documents have been available or could have been
available or were available when they were not identified as the
source for [a] summar[y]," id.; "passive availability" may be
satisfactory in the
context of general discovery, but it does not fulfill the
separate obligation imposed by Rule 1006. Id.
The Court acted well within its discretion in deciding not to
allow the cost report summary in evidence. Maris never provided
a list or description of the documents supporting the proposed
1006 exhibit; nor had it given the cost report summary to
Morganti in sufficient advance of trial to allow meaningful
review of the mass of material Morganti had received during the
years of discovery to determine the accuracy of the cost report
summary. It would have been a gross abuse of the appropriate
utilization of Rule 1006 if the Court were to have ruled
V. Prejudgment Interest
New York's law providing for a nine percent per annum rate of
prejudgment interest in contract actions, see N.Y.C.P.L.R.
5001(a), 5004, extends to quantum meruit recoveries in
quasi-contract actions. See Port Chester Elec. Constr. Corp. v.
HBE Corp., 782 F. Supp. 837, 848 (S.D.N.Y. 1991), rev'd on
other grounds, 978 F.2d 820 (2d Cir. 1992); Ogletree, Deakins,
Nash, Smoak & Stewart P.C. v. Albany Steel Inc., 243 A.D.2d 877,
879, 663 N.Y.S.2d 313, 315 (3d Dep't 1997). The Miller Act
does not preclude such recovery. See United States ex rel. Balf
Co. v. Casle Corp., 895 F. Supp. 420, 429 (Conn. 1995) (awarding
prejudgment interest in a Miller Act action at the state rate);
United States ex rel F & G Mech. Corp. v. Manshul Constr.
Corp., No. 94 CV 2436(CLP), 1998 WL 849327, at *27 (E.D.N.Y.
Oct. 1, 1998) (awarding Miller Act prejudgment interest at the
New York rate); United States ex rel. Strober N.J. Bldg. Supply
Ctrs., Inc. v. Aetna Cas. & Sur. Co., No. 94 CV 5283, 1995 WL
450977, at *1 (E.D.N.Y. July 21, 1995) (same). Maris is entitled
to nine percent per annum prejudgment interest from May 3, 1996.
See N.Y.C.P.L.R. 5001(b) ("Interest shall be computed from the
earliest ascertainable date the cause of action
If Maris accepts remittitur to $409,927 on the jury's profit
award, it shall settle judgment within thirty days from the date
of entry of this Decision and Order. Otherwise, the case will be
set down for retrial on profit damages. If judgment is to be
settled, the judgment against Morganti will be for the sum of
$2,730,503 ($6,576,997 for costs, plus $409,927 on the
remittitur, less the $4,256,421 previously paid), together with
prejudgment interest at the rate of nine percent per annum from
May 3, 1996. The proposed judgment undoubtedly will also embrace
Morganti's sureties' liability on the payment bond. Presumably,
it will provide for joint and several liability by the sureties
with Morganti in the sum of $2,500,000, plus interest — the
amount alleged in the Miller Act claim. See Compl. ¶¶ 14-16. If
the Court's presumption is incorrect, the parties will notify
the Court, prior to the settlement date, of the nature of their
disagreement so that the Court may determine the course of
further proceedings in that respect.