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