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PRINCETON RESTORATION CORP. v. INTERNATIONAL FIDELITY INS.

September 27, 2004.

PRINCETON RESTORATION CORP., Plaintiff,
v.
INTERNATIONAL FIDELITY INSURANCE CO., Defendant/Third-Party Plaintiff, v. LAWRENCE E. SCHWARTZ, et al., Third-Party Defendants.



The opinion of the court was delivered by: NINA GERSHON, District Judge

ORDER

The Report and Recommendation of the Honorable Steven M. Gold, Magistrate Judge, dated September 1, 2004, to which no objections have been filed, is adopted in its entirety. For the reasons so clearly and persuasively set forth by Judge Gold, plaintiff's motion for leave to file a second amended complaint is granted, plaintiff's motion for partial summary judgment is denied, and defendant's motion for summary judgment is also denied.

SO ORDERED.

 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK __________________________________X PRINCETON RESTORATION CORP.,
Plaintiff, REPORT AND RECOMMENDATION — against — 00-CV-6591 (NG)
INTERNATIONAL FIDELITY INSURANCE CO.,
  Defendant/Third-Party Plaintiff,
— against —
LAWRENCE E. SCHWARTZ, et al.,
  Third-Party Defendants. __________________________________X Gold, S., U.S. Magistrate Judge:
INTRODUCTION
  Princeton Restoration Corporation ("Princeton") seeks in this action to recover amounts it claims are due to it under a performance bond issued by defendant International Fidelity Insurance Company ("IFIC"). Princeton has moved for leave to file a second amended complaint adding a cause of action to reform the bond issued by IFIC, and for partial summary judgment dismissing certain affirmative defenses asserted by IFIC against it. IFIC has cross-moved for summary judgment dismissing each of Princeton's claims.

  The performance bond issued by IFIC does not name Princeton as an obligee. The dispute between the parties hinges upon whether Princeton's attempt to amend its complaint to assert a claim that the IFIC bond should be reformed to name it as an obligee is futile or should be permitted to proceed. United States District Judge Gershon has referred the parties' cross-motions to me for report and recommendation. For the reasons stated below, I respectfully recommend that Princeton's motion for leave to amend be granted, that its motion for partial summary judgment be denied, and that IFIC's motion for summary judgment be denied as well.

  FACTS

  In November of 1997, Princeton was hired to be the general contractor on a school construction project known as the Public School 104 Exterior & Roof Project (the "project"), to be performed in Brooklyn, New York. Princeton was retained by a joint venture formed by the Tishman Construction Corporation of New York and Jet Resources, Inc. ("Tishman/Jet"), which had in turn been selected to serve as the construction manager for the project by the New York City School Construction Authority ("SCA"). Pl. R56.1 ¶ 1; Def. R56.1 ¶¶ 1-2.*fn1

  In January of 1998, Princeton, as general contractor, subcontracted with L&M Larjo ("Larjo") to perform certain roofing and masonry work. Pl. R56.1 ¶ 7; Def. R56.1 ¶ 3. The negotiations leading to the subcontract were conducted, at least in part, by Princeton's former vice president, Peter Lacagnina, and Larjo's president, Jeffrey Schwartz. Pl. R56.1 ¶ 6.

  Princeton had previously begun the process of obtaining performance and payment bonds as principal naming Tishman/Jet and the SCA as obligees. Pl. R56.1 ¶ 2; Affidavit of Peter Lacagnina ("Lacagnina Aff."), ¶ 3. As a condition of issuing these bonds to Princeton, Princeton's bond broker insisted that the masonry and roofing subcontractor on the project be bonded as well. Pl. R56.1 ¶ 3; Affidavit of Robert Scavetta, Vice President of Princeton's former bond broker ("Scavetta Aff."), ¶¶ 3-4. Accordingly, Princeton obtained Larjo's agreement to provide performance and payment bonds in connection with its subcontract on the project. Pl. R56.1 ¶ 7; Def. R56.1 ¶ 5.

  It is undisputed, however, that Princeton failed to inform Larjo who the obligee named in its payment and performance bonds should be. Pl. R56.1 ¶ 12; Def. R56.1 ¶ 6; Lacagnina Dep. at 21. It is also undisputed that Princeton provided Larjo with a specification book which contained, among other things, preprinted bond forms designating Tishman/Jet, rather than Princeton, as the performance bond obligee. Def. R56.1 ¶¶ 8, 13; Lacagnina Dep. at 22-23.

  Larjo's president, Jeffrey M. Schwartz, arranged for his assistant to send a "bond request form" to Larjo's bond broker. Schwartz had no understanding of who was intended to be the obligee on the bonds. Pl. R56.1 ¶ 11. Because Schwartz used the bond forms supplied by Princeton, the request form forwarded by his assistant to Larjo's broker designated Tishman/Jet as the obligee and made no mention of Princeton. Pl. R56.1 ¶ 19; Def. R56.1 ¶¶ 11-14. As a result, at the time IFIC approved the bonds, its underwriter was not aware that Larjo was a subcontractor to Princeton, or that Larjo did not have a contract with Tishman/Jet. Pl. R56.1 ¶ 20. The performance bond issued by IFIC on behalf of Larjo accordingly designates Tishman/Jet and the SCA as the obligees on the bond, and furthermore states that "[n]o right of action shall accrue on this bond to or for the use of any person or corporation other than Tishman/Jet and the [School Construction] Authority." Def. R56.1 ¶ 23.

  When Lacagnina of Princeton received the Larjo performance and payment bonds, he did not review their text, and he thus did not become aware at that time that they incorrectly named Tishman/Jet and the SCA as obligees. Pl. R56.1 ¶ 17. The performance and payment bonds are five and six pages long, respectively. The substantive language of each bond appears on its first two pages, and in each case identifies Tishman/Jet as the obligee in four separate paragraphs. Lacagnina Aff., Ex. D. The bonds explicitly refer to a contract between Larjo and Tishman/Jet, and incorporate the terms of that contract by reference. Id. Nevertheless, it was only months later, when Larjo was about to default, that Princeton became aware that Larjo's performance bond named Tishman/Jet and not Princeton as the obligee. Lacagnina Dep. at 32; ...


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