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RONDOUT VALLEY CENTRAL SCHOOL DISTRICT v. CONECO CORP.

September 29, 2004.

RONDOUT VALLEY CENTRAL SCHOOL DISTRICT, Plaintiff,
v.
THE CONECO CORPORATION, BOSTON EDISON COMPANY, NSTAR, BEC ENERGY, COMMONWEALTH ENERGY SYSTEMS, BEC NEWCO, INC., and BOSTON EDISON TECHNOLOGY GROUP, INC. Defendants.



The opinion of the court was delivered by: LAWRENCE KAHN, District Judge

MEMORANDUM — DECISION AND ORDER*fn1

I. BACKGROUND

The Court is now faced with opposing summary judgment motions in the above captioned matter. First, Plaintiff Rondout Valley Central School District ("RVCSD" or "School District") seeks summary judgment that Coneco Corporation ("Coneco") has breached the contract between them. Second, all of the defendants, except Coneco, seek summary judgment dismissing them as parties to this action. For the reasons that follow, each motion is granted in part and denied in part.

  (a) Basis of RVCSD's summary judgment motion

  RVCSD filed the instant action alleging that Conceco breached its agreement under the parties' Guaranteed Savings Energy Management Agreement ("Agreement"), which resulted in damages of over $3 million.*fn2

  On June 23, 1997, RVCSD and Coneco signed and entered into the Guaranteed Savings Energy Management Agreement ("Agreement"). No other corporate entities signed the Agreement under which, in an effort to reduce the School District's energy expenses, Coneco was to provide construction services, equipment installation, a lighting retrofit, energy savings management, asbestos abatement services, to RVCSD, with two schools receiving new roofs, as well.

  RVCSD's summary judgment motion, which will be considered first, asks the Court to hold Coneco in breach because several installed components are not functioning properly, and Coneco has failed to provide energy management services and maintain other systems pursuant to the Agreement. RVCSD claims that it is undisputed that Coneco is in default because in answering the motion, "Coneco does not contend that it has fulfilled its obligations under the contract." RVCSD Mem. (Dkt. No. 58) at 4. Coneco, in replying to RVCSD's cross-motion for summary judgment, states that summary judgment is not appropriate because there are genuine issues of material fact. For example, Coneco claims that in pursuing a "massive school $15.1-million capital construction project," RVCSD violated the Agreement because "written approval for that project was never obtained by plaintiff from Coneco. . . ." Coneco Mem. (Dkt. No. 59) at 3. (b) Basis of the Moving Defendants' summary judgment motion

  Because Coneco is now dissolved and insolvent,*fn3 Def. Statement of Facts (Dkt. No. 42) at ¶ 36, RVCSD asks the Court to pierce the corporate veils of Coneco's parent and affiliated corporations. Generally, RVCSD contends that it was misled to believe that a contract with Coneco is a contract with Boston Edison Company ("Boston Edison"), and as such, piercing the corporate veils to Boston Edison and its affiliated corporations is warranted.

  RVCSD named Boston Edison as a defendant because at the time of the contract Coneco was a wholly owned subsidiary of Boston Edison and "officers of Defendant Boston Edison . . . stated and represented to members of [the School District's] Board of Education that [Coneco] was financially secured by the assets of Defendant Boston Edison. . . ." Complaint (Dkt. No. 1) at ¶ 3. RVCSD named the remaining defendants, NSTAR, BEC Energy, Commonwealth Energy Systems, BEC Newco, Inc., and Boston Energy Technology Group, Inc.*fn4 ("BETG"), because they "are affiliated with or are successors in interest to [Coneco and Boston Edison] and are legally responsible for the antecedent debts of [Coneco] and Defendant Boston Edison Company." Complaint (Dkt. No. 1) at ¶ 5.

  The second summary judgment motion that will be considered is filed by BETG, BEC Energy, Inc., Commonwealth Energy System, BEC Newco, Inc., NSTAR, and Boston Edison (collectively "Moving Defendants"). Notice of Motion (Dkt. No. 40).*fn5 Coneco was the only defendant to the action which does not join in this summary judgment motion. The Moving Defendants contend that summary judgment should be granted in their favor because they did not cause the damage suffered by RVCSD and, because the distinct corporate forms were strictly maintained, the Court should not pierce the corporate veils to reach their assets.

  The facts that are material to the disposition of these motions will be stated in the discussions below.

  II. DISCUSSION

  (a) Standard of review

  Federal Rule of Civil Procedure 56 provides that summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In applying this standard, courts must "`resolve all ambiguities, and credit all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment.'" Brown v. Henderson, 257 F.3d 246, 251 (2d Cir. 2001) (quoting Cifra v. Gen. Elec., Co., 252 F.3d 205, 216 (2d Cir. 2001)).

  Once the moving party meets its initial burden by demonstrating that no material fact exists for trial, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citations omitted). The nonmovant "must come forth with evidence sufficient to allow a reasonable jury to find in her favor." Brown, 257 F.3d at 251 (citation omitted). Bald assertions or conjecture unsupported by evidence are insufficient to overcome a motion for summary judgment. Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir. 1991); W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990).

  (b) Breach of the Agreement

  First, the Court will take up RVCSD's motion for summary judgment and determine whether either party breached its obligation under the Agreement, as the question of corporate liability, the basis of the Moving Defendants' summary judgment motion, is only relevant if there was a breach.

  (1) Coneco's breach

  The Court will first consider whether Coneco breached its contractual obligations to RVCSD. Actions constituting Coneco's default are provided for in Section 25.2 of the Agreement:
A. The standard of service and comfort set forth in "Schedule G" are not provided due to failure of CONECO to maintain, repair, or adjust the Equipment as set forth in "Schedule A", "Monitoring and Reporting Agreement", and said failure continues for thirty (30) days after written notice to CONECO without good faith effort by CONECO to make the necessary repairs or adjustments.
B. Any representation or warranty furnished by CONECO in this Agreement is false or misleading in material respect when made; and C. Any other material failure of CONECO to perform or comply with the terms and conditions of this Agreement, including breach of any covenant contained herein, provided that such failure continues for thirty (30) days, after written notice to CONECO demanding that such failure to perform be cured or, if cure cannot be affected in such thirty (30) days, without commencement of a cure and subsequent completion thereof as quickly as is reasonably possible.
  RVCSD's complaint lists the contractual obligations that Coneco has allegedly breached: (1) the co-generators never worked correctly, and Coneco has failed to repair them, (2) Coneco failed to maintain the air-handling units, (3) "Coneco has failed to maintain other systems in the District as specified by the terms of the Contract, [which] has resulted in additional expense to the District both in maintenance costs and the loss of energy efficiency," (4) Coneco has failed to provide energy management services, and (5) Coneco has failed to replace faulty lights installed in the lighting retrofit. Complaint (Dkt. No. 1) at ¶ 44.

  To comply with the notice provision of Section 25 of the Agreement, on October 15, 1999 and May 10, 2000, RVCSD sent written notices to Coneco that it was in default of the Agreement. Letter of Marilyn O. Pirkle (Dkt. No. 58, Attached to Affirmation of Leah Murphy as Ex. B); Letter of Mario Spagnuolo (Dkt. No. 58, Attached to Affirmation of Leah Murphy as Ex. A).

  (i) Co-generators

  Pursuant to the Agreement, co-generators were to be installed at Rondout Valley High School and Rondout Valley Middle School. Agreement (Dkt. No. 1, Ex. A) at Schedule G. Donald Gilligan, Coneco's 30(b)(6) deponent, testified that the installed co-generator units "functioned[,] though intermittently." Gilligan Dep. Tr. (Dkt. No. 56, Ex. 8) at 62. The question, then, is whether installation of "intermittently" working co-generators satisfies Coneco's obligation under the Agreement. The Agreement provides a "Co-Generation Warrantee [sic]" which states, in the first paragraph:
Coneco warrants that all materials installed shall be new high quality equipment, which meet or exceed industry standards. Coneco shall insure that all materials are free from defect at the time of installation.
Agreement (Dkt. No. 1, Ex. A) at Schedule A2 (emphasis added).
  As evidence that it fulfilled its obligations to install co-generators that were free from defect at the time of installation, Coneco points to the "Certificate of substantial completion" that RVCSD signed. (Dkt. No. 60, Ex. AA). Some courts have held that execution of a certificate of substantial completion does not necessarily indicate "acceptance." See, e.g., In re Rokmin, 1998 U.S. App. LEXIS 26000 (2d Cir. 1998) (upholding lower court's ruling that "the certificates of substantial completion . . . did not signal final acceptance by the owner"). However, in the present case, the Agreement refers to the certificate as a "Certificate of Substantial Completion and Acceptance".*fn6 Agreement (Dkt. No. 1, Ex. A) at § 5.2 (emphasis added). Moreover, the certificate specifically states that its execution signifies that "the [S]chool [D]istrict can occupy or utilize the project, except designated portions thereof, for the use for which it was intended." (Dkt. No. 60, Ex. AA). Such language indicates that upon installation, RVCSD accepted the work, and the co-generators initially operated as required, thus satisfying the first paragraph of the "co-generation warrantee [sic]" provided in Schedule A2, as cited above.
  The parties dispute who was to perform the extended maintenance on the co-generators. If Coneco was to maintain the units after installation, then it has breached its obligation by allowing the co-generators to operate only "intermittently." However, if RVCSD is responsible for their long term maintenance, then Coneco has not breached its obligations by failing to keep them in repair. With respect to the extended maintenance of the co-generators, the second paragraph of the "Co-generation Warrantee [sic]" in Schedule A2 provides that:
All material and equipment installed in connection with the Project shall be covered under an extended maintenance Contract for the duration of the [Agreement]. Agreement (Dkt. No. 1, Ex. A) at Schedule A2.
  Not surprisingly, both Coneco and RVCSD point to other provisions in the Agreement in an attempt to impute the extended maintenance warranty of Schedule A2 to the other party.

  Coneco contends that this statement alone provides "no indication . . . as to which party will procure such extended maintenance contracts," Coneco Mem. (Dkt. No. 59) at 8, but goes on to point to §§ 8, 14, and Schedule H to support its position that RVCSD is charged with the co-generators' extended maintenance.

  Coneco claims that RVCSD is responsible for procuring the extended maintenance contract mentioned in Schedule A2 because the Agreement indicates that "[c]ustomer [RVCSD] agrees that it shall adhere to, follow, and implement the procedures and . . . maintenance set forth in `Schedule A2' and `Schedule H'. . . ." Agreement (Dkt. No. 1, Ex. A) at § 8. This statement does not indicate, though, whether RVCSD must implement maintenance services itself or simply allow the work to be performed by an outside entity, such as Coneco, at its facilities.

  Coneco also points to Schedule H, which is entitled "Customer Support Responsibilities." Schedule H states that the "customer [RVCSD] agrees to provide the following information and undertake the actions listed" which includes "[o]ngoing, for the term of the [A]greement . . . [r]eplacement/repair of equipment damaged, stolen, or vandalized" and also "[r]equired maintenance of equipment." Agreement (Dkt. No. 1, Ex. A) at Schedule H. Schedule H seems to impute some maintenance obligations to RVCSD, but the provision is unclear as to what the "required maintenance" was and whether RVCSD had an affirmative obligation to perform such maintenance or simply provide information to Coneco when such actions were necessary.

  Finally, Coneco relies on Section 14 of the Agreement in support of its position that RVCSD is responsible for the extended maintenance of the co-generators. This section, entitled "Warranty" states that "Customer [RVCSD] shall incur no cost for service, repairs, or adjustments to the equipment for a one year period commencing on the execution of [the Certificate of Substantial Completion and Acceptance]." Agreement (Dkt. No. 1, Ex. A) at § 14 (emphasis added). Coneco reasonably posits that this provision indicates that it had maintenance obligations for only one year, and thereafter, maintenance responsibilities became RVCSD's. This statement alone does not support Coneco's position that RVCSD is liable for the failure of the co-generators, though, because a question of fact remains, namely, whether the co-generators failed prior to the expiration of the one year period.

  RVCSD, of course, contends that the long term maintenance of the co-generators is imputed to Coneco under the Agreement, pointing to Coneco's own admissions, and its failure to so comply is a breach. As RVCSD first points out, it is "nonsensical" that "[RVCSD] entered into the Agreement with [Coneco] and that [RVCSD] agreed to provide [to itself] extended warranties for 15 years." RVCSD Mem. (Dkt. No. 58) at 6. Additionally, Coneco, without specifying the nature of the services, has admitted that it was required to perform certain maintenance services. Coneco's Reply Statement of Facts (Dkt. No. 61) at ¶ 7 ("The project record indicates that Coneco provided maintenance serves as required by the [Agreement] until approximately the end of year 2000") (citations omitted) (emphasis added). Coneco has also admitted that there are services that will come due in the future which it will not perform. Id. In fact, in its brief opposing RVCSD's summary judgment motion, Coneco characterizes the Agreement as one "for construction-related activities, maintenance obligations, and an energy savings guaranty." Coneco Mem. (Dkt. No. 59) at 7 (emphasis added). Finally, in a memorandum that Philippe Frangules sent to Donald Gilligan,*fn7 dated December 1, 1998, Mr. Frangules wrote that the project was:
[N]ot producing guaranteed savings, because the cogen system is not working consistently. Cogen system under warranty, and negotiations with the manufacturer are underway. Substantial maintenance expenses apparently not budgeted. No escrowed funds to cover maintenance costs."
Dkt. No. 56, Ex. 35 (emphasis added).
These admissions lend support to RVCSD's position that the Agreement intended that Coneco would provide extended maintenance for the co-generators.

  There are other provisions in the Agreement that are relevant to this discussion, although not discussed in detail by the parties. For example, the Agreement also specifies that "Customer [RVCSD] shall provide access to the Facilities for Coneco and its contractors or subcontractors during regular business hours, or such other hours as may be agreed upon by Coneco and Customer, in order to fulfill Coneco's obligations to install and complete the requirements of `Schedule D' and `Schedule G' hereof and for the continued operation, maintenance, and repair of the equipment subsequent to the completion of installation." Agreement (Dkt. No. 1, Ex. A) at § 12.

  In contrast, the Energy Savings Guarantee [sic] Certificate in Schedule F implies that RVCSD will perform the extended maintenance mentioned in Schedule A2, because it states that the energy savings guaranty provided by Coneco will be canceled upon "Customer [RVCSD's] failure to maintain the Projects [sic] equipment as agreed in `Schedule A2' . . . (if Customer [RVCSD] elects to maintain Projects [sic] equipment). Agreement (Dkt. No. 1, Ex. A) at Schedule F, ¶ 4.

  In the present case, as a matter of law, the Agreement is ambiguous with respect to which party is obligated to provide extended maintenance of the co-generators because, as explained above, the extended maintenance is imputed to RVCSD in some provisions and to Coneco in others. See AFBT-II, L.L.C. v. Country Vill. of Mooney Pond, Inc., 305 A.D.2d 340, 341-42 (N.Y.App. Div. 2003) (explaining that whether the meaning of a contract term is ambiguous is a question of law for the court) (citations omitted). The interpretation of this ambiguous provision is, therefore, a question of fact, one which, as explained above, the parties dispute. See Manchester Tech., Inc v. Didata, Inc., 303 A.D.2d 726, 757 N.Y.S.2d 439 (N.Y.App. Div. 2003) ("`While the meaning of a contract is ordinarily a question of law, when a term or clause is ambiguous and the determination of the parties' intent depends upon the credibility of extrinsic evidence or a choice among inferences to be drawn from extrinsic evidence, then the issue is one of fact.'") (citations omitted).

  When there is an ambiguous contract provision, the meaning of which becomes an issue of fact, summary judgment must be denied. See, e.g., Envtl. Safety & Control Corp. v. Board of Educ., Camden Cent. Sch. Dist., 179 A.D.2d 1012 (N.Y.App. Div. 1992) (denying summary judgment where question of fact remained based on ambiguity in contract provision relating to the amount of asbestos abatement work that was to be performed for the school district). From the submissions of the parties, the Court cannot resolve this factual question. The Agreement provisions are ambiguous, and, significantly, neither party has submitted the "extended maintenance Contract" that was referenced in Schedule A2 of the Agreement, if, in fact, one exists. Even if no "extended maintenance Contract" exists, there is still a question of fact, because the Agreement's provisions are ambiguous as to which party was obliged to enter into such a Contract. Therefore, because a question of a material fact remains based on the ambiguous warranty provision in Schedule A2 of the Agreement, summary judgment is not warranted.

  (ii) Air handling units

  The Agreement required that "Multi-Zone Roof Top Air Handlers" be installed into Rondout Valley Middle School and Rosendale Elementary. Agreement (Dkt. No. 1, Ex. A) at Schedule G. In its complaint, RVCSD alleges that "Coneco has failed to maintain the air-handling units. Although Coneco did not install these units, Coneco was required to maintain these units. Presently all of the units need to be replaced." Complaint (Dkt. No. 1) at ¶ 44(b). Schedule A2 provides a warranty for the "Central Air-Handling Units":
Coneco warrants that all materials installed shall be new high quality equipment, which meet or exceed industry standards. Coneco shall insure that all materials are free from defect at the time of installation.
All manufacturers warrantees [sic] shall be in effect from the time of installation to the published expiration date of such warranties.
Agreement (Dkt. No. 1, Ex. A) at Schedule A2.
  RVCSD signed the Certificate of Substantial Completion, which, as explained above, is the School District's acknowledgment that the air-handling units initially operated as required. As for the extended maintenance, Coneco points to the testimony of RVCSD's 30(b)(6) witness, Jerome Plaza, who stated that the Agreement required RVCSD to maintain the units after manufacturers' warranties expired. Plaza Tr. (Dkt. No. 56, Ex. 6) at 171. Plaza also asserted, however, that Coneco "never corrected" all of the problems with the units. Id. Therefore, because there is a remaining question of fact whether the air-handling units were malfunctioning prior to the expiration of the manufacturers' warranties, it is not clear which party was responsible for their repair. As such, summary judgment must be denied.

  (iii) Energy management services

  With respect to RVCSD's claim that Coneco has failed to provide energy management services pursuant to the Agreement, no questions of ...


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