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TRAVELERS CASUALTY & SURETY COMPANY v. DORMITORY AUTHORITY

May 19, 2005.

TRAVELERS CASUALTY & SURETY COMPANY as Administrator for Reliance Insurance Company Plaintiffs,
v.
THE DORMITORY AUTHORITY OF THE STATE OF NEW YORK, TDX CONSTRUCTION CORPORATION, and KOHN, PEDERSON, FOX & ASSOCIATES, P.C., Defendants. THE DORMITORY AUTHORITY OF THE STATE OF NEW YORK Third-Party Plaintiffs, v. TRATAROS CONSTRUCTION, INC. and TRAVELERS CASUALTY AND SURETY COMPANY Third-Party Defendants.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn*] [fn*] Mychii Snape, a spring 2005 intern in my Chambers, and currently a second-year law student at Columbia University School of Law, provided substantial assistance in the research and drafting of this Opinion.

OPINION & ORDER

On June 28, 2004, Plaintiffs, Travelers Casualty & Surety Company ("Travelers"), as administrator for Reliance Insurance Company ("Reliance"), filed the instant action which alleged, inter alia, negligent misrepresentation against Defendant, Kohn, Pederson Fox & Associates, P.C. ("KPF") in connection with the Site B campus construction project at Baruch College. (See Tr. 2:11-17.) Pursuant to Fed.R.Civ.P. 12(b)(6), KPF moves to dismiss the Complaint for lack of privity of contract, or its "functional equivalent," between Travelers and KPF. The Court heard oral arguments on the motion on May 4, 2005. For the foregoing reasons, Defendant's motion to dismiss is DENIED. I. BACKGROUND

A. Pre-Building Relationship

  The Dormitory Authority of the State of New York ("DASNY") contracted with KPF to perform "programming, design, and certain construction phase services for the construction of Baruch College — Site "B", consisting of a building of approximately 700,000 gross square feet, near the existing school site, to house classrooms, a theater, lecture halls, and other educational facilities." (Peter Catalano, Att'y for Def. KPF ("Catalano"), Aff. at ¶ 3) ("the Project"). The terms of the contract define the nature of the relationship between DASNY and KPF as an "Owner-Architect" relationship:
The relationship created by this Agreement between the OWNER and ARCHITECT is one of independent ARCHITECT and it is in no way to be construed as creating any agency relationship between the OWNER and the ARCHITECT nor is it to be construed as, in any way or under the circumstances, creating or appointing the ARCHITECT as an agent of the OWNER for any purpose whatsoever.
(Catalano Aff. Ex. A, KPF/DASNY Contract Agreement (herein, "Ex. A"), at App. D ¶ 13.) KPF, or "Architect," was obligated to "prepare and supply the necessary set of Contract Documents for bidding, and eventual award of contracts, between the owner and the Contractors for approximately ten separate contract? packages." (Catalano Aff. Ex. A at ¶ G.1.) KPF was contractually obligated to "investigate questions posed by bidders or any other questions, and issue written replies to all bidders in the form of supplemental bulletins, addenda, or bid instructions." (Catalano Aff. Ex. A at ¶ G.2.) The contract between KPF and DASNY included language to the effect that KPF:
[S]hall assist the owner in reviewing and analyzing bids, including any investigation that may be required of qualifications and capabilities of low bidders [and] [i]nspect on a bi-weekly basis, or as required by the OWNER, the Work in progress to determine compliance with the requirements of the contract drawings and specifications or approved shop drawings.
(Catalano Aff. Ex. A at ¶ G.4.) As such, KPF was required to both review approved submissions from contractors and monitor the construction of the Project.

  Throughout the bidding process, bidders were instructed that all communication regarding Project questions and concerns should be directed to KPF as a final decision-maker. Specifically, the document entitled "Information for Bidders" stated that before bidding, the prospective bidder "shall make written requests to the Architect, with a copy forwarded to the owner, for an interpretation or correction of any ambiguity, inconsistency or error [in the bidding materials]." (David Dreifuss, Att'y for Pl. ("Dreifuss"), Aff. Ex. C, DASNY Notice to Bidders, at § 1A.) Furthermore, "only interpretations, corrections or additional Contract provisions made in writing by the Architect as addenda shall be binding." (Dreifuss Aff. Ex. C at § 1J.)

  B. Building the Project

  Trataros Construction, Inc. ("Trataros") successfully bid on construction Contract No. 15 and Contract No. 16. (John Scarpellino, Att'y for Pl. ("Scarpellino"), Aff. at ¶ 3 a-b.) In accordance with the terms of the construction contracts, Trataros' obtained four separate surety bonds from Reliance.*fn1 Each performance surety bond named Trataros as the principal and DASNY as the obligee or beneficiary. (Compl. at ¶ 12.) Similarly, each labor surety bond named Trataros as the principal and their subcontractors as the obligee. (Scarpellino Aff. Ex. 2, ¶ 1.) The surety bond for Contract No. 15 was valued at $50,222,000. (Scarpellino Aff. ¶ 3a.) The surety bond for Contract No. 16 was valued at $24,140,000. (Scarpellino Aff. ¶ 3b.) Subsequently, Travelers became surety for the bonds and, in this role, Travelers retained the right to act with power of attorney for Reliance on any matter relating to these bonds. (Compl. at ¶ 14.)

  The Project commenced in 1998, but never stayed on schedule. Nonetheless, the entire Project has since been completed. (Compl. at ¶ 17.) Travelers and DASNY, as a counterclaim defendant, both allege that KPF made considerable design errors which led to significant delays and increased costs during the course of construction. (Compl. at ¶¶ 52-56; see also DASNY Ans. ¶¶ 110-116.) As a result, and according to DASNY's pleading, Travelers will incur substantial expense. In particular, DASNY alleged:
KPF failed to exercise the required standard of care, competence and skill in the completion of its duties as architect of record for the Project. Among other things, KPF improperly and negligently (1) failed to complete and coordinate the Design Documents, (2) failed to properly oversee and perform the professional services that were required to complete the Designed Documents, (3) failed to supervise and coordinate the work of its subcontractors and consultants and integrate their work into the Design Documents, (4) refused to acknowledge its Design Defects and/or implement the necessary remedial corrections in a timely or professionally competent fashion, and (5) failed to satisfy other elements of the required standard of care.
(Scarpellino Aff. ¶ 10, citing to DASNY Counterclaims.)

  According to Travelers, KPF may be responsible for some or all the losses.

  II. STANDARD OF REVIEW

  When ruling on a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court must construe all factual allegations in the complaint in favor of the non-moving party. See Krimstock v. Kelly, 306 F.3d 40, 47-48 (2d Cir. 2002). The Court's consideration is limited to facts stated on the face of the complaint and in documents appended to the complaint or incorporated in the complaint by reference, as well as to matters of which judicial notice may be taken. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). Dismissal of a claim is proper only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Shakur v. Selsky, 391 F.3d 106, 112 (2d Cir. 2004) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

  III. CHOICE OF LAW

  When a district court's jurisdiction is based upon diversity of citizenship, as it is here, the court applies the choice-of-law rules of the forum state. Md. Cas. Co. v. Cont'l Cas. Co., 332 F.3d 145, 151 (2d Cir. 2003) (citing to Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Thus, pursuant to New York choice of law rules, I will apply a "`center of gravity' or `grouping of contacts'" analysis to resolve conflicts of law. Id. Application of the center of gravity test in contract cases requires that the court consider the locus of contract negotiation, formation, performance and subject matter, as well as "the domicile or place of business of the contracting parties." Id. (internal citation omitted.)

  Here, it is undisputed that the bidding process, contract award, and construction of the Project, occurred in New York. (Compl. at ¶¶ 9-13; ¶¶ 51-55.) In addition, the defendant is domiciled in New York. (Compl. at ¶ 5.) While Travelers and Reliance are out-of-state entities, their domicile cannot override the significant relationship of New York State to this dispute because alone it "is simply insufficient to outweigh the contacts to New York." Gerling Am. Ins. Co v. Steadfast Ins. Co., No. 00 Civ. 7907, 2001 WL 936288, at *2 n. 5 (S.D.N.Y. Aug. 17, 2001) (Baer, ...


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