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Oldcastle Precast, Inc. v. United States Fidelity & Guaranty Co.

October 4, 2006

OLDCASTLE PRECAST, INC., PLAINTIFF,
v.
UNITED STATES FIDELITY & GUARANTY COMPANY, DEFENDANT.



The opinion of the court was delivered by: Conner, Senior D.J.

ECF CASE

OPINION AND ORDER

Plaintiff Oldcast Precast, Inc. ("Oldcastle") brings this action for breach of contract against defendant United States Fidelity and Guaranty Company (the "surety"). The surety brings a counterclaim against Oldcastle for breach of the same contract. The action was tried by the Court without a jury. The following opinion sets forth the Court's Findings of Facts and Conclusions of Law pursuant to FED. R. CIV. P. 52(a).

BACKGROUND

I. Procedural History

Oldcastle commenced this action on April 11, 2005 claiming breach of contract and seeking payment on a bond issued by the surety to guarantee the obligations of Klewin Building Company, Inc. ("Klewin") in connection with a construction contract. The surety filed its answer on July 1, 2005, and amended it on February 28, 2006 to assert a counterclaim for breach of contract.

II. The Trial

The Court conducted a two-day bench trial on August 28-29, 2006. Oldcastle presented three witnesses as part of its case-in-chief: (1) Brian Tinneny, Assistant Vice President of Contracts at Oldcastle; (2) Donna Reuter, Vice President of Project Services at Oldcastle; and (3) Joseph Navarro, Director of Field Operations at Oldcastle. Defendant presented two witnesses: (1) Stephen Tufaro, former Senior Project Manager for Klewin; and (2) William F. Carlson, PE, an expert in construction scheduling, management of construction and civil/structural engineering. Oldcastle presented no rebuttal case.

During the trial, the Court admitted into evidence more than one hundred exhibits, including the subcontract and change orders as well as documents relating to backcharges based on expenses incurred by Klewin for welding, saw cutting, cleanup and punchlist work, and Carlson's expert report.

The Findings of Fact and Conclusions of Law set forth below, pursuant to FED. R. CIV. P. 52(a), are based on the record developed over the course of the trial during which both parties had a full and fair opportunity to present their cases to the Court.

FINDINGS OF FACT

This case involves the construction of a senior housing development known as the Woodlands Senior Housing Project (the "project") in Ardsley, New York. (ASAF ¶ 1.)*fn1 Ardsley Housing Associates, LLC ("Ardsley"), the owner of the property on which the project was being constructed, entered into a construction agreement with Klewin on September 30, 2002 (the "contract") whereby Klewin would serve as the construction manager for the project. (Id.) The surety issued on behalf of Klewin a Performance Bond, No. SW4915, and a Payment Bond, No. SW4915. (Id. ¶ 2.) Each bond was dated October 2002, in the principal amount of $32,400,000, on behalf of Klewin, as principal, and in favor of Ardsley, as obligee. (Id.)

A. The Subcontract Agreement

In December 2002, after the contract was executed, Klewin began negotiations with Oldcastle for a subcontract to fabricate and erect precast concrete components for the project (the "subcontract"). (ASAF ¶ 3; Def. Ex. A.*fn2 ) Klewin provided Oldcastle with a standard AIA subcontractor form agreement, which was modified, after negotiations, by an extensive list of amendments and additions. (Tr. 7, 9; Def. Ex. A.) Pursuant to this agreement, Oldcastle was to provide all the precast concrete planks for the project. (Tr. 40.) Articles 3.3.1. and 15.6, providing for liquidated damages, were deleted.*fn3 (Tr. 11; Def. Ex. A ¶¶ 3.3.1, 15.6.)

The subcontract contains several provisions that are relevant to this lawsuit. First, the subcontractor assumed "the entire responsibility and liability for all work, supervision, labor and materials provided" and assumed liability "[i]n the event of any loss, damage, or destruction." (Def. Ex. A ¶ 4.1.11.) Next, the subcontract specifically includes language indicating that, "[w]ith respect to the obligations of both the Contractor and the Subcontractor, time is of the essence."*fn4 (Def. Ex. A ¶ 9.4.) Finally, the contractor and other subcontractor agreed not to access any floor areas until those areas were released by Oldcastle. (Def. Ex. A ¶ 4.1.11., alt. at 2.)

Prior to entering into the subcontract in April 2003, the parties had discussed an erection schedule that anticipated completion of the project by the end of August 2003. (ASAF ¶ 6; Def. Ex. OO.) According to the initial schedule, Oldcastle's portion of the construction was to be completed by August 18, 2003; however this schedule was repeatedly revised. (Tr. 41-42, 62-63; Def. Ex. OO.) Although the schedule was not incorporated into the agreement, the subcontract states that "The price quoted in this proposal is based upon the completion of our work on or before 8/31/2003." (Def. Ex. A, OCP at 6.) The parties also contemplated a general schedule for shop drawings and fabrication. The relevant provision states: "Shop Drawings: 1st drawing out 4-6 weeks after written notice to proceed. Subsequent drawings to follow after approval of first. Fabrication: 6-8 weeks after receipt of approved shop drawing and fully executed contract." (Tr. 14-15; Def. Ex. A, OCP at 8.) The construction schedule, under the terms of the subcontract, could be modified by mutual agreement to coordinate the overall project schedule and work of the various trades. (Tr. 15-16; Def. Ex. A, Sch. A at F.5.)

With respect to claims the contractor could make against the subcontractor, the subcontract contains a section entitled "Claims by the Contractor" which provides that if the contractor wants to make claims for "services or materials provided by the [s]ubcontractor," it was required to provide seven days written notice, except in an emergency. (Def. Ex. A ¶ 3.3.2.) However, the subcontract also contains a section entitled "Contractor's Remedies," which requires forty-eight hours written notice and allows the subcontractor an additional forty-eight hours to cure any deficiency if the contractor was dissatisfied with the subcontractor's work. (Def. Ex. A ¶ 3.4.2.) The subcontractor was also responsible for cleanup or for backcharges if it failed to comply with this provision. (Def. Ex. A, Sch. A at D.1.-D.3.) The contractor was required to provide forty-eight hours written notice to the subcontractor for the first occurrence of non-compliance, and thereafter could continue cleanup at subcontractor's expense. (Def. Ex. A, Sch. A at D.3.)

The subcontract price was $1,389,300. (ASAF ¶ 3.) Each payment application required the inclusion of "evidence satisfactory to Contractor and Owner that all obligations resulting from Subcontractor's performance to the point have been satisfied." (Def. Ex. A ¶ 11.1.2.) Oldcastle subcontracted with a design company known as FDG, Inc. ("FDG") to prepare the engineering and detail drawings for the project. (Tr. 33, 52.) While working on the project, Klewin on occasion dealt directly with FDG. (Tr. 33; Pl. Ex. 14.)

On March 13, 2004, the parties agreed, by change order No. 17, to increase the subcontract price by $887.04, making the total price of the subcontract $1,390,187.04. Oldcastle left the project in early 2004 having substantially completed the work it was required to perform under the contract. (ASAF ¶ 7; Tr. 81-82, 87,140, 155-56; Pl. Exs. 2, 21, 23; Def. Exs. NN at 18, SS, HHH.) Despite Klewin's claims that Oldcastle's work was defective, it paid Oldcastle at each stage of the work. (Tr. 165-68; Def. Exs. AAA-GGG.) In total, Oldcastle has been paid $1,197,876 by Klewin pursuant to the subcontract. (ASAF ¶ 8; Tr. 168-69; Def. Ex. A ¶ 11.1.2.)

B. Schedule Delays and Problems

Many of the difficulties with the project stem from problems with the project designs. (Tr. 53; Pl. Ex. 4.) Joseph Navarro of Oldcastle testified that, "[i]n general it appeared that the architecturals did not match up with the structurals. There were a lot of problems with closing out dimensions, clarifying information. They were not easily interpreted for lack of information or confusion between the two different sets of the architecturals or structurals." (Tr. 53.) Stephen Tufaro of Klewin also stated that "[t]he biggest problems were that the design architect and engineer on the job did not dimension the structural drawings. Pretty much everyone, all the trades and Klewin had to transfer dimension information from the architectural drawings to the structural drawings." (Tr. 99-100.) The problems with the designs caused substantial delays at the beginning of the project, because the designs raised many questions that had to be answered before construction could begin. (Tr. 53-54, 83-84.) In addition, the grid system on the architectural drawings, prepared by the architect, was not completely accurate and Klewin had to provide its own survey. (Tr. 100.) After completing the survey, Klewin realized that there was not complete closure in the project's dimensions and Klewin had to hire an architect to alter the dimensions to achieve closure. (Tr. 100.)

This affected Oldcastle, because it could not begin fabricating planks until after the necessary supporting framework was constructed and accurate field measurements were given to it. (Tr. 38, 55.) According to Oldcastle, this was a "highly unusual" practice, because on most jobs, the subcontractor can fabricate the pieces based on the approved design documents while the preceding construction is progressing and typically does not need to wait for field measurements.*fn5 (Tr. 37, 40, 41.) This is one of the benefits of using precast planks because it increases the speed of construction. (Tr. 39, 60-62, 76.) The complexity of the project and the inconsistencies between the contract drawings and the actual structure resulted in field measurements being done as the job progressed, delaying fabrication of the planks and largely nullifying the benefit of using precast planks. (Tr. 37; 39-40.) Oldcastle was regularly receiving design changes after the design phase of the project should have been completed and while it was already in the process of fabricating the planks. (Tr. 54-55, 56, 57-60.) Even so, there were occasions where the planks were fabricated to the amended specifications but did not fit at the time of installation because of discrepancies between the design measurements and field measurements. (Tr. 67-68, 70-72.) On other occasions, erection of precast components was delayed because the prerequisite structure had not been completed or the support angles had not been installed. (Tr. 67-68; 70-72.)

In addition to the erection schedule, which provided the dates when sections of the project were to be erected, there was an erection sequence, which indicated the order in which the sections were to be erected. (Tr. 50.) Klewin revised both throughout the project. (Tr. 50, 151.) There were further delays when Klewin began requiring "releases" before Oldcastle could fabricate the planks and began to revise the erection schedule as frequently as once a week. (Tr. 31, 35, 39, 40-41, 49, 64, 150; Pl. Exs. 17-21.) Klewin believed that Oldcastle should produce planks whenever it

Having reviewed them, the engineer would either: (1) send them back and mark them either "approved for fabrication" or "approved as noted," meaning minor changes are required but they do not need to be resubmitted; or (2) mark them "revise and resubmit," indicating that there are significant changes that need to be made. (Tr. 36.) Once the designs were approved by the engineer, Oldcastle would produce "detail sheets" that released the designs for fabrication and the sheets would be submitted to the shop for production. (Tr. 36-37, 41, 63-64.) Once the pieces were made, an erection schedule would be created based on the other construction to be completed on the job and Oldcastle's availability. (Tr. 37, 63.) requested them, regardless of Oldcastle's commitments to other clients. (Tr. 139.)

Problems also arose in coordinating the erection sequence of the subcontractors because the the work to be performed by Oldcastle could not be done until the requisite preceding work was completed. (Tr. 31, 51-52, 68, 69-70.) Specifically, the steel would need to be erected, followed by masonry work to supply a supporting framework for the precast planks. (Tr. 98.) It was "critical" to the project that these trades were "in tune to the schedule and were following close behind." (Tr. 98.) At times, Oldcastle was unable to access areas necessary for its work because other subcontractors were working in those areas before Oldcastle had approved them, as required under the subcontract. (Tr. 68-69, 73, 74-75; Def. Ex. A ¶ 4.1.11.) This problem was exacerbated by Oldcastle's inability to conform to the schedule because of the design changes so that the other subcontractors were proceeding with work ahead of the proper sequence. (Tr. 37-41, 99.)

On June 12, 2003, Klewin's Project Manager, Tufaro, sent a letter to Oldcastle's Vice President of Project Services, Donna Reuter, discussing: (1) his concerns regarding the schedule for the project; (2) problems in communications between Oldcastle and Klewin; and (3) difficulty he was having getting in touch with Navarro. (Tr. 81, 85-86, 94; Def. Ex. H.) However, Tufaro addressed the letter to an Oldcastle Facility in Charlton, Massachusetts, rather than Oldcastle's South Bethlehem, New York office, which was handling the project. (Tr. 85-86; Def. Ex. H.) Tufaro testified that he was attempting to find someone higher up the chain of command than Navarro and had contacted Peter O'Neill, the sales associate for Oldcastle, who provided him with the Charlton address. (Tr. 94-96.) He used it instead of the New York address for Oldcastle, which he admitted was the address specified in the subcontract. (Tr. 96.) Although Tufaro never received a written response to this letter, he spoke with Reuter shortly after sending the letter and she assured him that Navarro would be made available to Klewin and that she would "keep an[] eye on the project." (Tr. 95.) Apparently, Navarro's conduct improved for a brief period of time but again it became difficult for Klewin to get in touch with Oldcastle. (Tr. 97.)

There was also friction as well as communication problems between the individuals on the worksite. The subcontract did not require Oldcastle's Project Manager, Navarro, to attend on-site meetings, but he did frequently attend them when he was available. (Tr. 45-46, 85, 137-138.) Navarro dealt with Klewin personnel, specifically Howard Moses, the site superintendent, and Chuck Shillito, the project engineer. (Tr. 46.) Navarro testified that it was "very difficult" working with Moses who was verbally abusive. (Tr. 47, 48, 73-74.) Due to these concerns as well as concerns about schedule delays on the project, Navarro sent a letter dated July 7, 2003 to Emil Canaan, principal for Klewin. (Tr. 47; Pl. Ex. 1.) Despite the letter, nothing changed at the worksite as Oldcastle continued work on the project. (Tr. 48.)*fn6

C. Backcharges

Klewin provided Oldcastle with change orders for work that needed to be corrected or that was incomplete and corrected or completed by others. (Tr. 108; Def. Exs. B-G.) These backcharges were for welding, saw cutting and cleanup. (Tr. 108, 114; Def. Exs. A. Sch. A. at D.3.; MM1.) Under the subcontract, Oldcastle was required to weld steel weld plates on the planks to the steel beams to secure the planks in place. (Tr. 108-14). Oldcastle was also required to cuts holes in the planks for mechanical shafts and piping and to clean up debris created as a result of its work. (Tr. 114; Def. Ex. A, Sch. A at D.1.)

On October 29, 2003, Tufaro wrote to Navarro to inform him that, because Oldcastle still did not have people available to do welding, Klewin would hire a third-party welder at Oldcastle's expense. (Tr. 111; Def. Ex. O.) Oldcastle did not respond to this letter. (Tr. 112, 117.) Tufaro sent several other letters regarding problems with the welding that Oldcastle was to perform without receiving any response. (Tr. 112-13; Def. Exs. H-N, P.) Klewin hired an independent contractor, Kryten Iron Works ("Kryten"), to do the welding. (Tr. 79, 109, 123; Def. Ex. O.) Klewin also sent several letters regarding saw cutting to Oldcastle and likewise did not receive a response to these letters. (Tr. 121; Defs. Exs. T1, U-W.) Klewin hired T & L Drilling to do the saw cutting. (Tr. 79-80, 114, 123.) This pattern was repeated with respect to cleanup costs that were covered by Klewin. (Tr. 122-23; Def. Exs. Z-EE.) Klewin asserts that Oldcastle also did not complete certain work on the project, such as leveling the underside of planks and replacing window glass damaged by splattering of molten metal particles or slag during welding. (Tr. 125-26, 134-35.) This resulted in additional costs. (Tr. 135; Def. Ex. JJ.) Klewin gave notice of ...


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