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RLI Insurance Co. v. King Sha Group

January 16, 2009

RLI INSURANCE COMPANY AND ALEA NORTH AMERICAN INSURANCE COMPANY A/S/O 430 OWNERS CORP., PLAINTIFFS,
v.
KING SHA GROUP, INC., CERTIFIED TESTING LABORATORIES, INC.; GOLDEN VALE CONSTRUCTION CORP.; AND S.T.A. PARKING CORP., DEFENDANTS.



The opinion of the court was delivered by: Frank MAASá, United States Magistrate Judge.

REPORT AND RECOMMENDATION TO THE HONORABLE LEWIS A. KAPLAN

I. Introduction

In 2005, construction work at the site of a parking garage on East 76th Street in Manhattan caused damage to a neighboring apartment building. After honoring the building's insurance claim, the carrier commenced this action against the owner of the garage, defendant S.T.A. Parking Corporation ("S.T.A."), and the entities that performed work at the site pursuant to contracts or subcontracts. Following extensive negotiations, all but one of the claims have been resolved. The only issue remaining concerns S.T.A.'s cross-claim against co-defendant Golden Vale Construction Corporation ("Golden Vale") alleging negligence in the performance of Golden Vale's subcontract work.

After Golden Vale filed an answer to the cross-claim, its counsel sought to withdraw based on Golden Vale's lack of cooperation and nonpayment of fees. (See Docket Nos. 29, 36). That motion was granted on June 2, 2006, (Docket No. 51), but Golden Vale did not retain new counsel and has failed to participate further in this litigation. Accordingly, S.T.A. filed a motion for a default judgment against Golden Vale, which Your Honor granted on March 1, 2007. (See Docket Nos. 83-84, 90).

The remaining parties subsequently agreed to proceed before me pursuant to 28 U.S.C. § 636(c), but Golden Vale, which had already defaulted, did not sign the consent form. (Docket No. 115). For this reason, my determinations with respect to Golden Vale's liability to S.T.A. take the form of a Report and Recommendation.

S.T.A.'s cross-claims against Golden Vale for contribution and indemnification were dismissed pursuant to a Stipulation of Partial Settlement dated July 23, 2007. (Docket No. 107). Accordingly, the only claim before the Court is S.T.A.'s negligence claim against Golden Vale. By order dated April 29, 2008, I directed S.T.A. to serve and file its inquest papers concerning the damages owed to it by Golden Vale by May 16, 2008, and gave Golden Vale until June 2, 2008, to respond. (Docket No. 122). S.T.A.'s papers were timely filed. (See Docket Nos. 128-29). To date, however, Golden Vale has neither retained counsel, nor submitted any papers in opposition to the S.T.A. submission.

For the reasons set forth below, I recommend that S.T.A. be awarded damages in the amount of $904,391.12, consisting of $326,089 in cost overruns and $578,302.12 in lost revenue.

II. Standard of Review

Although a plaintiff seeking to recover damages against a defaulting defendant must prove its claim through the submission of evidence, the Court need not hold a hearing as long as it has (a) determined the proper rule for calculating damages on the claim, see Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999), and (b) concluded that the plaintiff's evidence establishes, with reasonable certainty, the basis for the damages specified in the default judgment, see Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). Here, because Golden Vale has defaulted, S.T.A.'s well-pleaded allegations concerning issues other than damages must be accepted as true. See Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Time Warner Cable of N.Y.C. v. Barnes, 13 F. Supp. 2d 543, 547 (S.D.N.Y. 1998).

III. Facts

The unrefuted allegations of S.T.A.'s cross-claim, together with its inquest papers, establish as follows:

A. Jurisdiction

The Court had subject matter jurisdiction over the original diversity action pursuant to 28 U.S.C. § 1332. Although S.T.A. and Golden Vale both are corporations organized under the laws of the State of New York, (Answer PP 13, 125), the Court has ancillary jurisdiction over S.T.A.'s negligence cross-claim pursuant to 28 U.S.C. § 1367. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 375-76, 98 S. Ct. 2396, 57 L. Ed. 2d 274 (1978); Cam-Ful Indus., Inc. v. Fidelity & Deposit Co. of Md., 922 F.2d 156, 160-61 (2d Cir. 1991).

B. Basis for S.T.A.'s Claim

In 2004, S.T.A. sought to expand its garage from 90 to 150 parking spaces by adding a sub-basement below its existing basement. (Aff. of Michael Zacharias, sworn to on May 15, 2008 ("Zacharias Aff."), PP 7, 31). Accordingly, on October 25, 2004, S.T.A. entered into a construction contract with King Sha, which was to construct the sub-basement. (Id. P 7; Ex. F). *fn1 The contract provided for King Sha to be paid $457,000, plus $675 for each cubic yard required for the underpinning of neighboring structures. (Zacharias Aff. PP 8, 12; Ex. F). Subsequently, the scope of work of the contract changed somewhat, bringing the base contract price to $463,000. (Zacharias Aff. P 12; Ex. H). The contract provided that any subcontractors hired by King Sha were to assume "all the obligations and responsibilities" set forth in the principal contract. (Ex. F § 10.3). The contract did not specify when the project was to be completed, stating instead that King Sha would have a "reasonable period for performing the Work" and that time was "of the essence." (Id. § 13.1; Zacharias Aff. P 9). Finally, the contract stated that New York law would govern the terms of the contract. (Ex. F § 18.2).

On October 27, 2004, King Sha hired Golden Vale to perform the excavation and underpinning required in connection with the sub-basement project. (Zacharias Aff. P 10; Ex. G). Shortly after Golden Vale began that work, it became apparent that the soil beneath the foundation of the neighboring apartment building at 430 East 77th Street was loosening, causing the building to sink. (See Ex. J at 2). As construction progressed, so did the damage, until the New York City Department of Buildings ("DOB") issued a stop work order on March 14, 2005. (Zacharias Aff. P 14). Eventually, the DOB required that S.T.A. remove Golden Vale's defective ...


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