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Hamlet at Willow Creek Development Co., LLC v. Northeast Land Development Corp.

April 21, 2009

HAMLET AT WILLOW CREEK DEVELOPMENT CO., LLC, ET AL., RESPONDENTS-APPELLANTS,
v.
NORTHEAST LAND DEVELOPMENT CORPORATION, ET AL., RESPONDENTS, PAV-CO ASPHALT, INC., ET AL., APPELLANTS-RESPONDENTS, ET AL., DEFENDANT. (APPEALS NO. 1 AND 2)
HAMLET AT WILLOW CREEK DEVELOPMENT CO., LLC, ET AL., PLAINTIFFS-APPELLANTS-RESPONDENTS,
v.
NORTHEAST LAND DEVELOPMENT CORPORATION, ET AL., DEFENDANTS-APPELLANTS-RESPONDENTS, FIDELITY AND DEPOSIT COMPANY OF MARYLAND, RESPONDENT-APPELLANT, ET AL., DEFENDANT. (APPEAL NO. 3)



The opinion of the court was delivered by: Spolzino, J.P.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

ROBERT A. SPOLZINO, J.P., EDWARD D. CARNI, THOMAS A. DICKERSON, CHERYL E. CHAMBERS, JJ.

(Index No. 7536/05)

APPEALS by the defendants Pav-Co Asphalt, Inc., and William Fehr, in an action, inter alia, to recover damages for breach of contract, (1) from stated portions of an order of the Supreme Court (Ira B. Warshawsky, J.), dated May 5, 2006, and entered in Nassau County, which, among other things, upon reargument, and upon granting that branch of the plaintiffs' cross motion which was to convert their motion pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted them into a motion for summary judgment dismissing the complaint insofar as asserted them, vacated so much of the determination in an order dated January 27, 2006, as denied their motion pursuant to CPLR 3211(a)(1), (5), and (7) to dismiss the complaint insofar as asserted them, denied those branches of their converted motion which were for summary judgment dismissing the first, second, third, and fifth causes of action insofar as asserted them, and adhered to so much of the determination in the order dated January 27, 2006, as granted those branches of the plaintiffs' cross motion which were, in effect, for summary judgment on so much of the first and fifth causes of action as were to recover certain municipal Environmental Fund fees and engineering costs insofar as asserted them, and (2), as limited by their brief, from so much of a judgment of the same court entered May 30, 2006, as, upon the order dated May 5, 2006, is in favor of the plaintiffs and them, jointly and severally, in the principal sum of $1,141,607.50, and CROSS APPEALS by the plaintiffs from (1) so much of the order dated May 5, 2006, as granted the converted cross motion of the defendants Northeast Land Development Corporation and Carl Zorn for summary judgment dismissing the second cause of action insofar as asserted those defendants and denied that branch of their separate cross motion which was for summary judgment on the second cause of action insofar as asserted the defendant Carl Zorn, and (2) so much of the same judgment as, upon the order dated May 5, 2006, is in favor of the defendant Carl Zorn and them dismissing the second cause of action insofar as asserted that defendant. APPEAL by the defendant Northeast Land Development Corporation, and SEPARATE APPEAL by the defendants Pav-Co Asphalt, Inc., and William Fehr, in an action, inter alia, to recover damages for breach of contract, as limited by their respective briefs, from stated portions of an order of the Supreme Court (Ira B. Warshawsky, J.), dated May 10, 2007, and entered in Nassau County, which, upon reargument and renewal, among other things, adhered to so much of a determination in an order dated March 23, 2007, as denied their respective motions to vacate so much of a judgment of the same court entered May 30, 2006, as was in favor of the plaintiffs and against them, jointly and severally, in the principal sum of $1,141,607.50, and to vacate so much of the order dated May 5, 2006, as granted those branches of the plaintiffs' cross motion which were for summary judgment on so much of the fifth cause of action as was to recover Environmental Fund fees and engineering costs insofar as asserted against them and denied those branches of their respective motions which were for summary judgment dismissing that claim insofar as asserted against them, SEPARATE APPEAL by the defendant Fidelity and Deposit Company of Maryland from stated portions of the order dated May 10, 2007, which, inter alia, upon reargument and renewal, vacated the determination in the order dated March 23, 2007, upon renewal, granting that branch of its motion which was for summary judgment dismissing the complaint insofar as asserted against it, and denied that branch of its motion, and CROSS APPEAL by the plaintiffs from stated portions of the order dated May 10, 2007, which, among other things, upon reargument and renewal, vacated the determination in the order dated May 5, 2006, granting their cross motion for summary judgment on the complaint insofar as asserted against the defendant Fidelity and Deposit Company of Maryland, denied the cross motion, and vacated so much of the judgment entered May 30, 2006, as is in favor of them and against that defendant.

OPINION & ORDER

These appeals and cross appeals arise from the excavation work undertaken in anticipation of the construction of a residential subdivision and golf course in the Town of Brookhaven. The appeals and cross appeals present two principal questions. First, are the defendants responsible for the reimbursement of the owner, the plaintiff Hamlet at Willow Creek Development Co., LLC (hereinafter The Hamlet), for certain fees and costs it paid to the Town, and additional fees and costs it may be required to pay to the Town, in connection with the excavation? Second, can the defendants be held liable to The Hamlet in tort for material removed from the site in excess of that provided for in the plans and specifications? We conclude that The Hamlet is entitled to recover the excavation fees as the equitable subrogee of the Town under certain bonds posted with respect to the excavation and that the defendants may be liable in conversion for the excess material that was removed. A trial is required, however, to determine the amount of excess material that was removed, if any.

I.

On July 1, 2002, The Hamlet entered into an excavation agreement with the defendant Northeast Land Development Corporation (hereinafter Northeast), pursuant to which Northeast undertook to perform excavation work with respect to The Hamlet's 186-acre development project. The excavation agreement apparently was entered into in anticipation of the conditional approval of the subdivision that ultimately was granted by the Planning Board of the Town of Brookhaven (hereinafter the Planning Board) on July 8, 2002. Among the conditions imposed in connection with that approval was the requirement that The Hamlet implement certain mitigation measures identified in a findings statement that had been adopted by the Planning Board on October 1, 2001, in satisfaction of the requirements of the State Environmental Quality Review Act (ECL art 8, hereinafter SEQRA). One of those measures was the payment of fees required by Chapter 53 of the Brookhaven Town Code.

The excavation agreement specified that Northeast would be required to remove from the site and haul away approximately 1.665 million cubic yards of material in accordance with the SEQRA findings statement and the final engineering plan. It also specifically obligated Northeast to pay "any municipal fee . . . pursuant to the Town of Brookhaven requirements," making specific reference to "the Town of Brookhaven Joseph Macchia Environmental Preservation Capital Reserve Fund." The agreement also provided that Northeast "shall not over excavate any area." With respect to Northeast's compensation for its services, the excavation agreement provided that The Hamlet would have "no financial obligation to [Northeast] other than [Northeast] shall own any and all excess material taken from the site in conformance with the approved plan." The excavation agreement further provided, however, that Northeast would be paid $1.5 million to excavate the drainage and sewers for the development. The excavation agreement was signed by Northeast's principal, the defendant Carl Zorn.

The municipal fees to which the excavation agreement referred (hereinafter the Environmental Fund fees) are imposed by the Town of Brookhaven Joseph Macchia Environmental Preservation Capital Reserve Fund Law (Brookhaven Town Code § 53-3[H]). The law in effect at the time required the applicant for an approved grading plan incident to residential development to pay Environmental Fund fees in the sum of $0.25 per cubic yard of material removed from a site for drainage and other Town-required improvements and $1.00 per cubic yard of material removed for all other improvements (see Brookhaven Town Code §§ 53-3[H][1]; 29-7[C][1][a] former [1], [2]). The law further provides that the Environmental Fund fees are due "upon final conditional approval" of the subdivision section or site plan and reserves to the Commissioner of the Department of Planning, Environment and Development the "final determination of the amount of material subject to the fees" (see Brookhaven Town Code §§ 53-3[H][3]; 29-7[C][1][c]). Prior to commencement of the excavation, the applicant "must post a bond in such form as shall be approved by the Town Attorney and in an amount to be specified by the Planning Board to guarantee performance in accordance with the approved site plan or the approved subdivision plan" (Brookhaven Town Code § 53-5).

To satisfy its obligations under the excavation agreement, Northeast entered into an oral agreement with the defendant Pav-Co Asphalt, Inc. (hereinafter Pav-Co). According to Pav-Co's principal, the defendant William Fehr, Northeast agreed to sell Pav-Co approximately 471,425 cubic yards of excess fill at $3.50 per cubic yard, or approximately $1.65 million, which Northeast would dedicate to the payment of the Environmental Fund fees due to the Town. According to Zorn, however, Pav-Co was to make the payments for the fill directly to the Town.

On December 19, 2002, the defendant Fidelity and Deposit Company of Maryland (hereinafter Fidelity) issued a "payment bond" (hereinafter the first payment bond) to the Town in the amount of $500,000. Executed by Fehr on behalf of Pav-Co, the first payment bond recited that Pav-Co, as "Principal," was obligated to provide a bond guaranteeing the payment of fees to the Town for the removal of material from The Hamlet site, and bound Fidelity, as "Surety," to pay those fees in the event that Pav-Co failed to do so. The first payment bond was amended on the day of its issuance to add Northeast as a principal. According to Fehr, however, the Town rejected the first payment bond because the amount was insufficient.

Also on December 19, 2002, another "payment bond" in the amount of $1.5 million (hereinafter the second payment bond) was executed by nonparty All County Paving Corp. (hereinafter All County), as "Principal," and Fehr and nonparty Ronald Fehr as "Sureties." The second payment bond recited that All County "has applied to mine property located at the Hamlet at Willow Creek" and provided that the principal and sureties "hereby undertake and become bound in the sum of $1,500,000 to the Town of Brookhaven for the payment of any sum due the Town of Brookhaven by All County Paving Corp. for the mining of property at the Hamlet at Willow Creek, Mount Sinai, New York, incidental to the development of said site as required by Section 53-3(H)(1)(b)[sic] of the Code of the Town of Brookhaven." According to Fehr, the Town rejected the second payment bond because it was not issued by a bonding company.

The Hamlet disputes Fehr's contention that the Town rejected the first and second payment bonds, citing the deposition testimony of Gregg Kelsey, the Assistant Town Engineer, that he had seen a copy of the second payment bond in the Town's file and had not come across any Town document in which any payment bond had been cancelled or returned to the maker. Mr. Kelsey, however, testified that he did not see any resolution accepting the second payment bond which, in his experience, was typically done.

On March 17, 2003, Northeast and Pav-Co, as "Principals," and Fidelity, as "Surety," executed a "Performance (Completion) Bond" (hereinafter the performance bond). According to its terms, Fidelity was obligated to the Town, up to the sum of $1.665 million, to satisfy the obligation of Northeast and Pav-Co to remove approximately 1.6 million cubic yards of fill at The Hamlet site "in accordance with the construction specification of the Town of Brookhaven all in conformance with the plot and drainage plan approved by the Town of Brookhaven Planning Board and to the satisfaction of the Town of Brookhaven."

According to Fehr, the performance bond replaced the first and second payment bonds, was intended to comply with the bonding requirement of Brookhaven Town Code § 53-5, and was accepted by the Town. The Town Attorney required, however, that the performance bond be relabeled a "restoration bond," and that the language of the bond be modified to provide for Fidelity's guaranty of the principals' obligation to remove the fill "in accordance with the construction specifications of the Town of Brookhaven and the Town of Brookhaven Planning Board, as approved, pursuant to the Town of Brookhaven Planning Board's Subdivision Grant dated August 5, 2002, and Town of Brookhaven Planning Board's Site Plan Grant dated July 8, 2002, and furthermore, in conformance with the Plot and Drainage Plan approved by the Town of Brookhaven Planning Board and to the full satisfaction of the Town of Brookhaven."

Fidelity made the requested change in a rider dated April 22, 2003, which was executed by Zorn and Fehr, on behalf of Northeast and Pav-Co, respectively; the Town Board of the Town of Brookhaven accepted the performance bond on May 22, 2003.

According to Fehr, Pav-Co paid the sum of $500,000 to the Town and the sum of $485,000 directly to Northeast pursuant to its oral agreement with Northeast. Pav-Co's payments to the Town were made on its behalf by All County in the sum of $300,000 on March 26, 2003, by Prima Asphalt Concrete, Inc., in the sum of $100,000 on October 3, 2003, and on its own behalf by cashier's check in the sum of $100,000 on December 10, 2003. Pav-Co's payments to Northeast consisted of one check from All County in the sum of $100,000 on June 12, 2003, and three checks from Prima Asphalt Concrete, Inc., on March 26, 2003, February 28, 2004, and August 9, 2004, respectively, in the total sum of $385,000.

By letter dated August 6, 2004, the Town advised The Hamlet of its "concerns" with respect to a number of issues related to the project, including the over-excavation of the property and the failure to pay "all outstanding fees related to the excess materials application." When the Town apparently began to withhold certificates of occupancy for completed residences in the development, and discussions with the Town did not result in a resolution of the matter, The Hamlet commenced a proceeding in the Supreme Court, Suffolk County, seeking a judgment compelling the Town to issue certificates of occupancy and awarding damages to The Hamlet for the losses allegedly caused by the delay. The litigation abated as a result of an interim stipulation and an amended stipulation, but the issues that the Town had raised were not completely resolved.

More than eight months later, on April 20, 2005, the Town issued a stop-work order with respect to the project, citing over-excavation of the property. In order to resume work, The Hamlet paid the sum of $740,000 in Environmental Fund fees to the Town on April 29, 2005, and agreed, in a stipulation dated May 6, 2005, to deposit with the Town the additional sum of $250,000 with respect to the Town's claim for additional fees as a result of the claimed over-excavation. The Hamlet also paid the sum of $50,000 to the Town for the engineering costs the Town had incurred in determining the amount of the over-excavation.

In its proceeding against the Town, The Hamlet admitted, based upon an engineering study dated July 1, 2004, that there had been an over-excavation, but quantified the over-excavation as approximately 82,000 cubic yards of material, less than five percent over the original estimate of 1,659,968 cubic yards. On April 8, 2005, after completing a volumetric calculation, The Hamlet's engineers certified to the Town that the total amount of excavation at the site was substantially greater, and was actually 1,896,406 cubic yards, an amount which exceeded the preconstruction estimate by 236,438 cubic yards, or more than 14 percent. Pav-Co denied knowledge or information sufficient to form a belief as to the truth of these assertions. Kelsey, the Assistant Town Engineer, testified at his deposition that a final determination as to the amount of the over-excavation, if any, was awaiting review by the Town's outside engineer of the calculations submitted by The Hamlet's engineers.

II.

The Hamlet commenced this action against Northeast, Pav-Co, Zorn, Fehr, and Fidelity to recover damages for breach of contract, conversion, unjust enrichment, and fraud, and as equitable subrogee to the rights of the Town under the payment and performance bonds.

The first two appeals that are before us arise from the motions of Pav-Co, Fehr, and Fidelity to dismiss the complaint insofar as asserted against them, and The Hamlet's cross motion for, among other things, summary judgment against all five defendants on so much of the first and fifth causes of action as were to recover the Environmental Fund fees and engineering costs it paid to the Town. In an order dated January 27, 2006, the Supreme Court granted those branches of the motions of Pav-Co, Fehr, and Fidelity which were to dismiss the fourth cause of action alleging fraud, but denied those branches of their motion which were to dismiss the other causes of action, and awarded summary judgment in favor of The Hamlet against all five defendants on its claims to recover the Environmental Fund fees only.

All of the defendants, except Fidelity, moved for, among other things, leave to renew and reargue the motions to dismiss the complaint and their opposition to The Hamlet's cross motion, which had been determined in the order dated January 27, 2006. In addition, Northeast and Zorn cross-moved pursuant to CPLR 3211(a)(7) to dismiss The Hamlet's second cause of action sounding in conversion insofar as asserted against them. The Hamlet opposed the motions for leave to renew and the cross motion to dismiss the complaint, and separately cross-moved, among other things, to convert Pav-Co and Fehr's prior motion to dismiss the complaint insofar as asserted against them into a motion for summary judgment dismissing the complaint insofar as asserted against them and to convert Northeast and Zorn's cross motion to dismiss the second cause of action alleging conversion insofar as asserted against them into one for summary judgment dismissing the second cause of action insofar as asserted against them. The Hamlet requested that the court, upon conversion, deny that motion and cross motion for summary judgment, and grant that branch of its own separate cross motion which was for summary judgment on the causes of action to recover the Environmental Fund fees and engineering costs insofar as asserted against all defendants except Zorn. In an order dated May 5, 2006, the Supreme Court, among other things, granted those branches of The Hamlet's separate cross motion which were to convert Pav-Co and Fehr's motion to dismiss the complaint insofar as asserted against them, and Northeast and Zorn's cross motion to dismiss the second cause of action alleging conversion insofar as asserted against them, into a motion and cross motion for summary judgment, respectively, granted the converted motion of Northeast and Zorn for summary judgment dismissing the second cause of action alleging conversion insofar as asserted against them, granted leave to reargue the previous motions under a summary judgment standard and, upon reargument, denied the converted motion of Pav-Co and Fehr for summary judgment dismissing the complaint insofar as asserted against them, except as to the fourth cause of action alleging fraud, and awarded summary judgment in favor of The Hamlet on so much of the first and fifth causes of action in the amount it had paid the Town for Environmental Fund fees, adding to that amount The Hamlet's claim for engineering costs. Judgment was entered on May 30, 2006, adjudging all defendants except Zorn jointly and severally liable for those fees and costs and dismissing all claims against Zorn individually.

Pav-Co and Fehr appeal, and The Hamlet cross-appeals, from both the order dated May 5, 2006, made upon reargument and renewal, and the judgment entered May 30, 2006. The appeal and cross appeal from the order must be dismissed, however, because the right of direct appeal from that order terminated with the entry of the judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal and cross appeal from the intermediate order dated May 5, 2006, are brought up for review and have been considered on the appeal and the cross appeal from the judgment (see CPLR 5501[a][1]). The Hamlet does not cross-appeal, however, from so much of the order dated May 5, 2006, made upon reargument and renewal, as granted those branches of the respective converted motion and cross motion of the several defendants which were for summary judgment dismissing the fourth cause of action alleging fraud.

With respect to the issues raised by the third appeal, Fidelity moved for leave to renew its converted motion for summary judgment dismissing the complaint insofar as asserted against it, based upon newly-discovered evidence, to vacate so much of the orders dated January 27, 2006, and May 5, 2006, and the judgment entered May 30, 2006, as was adverse to it and, upon renewal, for summary judgment dismissing the complaint insofar as asserted against it. The remaining defendants also separately moved for leave to renew and to vacate the two orders and the judgment on the ground of newly-discovered evidence. In an order dated March 23, 2007, the Supreme Court granted those branches of Fidelity's motion which were for leave to renew, to vacate so much of the judgment as was against it, and for summary judgment dismissing the complaint insofar as asserted against it, but denied the respective separate motions of the remaining defendants for similar relief, holding them liable for the Environmental Fund fees and engineering costs pursuant to the first cause of action.

The Hamlet thereafter moved, among other things, for leave to reargue its opposition to Fidelity's motion to vacate the judgment and for renewal. Pav-Co and Fehr, as well as Northeast, again separately moved, on the basis of newly-discovered evidence, for leave to renew their respective motions to vacate so much of the judgment as was against each of them. In an order dated May 10, 2007, made upon reargument and renewal, the Supreme Court adhered to its prior determination in the order dated March 23, 2007, that Northeast, Pav-Co, and Fehr were liable to The Hamlet, in effect, under the fifth cause of action for equitable subrogation. The court, however, vacated the judgment with respect to Fidelity and vacated so much of the order dated March 23, 2007, as, upon renewal, granted that branch of Fidelity's motion which was for summary judgment dismissing the complaint insofar as asserted against it, finding that triable issues of fact precluded the award of summary judgment to either party on The Hamlet's claims against Fidelity. All of the defendants separately appeal, and The Hamlet cross-appeals, from stated portions of the order dated May 10, 2007.

Presently before us for consideration is whether, and to what extent, the liability of each of the five defendants has been established under The Hamlet's causes of action alleging breach of contract, equitable subrogation, conversion, and unjust enrichment, and whether triable issues of fact remain with respect to each of those causes of action.

III.

Pav-Co and Fehr argue initially that since they had not yet had the opportunity to answer and conduct discovery, the Supreme Court should not have addressed the merits of this dispute in the course of resolving the parties' various motions and cross motions. The short answer to this contention is that by arguing the merits of their respective positions on the basis of factual affidavits and extensive documentary evidence, the parties charted a summary judgment course and cannot be heard to complain that the Supreme Court addressed their motions under the summary judgment standard (see Tendler v Bais Knesses of New Hempstead, Inc., 52 AD3d 500, 502; Doukas v Doukas, 47 AD3d 753; Harris v Hallberg, 36 AD3d 857, 858). Moreover, the record reflects that all of the parties had ample opportunity in the course of the extensive motion practice before the Supreme Court to submit whatever evidentiary material they deemed appropriate to support their substantive assertions with respect to the issue of liability. As to their claimed need for discovery, these defendants failed to satisfy their burden of offering "an evidentiary basis to suggest that discovery may lead to relevant evidence" or that "facts essential to justify opposition to the motion were exclusively within the knowledge and control ...


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