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Empire Enterprises JKB, Inc. v. Union City Contractors

September 25, 2009


The opinion of the court was delivered by: Marian W. Payson United States Magistrate Judge



This case involves a breach of contract claim by Empire Enterprises JKB, Inc. ("Empire") against Union City Contractors, Inc. ("Union City") and a Miller Act claim, 40 U.S.C. §§ 3131 and 3133, against its sureties, Nova Casualty Company and Nova American Groups, Inc. (collectively, "Nova").*fn1 Pursuant to 28 U.S.C. § 636(c), the parties have consented to the disposition of this case by a magistrate judge. (Docket # 7).


In July 2004, the United States Army Corps of Engineers entered into a contract with Union City for the removal and disposal of tree debris and silt from the Mount Morris Dam in Livingston County, New York. Shortly thereafter, in August 2004, Union City entered into a subcontract with Empire, pursuant to which Empire agreed to chip and remove the tree debris, also referred to as "floatable debris," from the dam. The contract required Union City to pay Empire $10 per cubic yard of debris chipped and removed from the site. Empire claims that it performed its contractual obligations by removing 11,470 cubic yards of material, but that Union City paid it only for approximately 3000 cubic yards. Empire seeks payment of the alleged balance, $84,653.63, plus interest. (Docket # 1, Ex. A). As an affirmative defense, defendants have asserted that Empire fraudulently and substantially overstated the quantity of debris that it removed from the dam site. (Docket # 31).*fn2

A bench trial was conducted in January 2008. The testimony at trial related principally to Empire's work on the project, and specifically to the dispute over the quantity of debris that it chipped and removed during the course of that work. Defendants argue that the trial evidence demonstrates that Empire's quantity calculations are not credible. Specifically, defendants contend that Empire's representation that it removed 11,470 cubic yards of material is grossly inflated when compared with the historical data for the dam site. Second, defendants maintain that Empire's record-keeping practices were unreliable and that Empire's bills to Union City were fraudulently based upon Empire's inaccurate records.

Empire counters that its calculations were accurate and that Union City accepted its performance when it signed Empire's daily reports reflecting the quantity of debris chipped and removed each day. Empire further argues that Union City has waived its right to challenge the accuracy of Empire's calculations by failing to contest the quantities reported until approximately three months after Empire had completed its work and Union City had issued two payments on the account.

Union City's Bankruptcy

After trial and the submission of post-trial memoranda, defendants' counsel advised this Court by letter that Union City had filed for bankruptcy under Chapter 7 of the Bankruptcy Code. The parties concede that, as a result of this filing, the automatic stay under Section 362 of the Code applies to Empire's claims against Union City in this litigation. See 11 U.S.C. § 1362. Because the stay has not been lifted, this Court may not determine Union City's liability, if any, on Empire's claim.

The automatic stay does not apply, however, to claims against the bankrupt debtor's sureties. In re Capitol-York Constr. Corp. , 43 B.R. 52, 55-56 (S.D.N.Y. 1984) (collecting cases). Thus, Empire's Miller Act claim against Nova under the payment bond may proceed without violating the stay. Id. at 56 ("[a] subcontractor's action against a general contractor's surety to recover under a Miller Act bond which was posted to protect materialmen for public works projects does not implicate Code § 362 because the bond is not property of the debtor's estate"). See United States ex rel. F&G Mech. Corp. v. Manshul Constr. Corp. , 1998 WL 849327, *1 n.7 (E.D.N.Y. 1998) (due to post-trial bankruptcy of defendant contractor, court proceeded to determine liability under the Miller Act only of co-defendant surety).

Although some authority suggests that the Court may impose an equitable stay under these circumstances, see United States ex rel. Cent. Bldg. Supply, Inc. v. William F. Wilke, Inc. , 685 F. Supp. 936, 938-39 (D. Md. 1988) (affirming equitable stay because bankrupt contractor represented that it had good faith and valid defenses to subcontractor's claim, but surety had no knowledge of such defenses), Nova's counsel has not sought one. Moreover, I find that no basis in equity exists to impose one here considering that Nova has answered Empire's complaint and has participated through counsel in the entirety of this litigation, including trial. For these reasons, I will proceed to determine Nova's liability, if any, to Empire on its Miller Act claim.


I. The Parties

Empire is a land clearing, demolition and recycling business owned by Joseph Bartucca. (Tr. 7). Union City is a commercial construction company owned by Duane Cuyler; its business consists principally of contracts with federal government agencies. (Tr. 323-24). Nova is an insurance company that executed a payment bond in the amount of $161,100 for the Mount Morris Dam project. (Ex. 1).

II. The Trial Witnesses

At trial, Empire called Joseph Bartucca ("Bartucca"), the owner and president of Empire, as its sole witness. (Tr. 6-109, 466-73). Defendants called four witnesses: Duane Cuyler ("Cuyler"), the owner and president of Union City (Tr. 322-466); Richard Collins ("Collins"), Union City's project manager for the dam project (Tr. 111-239); Gerald DiPaolo ("DiPaolo"), a civil engineer with the United States Army Corps of Engineers ("ACE") who served as the contracting officer's representative during the project (Tr. 240-305); and, Heather Collins, who was employed by Union City and worked at the project site (Tr. 306-19). Deposition testimony of Jennifer Collins Bertrand, another Union City employee who worked at the dam site, was also admitted. (Tr. 360; Ex. O).

III. The August 2004 Mount Morris Dam Debris Removal Project

A. Annual Collection and Removal of Silt and Floatable Tree Debris

The Mount Morris Dam is located on the Genesee River in Livingston County, New York, about forty-five miles south of Rochester, New York. ACE is responsible for operating and maintaining the dam. Each year ACE contracts with a private construction company to remove wood debris from the dam site and to redistribute silt from the dam's spillways to the river basin upstream. (Tr. 243).

Natural forces, including weather events and snowmelt, cause debris to accumulate in and around the dam, and the debris must be collected and removed in order to ensure the proper functioning of the dam. To assist in the process, ACE employs a structure known as a "log boom," which is a cable consisting of large timbers that is connected from end to end across the Genesee River several hundred yards upstream of the dam. (Tr. 17, 114, 336; Ex. 17A). The log boom is designed to collect floatable debris, such as fallen trees, branches and other objects, and prevent the debris from floating downstream to the dam and blocking the water flow. (Tr. 336-37). This debris must be removed on a regular basis, generally annually. To physically accomplish the removal, ACE lowers the water level of the dam so that the accumulated debris collects at the bottom of the river basin and may be accessed. (Tr. 115). Once accessed, the material is ground up or "chipped" and then hauled from the dam site. In addition to the floatable debris, non-floatable debris known as "silt" collects at the face of the dam and must also be removed to ensure that the spillways do not become blocked. (Tr. 243).

Several factors affect the quantity of debris that accumulates in the dam site, including the level of rainfall and the severity of the storms in a given year. (Tr. 137, 140, 172). ACE engineer Gerald DiPaolo testified that approximately 2000 cubic yards of floatable debris had been removed from the dam sites in 2002 and 2003.*fn3 (Tr. 244, 345). Although DiPaolo was familiar with the quantity of material reported to have been removed in 2002 and 2003, he did not actually observe the material in those years and thus could not visually compare the quantity of debris that had collected in 2004, the contract year at issue, to that which had collected in the earlier two years. (Tr. 247). In 2004, the volume of floatable debris was substantial enough to breach the log boom and become trapped downstream at the face of the dam. (Tr. 17, 169; Ex. 13). Several of the witnesses testified that the breach occurred after Union City's bid was accepted by ACE in July 2004, but before work on the project began (Tr. 169, 409-13; Exs. 13, 17B), although Bartucca testified that the breach occurred in the Spring of 2004. (Tr. 17).

B. The 2004 Contract Between Union City and ACE

In the Spring of 2004, Union City submitted a bid to ACE to remove floatable debris and non-floatable silt from the dam. (Tr. 251; Exs. 19, 31). The bid specified that Union City would be paid a unit price of $14 per cubic yard for the first 2000 cubic yards of floatable debris and $5 per cubic yard for any additional debris up to 2000 cubic yards.*fn4 (Tr. 164-65; Exs. 18 at 51-52, 19). Thus, the bid contemplated payment for up to 4000 cubic yards of floatable debris. Union City's owner, Duane Cuyler, testified that the quantities that he included in his bid were based upon historical data that ACE had provided his company. (Tr. 346). ACE formally notified Union City that its bid was accepted in July 2004.*fn5 (Tr. 409-10; Ex. 31). As a condition of acceptance, ACE required Union City to obtain payment and performance bonds for the contract. (Ex. 31). Nova executed such bonds as surety for Union City. (Docket # 1, Ex. C).

Work on the contract was to begin the Summer of 2004. (Tr. 251; Ex. 19). At that time, Union City had neither the experience nor the equipment necessary to chip and remove the floatable debris. (Tr. 117). Richard Collins, Union City's project manager for the Mount Morris Dam project, knew that Empire had the requisite experience and equipment, so he contacted Joseph Bartucca, Empire's owner, about the project. ( Id. ). Empire was interested in the project, and, as Collins testified, Empire was the only experienced contractor available to perform the work in accordance with the contractual schedule.*fn6 (Tr. 151).

C. Union City's Subcontract with Empire

Collins contacted Bartucca in the Spring of 2004 to discuss the project. (Tr. 12). Bartucca informed Collins that Empire was interested in the work, but that he would need to visit the dam site. ( Id. ). Bartucca made two site visits before the work began -- the first in the Spring and the second in mid-July 2004. ( Id. ; Tr. 123). During the first site visit, Bartucca was accompanied by Collins and an ACE representative. At the time of the visit, the water level of the dam was up, preventing Bartucca from accurately assessing the quantity of the material that had accumulated. (Tr. 12-13, 123). Bartucca recalled that they discussed the fact that more material had collected than in recent years as a result of "high waters that Spring" and that some material had breached the log boom and reached the dam. (Tr. 17).

The second visit occurred in mid-July 2004 and only Collins accompanied Bartucca. (Tr. 18, 76, 123). By the time of this visit, the water had been drained from the dam, enabling Bartucca to observe more easily the debris around the log boom and dam face. (Tr. 18, 88). Bartucca thereafter contacted Collins with a verbal quote for the proposed work. (Tr. 22). After some negotiation, on August 8, 2004, Empire and Union City entered into a written agreement. (Tr. 22-23; Ex. 4). The agreement obligated Empire to grind tree debris at the dam and thereafter remove it from the dam to an approved offsite location. (Ex. 4). The agreement obligated Union City to collect the debris and transport it to a staging area at the dam site so that Empire could grind it into chips. (Tr. 28-29; Ex. 4).

Pursuant to the terms of the agreement, Union City agreed to pay Empire $10 per cubic yard of "ground material" with a 2500 cubic yard minimum. ( Id. ). As to the minimum yardage clause, the agreement represented that the "pile will generate more than the minimum per Joseph Bartucca['s] calculations." (Tr. 23-24, 33, 35; Ex. 4). With respect to the manner in which the quantity was to be measured, the contract provided:

Note: all yardage to be measured using the volume of a cone - one cone of ground material equals 350 yards per factory spec - yardage to be logged daily, with payment to be calculated from daily log tickets. (Tr. 24, 29; Ex. 4). This clause was accompanied by a handwritten notation stating, "Per Army Corps Written Approval," initialed by "D.C." (Duane Cuyler) and dated August 5, 2004. (Ex. 4).

The last paragraph of the contract stipulated that the work was to begin on August 9, 2004 and that "[p]ayment [is] due 15 days from date of invoice." ( Id. ). The contract was signed by Joseph Bartucca, as president of Empire, and Rick Collins, as project manager for Union City. ( Id .).

Read together, Union City's contract with ACE and its subcontract with Empire provided that Union City would earn $4 per cubic yard for the first 2000 cubic yards of material removed from the dam. On any quantity above that amount, however, Union City would lose $5 per cubic yard. (Tr. 162, 344, 416-17, 419-20). Of course, the greater the excess quantity, the greater Union City's losses would be. (Tr. 419-20).

D. The Methodology for Measuring Cubic Yardage

Union City's contract with ACE required that the number of cubic yards of floatable debris removed from the dam site be measured by the "truck method." (Tr. 150-51, 251, 347). Under the truck method, the quantity of debris removed was determined by first calculating the volume in cubic yards of the relevant truck bed and then ...

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