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American Manufacturers Mutual Insurance Co. v. Payton Lane Nursing Home

January 11, 2010

AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY AND AMERICAN MOTORISTS INSURANCE COMPANY, PLAINTIFFS,
v.
PAYTON LANE NURSING HOME, INC., PERKINS EASTMAN ARCHITECTS, P.C. AND LINCOLN GENERAL INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: A. Kathleen Tomlinson, Magistrate Judge

MEMORANDUM AND ORDER

I. PRELIMINARY STATEMENT

Plaintiffs American Manufacturers Mutual Insurance Company and American Motorists Insurance Company ("Plaintiffs" or "Sureties") commenced this action against Defendants Payton Lane Nursing Home, Inc. ("Payton Lane"), Perkins Eastman Architects, P.C. ("Perkins") and Lincoln General Insurance Company ("Lincoln") (collectively, "Defendants") for, inter alia, breach of contact arising out of the construction of a 700-room, 280-bed nursing home in Southampton, New York. Payton Lane is the owner of the property and Plaintiffs acted as sureties for the original construction contract. Defendant Perkins is the architect hired by Payton Lane for the Project, and Defendant Lincoln is a mechanics' lien discharge bond surety.*fn1

Presently before the Court is Defendant Payton Lane's Motion for Partial Summary Judgment [DE 138] seeking dismissal of a portion of Plaintiffs' claims in the amount of $423,911.00. Payton Lane argues that the Sureties failed to timely submit five change order requests for corrective work performed on the construction project in accordance with the governing contract and thereby waived such claims. In support of its motion, Payton Lane relies upon its Local Rule 56.1 Statement of Undisputed Facts ("Def.'s R. 56.1 Stmt.") [DE 138-2]; Memorandum of Law in Support of Payton Lane's Motion for Partial Summary Judgment ("Def.'s Mem.") [DE 139]; and the Affirmation of Robert C. Angelillo ("Angelillo Aff.") [DE 138-1], to which numerous exhibits are annexed [DE 138, Exs. A-O]. Defendant also submitted a Reply Memorandum of Law in Further Support of the Motion for Partial Summary Judgment ("Def.'s Reply Mem.") [DE 143], and the Reply Affirmation of Robert C. Angelillo ("Angelillo Reply Aff.") [DE 142], to which additional exhibits are annexed [DE 142, Exs. P-X].

In opposition to the motion, Plaintiffs rely upon their Responses to Defendant's Rule 56.1 Statement (¶¶ 1-32) and Plaintiffs' Counterstatement of Material Facts (¶¶ 33-62) ("Pls.' R. 56.1 Cntrstmt.") [DE 140-1]; Memorandum of Law in Opposition to Defendant's Motion for Partial Summary Judgment ("Pls.' Mem.") [DE 141]; and the Affidavit of Eric Schatz ("Schatz Aff.") [DE 140] as well as the numerous exhibits annexed to the Schatz Affidavit [DE 140, Exs. 1-22]. The Court has considered all of the submissions, the applicable case law, and the positions asserted by counsel during oral argument on the motion. For the reasons set forth below, Defendant Payton Lane's Motion for Partial Summary Judgment is DENIED.

II. STATEMENT OF FACTS

A. Undisputed Facts

The following facts are drawn primarily from the pleadings and the parties' Rule 56.1 Statements where those facts are not otherwise disputed. Upon consideration of a motion for summary judgment, the Court construes the facts in the light most favorable to the non-moving party. See Capobianco v. New York, 422 F.3d 47, 50 (2d Cir. 2001).

1. The IDI Contract

Defendant Payton Lane and IDI Construction Company, Inc. ("IDI") entered into a construction contract dated November 16, 2001 (the "IDI Contract") to build the Payton Lane Nursing Home in Southampton, New York (the "Project"). Def.'s R. 56.1 Stmt., ¶ 4. The IDI Contract provided that the Project would be completed for a fixed price of $29,717,385.00. Angelillo Aff., Ex D. (IDI Contract), ¶ 3A; Am. Compl. [DE 37], ¶ 8. On December 3, 2001, Plaintiffs issued a performance bond to IDI, for the benefit of Payton Lane and HUD, as dual obligees, in the combined amount of $29,717,385.00. Am. Compl., ¶ 9; Def.'s Answer to Am. Compl. ("Answr."), ¶ 9.*fn2

2. The Takeover Agreement

Based on IDI's "defective and/or incomplete" work, Payton Lane terminated the IDI Contract on May 11, 2004, and called on Plaintiffs to satisfy their obligations under the performance bond. Am. Compl., ¶ 13; Answr., ¶ 13; Def.'s Mem. at 2; Pls.' Mem. at 3. On July 9, 2004, the Sureties and Payton Lane entered into the Takeover Agreement. Def.'s R. 56.1 Stmt., ¶ 7; Angelillo Aff., Ex. E*fn3; Pls.' R. 56.1 Cntrstmt., ¶ 7. The Takeover Agreement provided that Greyhawk would continue as the Sureties' "Authorized Representative with regard to completion of the remaining work" on the Project. Def.'s R. 56.1 Stmt., ¶ 9; Pls.' R. 56.1 Cntrstmt., ¶ 9.

3. Plaintiffs' Change Order Requests

In August 2004, the Sureties retained E.W. Howell Construction Company, Inc. ("Howell") to serve as their completion contractor for the Project. Am. Compl., ¶ 18; Answr., ¶ 18. Thereafter, the parties discovered numerous deficiencies in the work performed by IDI. Plaintiffs assert that Howell discovered "substantial items of non-conforming work" which were not previously identified by Defendants Payton Lane or Perkins. Pls.' Mem. at 5; Schatz Aff., ¶ 4. Plaintiffs further assert that they paid a total of $2,303,985.00 to Howell for corrective work performed on the Project. Am. Compl., ¶ 22; Pls.' Mem. at 5. Plaintiffs submitted to Payton Lane a series of Change Order Requests ("CORs") seeking payment for the corrective work performed by Howell, including the five CORs at issue in the instant Motion (CORs 8, 11, 14, 19 and 27). Def.'s R. 56.1 Stmt., ¶¶ 10-12; Pls.' R. 56.1 Cntrstmt., ¶¶ 10-12, 32; Am. Compl. ¶ 22; Angelillo Aff., Exs. F, I, K, M, N.*fn4 According to Plaintiffs, each of CORs 8, 11, 14, 19 and 27 were submitted directly to Payton Lane and sought compensation for "defective work outside the scope of work per the Takeover Agreement." Pls.' R. 56.1 Cntrstmt., ¶ 48; Schatz Aff. ¶ 5 and Ex. 19.

COR 8 seeks $34,955.00 for corrective work performed on the gas main header piping. Def.'s R. 56.1 Stmt., ¶ 16; Pls.' R. 56.1 Cntrstmt., ¶¶ 16, 49. According to Plaintiffs, the deficiencies in the gas main header piping were initially identified by the plumbing subcontractor and a Keyspan inspector on October 27, 2004 and were subsequently discussed at the November 2, 2004 project meeting which was attended by representatives of Plaintiffs, Payton Lane and Perkins. Pls.' R. 56.1 Cntrstmt., ¶¶ 49-50; Schatz. Aff., Ex. 2. On November 12, 2004, Perkins' representative Charles F. Williams sent an email discussing the nonconforming gas main header piping work. Id., ¶ 51; Schatz Aff., Ex. 3.

COR 11 seeks $31,194.00 for corrective work performed on a faulty feeder cable on the west side of the building. Def.'s R. 56.1 Stmt., ¶ 20; Pls.' R. 56.1 Cntrstmt., ¶¶ 20, 52. According to Plaintiffs, the faulty feeder cable was listed on Greyhawk's November 12, 2004 Critical Item list (Angelillo Aff., Ex. J),*fn5 which was distributed and discussed at the November 16, 2004 project meeting attended by representatives of the Sureties, Payton Lane and Perkins. Def.'s R. 56.1 Stmt., ¶ 19; Angelillo Aff., Ex. J; Pls.' R. 56.1 Cntrstmt., ¶ 52; Schatz Aff., Ex. 19.

COR 14 seeks $25,804.00 for engineering consulting costs associated with analyzing corrective structural work. Def.'s R. 56.1 Stmt., ¶ 24; Pls.' R. 56.1 Cntrstmt., ¶¶ 24, 53. On December 2, 2004, E.W. Howell received pricing from Feld, Kaminetsky & Cohen regarding the consultancy costs associated with the corrective structural work described in COR 14. Pls.' R. 56.1 Cntrstmt., ¶ 54; Schatz Aff., ¶ 8 and Ex. 5. This work was addressed at several project meetings, including the December 4, 2004 project meeting, which was attended by representatives of the Sureties, Payton Lane and Perkins, all of whom received copies of the written minutes. Id.

COR 19 seeks $53,718.00 for corrective work associated with the adjustment of plumbing roughing for water carriers at the resident lavatories to meet ADA requirements. Def.'s R. 56.1 Stmt., ¶ 27; Pls.' R. 56.1 Cntrstmt., ¶¶ 27, 55. According to Plaintiffs, on November 1, 2004, Aztec Plumbing, the plumbing subcontractor, identified the nonconforming plumbing work. Schatz Aff. ¶ 9; Pls.' R. 56.1 Cntrstmt., ¶ 55. Then, on November 8, 2004, Aztec notified Greyhawk of the condition and submitted pricing for the corrective work. Id.*fn6

This plumbing work was discussed at several project meetings, including the November 16 and November 23, 2004 meetings, which were attended by representatives of the Sureties, Payton Lane and Perkins, all of whom received copies of the written minutes. Pls.' R. 56.1 Cntrstmt., ¶ 56; Schatz. Aff., ¶ 9 and Ex. 6.

COR 27 seeks $278,240.00 for work performed on the exterior siding and trim. Def.'s R. 56.1 Stmt., ¶ 31; Pls.' R. 56.1 Cntrstmt., ¶¶ 31, 57. According to Plaintiffs, these deficiencies were first noted by Perkins in its September 20, 2004 Field Observation Report; Payton Lane's representative also participated in such field observation. Pls.' R. 56.1 Cntrstmt., ¶ 57; Schatz Ex. 19; Angelillo Aff., Ex. O. On October 8, 2004, representatives of Payton Lane, Perkins and Plaintiffs met to discuss several Project issues, including the nonconforming work identified in the Perkins Field Observation Report. Pls.' R. 56.1 Cntrstmt., ¶ 58; Schatz Aff., ¶ 10 and Ex. 7. The "cedar siding" which was part of the work described in COR 27 was included in an agenda sent by the Sureties to Defendants in advance of the October 8, 2004 meeting. Pls.' R. 56.1 Cntrstmt., ¶ 59; Schatz Aff., ¶ 10 and Ex. 7.

In total, Plaintiffs paid Howell $423,911.00 for work performed pursuant to CORs 8, 11, 14, 19 and 27. Def.'s R. 56.1 Stmt., ¶ 32; Pls.' R. 56.1 Cntrstmt., ¶ 32*fn7; Def.'s Reply Mem. at 4.

III. THE PARTIES'CONTENTIONS

A. Defendant's Position

Defendant Payton Lane argues that Plaintiffs' claims for $423,911.00 in connection with CORs 8, 11, 14, 19 and 27 should be dismissed because the "undisputed evidence" shows that Plaintiffs failed to give timely notice of such claims, as required by the relevant contracts. Def.'s Mem. at 7. Specifically, Payton Lane asserts that each COR is a "Claim," which is defined under section 4.3.1 of the IDI Contract*fn8 as follows:

A Claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term "Claim" also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract. Claims must be made by written notice....*fn9

Def.'s R. 56.1 Stmt., ¶ 6; Angelillo Aff., Ex. D (IDI Contract), ¶ 4.3.1; Def.'s Mem. at 3. Thus, Defendants maintain that the 21-day notice provision contained in Section 4.3.3 of the IDI Contract likewise applies to the CORs at issue here. Section 4.3.3 provides as follows:

Claims by either party must be made within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognized the condition giving rise to the Claim, whichever is later. Claims must be made by written notice....*fn10 (Emphasis added.)

Def.'s R. 56.1 Stmt, ¶ 5; Angelillo Aff. Ex. D, ¶ 4.3.3; Def.'s Mem. at 4.

Defendant argues that the deposition testimony of Eric Schatz and certain referenced documents show that Plaintiffs did not furnish the requisite written notice within the 21-day time period. Def.'s Mem. at 7. With regard to COR 8 (gas main header pipe), Payton Lane contends Schatz's deposition testimony shows that Greyhawk was aware of the problems associated with the gas main header pipe as early as November 10, 2004. Def.'s Mem. at 8; Angelillo Aff., Ex. F (COR 8, Jan. 19, 2005); Ex. G (Schatz Dep.) at 115-16; Ex. H (Nov. 10, 2004 Mtg. Mins.). However, COR 8 was not submitted to Payton Lane until January 19, 2005, or, as Payton Lane maintains, "70 days after recognizing the condition giving rise to the claim." Def.'s Mem. at 8.

Regarding COR 11 (replacement of feeder cable), Defendant asserts that Schatz's deposition testimony shows Greyhawk was aware of the need to replace the feeder cable as early as November 12, 2004. Def.'s Mem. at 9-10; Angelillo Aff., Ex. G at 127-29; Ex I (COR 11, Jan. 19, 2005); Ex. J (,"Critical Items List," Nov. 12, 2004). However, COR 11 was not submitted to Payton Lane until January 19, 2005, or, as Payton Lane asserts, "68 days after recognizing the condition giving rise to the claim." Def.'s Mem. at 9.

With respect to COR 14 (structural engineering consulting), Payton Lane maintains that Schatz's deposition testimony shows Greyhawk was aware of the need for the structural engineering consulting as early as December 3, 2004. Def.'s Mem. at 10-11; Angelillo Aff., Ex. G at 129-33; Ex. K (COR 14, Jan. 19, 2005); Ex. L (Dec. 3, 2004 Howell fax proposal). However, COR 14 was not submitted to Payton Lane until January 20, 2005, or, according to Payton Lane, "48 days after recognizing the condition giving rise to the claim." Def.'s Mem. at 12.

With regard to COR 19 (remedial plumbing work at lavatories), Defendant claims Schatz's deposition testimony shows that Greyhawk was aware of the need for the remedial plumbing as early as November 9, 2004. Def.'s Mem. at 12; Angelillo Aff., Ex. G at 135; Ex. M (COR 19, Jan. 20, 2005). However, COR 19 was not submitted to Payton Lane until January 20, 2005, or as Payton Lane contends, "72 days after recognizing the condition giving rise to the claim." Id.

With respect to COR 27 (additional exterior siding), Defendant argues Schatz's deposition testimony shows that Greyhawk was aware of the need for additional exterior siding remediation as early as September 20, 2004. Def.'s Mem. at 12-13; Schatz Aff., Ex. G at 136-37; Ex. N (COR 27, Jan. 20, 2005); Ex. O (Perkins Field Observation Report, Sept. 9, 2004). However, COR 27 was not submitted to Payton Lane until January 20, 2005, or according to Payton Lane, "133 days after recognizing the condition giving rise to the claim." Def.'s Mem. at 12.

With regard to the scope of the Takeover Agreement, Payton Lane asserts that Exhibit A to the Takeover Agreement did not limit "the scope of remaining work[.]" Def.'s Reply Mem. at 3. To the contrary, Defendant maintains that, pursuant to the contract documents and Plaintiffs' bond, Plaintiffs were required "to complete the IDI Contract in accordance with its terms and conditions." Id., at 2-3. To this end, Defendant points to the deposition testimony of Plaintiffs' witnesses Wayne Everson, who signed the Takeover Agreement, and Rick Anastasio, a Greyhawk representative on the Project, both of whom, according to Defendants, "confirm[ed] that plaintiffs were bound by the terms and conditions of the IDI Contract." Id. at 3, 6-7; Angelillo Reply Aff., ¶¶ 4-5 and Exs. P, Q.

B. Plaintiffs' Position

1. The Procedures Followed For Submission Of The CORs

According to the Affidavit of Eric Schatz,*fn11 the Project Consultant for Greyhawk, soon after commencing work on the Project in August 2005, "Howell and/or Perkins identified a significant amount of nonconforming work" which had been done by IDI, but which was not previously disclosed by Payton Lane. Schatz Aff., ¶ 4. Plaintiffs refer to this work as "additional corrective work," and assert that such work was beyond the scope of the Takeover Agreement. Id. Thus, pursuant to the Takeover Agreement, Plaintiffs "pursued payment for this additional corrective work beyond the scope of the Takeover Agreement directly from Payton Lane through change orders." Id. The Schatz Affidavit sets forth in some detail the process followed by Greyhawk for submitting CORs. Once nonconforming work was identified, such work was discussed at subsequent Project meetings, which were attended by representatives of the Sureties, Payton Lane and Perkins. Id., ¶ 5. Plaintiffs point to documents, including meeting minutes, emails and "critical items" lists, which reflect that the work performed pursuant to the CORs was discussed by the parties at such meetings, contemporaneously with the Sureties' discovery of the additional non-conforming work. These discussions occurred several months before the CORs were submitted. See, e.g., Schatz Aff., Ex. 2 (Nov. 2, 2004 Mtg. Mins. at 7); Ex. 3 (email from Perkins re: "Gas pains..."); Ex. 4 (Critical Items List for week ending Nov. 12, 2004, discussed at Nov. 16, 2004 Mtg.); Ex. 5 (Dec. 14, 2004 Mtg. Mins. at 5); Ex. 6 (Nov. 16, 2004 Mtg. Mins. at 5); Ex. 7 (Agenda for Oct. 8, 2004 Mtg. at 4). According to Schatz, Howell then obtained pricing to correct the work and submitted such pricing to Greyhawk. Schatz Aff., ¶ 5. Following Greyhawk's review and negotiation of the pricing, Greyhawk authorized Howell to perform the work. Id. Often (as is the case with four of the five CORs at issue here), the CORs were completed on a time and material ...


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