The opinion of the court was delivered by: A. Kathleen Tomlinson, Magistrate Judge
This Memorandum and Order is the third and last determination concerning a series of summary judgment motions brought by the parties to this action. Here the motion [DE 177] is brought by Defendant Perkins Eastman Architects, P.C. ("Defendant" or "Perkins") seeking dismissal of Plaintiffs' claim for breach of contract. The claims and defenses arise out of the construction of Payton Lane Nursing Home in Southampton, New York.
In support of its motion, Perkins relies upon its Local Rule 56.1 Statement of Undisputed Facts ("Def.'s 56.1 Stmt.") [DE 177-2]; Memorandum of Law in Support of Defendant's Motion for Partial Summary Judgment ("Def.'s Mem.") [DE 179]; the Affirmation of Stephen P. Schreckinger ("Schreckinger Aff.") [DE 177-1], to which numerous exhibits are annexed [DE 177, Exs. A-J]; and the Affidavit of Charles Williams ("Williams Aff.") [DE 178], with exhibits annexed [DE 178, Exs. 1-2]. Perkins also submitted a Response to Plaintiffs' Rule 56.1 Counterstatement ("Def.'s 56.1 Counterst.") [DE 181]; Reply Memorandum of Law in Further Support of the Motion for Summary Judgment ("Defs.' Reply Mem.") [DE 182]; and the Reply Affidavit of Charles Williams ("Williams Reply Aff.") [DE 180], to which additional exhibits are annexed [DE 180, Exs. 1-2].
In opposition to the motion, Plaintiffs American Manufacturers Mutual Insurance Company and American Motorists Insurance Company ("Plaintiffs" or "Sureties") rely upon their Responses to Defendant's Rule 56.1 Statement ("Pls.' 56.1 Response") and Plaintiffs' Counterstatement of Material Facts ("Pls.' 56.1 Counterst.") [DE 185-21]; Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment ("Pls.' Mem.") [DE 186]; and the Affidavit of Eric Schatz ("Schatz Aff.") [DE 185], with exhibits annexed [DE 185, Exs. 1-20]. 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, Perkins' Motion for Summary Judgment is DENIED.
The following facts are drawn primarily from the pleadings and the parties' Rule 56.1 Statements where those facts are not disputed. On considering 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, 60 (2d Cir. 2001).
This action arises out of the new construction of the Payton Lane Nursing Home in Southampton, New York (the "Project"), owned by Defendant Payton Lane Nursing Home, Inc. ("Payton Lane"). Pls.' 56.1 Counterst., ¶ 1; Def.'s Counterst., ¶ 1. The Payton Lane Nursing Home was built pursuant to Section 232 of the National Housing Act, which was passed by Congress "to assist in the provision of facilities for [inter alia] . . . the development of assisted living facilities for the care of frail and elderly persons." 12 U.S.C. § 1715w(a)(3). Under Section 232, the United States Department of Housing and Urban Development ("HUD") approved and insured the financing for the Project. Pls.' 56.1 Counterst., ¶ 2; Def.'s 56.1 Counterst., ¶ 2. According to Plaintiffs, "HUD had broad powers and sweeping control over nearly every aspect of the Project, and every significant contract, form and certification was drafted, dictated and/or approved by HUD." Pls.' 56.1 Counterst., ¶ 3.*fn1
On or about November 16, 2001, IDI Construction Company, Inc. ("IDI"), the original contractor, and Payton Lane, as owner, entered into a "Construction Contract Lump Sum" in the amount of $29,717,385.00 for construction of the Project (the "IDI Contract"). Pls.' 56.1 Stmt., ¶ 4; Schatz Aff., ¶ 4 and Ex. 1; Def.'s 56.1 Counterst., ¶ 4. On December 13, 2001, PFC Corporation ("PFC") made a mortgage loan, insured by HUD, in the amount of $37,523,000.00 to Payton Lane as owner/mortgagor, which loan included the $29,717,385.00 to be paid to IDI under the IDI Contract. Pls.' 56.1 Stmt., ¶ 5; Schatz Aff., ¶ 5. In connection with the IDI Contract and the mortgage loan, the Sureties issued a performance bond on behalf of IDI in favor of Payton Lane, HUD and PFC, all as obligees, in the amount of $29,717,385.00. Def.'s 56.1 Stmt., ¶ 9; Schreckinger Aff., Ex. C; Pls.' 56.1 Counterst., ¶ 6; Schatz Aff., ¶ 4 and Ex. 2.
According to the Sureties, in 1994, Defendant Perkins entered into an agreement with Payton Lane (the "PEA Agreement") to perform services in connection with the Project, which services were to be divided into two phases -- design of the Project and construction supervision. Pls.' 56.1 Stmt. ¶ 7; Schatz Aff., ¶ 5 and Ex. 3; Def.'s 56.1 Stmt., ¶ 5; Williams Aff., ¶ 3 and Ex. 1.*fn2 Article 1.4 of the PEA Agreement governs Perkins' responsibilities during the construction phase of the Project and is entitled "Administration of the Construction Contract." Williams Aff., Ex. 1; Schatz Aff., Ex. 4. Under Article 1.4, Perkins was required to "determine the amounts owing to [IDI] based on observations at the site and on evaluations of [IDI's] Applications for Payment, and issue Certificates for Payment in such amounts." Williams Aff., Ex. 1 and Schatz Aff., Ex. 4, Art. 1.4.7. The parties refer to this as Perkins' "payment certification responsibilities." Def.'s 56.1 Stmt., ¶ 7; Pls.' 56.1 Response, ¶ 7. The Sureties contend that Perkins' responsibilities further included, but were not limited to, reporting all observed non-compliance with contract documents and unacceptable performance by the contractor, exploiting all avenues to obtain compliance with the contract, keeping the owner and HUD informed of the progress of the work, guarding the owner and HUD against defects and deficiencies, etc. and otherwise complying with the HUD form Amendment and HUD Handbook 4460.1.
Pls.' 56.1 Response, ¶ 7; Schatz Aff., ¶¶ 4-7.
C. IDI's Schedule Of Values And Payment Requisitions
According to Perkins, prior to the start of construction of the Project, IDI prepared and HUD approved a Schedule of Values -- a schedule in which "the contractor apportions and allocates the construction contract amount to the different items of work the contractor is required to perform (i.e. floor slabs, masonry walls, carpentry, electrical wiring, painting, etc.). These individual items are typically referred to as 'line items.'" Williams Aff., ¶ 7; Def.'s 56.1 Stmt., ¶ 10. Perkins asserts that IDI based its payment requisitions on this Schedule of Values. Williams Aff., ¶ 7; Def.'s 56.1 Stmt., ¶ 13. "For each payment requisition IDI submitted to Perkins, IDI assigned a completion percentage to each individual line item." Id. Perkins contends that it was not involved in IDI's initial calculation of the amounts it apportioned and allocated to the line items in the Schedule of Values. Williams Aff., ¶ 8; Def.'s 56.1 Stmt., ¶ 11. Perkins further maintains that it "had no involvement in how IDI decided what material, labor or other work was to be included under each line item in that Schedule of Values. This information was not provided to PEA until specific line items were discussed during the payment requisition review process." Williams Aff., ¶ 8.
Perkins asserts that in order to be paid for its work, IDI was required to submit payment requisitions to Perkins, and would be paid only upon Perkins' approval of such requisitions.
Def.'s 56.1 Stmt., ¶ 12; Williams Aff., ¶ 5. The Williams Affidavit contains a detailed description of the process followed by Perkins in reviewing IDI's payment requisitions. IDI first submitted to Perkins a draft of a payment requisition (referred to as "Pencil Requisitions"), which indicated the percentages of work IDI deemed complete as of the date of requisition. Williams Aff., ¶ 9; Def.'s 56.1 Stmt., ¶ 19.*fn3 A Perkins representative reviewed these Pencil Requisitions and then met with IDI representatives at the site "to fully understand the scope of the work IDI included under its line item descriptions as well as the amounts and percentages IDI indicated were complete for each said line item." Williams Aff., ¶ 9. Perkins then (1) conducted an initial walk-through of the site with IDI to review the specific work where IDI was requesting payment; (2) marked up the pencil requisitions to indicate the reductions PEA deemed appropriate based on their site walk-through with the supporting documentation reviewed (such as delivery tickets);*fn4 (3) met with IDI, Payton Lane and the HUD inspector at a further site meeting to review IDI's modified payment requisition based upon PEA's mark-ups and comments; and (4) typically conducted a second walk-through with IDI, the HUD inspector and Payton Lane after the meeting and prior to certification.
Perkins contends that HUD regulations required the HUD inspector assigned to the Project to certify all of IDI's payment requisitions prior to payment. Def.'s 56.1 Stmt., ¶ 14; Williams Aff., ¶ 5. Plaintiffs admit this statement, but also "aver that [HUD's] certification is limited and made in reliance on the performance of the architect." Pls.' 56.1 Response, ¶ 14; Schatz Aff., Ex. 5 (HUD Handbook), ¶ 3-4(C).
In April 2003, Greyhawk North America, LLC ("Greyhawk") was hired to serve as the Sureties' construction consultant and authorized representative on the Project. Def.'s 56.1 Stmt., ¶ 16; Schreckinger Aff., Ex. E at 21-23; Pls.' 56.1 Response, ¶ 16; Schatz Aff., ¶ 1. Eric Schatz, a Project Consultant for Greyhawk, began working on the Project in December 2003. Schatz Aff., ¶ 1.
On or about May 11, 2004, Payton Lane terminated IDI as the general contractor on the Project (Pls.' 56.1 Response, ¶ 8), and called upon the Sureties to satisfy their obligations under the performance bond. Schatz Aff., ¶ 9; Am. Compl. [DE 37], ¶ 13; Schreckinger Aff., Ex. E at 21-23. In July 2004, the Sureties and Payton Lane entered into a Takeover Agreement, to which Perkins was not a party. Def.'s 56.1 Stmt., ¶ 20; Schreckinger Aff., Ex. F; Pls.' 56.1 Response, ¶ 20; Schatz Aff., ¶ 9. The Takeover Agreement provided that Greyhawk would continue as the Sureties' "Authorized Representative with regard to completion of the remaining work" on the Project, and would "supervise the work to be performed by the Completion Contractor." Schreckinger Aff., Ex. F, ¶ 12. Pursuant to the Takeover Agreement, the Sureties paid their subrogor, Payton Lane, $4.25 million "for damages suffered by and dispute-related expenses incurred by Payton Lane, in consideration for an assignment of all claims Payton Lane has against IDI pursuant to the Contract, and as full and final settlement and general release of all claims Payton Lane has against IDI pursuant to the Contract. . . ." Id., ¶ 7.
The Project was not substantially complete when the Takeover Agreement was executed. Def.'s 56.1 Stmt., ¶ 23; Schreckinger Aff., Ex. E at 313-14; Pls.' 56.1 Response, ¶ 23. The Sureties note that although Perkins was not a signatory to the Takeover Agreement, Perkins provided to Greyhawk certain project-related documents, including a Nonconforming Work Notice Log which, according to the Sureties, "purported to identify the work performed by IDI which was not in compliance with the IDI Contract and which would have to be corrected" by the Sureties. Schatz Aff., ¶ 9 and Ex. 6.
On August 20, 2004, the Sureties entered into a "cost plus completion contract" with E.W. Howell Co., Inc. ("Howell") "to complete the remaining work identified on Exhibit A to the Takeover Agreement." Pls.' 56.1 Counterst., ¶ 15; Schatz Aff., ¶ 10. The Sureties assert that after commencing work on the Project, Howell "identified significant construction issues not disclosed by Payton Lane prior to the Takeover Agreement, for which Perkins had certified that IDI had completed." Schatz Aff., ¶ 11. In other words, the Sureties allege, Perkins had certified payment requisitions which enabled IDI to be "paid for work that it had not performed and for work which was not in conformance with the IDI Contract." Pls.' 56.1 Counterst., ¶ 20; Schatz Aff., ¶ 12.
E. The Sureties' Claim Against Perkins
The Sureties commenced this action by filing the Complaint [DE 1] on November 3, 2005. Def.'s 56.1 Stmt., ¶ 1; Schreckinger Aff., Ex. A; Pls.' 56.1 Response, ¶ 1. The Complaint set forth three causes of action against Perkins, namely the Sixth, Seventh and Eighth Claims. Def.'s 56.1 Stmt., ¶ 2; Schreckinger Aff., Ex. A; Pls.' 56.1 Response, ¶ 2. By Order dated February 28, 2007 [DE 23], Judge Feuerstein dismissed the Sixth and Seventh Claims as against Perkins. Def.'s 56.1 Stmt., ¶ 3; Schreckinger Aff., Ex. B; Pls.' 56.1 Response, ¶ 2. However, Judge Feuerstein denied Perkins' motion to dismiss the Eighth Claim for breach of contract, finding that "[a]s a result of the alleged losses sustained by the Sureties in discharging their performance bond obligations to Payton Lane, the Sureties became subrogated to the rights of their obligee, Payton Lane, against third parties, including Perkins, by operation of law." DE 23 (Schreckinger Aff., Ex. B) at 14.
Plaintiffs filed the Amended Complaint [DE 37] on October 17, 2007. Def.'s 56.1 Stmt., ¶ 4; Schreckinger Aff., Ex. C; Pls.' 56.1 Response, ¶ 4. In the Amended Complaint, the Sureties allege, inter alia, that Perkins breached the PEA Agreement by failing to fulfill its duties owed to Payton Lane (for whom the Sureties were subrogees) under that contract. Am. Compl., ¶¶ 89-96 (the "Eighth Claim"). Specifically, the Sureties assert that, under the IDI Contract and the PEA Agreement, Perkins was obligated to (1) "determin[e] that the work performed and materials furnished by IDI conformed to the requirements of the [IDI] Contract Documents[,]" and (2) "for purposes of payment to IDI, review and certify the amounts due IDI and issu[e] certificates of payment in such amounts." Id., ¶ 92. The Sureties further contend that PEA breached the contract by, inter alia, (1) "failing to properly monitor and inspect IDI's work[;]" (2) "improperly certifying on numerous occasions that certain work had been performed or completed in accordance with the Contract Documents which had not been so performed or completed[;]" (3) "failing to reject certain of IDI's work ...