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Travelers Casualty and Surety Co. v. Dormitory Authority - State of New York

August 26, 2010

TRAVELERS CASUALTY AND SURETY COMPANY AS ADMINISTRATOR FOR RELIANCE INSURANCE COMPANY, PLAINTIFF,
v.
DORMITORY AUTHORITY - STATE OF NEW YORK, TDX CONSTRUCTION CORP., AND KOHN PEDERSEN FOX ASSOCIATES, P.C., DEFENDANTS.
DORMITORY AUTHORITY OF THE STATE OF NEW YORK AND TDX CONSTRUCTION CORP., THIRD-PARTY PLAINTIFFS,
v.
TRATAROS CONSTRUCTION, INC., THIRD-PARTY DEFENDANT.
TRATAROS CONSTRUCTION, INC. AND TRAVELERS CASUALTY AND SURETY COMPANY, FOURTH-PARTY PLAINTIFFS,
v.
CAROLINA CASUALTY INSURANCE COMPANY; BARTEC INDUSTRIES, INC.; DAYTON SUPERIOR SPECIALTY CHEMICAL CORP. A/K/A DAYTON SUPERIOR CORPORATION; SPECIALTY CONSTRUCTION BRANDS, INC. T/A TEC; KEMPER CASUALTY INSURANCE COMPANY D/B/A KEMPER INSURANCE COMPANY; GREAT AMERICAN INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.; UNITED STATES FIRE INSURANCE COMPANY; NORTH AMERICAN SPECIALTY INSURANCE COMPANY; ALLIED WORLD ASSURANCE COMPANY (U.S.) INC. F/K/A COMMERCIAL UNDERWRITERS INSURANCE COMPANY; ZURICH AMERICAN INSURANCE COMPANY D/B/A ZURICH INSURANCE COMPANY; OHIO CASUALTY INSURANCE COMPANY D/B/A OHIO CASUALTY GROUP; HARLEYSVILLE MUTUAL INSURANCE COMPANY (A/K/A HARLEYSVILLE INSURANCE COMPANY); JOHN DOES 1-20; AND XYZ CORPS. 1-19, FOURTH-PARTY DEFENDANTS.
KOHN PEDERSEN FOX ASSOCIATES, P.C., THIRD-PARTY PLAINTIFF,
v.
WEIDLINGER ASSOCIATES CONSULTING ENGINEERS, P.C.; CASTRO-BLANCO PISCIONERI AND ASSOCIATES, ARCHITECTS, P.C.; ARQUITECTONICA NEW YORK, P.C.; COSENTINI ASSOCIATES, INC.; CERMAK, PETERKA PETERSEN, INC.; JORDAN PANEL SYSTEMS CORP.; TRATAROS CONSTRUCTION, INC.; AND LBL SKYSYSTEMS (U.S.A.), INC., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

TABLE OF CONTENTS

BACKGROUND..................................................... 5

I. The DASNY-Trataros Contracts ............................... 5

II. Delays on the Project ...................................... 9

PROCEDURAL HISTORY............................................ 12

DISCUSSION.................................................... 15

I. Travelers' Claims Against DASNY ........................... 18

A. Trataros' Impact Claim................................... 18

1. No-Damages-for-Delay Clauses Under New York Law ........ 19

2. The Applicability of Corinno Exceptions ................ 24

3. Waiver of No-Damages-for-Delay Clause .................. 38

B. Subcontractors' Pass-Through Claims...................... 46

1. Crocetti's Impact Claims ............................... 50

2. Jordan Panel's Extra Work Claim ........................ 55

3. Remaining Subcontractors' Impact Claims ................ 61

C. Travelers' Bond Losses Claim............................. 68

II. DASNY's Counterclaims Against Travelers ................... 70

A. DASNY's Breach-of-Contract Counterclaim.................. 70

B. DASNY's Performance Bond Counterclaim.................... 76

C. DASNY's Payment Bond Counterclaim........................ 81

1. Payment Bonds Under New York Law ....................... 82

2. General Principles of Obligee Standing ................. 85

3. Obligee Standing Under New York Law .................... 89

4. Application ............................................ 93

CONCLUSION.................................................... 96

This complex litigation arises out of the construction of a 785,000 square-foot vertical campus for Baruch College ("Baruch"), part of the City University of New York ("CUNY"), between about 1998 and 2002 (the "Project").*fn1 Plaintiff Travelers Casualty & Surety Company ("Travelers") -- the surety to a prime contractor for the Project, Trataros Construction, Inc. ("Trataros") -- has brought suit against the Project's "Owner," the Dormitory Authority - State of New York ("DASNY"),*fn2 asserting various claims arising out of Trataros' performance of its two prime contracts. DASNY, in turn, asserts counterclaims against Travelers for breach of those prime contracts and breach of two sets of surety bonds administered by Travelers.

On February 19, 2010, both parties filed motions for summary judgment. For the following reasons, Travelers' motion is granted in part, and DASNY's motion is granted in its entirety.

BACKGROUND

The instant litigation has already been the subject of numerous Opinions by this Court.*fn3 Familiarity with all prior proceedings is assumed, and only the facts relevant to the two pending motions are outlined herein. These facts, taken from the parties' evidentiary submissions, are undisputed unless otherwise noted.

I. The DASNY-Trataros Contracts

As Owner of the Project, DASNY entered into some thirteen prime contracts for carrying out the substance of the Project's construction work.*fn4 Trataros was eventually awarded two of these prime contracts, known as "Contract 15" and "Contract 16" (jointly, the "Contracts"). Contracts 15 and 16 were among the last prime contracts put out to bid and awarded by DASNY on the Project.

Trataros submitted its bid for Contract 15 on or about March 19, 1998. Trataros' bid of $50,222,000 was accepted on April 22 of that year, and Contract 15 was executed between DASNY and Trataros on or about April 27. The scope of work under Contract 15 included construction of the Project's windows, exterior curtainwall, exterior metal siding, elevators, rough carpentry, and ceilings.

Contract 16, in turn, included the interior fitout/curtainwall, roofing installation, flooring installation and finishing, swimming pool, acoustical spray, and miscellaneous metal work. Trataros' bid of $24,140,000 was accepted on August 27, 1998, and Contract 16 was executed between DASNY and Trataros on or about September 1.

Both Contracts incorporated by reference certain "General Conditions" governing the Project as a whole. Among many other things, the General Conditions contain: required representations, warranties, and guarantees by contractors; a "time-is-of-the-essence" provision; a clause reserving DASNY's right to suspend the performance of work; a definition of "Extra Work," and an exclusive process for determining additional compensation therefor; a dispute-resolution article; and several risk-allocation provisions, including a clause stipulating that contractors cannot seek "increased costs, charges, expenses or damages of any kind" against DASNY as a result of "any delays or hindrances from any cause whatsoever" relating to the Project (the "no-damages-for-delay clause").

As a condition of being awarded Contracts 15 and 16, Trataros was required to obtain certain surety bonds, including both labor and materials payment bonds (the "Payment Bonds") and performance bonds (the "Performance Bonds").*fn5 On or about April 27, 1998, Trataros obtained a Performance Bond and Payment Bond, each in the "penal sum" of $50,222,000, to guarantee its work under Contract 15. On or about September 1, 1998, Trataros obtained another Performance Bond and Payment Bond, each in the penal sum of $24,140,000, to guarantee its work under Contract 16. The terms and conditions of these two sets of bonds were drafted by DASNY as part of the Project's standard contract documents, and the Performance and Payment Bonds for Contracts 15 and 16 are identical in all material respects.

The issuing surety for both sets of bonds was Reliance Insurance Company ("Reliance"), and both sets of bonds named Trataros as principal and DASNY as obligee. Travelers and Reliance subsequently entered into an agreement, however, granting Travelers a power of attorney to act as administrator for the Project bonds, such that Travelers then became Trataros' surety under both the Performance and Payment Bonds.

In order to carry out its scope of work under Contracts 15 and 16, Trataros hired various subcontractors. Among its many subcontractors were LBL Sky Systems Corporation ("LBL"),*fn6 Jordan Panel Systems Corp. ("Jordan Panel"),*fn7 G.M. Crocetti, Inc. ("Crocetti"),*fn8 and Brooklyn Welding Ironworks, Inc. ("Brooklyn Welding")*fn9 (collectively, the "Subcontractors"). In each of its subcontracts ("the "Subcontracts"), Trataros included a standard "flow-down" or "conduit" provision providing that "[i]n respect of work covered by this Subcontract, and except as expressly modified herein, Subcontractor shall have all rights which contractor has under the Contract Documents, and Subcontractor shall assume all obligations, risks and responsibilities which Contractor has assumed towards Owner in the Contract Documents." Thus, pursuant to the flow-down clause, the General Conditions and other terms of Contracts 15 and 16 also became applicable to the Subcontractors.

II. Delays on the Project

The Project, which was designed and built on a "fast-track" basis, did not proceed on schedule. Contract 15 was originally to be completed by September 1, 2000, while Contract 16 was originally to be completed by November 1, 2000. On or about August 15, 1999, the Project's construction manager, TDX, provided Trataros with a new construction schedule including a "late finish" date of September 1, 2001 for Trataros' work under both Contracts. Trataros agreed to complete its work within this new time frame, provided that it did not "encounter future circumstances causing delays" or "some unforeseen calamity."

On or about April 6, 2001, DASNY executed Change Order No. GC2-064 ("Change Order GC2-64") to formalize an extension of time for Trataros' performance of the Contracts until the aforementioned "late finish" date.*fn10 Change Order GC2-64 provided that Trataros' time for completion of Contract 15 would be extended 365 days, while the time for Contract 16 would be extended 304 days, thereby mandating a "new contract completion date for both Contracts of September 1, 2001." In accordance with General Conditions § 11.02 (the no-damages-for-delay clause), however, Change Order GC2-64 did not provide any additional compensation to Trataros or its subcontractors.

In about July 2001, DASNY received a temporary certificate of occupancy ("TCO") for the above-ground floors of the Project. In late August 2001, those fourteen stories opened for the use of Baruch. On or about February 1, 2002, DASNY received a TCO for the three basement levels of the Project. As of about that date, according to the parties' expert witnesses, Trataros' work under Contracts 15 and 16 became "substantially complete." At or about that time, Baruch began to occupy and use the basement levels.

On or about June 19, 2002, Travelers, Trataros, and several Trataros-affiliated individuals entered into a financing agreement (the "Financing Agreement"). Pursuant to the Financing Agreement, Trataros agreed to deposit all payments it received from any project, whether bonded by Travelers or not, into a joint checking account opened and owned by Travelers in Trataros' name (the "Joint Account"). In turn, to the extent Trataros required additional funding in order to complete its bonded projects or to pay its subcontractors or suppliers, Travelers deposited funds into the Joint Account for Trataros' use. Nonetheless, at some point between mid-2002 and early 2003, Trataros largely or entirely ceased its business operations.*fn11

As a result of various delays, obstacles, and deficiencies -- the responsibility for which is disputed among the parties --DASNY issued dozens of Change Orders to extend the time for work and provide extra compensation to various contractors and subcontractors. Nevertheless, in many respects, the Project participants could not reach agreement regarding who should bear the loss for certain additional costs that were incurred. Numerous subcontractors and suppliers made demands under Trataros' Payment Bonds,*fn12 and at least some of those demands were not honored. Litigation ultimately ensued in both state and federal fora.

PROCEDURAL HISTORY

On August 1, 2007, Travelers commenced this action by filing a complaint (the "Complaint") asserting, inter alia, four separately enumerated claims against DASNY.*fn13 The first claim, labeled "Breach of Contract," seeks payment of certain "contract balances and retainages" allegedly due and owing to Trataros under Contracts 15 and 16.*fn14 The second claim, labeled "Impact Claims of Trataros" (the "Impact Claim"), seeks payment for "additional costs incurred by Trataros" resulting from "delays, lost productivity, inefficiencies, acceleration, cost escalation, and additional work."*fn15 The third claim, labeled "Pass Through Claims" (the "Pass-Through Claims"), seeks impact damages suffered by four of Trataros' "subcontractors/ suppliers," with whom Travelers asserts it has concluded liquidating agreements. The fourth, unlabeled claim (the "Bond Losses Claim"), brought on Travelers' own behalf, seeks to recover "expenses and attorney's fees which Travelers has incurred" in its role as Trataros' surety "as a result of DASNY's [] acts and/or omissions."

On September 28, 2007, DASNY answered Travelers' four claims and interposed three counterclaims (the "Counterclaims") against Travelers in turn.*fn16 The first counterclaim (the "Payment Bond Counterclaim") asserts that Travelers failed to pay various subcontractors who made claims against Travelers under the Payment Bonds and that, as a result of ensuing state-court litigation, DASNY was compelled to pay the subcontractors instead. The second counterclaim (the "Breach-of-Contract Counterclaim") asserts that "Trataros breached Contract No. 15 and Contract No. 16[] by virtue of its delayed and defective work" and that Travelers should be held liable for Trataros' breach "[b]y virtue of Travelers' assumption of Trataros' obligations" under the Contracts. The third counterclaim (the "Performance Bond Counterclaim") asserts that Travelers "wrongfully rejected" DASNY's demand for payment under the Performance Bonds.

On or about February 19, 2010, Travelers and DASNY each filed motions for summary judgment. DASNY seeks dismissal of the second, third, and fourth claims asserted by Travelers, while Travelers seeks dismissal of all three Counterclaims. Travelers' motion became fully submitted on April 2, and DASNY's motion became fully submitted on April 9.

Also on September 28, 2007, DASNY and TDX filed a third-party complaint against Trataros asserting claims for breach of contract, contractual and common-law indemnification, and contribution. On or about February 19, 2010, Trataros moved for partial summary judgment as to the indemnification and contribution claims. After DASNY and TDX indicated that they did not oppose the partial motion, those claims were dismissed on June 22, 2010. DASNY's two third-party breach-of-contract claims against Trataros remain to be tried.

DISCUSSION

Summary judgment may not be granted unless all of the submissions taken together "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In making this determination, the court must "construe all evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor." Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010).

Once the moving party has asserted facts showing that the non-movant's claims cannot be sustained, the opposing party must "set out specific facts showing a genuine issue for trial," and cannot "rely merely on allegations or denials" contained in the pleadings. Fed. R. Civ. P. 56(e); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). "A party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment," as "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted).

Only disputes over material facts -- "facts that might affect the outcome of the suit under the governing law" -- will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (stating that the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts").

Almost all of the claims and Counterclaims challenged in these two motions are essentially breach-of-contract claims whose adjudication depends, in part, on contract interpretation.*fn17 Under New York law,*fn18 "[i]t is well settled that a contract is to be construed in accordance with the parties' intent, which is generally discerned from the four corners of the document itself." MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009) ("Presstek"). "[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Id. (citation omitted). The parties do not appear to dispute that each written contract at issue in this litigation contains the full and complete terms of the parties' respective agreements.

"[A] motion for summary judgment may be granted in a contract dispute only when the contractual language on which the moving party's case rests is found to be wholly unambiguous and to convey a definite meaning." Topps Co., Inc. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008). Thus, "[t]he initial question for the court on a motion for summary judgment with respect to a contract claim is whether the contract is unambiguous with respect to the question disputed by the parties." Cont'l Ins. Co. v. Atl. Cas. Ins. Co., 603 F.3d 169, 180 (2d Cir. 2010) (citation omitted). "Whether the contract is unambiguous is a question of law for the court." Id. (citation omitted).

"In interpreting a contract under New York law, words and phrases should be given their plain meaning, and the contract should be construed so as to give full meaning and effect to all of its provisions." LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005) (citation omitted). "[A] court should not adopt an interpretation which will operate to leave a provision of a contract without force and effect." Amaranth LLC v. J.P. Morgan Chase & Co., 888 N.Y.S.2d 489, 493 (App. Div. 1st Dep't 2009) (citation omitted). "Courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing." Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) (citation omitted).

The foregoing principles reflect the "general rule [that] 'parties should be free to chart their own contractual course' unless public policy is offended." FCI Grp., Inc. v. City of N.Y., 862 N.Y.S.2d 352, 356 (App. Div. 1st Dep't 2008) (quoting Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629 (2006)). "If the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity." Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir. 2010) (citation omitted).

I. Travelers' Claims Against DASNY

A. Trataros' Impact Claim

Travelers' second claim, the Impact Claim, is "a claim against DASNY for impact damages on behalf of Travelers' bonded principal, Trataros." The Impact Claim seeks payment for "additional costs incurred by Trataros" while completing Contracts 15 and 16 and resulting from "delays, lost productivity, inefficiencies, acceleration, cost escalation, and additional work." These "additional costs" are alleged in the Complaint to have been caused by, inter alia, "numerous differing site conditions"; "factors beyond the control of Trataros"; "DASNY's failure to take appropriate action to prevent unreasonable impacts to the Project"; "DASNY's failure to provide adequate coordination of the Project"; "DASNY's failure to provide non-defective plans, drawings and specifications"; "DASNY's breach of the implied covenant of good faith and fair dealing implicit in [the] Contracts"; "DASNY's gross negligence in administering the Project"; and DASNY's "active interference with" and/or "obstruction of Trataros' ability to perform [the] Contracts." Travelers alleges that the foregoing impacts "were uncontemplated by Trataros at the time it bid on the Project" and "led to unreasonable and unforeseeable delays."

1. No-Damages-for-Delay Clauses Under New York Law DASNY asserts that the Impact Claim is barred by the no-damages-for-delay clause included in the General Conditions, which in turn were incorporated by reference into Contracts 15 and 16.*fn19 Section 11.02 of the General Conditions, entitled "Claims for Delay," provides:

No claims for increased costs, charges, expenses or damages of any kind shall be made by the Contractor against the Owner for any delays or hindrances from any cause whatsoever; provided that the Owner, in the Owner's discretion, may compensate the Contractor for any said delays by extending the time for completion of the Work as specified in the Contract. (Emphasis added).

The no-damages-for-delay clause is a type of "exculpatory clause," and as such, it is "strictly construed against the party" that relies on it. Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d 1003, 1008 (2d Cir. 1991). Nonetheless, such a clause "is valid and enforceable and is not contrary to public policy if the clause and the contract of which it is a part satisfy the requirements for the validity of contracts generally.'" McNamee Constr. Corp. v. City of New Rochelle, 875 N.Y.S.2d 265, 266 (App. Div. 2d Dep't 2009) ("McNamee") (quoting Corinno Civetta Constr. Corp. v. City of N.Y., 67 N.Y.2d 297, 309 (1986) ("Corinno")); accord U.S. ex rel. Evergreen Pipeline Constr. Co., Inc. v. Merritt Meridian Constr. Corp., 95 F.3d 153, 167 (2d Cir. 1996) ("Evergreen"). The parties' inclusion of a no-damages-for-delay clause, which is "not uncommon in construction contracts," evidences the contracting parties' ...


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