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Allan B. Mendelsohn, As Chapter 7 Trustee of Hirsch Electric Co., Inc., Debtor v. the Port Authority Trans-Hudson Corporation and the Port

August 3, 2012

ALLAN B. MENDELSOHN, AS CHAPTER 7 TRUSTEE OF HIRSCH ELECTRIC CO., INC., DEBTOR
v.
THE PORT AUTHORITY TRANS-HUDSON CORPORATION AND THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY
APPELLANT, APPELLEES.



The opinion of the court was delivered by: Spatt, District Judge.

MEMORANDUM OF DECISION AND ORDER

In this claim for damages incurred due to the alleged breach of a contractual agreement by the Appellees, the Appellant has commenced the present appeal from a judgment of a Bankruptcy Court granting a summary judgment motion filed by the Appellees. The motion is based upon the alleged failure to give proper notice of the Appellant's claims to the Port Authority Trans-Hudson Corporation and the Port Authority of New York and New Jersey pursuant to a contract between the parties. For the reasons set forth below, the Court finds that the bankruptcy court's determination was not erroneous and the Court affirms the dismissal.

I.BACKGROUND

On November 30, 1988, Hirsch Electric Co. Inc., (the "Debtor" or "Hirsch") entered into a construction contract titled "Hackensack River Bridge Rehabilitation" (the "Contract") with the Port Authority Trans-Hudson Corporation and the Port Authority of New York and New Jersey (the "Appellees" or "PATH"). Pursuant to the Contract, Hirsch was to perform electrical work in connection with the rehabilitation of the Hackensack River Bridge in New Jersey (the "Project"). The Contract contained a notice provision, Section 19, which provides:

No claim against PATH shall be made or asserted in any action or proceeding at law or in equity, and the Contractor shall not be entitled to allowance of such claim, unless the Contractor shall have complied with all requirements relating to the giving of written notice and of information with respect to such claim as provided in this numbered clause. (R:RA-000120.) Further, the Contract explicitly states that this notice requirement is a condition precedent:

The failure of the Contractor to give such written notice and information as to any claim shall be conclusively deemed to be a waiver by the Contractor of such claim, such written notice and information being conditions precedent to such claims. (R:RA000120.) The Section continues to provide the requirements as to the giving of written notice and information with respect to claims against PATH as follows:

1. In the case of any claims for Extra Work, extension of time for completion, idle salaried men and equipment, or any other matter for which requirements are set forth elsewhere in this Contract as to notice and information, such requirements shall apply.

2. In the case of all other types of claim, notice shall have been given to the Engineer, personally, as soon as practicable, and in any case, within 48 hours, after occurrence of the act, omission, or other circumstances upon which the claim is or will be based, stating as fully as practicable at the time all information relating thereto. Such information shall be supplemented with any further information as soon as practicable after it becomes or should become known to the Contractor, including daily records showing all costs which the Contractor may be incurring or all other circumstances which will affect any claim to be made, which records shall be submitted to the Engineer, personally. (R:RA000120.)

Section 8 of the Contract, entitled "Compensation for Emergency Delays," states that if the Contractor is specifically directed by the Engineer to suspend his operations or if the Contractor is specifically directed not to start his operations at a time stipulated, and the employees and equipment of the Contractor are kept idle at the construction site, the Contractor is entitled to increased compensation, but the Contractor must do the following: give prompt written notice to the Engineer stating the reasons why he believes such payments should be made and shall moreover, furnish to the Engineer at the end of each day, a memorandum showing the name, payroll title, salary rate and employer of each of the workingmen, and description, owner and claimed rental rate for each item of equipment claimed to have been kept idle. Said notice and memorandum are for the purpose of enabling the Engineer to verify the Contractor's claim at the time. Accordingly, notwithstanding any other provisions hereof, the failure of the Contractor to furnish such notice and memorandum shall constitute a conclusive binding determination on his part that he is not entitled to compensation as provided herein and shall constitute a waiver by the Contractor of all claims for such payment, such notice and memorandum being conditions precedent to payment under this numbered clause. (R:RA000107) (emphasis Added). The anticipated date of completion for the Contract was December 1990. However, the work was not completed until some time in late 1993 or early 1994.

On March 23, 1994, Hirsch filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Eastern District of New York (the "Bankruptcy Court"). The case was assigned to United States Bankruptcy Judge Robert E. Grossman. The proceeding was subsequently converted to a Chapter 7 proceeding, and the Bankruptcy Court appointed Allan B. Mendelsohn (the "Trustee" or the "Appellant") as the Chapter 7 Trustee of Hirsch.

On October 6, 2009, Hirsch commenced an adversary proceeding against PATH. In particular, it sought (1) the balance allegedly owed for work performed on the Project pursuant to the Contract; and (2) damages incurred because of PATH's alleged breaches of the Contract. On August 11, 2010, the Trustee filed a motion for partial summary judgment to recover the balance under the Contract in the amount of $21,000, which was granted.

On August 20, 2010, PATH moved for summary judgment on the ground that Hirsch had failed to comply with the above stated notice provisions in the Contract, which was a condition precedent to recovery. The main thrust of the Appellees' motion for summary judgment was that the Trustee did not produce any evidence to demonstrate that the notice requirements in the Contract were met.

On September 14, 2010, the Trustee opposed PATH's motion for summary judgment. According to the Appellant, the original notice documents that Hirsch provided to PATH were destroyed during the attacks on the World Trade Center on September 11, 2001. Therefore, the Trustee attempted to offer secondary evidence to establish that Hirsch complied with the notice requirements in the Contract. (See Fed. R. Evid. § 1004(1) "Admissibility of Other Evidence of Content ---- An original is not required and other evidence of the content of a writing, recording, or photograph is admissible if: (1) all the originals are lost or destroyed, and not by the proponent acting in bad faith"). In particular, the Trustee included affidavits of: (1) Vincent Casey, Hirsch's general foreman at the Project, in which he affirmed that he authored many delay and extra work letters that were forwarded to PATH; and (2) Felix Hirsch, the president of Hirsch, in which he affirmed that written timely notice was given to the Appellees. However, copies of the written notices that had been maintained by Hirsch could not be produced and were presumed to have been lost over the years.

In addition, the Trustee included in its opposition: (1) an internal memorandum dated January 28, 1991, prepared by PATH's Project Manager, which sets forth and summarizes eight major delays which were affecting Hirsch's work; (2) a letter from PATH to Hirsch dated April 2, 1991, which states "It has come to my attention that you may have several claims concerning work that was performed by you and not called for in your contract"; and (3) a letter from Hirsch to the Port Authority dated November 3, 1993, towards the end of completion of the construction, which states that he would seek to recover his company's additional costs of more than $1 million for the Project stemming from revisions, adjustments, and interruptions to its Contract.

On October 21, 2010, the Bankruptcy Court held a hearing on PATH's motion for summary judgment. At that time, Judge Grossman held that issues of fact existed regarding whether Hirsch complied with the Contract's notice provisions, and thus the motion for summary judgment was denied. In particular, based upon the secondary evidence outlined above, the Bankruptcy Court found that the prospect of Trustee's witnesses providing documents and testimony that might establish compliance with the notice provisions of the Contract warranted a need for additional discovery.

On April 15, 2011, after conducting depositions of the Trustee's key witnesses----Vincent Casey and Kenneth S. Harmelin, Hirsch's former comptroller----PATH filed a second motion for summary judgment on the same ground as the prior motion. In particular, PATH asserted that the Trustee's witnesses offered only conclusory and general statements that notice was given. Consequently, they were unable to provide any specific information regarding whether the notices included certain information, such as relevant costs, as required under § 19 of the Contract.

The Trustee once again opposed the second summary judgment motion. Specifically, he pointed to: (1) Hirsch's deposition testimony where he stated that notice had been given, "probably" in writing to PATH; (2) Casey's deposition testimony where he affirmed that there were a number of written communications between Hirsch and PATH regarding the delays, as well as memoranda and weekly meetings; and (3) testimony by Harmelin, stating that letters were sent to PATH at the time of the delays, although costs had not been included because they were undetermined at the time.

On May 4, 2011, the Bankruptcy Court held a hearing on the pending motion for summary judgment. The parties acknowledged that Hirsch's compliance with the notice requirements was an essential threshold issue. At the hearing, Judge Grossman noted that because the Trustee claimed that documents Hirsch maintained which evidenced compliance with the notice requirements set forth in the Contract were lost or missing, it would consider secondary evidence to establish the existence of such notice documents. The Court scheduled a hearing to determine the narrow issue of whether the Trustee could establish compliance with the notice requirements set forth in the Contract based on oral testimony and documentary evidence. The Bankruptcy Court cautioned the Trustee that it was inclined to find that Hirsch had failed to comply with the specific notice requirements, and that it was the Trustee's burden to provide further probative evidence on the issue.

On May 24, 2011, at the second hearing, Hirsch, Casey, and Harmelin testified. Also, the Trustee offered various exhibits into evidence that he claimed satisfied the notice requirements of the Contract. However, none of the witnesses provided any further evidence for the Court to consider, beyond what was elicited at their depositions. Hirsch's testimony provided clarification that none of the letters or written notices sent by him to PATH included any records or itemizations of costs incurred by the company, as required by the notice provisions in the Contract. Casey testified that he had no knowledge of any notices forwarded to PATH regarding delay costs incurred by Hirsch. Harmelin testified that Hirsch maintained all of its documents, including records of costs incurred as a result of the delays, but that the computer containing the information was now inoperable. More importantly, Harmelin's testimony at the hearing revealed for the first time the possible existence of a backup tape that could contain the lost or missing proof of compliance with the notice requirements. However, the Trustee never attempted to retrieve and secure the information on the backup tape, and stated that he believed the retrieval of the information would be costly, although he never made an inquiry to determine the actual cost.

On June 14, 2011, the Honorable Judge Robert E. Grossman issued Supplemental Findings of Fact and Conclusion of Law (the "Order") (R:RA000001-000013.) In particular, the Bankruptcy Court stated that "[b]ecause this case turns on whether Hirsch provided PATH with proper notice of its delay claims and the existence of such documents is crucial to the Trustee's case, the Trustee's failure to make every effort to retrieve and produce the documents located on the backup tape maintained by Hirsch raises serious questions about whether the Court may even consider secondary evidence regarding the notices." (R:RA000009.) Consequently, the Bankruptcy Court found that the Trustee ...


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