Opinion
No. 01 Civ. 0217 (SAS).
May 22, 2001
Appearances For BAE Automated Systems, Inc.: Philip R. White, Esq. Sills Cummis Radin Tischman Epstein Gross, P.A. 712 Fifth Avenue New York, New York 10019 (212) 643-7000
For Morse Diesel International, Inc.: Dennis H. McCoobery, Esq. Sacks Montgomery, P.C. 800 Third Avenue New York, New York 10022 (212) 355-4660
For Terminal One Group Association, L.P.: Kimberly Johnson Glenn, Esq. Biedermann, Hoenig, Massamillo Ruff, P.C. 90 Park Avenue New York, New York 10016 (212) 697-6555
OPINION AND ORDER
This dispute arises out of the construction of a new terminal facility located at John F. Kennedy International Airport (the "Project"). BAE Automated Systems, Inc. ("BAE") brings this action against Morse Diesel International, Inc., now known as AMEC Construction Management, Inc. ("AMEC"), for breach of a subcontract (the "Subcontract") entered into between them under which BAE agreed to fabricate, deliver and install an automatic baggage handling system (the "BHS") in connection with the Project. Jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332. AMEC has asserted a third-party action against Terminal One Group Association, L.P. ("TOGA"), the Project Owner, claiming that TOGA is responsible for any damage sustained by BAE.
AMEC's Third-Party Complaint alleges that (1) BAE's claims arise out of AMEC's conduct in furtherance of TOGA's best interests and the conduct of TOGA, its architect, consultant and agents; and (2) TOGA is obligated to indemnify AMEC for any recovery to which BAE is entitled.See Third-Party Complaint ("Third Party Compl.") ¶¶ 11, 13, 14.
AMEC now moves this Court for an order staying all proceedings pending BAE's compliance with the dispute resolution provision set forth in the Subcontract. For the reasons set forth below, AMEC's motion is granted.
TOGA filed a cross-motion also seeking to stay the proceedings. TOGA's cross-motion incorporates the arguments raised by AMEC.
I. BACKGROUND
On July 14, 1994, TOGA, the Project owner, and AMEC, entered into a Professional Services Agreement (the "Prime Contract"), under which AMEC was to provide professional construction management and inspection services in connection with the Project. See Prime Contract, Ex. A to Affidavit of Steven Pressler, Executive Vice President of AMEC, in Support of AMEC's Motion for a Stay ("Pressler Aff."). Section 7 of the Prime Contract established a procedure for the resolution of Project-related disputes. See Section 7 of the Prime Contract. AMEC and TOGA revised this procedure by executing Amendment No. 1 to the Prime Contract dated November 28, 1994. See Amendment No. 1, Ex. B to Pressler Aff. Pursuant to the Amendment, Subsection 7.01 of the Prime Contract now reads, in pertinent part:
The Project was designed by an Architect engaged by TOGA.
Disputes Review Board
A Disputes Review Board (DRB) shall be established at the inception of this Project to assist in and facilitate the timely and equitable resolution of all Project-related disputes, claims or other controversies which cannot otherwise be resolved through good faith negotiation. Owner [TOGA], Architect and Construction Manager [AMEC] shall submit such disputes, claims or controversies to the Board for non-binding adjudication.
The DRB is comprised of three members, one member chosen each by TOGA, AMEC and the Architect. See Subsection 7.01(B) of the Prime Contract. The DRB's responsibilities are delineated in the DRB Agreement, which states:
The Board is organized to recommend settlement for disputes, claims and other controversies between the Owner [TOGA], Construction Manager [AMEC] and Architect arising from their respective contracts. Primarily, the Board will consider matters involving interpretation of contract documents, delays, acceleration of the work, scheduling, extra work, differing site conditions, design changes and the like.
Section III of the DRB Agreement, Ex. C to Pressler Aff.
On May 17, 1996, AMEC entered into the Subcontract with BAE for construction of the BHS. See Subcontract, Ex. E to Pressler Aff. Section 21.1 of the Subcontract provides:
The disputes procedure set forth in Section 7 "Disputes" of the Prime Contract and set forth below is specifically incorporated herein and made a part of this Subcontract Agreement. Subcontractor [BAE] agrees to pursue and exhaust first said procedure before commencing any other action for claims it may have arising out of its performance of the Work herein. Upon Subcontractor's written request, Construction Manager [AMEC] agrees to pass on to the Owner [TOGA] all proper claims submitted by Subcontractor under the disputes procedure of the Prime Contract on behalf of and to the extent required by the Subcontractor. Subcontractor agrees to be responsible for preparation and active prosecution of the claims to the extent permitted and shall reimburse Construction Manager all expenses and costs, including attorney's fees, incurred by Construction Manager on behalf of Subcontractor. Construction Manager agrees to pay Subcontractor whatever amount it receives from the Owner for the Subcontractor's claim(s) less a zero percent (0%) markup. Subcontractor agrees that Construction Manager's liability herein is strictly limited to the amount(s) Construction Manager receives from the Owner, less the above noted markup. Construction Manager shall have no liability or obligation to the Subcontractor beyond what is recovered from the Owner on behalf of the Subcontractor (less the markup and costs referred to above) pursuant to this provision.
In September 1998, after substantial completion of construction of the BHS, BAE sent AMEC a claim for the increased costs incurred as a result of AMEC's alleged mismanagement and refusal to grant BAE an extension of time to complete its work. See affidavit Larry Poort, Executive Vice President of BAE, in Opposition to AMEC's Motion to Stay, ¶ 5. Almost one year later, in August 1999, Pressler advised Poort that it was AMEC's position that BAE's claim should be submitted to the DRB. Pressler Aff. ¶ 12; Poort Aff. ¶ 7. Poort disagreed and after AMEC refused to act on the claim, BAE filed this action on January 10, 2001.
II. DISCUSSION
A. Legal Standard
It is well established that the public policy of New York State favors and encourages the enforcement of arbitration and alternative dispute resolution ("ADR") agreements. See Westinghouse Elec. Corp. v. New York City Transit Auth., 82 N.Y.2d 47, 53 (1993); Citibank N.A. v. Bankers Trust Co., 633 N.Y.S.2d 314, 314 (1st Dep't 1995). In deciding a motion to stay court proceedings in favor of an ADR agreement, a court must determine: (1) whether the parties entered into a valid agreement to submit their disputes to ADR; (2) if so, whether the particular dispute comes within the scope of their agreement; and (3) whether there has been compliance with any condition precedent to access to the ADR forum. See County of Rockland v. Primiano Constr. Co., 51 N.Y.2d 1, 5-6 (1980).
B. Analysis
1. Is There a Valid Agreement Requiring AMEC and BAE to Submit Their Disputes to the DRB?
In support of its motion AMEC points to Section 21.1 of the Subcontract, which specifically incorporates the dispute resolution procedure set forth in Subsection 7.01 of the Prime Contract. Subsection 7.01 of the Prime Contract states that the DRB is to handle "all Project-related disputes, claims or controversies. . . ." Further, the second sentence of Section 21.1 of the Subcontract states that the "[s]ubcontractor [BAE] agrees to pursue and exhaust first said procedure before commencing any other action for claims it may have arising out of its performance of the Work herein."
BAE, in turn, argues that the dispute resolution procedure applies only to those claims that are attributable to TOGA's conduct, and not to claims, such as those raised here, that BAE has against AMEC. BAE relies on the third and last sentences of Section 21.1 of Subcontract, which provide:
Upon Subcontractor's [BAE] written request, Construction Manager [AMEC] agrees to pass on to the Owner [TOGA] all proper claims submitted by Subcontractor under the disputes procedure of the Prime Contract on behalf of and to the extent required by the Subcontractor.
Subcontractor [BAE] agrees that Construction Manager's [AMEC] liability herein is strictly limited to the amount(s) Construction Manager receives from the Owner [TOGA], less the above noted markup. Construction Manager shall have no liability or obligation to the Subcontractor beyond what is recovered from the Owner on behalf of the Subcontractor (less the markup and costs referred to above) pursuant to this provision.
According to BAE, if Section 21.1 of the Subcontract governed disputes between AMEC and BAE, these two sentences would prevent BAE from initiating the review process, force AMEC to "pass on" claims against itself, and prohibit BAE from recovering for damages caused by AMEC's breaches.
"Under New York law, a written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language they have employed." Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir. 1992); see also PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996) ("In interpreting a contract, `[words and phrases are given their plain meaning.'"). "In interpreting . . . contracts, [courts] must glean the parties' intentions as expressed in the language they used, and not whatever unexpressed views may have existed in their minds.". Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1178 (2d Cir. 1995). Where a contract is unambiguous
[a] court may neither rewrite, under the guise of interpretation, a term of the contract when the term is clear and unambiguous, nor redraft a contract to accord with its instinct for the dispensation of equity upon the facts of a given case. Further, the entire contract must be considered, and all parts of it reconciled, if possible, in order to avoid an inconsistency.Cruden, 957 F.2d at 976 (citations omitted). "The language of a contract is not made ambiguous simply because the parties urge different interpretations. Nor does ambiguity exist where one party's view strains the contract language beyond its reasonable and ordinary meaning." Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992) (quotation marks, citation and alteration omitted).
The language of a contract is ambiguous if it is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Seiden Assocs., 959 F.2d at 428 (quotation marks omitted)
BAE's position is without merit. Section 21.1 of the Subcontract unambiguously incorporates the dispute resolution procedure set forth in Subsection 7.01 of the Prime Contract and clearly requires BAE to "pursue and exhaust" that procedure prior to commencing any other action for claims "arising out of its performance of the Work herein." Nothing in this language limits the dispute resolution procedure to those claims attributable to TOGA's conduct. Although the third sentence of Section 21.1 of the Subcontract requires BAE to submit its claims to AMEC who in turn must "pass on" BAE's claims to TOGA, this provision merely provides the mechanism for invoking the dispute resolution procedure — it does not define its scope. Further, contrary to BAE's assertion, the limitation on AMEC's liability has no effect on the plain meaning of Section 21.1 of the Subcontract. This limitation only addresses the consequences of a successful claim against AMEC. Indeed, if the parties did not intend for Section 21.1 of the Subcontract to cover BAE's claims against AMEC, this provision would be unnecessary. Accordingly, I find that the parties entered into a valid agreement requiring them to submit their disputes to the DRB.
AMEC alleges that "BAE's claims arise out of conduct by [AMEC] that was in furtherance of TOGA's best interests [as well as] conduct by TOGA and its architect, consultants and agents." Third-Party Compl. ¶ 13 (emphasis added). Accordingly, even if Section 21.1 of the Subcontract applied only to "pass-through" claims, it is likely that BAE's claims would still be subject to the dispute resolution procedure.
2. Do BAE's Claims Come Within the Scope of The Agreement?
BAE asserts that the dispute resolution procedure only applies to claims which arise while the work is in progress and its claims against AMEC did not arise until after substantial completion of its work on the Project. BAE attempts to find support for this assertion in the language of the DRB Agreement as well as New York case law. Again, BAE's argument is without merit.
First, BAE points to language contained in the DRB Agreement, which states that the DRB was established "to assist in the resolution of disputes, claims, and other controversies arising during Design and Construction. . . ." Section I of the DRB Agreement (emphasis added). However, BAE fails to recognize the difference between when claims arise and when they are raised. Pursuant to Section 21.1 of the Subcontract, BAE agreed "to pursue and exhaust first said procedure before commencing any other action for claims it may have arising out of its performance of the Work herein." Section 1F of the General Conditions, which is incorporated into the Subcontract, states:
The term "Work" means the furnishing of labor and material undertaken by the Subcontractor pursuant to the Contract Documents. Work includes, unless specifically excepted, the furnishing of all material, labor, equipment, supplies, plans, tools, scaffolding, transportation, superintendence, temporary construction of every nature, contribution to union funds and benefits, insurance, taxes and all other services and facilities necessary for the full performance and completion of the requirements of Contract Documents. Work also means that which is produced, constructed or built pursuant to the Contract Documents.
BAE's claims, by their very nature, arise from its work on the project, notwithstanding the fact that it raised them after substantial completion.
Second, BAE's reliance on the Court of Appeals decision in County of Rockland, supra, is misplaced. The construction contract at issue inCounty of Rockland required that certain types of claims — those "relating to the execution or progress of the Work" — be submitted to the project architect for mediation before they could be submitted to arbitration. Id. at 10. Two years after the project was completed, the contractor submitted a claim for delay damages to arbitration without first submitting its claim to the architect for mediation. The Court denied the owner's motion to stay the arbitration pending compliance with the mediation provision on the grounds that the architect's authority, which centered on the operational phases of construction, ended upon substantial completion of the project and therefore so did the pre-arbitration requirement. See id.
The other cases cited by BAE apply the reasoning set forth in County of Rockland and need not be individually distinguished.
This case, unlike the County of Rockland case, does not involve the interpretation of a condition precedent for submitting a claim to arbitration. Nowhere in the language of the Prime Contract or Subcontract is there a distinction with respect to the types of claims that must be submitted to the DRB. Unlike the architect in County of Rockland, the DRB was established to "assist in and facilitate the timely and equitable resolution of all Project-related disputes, claims or other controversies" and has no authority or responsibility with respect to the general administration of the Project. Subsection 7.01 of the Prime Contract (emphasis added). Further, the DRB Agreement expressly states that the DRB will consider "matters involving interpretation of contract documents, delays, acceleration, of the work, scheduling extra work, differing site conditions, design changes, and the like." Section III of the DRB Agreement.
3. Has There Been Compliance with Any Condition Precedent to Access to the DRB?
Contrary to BAE's assertion, AMEC did not waive its right to invoke the dispute resolution procedure. Section 21.1 of the Subcontract requires BAE to submit a written request to AMEC to "pass on" its claims to TOGA and the DRB. Although BAE sent its claims to AMEC in September 1998, there is no evidence that a written request to "pass on" its claims was ever made. Pressler testified that "BAE has never requested that AMEC submit this (or any other claim) to the Disputes Review Board." Pressler Aff. ¶ 12. BAE does not assert otherwise. BAE's failure to comply with the procedure set forth in Section 21.1 of the Subcontract does not constitute a waiver on AMEC's behalf.
III. CONCLUSION
For the reasons stated above, AMEC's motion to stay these proceedings pending BAE's compliance with the dispute resolution procedure set forth in the Subcontract is granted. However, if AMEC refuses to submit BAE's claims to the DRB, the stay shall be lifted immediately. The parties are further directed to notify this Court of the status of BAE's claims immediately following the DRB's decision.