Opinion
12553/05.
Decided October 4, 2006.
Robert A. Dashow, Esq., Gottesman, Wolgel, Malamy, Flynn Weinberg, P.C. New York, New York, Counsel for Plaintiff.
Mario A. Biaggi, Jr., Esq., Biaggi Biaggi, New York, New York, Counsel for Defendant.
Upon the foregoing papers, plaintiff Centennial Insurance Company (plaintiff or Centennial) moves, pursuant to CPLR 3212, for, among other equitable and declaratory relief, an order granting summary judgment on its first cause of action to enforce the terms of an indemnity agreement executed by defendants 4-A General Contracting Corp. (4-A), Anastasia Gouzos (Gouzos), and Spiros Anthoulis (Anthoulis) (collectively defendants), in the amount of $890,629.41 plus interest, costs and fees for bond payments to date; directing defendants, jointly and severally, to post and provide collateral with plaintiff in sums no less than $504,498.56; and directing defendants, jointly and severally, to post and provide collateral with plaintiff in sums no less than $1,726,000.00 plus interest. Defendants cross-move to amend their answer to assert a counterclaim for damages in the sum of $20,000,000.00 based upon plaintiff's unreasonable demand for collateral.
That branch of plaintiff's motion seeking the appointment of a receiver has been withdrawn.
This is an action to recover sums allegedly due from defendants pursuant to a General Indemnity Agreement (the Agreement) executed in connection with performance and payment bonds issued by plaintiff, as surety, running in favor of the New York City Housing Authority (NYCHA). Under the terms of the bonds, plaintiff undertook that 4-A, as principal, would perform executed contracts for certain construction projects for NYCHA. As consideration for the issuance of the bonds, defendants agreed to indemnify plaintiff for any losses sustained by plaintiff thereunder and to post collateral upon demand as set forth in the Agreement. Defendants' promise to indemnify plaintiff also included payment of expenses and counsel fees.
After the parties executed the Agreement, plaintiff received claims from 4-A's subcontractors, suppliers, and materialmen for the bonded projects. As a result, plaintiff paid these claimants $890,629.41. In addition, plaintiff, as surety, and 4-A, have been sued in the United States District Court for the Southern District of New York by Abatech Industries, Inc. based upon 4-A's alleged failure to pay for supplies, labor and materials in the amount of $504,498.56 for certain bonded construction projects. Centennial has also been sued by various plaintiffs in the Supreme Court, New York County, based upon 4-A's alleged failure to pay prevailing wages and supplemental benefits for several bonded projects in amounts not less than $7,086,225.11, plus interest.
By letter dated December 28, 2005, plaintiff notified defendants of the above claims and made a demand that defendants post collateral in the sum of $1,726,000 as required under the terms of the Agreement, but received no response from defendants. In particular, the letter apprised defendants that plaintiff had received and made payment on bond claims for several of 4-A's subcontractors and suppliers in the amount of $890,629.41. Plaintiff also informed defendants of the two lawsuits pending against plaintiff, and the amount of damages demanded for each suit (Abatech suit [$504,498.56] and the "prevailing wage claim" suit [$7,068,225.11]). Explaining that the Agreement obligated the individual indemnitors to post collateral upon demand, plaintiff made a "demand for payment of collateral not less than the sum of $1,726,000.00 to be received no later than 10 days" upon defendants' receipt of the demand letter.
Thereafter, by summons and verified complaint, plaintiff commenced the instant action, seeking, among other things, sums allegedly due from defendant pursuant to the terms of the Agreement. Defendants interposed their answer, generally denying the allegations in the complaint. Plaintiff then moved for the summary judgment, and defendants cross-moved to amend their answer. These motions are presently before the court.
Arguments
Plaintiff argues that it is entitled to judgment on its claims for indemnification and the posting of collateral pursuant to the Agreement. In opposition to the motion, defendants concede their obligation to indemnify plaintiff for its bond losses to date in the amount of $890,629.41, but argue that they are not required under the Agreement to tender any collateral concerning the amount paid other than that which would be considered "reasonable." Defendants further assert that they can satisfy the promise to post collateral by an assignment of receivables owed to them from NYCHA in the approximate sum of $6,000,000.00. They claim that this assignment of receivables constitutes reasonable collateral under the Agreement. Defendants cite the provision of the Agreement which obligates them to indemnify plaintiff and "pay over to it all money which the plaintiff . . . shall pay . . . as soon as it shall become liable therefore" as indicating that plaintiff's request for collateral is premature inasmuch as no liability has attached with respect to the Abatech and prevailing wage claim suits. They also maintain that the request for collateral for the prevailing wage claim suit should be denied because the suit is four years old, has been stayed, and has been marked off the trial calender.
As for plaintiff's claim for legal and consulting services, defendants concede that the Agreement provides that "payments paid by the surety shall be prima facia [sic] evidence of the facts and the amount of liability of the undersigned to the surety," but argue that the Agreement does not preclude them from engaging in discovery to determine the reasonableness and veracity of those payments.
Discussion
Defendants concede that they executed the Agreement and that plaintiff has made a prima facie showing of entitlement to summary judgment for indemnity of its bond losses to date in the amount of $890,629.41, by submitting the sworn affidavit of plaintiff's Surety Claims Specialist, the Agreement, the bonds, and documentation of payment including copies of cancelled checks in support of that amount ( see Lee v. T.F. DeMilo Corp., 29 AD3d 867, citing Utica Mut. Ins. Co. v. Magwood Enters., 15 AD3d 471, 472; Dramar Constr. v. G A Renovation Restoration, 302 AD2d 487; International Fidelity Ins. Co. v. Spadafina, 192 AD2d 637, 639).
Plaintiff has also made a prima facie showing entitling it to summary judgment on its cause of action for the posting of collateral security by defendants."It is well settled that a surety may secure its rights by a written contract with the principal or another who promises to make good for the loss" ( Fischman v. Superintendent of Ins. [ In Re N.Y Sur. Co.], 300 AD2d 401). "When interpreting contracts . . . when parties set down their agreement in a clear, complete document, their writing should . . . be enforced according to its terms" ( Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470, 475).
Paragraph 7 of the Agreement provides, in pertinent part, that:
"If the Surety shall set up a reserve to cover any contingent claim or claims, loss, costs, attorneys' fees and/or other expenses in connection with any such Bond the Undersigned, within ten (10) days after receipt of written demand, as evidenced by registry or certified mail return receipt, will pay to the Surety current funds in an amount equal to such reserve, and any subsequent increase thereof, such funds to be held by the Surety as collateral, in addition to the indemnity afforded by this instrument, with the right to use the same or any part thereof, at any time, in payment or compromise of any judgment, claim, liability, loss, damage, attorneys' fees and disbursements or other expenses. Demand shall be sufficient if sent by registered or certified mail to the Undersigned at the address given herein or last known to the Surety (emphasis added)."
Paragraph 9 provides:
"The vouchers or other evidence of payments made by the Surety shall be prima facie evidence of the fact and amount of the liability of the Undersigned to the Surety."
Thus, pursuant to the Agreement, defendants are required to furnish collateral security upon plaintiff's demand if plaintiff has set up a reserve to cover a claim asserted against plaintiff. In the Reply Affirmation of counsel it is asserted that plaintiff has set up the required reserve and due demand for collateral has been served upon defendants. Plaintiff submitted proof that it has received claims under the bonds it issued on behalf of defendants, and has been sued thereon; it thus is entitled to specific performance of that part of the Agreement requiring defendants to furnish collateral security ( Colonial Sur. Co. v. Genesee Valley Nurseries, Inc., 5 AD3d 1024, 1025, citing BIB Constr. Co. v. Fireman's Ins. Co., 214 AD2d 521, 523). However, the amount of collateral to which plaintiff is entitled at this time is limited to the amount demanded. As noted above, in its demand letter, plaintiff demanded collateral in the amount of $1,726,000.00. Thus, it is only entitled to that amount, and its claim for an additional $504,498.56 in collateral is denied.
Defendants have failed to raise a triable issue of fact in opposition to plaintiff's demand for collateral. Defendants argue that they can satisfy the promise to post collateral by an assignment of receivables which they state are due to 4-A from NYCHA. However, as plaintiff argues, the offer of the assignment of the receivables does not satisfy the clear and unambiguous terms of the promise in the Agreement to post collateral since the receivables do not constitute "current funds," which can be used by plaintiff "at any time, in payment or compromise of any judgment, claim, liability, loss, damage, attorneys' fees and disbursements or other expenses." Moreover, the receivables are not available for defendants to assign. NYCHA's Inspector General's Office and the New York State Attorney General's Office have directed NYCHA to withhold earned contract monies from 4-A's various contracts with NYCHA and to refrain from releasing payment to any entity until it concludes its joint civil and criminal investigation into 4-A for its alleged failure to pay its laborers prevailing wages on its NYCHA contracts, as required by federal law. Such sums do not, therefore, satisfy defendants' obligation to post collateral.
Defendants also argue that plaintiff's claim for collateral is premature because no liability has attached with respect to the Abatech suit and since the prevailing wage claim suit has been stayed and marked off the calendar. This argument is rejected. As noted, plaintiff has submitted the Agreement, the letter demanding the posting of collateral, and the summons and complaints in the lawsuits noted above, which constitute claims/demands under the subject bonds, demonstrating plaintiff's exposure to significant liability. While the prevailing wage claim suit has been stayed and marked off the calendar, it has not been dismissed, and thus constitutes exposure of liability to plaintiff. In sum, since it is undisputed that plaintiff has set up a reserve for its exposure to the potential losses in the pending lawsuits, and since collateral has been demanded therefore, defendants are obligated under the Agreement to post collateral in the amount demanded ( see Colonial Surety Co v. Genessee Valley Nurseries, Inc., supra; BIB Const Co, Inc.v Fireman's, supra; American Motorists Ins. Co. v. Trans Int'l Corp., 265 AD2d 280).
Plaintiff also seeks summary judgment on its claim for counsel and consultant fees. "Indemnification agreements which include provisions by which the indemnitor agrees to compensate the indemnitee for an attorney's fee are enforceable" (id. at 281). "The indemnitee must, however, demonstrate that it reasonably and in good faith incurred such a fee" ( id.).
Here, Paragraph 6 of the Agreement provides that:
"They will indemnify the Surety and hold it harmless from and against all liability, losses, costs, damages, attorneys' fees, disbursements, and expenses of every nature which the Surety may sustain or incur by reason of having executed or procured the execution of any such Bonds . . .
Paragraph 14 of the Agreement provides that:
"In any action, suit or proceeding brought by the Surety to enforce any of the covenants of this instrument, the costs and expenses, including attorneys' fees, incurred by the Surety in connection therewith may be included in any judgment or decree rendered against the Undersigned. Failure of the Surety to pursue any remedy against any one or more of the Undersigned shall not effect a release of or waiver of any right against any other of the Undersigned. Separate suits against one or more of the Undersigned may be brought hereunder as causes of action accrue, and the bringing of suit and the recovery of judgment on the same cause of action against any other of the Undersigned, or against any or all of the Undersigned, upon other causes of action, whether theretofore or thereafter arising."
Relying upon the provision of the Agreement that plaintiff's vouchers are prima facie evidence of these fees, Plaintiff argues that the Agreement obligates defendants to pay it for its attorney's and consultant's fees. Plaintiff's claims' specialist, Ms. Nancy Manno, states conclusorily in her sworn affidavit that she has annexed copies of checks remitted to counsel in the amount of $63,401.68. Such checks do not, however, establish that the fees charged were reasonable or were even related to this matter.
In opposition, defendants contend that the Agreement does not preclude it from engaging in discovery to determine the reasonableness and veracity of these payments, and suggests there is an issue of fact as to whether the payments were fraudulent. Defendants assert that until discovery is conducted, the court should not enter judgment for said fees or direct the posting of any collateral in connection therewith.
In reply, plaintiff asserts, among other things, that having failed to engage in discovery for at least one year, and having only sought discovery after the motion for summary judgment was served, defendants waived the right to engage in discovery. Plaintiff also argues that defendants have failed to set forth how the discovery they seek might lead to contrary admissible evidence.
Defendants had ample opportunity to obtain discovery with respect to the reasonableness of the payments made for counsel fees and other expenses before the filing of the instant motion, yet failed to do so. Accordingly, they are foreclosed from obtaining discovery now ( see Household Bank, N.A. v. Mitchell, 12 AD3d 568, 569; Karakostas v. Avis Rent a Car Sys., 301 AD2d 632, 633). Nevertheless, this branch of plaintiff's motion is granted only to liability. While plaintiff is entitled to reimbursement of legal fees and other expenses pursuant to the Agreement, plaintiff has failed to make a prima facie showing indicating the precise amount to which it is entitled and whether it reasonably and in good faith incurred these fees. As to the amount to which plaintiff is entitled, plaintiff annexes copies of checks remitted to its counsel purportedly in the amount of $63,401.68, yet the amount expended for counsel fees based upon the copies of the annexed cancelled checks appears to be more than twice that figure. A review of the copies of the checks annexed to Ms. Manno's affidavit indicates that the total amount remitted to plaintiff's counsel (Gottesman, Wolgel, Secunda, Malamy Flynn, P.C.), was $198,409.13, not $63,401.68. Moreover, there are additional checks payable to the firm of Cashin Spinelli Ferretti et al. (a consulting firm), in the amount of $359,699.51; to Wolf Samson, P.C., in the amount of $16,962.53; and to C R Credit Services Inc., in the amount of $1,350.00. Thus, plaintiff has failed to demonstrate the amount it claims for counsel fees and other expenses.
Any claim for reimbursement of attorney's fees must, moreover, be supported by an affidavit of counsel as to the reasonable value thereof. Although it is true that the Agreement provides that vouchers constitute "prima facie evidence of the fact and amount of the liability of the Undersigned to the Surety," mere submission of copies of the front and backs of checks fails to demonstrate that these fees were reasonable and incurred in good faith. That branch of the motion for counsel fees and other expenses is granted as to liability only with the sum of the damages reserved pending submission of proof detailing the services provided for and a sworn affidavit from counsel with knowledge of the services provided explaining how the fees were incurred.
Defendants cross-move to amend their answer to assert a counterclaim for damages in the sum of $20,000,000.00 based upon plaintiff's unreasonable demand for collateral. Specifically, Spiros Anthoulis argues in a sworn affidavit in support of the cross motion that plaintiff's unreasonable claim for the posting of collateral beyond the NYCHA receivables is preventing defendants from maintaining their business; is threatening 4-A's viability by preventing it from using collateral, free and clear of plaintiff's claim, to secure additional work; and that refusal to accept defendants' assignment of NYCHA receivables is causing defendants substantial financial hardship and is unreasonable in the context of this proceeding.
"While it is true that motions for leave to amend pleadings are to be liberally granted in the absence of prejudice or surprise . . . it is equally true that the court should examine the sufficiency of the merits of the proposed amendment when considering such motions" ( Zabas by Zabas v. Kard, 194 AD2d 784 ([1993]). "Where . . . the proposed amendments are totally devoid of merit and are legally insufficient, leave to amend should be denied ( id.).
Here, plaintiff correctly argues that the premise of the proposed amendment is that plaintiff is obligated to accept assignment of funds held by NYCHA in satisfaction of its promise to post collateral. Inasmuch as the court has already rejected this argument, it finds that the proposed counterclaim lacks merit. Even assuming this were not the case, defendants have failed to substantiate their claim of a purported $20,000,000.00 business loss due to plaintiff's refusal to accept the assignment of NYCHA receivables. Defendants have failed to show that they were unable to post collateral for other contracts, nor have they identified any contracts lost or declined because of their obligation to post collateral herein. In sum, defendants' proposed amended counterclaim alleges only unsubstantiated loss, which is insufficient to support their cross-motion to amend.
Summary
That branch of plaintiff's motion for summary judgment on its cause of action to enforce the terms of the Agreement in the amount of $890,629.41 plus interest, costs and fees for bond payments to date is granted. That branch of the motion seeking an order directing defendants, jointly and severally, to post and provide collateral with plaintiff in the amount of $1,726,000.00, is granted. The request for "interest" was not contained in plaintiff's demand, nor is it clear how such "interest" is to be computed, and is accordingly denied. That branch of the motion seeking an order directing defendants, jointly and severally, to post and provide collateral with plaintiff in the amount of $504,589.56 is denied at this time. That branch of the motion for attorney's and consultant fees is granted as to liability with the amount of the award reserved pending submission of proof detailing the services provided and the reasonableness of the fees charged. The remaining branches of the motion are denied as either relief sought in the alternative ( see complaint) or duplicative relief already requested. All other claims are severed.
Counsel shall appear in Room 756 of the Supreme Court, 360 Adams Street, Brooklyn, New York at 9:45 am on November 8, 2006 for conference.
This constitutes the decision and order of the court.