Opinion
No. 2013–602666.
04-24-2015
DiPIZIO CONSTRUCTION COMPANY, INC., and Travelers Casualty and Surety Company of America, Plaintiffs, v. ERIE CANAL HARBOR DEVELOPMENT CORPORATION, Defendant. DiPizio Construction Company, Inc., and Travelers Casualty and Surety Company of America, Plaintiffs, Erie Canal Harbor Development Corporation, Defendant. DiPizio Construction Company, Inc., Plaintiffs, New York State Urban Development Corporation d/b/a Empire State Development, Erie Canal Harbor Development Corporation, Sam Hoyt, Thomas Dee, and Mark E. Smith, Defendants. DiPizio Construction Company, Inc., and Travelers Casualty and Surety Company of America, Plaintiffs, Index No.2013–803777 (Declaratory Judgment Action) v. Erie Canal Harbor Development Corporation, Defendant. DiPizio Construction Company, Inc., Plaintiffs, v. New York State Urban Development Corporation d/b/a Empire State Development, Erie Canal Harbor Development Corporation, Sam Hoyt, Thomas Dee, and Mark E. Smith, Defendants.
Law Offices of Daniel W. Isaacs, PLLC, Daniel W. Isaacs, Esq., of Counsel, attorneys for Co–Plaintiff, DiPizio Construction Company, Inc. Torre, Lentz, Gamell, Gary & Rittmaster, LLP, Benjamin D. Lentz, Esq., of Counsel, attorneys for Co–Plaintiff, Travelers Casualty and Surety Company of America. Phillips Lytle, LLP, Wiliam J. Brennan, Esq., Of Counsel, Andrew P. Devine, Esq., Of Counsel, attorneys for defendants.
Law Offices of Daniel W. Isaacs, PLLC, Daniel W. Isaacs, Esq., of Counsel, attorneys for Co–Plaintiff, DiPizio Construction Company, Inc.
Torre, Lentz, Gamell, Gary & Rittmaster, LLP, Benjamin D. Lentz, Esq., of Counsel, attorneys for Co–Plaintiff, Travelers Casualty and Surety Company of America.
Phillips Lytle, LLP, Wiliam J. Brennan, Esq., Of Counsel, Andrew P. Devine, Esq., Of Counsel, attorneys for defendants.
TIMOTHY J. WALKER, J.
These actions have neither been consolidated, nor joined. However, they are related and arise out of a public improvement project to redevelop the site of the former Memorial Auditorium sports arena in the City of Buffalo, New York, known as the the Inner Harbor Development Phase 3A—Canal Side Public Canal Environments Project (the "Project").
In the Contract Action and the Declaratory Judgment Action, Co–Plaintiff, Travelers Casualty and Surety Company of America ("Travelers"), has applied, pursuant to CPLR §§ 3212 and 3001, for summary judgment declaring that it is the assignee and real party in interest of the claims asserted by Co–Plaintiff, DiPizio Construction Company, Inc. ("DiPizio"), against Defendant, Erie Canal Harbor Development Corporation ("Erie Canal") in these actions. Similarly, in the Defamation Action, Erie Canal has applied for an order determining that DiPizio is not the real party in interest to the claims asserted in that action. The claims asserted in all three (3) actions (the "Actions") are collectively referred to herein as the "Claims."
Erie Canal has also applied, pursuant to CPLR § 3025(b) and (c), for leave to amend its Answers in the Actions.
For purposes of judicial economy, this Decision and Order addresses all pending motions in the Actions.
STATEMENT OF FACTS
On or about April 25, 2012, Erie Canal and DiPizio entered into an Owner–Contractor Agreement for the Project, whereby DiPizio would act as the Project's General Contractor (the "Inner Harbor Contract" or "Contract"). Travelers issued both a Performance Bond and a Payment Bond in connection with the Project (collectively, the "Surety Bonds"). DiPizio was named as "Principal" and Erie Canal as "Obligee" on both Surety Bonds.
Travelers' rights and obligations under the Surety Bonds are governed by the General Agreement of Indemnity, entered into between DiPizio and Travelers on or about October 17, 2003 (the "GAI").
The Contract required substantial completion of the Project by May 6, 2013, which was later extended to June 6, 2013. On February 20, 2013, Erie Canal wrote to Travelers, advising it of its concerns with DiPizio's performance and requesting Travelers' involvement in the Project. On March 15, 2013, all three parties, together with representatives of The LiRo Group (Erie Canal's Construction Manager) ("LiRo"), met in the City of Buffalo, New York. As a result of that meeting, Travelers retained the consulting firm of Cashin, Spinelli & Ferretti (the "Cashin Firm"), and representatives of Travelers and the Cashin Firm began attending the weekly construction meetings held among Erie Canal, DiPizio, LiRo, and others.
By early May 2013, Erie Canal had determined that the Project was far behind schedule and, as a result, on May 8, 2013, it sent a Notice of Intent to Terminate DiPizio as the General Contractor. Five days later, DiPizio commenced the Contract Action, in which it sought, inter alia, a preliminary injunction barring Erie Canal from terminating DiPizio as the General Contractor. After an evidentiary hearing, this Court denied DiPizio's application for a preliminary injunction (for the reasons set forth in a Decision, dated July 12, 2013).
By letter dated July 22, 2013, Erie Canal terminated DiPizio as the Project's General Contractor (the "Declaration of Default").
On September 13, 2013, DiPizio commenced the Defamation Action, in which it asserts causes of action for defamation, injurious falsehood, tortious interference with contract and punitive damages. In a Decision and Order, dated February 6, 2014, the Court dismissed the claims for injurious falsehood and punitive damages.
On September 23, 2013, Travelers and Erie Canal entered into a "Takeover Agreement," pursuant to which Travelers is currently completing performance of the Contract.
In November 2013, DiPizio commenced the Declaratory Judgement Action, in which it seeks, inter alia, a judgment declaring that the Performance Bond has not been triggered and that Erie Canal has no right to performance thereunder.
Travelers is a co-plaintiff in both the Contract Action and the Declaratory Judgment Action, pursuant to a Stipulation among Travelers, DiPizio and Erie Canal, dated August 14, 2014, which was "So Ordered" by the Court on August 19, 2014 (the "Stipulation"). Travelers has served complaints against Erie Canal in each action, seeking to recover damages as assignee of DiPizio's claims against Erie Canal; as well as its own damages resulting from completion of the Contract pursuant to the Takeover Agreement, and arising out of the Declaration of Default and Erie Canal's demand that Travelers complete performance of the Contract. Erie Canal has denied liability to Travelers, and has asserted counterclaims for liquidated damages, attorneys' fees, and increased architect/construction management fees.
The Stipulation provides that Travelers is permitted to intervene as a plaintiff, but does not resolve which of DiPizio's claims, if any, have been assigned to Travelers pursuant to the GAI.
STANDARD OF REVIEW
To obtain summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law ( Ferluck AJ v. Goldman Sachs & Co., 12 N.Y.3d 316, 320 [2009] ). This requires sufficient evidence to shift the burden to the opposing party to produce evidentiary proof sufficient to establish the existence of genuine issues of material fact ( Id at 320, 880 N.Y.S.2d 879, 908 N.E.2d 869 ). "Mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat summary judgment ( Gilbert Frank Corp. v. Fev. Ins. Co., 70 N.Y.2d 966, 967 [1988] [citation omitted] ).
Moreover, factual issues raised by the opposing party must be genuine, as opposed to speculative ( Trahwen LLC v. Ming 99 Cent City No.7, Inc., 106 A.D.3d 1467, 1468, 965 N.Y.S.2d 264 ).
DISCUSSION
Whether There Has Been A Default Under The GAI
DiPizio and others executed the GAI in favor of Travelers as an inducement to, and in consideration of, Travelers issuing the Surety Bonds on behalf of DiPizio.
The GAI defines "contract" as an agreement for which Travelers issues a surety bond (GAI, ¶ 1). It is undisputed that the GAI includes the Contract that is the subject of these Actions.
The GAI defines "Default" as including,
[a]ny of the following ...:(a) a declaration of Contract default by the obligee or entity for whom a Contract is performed; (b) actual breach or abandonment of any Contract; (c) a breach of any provision of this Agreement; (d) failure to make payment of a properly due and owing bill in connection with any Contract; [and] (e) the Company's good faith establishment of a Reserve ... (GAI, ¶ 2).Erie Canal contends that a "Default" occurred upon its Declaration of Default. Travelers contends that all four events of "Default" have occurred.
Default Under the GAI—Declaration of Default
Erie Canal and Travelers contend that a default occurred upon issuance of the Declaration of Default. DiPizio contends that the mere declaration of a default under the Contract is insufficient to trigger a default under the GAI, because this Court has not yet determined whether Erie Canal had a basis for issuing the Declaration of Default.
However, a default on a construction contract, like the Contract, does not require a judicial determination of default in order to trigger the assignment provisions of a surety/indemnity contract, like the GAI ( BIB Constr. Co. v. Fireman's Ins. Co. of Newark, N.J ., 214 A.D.2d 521, 523–24, 625 N.Y.S.2d 550 [1st Dept 1995] ["Once the City [the owner] declared plaintiff [the [contractor] in default and demanded that defendant, as surety, fulfill plaintiff's obligations, defendant was required to comply, regardless of its own belief in the correctness of the City's action"] [emphasis added]; see also, General Acc. Ins. Co. of America v. Merritt–Meridian Const. Corp., 975 F.Supp. 511, 516 [SDNY 1997] ["It is irrelevant whether Merrit [the contractor] ... actually defaulted on their contracts with the owners, so long as GAIC [the surety] acted in good faith in ... completing the performance under the construction contracts"], applying New York law and citing BIB ).
Moreover, it is well settled that indemnity agreements, such as the GAI, are enforceable in New York, and govern the relationship between the parties thereto ( Travelers Indem. Co. v. Buffalo Motor & Generator Corp., 58 A.D.2d 978, 397 N.Y.S.2d 257 [4th Dept 1977] ; BIB Constr. Co., 214 A.D.2d 523] ). Where the terms of the indemnity agreement are unambiguous, the Court must give effect to the express rights and obligations of the parties contained therein and such interpretation is an issue of law that may be determined on a motion for summary judgment ( North American Specialty Ins. Co. v. Montco Const. Co., Inc., 2003 WL 21383231 *5 [WDNY May 9, 2003], applying New York law).
The GAI is unambiguous, and it defines "default" as including "a declaration of Contract default by the obligee or entity for whom a Contract is performed" (GAI, ¶ 2). Such definition is limited to a mere declaration of default, and does not require a judicial determination that the declaration was correct.
Default Under the GAI—Actual Breach or Abandonment of any Contract; Breach of any Provision of the GAI; and Failure to Make Payment of a Properly Due and Owing Bill in Connection with any Contract
Between 2010 and 2014, Travelers provided surety bonds on behalf of DiPizio in connection with four (4) construction projects that are unrelated to the instant Project (the Non–Inner Harbor Projects"), all of which are governed by the GAI. The GAI acts as an umbrella agreement embracing Travelers' relationship as surety on projects where DiPizio is the general contractor.
Travelers contends that DiPizio has failed to reimburse it for its net losses of $1,763,230.74 relative to the Non–Inner Harbor Projects, and that such losses arise out of payment bond claims made by DiPizio's unpaid suppliers and subcontractors. Travelers further contends that DiPizio has confirmed that all of these payments were due with one exception, namely $102,426.26 paid to Paul J. Gallo Contracting, Inc. ("Gallo"), where Travelers made a binding settlement pursuant to the "Claim Settlement" provision of the GAI (GAI, ¶ 5).
In August 2014, Travelers commenced an action against DiPizio and other indemnitors in the United States District Court, Western District of New York, to recover these losses (the "Federal Action").
The Federal Action is styled, Travelers Casualty and Surety Company of America v. DiPizio Construction Company, Inc., Boehmer Transportation Corp., Great Lakes Concrete Products, LLC, Bernard DiPizio, and Laurice Boehmer, 14–cv–00576 (RJA).
Turning to the Project, Travelers contends that it has paid a net total of $1,688,757.49 to DiPizio's suppliers and subcontractors in connection with the Contract, for which DiPizio has failed to reimburse it.
DiPizio's repeated failures to reimburse Travelers for these nets losses, which collectively exceed $3.45 million between the Project and the Non–Inner Harbor Projects, constitute events of default under those provisions of the GAI, which define "default" as,
(b) actual breach or abandonment of any Contract; (c) a breach of any provision of this Agreement; [and] (d) failure to make payment of a properly due and owing bill in connection with any Contract ... (GAI, ¶ 2).
DiPizio's submissions do not dispute the amount of net losses Travelers contends to have sustained in connection with the Project and the Non–Inner Harbor Projects, nor does it address or otherwise refute Travelers' contention that DiPizio's failure to reimburse it for such losses constitute events of default under the GAI.
Default Under the GAI—Travelers' Good Faith Establishment of a Reserve
It is undisputed that Travelers has established a reserve in the amount of $14,812,930.46 for all losses, costs, and expenses incurred and to be incurred as a result of issuing the Surety Bonds in connection with the Project (and other surety bonds relative to the Non–Inner Harbor Projects), all of which are covered by the GAI. Accordingly, DiPizio has defaulted under that provision of the GAI which defines an event of default as "(e) the Company's good faith establishment of a Reserve" (GAI, ¶ 2).
DiPizio's submissions fail to address or otherwise refute Travelers' contention that the establishment of such reserve constitutes an event of default under the GAI.
For the foregoing reasons, the Court has determined that DiPizio has defaulted under the GAI.
Whether The Claims Were Assigned To Travelers
Whether the Claims Grow Out of the Inner Harbor Contract
Having determined that DiPizio has defaulted under the GAI, Travelers is entitled to exercise those remedies identified in paragraph 7 thereof, which include, inter alia, the following:
In the event of a Default, [DiPizio] assign[s], convey[s], and transfer[s] to the [Travelers] all of [its] rights and interest growing in any manner out of the Contracts.... In addition, in the event of a Default, [Travelers] shall have a right in sole discretion to: ... (c)Assert or prosecute any right or claim in the name of [DiPizio] ... (GAI ¶ 7) (emphasis added).
New York courts have routinely found similar assignment provisions of indemnity contracts to be valid and enforceable (see James McKinney & Son, Inc. v. Lake Placid 1980 Olympic Games, Inc., 61 N.Y.2d 836, 838 [1984] ["By the terms of the continuing indemnification agreement, all rights that plaintiff had ‘in or growing in any manner out of’ its contract with [the owner] were fully assigned to [the surety], at the latest, when plaintiff filed for bankruptcy. Consequently, plaintiff is no longer the real party in interest with respect to claims against [the owner] by virtue of this assignment"]; see also, Hutton Constr. Co. v. County of Rockland, 52 F.3d 1191, 1192 [2d Cir1995] ["The Agreement of Indemnity unambiguously provides that all [of the contractor's] rights growing in any manner out of the insured contracts were assigned to the Sureties when [the contractor] breached the Agreement by failing to indemnify the Sureties on demand"] ).
DiPizio attempts to distinguish McKinney on the basis that plaintiff's bankruptcy triggered the default, while DiPizio has not filed for bankruptcy protection. DiPizio's contention is misplaced, because the Court has already determined that DiPizio has defaulted under the GAI for reasons tied to that agreement irrespective of a bankruptcy filing. Moreover, the Court of Appeals did not hold that the contractor's bankruptcy filing triggered the default. Rather, it left open the possibility that the default may have occurred sooner, by stating that the assignment occurred "at the latest, " when plaintiff filed for bankruptcy" (Id., 61 N.Y.2d at 838, 473 N.Y.S.2d 960, 462 N.E.2d 137 ) (emphasis added).
It is undisputed that the causes of action in the Contract Action that DiPizio has labeled as "contract" claims grow out of the Contract. However, DiPizio disputes that the causes of action that are labeled as "tort" claims grow out of it.
The Amended Hybrid Verified Complaint and Article 78 Petition, dated November 5, 2013, in the Contract Action (the "Amended Complaint/Petition") contains the following six (6) tort claims: fraudulent inducement into the Contract (First Cause of Action); fraudulent inducement into the Performance Bond (Second Cause of Action); coercion/duress (Third Cause of Action); tortious interference with business relations between DiPizio and the New York State Department of Environmental Conservation ("NYSDEC") (Fourth Cause of Action); tortious Interference with business relations between DiPizio and Travelers (Fifth Cause of Action); and prima facie tort (Sixth Cause of Action) (collectively, the "Tort Claims").
Clearly, the Tort Claims grow out of the Contract, as the term "growing in any manner out of" is used in paragraph 2 of the GAI ( Mezzacappa Brothers, Inc. v. City of New York, 2003 WL 22801429 *6 [SDNY Nov. 24, 2003] ["Plaintiff's claims, though framed as civil rights allegations and not contract claims, sufficiently ‘arise[e] out of’ ... the contracts named in the release"]; see also, Hutton, 52 F.3d at 1192 [in applying New York, the assignment includes all of the general contractor's "affirmative claims"]; McKinney, 61 N.Y.2d at 837–38, 473 N.Y.S.2d 960, 462 N.E.2d 137 [contractor's contract and negligence claims dismissed based on similar "growing in any manner out of" language] ).
DiPizio seeks to distinguish Mezzacappa on the basis that the release referred to therein is broader than the assignment contained in the GAI. The last sentence of the release limits the release both to "[claims] arising out of" and "any way connected with" certain actions and contracts (Id., at *6). DiPizio focuses on the "any way connected with" language of the release, which it contends is broader than the GAI's requirement that the Tort Claims grow out of the Inner Harbor Contract. However, DiPizio ignores that Mezzacappa was not decided on the basis of the allegedly broader language. Rather, it was decided on the court's finding that the claims arose out of certain actions and contracts. The terms "arise out of" and grow out of" are identical and share the same meaning.
In addition, the Tort Claims are replete with references to the Project, the Contract, or documents related to the Project, which provide further evidence that they "grow out of" the Contract.
For the same reasons, the remaining non-contract causes of action in the Amended Complaint/Petition, which are grounded in unjust enrichment (Seventh Cause of Action); injunctive relief (Eighth and Ninth Causes of Action) ; the alleged violation of the State Finance Law (Thirteenth Cause of Action); and punitive damages (Seventeenth Cause of Action) also grow out of the Contract for purposes of paragraph 2 of the GAI.
Moreover, the Eighth and Ninth Causes of Action for injunctive relief have been dismissed (see DiPizio Const. Co. v. Erie Canal Harbor Devel. Corp., 102 A.D.3d 905, 958 N.Y.S.2d 611 [4th Dept 905] ).
Turning to the Declaratory Judgment Action, its lone claim is that the Performance Bond on the Contract was not "triggered," because Erie Canal was in material breach of contract (Complaint, dated November 26, 2013, Wherefore clause). This claim is premised on DiPizio's allegations regarding its Materials Handling Plan and choice of granite for the Project (as made in the Contract Action). However, these claims have been dismissed ( DiPizio, 102 A.D.3d 905, 958 N.Y.S.2d 611 ). Moreover, DiPizio's submissions do not dispute that the Declaratory Judgment Action grows out of the Inner Harbor Contract for purposes of paragraph 2 of the GAI.
Finally, turning to the Defamation Action, it is irrelevant that its remaining claims (defamation and tortious interference with contract) are tort claims, because they grow out of the Contract (see McKinney, Mezzacappa, and Hutton, supra ). For this reason, the Court rejects DiPizio's "law of the case" argument.
Whether Certain of the Tort Claims Should be Construed as Contract Claims
The Court has determined that the Claims grow out of the Inner Harbor Contract for purposes of triggering the assignment provisions of the GAI. However, in order to provide the parties with a complete record, the Court will address whether several of the Tort Claims are simply contract claims labeled as tort claims ( Clark–Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 388 [1987] ["... employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim"] ).
The elements of a claim for fraudulent inducement area knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury" ( Go Smile, Inc. v. Levine, 81 A.D.3d 77, 81, 915 N.Y.S.2d 521 [1st Dept 2010] ).
By contrast, "misrepresentation of future intent to perform under the contract" does not state a cause of action (Id. ).
The Amended Complaint/Petition alleges a "future intent to perform," including that Erie Canal misrepresented that "the [Contract] would be fairly administered" (Amended Complaint/Petition, ¶ 85) (emphasis added); that Erie Canal misrepresented that DiPizio "would be allowed to make a claim under the claim provisions of the [Contract] for reimbursement for soils costs" ( Id., at ¶ 86, 915 N.Y.S.2d 521 ) (emphasis added); and that "the [Contract] would be fairly administered" ( Id., at ¶ 95, 915 N.Y.S.2d 521 ). Accordingly, both purported fraudulent inducement claims (the First and Second Causes of Action) constitute breach of contract claims.
The Fourth Cause of Action for tortious interference with DiPizio's business relations with NYSDEC pertains to DiPizio's Materials Handling Plan. As discussed, this claim has been dismissed ( DiPizio, 102 A.D.3d 905, 958 N.Y.S.2d 611 ).
The Fifth Cause of Action for tortious interference with DiPizio's business relations with Travelers is improperly pled. DiPizio alleges that Erie Canal's "intentional and malicious acts" caused Travelers to refuse to issue new construction surety bonds to it, and "as a result, plaintiff has been unable to bid on projects it expected to be awarded" (Id., ¶¶ 121–122, 958 N.Y.S.2d 611 ). These allegations are inadequate, because DiPizio fails to allege (nor can it allege) that there was an existing agreement with Travelers binding Travelers to continue to issue surety bonds to DiPizio, regardless of substantive changes affecting the underwriting of future surety credit (see NBT Bancorp Inc. v. Fleet/Norstar Fin. Group Inc., 87 N.Y.2d 614, 621 [1996] ["where there is an existing, enforceable contract and a defendant's deliberate interference results in a breach of that contract, a plaintiff may recover damages for tortious interference"] [emphasis added] ).
Moreover, the GAI expressly negates any such agreement to continue to issue new bonds, providing as follows:
Decline Execution: [Travelers] has the right to refuse to provide any Bond, including final Bonds where [Travelers] provided a bid Bond, without incurring any liability whatsoever to [DiPizio] (GAI, ¶ 9).
Whether Travelers Has Acted In Bad Faith In the Contract Action And The Declaratory Judgment Action
DiPizio contends that Travelers' motion should be denied, because Travelers breached the duty of good faith and fair dealing inherent in the GAI by failing to investigate the facts and circumstances surrounding the Declaration of Default. Travelers disputes this contention, and submits that it undertook an investigation by reviewing certain of the testimony elicited during the Preliminary Injunction Hearing, the Court's Decision, dated July 12, 2013, denying DiPizio's motion for a preliminary injunction, and meeting with certain subcontractors.
A surety does not engage in bad faith by exercising its contractual rights:
Once the City declared [the contractor] in default and demanded that defendant, as surety, fulfil plaintiff's obligations, defendant was required to comply, regardless of its own belief in the correctness of the City's action.... In the absence of any indication of fraud or collusion, plaintiff's obligation to indemnify defendant was thereby implicated ( BIB, 214 A.D.2d at 523–24, 625 N.Y.S.2d 550 ).
Similarly, "it is irrelevant whether [the contractor] was actually liable on the underlying debt to [the owner]" ( International Fid. Ins. Co. v. Spadafina, 192 A.D.2d 637, 639, 596 N.Y.S.2d 453 [2d Dept 1993] ). DiPizio has not submitted any evidence that Travelers has partaken in a fraud or collusion.
Moreover, evidence that a surety failed to investigate a claim fully (which DiPizio has not submitted) does not rise to the level of fraud or collusion that DiPizio is required to establish ( Peerless Insurance Co. v. Talia Constr. Co., 272 A.D.2d 919, 708 N.Y.S.2d 223 [4th Dept 2000] ; see also, Maryland Cas. Co. v. Grace, 292 N.Y. 194, 200 [1944] ).
Finally, the Court notes that DiPizio sought to adjourn the return date of the pending motions in order to take the deposition of Douglas Melroy, Travelers' Second Vice President in charge of managing its Construction and Engineering Service Group. DiPizio contended that Mr. Melroy's testimony regarding, inter alia, the extent to which Travelers' conducted the aforementioned investigation, was integral to its defense of the motions. The parties conducted Mr. Melroy's deposition in this Court's Jury Room on March 12, 2015. The deposition lasted less than forty (40) minutes, and DiPizio failed to ask Mr. Melroy any questions about the extent of Travelers' investigation.
Whether Erie Canal Has Acted in Bad Faith In The Defamation Action
DiPizio contends that Erie Canal issued the Declaration of Default based upon false, deceitful, and incomplete information. Accordingly, DiPizio contends that Erie Canal should be equitably estopped from obtaining an order determining that DiPizio is not the real party in interest, because Erie Canal has unclean hands. However, unclean hands is an equitable doctrine that is unavailable where, as here, "the action is exclusively for damages" ( Greco v. Christoffersen, 70 A.D.3d 769, 771, 896 N.Y.S.2d 363 [2d Dept 2010] ).
Moreover, DiPizio has failed to show, by clear and convincing evidence, that Erie Canal (or any of the other Defendants) misrepresented or concealed material facts, or that it relied upon any alleged misrepresentations and detrimentally changed its position ( Cent. Fed. Sav. F.S.B. v. Laurels Sullivan Cnty. Estates Corp., 145 A.D.2d 1, 537 N.Y.S.2d 642 [3d Dept 1989] ).
Whether The Takeover Agreement Supercedes The GAI
The Takeover Agreement provides, in relevant part, as follows:
Without waiving any rights or defenses of the Principal [i.e., DiPizio], Owner [i.e., Erie Canal"] or the Surety [i.e., Travelers] all of which are expressly reserved, the Surety has agreed to complete the Remaining Work, subject to the terms and conditions of this Agreement.
DiPizio contends that this provision of the Takeover Agreement supercedes the GAI and its assignment provisions. DiPizio's contention is misplaced, and the Takeover Agreement does not supercede the GAI.
The GAI is between Travelers and DiPizio. The Takeover Agreement is between Travelers and Erie Canal, and DiPizio is not a party to it. By the time Travelers and Erie Canal entered into the Takeover Agreement (in September 2013), DiPizio no longer possessed the Claims; they had already been assigned to Travelers, because DiPizio previously committed multiple defaults under the GAI. Accordingly, notwithstanding the Takeover Agreement's reservation of rights provision, that agreement cannot "un-assign" Claims which DiPizio no longer possessed at the time the reservation was made.
Moreover, Travelers' rights under the GAI (including its right to act as the real party in interest in connection with the Claims) are not the subject of the Takeover Agreement, nor does that agreement address them. By entering into the Takeover Agreement, Travelers has not waived any rights regarding the GAI (see Preferred Mut. Ins. Co. v. Donnelly, 111 A.D.3d 1242, 1246 94, 974 N.Y.S.2d 682th Dept 2013] ["Waiver is an intentional relinquishment of a known right and should not be lightly presumed"] ).
Similarly, the GAI provides that it "can only be modified by a rider in writing" signed by Travelers (GAI, ¶ 17), but the Takeover Agreement does not constitute such a rider. Nor may DiPizio be considered a third-party beneficiary of the Takeover Agreement, because that Agreement precludes the creation of third-party rights ( Id., at ¶ 18, 974 N.Y.S.2d 682 ).
While DiPizio's submissions do not reference a "novation," DiPizio is essentially contending that the Takeover Agreement amounts to a novation. Novation is defined as, a contract which discharges immediately a previous contractual duty or a duty to make compensation, and creates a new contractual duty, and includes as a party one who neither owed the previous duty nor was entitled to its performance ( 22A NYJur2d Contracts § 467 ).
(See also, Griggs v. Day, 91 Sickels 152 [1892] ["Novation is ... defined [as] a transaction whereby a debtor is discharged from his liability to his original creditor by contracting a new obligation in favor of a new creditor by the order of the original creditor] ).
A novation has not occurred, because all parties to the initial contract (the GAI) are not parties to the new contract (the Takeover Agreement) ( P.C. Chipouras & Assocs., Inc. v. 212 Reality Corp., 156 A.D.2d 549, 549 N.Y.S.2d 55 [2d Dept 1989] ); DiPizio furnished no consideration for the Takeover Agreement ( Wassertrom v. Interstate Litho Corp., 114 A.D.2d 952, 495 N.Y.S.2d 217 [2d Dept 1985] ); and a later contract cannot constitute a novation if it does not release the obligor's obligations under the initial contract ( Goldbard v. Empire State Mut. Life Ins. Co., 5 A.D.2d 230, 171 N.Y.S.2d 194 [1st Dept 1958] ).
Accordingly, the Takeover Agreement has not superceded the GAI.
Whether Erie Canal Waived Standing/Real Party In Interest In The Defamation Action
The Court has previously determined that DiPizio defaulted under the Contract for purposes of the GAI, and the Claims in the Actions (including in the Defamation Action) have been assigned to Travelers. Moreover, Travelers has not waived standing/real party in interest in any of the Actions. Accordingly, the Court need not reach the issue of whether Erie Canal waived standing/real party in interest in the Defamation Action; Travelers is the real party in interest for purposes of all Claims in the Actions.
In light of the foregoing, it is hereby
ORDERED, that Travelers' motions in the Contract Action and the Declaratory Judgment Action are granted; and it is further
ORDERED, that Erie Canal's motion in the Defamation Action for an order determining that DiPizio is not the real party in interest to the claims asserted in that action is granted; and its further
ORDERED, that Travelers is hereby determined to be the assignee/real party in interest of the Claims in the Actions; and it is further
ORDERED, that Erie Canal's motion to amend its Answers in the Actions is denied, as moot, such that the Court need not reach the merits of this application, or DiPizio's opposition thereto.
This constitutes the Decision and Order of this Court. Submission of an order by the Parties is not necessary. The delivery of a copy of this Decision and Order by this Court shall not constitute notice of entry.