Opinion
03-CV-6536 CJS.
August 11, 2004
Theodore M. Baum, Esq., Rochester, NY, Martin R. Salzman, Esq., Erik B. Seeney, Esq., Hendrick, Phillips, Salzman Flatt, Atlanta, GA, for plaintiff.
Robert M. Moore, Esq., Kristen A. Bennett, Esq., Moore Lee, LLP, McLean, VA, for defendants.
DECISION AND ORDER
INTRODUCTION
This is a breach of contract action based on diversity jurisdiction. The case is now before the Court on defendants' motion [# 4] to dismiss, or, in the alternative, stay the action pending exhaustion of what defendants contend is a mandatory contractual dispute resolution procedure. For the reasons stated below, the application to dismiss and the alternative motion for a stay are both denied.
FACTUAL BACKGROUND
Plaintiff, Fitschbach Moore Electric, Inc., ("FM") is an electrical contracting company, incorporated in Delaware, with its principal place of business in New Jersey. Defendant, Bell BCI Company, ("Bell") is a Maryland corporation engaged in the business of construction as a general contractor and maintains a place of business in Rochester, New York. Defendant United States Fidelity Guaranty ("USFG"), as surety, jointly issued, with Bell as principal, a payment and performance bond for the project described below.
Plaintiff alleges in its six count complaint that on or about September 8, 1999, it entered into an agreement with Bell to perform electrical work for a project in which Bell was the general contractor. The project was the Alexandria Sanitation Authority Advanced Wastewater Treatment Facility Upgrade Package B — Contract 3 — Solids Processing Unit, in Alexandria, Virginia ("Project").
As the Project's general contractor, Bell was responsible for sequencing, coordinating, preparing and updating scheduling. As a subcontractor, FM agreed to perform its work in specific milestones and agreed to liquidated damages for unexcused delays. Bell also agreed to "forward to FM progress payments in a timely manner and release of its contract retainage once the Project was completed." Compl. at 3.
Essentially, FM alleges that Bell is in breach of the subcontract for failure and refusal "to forward to FM certain progress payments and its contract retainage without providing FM a valid reason for doing so and is therefore unreasonably withholding the remaining contract balance." Compl. at 3. Plaintiff also alleges that defendant Bell ordered FM to perform work outside the scope of the original contract, and seeks compensation for the materials, labor and profits, relating to the extra work. Finally, plaintiff maintains that USFG, as surety, is liable for non-payment by the principal Bell.
Subcontract No.: C42210-L-9013; [#5] in Supplements "A" and "B," and Supplementary Conditions, dated September 8, 1999 (collectively "Subcontract"), is attached to the complaint and sets forth the terms of FM's obligations as subcontractor. FM alleges that, "[a]ll conditions precedent to FM's right to recover the aforesaid sums from Bell have occurred, or have been performed, waived, satisfied or otherwise excused by Bell," but that Bell has refused to make payment for FM's performance. FM also alleges that delays and changes in the scope of its work, caused it to incur substantial costs which also remain unpaid by Bell. Bell and USFG, on the other hand, claim that since neither the Project's owner nor the Project's architect has accepted Bell's work, the contract retainage cannot be released and the balance is not yet due to FM.
Subcontract § 3 addresses the terms of contract completion:
If Subcontractor shall well and faithfully fulfill this contract to the satisfaction of the Contractor and Architect, Contractor will pay to the Subcontractor the total sum of THREE MILLION, THREE HUNDRED AND FORTY THOUSAND DOLLARS AND NO CENTS ($3,340,000.00), for all work and material in place if completed and accepted under this contract; of the value of the work erected in place during the preceding month as determined by the Contractor, Owner and Architect and the remaining 10 per cent, within 30 days afer the completion and acceptance of the work by the Contractor, Owner, and Architect; provided that the Subcontractor shall have paid in full all bills for labor and materials and if requested by Contractor shall submit evidence thereof; but at no time shall Contractor be required to make any payments which will reduce the difference between the contract price and the amount paid below an amount sufficient in the opinion of Contractor to complete the work herein provided for. No payment made under this contract shall operate as an admission on the part of Contractor that this contract or any part thereof has been complied with nor relieve Subcontractor from liability for the faithful performance of all the terms and conditions hereof.
Bell USFG argue in their application that the Subcontract with FM incorporated the mandatory mediation provisions from the Contract between itself and the Alexandria Sanitation Authority. Mem. in Supp. of Def. Mot. to Dismiss [#5] at 3-4. FM disputes this. Pl. Br. in Opp'n at 7-11. The Subcontract clause, upon which Bell USFG rely in support of their argument, states in pertinent part as follows:
Subcontractor shall furnish the materials, supervision, administration and labor and to perform the work and labor needed or required to fully do, perform and complete all the DIVISION #16 ELECTRICAL per Supplement "A". Schedule A, Supplement "A" and "B" and Riders 1, 2, and 3 are attached hereto and made a part hereof by this reference, in accordance with the said plans and specifications prepared by CH2M HILL, and in accordance with the contract referred to in the preamble hereto and the General and Special Conditions attached to the last mentioned contract and all addenda to said documents to the date of this agreement, which plans, specifications, contract, General and Special Conditions and addenda have been read and examined by Subcontractor prior to the execution of this agreement and in so far as the provisions of said contract documents are applicable to this agreement they are hereby made a part hereof, and the said Subcontractor assume[s] toward the Contractor all obligations and responsibilities that the Contractor, by those said contract documents assume[s] toward the owner or the principal Contractor. The Contractor shall have the same rights and remedies against the Subcontractor in respect to all such obligations and liabilities as the owner or the principal Contractor has against the Contractor with the same force and effect as if every such obligation, liability, right and remedy where set forth herein in full.
In any provision of the contract documents is inconsistent with this agreement, this agreement shall govern. . . .
Subcontract § 1 (emphasis added).
Defendants allege that the contract between Bell and the Project owner contained a supplementary provision, SC-16, which contains mandatory dispute resolution procedures as a condition precedent to litigation, as well as forum selection in Virginia, and that this contract provision was incorporated into FM's subcontract pursuant to the incorporation clause quoted above. That mandatory dispute resolution requirement provides as follows:
All unresolved claims and disputes between OWNER and CONTRACTOR arising under the Agreement shall be resolved by litigation in either the Circuit Court for the City of Alexandria, Virginia, or the United States District Court for the Eastern District of Virginia. The parties agree that only these two courts shall have exclusive and binding jurisdiction over any and all such disputes, it being their express agreement that these two courts are the sole proper legal forum for such resolution. However, as a condition precedent to the institution of any such litigation by either OWNER or CONTRACTOR, the parties shall participate in a formal mediation process under the auspices of the McCammon Mediation Group of Richmond, Virginia. The parties agree that they shall participate in good faith in such mediation if and when requested by the other party and that, prior to the conclusion of any such mediation, litigation in either of the courts described herein shall not be permitted.
Alexandria Sanitation Authority Package B, 144125B.CVO, SC-16 (Mar. 29, 1999) (attached to Defs.' Mem. of Law Ex. 2). Although Bell USFG argue that this clause was properly incorporated into the Subcontract pursuant to the language in § 1, FM responds that, under New York law, the incorporation is not proper, and in any event, the terms of SC-16 conflict with express provisions for dispute resolution in the Subcontract. FM refers to § 22 of the Subcontract which states, in relevant part, "[t]his agreement shall be construed in accordance with the laws of the State of New York and shall be enforced only in the Courts of Monroe County, New York. Contractor and Subcontractor waive their rights to a jury trial and to seek punitive damages." Subcontract ¶ 22.
STANDARDS OF LAW
Motion to Dismiss under FED R. CIV. P. 12(b)(6)On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), "failure to state a claim upon which relief can be granted," the Court must accept as true all well-pleaded factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. See Leatherman v. Tarrant County Narcotics and Coordination Unit, 507 U.S. 163, (1993); See also Mills v. Polar Molecular Unit, 12 F.3d 1170, 1174 (2d Cir. 1993) (on a review of a motion to dismiss under Rule 9(b) or Rule 12(b)(6), the Court accepts as true the factual allegations of the complaint, and draw all inferences in favor of the pleader); See also Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991) (in determining the adequacy of a claim under Fed.R.Civ.P. 12(b)(6), consideration is limited to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken).
Dismissal is proper only if, after viewing plaintiff's allegations in this favorable light, it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). Indeed, the Court must deny such a motion "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, (1957 When examining the complaint for sufficient facts to constitute a claim, a court must "construe the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor." Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). In addition, "[a] complaint will not be dismissed merely because a plaintiff's allegations do not support the particular legal theory advanced in the complaint," as the allegations need only "provide a basis for relief under any possible theory." Magee v. Nassau County Med. Ctr., 27 F.Supp.2d 154, 160 (E.D.N.Y. 1998). The scope of materials which a court may consider on a motion to dismiss is limited. The court may look to the following: "`documents attached to the complaint as an exhibit or incorporated in it by reference, . . . matters of which judicial notice may be taken, or . . . documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit.'" Chambers, 282 F.3d at 153 citing Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993).
While it is generally the contents of the complaint and not any factual assertions or evidence in extraneous materials in the record that is properly considered at this juncture, "the complaint is deemed to include any written instrument attached to it as an exhibit or any statement or documents incorporated in it by reference." Ari Co. v. Regent Int'l Corp., 273 F. Supp. 2d 518, 521 (S.D.N.Y. 2003); Lam v. American Express Co., 265 F. Supp. 2d 225, (S.D.N.Y. 2003); see also International Audiotext Network, Inc. v. American and Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (an appellate court reviews de novo a district court's Fed.R.Civ.P. 12(b)(6) dismissal of a complaint and, taking all the plaintiff's factual allegations as true, the appellate court will affirm only where no set of facts could support its claim.). The scope of what may be considered is limited because a motion to dismiss determines only the legal sufficiency of the complaint; it does not weigh the merits of plaintiff's claims. If the court desires to consider materials beyond the four corners of the complaint, it must convert the motion to one for summary judgment. See FED. R. CIV. P. 12(b); Chambers, 282 F.3d at 152.
Breach of Contract Claim
Under New York law, which the Court finds governs this case, in order to plead a breach of contract cause of action, a complaint must allege the provisions of the contract upon which the claim is based. Atkinson v. Mobil Oil Corp., 205 A.D.2d 719 (N.Y.App.Div., 1994). The pleadings must be sufficiently particular to give the court and the parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved as well as the material elements of each cause of action or defense. Id. The elements of a cause of action for breach of contract are: (1) the formation of an agreement between plaintiff and defendant; (2) due performance by plaintiff; (3) defendant's failure to perform in breach; and (4) resulting damages to the plaintiff. First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998); see generally, 22 NY Jur 2d Contracts §§ 9, 12, 17.
Incorporation of Contractual Clauses into a Construction Subcontract
It is well settled that under New York law, incorporation clauses in a construction subcontract, which by reference purport to incorporate prime contract clauses, are binding on the subcontractor, only as to provisions relating to the scope, quality, character and manner of the work to be performed. Bussanich v. 310 East 55th Street Tenants, 282 A.D.2d 243, *243-244, (N.Y.A.D. 1st Dept. 2001); see also, S. Leo Harmonay Inc. v. Binks Mfg. Co., 597 F.Supp. 1014, 1023-1024, affd. 2d Cir., 762 F.2d 990, citing Guerini Stone Co. v. P.J. Carlin Constr. Co., 240 U.S. 264, 277, 36 S.Ct. 300, 60 L.Ed. 636; U.S. Steel Corp. v. Turner Const. Co., 560 F. Supp. 871, 874 (S.D.N.Y. 1983) ("Prime contract provisions unrelated to the work of the subcontractor, such as a "dispute" clause governing the resolution of monetary claims between the project owner and general contractor, are not incorporated by reference into a subcontract."); Fischbach Moore, Inc. v. Safetran Sys. Corp., No. 97-CV-4280 (ARR), 2002 U.S. Dist. LEXIS 11424, *17-*18 (E.D.N.Y., Apr. 9, 2002) (recognizing New York rule that prime contract provisions unrelated to the work of the subcontractor, such as a "dispute" clause governing the resolution of monetary claims between the project owner and general contractor, are not incorporated by reference into a subcontract unless subcontract is sufficiently specific.).
In regard to a forum selection clause, its application and relevant scope is determined by an objective consideration of the language of the provision, not the subjective, undisclosed intention of its draftsman. United States Steel Corp. v. Turner Constr. Co., 560 F. Supp. at 873; City of New York v. Pullman, Inc., 477 F. Supp. 438, 442 (S.D.N.Y. 1979).
ANALYSIS
In support of their application to dismiss, or alternatively to stay, defendants contend that: (1) a condition precedent, acceptance of the work by the owner or the architect, has not been met, thus making FM's claims premature; and (2) the subcontract incorporated by reference the prime contract's arbitration clause, thus mandating arbitration of FM's claims prior to the commencement of a lawsuit.
Defendants' first argument raises the issue of ripeness, a jurisdictional question, which may properly considered on a motion to dismiss pursuant to Rule 12(b)(1). Duane Reade, Inc. v. St. Paul Fire Marine Ins. Co., 261 F. Supp. 2d 293, 294 (S.D.N.Y. 2003).
Defendant has only raised FED R. CIV. P. 12(b)(6) in his memorandum; however, by claiming that plaintiff's suit is premature, the Court presumes defendant is raising ripeness as well.
"Ripeness is a constitutional prerequisite to exercise of jurisdiction by federal courts. The Court, therefore, can raise the issue sua sponte." Nutritional Health Alliance v. Shalala, 144 F.3d 220, 225 (2d Cir. 1998) (internal citations omitted); see also Quinones, 313 F.3d at 57-58. At the core of the ripeness doctrine is the necessity of "ensur[ing] that a dispute has generated injury significant enough to satisfy the case or controversy requirement of Article III of the U.S. Constitution" by "prevent[ing] a federal court from entangling itself in abstract disagreements over matters that are premature for review because the injury is merely speculative and may never occur." Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 90 (2d Cir. 2002).United States v. Fell, 360 F.3d 135, 139 (2d Cir., 2004).
In this case, Subcontract § 3 states in relevant part, "[i]f Subcontractor shall well and faithfully fulfill this contract to the satisfaction of the Contractor and Architect, Contractor will pay to the Subcontractor. . . ." Notwithstanding defendants' argument to the contrary, FM's complaint states causes of action only against Bell and its surety, USFG. The Court agrees that FM has alleged "[a]ll conditions precedent to FM's right to receive the aforesaid sums from Bell have occurred, or have been performed, waived, satisfied or otherwise excused by Bell." Compl. at 5. Consequently, the Court disagrees with defendants' ripeness argument.
Likewise, the Court rejects defendants' second argument relating to the prime contract's mandatory arbitration clause. There is no dispute that the subcontract was prepared on Bell's form contract and included the provision relating to the applicability of New York law. Consequently, by explicit term in the subcontract, "[t]his agreement shall be construed in accordance the laws of the State of New York. . . ." Subcontract § 22. As previously indicated, under New York law, a general incorporation clause in a construction subcontract, such as the one at issue here, is effective only as to those provisions relating to the scope, quality, character and manner of the work to be performed. See Subcontract § 22 (choice of New York law and forum). In this case, the Court finds that the subcontract fails to specifically incorporate the dispute resolution clause from the prime contract.
CONCLUSION
Defendants' motion [#4] to dismiss the complaint, or in the alternative, for a stay, is denied in its entirety.
So ordered.