Opinion
Index No. 652495/2020
09-26-2022
Five Star Electric Corp., Plaintiff, v. Silverite Construction Company Inc., Fidelity & Deposit Company of Maryland, Liberty Mutual Insurance Company, Defendant.
Unpublished Opinion
Robert R. Reed, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 48 were read on this motion for DISMISSAL.
In June 2012, defendant Silverite Construction Company Inc. (Silverite) entered a contract with the New York City School Construction Authority (SCA) to construct P.S. 315, a school in Queens (the project). Also in June 2012, co-defendants Fidelity & Deposit Company of Maryland and Liberty Mutual Insurance Company (the sureties) issued payment bonds to Silverite and SCA.
Under a September 24, 2012, subcontract with Silverite, plaintiff Five Star Electric Corp. (Five Star) became the main electrical subcontractor on the project. As such, Five Star was to furnish and install electrical and fire alarm equipment. Five Star subsequently agreed to perform additional work that was not part of the original contract for the project.
According to the complaint (NYSCEF Doc. No. 7), Five Star provided all supplies and labor under the September 2012 subcontract. Five Star states that its performance under the agreement was "frustrated and/or impeded by Silverite" (id., 16), but that Five Star otherwise satisfied its obligations under the contract and the bond. Accordingly, Five Star claims that Silverite is withholding $303,146 that it owes to Five Star under the agreement. Five Star makes the same claims as to the additional work it agreed to perform, and it alleges that Silverite owes it $684,791 for this additional work. Five Star assets that due to "Silverite's bad faith, gross negligence and fundamental breach of its obligations under the... Subcontract," Five Star sustained "damages in the approximate amount of $5,260,695" (id., 21). Five Star characterizes Silverite's delays as unreasonable and states that Silverite's delays were not contemplated by the agreement; it contends that Silverite unreasonably delayed "the review/resolution of [ ] requests for information, change orders, field work orders and related... project issues;" and that Silverite generally "act[ed] in bad faith and with willful, malicious and grossly negligent conduct," failing to perform its fundamental obligations (id., 30). Five Star further states that it made a claim for $1,667,681 against the surety bonds, and the sureties have wrongfully withheld the money. Five Star seeks damages of $6,248,632 plus statutory interest against all defendants, along with punitive damages and attorneys' fees.
1. Collateral Estoppel
In their pre-answer motion to dismiss the complaint, defendants argue that Justice Joel M. Cohen's decision in Five Star Electric Corp. v Silverite Const. Co. Inc. (Index No. 654461/2016, Motion Sequence No. 002, 7/30/20, Cohen, J.) is binding under the doctrine of collateral estoppel. In that case, which involved a project for the MTA, the contract and the parties' subcontract both contained no-damages for delay clauses like the ones at hand. There, too, Silverite made claims for time extensions. Though it obtained the extensions, the MTA did not provide any added compensation for the work and Silverite did not further compensate Five Star. In finding that the no-damages for delay provision was enforceable, Justice Cohen noted that the subcontract was "between two very sophisticated and experienced parties" (NYSCEF Doc. No. 12 [Argument Transcript], p 40 lines 9-10). The judge noted that such clauses were common, that they were "routinely and strictly enforced," and that "a party... seeking to invoke any of the exceptions to the general rule that no-damages-for-delay clauses are enforceable bears a heavy burden" (id., p 41 lines 1-4). The judge noted that the exceptions set forth in the seminal case, Corinno Civetta Constr. Corp. v City of New York (67 N.Y.2d 297, 309 [1986] [ Corinno Civetta ]), were narrow ones and he opined that, if the exceptions to the rule were applied in the context of the case before him, "it would swallow the rule" (id., p 41 line 21).
Collateral estoppel, or issue preclusion, bars the relitigation of issues that a court decided between the same parties in a prior suit (Rojas v Romanoff, 186 A.D.3d 103, 108 [1st Dept 2020]; see Moskovits v State of New York, 206 A.D.3d 535, 536 [1st Dept 2022]). The court concludes that, with one exception noted below, the decision in large part collaterally estops Five Star from seeking damages for delay here. The facts of this case are largely the same as the ones before Justice Cohen, and the reasoning is applicable. Moreover, the judge cited cases that are binding in the case at hand. It is persuasive that Justice Cohen acknowledged the ongoing relationship between the parties, but he did not find that any informal course of dealing would apply to claims worth several million dollars. Here, too, Silverite's informal practice of attempting to obtain compensation for extensions does not apply to a claim of over $6 million. Thus, for the most part, Five Star's case is barred.
2. No-Delay for Damages Clause
Five Star argues that collateral estoppel does not apply. Among other things, it notes that there are two different contracts involved, that MTA did not compensate Silverite, and that MTA's relationship with the parties here were not necessarily binding on the contract with SCA. The court does not find these differences dispositive. Even if they were, however, the court also finds that documentary evidence mandates dismissal of the breach of contract claim. Defendants point out that in section 8.02 of the contract between Silverite and SCA, Silverite "agree[d] to make no claim for increased costs, charges, expenses or damages for delay in the performance of this Contract, or for any delays or hindrances from any cause whatsoever, and agree[d] that any such claims shall be fully compensated for by an extension in the time for Substantial and/or Final Completion of the Work" (NYSCEF Doc. No. 16 [Contract]). Further, the subcontract between Silverite and Five Star states, at section 6.6, that "[i]f the progress of [Five Star's] Work is substantially delayed without [Five Star's] fault or responsibility..., then the time for [Five Star's] Work shall be extended... to the extent obtained by [Silverite] under the Contract Documents" (NYSCEF Doc. No. 17 [Subcontract]). The provision also states that Silverite "shall not be liable to [Five Star] for any damages or additional compensation as a consequence of delays caused by any person not a party to this Agreement unless [it] has first recovered the same on behalf of [Five Star] from said person" and "that, apart from recovery from said person, [Five Star's] sole and exclusive remedy for delay shall be an extension in the time for the performance of [Five Star's] Work" (id.). The subcontract additionally contains a "flow-down" provision that allows Five Star to prosecute claims provided for in the underlying contract (see id., § 6.2; NYSCEF Doc. No. 15 [O'Neill Aff, 6]).
According to defendants, these provisions are controlling. Defendants point out that courts regularly enforce such provisions, dismissing claims based on delays in the context of both summary judgment motions and motions to dismiss under CPLR 3211 (citing, e.g., J. Petrocelli Contr., Inc. v Morganti Group, Inc., 137 A.D.3d 1082, 1082-1083 [2d Dept 2016]; WDF, Inc. v Trustees of Columbia Univ. in the City of NY, 170 A.D.3d 518, 519 [1st Dept 2019] [ WDF ] [affirming denial of motion to amend complaint prior to discovery]). Defendants state that, either specifically or in a general sense, the contracts contemplated the types of delays set forth in paragraph 30 of the complaint (citing Plato Gen. Const. Corp./EMCO Tech Constr. Corp., JV, LLC v Dormitory Auth. Of State of NY, 89 A.D.3d 819, 824 [2d Dept 2011] [ Plato ]).
In support, defendants point to several provisions of the subcontract. In article 3, section 3, Five Star "recognizes that changes will be made in the Schedule of Work and agrees to comply with such changes" (NYSCEF Doc. No. 17). Article 3, section 4 states that Silverite would "decide the time, order and priority in which the various portions of the Work shall be performed and all other matters relative to the timely and orderly conduct of [Five Star's] Work" (id.) Defendants also cite to article 8, section 2, which directs Five Star to provide all necessary labor, as well as article 8, section 5 (b), which directs Five Star to advise Silverite of any interference with its work.
Further, defendants reject Five Star's position that an exception to the no-damages clause applies. According to defendants, the language in the complaint and in Five Star's current papers are conclusory with respect to this claim. Defendants contend that, at best, Five Star's allegations relate to poor planning or administration by Silverite, and this is insufficient to justify an exception (citing, e.g., Blue Water Envtl., Inc. v Incorporated Vil. of Bayville, NY, 44 A.D.3d 807, 810 [2d Dept 2007]).
Defendants still maintain that the complaint is insufficiently specific to allege ineptitude.
In opposition to this prong of the motion, Five Star argues that SCA and Silverite waived enforcement of the no-damages for delay provisions in the underlying contract and in the subcontract, respectively (citing Plato, 89 A.D.3d at 825-826 [setting aside damages awarded for delay as there was no waiver]; Eldor Contr. Corp. v County of Nassau, 6 A.D.3d 654, 655 [2d Dept 2004] [issue of fact existed as to whether the defendant waived the no-damages for delay provision]). More specifically, Five Star argues that because Silverite submitted at least some of Five Star and Silverite's claims for delay damages to SCA, Silverite implicitly conceded that the claims were valid and enforceable. Five Star cites Pizzarotti, LLC v FPG Maiden Lane LLC (187 A.D.3d 420, 420 [1st Dept 2020] [ Pizzarotti ]), in which the First Department found that, in a Lien Law case, the waivers in the defendant's payment applications "raised an issue of fact as to whether the waivers released plaintiff's payment claims" (also citing, e.g., Global Precast, Inc. v Stonewall Contr. Corp. 78 A.D.3d 432, 432-433 [1st Dept 2010]).
Five Star provides the affidavit of its vice president of contract administration, Stan Petrow, P.E., to support its argument (NYSCEF Doc. No. 35). Petrow submits a May 8, 2018 email from Silverite's vice president of operations, Robert O'Neill, P.E., in which O'Neill indicates that Silverite had requested a meeting with SCA to review Five Star's claim for delay damages (NYSCEF Doc. No. 38). In addition, Petrow submits a copy of a July 3, 2018 agreement between SCA and Silverite, in which SCA granted Silverite an extension of time to complete the project and an additional $6.75 million dollars, some of which was earmarked for Five Star (NYSCEF Doc. No. 39). Finally, Petrow submits a June 14, 2019 email from O'Neill that states SCA approved a second request for an additional extension of time for 324 days, 203 of which were compensable, and states that Silverite was in the process of requesting payments under the extension (NYSCEF Doc. No. 40). Petrow also attests that he has had years of experience working on projects with SCA and Silverite, and that this is the traditional course of conduct on contracts. Collectively, Five Star states, this shows that Silverite and SCA habitually sought and granted compensation related to construction delays.
After careful consideration, the court concludes that the no-damages for delay provision binds the parties. In Corinno Civetta (67 N.Y.2d at 309), the Court of Appeals found that "[a] clause which exculpates a contractee from liability to a contractor for damages resulting from delays in the performance of the latter's work is valid and enforceable" when the underlying contract and the provision satisfy the general requirements for contractual validity. Five Star does not assert that the contract is unenforceable. Thus, the provision is generally enforceable.
Five Star correctly points out that there are circumstances in which the no-damages provision is inapplicable. Under Corinna Civetta, "damages may be recovered for: (1) delays caused by the contractee's bad faith or its willful, malicious, or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee, and (4) delays resulting from the contractee's breach of a fundamental obligation of the contract" (id. at 309). However, a plaintiff has a heavy burden to show that an exception applies (see Advanced Automatic Sprinkler Co., Inc. v Seaboard Sur. Co., 139 A.D.3d 424, 424 [1st Dept 2016]). To withstand a motion to dismiss on this basis, a plaintiff must "set forth factual allegations showing that any of the Corinno Civetta exceptions apply" (Federated Fire Protection Sys. Corp. v 56 Leonard St., LLC, 188 A.D.3d 414, 414 [1st Dept 2020]).
Here, Five Star suggests that an exception applies because (1) Silverite unreasonably delayed, disrupted, and interfered with Five Star's performance, (2) these disruptions were not contemplated by the subcontract, (3) Silverite did not properly coordinate Five Star's work, (4) Silverite did not "promptly review/resolve... requests for information, change orders, field work orders and related... Project issues," (5) Silverite acted in bad faith, willfully, maliciously, and in a grossly negligent manner, and (6) Silverite did not perform "numerous fundamental obligations of the... Subcontract" (NYSCEF Doc. No. 7, 30). Earlier, the complaint states that Five Star "suffered delays to its work which were not contemplated on the account of Silverite's bad faith, gross negligence and fundamental breach of its obligations" (id., 21). However, the complaint includes this language without setting forth any specific factual allegations in support. Further, in its opposing affidavit and its memorandum of law in opposition, Five Star does not provide factual details that bring its claim within the scope of one of the exceptions to enforceability of the no-damages clause. Thus, these exceptions are inapplicable (see Five Star Elec. Corp. v Trustees of Columbia Univ., 189 A.D.3d 536, 537 [1st Dept 2020]). As Silverite notes, even if the conclusory recitations in paragraphs 21 and 30 of the complaint were sufficiently detailed to be considered, they do not amount to "bad faith or willful, malicious, or grossly negligent conduct" and they do not "allege a breach of a fundamental, affirmative obligation expressly imposed on defendants by the agreement" (id. [internal quotation marks and citations omitted]). Moreover, as this court noted at oral argument, Five Star cannot show that "the fact that [Silverite] attempted to get relief... from [SCA] is evidence of [Silverite's] bad faith" (NYSCEF Doc. No. 48 [Oral Arg Tr.], p 15, lines 17-19).
Five Star also argues that the no-damages for delay provision is inapplicable because in their prior business dealings, as well as in the case at hand, Silverite submitted delay for damages claims to the main contractor. The Petrow affidavit points out that, via email, Silverite discussed Five Star's claim submissions FSECO No.18-0036, REV-001, and FSECO #18-0037, REV-001 with Five Star and submitted the claims to SCA (NYSCEF Doc. No. 35, 9 [citing NYSCEF Doc. No. 38]). It further submits a copy of SCA's Negotiated/Approved Change Order, which substantiates its argument that $305,834 of the additional $6.75 million Silverite received for a time extension and contract ad (NYSCEF Doc. No. 39) was earmarked as payment for Five Star's $4,262,138 claim (id., *10).
The court rejects this challenge as well. As Silverite notes, the no-damages provision is clear on its face, and courts habitually enforce such clauses (see Corinno Civetta, 67 N.Y.2d at 309; Bovis Lend Lease [LMB], Inc. v Lower Manhattan Dev. Corp., 108 A.D.3d 135, 147 [1st Dept 2013] [noting that a party challenging the provision "bears a heavy burden"]). Further, under section 15.3 of the subcontract, "[t]he failure of either party hereto to insist, in any one or more instances, upon the performance of any of the terms, covenants or conditions of this Agreement, or to exercise any right herein, shall not be construed as a waiver or relinquishment of such term, covenant, condition or right" (NYSCEF Doc. No. 17). As Silverite argues, courts "uniformly enforce" such "unambiguous non-waiver clauses" (Rosenzweig v Givens, 62 A.D.3d 1, 7 [1st Dept], affd 13 N.Y.3d 774 [2009]; see Plotch v 375 Riverside Dr. Owners, Inc., 92 A.D.3d 478, 478 [1st Dept 2012]).
Pizzarotti, which Five Star mentions, is distinguishable because the decision did not involve a non-waiver clause. Although in some cases even a non-waiver clause can be waived by the parties' conduct, there must be a clear manifestation of this intent, such as by oral agreement (e.g., Aiello v Burns Intl. Sec. Servs. Corp., 110 A.D.3d 234, 245 [1st Dept 2013]). Here, there was no such agreement. Moreover, the language in the non-waiver clause specifically envisions the situation at hand, in which "in one or more instances" a deviation from a contractual term occurs (NYSCEF Doc. No. 17, §15.3).
However, one portion of the cause of action survives this motion. As indicated, Five Star also argues that Silverite successfully obtained an extension and an additional $6.75 million as a result of its submissions to SCA, and that at least $305,834 of that amount belongs to Five Star. Five Star also indicates that Silverite may have recovered additional funds, some of which rightfully belong to Five Star. As such, Five Star is rightfully entitled to any funds due to it. Indeed, at oral argument counsel for Silverite conceded that Five Star has a viable claim as to the $305,834 (NYSCEF Doc. No. 48, p 24 lines 16-23), and there is no direct opposition to Five Star's position in Silverite's reply papers. Further, paragraph 6.6 of the subcontract states that Five Star is not entitled to damages for delay "unless the Contractor has first recovered the same on behalf of the Subcontractor from said person" (NYSCEF Doc. No. 17). Thus, the contract mandates that Five Star receive the amounts Silverite obtained on Five Star's behalf. A hearing must be held to determine whether Silverite obtained these funds - and, if so, the total amount due to Five Star.
Five Star did not expressly refer to this in the complaint, but the court considers the opposing affidavits and documentary support in its consideration of this motion (see CPLR § 3211 [2]; Lynn v Maida, 170 A.D.3d 573, 574 [1st Dept 2019]).
3. Remaining Causes of Action
Five Star's other causes of action lack merit. The second cause of action for trust fund diversion under Lien Law § 72 lacks merit because Five Star does not allege that Silverite used trust assets for a non-trust purpose (see Mount Vernon City School Dist. v Nova Cas. Co., 19 N.Y.3d 28, 37 [2012]; Environmental Appraisers & Bldrs., LLC v Imhof, 143 A.D.3d 756, 759 [2d Dept 2016]). The court dismisses Five Star's third cause of action, for unjust enrichment, because it is duplicative of the first cause of action for breach of contract (see Panwest NCA2 Holdings LLC v Rockland NCA2 Holdings, LLC, 205 A.D.3d 551, 552 [1st Dept 2022]; Dinallo Const. Corp. v Phoenix RMA Const. Servs., LLC, 193 A.D.3d 407, 408 [1st Dept 2021]). Similarly, the conversion claim, Five Star's fourth cause of action, must be dismissed because it is "predicated on breaches of contract and allege[s] no facts that would give rise to tort liability" (Johnson v Cestone, 162 A.D.3d 526, 527 [1st Dept 2018]; see Eisenberg v Weisbecker, 190 A.D.3d 549, 550 [1st Dept 2021]). As the no-damages for delays provision bars recovery under the bonds, the fifth cause of action also lacks merit (see Welsbach Elec. Corp. v Judlau Cont., Inc., 172 A.D.3d 585, 585 [1st Dept 2019]).
A party is permitted to plead unjust enrichment in the alternative, but only where the contract's validity is at issue (see Pons v Adriness Partners, L.P., 192 A.D.3d 462, 463 [1st Dept 2021]).
Five Star did not seriously challenge Silverite's arguments as to these causes of action. Instead, it summarily stated that the submission of claims to SCA and the retention of SCA's payment to Silverite raise issues of fact as to the lien law, unjust enrichment, and conversion claims.
Given this conclusion, the court need not address the issue of whether Five Star waived its right to relief in its partial release and waiver claims (NYSCEF Doc. No. 18). However, the court notes that Justice Cohen found that "intermittent partial lien waivers... are enforceable" (NYSCEF Doc. No. 12, p 45 lines 21-23).
Accordingly, it is hereby
ORDERED that, except as to the portion of the breach of contract claim relating to funds that Silverite recovered from SCA on Five Star's behalf, the complaint is dismissed; and it is further
ORDERED that the limited portion of the complaint that remains active is referred to the Referee's Part to assign a referee to hear and report on the amount due to Five Star, or to hear and determine if the parties stipulate to abide by the decision of the Referee.