Opinion
10052/02.
Decided August 12, 2010.
Defendant MASTEC NORTH AMERICA INC moves, pursuant to CPLR § 3212, for an order granting summary judgment dismissing the plaintiff's complaint. Plaintiff HYLAN ELECTRICAL CONTRACTING INC moves, pursuant to CPLR § 3212(e) for an order granting partial summary judgment as to the plaintiff's first cause of action for breach of contract and dismissing several of the defendant's affirmative defenses as no triable issue of fact exists to these matters.
Judge Minardo had granted plaintiff leave to amend his complaint to include fraudulent inducement, breach of fiduciary duty, and punitive damages. This decision was later reversed by the Appellate Division Second Department, which denied plaintiff's motion to amend its complaint, thus leaving only the plaintiff's breach of contract and an account stated cause of action.
Plaintiff HYLAN ELECTRICAL CONTRACTING INC (hereinafter "HYLAN") commenced this action to recover damages for breach of contract between itself and defendant MASTEC AMERICA INC (hereinafter "MASTEC") pursuant to a subcontractor agreement for the installation of a fiber optic telecommunications network from Pleasant Valley, New York to New York, New York. MASTEC is a Florida corporation which holds itself out as an infrastructure service provider that designs, builds, installs, maintains, and monitors internal and external networks for telecommunication, broadband, and energy companies throughout North America. MASTEC entered into an agreement with Telergy, Inc., a network owner, on May 6, 1998, to construct a fiber optic communications network and to provide construction, installation, and other services to Telergy. MASTEC then entered into a subcontractor agreement with plaintiff HYLAN to install fiber optic wiring. This subcontractor agreement was entered into on May 26, 2000, and it is undisputed that the parties' rights and obligations would be governed by Florida law.
The subcontractor agreement contained a pay-if-paid clause, providing that all payments to subcontractor HYLAN by contractor MASTEC were expressly contingent upon and subject to receipt of payment for the work by the general contractor MASTEC from owner Telergy. The defendant contends that by entering into the subcontractor agreement with this clause, HYLAN expressly assumed the risk that the owner TELERGY would not be able to pay. Defendant MASTEC further contends that it never received payment from Telergy for the specific work that is the subject of HYLAN'S complaint. MASTEC asserts that Telergy became insolvent in August of 2001, filed for bankruptcy protection in October 2001, and was completely liquidated. The defendant claims that it terminated the subcontractor agreement with HYLAN on August 20, 2001 as a result. The defendant MASTEC contends that after assuming the risk that Telergy would not pay for the work performed, HYLAN cannot now seek payment from MASTEC.
Additionally, the defendant MASTEC claims that plaintiff HYLAN took $864,540 worth of materials that the subcontractor agreement provided was MASTEC'S sole property and was to be returned to MASTEC upon completion of the project. The defendant claims HYLAN refused to return said property, and as a result MASTEC was entitled, pursuant to the subcontractor agreement, to partially offset its payments due to HYLAN by withholding some retainage totaling $220,261.48.
Plaintiff HYLAN alleges that in July of 2000, during the time that HYLAN was performing its work, MASTEC was aware Telergy was seeking outside financing in order to be able to continue operations and was aware that Telergy lacked the financial ability to pay MASTEC on the terms they had agreed upon. Plaintiff alleges that in September of 2000, unbeknownst to HYLAN, MASTEC entered into a Vendor Credit Agreement with Telergy in which MASTEC agreed to provide up to $50,000,000.00 that Telergy could then use to pay for construction services rendered by MASTEC and its subcontractors, including HYLAN. The plaintiff alleges that MASTEC was repeatedly delinquent and in default of its payment obligations to HYLAN under the subcontractor agreement, and that when HYLAN inquired as to when its invoices would be paid it received representations from MASTEC that payment was forthcoming and that there was money to pay the outstanding invoices that were past due as well as those that would become due for work performed in the future. However, the plaintiff contends that on June 6, 2001, MASTEC notified Telergy in writing that it was in default of their Strategic Operating Agreement and Vendor Credit Agreement for failing to pay all invoices from April 2001 forward, totaling several million dollars. The plaintiff alleges that MASTEC never informed HYLAN of the existence of the Vendor Credit Agreement and did not notify HYLAN of any of Telergy's defaults until August 24, 2001. The plaintiff alleges it was not until on or about this time that MASTEC directed HYLAN to cease rendering services on the project.
The plaintiff alleges that even though MASTEC had knowledge that Telergy was in deteriorating financial condition and had defaulted in payment of tens of millions of dollars to MASTEC, the defendant continued to assure HYLAN it would be paid. HYLAN therefore continued to render construction services in detrimental reliance on MASTEC'S express assurances it would pay HYLAN. However, the plaintiff HYLAN never was paid for its work totaling $1,350,887.82. Therefore HYLAN contends that there is a triable issue of fact as to whether MASTEC should be equitably estopped from enforcing the pay-if-paid provision.
The plaintiff also alleges that some of the money due them was paid to MASTEC from Telergy, i.e. at least $220,261.48 which is being held as an offset by MASTEC. Also, MASTEC'S parent company Mastec Inc., submitted a proof of claim in Telergy's bankruptcy proceedings, in which Mastec Inc. asserted a claim of the $50,000,000.00 loan used in the Vendor Credit Agreement. The plaintiff therefore contends that the general contractor MASTEC was in fact paid by Telergy, but failed to pay HYLAN.
Plaintiff brings its motion for partial summary judgment on its cause of action for breach of contract and to dismiss several of the defendant's affirmative defenses. The plaintiff claims the pay-if-paid provision of the subcontractor agreement is unenforceable because it violates public policy. Additionally, the plaintiff claims even if the pay-if-paid provision is enforceable, by retaining the $220,261.48, the defendant is in fact admitting to being paid by Telergy and as such the pay-if-paid defense is unavailable at least to this sum. The plaintiff further alleges that the defendant MASTEC was paid by Telergy for the cost of the materials for which it is withholding money from HYLAN; or the defendant was merely acting as Telergy's agent when it purchased the materials and as such never had any ownership rights to said materials. The plaintiff also denies having possession of the materials, which it contends have severely depreciated in value.
The New York Court of Appeals has already determined that a pay-if-paid provision which forces the subcontractor to assume the risk that the owner will fail to pay the general contractor is void and unenforceable as contrary to public policy relying on Lien Law § 34. ( West-Fair Elec. Contractors et al., v. Aetna Casualty Surety Co. et al., 87 NY2d 148, 158). However, in the instant case the parties had agreed in the Subcontractor Agreement that their contract would be governed by Florida law. Under Florida law, the pay-if-paid provision is enforceable. ( see DEC Elec., Inc. v. Raphael Constr. Corp., 558 So.2d 427, 429 [Fla. 1990]).
Generally, courts will enforce a choice of law clause so long as the chosen law bears a reasonable relationship to the parties or the transaction. ( Welsbach Electric Corp. v. Mastec North America Inc., 7 NY3d 624, 629 (citing Cooney v. Osgood Mach., 81 NY2d 66, 70-71)). A written agreement that is complete, clear and unambiguous on its face must be enforced according to the terms. ( Greenfield v. Philles Record, 98 NY2d 562, 570). The freedom to contract, however, has limits. ( Welsbach, supra, at 629). Courts will not enforce agreements where the chosen law fundamentally violates public policy. ( see Id.). The Court has reserved this public policy exception "for those foreign laws which are truly obnoxious." ( Id.; (quoting Cooney, supra at 79)).
The New York Court of Appeals has already determined that the pay-if-paid provision is not fundamentally against public policy. ( Welsbach, supra, at 630). The Court in Welsbach has concluded that pay-if-paid clauses in the construction industry are not truly obnoxious so as to void the parties' choice of law. ( Id. at 631). The Court reasoned that the plaintiff would have to meet a heavy burden to prove that application of Florida law would be offensive to a fundamental public policy of this state. ( Id.).
This Court finds the plaintiff has failed to meet this burden. While the court in Welsbach did mention that the purpose of the Lien Law § 34 is to protect New York contractors; it concluded the pay-if-paid provision is not of such an egregious nature as to necessitate the voiding of the parties choice of law. ( Id. at 632). Rather as in Welsbach, both parties are sophisticated commercial entities that knowingly and voluntarily entered into the subcontract.( Id.) Their mutual decision to follow Florida law must be honored, as it traditionally is, and, as such, the pay-if-paid provision which is still good law in Florida is enforceable in this case.
While the pay-if-paid clause is enforceable, there is still an issue of fact regarding whether or not the defendant may be equitably estopped from employing that defense. In Hugh O'Kane Electric Co., LLC v. Mastec North America, Inc., the Appellate Division First Department decided that the defendant general contractor MASTEC may be equitably estopped from employing such a clause if there is evidence that the "general contractor, responding to the subcontractor's concerns about the owner's financial condition, represented that the owner had the money to pay, although the owner was then in default of certain loans extended by the general contractor, and thereby may have induced the subcontractor to continue working on the project to its detriment." ( 19 AD3d 126 [1st Dep't 2005]) In the instant case, just like in Hugh O"Kane Electric Co., LLC, supra, HYLAN alleges that MASTEC failed to notify them when MASTEC became aware that Telergy was insolvent and would need $50,000,000 dollars in loans to continue with the project as well as when Telergy later defaulted on those loans. Instead, MASTEC misrepresented Telergy's financial situation and continued to assure HYLAN that Telergy had the necessary funds to compensate HYLAN for their work on the telecommunications project.
This case concerned the same project which is the subject of the instant motions.
There also remains the issue of the missing materials which MASTEC alleges are in the possession of the plaintiff HYLAN. MASTEC claims that HYLAN'S alleged possession of said materials is in violation of the terms of the contract, and, as such, allows them to withhold money due to HYLAN. HYLAN raises several questions including whether or not MASTEC is the true owner of the materials as opposed to Telergy; and whether or not MASTEC was actually paid by Telergy. By admitting to withholding some of HYLAN's payment, they are in fact calling their own pay-if-paid defense into question.
It is well established that in order to be granted summary judgment it is the movant's burden to prove that they are entitled to judgment as a matter of law ( Alvarez v. Prospect Hosp., 68 NY2d 320). Once the movant has satisfied this initial burden, the burden shifts to the party opposing the motion to demonstrate that the case contains material issues of fact requiring trial (id.). The court's role in such a motion is solely to determine whether any such issues exist ( Sillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395). In arriving at its determination, the court must accept the version of the facts set forth by the opponent of the summary judgment motion ( Menzel v. Plotnick, 202 AD2d 558 [2d Dep't 1994). If there is any doubt of the existence of a triable issue or whether the issue is even arguable, then summary judgment should not be granted ( Andre v. Pomeroy, 35 NY2d 361).
In making its motion for summary judgment the defendant MASTEC was able to meet its initial burden by demonstrating that the subcontractor agreement between the parties, which is governed by Florida law and contained a pay-if-paid provision, is enforceable. However, the plaintiff HYLAN satisfied their burden to defeat the summary judgment motion by raising triable issues of fact regarding whether or not MASTEC might be equitably estopped from enacting the pay-if-paid clause and whether MASTEC actually did receive payment from Telergy, which belongs to HYLAN.
In regards to plaintiff's motion for partial summary judgment, the plaintiff HYLAN failed to meet their initial burden as to the breach of contract claim, since the court has decided the pay-if-paid clause is enforceable; but there remain questions as to whether or not the defendant MASTEC was actually paid and whether or not MASTEC may be equitably estopped from enforcing the pay-if-paid clause.
Accordingly, it is
ORDERED that the defendant's motion for summary judgment and the plaintiff's motion for partial summary judgment are denied.
This shall constitute the decision and order of the court.