Opinion
No. 004070–11.
2012-06-28
NORTHEAST REMSCO CONSTRUCTION, Individually and on behalf of all other beneficiaries, Plaintiff, v. JOHN P. PICONE, INC., John P. Picone, Gerald E. Rossettie, Robert Taikina, Robert Wessels, Kenneth Durkin, John Does and Zurich American Insurance Company, Defendants.
Susan A. Shaw, Esq., Cohen, Seglias, Pallas, Greenhall & Furman, P.C., Philadelphia, PA, for plaintiff. Cesar F. Pereira, Esq., Peckar & Abramson, P.C., New York, for defendant.
Susan A. Shaw, Esq., Cohen, Seglias, Pallas, Greenhall & Furman, P.C., Philadelphia, PA, for plaintiff. Cesar F. Pereira, Esq., Peckar & Abramson, P.C., New York, for defendant.
VITO M. DeSTEFANO, J.
The following papers and the attachments and exhibits thereto have been read on this motion:
+------------------------------------------------+ ¦Notice of Motion ¦1¦ +----------------------------------------------+-¦ ¦Affirmation in Opposition ¦2¦ +----------------------------------------------+-¦ ¦Memorandum of Law in Support of Motion ¦3¦ +----------------------------------------------+-¦ ¦Memorandum of Law in Opposition of Motion ¦4¦ +----------------------------------------------+-¦ ¦Memorandum of Law in Further Support of Motion¦5¦ +------------------------------------------------+
Defendants John P. Picone, Inc. (“Picone Inc.), John P. Picone, Gerald E. Rossettie, Robert Taikina, Robert Wessels and Kenneth Durkin move for an order, inter alia, pursuant to CPLR 3211(a)(7) dismissing the second and third causes of action, which are asserted against John P. Picone, Inc., and the fourth cause of action insofar as asserted against them.
For the reasons that follow, the motion is denied.
Factual and Procedural Background
This action arises out of a construction project in Brooklyn termed “The Ave. V Pumping Station Upgrade”. The “owner” of the project was the NYC Department of Environmental Protection (“NYC DEP”). Picone Inc. was the general contractor on the project and Northeast Remco Construction (“NE”), the plaintiff in this action, was a subcontractor engaged by Picone Inc. for the purpose of microtunnelling and jacking. The subcontract, which was dated September 19, 2007, required Picone Inc. to perform all work in accordance with the principal contract between Picone Inc. and the NYC DEP (a copy of which was not provided with the motion or the papers submitted in opposition thereto). NE was to be paid $18,600,910 under the subcontract, which contained a provision reciting that “[a]ll extra work must be approved in writing by the Prime Contractor before proceeding and being included in payment” (Exhibit “B” to Motion: Subcontract at p. 5 annexed to Supplemental Summons and Amended Complaint).
Additional provisions of the subcontract concern the method and manner of making claims for extra work and state that Picone Inc. would not be liable for such claims “except to the extent that we have actually collected the cost of such additional or extra work or the amount of such damages from the Owner * * * [However,] NE retains all rights and remedies outlined in the Principal Contract for the pursuit of these claims” ( Id. at p. 9).
According to the complaint, NE performed in accordance with the subcontract and its work was accepted and approved by the NYC DEP. Invoices in the amount of $10,162,089 were submitted for payment; as of April 22, 2010, $1,000,509.36 remained due and owing. Of that amount, $417,701.01 was owed for progress payments; $582,808.35 was owed for unpaid retainage. In addition, NE claimed, inter alia, that the cost of its performance was increased: as a result of delays occasioned by Picone Inc.'s failure to secure dewatering permits; because NE was required to purchase additional equipment, and; Picone Inc. improperly constructed secant walls. With respect to Picone Inc.'s delay and the additional equipment purchased by NE, NE allegedly incurred $1,494,054 in costs. With respect to the improperly constructed secant walls, NE allegedly incurred $319,731.04 in additional costs, for which a change order was submitted to Picone Inc. for payment. Payment for the change order and for another change order in the amount of $76,450.90 remains outstanding (Exhibit “B” to Motion: Supplemental Summons and Amended Complaint at pp. 1–9).
The total balance of monies owed by Picone Inc. to NE is allegedly $2,890,745.30.
In its first cause of action for breach of contract, NE seeks to recover $2,890,745.30 from Picone Inc. In its second cause of action for “unjust enrichment”, also against Picone Inc., NE claims that it provided labor and materials at the project, that Picone Inc. derived a benefit therefrom, that the reasonable value of the labor and materials is $2,890,745.30, and that Picone Inc. has been unjustly enriched in that amount to the detriment of NE ( Id. at 11). In the third cause of action against Picone Inc., denominated “quantum meruit”, NE claims damages in the amount of $2,890,745.30. In this cause of action, NE alleges that Picone Inc. received the benefit of labor and materials provided by it, the value of which is $2,890,745.30 ( Id. at 12).
The fourth cause of action, brought by NE on behalf of itself and all beneficiaries of trust funds under the Lien Law, is asserted against all defendants, except for Zurich American Insurance Co. NE claims to have provided labor and materials in accordance with the terms of the subcontract and that Picone Inc. received payment from the NYC DEP for the work performed by it and other trust beneficiaries but failed and refused to make payments from the monies received in breach of it's duties as trustee. The officers and directors of Picone Inc., defendants Picone, Rossettie, Taikina, Wessels and Durkin, were responsible for ensuring that amounts received from the NYC DEP would be paid to NE and other subcontractors. By failing to pay, the defendants “wrongfully diverted assets of the trust, to the detriment of NE and the other Trust Beneficiaries” ( Id. at 12–13). NE seeks damages in the amount of $1,000,509.36, plus attorneys' fees, interest and punitive damages.
In support of their motion, the moving defendants argue that the second and third causes of action should be dismissed “because the Amended Complaint alleges that there is a valid and enforceable contract between plaintiff and Picone that governs the same subject matter as the quasi-contract claims” (Affirmation in Support of Motion at p. 3). Regarding the fourth cause of action, the moving defendants assert that NE has failed to “allege particularized factual allegations that support the conclusion that Picone or the individual defendants diverted Article 3–A trust funds, as is statutorily required pursuant to Rule 3016(b) of the CPLR” ( Id.).
In opposition, NE submits the affidavit of Rolando Acosta, President of NE, in which he avers that in addition to an outstanding contract balance, NE “is owed $1,494,054 for extra work directed by Picone for Northeast to perform” (Affidavit of Rolando Acosta at p. 1). Mr. Acosta asserts that despite contractual language which required that “if extra work was necessary, a change order must be negotiated, approved and signed by the parties * * * Picone [Inc.] directed * * * [it] to complete $1,494,054 in extra work, without providing * * * a change order.” Mr. Acosta also asserts that:
11. During the project, Northeast submitted invoices * * * based on the level of completion * * * accomplished each month, seeking that same percentage of its subcontract price.
12. In turn, Picone submitted payment applications to NYC DEP, in part, for payment for the work Northeast indicated had been completed.
13. Thus, Picone received periodic payments of public funds from the NYC DEP for the labor and materials Northeast provided to the Project.
14. It is believed and, therefore, averred that Picone did not pay Northeast all the funds received from the NYC DEP for Northeast's work.
* * *
16. Northeast believes and, therefore, avers that Picone diverted these funds to a non-trust purpose.
17. Northeast requested evidence of Picone's books of account, cancelled checks, check stubs and other accounting records to determine how much Picone had received from the NYC DEP on Northeast's behalf, but Picone refused to provide such documentation to Northeast.
The Court's Determination
Initially, the court notes that NE's complaint is imprecisely pleaded. The second and third causes of action, respectively, seek damages based on “unjust enrichment” and “quantum meruit”. The amount of damages sought in each cause of action is the same as the amount demanded in the first cause of action which sounds in breach of contract. Although there is support for the proposition that the existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery under alternative theories for events arising out of the same subject matter ( see Clark–Fitzpatrick, Inc. v. Long Is. R.R., 70 N.Y.2d 382, 388–89 [1987] ), under the circumstances presented, NE need not elect a remedy in the pleading stage of this action and may plead alternative theories of recovery ( eg ARB Upstate Communications LLC v. R.J. Reuter, LLC, 93 AD3d 929 [3d Dept 2012] [“While a quasi contract recovery, such as through an unjust enrichment cause of action, is precluded where a valid and enforceable contract applies to the dispute, a party need not elect its remedies and may proceed on alternative theories if a disagreement exists concerning whether the contract covers the situation at issue * * * At this pre-answer stage of the action, plaintiffs may proceed on both theories”]; Plumitallo v. Hudson Atl. Land Co., LLC, 74 AD3d 1038 [2d Dept 2010]; see also Patten v. Mi–Cal–Co, Inc., 26 A.D.2d 497 [1st Dept 1966] [where an express contract has been performed the contractor may elect to sue either on the express contract or it may sue in quantum meruit on the contract implied by law] ).
Furthermore, when determining a motion to dismiss pursuant to CPLR 3211(a)(7), the court must accept as true all of the facts alleged in the complaint and consider any factual submissions made in opposition to the motion ( see 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 [2002] ). Here, the affidavit submitted by NE in opposition to the motion (read in conjunction with the factual allegations contained in the complaint) appears to articulate a claim for the extra work performed by it. In this regard, the affidavit of Mr. Acosta asserts that Picone Inc. directed NE to complete extra work without issuing (/agreeing to) a change order. In response to this more particularized allegation, the movants argue only that the extra work performed by NE was governed by the subcontract and therefore NE's claims in regard to extra work are subsumed within NE's breach of contract claim, precluding recovery under alternative theories (Memorandum of law in further support of Motion at pp. 1–4).
Considering the lack of precision and clarity in NE's second and third causes of action (as amplified by the supplemental affidavit), and similar deficiencies in the relevant case law, it is necessary for the court to discuss the relationship between unjust enrichment and quantum meruit with implied contracts.
There exist two types of implied contracts—those which are implied-in-fact and those which are implied-in-law ( see Super v. Abdelazim, 139 A.D.2d 863 [3d Dept 1988] ). An implied-in-fact contract is a true contract differing from an express contract in that it arises from parties' conduct rather than from their words ( see Estate of Argersinger, 168 A.D.2d 757 [3d Dept 1990] ). “Thus, the implied-in-fact contract, like the written or complete oral contract, is based entirely upon the parties' intent to contract and is a consensual agreement” ( see Thomas C. Galligan, Jr., Extra Work In Construction Cases: Restitution, Relationship, and Revision, 63 Tul. Law Rev. 799, 804, March 1989).
In contrast, an implied-in-law contract or quasi-contract is not a contract at all but instead is an obligation that the law imposes to prevent unjust enrichment ( see Bradkin v. Leverton, 26 N.Y.2d 192 [1970];Estate of Argersinger, supra ). It is a restitutionary device, the classic example of which arises when a doctor treats an unconscious person. In that circumstance, the law imposes a quasi-contract to compensate the doctor for rendering medical treatment.
Both types of implied contracts “grew out of the common-law writ of assumpsit. Early in the development of the writ, a litigant could bring an action to enforce an express contract, to enforce a contract implied-in-fact, or to prevent unjust enrichment (through a contract implied-in-law) under the common count quantum meruit, which provided for recovery of the value of labor received” (Galligan, 63 Tul. Law Rev. 799,supra at 806).
[C]ourts and litigants frequently use only the term quantum meruit to describe a claim without distinguishing between the two types of implied contract. Indiscriminate use of the phrase quantum meruit is as common in extra work cases as it is in other types of cases. As noted, quantum meruit means “as much as he deserved,” but that does not tell the reader the theoretical basis for evaluating a claim's merit or its amount.
Galligan, 63 Tul. Law Rev. 799,supra at 807.
The First Department has observed that “the term quantum meruit' is ambiguous in customary use: “it may mean (1) that there is a contract implied in fact' to pay the reasonable value of the services, or (2) that, to prevent unjust enrichment, the claimant may recover on a quasi-contract (an as if' contract) for that reasonable value” (Heller v. Kurz, 228 A.D.2d 263 [1st Dept 1996] ) (internal citations omitted).
In short, courts have, on occasion, articulated the elements of claims for quantum meruit and unjust enrichment without regard to the implied contract doctrines to which they are usually technically and theoretically tied. For example, the court in Candreva v. Ultra Kote Applied Technology, Ltd. (44 AD3d 601 [2d Dept 2007] ), noted that “to make out a claim in quantum meruit, a claimant must establish (1) the performance of the services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services' “ (internal citations omitted). And, in Nakamura v. Fujii (253 A.D.2d 387 [1st Dept 1998] ), the court indicated that to state a cause of action for unjust enrichment, a plaintiff must allege that it conferred a benefit upon the defendant, and that the defendant will obtain such benefit without adequately compensating plaintiff therefor ( see alsoPJI 4:2: Contracts—Quasi Contract—Restitution—Unjust Enrichment, Comment at p. 674 [reciting elements for an action for restitution based on unjust enrichment] ).
In light of the liberal construction accorded the pleadings on this motion (EBCI, Inc. v. Goldman Sachs & Co., 5 NY3d 11 [2005] ), and considering the limited argument made by the movants as well as the issues discussed above, the branch of the motion seeking dismissal of the second and third causes of action must be denied. NE's complaint (and more specifically, the third cause of action), as supplemented by the affidavit of Mr. Acosta, arguably states a claim for recovery of the value of the extra work performed by it in quantum meruit based on breach of an implied-in-fact contract ( see eg Harder v. Reedy, 217 A.D.2d 833 [3d Dept 1995] [in view of ample evidence that defendants waived the requirement of written change orders, court should have submitted contract theory to jury] ). Furthermore, regarding the second cause of action, it has been held that “when a property owner knowingly receives and accepts the benefits of extra work in the performance of a contract orally directed by the owner * * * the owner is equitably bound to pay the reasonable value of the benefits, notwithstanding the provisions of the contract that any extra work must be supported by a written authorization signed by the owner” (22A N.Y. Jur2d Contracts § 637) (emphasis added).
In addition, the causes of action appear to be sufficiently stated under Candreva v. Ultra Kote Applied Technology, Ltd. (supra) and Nakamura v. Fujii (supra).
Accordingly, it is hereby ordered that the branch of the motion seeking dismissal of the second and third causes of action is denied.
Regarding the fourth cause of action alleging the diversion of trust funds under the Lien Law, the following is noted: Article 3–A of the Lien Law provides that all funds paid to a contractor in connection with the improvement of real property constitute assets of a trust for the benefit of subcontractors, laborers, materialmen, tax claimants and their subrogees. Money paid “to anyone in satisfaction of the contract would be impressed with this broadly inclusive trust” (City of New York v. Cross Bay, 93 N.Y.2d 14, 19 [1999] ). Thus, “[a]n improper diversion of the contractor's trust assets occurs when any such trust asset is paid, transferred or applied for a nontrust purpose, that is, for any purpose other than the expenditures authorized in section 71(2), before all of the trust claims have been paid or discharged” (Canron Corp. v. City of New York, 89 N.Y.2d 147 [1996];Lien Law § 72 [1] ). Section 77(1) of the Lien Law states that a cause of action may be maintained by trust beneficiaries to enforce the trust, to set aside diversions of trust assets, to recover money damages and for various other types of relief. In addition, the officers and agents of a trustee (general contractor) may be held personally liable for the diversion of trust funds ( seeLien Law § 79–a(1)(b); Ippolito v. TJC Development, LLC, 89 AD3d 57 [2d Dept 2011] ).
At bar, the complaint, as supplemented by the affidavit of Mr. Acosta, sufficiently states a cause of action under the Lien Law for the diversion of trust funds. In this regard, NE asserts that it provided labor and materials to Picone Inc. at the project, that invoices for the labor and materials were submitted for payment, the NYC DEP paid Picone Inc. for labor and materials provided by it and other persons at the project, which monies constituted trust funds, that Picone Inc. did not pay NE all monies received from the NYC DEP as required, that the funds were wrongfully diverted by Picone Inc. and the director/officer defendants, and that NE sustained damages exceeding $1,000,509.36. In light of additional allegations concerning the failure of the defendants to provide an accounting of the trust funds, it is hereby ordered that the branch of the motion seeking dismissal of the fourth cause of action for failure to state a claim is denied ( seeCPLR 3013, 3016).
It is further ordered that the remaining branches of the motion are denied.
This constitutes the decision and order of the court.