New York State Court of Claims

New York State Court of Claims

I.T.R.I. v. STATE OF NEW YORK, #2004-015-425, Claim No. 106692, Motion No. M-68691


Synopsis


Absent subcontract language or separate liquidating agreement subcontractor on State construction job may not maintain action seeking delay damages.

Case Information

UID:
2004-015-425
Claimant(s):
I.T.R.I. MASONRY CORP., as Assignee of WORTH CONSTRUCTION CO., INC.
Claimant short name:
I.T.R.I.
Footnote (claimant name) :

Defendant(s):
STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
106692
Motion number(s):
M-68691
Cross-motion number(s):

Judge:
FRANCIS T. COLLINS
Claimant's attorney:
Gregory Mason, Esquire
Defendant's attorney:
Honorable Eliot Spitzer, Attorney General
By: Eidin Beirne, EsquireAssistant Attorney General
Third-party defendant's attorney:

Signature date:
September 16, 2004
City:
Saratoga Springs
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

Defendant's motion for summary judgment is granted. On September 30, 1996 the defendant through the Office of General Services entered into a contract with Worth Construction Co., Inc. (Worth) for the construction of a medical building at Bedford Hills Correctional Facility, Bedford Hills, Westchester County. The Contract (D39369-C) in the amount of $19,271,000.00 was approved by the Comptroller and had a contract completion date of April 11, 1998. On or about November 13, 1996 Worth entered into a subcontract with the claimant whereby claimant was to perform masonry, grouting and insulation work required by the general contract. By letter dated July 29, 1997 (Exhibit 5) the State extended the Worth contract completion date from April 11, 1998 to May 11, 1998 due to delays beyond Worth's control "resulting from a defect in specifications requiring that state to approve (sic) shop drawings within 14 days and the issuance of a field order to provide a 12" waterline and delays for steel fabrication and foundations." The claim alleges that claimant faithfully performed its work under the contract until March 31, 1998 and seeks damages for "breaches of the contract by the Defendant, causing delay and disruption of ITRI's work, labor and material cost escalation, and extended time for performance of ITRI's work". Worth allegedly completed its work under the contract on or about October 19, 2001 (Claimant's Exhibit E ).

On April 9, 2002 Worth, the general contractor, executed a release in settlement of its claims arising from the project (Defendant's Exhibit 6) which in relevant part provides:
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby acknowledges that pursuant to a contract dated September 30, 1996, wherein the undersigned agreed to furnish for the State of New York all the General Construction Work necessary to provide a Regional Medical Unit, Building 126, at the Bedford Hills Correctional Facility, Contract No. D39369-C, the state has paid or will pay the undersigned a sum not-to-exceed TWENTY MILLION THIRTY THREE THOUSAND TWO HUNDRED EIGHTY FIVE DOLLARS AND EIGHTY CENTS ($20,033,285.80), said amount being the entire amount due from the State to the undersigned due to said contract, including, but not limited to money, if any, due to the undersigned by reason of extra work, labor or material furnished or performed in connection with, relating to, impacted by or arising out of the subject matter of said contract and termination costs. In consideration of such payment the undersigned hereby releases and discharges the State, its officers, agents, and employees, of and from all claims of liability to the undersigned for anything furnished or performed in connection with, relating to, impacted by or arising out of the contract or out of the Work covered by said contract including, but not limited to, all claims for delay, interference, acceleration, extra work, labor or materials, termination costs and for any prior act, neglect or default on the part of the State or any of its officers, agents, or employees in connection therewith, except as provided in the final sentence of this paragraph. PROVIDED HOWEVER, that the foregoing release shall not extend to any claim made and brought on behalf of I.T.R.I. Masonry Corp., either in the name of Worth Construction Co., Inc. or in the name of I.T.R.I. Masonry Corp., as assignee of Worth Construction Co., Inc. and related to Contract No. D39369-C.

The undersigned further acknowledges that neither the aforesaid payment nor acceptance by the State of New York of the Work covered by the aforementioned contract shall in any way or manner operate as, or constitute, a release or waiver of the undersigned's obligation, undertakings or liabilities under said contract or in any way affect or limit the same nor in any way limit the State from any claim against the undersigned for any breach or negligent performance of said contract or for any claim for indemnity or contribution which may accrue as a result of actions against the State by third parties, except for any claim or action brought by or on behalf of I.T.R.I. Masonry Corp. This provision does not, however, enlarge any causes of action which such third parties may have against the State. Specifically, it does not extend any periods of limitation which may otherwise have run.

This Agreement may not be assigned to the Contractor nor its right, title or interest therein assigned, transferred, conveyed, sublet or disposed of without the previous consent in writing of the State, except with respect to any interest and/or claim of I.T.R.I. Masonry Corp. described herein.
Pursuant to the release the sum payable to Worth under the contract was increased from $19,271,000.00 to $20,033,285.80 as set forth above. On April 15, 2002 the State issued a Final Certificate in letter form (Claimant's Exhibit E) which states that it "represents fiscal closeout and final acceptance of the work by the State in accordance with Article 21". Final payment to Worth was made on May 6, 2002 (Claimant's Exhibit F).

On May 31, 2002 Worth executed an assignment of claims to claimant (Defendant's Exhibit 1 [attachment B]) which provides:
ASSIGNMENT OF CLAIMS

WORTH CONSTRUCTION CO., INC., having its principal office at 24 Taylor Avenue, Bethel, Connecticut 06801 ("Worth"), for valuable consideration, receipt of which is hereby acknowledged, does hereby assign to I.T.R.I. MASONRY CORP., having its principal office at 48 Nancy Street, West Babylon, NY 11704 ("ITRI") all claims and causes of action accrued to Worth against The State of New York arising out of or in connection with Contract No. D39369-C for the performance of construction work at the Regional Medical Building at the Bedford Hills Correctional Facility ("Project"), except as hereinafter limited or excepted.

This assignment is limited to claims and causes of action against The State of New York for damages incurred by ITRI while acting as a subcontractor to Worth at the project and does not include damages incurred by Worth as the prime contractor.

There is excepted from this assignment the balance of retainage due to Worth from the State whether in the form of securities or cash.

This assignment cannot be waived, modified or terminated orally.

On June 6, 2002 claimant served a verified statement of claim upon the NYS Office of General Services and thereafter commenced the instant action by filing a claim on September 26, 2002 and serving of a copy of the claim upon the Attorney General on September 27, 2002. The claim seeks to recover $2,024,000.00 in additional costs for labor, materials and equipment, extended overhead and markups due as a result of the defendant's alleged breach of contract. Specifically, claimant alleges that the State changed the schedule for the work; failed to provide timely access and to properly coordinate the work of various prime contractors on the project; required claimant to perform its operations in a manner and sequence neither called for nor anticipated in the contract plans and specifications or in conformity with construction industry custom and practice and failed to issue change orders to Worth for extra work performed by claimant at the direction of OGS and pursuant to the terms of the contract. Claimant alleges that the State breached the contract "to such an extent as to rise to the level of gross negligence, bad faith and intentional abandonment of the work of the contract and the subcontract on the part of OGS."

By the instant motion the defendant seeks dismissal of the claim on the grounds that pursuant to article 17 of the General Conditions of the contract claimant's assignor (Worth) assumed the risks of all delays caused by other contractors and by any State approved construction schedule (section 17.4); the State is not liable for delays caused by a contractor's inefficiency or failure to comply with proper directions (section 17.5); Worth expressly waived its right to claim damages for delay or disruption resulting from changes to the work or the progress schedules, including interference by the State, lack of coordination, design errors or omissions, completeness of drawings or specifications, or any act or omission involving or related to the supervision, coordination, inspection, scheduling, approval or rejection of the work of any contractor on the project and that Worth's sole remedy for delay under the contract was an extension of time (section 17.9). The defendant also alleged that claimant's action must be dismissed since no privity of contract exists between the State as owner of the project and a subcontractor such as the claimant.

Claimant opposed the motion alleging that the State's actions were grossly negligent, willful, malicious, intentionally harmful and in bad faith and constituted an intentional abandonment of the contract and a breach of the State's fundamental contractual obligations rendering the "no damages for delay" clause articulated in article 17 of the underlying contract's general specifications unenforceable. While admitting that ITRI had no contract with the State, claimant alleges that lack of privity does not bar recovery to a prime contractor acting on the subcontractor's behalf and that Worth's assignment to claimant affords an adequate legal basis for the lawsuit.

As noted previously the defendant has moved for summary judgment seeking dismissal of the claim. Although the notice of motion does not specifically state the grounds upon which dismissal is requested the supporting affidavit alleges in paragraph 5 that, "at no time on the aforesaid project was the State in privity of contract with the Claimant herein. The State's contract was with Worth." The affidavit further is addressed to article 17 of the general specifications incorporated into the Worth contract and incorporated by reference into claimant's subcontract with Worth. On the motion the claimant addressed both the issue of privity and the asserted unenforceability of the contract specification's no damage for delay clause.

Although CPLR 2214 (a) provides in part that "[a] notice of motion shall specify . . . the relief demanded and the grounds therefor" claimant has neither objected to defendant's omission to state a ground for relief nor alleged prejudice. Accordingly the Court has decided to disregard defendant's failure to state the grounds for relief "as a technical deficiency in the interests of justice and expediency" (Matter of LiMandri, 171 AD2d 747; CPLR 2001; see also HCE Assoc. v 3000 Watermill Lane Realty Corp., 173 AD2d 774).

It has long been established that "subcontractors, lacking privity of contract, are precluded from bringing suit against the owners directly (see Alvord & Swift v Muller Constr. Co., 46 NY2d 276, 282)" (Bovis Lend Lease LMB v GCT Venture, 285 AD2d 68, 69). New York courts have also held, however, that a prime contractor to a construction contract may prosecute a claim against the owner for the benefit of a subcontractor (see American Std. v New York City Tr. Auth., 133 AD2d 595; Lambert Houses Redevelopment Co. v HRH Equity Corp., 117 AD2d 227; Ardsley Constr. Co. v Port of N.Y. Auth., 61 AD2d 953) by agreeing to do so either in the subcontract or by way of a liquidating agreement (see Schiavone Constr. Co. v Triborough Bridge & Tunnel Auth., 209 AD2d 598). As outlined by the Appellate Division, First Department in Bovis Lend Lease, LMB v GCT Venture supra at pg. 70 "Liquidation agreements have three basic elements: (1) the imposition of liability upon the general contractor for the subcontractor's increased costs, thereby providing the general contractor with a basis for legal action against the owner; (2) a liquidation of liability in the amount of the general contractor's recovery against the owner; and, (3) a provision that provides for the 'pass-through' of that recovery to the subcontractor. In Barry, Bette & Led Duke v State of New York, (240 AD2d 54) the Appellate Division, Third Department addressed a decision in the Court of Claims which denied defendant's motion to dismiss a cause of action brought by the general contractor on behalf of a subcontractor. The motion was denied based upon the Court's finding of an implied liquidating agreement between the general contractor/claimant and subcontractor. The Third Department reversed holding that a liquidating agreement may not be implied and "there will be no liability in the general contractor absent an actual contractual commitment to that effect" (Barry, Bette & Led Duke v State of New York, supra at pg. 56).

The claimant herein does not assert that the subcontract contained language liquidating Worth's potential liability to claimant and permitting Worth to prosecute an action on its behalf. Nor was a separate liquidating agreement entered into between Worth and ITRI although claimant's counsel indicates in paragraph 12 of his affirmation in opposition to the motion that an agreement was under negotiation but not concluded at the time Worth executed its release in favor of the State on April 9, 2002. In fact, no such agreement was ever executed by and between Worth and ITRI. The release executed by Worth in settlement of its claims against the State recognized the amount stated to be "the entire amount due from the State to the undersigned due to said contract" and excepted from its coverage any claim or action brought by or on behalf of ITRI.

Worth, having released "the State, its officers, agents and employees, of and from all claims of liability to the undersigned for anything furnished or performed in connection with, relating to, impacted by or arising out of the contract" on April 9, 2002 had no remaining claim or cause of action against the State to assign to ITRI on May 31, 2002. Furthermore, it assumed no liability to ITRI as a subcontractor either in the subcontract itself or through execution of a separate liquidating agreement. Worth, therefore, had no cause of action to assign to ITRI because it had undertaken no independent legal obligation for losses suffered by ITRI. As a result, the purported assignment by Worth on May 31, 2002 of "claims and causes of action against the State of New York for damages incurred by ITRI while acting as a subcontractor" is without legal effect and the claimant, lacking privity of contract, is precluded from maintaining suit against the State.

The defendant's motion for summary judgment dismissing the claim is granted. The claim is dismissed.


September 16, 2004
Saratoga Springs, New York
HON. FRANCIS T. COLLINS
Judge of the Court of Claims


The Court considered the following papers:
  1. Notice of motion dated June 29, 2004;
  2. Affidavit of Donald Bishop sworn to June 28, 2004 with exhibits;
  3. Affidavit of Robert Rubino sworn to July 14, 2004;
  4. Affirmation of Gregory Mason dated July 14, 2004 with exhibits.