New York State Court of Claims

New York State Court of Claims

HANSON AGGREGATES v. NEW YORK STATE THRUWAY AUTHORITY, #2008-015-070, Claim No. 115013, Motion No. M-74968


Synopsis


In an action for breach of contract arising out of two construction contracts, summary judgment on liability was granted in favor of the claimant on one contract but denied on the other. Court held defendant may not defeat summary judgment by the assertion of a right to set off which was not pleaded as an affirmative defense or counterclaim.

Case Information

UID:
2008-015-070
Claimant(s):
HANSON AGGREGATES NEW YORK, INC.
Claimant short name:
HANSON AGGREGATES
Footnote (claimant name) :

Defendant(s):
NEW YORK STATE THRUWAY AUTHORITY
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
115013
Motion number(s):
M-74968
Cross-motion number(s):

Judge:
FRANCIS T. COLLINS
Claimant’s attorney:
Gates & Adams, P.C.By: Anthony J. Adams, Jr., Esquire
Defendant’s attorney:
Honorable Andrew M. Cuomo, Attorney General
By: Eidin Beirne, EsquireAssistant Attorney General
Third-party defendant’s attorney:

Signature date:
September 26, 2008
City:
Saratoga Springs
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

Claimant moves for summary judgment on its claim asserting the defendant has failed to pay monies due and owing under two highway construction contracts. Claimant alleges causes of action for breach of contract, account stated, unjust enrichment and quantum meruit with respect to two contracts. On or about July 27, 2006 the parties entered into contract number TAS 06-42 / D213631 (hereinafter Contract 42) whereby in consideration of the sum of $8,962,404.15 claimant agreed to furnish all labor and materials for the reconstruction and paving of 13.5 miles of the New York State Thruway between milepost 220.0 and milepost 233.5.[1] On or about October 31, 2006 the parties entered into contract number TAS 06-38 / D213584 (hereinafter Contract 38) whereby in consideration of the sum of $6, 796,940.53 claimant agreed to furnish all labor and materials for the reconstruction and paving of 7.4 miles of the New York State Thruway between milepost 233.5 and milepost 240.9.[2] With respect to the work performed under Contract 38, claimant alleges that the work was completed on or about November 28, 2007 and that there is a balance due in the amount of $1,589,538.38. With respect to the work performed under Contract 42, claimant alleges the work was completed on or about August 31, 2007 and there is a balance due in the amount of $1,024,886.99.

Because a portion of the work performed under Contract 42 was found unacceptable, the defendant directed the claimant to remove and replace ten (10) lane miles of pavement between mile posts 219.9 and 225.1. Inasmuch as claimant asserted the pavement conformed to the contract specifications and disputed that replacement was required, claimant completed the work and notified the defendant the work would be performed on a "force account" basis (see Exhibit M annexed to claim). A "force account" in the amount of $669,127.08 was established and claimant seeks to recover this amount as well.

In support of its motion for summary judgment, the claimant submitted affidavits and reports from its expert, Brian D. Prowell, Ph. D., P.E., the verified claim and various correspondence received from the defendant. Dr. Prowell states that he inspected the work performed pursuant to Contract 42 both before and after replacement of that portion of the pavement deemed unacceptable by the defendant. He opined that the work performed pursuant to Contract 42 conformed to contract specifications. He also rendered the opinion that had the pavement not been removed and replaced in October 2007 it would have performed well.

In addition to the verified claim, the claimant submitted two letters from Christopher A. Waite, P.E., an employee of the Thruway Authority, in support of its motion for summary judgment on Contract 38. In the first letter, dated February 13, 2008, Mr. Waite stated his intention to "close out" contract 38 and offset the balance due under Contract 38 ($1,583,000) against the amount claimant was overpaid on Contract 42 ($2,300,000) (see claimant's Exhibit C).

In the second letter, dated April 9, 2008, Mr. Waite states "we are closing out Contract TAS 06-38 and using the balance due to offset the overpayment on 06-42" (see claimant's Exhibit D). This letter indicated that the portion of the pavement which was removed and replaced in 2007 (for which the "force account" was established) represented the worst of the problem pavement placed pursuant to Contract 42. In addition, Mr. Waite indicated that the remainder of the pavement work performed pursuant to the contact was not found to be acceptable by the Authority due to "early performance problems". He indicated that "at this time we do not intend to direct Hanson to remove additional pavement we are willing to wait for the warmer days of summer to determine whether or not the remaining pavement remains stable. If the pavement is found acceptable we will close out the project and release all monies owed. Should the pavement not perform as expected, we will be in contact to determine remedial action" (claimant's Exhibit D).

In opposition to the claimant's motion for summary judgment, the defendant does not dispute that the work performed pursuant to Contract 38 was acceptable. The defendant states in this regard "It is not disputed that Claimant fully performed its work under [Contract 38]. It is, however, disputed that it fully performed its obligations under [Contract 42]" (defendant's Memorandum of Law, p. 1).

In opposition to that branch of the claimant's motion seeking summary judgment on Contract 42, the defendant submitted an affidavit from Ted C. Shields, who is employed by the New York State Thruway Authority as a Civil Engineer I in the Office of Construction Management. Mr. Shields inspected the pavement placed by the claimant pursuant to Contract 42 and states the following in this regard:
3. Because the newly laid pavement remained unusually soft and in somewhat of a plastic state, the additional compaction attributed to wheel loads from traffic forced the asphalt binder, dust and finer aggregate particles to the surface while the larger aggregates shifted and interlocked deeper in the mat creating segregation in the intended matrix.

4. The asphalt pavement exhibited atypical flushing; i.e., it was soft and was possibly slippery and the plastic instability of the pavement could lead to wheel rutting. Shortly thereafter, isolated wheel rutting was observed.

Mr. Shields indicates the claimant failed to follow contract specifications because it did not include all of the additives in the liquid asphalt binder, which included polyphosphoric acid (PPA), on the job mix formula submitted to the defendant (Shields affidavit ¶¶ 5,6 and 7). He states that sections 401-2.01 and 402-2.02 of the contract specifications require the contractor to submit this information, and supports this contention with a copy of the specifications (defendant's Exhibit B). Subsequent to the completion of the work under Contract 42, the defendant issued Engineering Bulletin 08-014 which appears to prohibit the use of the PPA additive (defendant's Exhibit C, Special Note #1).

Mr. Shields avers that the Thruway Authority rejected certain areas of the asphalt pavement on Contract 42, which were subsequently removed and replaced at the contractor's expense (Shields Affidavit, ¶ 11). Mr. Shields also states the following:
13. In addition, the Thruway Authority has rejected $2,263,616 worth of asphalt paving that did not meet specifications, on contract TAS 06-42. Claimant has already been paid for this pavement through progress payments on that contract, although, only work that meets contract specifications is eligible for payments.

An affidavit of Andrew M. Nagy, Claims Engineer for the New York State Thruway Authority, indicates based upon his review of the records and paragraph 13 of Mr. Shields' affidavit that claimant was "overpaid $2,263,616 for the paving item under [Contract 42] because it has been paid for work that was not in compliance with the specifications" (Nagy Affidavit, ¶ 3). He also indicates that there is approximately $570,205 due claimant in unpaid items other than paving, leaving a net balance due from the claimant in the amount of $1,693,411 on Contract 42.

Mr. Nagy noted that the New York State Thruway Authority sent a check in the amount of $170,693.37 to the claimant on May 27, 2008 (subsequent to the filing of the instant motion), leaving a net balance due on Contract 38 in the amount of $1,412,600. Referencing the setoff language of the contract, Mr. Nagy states that "[t]his amount is being withheld to set-off money that is owed to the NYSTA on [Contract 42]" (Nagy Affidavit, ¶ 9).

The defendant relies on the setoff language in its contract in opposing the claimant's motion for summary judgment on Contract 38. The contract states in this regard the following:
8. SET-OFF RIGHTS. The Authority/Corporation shall have rights of set-off. These rights shall include, but not be limited to, the Authority's/Corporation's option to withhold for the purposes of set-off any moneys due to the Contractor under this contract up to any amounts due and owing by the Contractor to the Authority/Corporation with regard to this contract, or any other contract with the Authority/Corporation, including any contract for a term commencing prior to the term of this contract, plus any amounts due and owing to the Authority/Corporation for any other reason including, without limitation, monetary penalties, adjustments, fees, or claims for damages by the Authority/Corporation and third parties in connection therewith.

It is well established that " 'summary judgment is a drastic remedy and should not be granted where there is any doubt as to the existence of a triable issue' " (Rotuba Extruders v Ceppos, 46 NY2d 223, 231 [1978][citation omitted])http://web2.westlaw.com/find/default.wl?rs=WLW6.11&serialnum=1979103056&fn=_top&sv=Split&tc=-1&findtype=Y&tf=-1&db=605&vr=2.0&rp. "The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case" (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]) . Once the movant has made this showing, the burden shifts to the party opposing the motion "to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986] citing Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Here, claimant established its prima facie entitlement to summary judgment on the issue of liability on its cause of action for breach of contract with respect to Contract 38. The claimant established in this regard that the work performed pursuant to this contract was completed in accordance with the contract specifications and that defendant failed to make payment in accordance with the terms of the contract. The claim together with the defendant’s answer thereto sufficiently established the existence of the contract and the letters from Mr. Waite constitute admissions that the work conformed to the contract specifications and that payment has not yet been made.

In opposition to that part of the motion relating to Contract 38, the defendant does not dispute that the work conformed to contract specifications or that money is owed. Rather defendant argues that the setoff clause contained in the contract entitles it to offset the amount owed under Contract 38 against the amount it asserts the claimant was overpaid for unacceptable work performed pursuant to Contract 42.

CPLR 3019 (a) describes a counterclaim as including any cause of action in favor of a defendant as against a plaintiff alleged to be liable. CPLR 3018 (b) provides:
(b) Affirmative defenses. A party shall plead all matters which if not pleaded would be likely to take the adverse party by surprise or would raise issues of fact not appearing on the fact of a prior pleading . . .

CPLR 3018 (b) is written in the disjunctive and, while defendants alleged contractual right to setoff cannot surprise the claimant, the allegations first formally raised in the moving papers present issues of fact not appearing on the face of the claim. In any event, whether denominated an affirmative defense or setoff, the right to a setoff must be set forth in the answer or it is waived (Kivort Steel v Liberty Leather Corp., 110 AD2d 950 [1985]; cf. Reich v Knopf, 65 AD2d 618 [1978]).

In Ellenville Natl. Bank v Freund, 200 AD2d 827 [1994]) the Appellate Division, Third Department addressed the propriety of summary judgment in favor of the plaintiff despite the defendant's assertion of an unpleaded right to setoff. The Court stated:
"Although defendants maintain that they may have a right to set off against the amount due on the note amounts allegedly overpaid on prior loans, their answer, given the most amiable reading, does not even contain conclusory allegations that they intended to assert such a defense or counterclaim, let alone any facts in support thereof. Their claimed entitlement to a setoff, whether considered an affirmative defense or a counterclaim, has therefore been waived" (Id. at 828, citing Kivort Steel v Liberty Leather Corp., 110 AD2d 950, 952).

Here the assertion that the defendant is entitled to set off amounts allegedly overpaid on Contract 42 against monies admittedly owed to the claimant on Contract 38 appears only in defendant's papers submitted in opposition to the motion for summary judgment. The answer does not set forth the defendant's right to a setoff either as an affirmative defense or a counterclaim. The defendant did not amend its answer as of right to include such a defense or counterclaim and has not cross-moved for permission to amend the answer. Absent either an affirmative defense or a counterclaim alleging the State's right to a setoff, and there being no claim asserted for the amount of the purported overpayment on Contract 42, the defendant may not defeat claimant’s motion for summary judgment seeking payment of amounts admittedly due and owing under Contract 38.

While the State's right to offset a valid claim of the State is well established, "the setoff must be 'due and payable [as opposed to] contingent, possible and in futuro' " (Matter of Northville Indus. Corp. v State of New York, 14 AD3d 817, 818 [2005], quoting Matter of Fehlhaber Corp. v O'Hara, 53 AD2d 746, 747 [1976]). The right of setoff to collect a debt owed to the State is not defeated merely because the debt has not been reduced to a judgment or is unrelated to the State's debt to the claimant (Morash v State of New York, 268 AD2d 510, 511, lv denied 95 NY2d 755 [2000]). Even absent a judgment, the State may properly assert a right to setoff as an affirmative defense and seek recoupment of any additional monies owed by way of a counterclaim (Slate v State of New York, 284 AD2d 767, 770 [2001]; Court of Claims Act § 9 [3]; C.O. Falter Constr. Corp. v New York State Thruway Auth., 19 Misc 3d 1127 [A] [2008]). However, as stated earlier herein, the defendant failed to interpose any such defense or counterclaim. Nor is the Court aware of any separate action in which the defendant has asserted its right to recover monies improperly paid to the claimant for work performed under Contract 42 which failed to meet the contract specifications. As a result, at present, no monies are "due and payable" to the defendant on contract 42 and any right to a setoff must therefore be considered contingent, possible and in futuro (Matter of Northville Indus. Corp. v State of New York, 14 AD3d at 818). In similar circumstances the Appellate Division, Third Department in Matter of Fehlhaber v O'Hara, supra, rejected the contention that an un-asserted claim for monies allegedly owed on one construction contract warranted the withholding of monies admittedly due the contractor on another construction contract, stating:
"We do not question appellants' statement that 'under the proper circumstances the State is entitled to setoff against payments due on a contract not only claims against the contractor on the same contract, but also claims against the same contractor on other contracts' (e.g., Williams Press v State of New York, 45 AD2d 397, revd 37 NY2d 434). Appellants' position in this regard is untenable because the record does not show the existence of any justiciable setoff or counterclaim in favor of the State against petitioner. Appellants attempt to justify their refusal to act because the State claims a 'potential counterclaim exists' under a separate contract between the State and petitioner for the construction of part of the Cultural Center. The record also shows that petitioner's performance of the contract on the Cultural Center project was guaranteed by a $10,000,000 surety bond. . . We hold that the record does not show the existence of a separate setoff or counterclaim at the time and withholding payment under the circumstances was arbitrary and illegal. . . It is axiomatic that 'claims or demands sought to be set off must not only be mutual to the extent that they are owing by each to the other, but they must be due and payable, and, therefore, a claim not due cannot be set off against one which may be thereafter enforced. (De Camp v. Thomson, 159 N. Y. 444).' (Michigan Sav. Bank v Millar, 110 App Div 670, 672, affd 186 NY 606). The State has attempted to justify nonpayment by the assertion of a counterclaim or setoff not only not due and payable, but contingent, possible and in futuro (Id. at 747).

Like the facts in Matter of Fehlhaber v O'Hara, supra, the defendant's contention that its contractual setoff rights warrant the denial of claimant's motion for summary judgment on Contract 38 must fail. There is no debt due and payable to the defendant nor has any such claim been formally filed. Moreover, the issue of whether the claimant owes the defendant monies on Contract 42 is vigorously disputed. Absent any claim asserting a debt owed by the claimant, the defendant's contractual right to a setoff is merely contingent, possible or in futuro and provides no basis for opposition to the claimant's motion for summary judgment on the monies admittedly owed on Contract 38 ( see also Northville Indus. Corp. v State of New York, supra ; Matter of Mutual Tickets Agents Union, Local 23293, AFL-CIO v McCall, 210 AD2d 845 [1994, lv denied 86 NY2d 703 [1995]; cf. Matter of 3 Lafayette Ave. Corp. v Comptroller of State of N.Y., 186 AD2d 301 [1992], lv denied 81 NY2d 705 [1993]).

However, the parties disagree as to the amount owed on Contract 38. While the claimant contends that the amount owed under the contract is $1,589,538.38, the defendant contends that the amount due the claimant is $1,412,600.[3] The Court therefore grants the claimant's motion for summary judgment as to the issue of liability only. The causes of action contained in the claim which relate to Contract 38 shall be severed from the remaining causes of action and scheduled for trial on the issue of damages at the appropriate juncture (see CPLR 3212 [e]).

With respect to Contract 42, the Court finds that the claimant failed to establish its prima facie entitlement to summary judgment. While the claimant submitted an affidavit from its expert, Dr. Prowell, who opined that the work performed pursuant to this contract conformed to the contract specifications, it failed to submit the contract or otherwise support the expert's assertions by relevant industry standards (see Diaz v NewYork Downtown Hosp., 99 NY2d 542 [2002]; Reid v Schalmont School Dist., 50 AD3d 1323 [2008]; Stocklas v Auto Solutions of Glenville, Inc., 9 AD3d 622 [2004]). In addition, through the submission of Mr. Shields’ affidavit, the defendant raised material questions of fact as to whether or not the work performed pursuant to Contract 42 conformed to the contract specifications.

Based on the foregoing, claimant's motion for summary judgment is granted to the extent the Court finds the defendant liable for payment of monies due for the work performed pursuant to Contract 38. The first through fourth causes of action alleged in the claim are severed, and a trial on the issue of damages will be scheduled at the appropriate juncture.

Claimant's motion for summary judgment on Contract 42 is denied.



September 26, 2008
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 May 16, 2008;
  2. Memorandum of Law of Anthony J. Adams, Jr. dated May 16, 2008;
  3. Affidavit of Brian D. Prowell, Ph.D., P.E. sworn to May 13, 2008 with exhibits;
  4. Affirmation of Anthony J. Adams, Jr. filed May 19, 2008 with exhibits;
  5. Memorandum of Law of Eidin Beirne dated June 12, 2008;
  6. Affidavit of Andrew M. Nagy, P.E. sworn to June 11, 2008 with exhibits;
  7. Affidavit of Ted C. Shields sworn to June 11, 2008 with exhibits;
  8. Affirmation of Anthony J. Adams, Jr. dated June 23, 2008.

[1]. This allegation in the claim was admitted by the defendant in its answer (see claim ¶ 4; defendant's answer ¶ 1(claimant's Exhibits A and B).
[2]. This allegation in the claim was admitted by the defendant in its answer (see claim ¶ 3; defendant's answer ¶ 1(claimant's Exhibits A and B).
[3]. Although a check was recently issued for retainage in the amount of $170,693.37, counsel for the claimant appears to maintain in a reply affirmation (paragraph 7) that this payment was made in connection with Contract 42 and that notwithstanding the issuance of this check, the amount owed on Contract 38 is $1,583,538.38.