New York State Court of Claims

New York State Court of Claims

FIDELITY AND DEPOSIT v. THE STATE OF NEW YORK, #2009-015-177, Claim No. 113357, Motion Nos. M-76003, M-76274, CM-76192


Synopsis


Affirmative defense was insufficiently specific to preserve defense that claim was untimely filed or served. Court of Claims lacks jurisdiction to enforce a trust under the lien law. Surety on performance bond states cause of action under principles of equitable subrogation. Letter agreement between surety and State contained essential terms of contract and may form the basis for breach of contract claim.

Case Information

UID:
2009-015-177
Claimant(s):
FIDELITY AND DEPOSIT COMPANY OF MARYLAND
Claimant short name:
FIDELITY AND DEPOSIT
Footnote (claimant name) :

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

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
113357
Motion number(s):
M-76003, M-76274
Cross-motion number(s):
CM-76192
Judge:
FRANCIS T. COLLINS
Claimant’s attorney:
Torre, Lentz, Gamell, Gary& Rittmaster, LLPBy: Steven H. Rittmaster, Esquire and Henry James Wallach, Esquire
Defendant’s attorney:
Honorable Andrew M. Cuomo, Attorney General
By: Eidin Beirne, EsquireAssistant Attorney General
Third-party defendant’s attorney:

Signature date:
July 7, 2009
City:
Saratoga Springs
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

Claimant, Fidelity and Deposit Company of Maryland (F & D), a surety on a performance bond, moves for summary judgment in the amount of $340,000.00 pursuant to CPLR 3212, together with interest, costs and disbursements. Defendant cross-moves for summary judgment dismissing the claim on the grounds that this Court lacks subject matter jurisdiction over claims arising under the Lien Law, that the claim was untimely filed and served and fails to state a cause of action. Claimant opposes the cross-motion and moves for late claim relief pursuant to Court of Claims Act § 10 (6). The following facts are not disputed: Greystone Building and Maintenance Corp. ("Greystone") entered into a contract ("Contract")with the State of New York through its Department of Transportation (DOT) for the repair of seven bridges on the Henry Hudson Parkway under contract number D259182. The claimant, as surety, issued a performance bond and a labor and materials bond on behalf of Greystone as principal and the State of New York as obligee in the amount of $7,276,171.76 each. The defendant terminated the employment of Greystone under the Contract on February 25, 2005 and made a demand upon the claimant as surety that it complete the work remaining to be performed under the Contract. By letter dated April 28, 2005 claimant, through Zurich North America ("Zurich") on behalf of the claimant, committed to perform and complete the work.[1] The April 28th letter (claimant's Exhibit C annexed to its Affidavit In Support Of Motion For Summary Judgment) from Zurich stated in pertinent part the following:
"We previously forwarded to you, under cover of our attorneys' letter dated April 25, 2005, NYSDOT's standard form of "takeover letter" on F & D letterhead, as revised by F & D. NYSDOT has advised that it will not countersign the letter as revised by F & D and, instead, has suggested that the parties proceed without a signed takeover letter.

Accordingly, pursuant to the terms of its Faithful Performance Bond, F & D hereby gives written notice to NYSDOT of F & D's election to fully perform and complete the Contract. F & D has retained Perini Corporation ('Perini') to perform and complete the remaining work under the Contract. Perini shall commence performance on or before May 10, 2005. Perini shall be F & D's on-site representative and is authorized to represent F & D in dealing with NYSDOT on day-to-day construction issues with respect to performance of the Contract.

F & D acknowledges its obligation up to the $7,276,171.76 sum of the Faithful Performance Bond. F & D understands that NYSDOT asserts that F & D's obligation to complete the Contract may exceed said amount.

In accordance with the terms of the Faithful Performance Bond, please provide us with NYSDOT's written advice that Perini is an acceptable contractor to complete the Contract and that the NYSDOT will pay F & D the remaining funds in the Contract as work is performed in accordance with the Contract's terms and prices. In prior correspondence, NYSDOT has represented that the Total Adjusted Contract Amount is $7,852,216.76 and that the remaining unpaid funds in the Contract are $3,535,317.35, consisting of a Contract Balance of $3,308,112.10 plus Retainage of $227,205.25. Please confirm the accuracy of said amounts."

Defendant responded by letter dated April 28, 2005 (claimant's Exhibit D annexed to its Affidavit In Support Of Motion For Summary Judgment) stating the following:
"This will acknowledge receipt by fax of your correspondence of this date notifying the Department of F & D's election, as surety for Greystone, to fully perform and complete the above referenced contract. To clarify the statement contained in your letter, on April 25, 2005, a draft was faxed by your attorney containing numerous proposed revisions to our standard takeover letter. However, the option to proceed in the absence of a countersignature was suggested in the event that the Surety would insist on certain of the proposed revisions, which the Department felt had no bearing on the Surety's obligation under its bond. Accordingly, it was Zurich which chose to proceed in this manner.

* * *

To the best of our knowledge, the contract amounts set forth in your letter are accurate. However, said amounts are subject to adjustment if errors are identified at any time. NYSDOT agrees that it will process payment for the benefit of Surety, as the same shall become progressively payable in accordance with the payment provisions of the Contract. All sums now due and payable and to become due and payable upon the Contract, including all retainage percentages and all money to be paid under the Contract as would have been payable to Greystone, subject to applicable liens and setoff, if any, shall be paid to Surety."

The claim alleges, and the defendant admits in its answer, that "all work required under the Contract and all additional and change order work has been completed and accepted by NYSDOT and all moneys due and owing under the Contract, including retainages, have been paid to Claimant or will be paid to Claimant pursuant to agreement with NYSDOT except for the sum of $340,000 as to which sum Claimant has reserved its claim for payment against NYSDOT" (claimant's Exhibit A, Amended Claim, ¶6, annexed to Affidavit In Support Of Motion For Summary Judgment; claimant's Exhibit B, Verified Answer, ¶ 1).

On November 10, 2004 Greystone executed a partial moneys assignment in the amount of $340,000.00 in favor of Rach Enterprises, LLC, which supplied temporary concrete barriers and steel plates used in performance of the contract with the State (claimant's Exhibit F). The assignment was filed with the Office of the State Comptroller on November 15, 2004 (claimant's Exhibit A, Amended Claim, ¶ 12, annexed to Affidavit In Support Of Motion For Summary Judgment; claimant's Exhibit B, Verified Answer, ¶ 6). The Comptroller paid to Rach Enterprises, LLC ("Rach") the sums of $3,810.48 on March 3, 2006 and $336,189.52 on March 16, 2006 pursuant to the assignment (claimant's Exhibit A, Amended Claim, ¶ 15, annexed to Affidavit In Support Of Motion For Summary Judgment; claimant's Exhibit B, Verified Answer, ¶ 1). Rach had also filed a claim under the labor and material payment bond issued by claimant, which was denied by letter dated May 31, 2006 (claimant's Exhibit K annexed to Affidavit in Support of Motion For Summary Judgment). In the letter, claimant acknowledged the "assignment which Rach obtained from Greystone, under which Rach has asserted it is entitled to receive payment directly from the NYSDOT out of contract monies" and set forth its position that Rach's claim under the payment bond was "invalid" and that Rach is not entitled to payment under the assignment. Claimant's counsel avers, however, that it was not until January 24, 2007 during the course of reconciling defendant's payments under the Contract with claimant's records of the amounts that had been paid to Greystone that he learned of the payments to Rach in March, 2006 (see claimant's counsel's affirmation in opposition to cross-motion dated February 11, 2009, ¶ 5). Counsel states that on that date the attorney for DOT faxed him copies of the payment vouchers reflecting total payments to Rach in the sum of $340,000 (id.).

According to counsel for the claimant, the Contract work was completed in late 2006 (see claimant's counsel's affirmation in opposition to cross-motion dated February 11, 2009, ¶ 3). However, a letter dated September 19, 2006 from claimant's counsel to DOT indicates that negotiations regarding liquidated damages and final Contract balances were underway and states, as pertinent here, the following:
"Perini's application for an extension of time dated June 2, 2005, set forth 11 separate instances of change order work and other circumstances which delayed completion a total of 511 days and which brought the Contract completion date to May 10, 2006" (see claimant's Exhibit A annexed to claimant's counsel's affirmation in opposition to cross-motion dated February 11, 2009" [emphasis added]).

Claimant served a notice of intention to file a claim on August 9, 2005 (defendant's Exhibit 1 annexed to affidavit of Eidin Beirne dated January 16, 2009). The notice of intention set forth the nature of the defendant's Contract with Greystone, the date it was terminated and that the claimant agreed to take over and complete the remainder of the work pursuant to its April 28, 2005 letter to the defendant. As for the nature of the claim, the notice of intention stated the following:
"Claimant intends to file a claim against the State of New York for the claims expressly reserved by Claimant in the penultimate paragraph of said letter dated April 28, 2005. The specific items of damage and the sum of the damages claimed cannot be ascertained until all of the work has been completed."

The penultimate paragraph of the letter dated April 28, 2005 was attached to the notice of intention and states the following:
"Without in any manner limiting the foregoing general reservation of rights, F & D specifically reserves all rights and claims against NYSDOT, on behalf of F & D and Greystone, in connection with or relating to the following: (a) NYSDOT's award of the Contract to Greystone which F & D asserts was improper, wrongful and/or illegal and in contravention of one or more of the following: the Highway Law, NYSDOT Standard Specification 102-03 'Proposal Shall Specify Gross Sum', and NYSDOT Procedure Code 7.1-5 'Compensation and Evaluation of the Low Bid with the Department's Construction Cost Estimate, (b) Greystone's unbalanced bid, (c) overpayment by NYSDOT to Greystone, (d) any and all costs of completion incurred by F & D, as well as all investigatory, consulting and legal costs, whether on the ground that the demand upon F & D's Performance Bond by NYSDOT was illegal, improper and/or wrongful; and/or that the costs of completion were increased due to acts, omissions and/or breaches of contract by NYSDOT and/or others acting on its behalf or for whose acts or omissions NYSDOT is responsible; (e) any and all claims relating to extra work, non-payment, changed work or conditions, unforeseen site conditions, delays, safety violations, and any and all other breaches of contract or of any other duty on the part NYSDOT, whether arising under the Contract, statute, NYSDOT's own procedures, rules, regulations or policies or otherwise; and (f) F & D's obligations, if any, in excess of the sum of the Faithful Performance Bond."

Following service of the notice of intention on August 9, 2005, a claim was filed on February 22, 2007 alleging both the overpayment to Greystone as a result of the unbalanced bid and claimant's entitlement to the $340,000 paid to Rach. Most of these issues were resolved and the claim was settled with the exception of the alleged improper payment of $340,000 to Rach, as to which the claimant reserved its right to pursue the claim (see claimant's Exhibit E annexed to the Affidavit In Support Of Motion For Summary Judgment).

The claim was thereafter amended to reflect four causes of action relating to the payments to Rach. The first cause of action alleges a breach of the DOT's agreement memorialized in its letter of April 28, 2005 to pay claimant "all moneys then due and payable and to become due and payable under the Contract, including retainages, [that it agreed] would be paid to claimant, subject to valid liens and setoffs" (see Amended Claim, ¶ 14, annexed as Exhibit A to the Affidavit In Support Of Motion For Summary Judgment). Claimant alleges that "at no time subsequent to February 25, 2005 was the balance remaining to be paid under the Contract as of said date subject to a valid lien or setoff" (Id. at ¶ 16).

This cause of action also alleges that the last payment to Greystone under the Contract was on or about October 26, 2004, that Greystone earned no moneys under the Contract subsequent to that date, and that, according to a "mock" estimate prepared by the State, Greystone had been overpaid the sum of $77,260 as of February 2, 2005 (see claimant's Exhibit A, Amended Claim, ¶ 10 ,and Exhibit G, Mock Estimate, annexed to claimant's Affidavit In Support Of Motion For Summary Judgment). As a result, claimant alleges that no moneys were earned by Greystone or became due and owing to Greystone subsequent to October 26, 2004.

The second cause of action in the amended claim sets forth, inter alia, the following:
"20. As a matter of law, Claimant, as surety, became subrogated to NYSDOT's right, as owner, to use the balance of the Contract remaining to be paid as of February 25, 2005, including retainages, to complete the work remaining to be performed under the Contract and pay claims for labor and material furnished in connection therewith.

21. In completing the work remaining to be performed under the Contract and paying the claims for labor and material furnished in connection therewith, Claimant expended a total sum substantially in excess of the balance which remained to be paid under the Contract, including retainages, on February 25, 2005.

22. By reason of the foregoing, Claimant is entitled to recover the sum of $340,000."

The third and fourth causes of action in the Amended Claim assert causes of action under article 3-A of the Lien Law .

In support of its motion for summary judgment, claimant argues that, as subrogee of the defendant's right to use the unpaid Contract balance to complete the work required under DOT's Contract with Greystone, the payments to Rach subsequent to Greystone's termination were improper. Relying primarily Scarsdale v Natl. Bank & Trust Co. v United States Fid. & Guar. Co., 264 NY 159 [1934], claimant argues that Rach, as assignee of Greystone, had no greater rights than those of its assignor. As DOT was allegedly entitled, pursuant to the terms of its Contract with Greystone, to retain all moneys, whether earned or unearned by Greystone at the time of its termination, and apply such moneys to the cost of completion, claimant argues that the payments to Rach subsequent to Greystone's termination improperly reduced the funds available to complete the work under the Contract. Claimant relies on the following Contract language to support the State's right to retain moneys due Greystone at the time of its termination:
"ARTICLE 11. RIGHT TO SUSPEND WORK AND CANCEL CONTRACT.

It is further mutually agreed that if at any time during the prosecution of the work the Commissioner of Transportation shall determine that the work upon the contract is not being performed according to the contract or for the best interest of the State, the execution of the work by the Contractor may be temporarily suspended by the Commissioner of Transportation, who may then proceed with the work under his/her own direction in such manner as will accord with the contract specifications and be for the best interests of the State; or he/she may terminate the Contractor's employment under the contract while it is in progress, and thereupon proceed with the work, in affirmance of the contract, by contract negotiated or publicly let, by the use of his/ her own forces, by calling upon the surety to complete the work in accordance with the plans and specifications or by a combination of any such methods; or he/she may cancel the contract and either readvertise or relet as provided in Section 38 of the Highway Law, or complete the work under its own direction in such a manner as will accord with the contract specifications and be for the interests of the State; any excess in the cost of completing the contract beyond the price for which it was originally awarded shall be charged to and paid by the Contractor failing to perform the work or its surety; all in pursuance of the provisions of § 40 of the Highway Law" (see Affidavit In Support of Motion For Summary Judgment, ¶ 21).

Claimant also relies on certain language in the performance bond to bolster its assertion that the moneys were wrongfully paid to Rach. In this regard, claimant cites those provisions of the performance bond which provide that "[i]f the Surety completes the contract, it shall be paid for the actual item of work performed in accordance with the principal's contract terms and prices. . ." and that if the surety fails to exercise that option, both the "Surety and Principal shall be jointly and severally liable for the amount of excess cost of completing the contract work beyond the amounts remaining for this contract adjusted for the work actually performed . . ." (Affidavit In Support Of Motion For Summary Judgment, ¶ 22).

Claimant also argues that upon payment of the $340,000 to Rach in March 2006, the defendant breached the terms of the parties' letter agreement dated April 28, 2005 in which the defendant agreed to the payment of "[a]ll sums now due and payable and to become due and payable upon the Contract, including all retainage percentages and all money to be paid under the Contract as would have been payable to Greystone, subject to applicable liens and setoffs, if any . . ." (claimant's Exhibit D annexed to Affidavit In Support Of Motion For Summary Judgment ).

In support of its cross-motion, the defendant argues, albeit in a memorandum of law, that this Court lacks subject matter jurisdiction to hear a claim arising under article 3-A of the Lien Law (citing Higgins-Kieffer, Inc. v State of New York, 165 Misc 2d 425 [1995] and Lumbermens Mutual Casualty Co. v State of New York, 2006-015-077, Claim No. 109321, Motion Nos. M-70880; M-70960; CM-71015 [Ct Cl, March 29, 2006] Collins, J., unreported). Defendant also argues that this Court lacks jurisdiction to hear a subrogation claim, that the claim was untimely filed and served, and that the claim fails to state a cause of action.

The Court will first address the defendant's contention that the claim was untimely. Court of Claims Act § 10 (4) provides that "[a] claim for breach of contract, express or implied, and any other claim not otherwise provided for by this section . . . shall be filed and served upon the attorney general within six months after the accrual of such claim, unless the claimant shall within such time serve upon the attorney general a written notice of intention to file a claim therefor, in which event the claim shall be filed and served upon the attorney general within two years after such accrual." For the purposes of the Court of Claims Act a cause of action accrues when damages are reasonably ascertainable (Prisco v State of New York, 62 AD3d 978 [2009]; Augat v State of New York, 244 AD2d 835 [1997], lv denied 91 NY2d 814 [1998]; Inter-Power of N.Y. v State of New York, 230 AD2d 405 [1997]). Here, the payments to Rach by the State occurred in March 2006 and the letter from claimant's counsel dated September 19, 2006 reflects that work under the Contract was completed by May 10, 2006 (claimant's Exhibit A annexed to claimant's counsel's affirmation in opposition to cross-motion dated February 11, 2009). Thus, claimant's damages were reasonably ascertainable no later than May 2006 when the Contract work was completed and the claimant acknowledged Rach's competing claim to $340,000 in Contract funds. The claim filed on February 22, 2007 was therefore untimely unless the notice of intention acted to extend the date for filing and service of the claim.

" 'Because suits against the State are allowed only by the State's waiver of sovereign immunity and in derogation of the common law, statutory requirements conditioning suit must be strictly construed' " (Long v State of New York, 7 NY3d 269, 276 [2006], quoting Lichtenstein v State of New York, 93 NY2d 911, 913 [1999][other citations omitted]). In Lepkowski v State of New York, 1 NY3d 201 [2003], the Court of Appeals held (at page 207) that section 11 (b) of the Court of Claims Act "places five specific substantive conditions upon the State's waiver of sovereign immunity by requiring the claim to specify (1) 'the nature of [the claim]'; (2) 'the time when' it arose; (3) the 'place where' it arose; (4) 'the items of damage or injuries claimed to have been sustained'; and (5) 'the total sum claimed.' " A notice of intention to file a claim must comply with the same conditions except that the items of damage or injuries incurred and the total sum claimed need not be set forth.

With respect to the requirement that the nature of the claim be set forth, "the notice of intention need not be exact but should provide an indication of the manner in which the claimant was injured and how the State was negligent . . . or enough information so that ‘how the State was negligent can be reasonably inferred’ " (Rodriguez v State of New York, 8 AD3d 647, 647 [2004] (citations omitted). The statement must be "made with 'sufficient definiteness to enable the State to be able to investigate the claim promptly and to ascertain its liability under the circumstances. The statement must be specific enough so as not to mislead, deceive or prejudice the rights of the State. In short, substantial compliance with section 11 is what is required' " (Wharton v City University of N.Y., 287 AD2d 559, 560 [2001], quoting Grumet v State of New York, 256 AD2d 441, 442 [1998]). “Although a notice of intention to file a claim need not include all the facts necessary to state a cause of action, it must at least set forth the ‘general nature of the claim’ ”. . . . (Cendales v State of New York, 2 AD3d 1165, 1167 [2003], quoting Sega v State of New York, 246 AD2d 753, 755 [1998]; cf. Ferrugia v State of New York, 237 AD2d 858 [1997]). Here, the notice of intention served on August 9, 2005 made no mention of the payments to Rach which are the subject of the instant claim. Indeed, the payments to Rach were made subsequent to the date the notice of intention was served. Accordingly, the notice of intention failed to adequately set forth the nature of the instant claim and did not operate to extend the claimant's time to serve and file a claim under either Court of Claims Act § 10 (4) or § 10 (3-b). This fact aside, the Court agrees with claimant's argument that the defendant waived its defense with respect to the time limitations of the Court of Claims Act.

Notwithstanding the failure to timely file and serve the claim, the defense that a claim was untimely served and/or filed "is waived unless raised, with particularity, either by a motion to dismiss made before service of the responsive pleading is required or in the responsive pleading" (Court of Claims Act § 11 [c]). The particularity requirement was exhaustively discussed by Judge James P. King in Sinacore v State of New York (176 Misc 2d 1 [1998]) who noted (at p. 8) with respect to a defense of untimeliness that, "at a minimum, the defendant should state that the claim was untimely filed and served 'in violation of Court of Claims Act §§ 10 and 11' " (see Smith v State of New York, Ct Cl, filed July 20, 1993, Benza, J., Claim No. 85799, motion No. M-48029) or that the claim had not been timely served within a particular time period 'prescribed by Court of Claims Act §§ 10 and 11' " ([citation omitted]; see also Firth v State of New York, 184 Misc 2d 105, 109 [2000], affd 287 AD2d 771 [2001], affd 98 NY2d 365 [2002]). Where there exists more than one date of accrual, simply alleging that the court lacks jurisdiction in whole or in part has been held insufficiently particular to apprise the claimant of the defect to which the defendant is alluding (see Duverger v State of New York, 15 Misc 3d 1119[A] [2006]).

Here, claimant contends that the defendant did not set forth its defense of claimant's failure to comply with the time limitations contained in Court of Claims Act § 10 with sufficient particularity. In this regard, the defendant raised the following as its third affirmative defense:
"12. Claimant's purported notice of intention of August 9, 2005, fails to comply with the requirements of Court of Claims, [sic] Act § 11.

13. By reason of the foregoing the claim herein is untimely."

The defendant failed to set forth whether the notice of intention was improperly served pursuant to Court of Claims Act § 11 (a) (i) or whether it failed to meet the particularity requirement of § 11 (b) (see National Grange v State of New York, UID # 2009-040-006, Claim No. 109481, Motion Nos. M-73971, M- 73928, [Ct Cl, January 16, 2009], McCarthy, J). Equally significant is the defendant's failure to allege the required time period for filing and serving the claim or even make reference to the controlling statute (id.). Accordingly the Court concludes that the defendant waived its defense with respect to the timeliness of the claim.

Addressing the merits of the motions, this Court previously held in Lumbermen's Mutual Casualty Co. v State of New York (supra) that the Court of Claims lacks jurisdiction to enforce a trust pursuant to article 3-A of the Lien Law. In so holding, it was acknowledged that in addition to making an award of monetary damages, the Lien Law provides equitable relief outside the scope of Court of Claims jurisdiction. In Lumbermen's the Court quoted the following language from Judge Benza's decision in Higgins-Kieffer, Inc. v State of New York (165 Misc 2d at 430):
" '[i]t is quite conceivable that persons and entities other than the State may hold funds that have been improperly paid out from an article 3-A trust, but this court can have no jurisdiction over those parties and would not be able to issue a judgment removing funds from their control and restoring them to the trust. Nor can this court order an accounting, enforce a right of action on behalf of the trust, or oversee the actions of a trustee. For the Court of Claims to exercise its power with respect to the one type of trust asset - an asset in possession and control of the State - and to distribute that one asset among the trust beneficiaries, without being able to reach other types of assets or perform other duties delegated to the court by section 77 (3), would undermine the function and purpose of the statutory cause of action: achieving a comprehensive gathering of all trust assets and fairly distributing those assets among all trust beneficiaries' ".

Thus, this Court concurred with the holding of Judge Benza that where the crux of the claim arises under article 3-A of the Lien Law, the Court of Claims is without subject matter jurisdiction. Claimant's third and fourth causes of action under article 3-A of the Lien Law must therefore be dismissed on this basis.

To the extent the defendant argues that the remaining allegations in the claim fail to state a cause of action, the Court is required to “accept the facts as alleged in the [claim] as true, accord [claimant] the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v Martinez, 84 NY2d 83, 87-88 [1994]; see also Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 [2002]). The motion must be denied if from the four corners of the claim " 'factual allegations are discerned which taken together manifest any cause of action cognizable at law' " (511 West 232nd Owners Corp. v Jennifer Realty Corp., 98 NY2d 144, 152 [2002]).

Separate and apart from its causes of action under the Lien Law, claimant asserts its common law rights, as subrogee of the State, to use the balance of the Contract price, including that which was paid to Rach, to complete the remaining work to be performed under the Contract and pay claims for labor and material in connection therewith (see claimant's Exhibit A, Amended Claim, ¶ 20, annexed to the affidavit of W. Glenn Speicher, Jr. sworn to November 25, 2008,). The equitable doctrine of subrogation enables one who pays a debt that is owed by another the opportunity to be reimbursed in full (see Chemical Bank v Meltzer, 93 NY2d 296, 304 [1999]). As stated by the Court in Firemen's Ins. Co. of Newark, N.J. v State of New York, 91 Misc 2d 183, 188 [1977], affd 65 AD2d 241 [1979] a surety's subrogation rights are twofold:
" 'The surety is not only a subrogee of the contractor, and therefore a creditor, but also a subrogee of the government and entitled to any rights the government has to the retained funds. If the contractor fails to complete the job, the government can apply the retained funds and any remaining progress money to costs of completing the job. The surety is liable under the performance bond for any damage incurred by the government in completing the job. On the other hand, the surety may undertake to complete the job itself. In so doing, it performs a benefit for the government, and has a right to the retained funds and remaining progress money to defray its costs. The surety who undertakes to complete the project is entitled to the funds in the hands of the government not as a creditor and subject to setoff, but as a subrogee having the same rights to the funds as the government' ”(citation omitted).

The principle that a surety is subrogated to the rights of both its principal and obligee under a performance bond is deeply rooted. As correctly cited by the claimant in support of its motion, the Court of Appeals established long ago in Scarsdale Natl. Bank & Trust Co. v United States Fid. & Guar. Co. ( 264 NY 159, 163-164 [1934]) that
"[t]he bonding company succeeded to all these rights of the State, under the principle of subrogation. Having completed the work in behalf of the State, it was subrogated to all the rights of the State as against the contractor. This was not a right given to it by the judgment of the court, or arising at the time of the default. It was implicit in its undertaking and agreement with the State. This equitable right of subrogation was created . . . at the time the defendant executed its bond as surety to the State months before the assignment to the bank. . . The performance, which was guaranteed, was the performance of this contract, which had in it the right of the State to apply earned moneys toward completion . . . To all rights under this contract the bonding company was subrogated. The equity in favor of the surety company arose at the time of the giving of its bond."

As the contract for the performance of the work in Scarsdale specifically provided the State the right to retain moneys earned by the contractor for use in completing the contract, the Court held that the surety's right to the moneys so retained was superior to that of the contractor's assignee. The decision was premised on the fact that the assignee attained no greater rights under the contract than those of its assignor. As the governing contract permitted the State to retain moneys earned but not yet paid at the time of the contractor's default, the contractor/assignor had no contractual right to such moneys and the surety, whose equitable right of subrogation arose upon issuance of the bond, was entitled to the moneys held by the State.

Likewise in United States Fid. & Guar. Co. v Triborough Bridge Auth. ( 297 NY 31 [1947]) the Court of Appeals held that a surety which completed work upon the contractor's default has an equitable lien upon the funds held by the owner. The lien arises upon execution of the bond but does not become enforceable until the surety suffers a loss by making payments under the bond. As the contract between the owner and contractor granted the owner the right to withhold earned moneys and apply them to the cost of completing the work, the Court held that the contractor's rights to the funds were subordinate to the right of the owner and, by subrogation, of the surety to withhold the funds and apply them to the payment of unsatisfied claims for labor and materials.[2] As a result, the surety succeeded in its suit to impress a lien on the funds in the possession of the owner as against an intervener asserting a tax lien (see also Matter of RLI Ins. Co. New York State Dept. of Labor, 97 NY2d 256, 265 [2002]; Aetna Cas. & Sur. Co. v United States of Am., 4 NY2d 639 [1958]).

Applying these principles, the Court finds that the claim sets forth sufficient facts to state a cause of action for equitable subrogation (see Firemen's Ins. Co. of Newark, N.J. v State of New York, 65 AD2d 241 [1979]). While jurisdiction of the Court of Claims is limited to actions seeking money damages, "in determining claims for money damages against the State, the Court of Claims may apply equitable considerations and perhaps, to some extent, may grant some sort of incidental equitable relief" (Psaty v Duryea, 306 NY 413, 417 [1954]; Ozanam Hall of Queens Nursing Home v State of New York, 241 AD2d 670 [1997]). "Thus, in determining the subject matter jurisdiction of the Court of Claims, the threshold question is '[w]hether the essential nature of the claim is to recover money, or whether the monetary relief is incidental to the primary claim' " (Madura v State of New York, 12 AD3d 759 [2004], quoting Matter of Gross v Perales, 72 NY2d 231 [1988]; see also City of New York v State of New York, 46 AD3d 1168 [2007]). Here, it is clear that the essential nature of the claim is to recover a sum of money. In the Court's view, the allegation that the DOT depleted the available Contract balance by virtue of its diversion of moneys to Rach gives rise to a cause of action under principles of equitable subrogation. As set forth above, claimant was subrogated to the rights of the State by virtue of its issuance of the bond for the benefit of the State as its obligee. To the extent claimant alleges that the moneys paid to Rach were unearned by Greystone and that Greystone was overpaid, the State breached its obligation to preserve the remaining Contract balance for the benefit of the completing surety. Likewise, to the extent the Contract may authorize the State to retain moneys earned by Greystone but not yet paid, the State had the right, indeed the obligation, to preserve these funds for the benefit of the surety in fulfilling its obligation under the bond and completing the work under the Contract (see Scarsdale, supra). Questions of fact remain unresolved, however, regarding the extent to which the moneys paid to Rach were earned or unearned and whether or not the terms of the Contract entitled the State to retain earned moneys for use in completing the work remaining to be performed under the Contract. Claimant's reliance on the quoted excerpts from article 11 of the Contract fail to support this proposition. Nor does the affidavit of W. Glenn Speicher, Jr., Senior Claims Counsel for the claimant, support the assertion that the State was entitled to retain moneys earned by Greystone or that Greystone was overpaid. Mr. Speicher's conclusory allegations unsupported by credible proof are insufficient to sustain claimant's burden on the motion. Thus, claimant failed to establish its prima facie entitlement to summary judgment as a matter of law (Zuckerman v City of New York, 49 NY2d 557 [1980]). Similarly, the defendant chose to support its motion primarily through a memorandum of law and not through the affidavits of persons with knowledge of the facts or by submission of the actual contract between the parties. The proof submitted by the defendant is far short of that required to support a grant of summary judgment or to dismiss for failure to state a cause of action.

Claimant also argues that the correspondence between the parties dated April 28, 2005 form the basis for a breach of contract claim and that it is entitled to summary judgment thereon. In the Court's view the April 28th letters between the parties sufficiently set forth the essential terms of an agreement which, considered together with the conduct of the parties, establish the existence of a binding and enforceable contract (see; Brown Bros. Elec. Contrs. v Beam Constr. Corp., 41 NY2d 397 [1977] [conduct and letters between subcontractor and State following the general contractor's default sufficiently established a binding contract]; United States Fid. & Guar. Co. v Delmar Dev. Partners, LLC, 14 AD3d 836 [2005] [essential terms of contract were sufficiently set forth in letter agreement]). It was clearly agreed between the parties that the Surety would complete the work and that DOT would "process payment for the benefit of the Surety, as the same shall become progressively payable in accordance with the payment provisions of the Contract" (claimant's Exhibit D annexed to Affidavit In Support Of Motion For Summary Judgment). It was also agreed that the Surety would be paid "[a]ll sums now due and payable and to become due and payable upon the Contract, including all retainage percentages and all money to be paid under the Contract as would have been payable to Greystone, subject to applicable liens and setoffs, if any ...". Pursuant to the plain terms of the agreement, therefore, it must be determined what moneys were payable to Greystone, if any, and the effect of its assignment to Rach. If the moneys paid to Rach were unearned by Greystone, as claimant alleges, its assignment of moneys to Rach was wrongful and a breach of the letter agreement requiring the DOT to "process payment for the benefit of the Surety, as same shall progressively become payable . . . " The same result would obtain if the State had the contractual right to retain moneys earned by Greystone but not yet paid. As set forth above, however, claimant failed to establish these facts sufficiently to warrant summary judgment in its favor. Likewise, the defendant's proof on its cross-motion is wholly inadequate to establish its right to judgment as a matter of law relative to claimant's breach of contract cause of action.

Based on the foregoing, the claimant's motion for summary judgment is denied and the defendant's cross-motion for summary judgment is granted to the extent of dismissing the claimant's causes of action under article 3-A of the Lien Law and is otherwise denied. Claimant's motion for late claim relief pursuant to Court of Claims Act § 10 (6) is denied as unnecessary.



July 7, 2009
Saratoga Springs, New York

HON. FRANCIS T. COLLINS
Judge of the Court of Claims


The Court considered the following papers:

Motion No. M-76003
  1. Notice of motion for summary judgment dated December 3, 2008;
  2. Affidavit of W. Glenn Speicher, Jr. sworn to November 25, 2008 with exhibits;
  3. Memorandum of Law of Steven H. Rittmaster dated December 3, 2008.

Motion No. M-76274

  1. Notice of motion dated February 12, 2009;
  2. Memorandum of Law of Steven H. Rittmaster and Henry James Wallach dated February 12, 2009.

Cross-Motion No. CM-76192

  1. Notice of cross-motion dated January 16, 2009;
  2. Affidavit of Eidin Beirne sworn to January 16, 2009 with exhibits;
  3. Memorandum of Law of Eidin Beirne dated January 16, 2009
  4. Affirmation of Steven H. Rittmaster dated February 11, 2009 with exhibits;
  5. Memorandum of Law of Steven H. Rittmaster and Henry James Wallach dated February 12, 2009;
  6. Reply memorandum of law of Eidin Beirne dated March 18, 2009;
  7. Reply memorandum of law of Steven H. Rittmaster and Henry James Wallach dated March 25, 2009.

[1].As reflected in this letter, DOT advised the claimant that it would not sign the proposed takeover agreement and suggested that the parties proceed without one.
[2]. Conversely, where the contract between the State and the contractor does not provide that upon the contractor's default the State may retain moneys earned by the contractor to pay for labor or materials to complete the project, there is no right to which the surety becomes subrogated (see State Bank of Albany v Dan-Bar Contr. Co., 12 AD2d 416 [1961], affd 12 NY2d 804 [1962]; First Nat. Bank in Yonkers v Maryland Cas. Co., 290 F2d 246 [1961]).