U.S. ex rel. Maris Equipment Co. v. Morganti, Inc.
| Decision Date | 20 September 2001 |
| Docket Number | No. 96-CV-2205(FB).,No. 96-CV-2854(FB).,No. 97-CV-1543(FB).,96-CV-2205(FB).,96-CV-2854(FB).,97-CV-1543(FB). |
| Citation | 163 F.Supp.2d 174 |
| Parties | UNITED STATES of America for the Use and Benefit of MARIS EQUIPMENT COMPANY, INC., Plaintiff, v. MORGANTI, INC. and Trataros Construction, Inc. d/b/a Morganti / Trataros Joint Venture, American Home Assurance Company and Seaboard Surety Company, Defendants. Morganti, Inc. and Trataros Construction, Inc. d/b/a Morganti / Trataros Joint Venture, American Home Assurance Company and Seaboard Surety Company, Plaintiffs, v. Liberty Bond Services, Inc., Defendant. United States of America for the use and benefit of Industrial Acoustics Company, Inc., Plaintiff, v. Maris Equipment Company, Inc., Maris Equipment Company, Inc., Insurance Company of North America and Liberty Mutual Insurance Company, Defendants Maris Equipment Company, Inc., Third-Party Plaintiff, v. Morganti, Inc. and Trataros Construction, Inc. d/b/a Morganti / Trataros Joint Venture, American Home Assurance Company and Seaboard Surety Company, Third-Party Defendants |
| Court | U.S. District Court — Eastern District of New York |
Michael Torre, Esq., Kevin M. Gary, Esq., Tunstead, Schechter & Torre, Jericho, NY, for Maris Equipment Company, Inc.
Louis R. Pepe, Esq., Timothy T. Corey, Esq., Richard F. Wareing, Esq., Wendy S. Kennedy, Esq., Pepe & Hazard LLP, Hartford, CT, for Morganti, Inc. and Trataros Construction, Inc. d/b/a Morganti / Trataros Joint Venture, American Home Assurance Company and Seaboard Surety Company.
Mark Gamell, Esq., Stockman Wallach Lentz & Gamell, LLP, New York City, for Liberty Bond Services, Inc.
DECISION AND ORDER
TABLE OF CONTENTS
INTRODUCTION ...............................................................177
I. General Overview of the Litigation ....................................178
II. Morganti's Rule 50(b) Motion ..........................................180
A. Standard ...........................................................180
B. Liability Issues ...................................................181
1. The Government's Complicity .....................................181
2. Waiver ..........................................................185
C. Damage Issues ......................................................185
1. The Government's Complicity .....................................185
2. Profit and Overhead .............................................187
Profit .......................................................188
Overhead .....................................................191
III. Morganti's Rule 59(a) Motion ..........................................192
A. Standard ...........................................................192
B. Morganti's Claims Against Liberty ..................................193
1. Breach of Obligation Under the Bond .............................193
2. Covenant of Good Faith and Fair Dealing .........................195
3. Tortious Interference With Contract .............................195
4. Tortious Interference With Business Relations ...................196
C. The Jury Instructions ..............................................196
1. The Liability Charge ............................................196
2. The Damage Charge ...............................................197
D. The Court's Management of the Trial ................................198
IV. Maris's Rule 50(b) Motion .............................................198
A. The Release ........................................................199
B. Preclusion of Pre-January 1995 Costs ...............................200
V. Prejudgment Interest ..................................................202
CONCLUSION .................................................................202
This litigation arose out of the construction of the new federal detention center in Brooklyn, New York ("Project"). Morganti/Trataros Joint Venture ("Morganti"), the Project's general contractor, and Maris Equipment Company, Inc. ("Maris"), a subcontractor, each claimed that the other had breached their contract.1 On July 7, 2000, following a four-week trial, bifurcated between liability and damages, a jury returned a verdict for Maris in the sum of $8,001,249.2 Pending before the Court are Morganti's Rule 50(b) and 59(a) motions raising a host of issues, as well as a Rule 50(b) motion by Maris challenging an adverse ruling on one of its damage claims. The Court must also rule on two reserved issues — whether Maris established its entitlement to profit and overhead as component parts of the damage award; a stipulated issue of law regarding the application of a certain release, and Maris's request for prejudgment interest. For simplicity of presentation, the Court will address the reserved damage issues in the context of Morganti's Rule 50(b) motion, and will address the release issue under Maris's Rule 50(b) motion since it is inextricably intertwined with the damage claim raised by Maris in that motion.3
The Project called for the construction of a nine-story, thousand-cell facility at a cost of approximately $103,000,000. The agency in charge of the construction on behalf of the federal government was the Federal Bureau of Prisons ("FBOP"). In 1993, the FBOP chose Morganti as the general contractor. Morganti thereafter entered into a subcontract with Maris, dated September 28, 1993 ("Subcontract"), to fabricate and install the cells. The Subcontract price was $12,725,000 and required Maris to obtain a performance bond. Maris bonded with Liberty Bond Services, Inc. ("Liberty").
Work on the Project was hampered by a series of delays, primarily due to the government's faulty design; consequently, Maris experienced financial strains, which jeopardized its performance. Pursuant to an agreement between Maris and Liberty made in June 1995, Liberty provided financial assistance. It also hired Surety & Construction Consultants ("SCC"), a consulting engineering firm, to monitor Maris's work. Based on reports from SCC that Morganti was mismanaging the Project and not honoring its payment obligations to Maris, Liberty concluded that Morganti had breached the Subcontract and terminated funding Maris's performance. On May 3, 1996, at Liberty's behest, Maris declared Morganti to be in default and walked off the job. These three litigations ensued.
Maris struck first, initiating Action # 1 on the same day it declared Morganti to be in breach. In this litigation, Maris sued Morganti and its sureties, defendants American Home Assurance Company and Seaboard Surety Company, under the Miller Act, and sued Morganti for breach of contract under state law. Morganti counterclaimed for Maris's breach.
On June 7, 1996, Morganti sued Liberty ("Action # 2"). Morganti alleged that Liberty (1) breached its obligations under its performance bond; (2) breached an implied covenant of good faith and fair dealing; (3) tortiously interfered with the Subcontract, and (4) tortiously interfered with Morganti's business expectations.
On March 31, 1997, Industrial Acoustics Company, Inc. ("IAC") filed an action against Maris and Liberty ("Action # 3"), claiming that Maris breached a subcontract with IAC. Maris impleaded Morganti, which, by counterclaim, reasserted its breach of contract claim against Maris.
By Court order dated October 15, 1997, all three actions were consolidated pursuant to Fed.R.Civ.P. 42(a). Action # 3, however, was severed prior to trial.
Because a lien cannot attach to federal property, the Miller Act, 40 U.S.C. §§ 270a-270d, was enacted to provide subcontractors and suppliers on federal construction projects an alternate remedy to the mechanics' lien ordinarily available on private construction projects. See J.W. Bateson Co., Inc. v. United States ex rel. Bd. of Trs. of the Nat'l Automatic Sprinkler Indus. Pension Fund, 434 U.S. 586, 589, 98 S.Ct. 873, 55 L.Ed.2d 50 (1978). Under the Miller Act, a contractor who performs "construction, alteration, or repair of any public building or public work of the United States" must provide two types of bonds: a "performance bond ... for the protection of the United States" against defaults by the contractor, and a "payment bond ... for the protection of all persons supplying labor and material." 40 U.S.C. § 270a(a)(1), (2).
The Miller Act gives a subcontractor "the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him." 40 U.S.C. § 270b(a). "[T]he Miller Act by its terms only gives subcontractors the right to sue on the surety bond posted by the prime contractor, not the right to recover their losses directly from the Government." Department of the Army v. Blue Fox, Inc., 525 U.S. 255, 256, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999). Furthermore, the Miller Act provides the exclusive remedy available to a subcontractor against the surety. See United States ex rel. Cal's A/C and Elec. v. Famous Constr. Corp., 220 F.3d 326, 329 n. 8 (5th Cir.2000); see also United States ex rel Henderson v. Nucon Constr. Corp., 49 F.3d 1421, 1423 (9th Cir.1995) ().
Nothing in the Miller Act precludes a subcontractor from joining in a single action a state law breach of contract claim against the prime contractor with its Miller Act claim. A subcontractor, however, "must specifically plead a breach of contract claim under state law in addition to raising a Miller Act claim if it wishes to recover damages under a contract theory." Consolidated Elec. & Mechs., Inc. v. Biggs Gen. Contracting, Inc., 167 F.3d 432, 435 (8th Cir.199...
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