Arch Ins. Co. v. Precision Stone, Inc.

• Decision Date: 01 October 2009
• Docket Number: Docket No. 07-4139-cv (XAP).,Docket No. 07-3950-cv (L).
• Citation: 584 F.3d 33
• Parties: ARCH INSURANCE COMPANY, Lumbermens Mutual Casualty Company, Defendants-Appellants-Cross-Appellees, v. PRECISION STONE, INC., Plaintiff-Appellee-Cross-Appellant.<SMALL><SUP>*</SUP></SMALL>
• Court: U.S. Court of Appeals — Second Circuit

584 F.3d 33

ARCH INSURANCE COMPANY, Lumbermens Mutual Casualty Company, Defendants-Appellants-Cross-Appellees, v. PRECISION STONE, INC., Plaintiff-Appellee-Cross-Appellant.^*

Docket No. 07-3950-cv (L).

Docket No. 07-4139-cv (XAP).

United States Court of Appeals, Second Circuit.

Argued: December 19, 2008.

Decided: October 1, 2009.

Patrick M. Reilly, DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White Plains, NY, for Defendants-Appellants-Cross-Appellees.

Peter Goetz (Susan M. Pascale, of counsel) Goetz Fitzpatrick LLP, New York, NY, for Plaintiff-Appellee-Cross-Appellant.

Before: SACK and KATZMANN, Circuit Judges.^**

SACK, Circuit Judge:

Precision Stone Incorporated, a New York corporation, ("Precision") provided materials for and performed work on a construction project in White Plains, New York, pursuant to a subcontracting agreement with George A. Fuller Company and its construction manager HRH Construction LLC (together, "Fuller"). According to Precision, Fuller paid only a portion of the amount due to Precision for the work. Precision brought this action in an attempt to recover full payment for the work it performed from the defendants-appellants Arch Insurance Company and Lumbermens Mutual Casualty Company (together, the "Sureties"), two insurance companies that had issued a labor and materials payment bond in connection with the project. Following a bench trial, the district court found that, under the terms of the bond, Precision had timely commenced its action and was entitled to damages. The court reduced Precision's award, however, by the full amount of payments made by Fuller to Berardi Stone ("Berardi"), a third-party subcontractor that had been engaged by Fuller to complete work that had been within the original scope of Precision's subcontract.

The Sureties appeal from the district court's decision that Precision's suit was timely. Precision cross-appeals from the district court's decision to offset Precision's damages by the full amount of payments made to Berardi, including those payments exceeding the outstanding balance of Precision's subcontract with Fuller. For the reasons set forth below, the judgment of the district court is affirmed in part and reversed in part, and we remand for the judgment to be amended.

BACKGROUND¹

The Bond

In 2002, the City of White Plains granted Fuller a no-bid contract "to build a plaza and fountain at the corner of Main St. and Mamaroneck Avenue in White Plains." Payment Bond (Labor & Materials) No. SU1001063 for Contract No. 902334, Apr. 16, 2003 ("Payment Bond") at 1; see Complaint, Ex. A, Precision Stone Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Dec. 17, 2004) (Doc. No. 1) ("Compl."). Louis Cappelli, the owner of Fuller, represented to the City that "he wanted to substantially complete the construction of the [project] by the end of October 2003 (before Election Day)." Precision Stone, Inc. v. Arch Ins. Co. ("Precision Stone I"), 472 F.Supp.2d 577, 578 (S.D.N.Y.2007).

On April 16, 2003, the Sureties, neither a citizen of New York, and Fuller issued a payment bond "for the use and benefit of claimants supplying labor and/or materials for the work" on the project. Payment Bond 1. Pursuant to the bond, those who had provided labor or materials on the project and who had not been paid in full within ninety days after the completion of their work on the project were entitled to

sue [the Sureties] and [Fuller] on this bond for such sum as may be justly due, provided, however, that no such suit or action shall be commenced hereunder by such claimant after the expiration of one (1) year following the date on which [Fuller] ceased work on said contract. . . .

Id. at 2.

Precision's Work

On May 8, 2003, at Fuller's request, Precision submitted a $536,665 bid to perform stone work for the project's fountains and plaza. Precision Stone I, 472 F.Supp.2d at 578. Fuller issued a "Letter of Intent" for Precision to perform the stone work for $515,000. Id. Precision executed the letter, but with various qualifications and conditions, including a condition that the agreed-upon price excluded costs associated with overtime work. Id. at 578-79. At the time the letter was issued, Precision had not been provided with a completion date, id. at 579, and it never bound itself to a "time-of-the-essence" provision, see id. at 580. On August 12, 2003, however, Precision agreed to complete its work by October 27, 2003, but only under specified conditions — including that Fuller timely and properly prepare the work site and necessary substrates. Id. at 579-80.

The project was beset by problems and delays. The court found that Fuller had "created confusion on the job site and delayed Precision's start date for the stone installation." Id. at 580.² For example, a concrete subcontractor employed by Fuller improperly laid the concrete foundation for "ponds" — water features associated with the project — requiring demolition work to resize the foundations to their proper dimensions. Id. at 580. Despite Precision's warning that the ponds were not being built according to plan, Fuller allowed the concrete subcontractor to continue to lay their foundations improperly. Id.

As a result of these delays, it appears that Fuller was in jeopardy of failing to complete the project, as promised, by Election Day. In early October 2003, as Precision was in the course of performing work under the subcontract, Fuller engaged Berardi to perform a portion of that work. Id. Berardi, whose per-unit cost was higher than Precision's, see Precision Stone, Inc., v. Arch Ins. Co. ("Precision Stone II"), No. 04 Civ. 9996, 2007 WL 1975487, at *1, 2007 U.S. Dist. LEXIS 49274, at *2 (S.D.N.Y. July 6, 2007), worked overtime to complete the work by the end of October, Precision Stone I, 472 F.Supp.2d at 580-81, i.e., before Election Day, as Capelli had initially promised the City of White Plains, id. at 578.

Precision's Lawsuit

Fuller ultimately refused to pay Precision for a portion of the work that Precision had completed. On December 17, 2004, therefore, Precision initiated this action for payment pursuant to the terms of the bond by filing a complaint in the United States District Court for the Southern District of New York asserting federal diversity jurisdiction. Compl. ¶ 4. The complaint, naming the Sureties as defendants, seeks the allegedly unpaid balance on that portion of the contract that Precision performed — some $142,131.69 with pre-judgment interest and costs. Id. ¶ 12.

In its answer of January 13, 2005, the Sureties asserted, as affirmative defenses, that the complaint was untimely and that Precision had otherwise failed to comply with the terms of the bond. Answer ¶¶ 8 & 9, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Jan. 25, 2005) (Doc. No. 6). The Sureties alleged "that Fuller ceased work on the contract for which the Bond was issued prior to October 27, 2003, which is also the date the plaza and fountain [were] opened to the public." Id. ¶ 9. Because Fuller allegedly "ceased work on the contract" more than one year prior to the filing of Precision's complaint, the Sureties asserted, the complaint was "barred by the bond limitations provision." Id.

Yet as of December 17, 2003, one year prior to the initiation of the complaint, "punch list" work had yet to be completed. See Precision Stone I, 472 F.Supp.2d at 581. "Punch list" work, in the parlance of the construction industry, is "work called for by the original contract (or subcontract) which the contractor (or subcontractor) has not satisfactorily completed." Aniero Concrete Co. v. New York City Constr. Auth., 308 F.Supp.2d 164, 192 (S.D.N.Y.2003); accord American Heritage Dictionary of Business Terms 420 (2009) (defining "punch list" to mean "[a]n inventory of things to do or that need to be corrected"); Oxford English Dictionary Online, http://dictionary.oed.com/cgi/entry/ 50192448/ 50192448se13?single=1 & query_type=word & queryword =punch+list & first= 1 & max_to_show=10 & hilite=50192448se13 (last visited July 27, 2009) (defining "punch list" to mean "a list of items such as small repairs, unfinished work, etc., that must be completed in order to fulfil a construction contract, typically created at the end of a project"). Revised punch lists were issued on January 9, 2004, and March 8, 2004.

Trial before the District Court

The matter was tried before the district court (Robert W. Sweet, Judge) without a jury on September 19, 20, and 25, 2006. On September 25, at the close of Precision's case, the Sureties' counsel moved to dismiss Precision's complaint on the ground that "the evidence demonstrates that the work was substantially complete at least one year prior to the commencement of this action." Sept. 25 a.m. Tr. 119, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Oct. 17, 2006) (Doc. No. 22) ("Sept. 25 a.m. Tr."). In opposing that motion, Precision's counsel argued that the "substantial completion" language was not contained in the bond, which referred only to when Fuller "ceased work on said project. That's the language, ceased work." Id. at 120; see also Payment Bond 2 (noting that an action pursuant to the bond is untimely if commenced "after the expiration of one (1) year following the date on which [Fuller] ceased work" on the project).

By oral decision dated September 25, 2006, the district court denied the Sureties' motion. In the court's view, "the punch list was part of the original contract" and thus "[t]he punch list is a completion of the contract." Sept. 25 p.m. Tr. 4, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Oct. 17, 2006) (Doc. No. 24) ("Sep. 25 p.m. Tr."). On this basis, the court denied the Sureties' motion to dismiss because "there was work performed under the contract on the punch list" within one year of Precision filing suit, id. at 5, thereby requiring the Sureties to proceed with their defense.

Following...