946 F.2d 1003 (2nd Cir. 1991), 1888, Wolff & Munier, Inc. v. Whiting-Turner Contracting Co.

Docket Nº:1888, 1889, Dockets 91-7378, 91-7380.
Citation:946 F.2d 1003
Party Name:WOLFF & MUNIER, INC., Plaintiff-Appellant-Cross-Appellee, v. The WHITING-TURNER CONTRACTING COMPANY, Defendant-Appellee-Cross-Appellant.
Case Date:October 15, 1991
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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946 F.2d 1003 (2nd Cir. 1991)

WOLFF & MUNIER, INC., Plaintiff-Appellant-Cross-Appellee,

v.

The WHITING-TURNER CONTRACTING COMPANY,

Defendant-Appellee-Cross-Appellant.

Nos. 1888, 1889, Dockets 91-7378, 91-7380.

United States Court of Appeals, Second Circuit

October 15, 1991

Argued Aug. 12, 1991.

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[Copyrighted Material Omitted]

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James S. Morris, Greenwich, Conn. (O'Connor, Morris & Jones, of counsel), for plaintiff-appellant-cross-appellee.

Judith F. Herman, White Plains, N.Y. (Braude & Margulies, of counsel) for defendant-appellee-cross-appellant.

Before MINER, WALKER and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the Southern District of New York following a non-jury trial before Judge Goettel. A subcontractor, Wolff & Munier, Inc. ("W & M"), sued the general contractor, Whiting-Turner Contracting Company for breach of contract. The general contractor counterclaimed for breach of contract. The trial court awarded $114,000 to the general contractor on its counterclaim, although Judge Goettel found that both parties had breached the contract. Whiting-Turner, the general contractor, now contends that it was entitled to a larger recovery. W & M, the subcontractor, maintains that it did not breach the contract and that it was entitled to damages caused by the general contractor's breach.

BACKGROUND

In March 1986, Whiting-Turner, as general contractor, contracted with IBM (the "Prime Contract") to construct the IBM Customer Executive Center (the "Center") in Rockland County, New York, for $68.9 million. Work on the Center, to consist of six buildings, was to be completed by October 1988. Whiting-Turner and W & M, a mechanical subcontractor, executed a written subcontract (the "Subcontract") dated December 1, 1986 for $10,477,000. The contract price was later increased to $11,063,000.

Project Delays

Almost from the day ground was broken, W & M encountered costly delays because of difficulties with the concrete work at the Center. First, Whiting-Turner's concrete subcontractor, Prim-Mar/S & L Joint Venture ("Prim-Mar"), reduced its manpower by one-third until March 1987 while it haggled over a new contract. For most of the next year, Prim-Mar complicated and delayed the project until Whiting-Turner finally terminated Prim-Mar in February 1988. Because of this contretemps with the concrete subcontractor, the concrete work was not completed until May 1988, a mere two months before W & M was supposed to have substantially completed the mechanical work.

Bad as these delays were, they were aggravated by Whiting-Turner's decision to revise the sequence of the concrete work. 1 Whiting-Turner's initial specifications called for completion of concrete slab on grade before pouring slab on the upper floors of the three concrete buildings planned for the Center. Whiting-Turner subsequently decided to reverse the sequence by pouring concrete on the upper floors before laying the slab on grade. This change was significant for two reasons: first, it delayed W & M's mechanical work and, second, it made W & M's work less efficient inasmuch as most of its work required there to be slab on grade.

W & M was well aware of the consequences of these developments as early as March 31, 1987, when it notified Whiting-Turner that it reserved the right to seek compensation for delays--and attendant costs--occasioned through no fault of its own. One year later, after Prim-Mar was finally replaced, the parties met to discuss W & M's request for an additional $500,000. This sum represented W & M's estimate of what it would now cost to accelerate the job in order to comply substantially with the original September 30, 1988 completion date. Whiting-Turner refused this request.

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Although the district court found that the project delays were primarily attributable to Whiting-Turner and its other subcontractors, W & M, itself, was not without fault and, in fact, contributed to its own problems. For example, its construction of the mechanical and electrical rooms took longer than anticipated, a problem that W & M exacerbated by failing to get an adequate supply of sheet metal for the project.

The October, 1988 Agreement

By autumn 1988, both parties had become seriously concerned: Whiting-Turner that the project be completed, W & M that it be fairly compensated for delays and acceleration costs occasioned by the concrete fiasco. On October 5, 1988, they met again to discuss the situation. Whiting-Turner agreed to pay W & M the outstanding contract balance in twelve weekly installments of $106,000. In return, W & M agreed to continue working during this period. Both parties anticipated that the mechanical work would be substantially complete by year end, 1988.

Although the parties could not resolve their differences regarding W & M's claims for delays and acceleration, they did agree to meet regularly in an effort to settle this dispute. To that end, they agreed that W & M would submit data to support its claim that it was incurring increased costs because of the project delays and acceleration. W & M subsequently supplied Whiting-Turner with information about its losses. Whiting-Turner, however, found the data submitted insufficient to establish a causal relationship between the losses claimed and the problems for which Whiting-Turner was responsible (e.g., the concrete fiasco).

Despite the parties' discussions and meetings through October and November, 1988, they remained at loggerheads over W & M's claims. Indeed, autumn merely foreshadowed a winter of discontent, as December brought further deterioration of their relationship.

Disintegration of the Parties' Relationship

On December 1, 1988, Whiting-Turner complained that W & M was going too slowly on the project. Whiting-Turner attributed this to W & M's reduction of manpower on the job, from an average of 60 workers per day in October to 30 by December. Whiting-Turner thus determined to make six weekly payments of $63,000 (for a total of $378,000) in lieu of the four weekly payments of $106,000 (for a total of $424,000) due pursuant to the earlier agreement of October 5. W & M, of course, vigorously objected and Whiting-Turner backed down. It continued to make the $106,000 payments as they became due.

On December 15, W & M requested that the parties meet for a final summit conference on December 27 to resolve their differences. Whiting-Turner agreed and, several days prior to the meeting, W & M submitted an estimate of $2,215,000 for extra costs it claimed to have incurred from delays, acceleration costs and other hardships caused by Whiting-Turner over the course of the project.

At the December 27 meeting, W & M handed an ultimatum to Whiting-Turner: either pay an additional $1,272,000 in twelve weekly installments of $106,000, the money to be applied toward W & M's claim for additional compensation or agree to expedited binding arbitration. 2 Otherwise, W & M would have to take "appropriate measures" to protect itself, the obvious implication being that W & M would walk away from the IBM project. Whiting-Turner flatly rejected W & M's "offer."

The following day, December 28, Whiting-Turner declared W & M in default 3; and it demanded an express assurance that W & M would continue on the job. In the same communication, Whiting-Turner also agreed to pay the outstanding contract balance of $126,000, which included the final weekly payment of $106,000. Moreover, Whiting-Turner expressed its willingness to keep the lines of communication open and to consider W & M's claims if W & M

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would provide better data to support its claims.

W & M responded the same day, reiterating its either-or demand for additional payments or arbitration. W & M responded to Whiting-Turner's demand for assurances by asserting that "we have no alternative but to continue on a schedule determined by us to achieve completion of our work in the least expensive manner to us, while a resolution of our differences is sought."

On December 28, Whiting-Turner also learned that W & M had served their workers on the IBM project with a 24-hour layoff notice. The following day, W & M reduced its manpower from 32 to 4 workers. In response, Whiting-Turner sent a second default notice to W & M, demanding that it supply "a sufficient number of workmen so as to insure compliance with Whiting-Turner's schedule."

After a telephone conference on January 3, 1989, W & M wrote:

we are presently willing to proceed with the completion of our subcontract, with a completion date of March 31, 1989 ... upon prompt payment to us of the sums which were due on December 20 and 27, 1988 and upon your agreement to pay us $95,000 per week for twelve weeks against the determination of the final amount due on the Wolff & Munier subcontract, reflecting base contract, change orders, extras, and other excess costs incurred by us. We would be agreeable to arbitration of the balance due, net of the weekly payments during the next three months.

As Judge Goettel observed, this January 3rd "offer" actually increased W & M's demands. Whereas it had previously sought either payments or arbitration, it now sought both. Whiting-Turner gave up all hope of satisfying W & M and, accordingly, on January 3, 1989, it terminated the Subcontract and arranged to have the unfinished mechanical work completed by someone else. This litigation quickly ensued.

DISCUSSION

All parties agree that New York law applies in this diversity case. See Morse/Diesel, Inc. v. Trinity Indus., Inc., 859 F.2d 242, 247 (2d Cir.1988). We turn first to consider the liability issues and then to examine the more troublesome...

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