Babylon Associates v. Suffolk County

• Decision Date: 30 April 1984
• Citation: 101 A.D.2d 207,475 N.Y.S.2d 869
• Parties: BABYLON ASSOCIATES, a Joint Venture, etc., Plaintiff-Respondent, v. COUNTY OF SUFFOLK, Appellant; American Reinsurance Company, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 869

475 N.Y.S.2d 869

101 A.D.2d 207

BABYLON ASSOCIATES, a Joint Venture, etc., Plaintiff-Respondent, v. COUNTY OF SUFFOLK, Appellant American Reinsurance Company, et al., Respondents.

Supreme Court, Appellate Division Second Department.

April 30, 1984.

David J. Gilmartin, County Atty., Hauppauge (Stuart, Zavin, Sinnreich & Wasserman, New York City [Jonathan Sinnreich and Melinda Socal, New York City] of counsel), and Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for appellant (one brief filed).

Sacks, Montgomery, Pastore & Levine, P.C., New York City (Harry P. Sacks Stuart M. Levine and Scott D. St. Marie, New York City, of counsel), for plaintiff-respondent and respondents.

Before BRACKEN, J.P., and BROWN, NIEHOFF and BOYERS, JJ.

PER CURIAM.

In 1970, the Suffolk County Legislature authorized construction of a massive communal waste disposal system known as the "Suffolk County Sewer District No. 3". The purpose of the project was to provide communal waste disposal service to an area of approximately 57 square miles in southwest Suffolk County. The instant action involves the construction of the sewage treatment plant commonly known as the "Bergen Point Water Pollution Control Plant" (Bergen Point Plant). In July, 1974, the general construction contract for the Bergen Point Plant was awarded to Terminal Construction Corporation (Terminal). Under the terms of the contract, Terminal would receive a sum in excess of $61,000,000 for its performance. The contract required Terminal to post a faithful performance bond payable to the County of Suffolk (county) in a sum not less than the contract price, to be conditioned upon the faithful performance of all of the covenants and stipulations of the contract. Terminal thereafter furnished an acceptable performance bond to the county under which certain parties were named sureties.

In July, 1975, upon the consent and approval of the county, Terminal assigned its right, title and interest in, and all its obligations under the afore-mentioned contract to Babylon Associates (Babylon), a joint venture consisting of Terminal, the Dic Concrete Corporation, and Underhill Construction Corporation. In furtherance of its obligations under the contract, Babylon hired Lizza Industries, Inc. (Lizza) as subcontractor, to install the necessary reinforced "102 inch" pipe which was to be utilized in conveying the sewage collected in the sewer district into the Bergen Point Plant. Subsequent thereto, Lizza subcontracted with Clearview Concrete Products Corp. (Clearview) to manufacture the "102 inch" pipe according to the specifications of Babylon's contract with the county.

As the result of an investigation conducted by the Federal Bureau of Investigation (FBI) in 1978, Clearview was convicted in the Eastern District of New York of violating section 371 of title 18 of the United States Code for defrauding the United States in making, testing and repairing defective concrete pipe utilized by Babylon in construction of the Bergen Point Plant (United States v. DeLillo, 620 F.2d 939). Because of Clearview's conviction, the Federal Environmental Protective Agency (EPA) and the New York State Department of Environmental Conservation (DEC) allegedly withheld promised funding from the county until July, 1982 at which time the county was forced to accept a $5.2 million reduction in the total grants from these agencies. In addition, certain governmental regulatory agencies, including the FBI, insisted that the county prove the structural soundness of all reinforced concrete pipes which had been installed prior to the FBI's investigation of Clearview's activities. The county was allegedly required to expend substantial sums for widespread testing of the concrete pipes. These tests disrupted and delayed further construction of the Bergen Point Plant.

In 1981, Babylon instituted the instant action seeking to recover a sum in excess of $70,000,000 for extra work and expenses allegedly caused by the delay and interference on the part of the county in the performance of Babylon's obligations under the contract. In its answer the county asserted a number of affirmative defenses and counterclaimed for damages in excess of $75,000,000 for breach of contract. The portions of the county's answer relevant to this appeal are as follows:

(1) Twenty-Second Affirmative Defense:

The county alleges Babylon was responsible for the criminal acts of its subcontractor Clearview and by reason thereof is equitably estopped from asserting any claims against the county either on the contract or in quantum meruit. (2) Twenty-Third Affirmative Defense:

The county alleges that Babylon's damages, if any, resulted from the wrongful and criminal acts and omissions of its subcontractor Clearview for which Babylon was responsible.

(3) First Counterclaim:

The county alleges that Babylon failed to complete construction within the agreed contract completion date and as a result thereof the county is entitled to recover liquidated damages pursuant to the contract in the sum of $500 per day for every day Babylon is in default.

(4) Third Counterclaim:

In view of Babylon's alleged failure to timely complete the construction contract, the county seeks to recover actual damages of not less than $10,000,000.

(5) Sixth Counterclaim:

The county alleges that as a result of subcontractor Clearview's criminal acts for which Babylon was responsible, the county is entitled to recover all sums paid to Babylon under the contract, plus interest and attorneys' fees.

(6) Seventh Counterclaim:

The county seeks compensatory damages in the sum of $1,658,822 for expenses incurred because of Clearview's criminal activities as well as punitive damages in the sum of $10,000,000.

In its eighth counterclaim, the county impleaded Babylon's sureties as additional counterclaim defendants and seeks to hold the sureties jointly and severally liable under the terms of the performance bond for any judgment awarded to the county by reason of any of its counterclaims against Babylon.

Prior to serving its reply to the county's counterclaims, Babylon moved for an order dismissing the county's twenty-second and twenty-third affirmative defenses on the ground that a defense is not stated (CPLR 3211, subd. [b] ); dismissing the county's third, sixth and eighth counterclaims on the ground that a defense is founded on documentary evidence (CPLR 3211, subd. [a], par. 1), and dismissing the county's sixth, seventh and eighth counterclaims for failure to state a cause of action (CPLR 3211, subd. [a], par. 7). The county cross-moved for an order, inter alia, granting partial summary judgment on the issue of liability only on its sixth and seventh counterclaims and on its twenty-second and twenty-third affirmative defenses.

Special Term granted Babylon's motion in its entirety and denied that branch of the county's cross motion seeking partial summary judgment.

With respect to the county's twenty-second and twenty-third affirmative defenses, and the sixth and seventh counterclaims, Special Term held that the terms of the parties' contract could not be interpreted to hold Babylon responsible for the illegal conduct of its subcontractor. We disagree.

The relevant portions of Babylon's contract with the county which deals with the contractor's responsibility for its subcontractors provide as follows:

"9. Liability of Contractor

"The Contractor shall do all of the work and furnish all labor, materials, tools, and appliances, except as otherwise herein expressly stipulated, necessary or proper for performing and completing the work herein required in the manner and within the time specified in the Contract Documents. The mention of any specific duty or liability imposed upon the Contractor shall not be construed as a limitation or restriction of any general or other liability or duty imposed upon the Contractor by this Contract, said reference to any specific duty or liability being made merely for the purpose of explanation.

"The Contractor shall provide all items, materials, articles, operations or methods listed, noted, mentioned or scheduled on the drawings or in any of the Contract Documents, including all labor, material plant, equipment, transportation and incidentals required and necessary for the completion of the work, and unless specifically shown otherwise herein all plant, equipment and other works shall be complete, in place and in operation. The Contractor shall be responsible to the Owner for the acts and omissions of all his employees and all Subcontractors their agents and employees, and all other persons performing any of the work under a contract with the Contractor

* * *

* * *

"13. Subcontractors

"No subcontractor will be recognized as such, and all persons engaged in the work of construction will be considered as employees of the Contractor and he will be held responsible for their work, which shall be subject to the provisions of the Contract

* * *

* * *

"23. Subcontractors

"The Contractor shall notify the Owner in writing of the names of all Subcontractors he proposes to employ on the contract and shall not employ any Subcontractors until the Owner's approval in writing covering such Subcontractors has been obtained.

"The Contractor agrees to be fully and directly responsible to the Owner for all acts and omissions of his Subcontractors and of any other person employed directly or indirectly by the Contractor or Subcontractors, and the contract obligation shall be in addition to the liability imposed by law upon the Contractor.

"Nothing contained in the Contract Documents shall create any contractual relationship between any Subcontractor and the Owner. It shall be further understood that the Owner will have no direct relations with any Subcontractor. Any such necessary relations between Owner and Subcontractor shall be handled by the Contractor.

"The Contractor agrees to bind every Subcontractor (and every...