In re G.M. Crocetti, Inc., Case No. 07-10319 (BRL) (Bankr. S.D.N.Y. 8/26/2008)

• Decision Date: 26 August 2008
• Docket Number: Adversary Proceeding No. 08-1065(BRL).,Case No. 07-10319 (BRL).
• Parties: In re: G.M. CROCETTI, INC., Chapter 11 Case Debtor, G.M. CROCETTI, INC., Plaintiff v. HRH CONSTRUCTION, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

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In re: G.M. CROCETTI, INC., Chapter 11 Case Debtor G.M. CROCETTI, INC., Plaintiff v. HRH CONSTRUCTION, LLC, Defendant.

Case No. 07-10319 (BRL).

Adversary Proceeding No. 08-1065(BRL).

United States Bankruptcy Court, S.D. New York.

August 26, 2008.

MEMORANDUM DECISION GRANTING MOTION OF

HRH CONSTRUCTION, LLC FOR PARTIAL SUMMARY JUDGMENT

BURTON R. LIFLAND, Bankruptcy Judge.

Before the Court is the motion (the "Motion") for partial summary judgment filed by HRH Construction, LLC ("HRH"), defendant in the above-captioned adversary proceeding, seeking to dismiss those claims filed by G.M. Crocetti, Inc. (the "Debtor") arising out of or relating to a construction project at 200 West 24^th Street (the "24^th Street Project") as time-barred or untimely. The Debtor objects to the Motion and contends that the causes of action asserted in its complaint relating to the 24^th Street Project were timely pled or that at a minimum a triable question of fact exists as to the issue of substantial performance on of the 24^th Street Project. For the reasons set forth below and at the hearing held on August 26, 2008, the Motion is granted.

BACKGROUND

The Parties and the Subcontract

HRH was retained by Seventh Avenue Development LLC in September 2003 as construction manager for the 24^th Street Project, a residential condominium development that was to be built in the Chelsea section of Manhattan. Subsequently, on or about June 17, 2004, HRH entered into a contract with the Debtor, as subcontractor, to perform wood and resilient flooring and carpeting work at the 24^th Street Project (the "Subcontract").¹ The Subcontract called for the Debtor to "provide all labor, material equipment, tools, engineering, shop drawings, hoisting, scaffolding, bracing, mobilization, layout, supervision, administration and other services required to furnish and install all Wood Flooring, Resilient Flooring and Carpet Work...." Rider No. 2 to Subcontract dated June 17, 2004, at p. 1.² In exchange for providing these services, the Debtor was to receive base compensation of $182,100.00 in addition to any amounts approved under any subsequent change orders. Subcontract, at § 3.1.

Among other things, the Subcontract provided for a shortened time period within which the Debtor would be permitted to file a claim or action arising under the Subcontract. Specifically, section 18.4 of the Subcontract provided, inter alia, that "[a]ny claim or action by the Subcontractor [the Debtor] must be commenced within two years of the date of the cause of action accrued, but in no event later than one year after substantial performance of this Contract [the Subcontract]." This issue of "substantial performance" is the crux of the matter presently before the Court.

The Bankruptcy Proceeding

On February 8, 2007, the Debtor and its affiliates each filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). Approximately one year later, on or about February 12, 2008, the Debtor commenced a number of adversary proceedings, including the action presently before the Court, to recover amounts allegedly due on various construction contracts for subcontracting work performed by the Debtor. Specifically, the complaint (the "Complaint") filed by the Debtor against HRH alleges, inter alia,³ that the Debtor fully performed all of its obligations under the Subcontract and that HRH is in breach of its obligations under the Subcontract for failing to pay an outstanding balance of $61,402.22.⁴ Complaint dated February 12, 2008, at ¶¶ 14-21.

On or about April 4, 2008, HRH filed its answer and counterclaim to the Complaint stating that HRH had fully complied with the terms of its subcontracts with the Debtor and it was the Debtor, not HRH, that had breached those agreements by failing to substantially complete its flooring and carpeting work in accordance with the various project schedules and timetables. Answer and Counterclaim dated April 4, 2008, at ¶¶ 33-44.

The Summary Judgment Motion

On or about June 13, 2008, HRH filed the present Motion for partial summary judgment to dismiss the claims in the Complaint relating to the 24^th Street Project.⁵ In the Motion, HRH contends that the Debtor completed work on the 24^th Street Project in July 2005 and, consequently, any claims relating to the 24^th Street Project pled in the Complaint (which was not filed until February 12, 2008) are time-barred by the one-year contractual limitations period embodied in section 18.4 of the Subcontract.

HRH relies on a payment application submitted by the Debtor for the period of September 1 to September 31, 2005 (the "September 2005 Invoice") to support its contention that the Debtor completed "substantial performance" of the 24^th Street Project in July 2005. HRH contends that the Debtor stated in the September 2005 Invoice that it had completed 100% of the contract and project work for the 24^th Street Project during the previous payment periods. According to HRH, as the Debtor freely admitted that the 24^th Street Project was substantially completed in July 2005, any action arising out of that project had to be commenced no later than July 2006 in accordance with section 18.4 of the Subcontract. Accordingly, as the Debtor did not commence the instant action until February 2008, HRH contends the claims are time-barred. See Memorandum of Law in Support of the Motion dated June 10, 2008, at pp. 3-6.

Similarly, HRH also contends that the extension of time provision allowed for under section 108(a) of the Bankruptcy Code cannot be used to save the Debtor's claims because section 108(a) only applies if the limitations period in question has not previously expired prior to the petition date.⁶ In this case, according to HRH, the contractual limitations period expired in July 2006 and the Debtor did not commence its chapter 11 proceeding until February 2007. See Memorandum of Law in Support of the Motion dated June 10, 2008, at p. 6.

In contrast, however, the Debtor contends that substantial performance of the Subcontract was not achieved until June 2006. The Debtor admits that it completed what it describes as the "base contract work" of the Subcontract in June 2005, however, the Debtor contends that it continued to work under the terms and conditions of the Subcontract performing "comeback" and "change order work" at the 24^th Street Project until June 2006. Specifically, the Debtor cites substantial repairs performed on a flood damaged penthouse in June 2006 to demonstrate that the work it continued to perform under the Subcontract was significant and "not trivial or slight."⁷ See Debtor's Memorandum of Law in Opposition (the "Opposition") to the Motion dated July 29, 2008, at pp. 2-5. The Debtor contends that because it continued to perform significant "comeback work" under the terms of the original Subcontract, substantial completion of the 24^th Street Project did not occur until June 2006 and, therefore, the contractual limitations period did not expire until June 2007 — approximately four months after the Petition Date.

In its reply to the Opposition (the "Reply"), HRH counters that under New York law, subsequent repair work does not operate to extend the accrual date for claims past the date of substantial completion. See Reply dated August 18, 2008, at pp.2-5. Moreover, HRH also contends that the "comeback work" cited by the Debtor — namely repairs to a leaky roof — was outside the scope of the original base contract work under the terms of the Subcontract and, therefore, cannot be used to alter the date of substantial completion. See Reply, at pp.5-7.

DISCUSSION

Rule 56 of the Federal Rules of Civil Procedure, which is made applicable to this adversary proceeding pursuant to Bankruptcy Rule 7056, governs the filing of motions for summary judgment and states, in relevant part, that "[t]he judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issues as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Morenz v. Wilson-Coker, 415 F.3d 230, 234 (2d Cir.2005); Nisselson v. Waltzer (In re MarketXT Holdings Corp.), 04-12078 (ALG), 2008 WL 2164572, *2 (Bankr. S.D.N.Y. May 22, 2008).

The moving party bears the burden of demonstrating the absence of any genuine issue of material fact, and all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); see also In re Northwest Airlines Corp., 383 B.R. 283, 291-92 (Bankr. S.D.N.Y. 2008); Ames Dep't Stores, Inc., 161 B.R. 87, 89 (Bankr. S.D.N.Y.1993). A fact is considered material if it might affect the outcome of the suit under governing law. See Anderson, 477 U.S. at 248. "Summary judgment will not lie if the dispute about a material fact is `genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine issue of fact. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); In re WorldCom, Inc., 377 B.R. 77, 85 (Bankr. S.D.N.Y. 2007).

Rule 56(d) provides for partial summary judgment if not all the facts exist without material controversy. Rule 56(d) "serves the purpose of speeding up litigation by eliminating before trial matters wherein there is no genuine issue of fact." In re WorldCom, Inc., 377 B.R. at 85.

First and foremost, the Court...