Oldcastle Precast v. U.S. Fidelity & Guar.

• Decision Date: 04 October 2006
• Docket Number: No. 05 Civ. 3800(WCC).,05 Civ. 3800(WCC).
• Citation: 458 F.Supp.2d 131
• Parties: OLDCASTLE PRECAST, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

458 F.Supp.2d 131

OLDCASTLE PRECAST, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.

No. 05 Civ. 3800(WCC).

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

October 4, 2006.

Welby, Brady & Greenblatt, LLP, Paul G. Ryan, White Plains, NY, Attorneys for Plaintiff.

Torre Lentz Gamell Gary & Rittmaster, LLP, Benjamin D. Lentz, Jericho, NY, Attorneys for Defendant.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

Plaintiff Oldcast Precast, Inc. ("Oldcastle") brings this action for breach of contract against defendant United States Fidelity and Guaranty Company (the "surety"). The surety brings a counterclaim against Oldcastle for breach of the same contract. The action was tried by the Court without a jury. The following opinion sets forth the Court's Findings of Facts and Conclusions of Law pursuant to FED.R.CIV.P. 52(a).

BACKGROUND

I. Procedural History

Oldcastle commenced this action on April 11, 2005 claiming breach of contract and seeking payment on a bond issued by the surety to guarantee the obligations of Klewin Building Company, Inc. ("Klewin") in connection with a construction contract. The surety filed its answer on July 1, 2005, and amended it on February 28, 2006 to assert a counterclaim for breach of contract.

II. The Trial

The Court conducted a two-day bench trial on August 28-29, 2006. Oldcastle presented three witnesses as part of its case-in-chief: (1) Brian Tinneny, Assistant Vice President of Contracts at Oldcastle; (2) Donna Reuter, Vice President of Project Services at Oldcastle; and (3) Joseph Navarro, Director of Field Operations at Oldcastle. Defendant presented two witnesses: (1) Stephen Tufaro, former Senior Project Manager for Klewin; and (2) William F. Carlson, PE, an expert in construction scheduling, management of construction and civil/structural engineering. Oldcastle presented no rebuttal case.

During the trial, the Court admitted into evidence more than one hundred exhibits, including the subcontract and change orders as well as documents relating to backcharges based on expenses incurred by Klewin for welding, saw cutting, cleanup and punchlist work, and Carlson's expert report.

The Findings of Fact and Conclusions of Law set forth below, pursuant to FED. R.CIV.P. 52(a), are based on the record developed over the course of the trial during which both parties had a full and fair opportunity to present their cases to the Court.

FINDINGS OF FACT

This case involves the construction of a senior housing development known as the Woodlands Senior Housing Project (the "project") in Ardsley, New York. (ASAF ¶ 1.)¹ Ardsley Housing Associates, LLC ("Ardsley"), the owner of the property on which the project was being constructed, entered into a construction agreement with Klewin on September 30, 2002 (the "contract") whereby Klewin would serve as the construction manager for the project. (Id.) The surety issued on behalf of Klewin a Performance Bond, No. SW4915, and a Payment Bond, No. SW4915. (Id. ¶ 2.) Each bond was dated October 2002, in the principal amount of $32,400,000, on behalf of Klewin, as principal, and in favor of Ardsley, as obligee. (Id.)

A. The Subcontract Agreement

In December 2002, after the contract was executed, Klewin began negotiations with Oldcastle for a subcontract to fabricate and erect precast concrete components for the project (the "subcontract"). (ASAF ¶ 3; Def. Ex. A.²) Klewin provided Oldcastle with a standard AIA subcontractor form agreement, which was modified, after negotiations, by an extensive list of amendments and additions. (Tr. 7, 9; Def. Ex. A.) Pursuant to this agreement, Oldcastle was to provide all the precast concrete planks for the project. (Tr. 40.) Articles 3.3.1. and 15.6, providing for liquidated damages, were deleted.³ (Tr. 11; Def. Ex. A ¶ ¶ 3.3.1, 15.6.)

The subcontract contains several provisions that are relevant to this lawsuit. First, the subcontractor assumed "the entire responsibility and liability for all work, supervision, labor and materials provided" and assumed liability "[i]n the event of any loss, damage, or destruction." (Def. Ex. A ¶ 4.1.11.) Next, the subcontract specifically includes language indicating that, "[w]ith respect to the obligations of both the Contractor and the Subcontractor, time is of the essence."⁴ (Def. Ex. A ¶ 9.4.) Finally, the contractor and other subcontractor agreed not to access any floor areas until those areas were released by Oldcastle. (Def. Ex. A ¶ 4.1.11., alt. at 2.)

Prior to entering into the subcontract in April 2003, the parties had discussed an erection schedule that anticipated completion of the project by the end of August 2003. (ASAF ¶ 6; Def. Ex. OO.) According to the initial schedule, Oldcastle's portion of the construction was to be completed by August 18, 2003; however this schedule was repeatedly revised. (Tr. 41-42, 62-63; Def. Ex. 00.) Although the schedule was not incorporated into the agreement, the subcontract states that "The price quoted in this proposal is based upon the completion of our work on or before 8/31/2003." (Def. Ex. A, OCP at 6.) The parties also contemplated a general schedule for shop drawings and fabrication. The relevant provision states: "Shop Drawings: 1st drawing out 4-6 weeks after written notice to proceed. Subsequent drawings to follow after approval of first. Fabrication: 6-8 weeks after receipt of approved shop drawing and fully executed contract." (Tr. 14-15; Def. Ex. A, OCP at 8.) The construction schedule, under the terms of the subcontract, could be modified by mutual agreement to coordinate the overall project schedule and work of the various trades. (Tr. 15-16; Def. Ex. A, Sch. A at F.5.)

With respect to claims the contractor could make against the subcontractor, the subcontract contains a section entitled "Claims by the Contractor" which provides that if the contractor wants to make claims for "services or materials provided by the [subcontractor," it was required to provide seven days written notice, except in an emergency. (Def. Ex. A ¶ 3.3.2.) However, the subcontract also contains a section entitled "Contractor's Remedies," which requires forty-eight hours written notice and allows the subcontractor an additional forty-eight hours to cure any deficiency if the contractor was dissatisfied with the subcontractor's work. (Def. Ex. A ¶ 3.4.2.) The subcontractor was also responsible for cleanup or for backcharges if it failed to comply with this provision. (Def. Ex. A, Sch. A at D.1.-D.3.) The contractor was required to provide forty-eight hours written notice to the subcontractor for the first occurrence of non-compliance, and thereafter could continue cleanup at subcontractor's expense. (Def. Ex. A, Sch. A at D.3.)

The subcontract price was $1,389,300. (ASAF ¶ 3.) Each payment application required the inclusion of "evidence satisfactory to Contractor and Owner that all obligations resulting from Subcontractor's performance to the point have been satisfied." (Def. Ex. A ¶ 11.1.2.) Oldcastle subcontracted with a design company known as FDG, Inc. ("FDG") to prepare the engineering and detail drawings for the project. (Tr. 33, 52.) While working on the project, Klewin on occasion dealt directly with FDG. (Tr. 33; Pl.Ex. 14.)

On March 13, 2004, the parties agreed, by change order No. 17, to increase the subcontract price by $887.04, making the total price of the subcontract $1,390,187.04. Oldcastle left the project in early 2004 having substantially completed the work it was required to perform under the contract. (ASAF ¶ 7; Tr. 81-82, 87,140, 155-56; PI. Exs. 2, 21, 23; Def. Exs. NN at 18, SS, HHH.) Despite Klewin's claims that Oldcastle's work was defective, it paid Oldcastle at each stage of the work. (Tr. 165-68; Def. Exs. AAA-GGG.) In total, Oldcastle has been paid $1,197,876 by Klewin pursuant to the subcontract. (ASAF ¶ 8; Tr. 168-69; Def. Ex. A ¶ 11.1.2.)

B. Schedule Delays and Problems

Many of the difficulties with the project stem from problems with the project designs. (Tr. 53; Pl.Ex. 4.) Joseph Navarro of Oldcastle testified that, "[i]n general it appeared that the architecturals did not match up with the structural. There were a lot of problems with closing out dimensions, clarifying information. They were not easily interpreted for lack of information or confusion between the two different sets of the architecturals or structurals." (Tr. 53.) Stephen Tufaro of Klewin also stated that "[t]he biggest problems were that the design architect and engineer on the job did not dimension the structural drawings. Pretty much everyone, all the trades and Klewin had to transfer dimension information from the architectural drawings to the structural drawings." (Tr. 99-100.) The problems with the designs caused substantial delays at the beginning of the project, because the designs raised many questions that had to be answered before construction could begin. (Tr. 53-54, 83-84.) In addition, the grid system on the architectural drawings, prepared by the architect, was not completely accurate and Klewin had to provide its own survey. (Tr. 100.) After completing the survey, Klewin realized that there was not complete closure in the project's dimensions and Klewin had to hire an architect to alter the dimensions to achieve closure. (Tr. 100.)

This affected Oldcastle, because it could not begin fabricating planks until after the necessary supporting framework was constructed and accurate field measurements were given to it. (Tr. 38, 55.) According to Oldcastle, this was a "highly unusual" practice, because on most jobs, the subcontractor can fabricate the pieces based on the approved design documents while the preceding construction is progressing and typically does not need to wait for field measurements.⁵ (Tr. 37, 40, 41.) This is one of the benefits of using precast planks because it increases the speed of construction. (Tr. 39, 60-62, 76.) The complexity of the project and the...