Perini Corp. v. City of N.Y.
| Decision Date | 12 August 2013 |
| Docket Number | Seq. No 006,Index No. 601720/03 |
| Citation | 2013 NY Slip Op 31879 |
| Parties | PERINI CORPORATION, Plaintiff, v. CITY OF NEW YORK (Honeywell Street and Queens Boulevard Bridges) Defendant. |
| Court | New York Supreme Court |
RECITATION, AS REQUIRED BY CPLR§2219 (a), OF THE PAPERS CONSIDERED IN THE REVIEW OF THIS MOTION.
In this contract dispute, plaintiff Perini Corporation (Perini) moves, pursuant to CPLR§ 3211 (a) (7) and §3212 (a) and (e), for an order dismissing defendant City of New York's (defendant or NYC) seventeenth and eighteenth affirmative defenses and first and second counterclaims.
After a review of the papers presented, all relevant statutes and caselaw, the Court grants the motion.
Factual and procedural background:
In 1999, Perini and the City entered into a contract for the reconstruction of the HoneywellStreet and Queens Boulevard Bridges which run over the Amtrak and Long Island Railroad train yard in Queens (the Project). The United States Department of Transportation (US DOT) provided the majority of funding for the project and, pursuant to US DOT guidelines, which have been adopted by New York State and NYC, companies that receive federal grants for a construction project must establish a program that is designed to award a percentage of the work on that project to Disadvantaged Business Enterprise (DBE) contractors. Plaintiff submitted a DBE plan for the Project and defendant accepted plaintiffs proposal for the Project conditioned on plaintiffs satisfaction of the DBE program requirements (Smollens aff, exhibit A).
In 2003, Perini commenced this breach of contract action against defendant demanding over $16 million in damages on the grounds that defendant failed to pay it an equitable adjustment for damages caused by certain work conditions and defendant's failure to apprise it of conditions that would affect or delay the work. In December 2008, a federal grand jury indicted two of plaintiff's former officers on charges of conspiracy, mail fraud, wire fraud, and money laundering in connection with federally funded contracts entered into by plaintiff between 1998 and 2000. The indictment, which was unsealed in March 2009, charges the officers with conspiring with other contractors to falsely represent, in proposals and other documents, that DBE subcontractors would perform work in satisfaction of the DBE requirements when, instead, Perini used non-DBE subcontractors or its own forces to perform the work.
Following the unsealing of the indictment, defendant moved to amend the answer to add the affirmative defenses of fraud in the inducement and fraud/illegality in the performance of the contract. It also sought to assert two counterclaims based on Perini's allegedly fraudulent conduct.
The 17th affirmative defense and first counterclaim, alleging fraud in the inducement, state that in order to induce the award of the contract, Perini circumvented the DBE requirements by entering into a conspiracy with several "DBE subcontractors" to falsely represent that the DBE subcontractors were performing work on the Project when they were not. The 18th affirmative defense and second counterclaim allege that Perini knowingly and falsely represented that it was making a good faith effort to comply with the DBE requirements.
In opposition to the motion to amend, Perini argued that: 1) the defendant waived its fraud claims when it entered into a Memorandum of Understanding (MOU) with Perini in May 2004 because, at that time, the defendant knew or should have known, that Perini had committed fraud; 2) the fraud claims were untimely because the alleged fraud accrued no later than 2002; 3) fraud cannot be predicated on promises of future performance; and 4) Perini's claims are barred by the equitable doctrine of laches because defendant knew about Perini's alleged involvement in the DBE fraud as early as 2002 (Smollens aff, exhibit D, ¶¶ 4, 16-21, 22-26, 33-39, 40-42).
In support of the amendment, defendant maintained that the fraud claims were timely because it had no knowledge that Perini was either the target of, or the subject of, a criminal investigation in connection with DBE fraud prior to entering into the MOU in May 2004 and that it had no knowledge of Perini's complicity in the allegedly fraudulent scheme until the indictment was unsealed in March 2009 (Smollens aff, exhibit E, ¶¶ 16-26).
Defendant also argued that the key issue underlying the fraud claims was not future performance, but rather, whether plaintiff deliberately misled defendant about "present facts"- that is, its alleged collusion with DBE subcontractors in a fronting scheme, which scheme was developed before Perini entered into the contract and which continued throughout Perini's performance underthe contract.
Lastly, defendant argued that it was not guilty of laches because Perini had failed to show that the delay in amending the answer was prejudicial because Perini knew or should have known of its officers' allegedly fraudulent actions prior to commencing this action.
By decision entered March 18, 2010 (Perini Corp. v. City of New York, 27 Misc.3d 813 [Barbara Jaffe, J.]), Justice Jaffe granted the branch of the defendant's motion which sought leave to amend the answer to add the affirmative defenses and counterclaims sounding in fraud. In that decision, the court considered plaintiff's arguments regarding the statute of limitations, the MOU, laches, and failure to state a fraud claim and found that "plaintiff neither alleges nor demonstrates that the proposed amendment surprised or would prejudice it" and that the proposed amendment "may be meritorious given the indictment of plaintiff's officers" (id. at 819).
Moreover, the court stated:
(id. at 819 [internal citation omitted]).
Moreover, this court vacated the note of issue because discovery was incomplete (id. at 817).
In April 2010, Perini filed a notice of appeal of the March 2010 decision but it failed to perfect that appeal.Positions of the parties:
In support of this motion to dismiss, Perini argues that the 17th and 18th affirmative defenses and the first and second counterclaims must be dismissed because the fraud in the inducement defense and counterclaim cannot be based on a promise to perform in the future and that the first and second counterclaims are untimely and barred by laches. Alternatively, it argues that the second counterclaim is, in actuality, a breach of contract claim which is barred by the six year statute of limitations.
In support of its arguments, Perini relies on documents generated by the defendant during the course of its work on the Project, a press release from the US DOT Office of the Inspector General, as well as, inter alia, Federal Construction Fraud Task Force documents and documents associated with Perini's bid on the Croton project. Most of these documents were not introduced in opposition to the defendant's motion to amend the answer (see the Band affidavit and annexed exhibits). Perini contends that the claims are time barred because, based on these documents, defendant knew or at minimum had reason to make inquiry about Perini's allegedly fraudulent activities long before the unsealing of the indictment in 2009.
In opposition to the motion, defendant contends that dismissal should be denied because the issues of the timeliness of the affirmative defenses and counterclaims as well as the sufficiency of the pleadings were adjudicated by the court in the March 18, 2010 order. Defendant also argues that the new documentary evidence that Perini relies on was not available to defendant prior to unsealing the indictment; that the fraud in the inducement claim is based on plaintiff's "present knowledge" because, when Perini entered into the contract, it knew that it would not use DBE contractors to perform the work; and that the Band affidavit is without merit because Band does not have personalknowledge of the facts.
Conclusions of law:
A. CPLR 3211 (a) (7) Motion to Dismiss
On a motion to dismiss, the court must accept as true the facts alleged in the complaint as well as all reasonable inferences that may be gleaned from those facts (Amaro v. Gani Realty Corp., 60 A.D.3d 491 [1st Dept. 2009]); Skillgames, LLC v. Brody, 1 A.D.3d 247, 250 [1st Dept. 2003], citing McGill v. Parker, 179 A.D.2d 98, 105 [1st Dept. 1992]); see also Cron v. Harago Fabrics, 91 N.Y.2d 362, 366 [1998]). "When evidentiary material is considered, the...
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