Perini Corp. v. City of N.Y., Index No. 601720/03
| Decision Date | 04 April 2014 |
| Docket Number | Index No. 601720/03,Seq. No 007 |
| Citation | 2014 NY Slip Op 30863 |
| 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 breach of contract action, the defendant City of New York ("the City") moves, pursuant to CPLR 2221, for reargument of plaintiff Perini Corporation's motion, pursuant to CPLR 213, 3211(a)(7) and 3212 (a) and (e), for an order dismissing the City's seventeenth and eighteenth affirmative defenses and first and second counterclaims. After oral argument, and upon reviewing the motion papers and applicable statutes and case law, the City's motion for reargument is denied.
FACTUAL AND PROCEDURAL BACKGROUND:
In 1999, Perini and the City entered into a contract for the reconstruction of the Honeywell Street 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 the City, 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 plaintiff s proposal conditioned on plaintiff's satisfaction of the DBE program requirements.
In 2003, Perini commenced this breach of contract action against the City demanding over $16 million in damages on the grounds that the City failed to 1) pay it an equitable adjustment for damages caused by certain work conditions and 2) apprise it of conditions that would affect or delay the work.
In December 2008, a federal grand jury indicted two of Perini's former officers on charges of conspiracy, mail fraud, wire fraud, and money laundering in connection with federally funded contracts entered into by Perini between 1998 and 2000. The indictment, which was unsealed in March 2009, charged 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, the City moved to amend its answer to add the affirmative defenses of fraud in the inducement and fraud/illegality in the performance of the contract, as well as to assert two counterclaims based on Perini's allegedly fraudulent conduct. The 17th affirmative defense and first counterclaim alleged fraud in the inducement, claiming 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 misrepresent that DBE subcontractors were performing work on the Project. The 18th affirmative defense and second counterclaim alleged that Perini knowingly and falsely represented that it was making a good faith effort to comply with the DBE requirements.
Perini opposed the motion, asserting that: 1) the City waived its fraud claims when it entered into a Memorandum of Understanding (MOU)1 with Perini in May 2004 because, at that time, the City knew, or should have known, that Perini had committed fraud; 2) the fraud claims were untimely because the alleged fraud claim accrued no later than 2002; 3) fraud cannot be predicated on promises of future performance; and 4) Perini's claims were barred by the equitable doctrine of laches because the City knew about Perini's alleged involvement in the DBE fraud as early as 2002.
In response, the City asserted that its 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.
The City further maintained that the key issue underlying the fraud claims was not futureperformance, but rather whether Perini deliberately misled it 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 under the contract.
Finally, the City argued that it was not guilty of laches because Perini failed to show that the delay in amending the answer was prejudicial. This, urged the City, was because Perini knew or should have known of its officers' allegedly fraudulent actions prior to commencing this action.
By decision dated March 16, 2010 and entered March 18,2010 (Perini Corp. v City of New York, 27 Misc 3d 813 [Jaffe, J.]), this Court granted that branch of the City's motion which sought leave to amend the answer to add the affirmative defenses and counterclaims sounding in fraud. In granting the City's motion, this Court considered Perini's arguments regarding the statute of limitations, the MOU, laches, and failure to state a fraud claim and found that Perini "neither allege[d] nor demonstrate[d] that the proposed amendment surprised or would prejudice it" and that the proposed amendment "may be meritorious given the indictment of [Perini's] officers" (Id. at 819).
Moreover, this Court stated:
(Id. at 819 [internal citation omitted]).
In the same order, this Court also vacated the note of issue because discovery was incomplete (Id. at 817). Although Perini filed a notice of appeal from the March 18, 2010 decision, it did not perfect the same.
Perini subsequently moved, pursuant to CPLR 3211(a)(7) and 3212(a) and (e), for an order dismissing the City's seventeenth and eighteenth affirmative defenses and first and second counterclaims. In support of its motion, Perini argued that those affirmative defenses and counterclaims had to be dismissed because the fraud in the inducement defense and counterclaim could not be based on a promise to perform in the future and that the first and second counterclaims were untimely and barred by laches. Alternatively, it argued that the second counterclaim was, in actuality, a breach of contract claim which was barred by the six year statute of limitations.
In support of its arguments, Perini relied on documents generated by the City 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 a different project. Most of these documents were not introduced in opposition to the City's motion to amend its answer. Perini contended that the claims were time barred because, based on these documents the City knew, or at least had reason to inquire, about Perini's allegedly fraudulent activities long before the unsealing of the indictment in 2009.
In opposition to the motion, the City argued that dismissal had to be denied because the issues of the timeliness of the affirmative defenses and counterclaims, as well as the sufficiency of the pleadings, were resolved by this Court's order of March 18, 2010.
The City also argued that the new documentary evidence that Perini relied on was not available to the City prior to the unsealing of the indictment; that the fraud in the inducement claimwas based on Perini'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 affidavit submitted by Robert Band, President of Perini, had to be disregarded because Band did not have personal knowledge of the facts. In opposition to Perini's motion, the City submitted, inter alia, the affidavit of John Kantor, Chief of Investigations for the City's Department of Investigation ("DOI"), who stated that, as of 2006, the DOI was aware that a joint venture consisting of Perini and other entities had been a defendant in "numerous litigations" involving "allegations of fraud" and that Perini was being investigated for DBE fraud.
By order dated August 12, 2013 and entered August 13, 2013, this Court granted Perini's motion to dismiss the City's first and second counterclaims and 17th and 18th affirmative defenses. In so holding, this Court reasoned that Perini "submitted evidence that demonstrate[d] that [the City] had reason to make inquiry regarding the alleged fraud long before the unsealing of the indictment in 2009." In so holding, this court reasoned that:
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