Westinghouse Electric Corp. v. New York City Transit Authority, 89 Civ. 5227 (CSH).

• Decision Date: 18 June 1991
• Docket Number: No. 89 Civ. 5227 (CSH).,89 Civ. 5227 (CSH).
• Citation: 794 F. Supp. 79
• Parties: WESTINGHOUSE ELECTRIC CORPORATION, Plaintiff, v. NEW YORK CITY TRANSIT AUTHORITY and Metropolitan Transportation Authority, Defendants.
• Court: U.S. District Court — Southern District of New York

794 F. Supp. 79

WESTINGHOUSE ELECTRIC CORPORATION, Plaintiff, v. NEW YORK CITY TRANSIT AUTHORITY and Metropolitan Transportation Authority, Defendants.

No. 89 Civ. 5227 (CSH).

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

June 18, 1991.

Smith, Pachter, McWhorter & D'Ambrosio (Peter M. D'Ambrosio, John V. Snyder, Brian J. Vella, of counsel), Vienna, Va., Veltman, Karesh, Major & Farbman (John I. Karesh, Edward Weissman, of counsel), New York City, for plaintiff.

Albert C. Cosenza, New York City Transit Authority (Robin W. Weiner, Kevin Nathaniel Fox, of counsel), Brooklyn, N.Y., for defendants.

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

In this action founded upon diversity of citizenship, 28 U.S.C. § 1332, plaintiff Westinghouse Electric Corporation ("Westinghouse"), a Pennsylvania corporation, brings this action against defendants New York City Transit Authority ("NYCTA") and Metropolitan Transportation Authority ("MTA") to recover damages and related relief arising out of a contract between Westinghouse and defendants for the sale and delivery of power rectifier equipment for use in the New York City subway system. Defendants move under Rule 12(b)(6), Fed.R.Civ.P. to dismiss the complaint for failure to state a claim upon which relief can be granted, or in the alternative for partial summary judgment under Rule 56.

Background

On October 17, 1983, the MTA, acting by the NYCTA, awarded Contract P36222 to Westinghouse for the sale and delivery of power rectifier equipment to five substations of the New York City subway system. Power rectifier equipment converts electric power to the proper voltage and directs the power to the subway tracks to power the trains.

By letter dated February 3, 1989, Westinghouse advised F.D. Westfall, Jr., a NYCTA employee whose title is Chief Engineer Electrical, that Westinghouse was "suspending further performance effective February 3." In another letter dated February 3, 1989, Westinghouse instructed its subcontractor, Northstar Electrical Contracting, to suspend its performance.

In its February 3, 1989 letter to Westfall, Westinghouse referred to an earlier letter dated November 3, 1988. That letter, as paraphrased by Westinghouse in its February 3, 1989 letter, "notified the Transit Authority that its failure to resolve numerous long-standing design problems and other restraints and prohibitions on the performance of our work constituted a constructive stop order." The earlier November 3, 1988 letter, Westinghouse reminded Westfall, "requested the Transit Authority to resolve all outstanding performance problems within 90 days." In Westinghouse's perception, the NYCTA had not adequately responded to that request. The February 3, 1989 letter concluded:

Because the Transit Authority has decided not to remove the restraints and impediments, our remaining contract work is either unavailable, thereby rendering us physically unable to perform, or materially altered so as to change the nature of our contract obligations. Therefore, we are suspending further performance effective February 3.

The NYCTA responded to Westinghouse in a letter signed by Westfall and dated February 8, 1989. That letter acknowledged Westinghouse's formal advice that Westinghouse was suspending further performance under the contract. "This is a breach of contract," Westfall wrote to Westinghouse. His letter went on to advise that in view of specified failures to perform on Westinghouse's part, "Westinghouse is hereby directed to discontinue all work pursuant to the contract." In addition, Westfall advised Westinghouse "that a recommendation will be made that it be held in default under the contract."

After a further exchange of correspondence, the NYCTA in a letter dated June 13, 1989 signed by Robin C. Stevens, Deputy Vice President, advised Westinghouse that the NYCTA had declared Westinghouse to be in default in the performance of its obligations under the contract. That letter concluded:

Therefore, pursuant to Article 7.01 of the Contract, you are hereby deemed to be in default and your contract is hereby terminated.

As an enclosure to a letter dated June 21, 1989, Westinghouse submitted to Westfall at the NYCTA a Request for Additional Compensation and Time Extension. The request included the cost of additional labor, materials and equipment, compensation for field office overhead, and additional general and administrative expenses which Westinghouse and its subcontractor, Northstar, incurred to perform the contract due to the NYCTA's alleged failure to discharge its contract obligations. Westinghouse also sought compensation for damages caused by the NYCTA deletion of contract work items. Lastly, Westinghouse asked that the NYCTA's declaration that Westinghouse was in default under the contract be rescinded. Westinghouse's forwarding letter of June 21, 1989 concluded:

Westinghouse requests a Superintendent's decision as required by Article 8.03 of the contract. Our right to a timely decision on this claim is not affected by the recent declaration of default.

Article 8.03 of the contract, to which Westinghouse referred in its June 21, 1989 letter, provides in its entirety as follows:

ARTICLE 8.03. Disputes. (a) In the event the Contractor and Authority are unable to resolve their differences concerning a determination by the Superintendent, the Contractor may initiate a dispute in accordance with the procedure set forth in this Article. Exhaustion of these procedures shall be a precondition to any lawsuit permitted hereunder.

(b) The parties to this contract authorize the Superintendent, acting personally, to decide all questions of any nature whatsoever arising out of, under, or in connection with, or in any way related to or on account of, this Contract (including claims in the nature of breach of contract of fraud or misrepresentation before or subsequent to acceptance of the Bidder's Proposal) and his decision shall be conclusive, final and binding on the parties. His decision may be based on such assistance as he may find desirable, including advice of engineering or other experts. The effect of his decision shall not be impaired or waived by any negotiations or settlement offers in connection with the question decided, whether or not he participated therein himself, or by any prior decisions of others, which prior decisions shall be deemed subject to review, or by any termination or cancellation of this Contract. All such disputes shall be submitted in writing by the Contractor to the Superintendent, acting personally, for his decision, together with all evidence and other pertinent information in regard to such questions, in order that a fair and impartial decision may be made. The Superintendent shall render his decision in writing and deliver a copy of the same to the Contractor.

(c) If the Contractor protests the determination of the Superintendent, the Contractor may commence a lawsuit in a Court of competent jurisdiction of the State of New York under Article 78 of the New York Civil Practice Law and Rules or a United States Court in New York, under the procedures and laws applicable in that court, it being understood the review of the Court shall be limited to the question of whether or not the Superintendent's determination is arbitrary, capricious or so grossly erroneous to evidence bad faith. The Contractor must allege in his complaint and prove such submission, which shall be a condition precedent to any such action. No evidence or information shall be introduced or relied upon in such an action that has not been so presented to the Superintendent personally.

(d) Neither the requirements of this Article nor the time necessary for compliance therewith, however, shall affect the time to have accrued for purposes of any statute controlling actions against the Authority, and the time of such accrual shall be determined without reference to this paragraph.

Article 1.02(10) of the contract defines "Superintendent" to mean "the General Superintendent ... or his duly authorized representative and any successor or successors or any deputy or substitute who shall be appointed by the Authority to administer the Contract." In the case at bar Westfall as Chief Electrical Officer was the Superintendent for purposes of dispute resolution under Article 8.03.

By letter dated July 26, 1989, Westfall advised Westinghouse that he rejected Westinghouse's claims. Westfall's July 26, 1989 letter stated in part:

... in view of the submission of the dispute by both parties, I find that as a result of the willful abandonment of and failure to complete the contract by Westinghouse, the contractor has forfeited any claim for any compensation by the Authority, and that the Authority is entitled to recover from Westinghouse all expenses and damages as stated in Chapter 7 of the contract.

Westinghouse filed this action for breach of contract and for rescission on August 2, 1989.

Discussion

The years between the awarding of the contract in October 1983 and Westinghouse's suspension of performance in February 1989 gave rise to a host of recriminations between the parties. In essence, Westinghouse contends that during that interim, the NYCTA failed to give Westinghouse timely access to the substation facilities so that the installations could take place; and, even after belated granting of access, the NYCTA "failed and refused to resolve dozens of physical, design, engineering and scheduling restraints upon Westinghouse's work." Main Brief at 3. The result of those accumulated delays, Westinghouse contends, "is that the contract is so materially different from that originally awarded to Westinghouse as to be almost unrecognizable." Id. at 4. In addition, Westinghouse says that its work "was restrained by over two dozen design, engineering, scheduling and performance problems that made it impossible for Westinghouse to proceed with almost all remaining work." Id. at 5. Westinghouse...