Matter of CPS 1 Realty LP v R.P. Brennan Gen. Contrs. & Bldrs. Inc.

[*1] Matter of CPS 1 Realty LP v R.P. Brennan Gen. Contrs. & Bldrs. Inc. 2009 NY Slip Op 50451(U) [22 Misc 3d 1135(A)] Decided on March 9, 2009 Supreme Court, New York County Kapnick, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 9, 2009
Supreme Court, New York County

In the Matter of the Application of CPS 1 Realty LP, Petitioner,

against

R.P. Brennan General Contractors & Builders, Inc., Respondent.



114766/08



Petitioner was represented by Stephen J. Gillespie, Esq., Westermann Hamilton Sheehy Aydelott & Keenan, LLP, Garden City Center, Suite 502, 100 Quentin Roosevelt Boulevard, Garden City, New York 11530, Tel: 516-794-7500.

Respondent was represented by Stephen R. Foreht, Esq. and Richard S. Last, Esq., Foreht Last Landau & Katz, LLP, 228 East 45th Street, 17th Floor, New York, New York 10017, Tel: 212-935-8880

Barbara R. Kapnick, J.

Motions sequence numbers 001, 002 and 003 are consolidated for disposition.

Petitioner CPS 1 Realty LP ("CPS") moved by Order to Show Cause, under motion sequence number 001, for an order permanently staying a certain arbitration filed with the American Arbitration Association against it by respondent R.P. Brennan General Contractors & Builders, Inc. ("RPB").

Respondent subsequently moved, under motion sequence number 002, for an order pursuant to CPLR § 3211(a)(7) dismissing the Petition and this special proceeding on the grounds that the Petition fails to state any claim, cause of action, or legally cognizable right to relief. Respondent requested that this Court treat that motion as one for summary judgment under CPLR § 3211(c).

Petitioner thereafter moved, under motion sequence number 003, for an order permanently staying the arbitration proceeding being pursued by respondent under an amended Demand for [*2]Arbitration.[FN1]

Background

On or about May 31, 2006, CPS, the owner of the Plaza Hotel, and RPB entered into two general/construction management contracts for RPB's work in the Hotel portion of the building. The price of oneof the contracts was $18,851,038.37 and the other wasfor $9,148,961.63.

Article 26 ("Disputes, Arbitration and Litigation") of the Contracts provides, in relevant part, as follows: 26.2The Contractor agrees that the Owner shall have the right to elect either to arbitrate or litigate a dispute or particular disputes with the Contractor and its surety [emphasis supplied] by written notice of such election and that the Contractor and its surety, if any, agree to join in and be bound by such litigation or arbitration. If committed to arbitration, such arbitration shall proceed in accordance with the applicable rules of the American Arbitration Association for the Construction Industry. If not committed to arbitration, disputes arising under this Agreement shall beresolved by a court of competent jurisdiction in the State of New York located in the City and County of New York.

* * * 26.4Notwithstanding anything to the contrary, the Owner agrees, if requested by the Contractor, to arbitrate disputes, asprovided in Article 26.2, arising under Article 3.3, pertaining to an order to accelerate without the offer of compensation, and Article 5, pertaining to disputed work, including disputes asto the valuation of Change Orders under Article 6 [emphasis supplied]. Allother claims are not required to be joined in such limited arbitrations and the resolution of such limited disputes by arbitration shall not impair the right or ability of either the Owner or the Contractor to pursue all other claims under this Agreement and for breach of this Agreement asotherwise provided under this Agreement.

RPB's initial Demand for Arbitration sought the following determinations:

A.Claimant has properly established and tendered Change Orders for work, labor, services and materials, General Conditions and invoices for additional services outside of GCI and GC2, all in excess of Base Contract compensation, in the aggregate sum of $33,422,913.24; B. Respondent [CPS] is deemed to have approved each of GC Change Orders 1-265 and Lobby Change Orders 1-96.[*3]C. Allocation of payments received by Claimant against requisitions, change orders and invoices submitted to Respondent.D. Claimant has reached substantial completion under GCI and GC2, as amended by change orders, and is entitled to the immediate receipt of all retainage held by Respondent.E. Claimant is entitled to the immediate payment of $7,002,319.99, representing the short-fall between the aggregate sum due to Claimant asdescribed in this Complaint and that amount paid to date by Respondent.

On or about February 17, 2009, respondent filed an Amended Demand for Arbitration which did not include item "D." seeking a determination as to "substantial completion". The Amended Demand did, however, increase the aggregate sums sought by respondent, and sought the following determinations:

A.Claimant has properly established and tendered Change Orders for work, labor, services and materials, General Conditions and invoices for additional services outside of GCI and GC2, all in excess of Base Contract compensation, in the aggregate sum of $65,292,774.54; B. Respondent [CPS] is deemed to have approved each of GC Change Orders 1-300 and Lobby Change Orders 1-123.C. Allocation of payments received by Claimant against requisitions, change orders and invoices submitted to Respondent.D. Claimant is entitled to the immediate payment of $10,872,151.29, representing the short-fall between the aggregate sum due to Claimant asdescribed in this Complaint and that amount paid to date by Respondent.E. Claimant reserves the right to produce and seek determination on additional work, labor and services provided at the specific behest of Respondent arising out of the completion of the project.

Discussion New York public policy favors enforcement of contracts for arbitration (see Matter of Smith Barney Shearson Inc. v. Sacharow, 91 NY2d 39, ... [1997]). Thus, on a motion to compel or stay arbitration, the court's role is that of gatekeeper, limited to deciding only three threshold questions: whether the parties made a valid agreement; [*4]if so, whether the parties complied with the agreement; and whether the claim sought to be arbitrated is barred by the statute of limitations (see CPLR 7503; Matter of Smith Barney, Harris Upham & Co. v. Luckie, 85 NY2d 193, 201-202, ... [1995], cert. denied sub nom. ... [additional citations omitted]).

Cooper v. Bruckner, 21 AD3d 758, 758-759 (1st Dep't 2005).

The instant motions concern only the first two of these threshold questions.

The Court of Appeals has held that [t]he parties are entitled first to a judicial determination whether there was a valid agreement to arbitrate. If the court determines that the parties had not made an agreement to arbitrate, that concludes the matter and a stay of arbitration will be granted or the application to compel arbitration will be denied (citations omitted). Similarly, if the court concludes that, while the parties may have made a valid agreement to arbitrate, the particular agreement that they made was of limited or restricted scope and the particular claim sought to be arbitrated is outside that scope, there will likewise be a stay of arbitration or a denial of the motion to compel arbitration (citations omitted).

Matter of County of Rockland (Primiano Constr. Co.), 51 NY2d 1, 7 (1980).

In the instant case, CPS does not dispute that there is a valid arbitration agreement between the parties, but argues that RPB is seeking to arbitrate matters outside the specific issues delineated in paragraph 26.4 of the agreements, i.e., claims that do not arise under Articles 3.3, pertaining to an order to accelerate without the offer of compensation, Article 5, pertaining to disputed work, and/or Article 6, pertaining to disputes asto the valuation of Change Orders.

RPB, on the other hand, contends that the claims submitted for arbitration constitute claims "pertaining to disputed work, including disputes asto the valuation of Change Orders under Article 6", and thus fall within the arbitration clause of the Contracts.

Respondent's Amended Demand for Arbitration did include three claims for work in non-Hotel portions of the building which respondent allegedly provided at the request of CPS' alleged agent/representative, the El Ad Group, but which were not covered by the subject agreements, i.e., work conducted in the Retail Space of the Project ($396,127.76), payment for a carpenter who provided the services on the Project ($144,665.79) and painting work conducted in the Residential condominium portion of the Project ($79,884.20).

Respondent, however, has now agreed to remove all three of these claims from the Amended [*5]Demand for Arbitration,[FN2] and respondent's remaining claims appear to fall within the scope of the arbitration provision.

Where, as here, it is concluded that the parties did make an agreement to arbitrate and that the particular claim sought to be arbitrated comes within the scope of their agreement, there then may be a second threshold question for judicial determination has the agreement that they made been complied with? This calls for a judicial determination as to whether there is a preliminary requirement or condition precedent to arbitration to be complied with and, if so, whether there has been compliance with such requirement or condition precedent. Thus, the parties may have erected a prerequisite to the submission of any disputes to arbitration, in effect a precondition to access to the arbitral forum. In such event the reluctant party may be forced to arbitration only if the court determines that this portion of the agreement to arbitrate has been complied with for example, where the parties agreed that disputes must first be submitted to a partnership for determination (citation omitted); or where contractual limitations are expressly made conditions precedent to arbitration by the terms of the arbitration agreement (citation omitted).

Matter of County of Rockland (Primiano Constr. Co.), supra at 7-8.

CPS argues that RPB has failed to comply with either the notice requirement contained in Article 5 of the Contracts or the written directive requirement contained in Article 6 of the Contracts, and that said provisions are conditions precedent to arbitration.

Article 5 ("Disputed Work or Services") provides, in relevant part, as follows: 5.1 If the Contractor believes that any work or services ordered by the Owner violates the terms of this Agreement or exceeds the Work set forth in this Agreement, the Contractor shall notify the Owner in writing within seventy-two hours of the issuance of the order [emphasis supplied]. Further, if the Contractor believes that site conditions necessitate work or services outside the scope of the Work set forth in this Agreement, the Contractor shall notify the Owner, to the extent reasonably practicable, in writing at least two weeks prior to the time which it believes such work or services are required to be performed, but in no event later than seventy-two hours before such work or services are to be commenced...5.2 ... Failure to provide written notice to the Owner before the work or services are commenced or failure to comply with the other notice provisions setforth in Article [*6]5.1 above shall be deemed a waiver and release of any claim for extra compensation or damages for the work or services [emphasis supplied]...

Article 6 ("Change Orders, Extra Work or Services and Omitted Work or Services") provides, in relevant part, as follows: 6.3No extra work or services shall be performed by the Contractor without a specific written directive from the Owner [emphasis supplied]. The Contractor shall not be paid for extra work or services without a specific written directive, unless the Contractor can demonstrate that the extra work or services had to be performed immediately and without prior notice to the Owner in order to prevent casualty to life or property. In this event, the Contractor shall notify the Owner, within twenty-four hours, all of the circumstances relating to the performance of the extra work or services.

* * * 6.6The amount of a Change Order for extra work or services shall be accepted by the Contractor as full compensation not only for the performance of the extra work or services, but also for all other impacts to the Contractor's costs in performing the Work ... To preserve its claim with respect to the valuation of the Change Order, the Contractor must provide notice and proceed as provided under Article 5 pertaining to Disputed Work or waive forever any claim with respect to such Change Order [emphasis supplied].

RPB argues that Article 5 is not applicable because its arbitration claims arise out of Article 6, and claims that it complied with Section 6.6. Specifically, respondent contends that the dispute first arose on or about August 28, 2008 when CPS finally returned certain change orders to RPB with mark-ups. RPB responded by letter dated September 3, 2008 rejecting and/or modifying certain of those mark-ups, which were subsequently encompassed in respondent's Demand for Arbitration.

CPS, on the other hand, contends that the dispute arose when RPB claims it was originally asked to perform extra work without a written directive, as required under Section 6.3, and that respondent failed to provide timely notice, as required under the Contracts.

However, none of these provisions are expressly made conditions precedent to arbitration by the terms of the Contracts. The issue of respondent's failure to provide the notices to CPS, though couched [by petitioner] in terms of satisfaction of a condition precedent to arbitration, is in actuality nothing more than an allegation of noncompliance with the substantive terms of the contract, a matter plainly encompassed by the arbitration clause (citations omitted). There is no hint in the contract that the parties intended to [*7]make a breach of this type a bar to arbitration (citations omitted).

Gomery-Otsego-Schoharie Solid Waste Management Authority v Bonded Insulation Co. Inc., 215 AD2d 995, 996 (3rd Dep't 1995). See also, Cooper v. Bruckner, supra at 759.

Accordingly, based on all the papers submitted and the oral arguments held on the record on November 10, 2008 and February 27, 2009, this Court finds that it is for the arbitrator to resolve petitioner's contention that respondent waived its right to recover certain claims by failing to comply with the notice provisions of the Contracts. See, Matter of County of Rockland (Primiano Constr. Co.), supra at 12.

Petitioner's motions to stay the arbitration are, therefore, denied, and respondent's motion to dismiss this proceeding is granted.The temporary restraining order granted on February 20, 2009 is hereby vacated.

This constitutes the decision and order of this Court.

Dated:March , 2009____________________________

Barbara R. Kapnick

J.S.C. Footnotes

Footnote 1:This Court granted a temporary restraining order on February 20, 2009 staying all matters and proceedings in the arbitration pending the hearing of the Order to Show Cause.

Footnote 2:Respondent's counsel represented on the record on February 27, 2009 that he would file a Second Amended Demand for Arbitration on or before March 2, 2009.