Comprehensive Care Mgt. Corp. v Utica Mut. Ins. Co.
Annotate this CaseDecided on December 15, 2011
Supreme Court, Suffolk County
Comprehensive Care Management Corporation, Plaintiff,
against
Utica Mutual Insurance Company, Defendant.
24923-09
CARTER LEDYARD & MILBURN LLP
Attorneys for Plaintiff
2 Wall Street
New York, New York 10005
WESTERMANN SHEEHY KEENAN SAMAAN & AYDELOTT, LLP
Attorneys for Defendant
333 Earle Ovington Boulevard, Suite 702
Uniondale, New York 11553
Elizabeth H. Emerson, J.
ORDERED that this motion by the defendant for partial summary judgment is granted to the extent of dismissing the second cause of action insofar as it seeks declaratory relief and an order directing the defendant to satisfy, remove, discharge, or bond the mechanic's lien filed by [*2]NCI Construction, Inc.; and it is further
ORDERED that the motion is otherwise denied.
In April 2006, the plaintiff, Comprehensive Care Management Corporation (hereinafter "CCMC"), entered into a contract with NCI Construction, Inc. (hereinafter "NCI"), to build an adult day health-care, diagnostic, and treatment center on property owned by the Sisters of the Order of St. Dominic located in North Amityville, New York (the "Contract"). The defendant, Utica Mutual Insurance Company (hereinafter "Utica"), issued payment and performance bonds for the project. After a dispute developed between CCMC and NCI in December 2007, CCMC terminated the Contract and demanded that Utica complete the project
pursuant to the performance bond. On April 18, 2008, CCMC and Utica entered into an agreement in which Utica agreed to complete the project (the "Takeover Agreement"). The Takeover Agreement provides, in pertinent part, as follows:
Utica hereby undertakes to cause the performance and completion of the Contract in accordance with the terms and subject to the conditions of the Contract and the Performance Bond. In completing the Contract, Utica is entitled to all of the right, title and interest of NCI in and to the Contract, and subject to all of the obligations of NCI under the Contract, in all respects as if Utica were the original party to the Contract. The term "Contractor," as used in the Contract, shall be deemed, after the date of this Agreement, to refer to Utica rather than to NCI.
* * *
CCMC shall have all rights, obligations and responsibilities under the Contract with respect to Utica as CCMC had to NCI, and Utica shall have all right, obligations and responsibilities under the Contract with respect to CCMC as NCI had to CCMC, to the same extent and effect as if Utica had executed the Contract initially instead of NCI and NCI had not been declared in default under the Contract.
* * *
Except to the extent specifically modified by the terms of this agreement, the Contract and the Performance Bond remain in full force and effect without change. Further, this Agreement, the Contract, and the Performance Bond constitute the entire agreement between CCMC and Utica and, together, supersede all prior negotiations, representations, offers, other writings and oral statements of every description.
Utica agreed to substantially complete the work under the Contract on or before September 15, 2008, and to fully perform the Contract on or before October 1, 2008. The Takeover Agreement preserved CCMC's right to recover and Utica's right to contest liquidated damages, attorney's fees, design professional fees, and delay costs arising from NCI's default [*3]under the Contract. However, if the work was substantially completed on or before September 15, 2008, CCMC waived its right to collect liquidated damages from Utica for the period from December 11, 2007, to September 15, 2008. The Takeover Agreement obligated Utica, standing in NCI's shoes, to remove all liens and to resolve all claims by anyone who furnished labor and materials for the project for which Utica would be liable under the payment and performance bonds or under the Contract. Finally, the Takeover Agreement allowed Utica to engage NCI to assist in the completion of the work under the Contract.
Pursuant to a letter agreement dated May 2, 2008, NCI agreed to complete the remaining work under Utica's supervision. One month later, on June 2, 2008, Utica terminated NCI for purportedly breaching the letter agreement. On July 8, 2008, Utica commenced an action in the Supreme Court, Nassau County, against NCI and its principals to recover all of the expenses that it had incurred in completing the project (Utica Mutual Ins. Co. v NCI Construction, Inc., et al., Index No. 12487-08). NCI asserted third-party claims against CCMC in that action and commenced an action against CCMC and others in the Supreme Court, Suffolk County (NCI Construction, Inc., v JPC Plumbing & Heating, Inc., et al., Index No. 38790-07). The project was finally completed on January 30, 2009.
CCMC commenced this action against Utica on June 29, 2009. CCMC alleges that Utica breached the Takeover Agreement by failing to substantially complete the project by September 15, 2008; by failing to remove all liens against the property, including a lien filed by NCI; and by failing to pay CCMC's legal expenses, design professional and delay costs, and liquidated damages pursuant to the Contract and performance bond. The first cause of action is to recover damages for breach of the Takeover Agreement. The second cause of action is for a judgment declaring the NCI lien null and void and directing Utica to remove, discharge, or bond all liens against the property, including the NCI lien.
Utica counterclaimed to recover damages for breach of the Takeover Agreement, quantum meruit, and unjust enrichment, and for a judgment declaring that CCMC had wrongfully terminated the Contract. CCMC moved to dismiss the second, third, and fourth counterclaims for quantum meruit, unjust enrichment, and declaratory relief, respectively. That motion was granted by an order of this court dated December 3, 2009.
Utica now moves for partial summary judgment, inter alia, dismissing the first cause of action for breach of the Takeover Agreement insofar as it seeks attorney's fees and liquidated damages. Utica contends that, because the Takeover Agreement does not provide for the recovery of attorney's fees and liquidated damages, they are not recoverable by CCMC. However, the Takeover Agreement clearly provides that the Contract and performance bond remain in full force and effect, without change except to the extent modified by the Takeover Agreement. The Takeover Agreement also provides that the Contract, the performance bond, and the Takeover Agreement constitute the entire agreement between CCMC and Utica. The Takeover Agreement further provides for Utica to stand in NCI s shoes under the Contract "as if Utica were the original party to the Contract." The court finds that, under these circumstances, [*4]neither the Contract nor the performance bond was extinguished by the Takeover Agreement and that all three agreements are enforceable against Utica. The performance bond provides for Utica to pay additional legal, design professional, and delay costs resulting from NCI's default and to pay liquidated damages if they are specified in the Contract. The Contract provides for liquidated damages in the amount of $350 a day after the date of substantial completion until the work is substantially completed.
Utica contends that CCMC's claims for attorney's fees and liquidated damages are barred by the two-year contractual limitations period found in paragraph 9 of the performance bond. That paragraph provides, in pertinent part, as follows:
Any proceeding legal or equitable, under this Bond...shall be instituted within two years after Contractor Default or within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform its obligations under this Bond, whichever occurs first.
Utica contends that, while CCMC did not declare NCI in default until December 11, 2007, NCI was in default as early as January 22, 2007. Thus, this action, which was commenced on June 29, 2009, is untimely.
The performance bond defines "Contractor Default" as "Failure of the Contractor, which has neither been remedied nor waived, to perform or otherwise to comply with the terms of the Construction Contract." The performance bond required CCMC to notify and meet with NCI and Utica before declaring NCI in default and, if they agreed, to give NCI a reasonable time to perform the Contract. The record reveals that the Contract provided for NCI to substantially complete the project by January 22, 2007. When it did not, the parties met, as required, to discuss NCI's breach. That meeting resulted in a letter agreement dated June 27, 2007, in which Utica and CCMC agreed to release $100,000 from the retainage and pay it over to NCI, who would complete the work in accordance with the Contract. When NCI failed to remedy its breach, the parties again met to discuss NCI's default. That meeting was held on November 7, 2007. CCMC declared NCI in default on December 11, 2007. This action was commenced on June 29, 2009, within two years of NCI's default. Accordingly, it is timely.
Utica contends that CCMC may not recover any legal fees that are unrelated to the additional costs incurred to arrange for completion of the work under the Contract. Thus, Utica contends that CCMC may not recover legal fees incurred in prosecuting this action and in defending the third-party action in Nassau County and the related action in this court.
Paragraph 6 of the performance bond provides that, after CCMC terminates NCI's right to complete the Contract, Utica is obligated, up to the limit of the amount of the bond, without duplication, for:
Additional legal, design professional and delay costs resulting from [NCI's] default, and [*5]resulting from the actions or failure to act of
[Utica] under Paragraph 4.[FN1]
In United States Fid. and Guar. Co. v Braspetro Oil Servs. Co. (369 F3d 34), the Second Circuit, interpreting the foregoing language of paragraph 6 of the performance bond, declined to allow an award of attorney's fees incurred in connection with that action. The Second Circuit found that it was not "unmistakably clear" that the use of the term "legal costs" was intended to obligate the surety to pay the obligee's attorney's fees in litigation between the surety and the obligee over the bond (Id. at 77). The Second Circuit's decision was followed by the Supreme Court, Westchester County, in Mount Vernon City School Dist. v Nova Cas Co. (30 Misc 3d 1233[A]), which interpreted the same language of paragraph 6 of the performance bondthat United States Fid. and Guar. Co. interpreted and that is at issue in this case. In Mount Vernon City School Dist., the plaintiff sought to recover all of the attorney's fees that it had expended in completing the contractor's performance and in litigating the action to enforce its rights under the contract and performance bond. The court, finding the Second Circuit's decision in United States Fid. and Guar. Co. to be persuasive, held that the plaintiff was only entitled to the attorney's fees that it had expended in finishing the contractor's performance. Mount Vernon City School Dist. was affirmed by the Appellate Division, Second Department. Citing United States Fid. and Guar. Co., the Second Department found that, neither the contract nor the performance bond contained "unmistakably clear" language obligating the surety to reimburse the plaintiff for attorney's fees incurred in connection with the litigation (78 AD3d 1028, 1030, lv granted 16 NY3d 707). The Second Department's decision is binding on this court.
In view of the foregoing, the court finds that CCMC may not recover from Utica any legal fees incurred in connection with this action, the third-party action in Nassau County, or the related action in this court. However, CCMC may still recover legal fees related to the additional costs incurred in completing the work under the Contract. Accordingly, the branch of the motion which is for summary judgment dismissing CCMC's claim for attorney's fees is denied. Any recovery shall be limited to only those fees incurred in completing the work under the Contract.
CCMC may also recover liquidated damages under the contract and performance bond. Accordingly, the branch of the motion which is for summary judgment dismissing CCMC's claim for liquidated damages is also denied The court notes, however, that CCMC may not recover both liquidated damages and actual damages since they are mutually exclusive remedies under New York law (United States Fid. and Guar. Co, supra at 71). Any election of remedies need not be made until the trial of this action (see, Baratta v Kozlowski, 94 AD2d 454, 464).
The second cause of action seeks a judgment declaring that the mechanic's lien filed by NCI is null and void and directing Utica to remove or satisfy all liens against the property, including the NCI lien. Utica seeks summary judgment on the second cause of action, arguing that it is not required to discharge NCI's lien and that the liens of NCI's subcontractors and [*6]suppliers have all been satisfied, discharged, or expired by operation of law.
The Takeover Agreement provides, in pertinent part, as follows:
Utica shall remove all liens and resolve all claims, suits or demands for payment by any persons or entities furnishing labor and/or materials to the Project for which Utica would have liability pursuant to the terms and conditions of the Payment and Performance Bonds or under the Contract, standing in the shoes of NCI.
The court interprets the foregoing language to mean that Utica is only responsible for those liens for which NCI is liable. Thus, Utica is not under a duty to remove or satisfy the NCI lien, but Utica is under a duty to remove or satisfy all other liens against the property. While Utica contends that all such liens have been satisfied, discharged, or expired by operation of law, that contention is based upon information and belief. Utica has produced no evidence in support thereof. Accordingly, the court finds that Utica has failed to establish its entitlement to judgment as a matter of law on the second cause of action insofar as it seeks an order directing Utica to remove or satisfy all liens against the property other than NCI's lien.
NCI is a necessary party to any declaratory judgment since NCI would be inequitably affected by a judgment declaring its lien to be null and void (see, CPLR 1001 [a]). NCI has not been joined as a party to this action. Moreover, in the related action pending in this court, NCI has asserted a cause of action for foreclosure of its mechanic's lien.
As a general rule, a court should not entertain an action for declaratory judgment when there is no necessity for doing so (Holtzman v Supreme Court of the State of New York, 152 AD2d 724, 725). Jurisdiction of an action for a declaratory judgment should not be entertained when there is another action pending between the same parties in which all of the factual and legal issues can be determined (Id. at 725; Storer v Ripley, 283 App Div 973 [and cases cited therein]). The court finds that CCMC's claim for declaratory relief should be resolved in an action in which both CCMC and NCI are parties and in which all of the issues related to NCI's mechanic's lien can be fully litigated and determined. CCMC is a defendant in the related action pending in this court in which NCI has asserted a cause of action for foreclosure of its lien. CCMC may assert its claim for declaratory relief as a counterclaim therein.[FN2]
In view of the foregoing, the court grants Utica's motion for partial summary judgment and dismisses the complaint insofar as the second cause of action seeks declaratory relief and an order directing Utica to satisfy, remove, discharge, or bond the NCI lien. The motion is otherwise denied.
[*7]Dated:December 15, 2011
J.S.C.
Footnotes
Footnote 1:Paragraph 4 obligated Utica to complete the Contract after CCMC declared NCI in default.
Footnote 2:By an order of this court dated September 26, 2009, the related action was stayed due to NCI's filing for bankruptcy.
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