Arch Insurance Company v. Precision Stone, Inc., No. 07-3950 (2d Cir. 2009)

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07-3950-cv (L) Arch Insurance Company v. Precision Stone, Inc. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2008 4 (Argued: December 19, 2008 Decided: October 1, 2009) 5 Docket Nos. 07-3950-cv (L) & 07-4139-cv (XAP) 6 ------------------------------------- 7 ARCH INSURANCE COMPANY, LUMBERMENS MUTUAL CASUALTY COMPANY, 8 Defendants-Appellants-Cross-Appellees, 9 - v. - 10 PRECISION STONE, INC., 11 Plaintiff-Appellee-Cross-Appellant.* 12 ------------------------------------- 13 Before: 14 SACK and KATZMANN, Circuit Judges.** Appeal from a judgment of the United States District 15 Court for the Southern District of New York (Robert W. Sweet, 16 Judge) in favor of the plaintiff, a stonework subcontractor, for 17 $100,077.69 on a labor and materials payment bond issued by the 18 defendants, which are bond sureties, in connection with a 19 construction project in White Plains, New York. 20 argue on appeal that the district court erred in finding that the The defendants * The Clerk of Court is directed to amend the official caption as set forth above. ** The Honorable Sonia Sotomayor, originally a member of the panel, was elevated to the Supreme Court on August 8, 2009. The two remaining members of the panel, who are in agreement, have determined the matter. See 28 U.S.C. § 46(d); Local Rule 0.14(2); United States v. Desimone, 140 F.3d 457 (2d Cir. 1998). 1 plaintiff's action was timely under the terms of the bond. 2 plaintiff -- who completed some but not all of the work initially 3 contemplated by the contract -- argues on cross-appeal that the 4 district court improperly set off from the damages award the 5 contractor's full cost to complete that portion of the contracted 6 work that had not been completed by the plaintiff. 7 that the district court did not err in finding that the action 8 was timely under the terms of the bond, but that it was mistaken 9 in setting off the plaintiff's award by the amount that it did. 10 11 The We conclude Affirmed as to the appeal and reversed as to the crossappeal; remanded for amendment of the judgment. 12 13 14 15 PATRICK M. REILLY, DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White Plains, NY, for Defendants-AppellantsCross-Appellees. 16 17 18 19 20 PETER GOETZ (Susan M. Pascale, of counsel) Goetz Fitzpatrick LLP, New York, NY, for Plaintiff-Appellee-CrossAppellant. 21 SACK, Circuit Judge: Precision Stone Incorporated, a New York corporation, 22 ("Precision") provided materials for and performed work on a 23 construction project in White Plains, New York, pursuant to a 24 subcontracting agreement with George A. Fuller Company and its 25 construction manager HRH Construction LLC (together, "Fuller"). 26 According to Precision, Fuller paid only a portion of the amount 27 due to Precision for the work. 28 an attempt to recover full payment for the work it performed from 29 the defendants-appellants Arch Insurance Company and Lumbermens 30 Mutual Casualty Company (together, the "Sureties"), two insurance 2 Precision brought this action in 1 companies that had issued a labor and materials payment bond in 2 connection with the project. 3 district court found that, under the terms of the bond, Precision 4 had timely commenced its action and was entitled to damages. 5 court reduced Precision's award, however, by the full amount of 6 payments made by Fuller to Berardi Stone ("Berardi"), a third- 7 party subcontractor that had been engaged by Fuller to complete 8 work that had been within the original scope of Precision's 9 subcontract. 10 Following a bench trial, the The The Sureties appeal from the district court's decision 11 that Precision's suit was timely. Precision cross-appeals from 12 the district court's decision to offset Precision's damages by 13 the full amount of payments made to Berardi, including those 14 payments exceeding the outstanding balance of Precision's 15 subcontract with Fuller. 16 judgment of the district court is affirmed in part and reversed 17 in part, and we remand for the judgment to be amended. For the reasons set forth below, the BACKGROUND1 18 19 The Bond 20 In 2002, the City of White Plains granted Fuller a no- 21 bid contract "to build a plaza and fountain at the corner of Main 1 This discussion incorporates the findings of fact of the district court following trial as set forth in its opinion of February 1, 2007, see Precision Stone, Inc., v. Arch Ins. Co., 472 F. Supp. 2d 577 (S.D.N.Y. 2007), which "[w]e may not set aside . . . unless . . . clearly erroneous," Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 99 (2d Cir. 2007) (citing Fed. R. Civ. P. 52(a)). Because we conclude that none of the district court's findings of fact was clearly erroneous, we adopt them. 3 1 St. and Mamaroneck Avenue in White Plains." 2 & Materials) No. SU1001063 for Contract No. 902334, Apr. 16, 2003 3 ("Payment Bond") at 1; see Complaint, Ex. A, Precision Stone, 4 Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Dec. 17, 2004) 5 (Doc. No. 1) ("Compl."). 6 represented to the City that "he wanted to substantially complete 7 the construction of the [project] by the end of October 2003 8 (before Election Day)." 9 ("Precision Stone I"), 472 F. Supp. 2d 577, 578 (S.D.N.Y. 2007). 10 Payment Bond (Labor Louis Cappelli, the owner of Fuller, Precision Stone, Inc. v. Arch Ins. Co. On April 16, 2003, the Sureties, neither a citizen of 11 New York, and Fuller issued a payment bond "for the use and 12 benefit of claimants supplying labor and/or materials for the 13 work" on the project. 14 those who had provided labor or materials on the project and who 15 had not been paid in full within ninety days after the completion 16 of their work on the project were entitled to 17 18 19 20 21 22 23 24 Payment Bond 1. Pursuant to the bond, sue [the Sureties] and [Fuller] on this bond for such sum as may be justly due, provided, however, that no such suit or action shall be commenced hereunder by such claimant after the expiration of one (1) year following the date on which [Fuller] ceased work on said contract . . . . Id. at 2. 25 Precision's Work 26 On May 8, 2003, at Fuller's request, Precision 27 submitted a $536,665 bid to perform stone work for the project's 28 fountains and plaza. 29 Fuller issued a "Letter of Intent" for Precision to perform the Precision Stone I, 472 F. Supp. 2d at 578. 4 1 stone work for $515,000. Id. 2 with various qualifications and conditions, including a condition 3 that the agreed-upon price excluded costs associated with 4 overtime work. 5 issued, Precision had not been provided with a completion date, 6 id. at 579, and it never bound itself to a "time-of-the-essence" 7 provision, see id. at 580. 8 Precision agreed to complete its work by October 27, 2003, but 9 only under specified conditions -- including that Fuller timely Id. at 578-79. Precision executed the letter, but At the time the letter was On August 12, 2003, however, 10 and properly prepare the work site and necessary substrates. 11 at 579-80. 12 The project was beset by problems and delays. Id. The 13 court found that Fuller had "created confusion on the job site 14 and delayed Precision's start date for the stone installation." 15 Id. at 580.2 16 Fuller improperly laid the concrete foundation for "ponds" -- 17 water features associated with the project -- requiring 18 demolition work to resize the foundations to their proper 19 dimensions. 20 ponds were not being built according to plan, Fuller allowed the 21 concrete subcontractor to continue to lay their foundations 22 improperly. 2 For example, a concrete subcontractor employed by Id. at 580. Despite Precision's warning that the Id. The court did not affirmatively state that Precision was not responsible for the delays, but it did not attribute any responsibility in the delays to Precision, either. See Precision Stone I, 472 F. Supp. 2d at 580. 5 1 As a result of these delays, it appears that Fuller was 2 in jeopardy of failing to complete the project, as promised, by 3 Election Day. 4 course of performing work under the subcontract, Fuller engaged 5 Berardi to perform a portion of that work. 6 per-unit cost was higher than Precision's, see Precision Stone, 7 Inc., v. Arch Ins. Co. ("Precision Stone II"), No. 04 Civ. 9996, 8 2007 WL 1975487, at *1, 2007 U.S. Dist. LEXIS 49274, at *2 9 (S.D.N.Y. July 6, 2007), worked overtime to complete the work by 10 the end of October, Precision Stone I, 472 F. Supp. 2d at 580-81, 11 i.e., before Election Day, as Capelli had initially promised the 12 City of White Plains, id. at 578. In early October 2003, as Precision was in the Id. Berardi, whose 13 Precision's Lawsuit 14 Fuller ultimately refused to pay Precision for a 15 portion of the work that Precision had completed. On December 16 17, 2004, therefore, Precision initiated this action for payment 17 pursuant to the terms of the bond by filing a complaint in the 18 United States District Court for the Southern District of New 19 York asserting federal diversity jurisdiction. 20 complaint, naming the Sureties as defendants, seeks the allegedly 21 unpaid balance on that portion of the contract that Precision 22 performed -- some $142,131.69 with pre-judgment interest and 23 costs. Compl. ¶ 4. The Id. ¶ 12. 24 In its answer of January 13, 2005, the Sureties 25 asserted, as affirmative defenses, that the complaint was 26 untimely and that Precision had otherwise failed to comply with 6 1 the terms of the bond. Answer ¶¶ 8 & 9, Precision Stone, Inc. v. 2 Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Jan. 25, 2005) (Doc. 3 No. 6). 4 contract for which the Bond was issued prior to October 27, 2003, 5 which is also the date the plaza and fountain [were] opened to 6 the public." 7 the contract" more than one year prior to the filing of 8 Precision's complaint, the Sureties asserted, the complaint was 9 "barred by the bond limitations provision." The Sureties alleged "that Fuller ceased work on the Id. ¶ 9. Because Fuller allegedly "ceased work on Id. 10 Yet as of December 17, 2003, one year prior to the 11 initiation of the complaint, "punch list" work had yet to be 12 completed. 13 "Punch list" work, in the parlance of the construction industry, 14 is "work called for by the original contract (or subcontract) 15 which the contractor (or subcontractor) has not satisfactorily 16 completed." 17 308 F. Supp. 2d 164, 192 (S.D.N.Y. 2003); accord American 18 Heritage Dictionary of Business Terms 420 (2009) (defining "punch 19 list" to mean "[a]n inventory of things to do or that need to be 20 corrected"); 21 http://dictionary.oed.com/cgi/entry/50192448/ 22 50192448se13?single=1&query_type=word&queryword=punch+list&first= 23 1&max_to_show=10&hilite=50192448se13 (last visited July 27, 2009) 24 (defining "punch list" to mean "a list of items such as small 25 repairs, unfinished work, etc., that must be completed in order 26 to fulfil a construction contract, typically created at the end See Precision Stone I, 472 F. Supp. 2d at 581. Aniero Concrete Co. v. New York City Constr. Auth., Oxford English Dictionary Online, 7 1 of a project"). Revised punch lists were issued on January 9, 2 2004, and March 8, 2004. 3 Trial before the District Court 4 The matter was tried before the district court (Robert 5 W. Sweet, Judge) without a jury on September 19, 20, and 25, 6 2006. 7 Sureties' counsel moved to dismiss Precision's complaint on the 8 ground that "the evidence demonstrates that the work was 9 substantially complete at least one year prior to the On September 25, at the close of Precision's case, the 10 commencement of this action." 11 Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 (S.D.N.Y. Oct. 12 17, 2006) (Doc. No. 22) ("Sept. 25 a.m. Tr."). 13 motion, Precision's counsel argued that the "substantial 14 completion" language was not contained in the bond, which 15 referred only to when Fuller "ceased work on said project. 16 That's the language, ceased work." 17 Bond 2 (noting that an action pursuant to the bond is untimely if 18 commenced "after the expiration of one (1) year following the 19 date on which [Fuller] ceased work" on the project). 20 Sept. 25 a.m. Tr. 119, Precision In opposing that Id. at 120; see also Payment By oral decision dated September 25, 2006, the district 21 court denied the Sureties' motion. 22 punch list was part of the original contract" and thus "[t]he 23 punch list is a completion of the contract." 24 4, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 25 (S.D.N.Y. Oct. 17, 2006) (Doc. No. 24) ("Sep. 25 p.m. Tr."). On 26 this basis, the court denied the Sureties' motion to dismiss 8 In the court's view, "the Sept. 25 p.m. Tr. 1 because "there was work performed under the contract on the punch 2 list" within one year of Precision filing suit, id. at 5, thereby 3 requiring the Sureties to proceed with their defense. 4 Following the close of the Sureties' case and as set 5 forth in the district court's written opinion, the court 6 reiterated that "[t]he punch list established that as of March 7 2004, Fuller was still performing physical work on the Project 8 and had consequently not ceased work." 9 Supp. 2d at 581. Precision Stone I, 472 F. Based in part on this finding, the district 10 court concluded that Precision was entitled to payment under the 11 bond. See id. at 581-82. 12 Specifically, the district court concluded that 13 Precision was entitled to payment "in the amount it expended [in 14 labor and material in connection with the project for which it 15 had yet to be paid], less the credit resulting from the 16 substitution of Berardi with respect to the installation of the 17 pavers." 18 court calculating Precision's damages to be approximately $40,000 19 less than Precision sought, due to Fuller's "payments to 20 . . . Berardi . . . for its overtime expenses in laying paving 21 stones, and the one dollar per square foot price difference 22 between Precision's quote and the amount paid to Berardi for 23 laying the stones." 24 2007 U.S. Dist. LEXIS 49274, at *2. 25 additional amount (the "Additional Berardi Payment") constitutes 26 that portion of the payment to Berardi that exceeded the payment Id. at 582. This "credit" resulted in the district Precision Stone II, 2007 WL 1975487, at *1, 9 In other words, this 1 Fuller would have made to Precision had Precision completed the 2 remainder of the subcontracted work for the initial per-square- 3 footage price without any overtime payments. 4 district court granted judgment to Precision in the total amount 5 of $100,077.69, without prejudgment interest. 6 472 F. Supp. 2d at 582.3 Ultimately, the Precision Stone I, 7 Precision's Motion to Amend 8 By pleadings filed pursuant to Rule 52(b) of the 9 Federal Rules of Civil Procedure, Precision requested that the 10 district court amend its findings of facts and conclusions of law 11 in two respects -- arguing that the district court had 12 "inadvertent[ly]" reduced its damages by the amount of the 13 Additional Berardi Payment, Precision Stone II, 2007 WL 1975487, 14 at *1, 2007 U.S. Dist. LEXIS 49274, at *2, and that the court 15 "erred in failing to award pre-judgment interest on the amount 16 due," id. at *1, 2007 U.S. Dist. LEXIS 49274, at *3. 17 and order dated July 6, 2007, the district court declined to 18 alter its damages calculation, but granted Precision's request 19 for pre-judgment interest. 20 49274, at *2-*4. 3 By opinion Id. at *1-*2, 2007 U.S. Dist. LEXIS The district court calculated Precision's total damages by adding the "[b]ase [c]ontract [p]rice," $515,000, to the costs associated with various change orders, including additional air freight, $50,000, Saturday delivery of certain materials, $1,500, overtime, $37,292.19, shop drawings, $4,000, paver installation, $3,648, and then deducting $334,758.50, the payment that Precision had already received, and $176,604, a "[p]aver [c]redit" for payment to Berardi "including overtime," i.e., the payment to Berardi to complete that portion of the contract not performed by Precision. Precision Stone I, 472 F. Supp. 2d at 581. 10 1 This appeal followed. DISCUSSION 2 3 I. Standard of Review and Choice of Law 4 "We review the district court's findings of fact after 5 a bench trial for clear error and its conclusions of law de 6 novo." Amalfitano v. Rosenberg, 533 F.3d 117, 123 (2d Cir. 7 2008). Subject matter jurisdiction in this case is based on 8 diversity of citizenship under 28 U.S.C. § 1332. 9 briefs assume that New York substantive law governs the "The parties' 10 issues . . . presented here, and such implied consent is, of 11 course, sufficient to establish the applicable choice of law." 12 Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 514 n.4 (2d Cir. 2001) 13 (citing Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d 14 Cir. 2000)). We therefore apply New York law. 15 II. Timeliness Under The Bond 16 The Sureties argue that Precision's action is untimely 17 under the bond's limitations provision because Fuller "ceased 18 work" on the construction contract prior to December 17, 2003. 19 But the district court found as a fact that Fuller had not ceased 20 work as of that date. 21 "In reviewing findings for clear error, we are not allowed to 22 second-guess . . . the trial court's . . . choice between 23 permissible competing inferences," Amalfitano, 533 F.3d at 123 24 (internal quotation marks omitted), because in that case, "the 25 factfinder's choice . . . cannot be clearly erroneous," Anderson 26 v. City of Bessemer, 470 U.S. 564, 574 (1985). We see no clear error in this finding. 11 1 The record contains not only the punch-lists 2 themselves, which were introduced into evidence, see Sep. 19 Tr. 3 59, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 09996 4 (S.D.N.Y. Oct. 17, 2006) (Doc. No. 23) ("Sep. 19 Tr."); Sep. 20 5 Tr. 13-15, Precision Stone, Inc. v. Arch Ins. Co., No. 04 Civ. 6 09996 (S.D.N.Y. Oct. 17, 2006) (Doc. No. 21) ("Sep. 20 Tr."), but 7 also testimony regarding the contents of those lists. 8 evidence provided adequate support for the district court's 9 determination. This For example, one punch list noted that as of 10 January 9, 2004, less than a year prior to the initiation of this 11 action, various railings, grates, and lights had not yet been 12 fully installed and some stonework and asphalt had not yet been 13 properly laid. 14 for completing the punch list, Sep. 20 Tr. at 15, testified that, 15 as distinguished from remedial work, which "is usually something 16 that's gone wrong and you have to fix it," id. at 16, the punch 17 lists demonstrated that, at the time of their issuance, certain 18 contracted-for work "was not done," id. at 17; see also id. at 66 19 (testifying that work on the punch lists had been contracted 20 for). 21 the punch-list work consisted of "remedial" work that was 22 "insufficient" to "toll [the] limitations period," see Sureties 23 Br. 9-10, does not establish clear error. 24 A former Fuller employee, primarily responsible In light of that evidence, the Sureties' insistence that As the Sureties concede, they are "bound by the 25 conditions and limitations in the bond." 26 alia, Timberline Elec. Supply Corp. v. Ins. Co. of N. Am., 421 12 Id. at 9 (citing, inter 1 N.Y.S.2d 987, 72 A.D.2d 905 (4th Dep't 1979)).4 2 that an action is timely so long as it is filed within one year 3 of "the date on which [Fuller] ceased work on [the construction] 4 contract," Payment Bond 2. 5 clear error in the district court's finding that "as of March 6 2004, Fuller was still performing physical work on the Project 7 and had consequently not ceased work," Precision Stone I, 472 F. 8 Supp. 2d at 581, we therefore affirm the judgment of the district 9 court to the extent the Sureties appeal from it. The bond states Because the Sureties establish no 10 III. Damages 11 Precision asserts that the district court improperly 12 accounted for the Additional Berardi Payment in calculating 13 damages. 14 We agree. "Although the amount of recoverable damages is a 15 question of fact, the measure of damages upon which the factual 16 computation is based is a question of law." 17 v. Whiting-Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir. 18 1991) (internal quotation marks omitted). 4 Wolff & Munier, Inc. "[W]hether the In New York, a bond is a contract and we therefore "look to standard principles of contract interpretation to determine the rights and obligations of a surety under a bond." U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 51 (2d Cir. 2004); accord EM Ltd. v. Republic of Argentina, 382 F.3d 291, 292 (2d Cir. 2004) (noting that a dispute over the meaning of a bond "present[s] . . . a simple question of contract interpretation"); First Nat'l Bank of Waterloo v. Story, 163 A.D. 279, 282, 148 N.Y.S. 886, 887 (4th Dep't 1914) ("[S]urety bonds, like all contracts, are to be fairly construed so as to effectuate the intent of the parties as it has been expressed in the terms of the contract."), aff'd, 222 N.Y. 562, 118 N.E. 1058; Gillies v. Nat'l Fire Ins. Co. of Hartford, 56 A.D.3d 1236, 1237, 867 N.Y.S.2d 295, 296 (4th Dep't 2008). While the New York Legislature has adopted laws relating to public improvement bonds, see, e.g., N.Y. State Fin. Law § 137, no party asserts that the provisions of any such law apply to the instant dispute. 13 1 district court correctly calculated damages is [thus] a question 2 of law that we review de novo." 3 Hollander, 337 F.3d 186, 196 (2d Cir. 2003) (internal quotation 4 marks omitted). 5 Oscar Gruss & Son, Inc. v. "It is fundamental to the [New York] law of damages 6 that one complaining of injury has the burden of proving the 7 extent of the harm suffered," Berley Indus., Inc. v. City of New 8 York, 45 N.Y.2d 683, 686, 385 N.E.2d 281, 282, 412 N.Y.S.2d 589, 9 591 (1978), and that a party opposing a damages award may submit 10 evidence rebutting the claimant's case, see, e.g., Trademark 11 Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 332 (2d 12 Cir. 1993); Trans World Metals, Inc. v. Southwire Co., 769 F.2d 13 902, 910-11 (2d Cir. 1985). 14 The payment bond provides for damages that are "justly 15 due." 16 agreement with a subcontractor, that subcontractor ordinarily is 17 entitled to "collect either in quantum meruit for what had been 18 finished, or in contract for the value of what plaintiff had lost 19 -- that is, the contract price, less payments made and less the 20 cost of completion." 21 303, 307, 86 N.E.2d 757, 759 (1949) (citation omitted). 22 Payment Bond 2. When a contractor defaults or breaches an New Era Homes Corp. v. Forster, 299 N.Y. The court set forth the damages calculations but did 23 not explain the theory underlying them. 24 court took as the starting point the "base contract price," see 25 Precision Stone I, 472 F. Supp. 2d at 581, suggesting that it 26 considered Precision's recovery to be based on the contract. 27 court did not, however, award Precision full contract damages. 14 In its computations, the The 1 And it noted that Precision was entitled to payment "in the 2 amount it expended [in labor and material in connection with the 3 project for which it had yet to be paid], less [certain 4 deductions]," id. at 582, suggesting that it considered 5 Precision's recovery to be based in quantum meruit on the value 6 of Precision's completed work. 7 of damages is not entirely clear. 8 either on a contract or quantum meruit theory of recovery, 9 accounting for the Additional Berardi Payment was mistaken. 10 Thus, the district court's theory It is clear, however, that, In a typical breach of contract case, a non-breaching 11 party is entitled to the payment it is due under the terms of the 12 contract, less the payment it has already received and the cost 13 to it to perform the remainder of the contract. 14 States ex rel. N. Maltese & Sons, Inc. v. Juno Constr. Corp., 759 15 F.2d 253, 255 (2d Cir. 1985) (applying New York law).5 16 Sureties identify this principle, but ask us to misapply it: 17 They contend that deductible "payments" include those made by the 18 party in breach -- Fuller -- to complete the work contemplated by 19 the contract, including, in this case, Fuller's payments to 20 Berardi. 21 only to "payments" received by the non-breaching party; only then 5 Sureties Reply Br. 15, 20, 22. See United The But the rule refers At least one New York court has held that "lost profits," generally recoverable under a breached contract, "are generally not recoverable under a labor and materials payment bond." QDR Consultants & Dev. Corp. v. Colonia Ins. Co., 675 N.Y.S.2d 117, 119, 251 A.D.2d 641, 643 (2d Dep't 1998). But Precision did not seek lost profits before the district court or on appeal; it sought only full payment on that portion of the contract that it had completed. Therefore, we need not, and do not purport to, conclude that such payment bonds entitle a party to all damages to which it may be entitled on a breach-of-contract theory of recovery. 15 1 will that party be placed in the position it would have been had 2 the other party fully performed under the terms of the contract. 3 In the absence of a default by Precision, the amount paid by 4 Fuller to Berardi to complete the job is irrelevant. 5 In quantum meruit, any payment from Fuller to Berardi, 6 including the Additional Berardi Payment, is similarly not 7 relevant. 8 party for the fair value of the work that it has already 9 performed for which it has not been paid, or the "actual job cost Recovery on that theory is intended to compensate a 10 plus [an] allowance for . . . overhead and profit minus the 11 amounts thus far paid for the work performed by [the non- 12 breaching party]." 13 960, 962, 393 N.E.2d 1027, 1028, 419 N.Y.S.2d 954, 955 (1979). 14 Any payment from Fuller to Berardi, including the Additional 15 Berardi Payment, has no bearing on Fuller's failure to compensate 16 Precision in full for the work that Precision had already 17 completed for the benefit of Fuller. 18 Whitmyer Bros., Inc. v. New York, 47 N.Y.2d For these reasons, the Additional Berardi Payment 19 should not have been taken into account in assessing Precision's 20 damages. 21 IV. Setoff 22 This is not to say that under no circumstances could 23 the Additional Berardi Payment have been taken into account in 24 measuring Precision's ultimate award. 25 on Precision's part, the Sureties might have been entitled to set 26 off the Additional Berardi Payment from those amounts due to 16 Had there been some wrong 1 Precision under the bond. 2 cannot do so here, and we agree. 3 But Precision argues that the Sureties The district court found Fuller, not Precision, to be 4 responsible for the project's delays. 5 Supp. 2d at 579-80. 6 we can conclude that the court's finding was clearly erroneous 7 and no reason for Precision to be forced to bear the cost -- 8 i.e., the Additional Berardi Payment -- associated with Fuller's 9 decision to complete the project in time for Election Day by 10 Precision Stone I, 472 F. On this record, there is no basis on which employing Berardi. 11 Precision contends, moreover, that to the extent the 12 Sureties failed to raise any claim relating to the Additional 13 Berardi Payment in their pleadings, they have abandoned any right 14 to setoff that they might have had. 15 claims that a "setoff to a contract is an affirmative defense 16 that is waived by failure to plead." 17 8(c) ("In responding to a pleading, a party must affirmatively 18 state any avoidance or affirmative defense . . . .").6 19 Sureties insist that a setoff is not an affirmative defense, but 20 a "counterdemand." 21 Dictionary 1496 (9th ed. 2009) (defining a setoff as a 6 Precision Br. 30. Precision Id.; see Fed. R. Civ. P. The Sureties Reply Br. 19; accord Black's Law Courts have indeed characterized claims for setoff as affirmative defenses. See, e.g., SCS Commc'ns, Inc. v. Herrick Co., Inc., 360 F.3d 329, 345 (2d Cir. 2004); In re Trans World Airlines, Inc., 322 F.3d 283, 289 (3d Cir. 2003); Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 438 (4th Cir. 2003), cert. denied, 542 U.S. 915 (2004); S. La. Cement, Inc. v. Van Aalst Bulk Handling, B.V., 383 F.3d 297, 299 (5th Cir. 2004); Giles v. Gen. Elec. Co., 245 F.3d 474, 494 n.36 (5th Cir. 2001); IES Indus., Inc. v. United States, 349 F.3d 574, 576 (8th Cir. 2003); Am. First Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1262 (11th Cir. 1999). 17 1 "counterdemand against the plaintiff, arising out of a 2 transaction independent of the plaintiff's claim").7 3 We need not, however, resolve this issue. 4 assuming that the Sureties properly preserved the issue, they 5 would not be entitled to a setoff against Precision because it 6 was not a defaulting party. 7 setoff claim is properly characterized as an affirmative defense, 8 see Fed. R. Civ. P. 8(c), or a compulsory or permissive 9 counterclaim, see Fed. R. Civ. P. 13, it must be set forth in the 10 pleadings to provide a basis for relief, see Valley Disposal Inc. 11 v. Cent. Vt. Solid Waste Mgmt. Dist., 113 F.3d 357, 364 (2d Cir. 12 1997) ("[T]he provision for '[p]ermissive' counterclaims in [Fed. 13 R. Civ. P. 13(b)] does not mean that the defendant who chooses 14 not to assert such a claim in his answer is permitted to assert 15 it at his whim later in the litigation or as a postjudgment 16 remedy of self-help."); accord Empresa Cubana del Tabaco v. 17 Culbro Corp., 541 F.3d 476, 479 (2d Cir. 2008) (noting that an 18 issue was not properly before the district court where defendant 7 As noted, And, irrespective of whether a Support for this proposition can also be found in a recent opinion by this Circuit, where we stated that "[a] setoff does not destroy the plaintiff's right of action" but "embodies a counterdemand based on some transaction entirely extrinsic to the plaintiff's cause of action." Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 336 (2d Cir. 2005) (internal quotation marks omitted), cert. denied, 548 U.S. 904 (2006). A setoff "constitutes a defense only in the practical sense that it operates to reduce the remedy -- rather than the debt." Id. (internal quotation marks omitted). Therefore, it is "not an affirmative defense," but is more "properly characterized as a permissive counterclaim." Id. (internal quotation marks omitted); see also Valley Disposal Inc. v. Cent. Vt. Solid Waste Mgmt. Dist., 113 F.3d 357, 364 (2d Cir. 1997) ("Under the Federal Rules of Civil Procedure, a defendant's claim of setoff against a plaintiff is to be made by means of counterclaim in its answer to the complaint."). 18 1 failed to raise the issue as a counterclaim).8 2 Sureties never affirmatively pleaded any defense or counterclaim 3 ("counterdemand") in their answer or other pleading on which a 4 claim for setoff of the Additional Berardi Payment could be 5 based. 6 least for purposes of this action. Here, the For these reasons, any such claim has been abandoned, at 7 V. 8 The Sureties contest Precision's position that the 9 Calculations district court improperly accounted for the Additional Berardi 10 Payment. 11 of the amount of that payment -- $33,184 in overtime and $8,700 12 constituting the $1-per-square-foot price difference between 13 Precision's contract and the amount paid to Berardi for laying 14 the remaining 8,700 square feet within the scope of Fuller's 15 original agreement with Precision. 16 district court erred in reducing Precision's award by this amount 8 They do not, however, challenge Precision's calculation Having concluded that the New York's procedural law appears to be similar. See Kivort Steel, Inc. v. Liberty Leather Corp., 487 N.Y.S.2d 877, 878, 110 A.D.2d 950, 952 (3d Dep't 1985) ("Whether setoff is an affirmative defense or is more akin to a counterclaim, the facts in support thereof must be pleaded in the answer. Defendant's failure to do so constitutes a waiver." (citations and footnote omitted)); Ellenville Nat'l Bank v. Freund, 606 N.Y.S.2d 415, 416, 200 A.D.2d 827, 828 (3d Dep't 1994) (noting that because the answer did not contain even "conclusory allegations that [the defendants] intended to assert such a defense or counterclaim, let alone any facts in support thereof," the "claimed entitlement to a setoff, whether considered an affirmative defense or a counterclaim," was waived). 19 1 -- $41,8849 -- we reverse the judgment in part with instructions 2 to the district court to amend the judgment accordingly. CONCLUSION 3 4 For the foregoing reasons, the district court's 5 judgment is affirmed in part and reversed in part, and the cause 6 remanded to the district court for amendment of the judgment in 7 accordance with this opinion. 9 Precision claims that the district court erred in reducing its award by $42,554. See Precision Br. 28. But it only identifies an erroneous debit of $8,700, constituting the sum of the additional $1-per-square-foot payments to Berardi, and of $33,184, constituting overtime payments to Berardi. Adding the two together, we arrive at $41,884. 20

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