East 26th St. & Park Ave. Realty, L.L.C. v Shaw Indus., Inc.
Annotate this CaseDecided on December 17, 2004
Supreme Court, New York County
East 26th Street & Park Avenue Realty, L.L.C., Plaintiff,
against
Shaw Industries, Inc., et al., Defendants.
105150/01
Marcy S. Friedman, J.
In this action for property damage, defendant HRH Construction Corp. ("HRH") moves for summary judgment dismissing plaintiff's complaint and the cross-claims of defendant Shaw Industries, Inc. ("Shaw") against it. Plaintiff moves for partial summary judgment as to liability against defendants Nastasi White, Inc. ("Nastasi") and HRH.
The following facts are undisputed: Plaintiff East 26th St. & Park Avenue Realty, LLC, the owner of Hotel Giraffe, hired defendant HRH as the general contractor for the construction of this new hotel. The contract between plaintiff and HRH, dated November 25, 1998, required HRH to install carpet in the guest rooms and corridors of the hotel. Plaintiff purchased the carpet that HRH was to install from defendant Shaw. HRH entered into a subcontract with defendant Nastasi for Nastasi to install the carpet. Nastasi in turn subcontracted with defendant R & M Rugs, L.L.C. ("R & M") for the latter to install the carpet.
It is further undisputed that the carpet in some of the guest rooms had a "bleeding condition." The parties dispute the cause of the damage, and time and place at which it occurred.
HRH's Motion
HRH moves for summary judgment on two procedural grounds and on the merits. First, HRH argues that the claims raised in this action are subject to arbitration under its contract with plaintiff. Plaintiff does not deny that the arbitration clause of the contract covers the instant dispute. Rather, plaintiff contends that HRH has waived its right to arbitration. This contention is correct. HRH has not merely answered and interposed a counterclaim in the action, but has participated in extensive discovery proceedings in its capacities as both a direct and a third-party defendant. Under these circumstances, its right to rely on the arbitration clause has been waived. (See DeSapio v Kohlmeyer, 35 NY2d 402 [1974]. See also Sherrill v Grayco Bldrs., Inc., 64 [*2]NY2d 261 [1985].)
Second, HRH argues that this action is barred by plaintiff's failure to serve a written notice of claim pursuant to section 4.3.3 of the parties' contract, which provides for all claims to be made in writing "within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later." Plaintiff asserts that it did give such notice by means of a letter to HRH from its architect dated January 3, 2000. In the alternative, plaintiff contends that defendant is barred from relying on the notice provisions of the contract based on its alleged concealment from plaintiff of information as to how the carpet sustained damage. Defendant persuasively argues that the January 3, 2000 letter was insufficient to provide affirmative notice of a claim. However, defendant fails to submit any authority showing that it will be entitled to rely upon the notice requirement in the event it is determined that HRH concealed the cause of the damage prior to the commencement of this action.[FN1] Defendant also acknowledges that liquidated damages claims are not subject to the written notice of claim requirement. (See Rider to General Conditions, § 4.3.3.) Under these circumstances, HRH fails to demonstrate as a matter of law that it is entitled to dismissal of this action based on plaintiff's failure to serve a prior written notice of claim.
As to the merits, HRH argues that plaintiff's claims against it are barred by a "Close-Out Agreement" between plaintiff and HRH dated July 24, 2000 (hereafter sometimes referred to as "release"). By order dated December 10, 2001, this Court (Solomon, J.) granted HRH's motion to dismiss the complaint based on the release. After discovery was held in the third-party action, plaintiff moved for renewal of the motion to dismiss on the ground that HRH had deliberately withheld material information regarding the cause of the damage to the carpet. By order of this Court (Solomon, J.), dated October 3, 2002, the motion for renewal was granted and the complaint against HRH reinstated. This order was affirmed on appeal by order of the Appellate Division entered on December 9, 2003.
On the instant motion, HRH argues that the evidence demonstrates as a matter of law that it did not conceal information about the damage to the carpet. HRH alternatively argues that the allegedly concealed information namely, that there was a fire at the R & M warehouse which caused the sprinklers to discharge and to damage the carpet was not material because the only carpet that was stored at that warehouse was carpet for the corridors of the hotel, whereas the damaged carpet was carpet for the guest rooms, which was stored in the Nastasi White warehouse.
HRH fails to eliminate triable issues of fact as to whether it concealed material information as to the damage. At her deposition, Nastasi White's project manager, Deborah DeLuca, testified that prior to a January 2000 meeting with plaintiff, she informed Louis Russo of HRH that the carpet got wet as a result of a fire at Bill Riley's [R & M's] warehouse when the sprinklers went off; and that she was instructed by Mr. Russo not to disclose anything about the [*3]problem with the wet carpet at the meeting. (DeLuca Dep. at 52-53.) In support of HRH's motion, Ms. DeLuca submits an affidavit recanting this testimony. However, it is well settled that summary judgment may not be granted based on an affidavit prepared for litigation that is inconsistent with prior deposition testimony. (See Hunts Point Multi-Serv. Ctr., Inc. v Terra Firma Constr. Mgt. & Gen. Contr., LLC, 5 AD3d 183 [1st Dept 2004].)
In addition, there is conflicting evidence as to whether the guest room carpet was stored at the Nastasi White warehouse or the R & M warehouse. HRH relies on the deposition testimony of William Riley, R & M's foreman, that only the corridor carpet was stored at the R & M's Bronx warehouse. (Riley Dep. at 80-81.) Shaw, however, submits the testimony of its representative, Robert Zaccaria, that although Shaw was initially directed to ship the carpet to the Nastasi warehouse in Flushing, Queens, plaintiff's representative subsequently directed Shaw to ship all of the carpet to the address of the Bronx warehouse operated by R & M. (See Zaccaria Dep. at 148, 171-172.) A bill of lading appears to support this contention. HRH thus fails to eliminate triable issues of fact as to whether HRH is barred from relying on the Close Out Agreement as a result of its fraudulent concealment of material information.
HRH further fails to demonstrate as a matter of law that the liquidated damages provision of its contract with plaintiff is unenforceable as a penalty. It is well settled that "[a] contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation." (Truck Rent-A-Center, Inc. v Puritan Farms 2nd, Inc., 41 NY2d 420, 425 [1977]; X.L.O. Concrete Corp. v John T. Brady & Co., 104 AD2d 181, 183 [1st Dept 1984], affd 66 NY2d 970 [1985].) The party claiming that the liquidated damages provision amounts to a penalty has the burden of proof on the issue. (Hunts Point Multi-Serv. Ctr., 5 AD3d at 184.)
Here, HRH argues that the calculation of actual damages for lost profits would be difficult, if not impossible, because the hotel was a new business venture. (See HRH's Memo. of Law at 20-23.) Moreover, HRH fails to submit any evidence that the liquidated amount was unreasonable in relation to the probable loss. Indeed, defendant contends that the damages period in this action is 14 weeks. (Mascari Aff. In Support, ¶ 14.) At $7,000 per day, liquidated damages over the 14 week period would total $686,000. Plaintiff computes its damages for lost profits at $266,651. (See Aff. of Henry Kallan [P.'s Managing Member] In Opp., ¶ 74.) In addition, plaintiff seeks approximately $100,000 in damages based on HRH's alleged failure to obtain a certificate of occupancy and $200,000 in damages based on overpayments to HRH (Mascari Aff. In Support, ¶ 16.) On this record, and given the potential damages claims, the court does not find as a matter of law that the liquidated damages provision is a penalty. The branch of HRH's motion to dismiss the liquidated damages claim must accordingly be denied.
HRH also fails to submit evidence to demonstrate as a matter of law that actual damages for lost profits are in fact incapable of calculation. The branch of its motion to dismiss the actual damages claim must therefore also be denied.
Finally, HRH fails to set forth any bases in support of the branch of its motion to dismiss Shaw's cross-claims against it. The court has considered HRH's remaining claims and finds them to be without merit. HRH's motion will accordingly be denied in its entirety.
Plaintiff's Motion
Plaintiff claims that Nastasi acted negligently and breached its contract with HRH by [*4]installing wet, discolored carpet in the hotel guest rooms. In opposing summary judgment, Nastasi contends that there are triable issues of fact as to whether the carpet was damaged after installation at the hotel. In support of this contention, Nastasi relies on the deposition testimony of Richard Snow, an expert who inspected the carpet on behalf of Shaw on January 8, 2000, that the carpet in one of the rooms was saturated with water at the time of the inspection, and that it would not still have been so wet if it had gotten wet in the R & M warehouse fire nearly two months before on November 17, 1999. (Snow Dep. at 15-16.) As plaintiff argues in reply, however, Mr. Snow's inspection revealed only one carpet saturated with water. In the other rooms in which Mr. Snow observed carpets with bleeding conditions, the carpets were damp, not wet, and had "banding" which Mr. Snow opined had occurred when the carpet got wet and was soft rolled prior to installation. (Id. at 52-53, 72, 81-82.) He further concluded that this bleeding in bands happened outside the hotel, while the saturation of the one carpet occurred "locally" that is, inside the hotel. (Id. at 60-61, 78.)
Significantly, Nastasi does not cite deposition testimony or other evidence from any employee having personal knowledge of the events, that the carpet was not water damaged while at a warehouse whether Nastasi's or R & M's prior to installation at the hotel. On the contrary, Nastasi's former employee Deborah DeLuca acknowledged, in an affidavit submitted by HRH on its motion, that after the fire, R& M brought the rolls of carpet from its warehouse to Nastasi's warehouse, and that these rolls had not yet been pre-cut or soft rolled for installation at the hotel. (DeLuca Aff., ¶ 8 [Ex. H to Mascari Aff. In Support of HRH Motion for Summary Judgment].) This affidavit does not deny that the carpet was wet when delivered by
R & M to Nastasi. Nor does it assert that Nastasi delivered the carpet to the hotel without first cutting and soft rolling it at its warehouse. In opposing plaintiff's summary judgment motion Nastasi simply does not address this affidavit. Nastasi also does not submit expert testimony to dispute Mr. Snow's opinion that the bleeding condition in the carpets, other than the one saturated carpet, was caused by such soft rolling.
Under these circumstances, the court finds that Nastasi fails to raise a bona fide issue of fact as to whether the carpet was damaged after its installation at the hotel. (Cf. Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223 [1978].) Plaintiff is accordingly entitled to summary judgment against Nastasi.
The court reaches a different result as to HRH. Plaintiff argues that because plaintiff's contract with HRH makes it liable to the owner for any acts or omissions of its subcontractors (General Conditions, § 3.3.2), a finding of liability against Nastasi mandates a finding of liability against HRH. This argument ignores that HRH may not be found liable to plaintiff unless the release is set aside based on a determination that HRH fraudulently concealed material information from plaintiff prior to plaintiff's execution of the release. Contrary to plaintiff's contention, the affirmed order of this Court vacating the dismissal of the complaint based on the release did not make any factual findings as to whether such fraudulent concealment occurred. Moreover, as held on HRH's motion, triable issues of fact exist in this regard.
Finally, plaintiff seeks summary judgment against HRH on breach of contract claims (e.g., failure to procure a certificate of occupancy) which are independent of its claims against HRH based on Nastasi's conduct. This branch of the motion must also be denied based, as held above, on the existence of triable issues of fact bearing on the validity of the release. [*5]
It is accordingly hereby ORDERED that the motion of HRH for summary judgment is denied in its entirety; and it is further
ORDERED that plaintiff's motion for summary judgment is granted only to the following extent: Plaintiff is awarded summary judgment as to liability against defendant Nastasi on the second through fifth causes of action; and an assessment of damages on said causes of action shall be held at the time of trial or after any other disposition of the underlying action.
This constitutes the decision and order of the court.
Dated: New York, New York
December 17, 2004________________________
MARCY FRIEDMAN, J.S.C.
Footnotes
Footnote 1:Defendant further argues that the complaint is barred by the parties' contract (General Conditions, § 4.3.2) by virtue of plaintiff's failure to submit the dispute to an architect for evaluation prior to the commencement of the action. The court declines to consider this argument, as it was raised by defendant for the first time on the reply. (See Ritt v Lenox Hill Hosp., 182 AD2d 560 [1st Dept 1982].)
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