Travelers Cas. & Sur. Co. v Dynamic Painting Corp.

[*1] Travelers Cas. & Sur. Co. v Dynamic Painting Corp. 2005 NY Slip Op 51722(U) [9 Misc 3d 1121(A)] Decided on September 20, 2005 Supreme Court, Nassau County Bucaria, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 20, 2005
Supreme Court, Nassau County

Travelers Casualty & Surety Company AS ASSIGNEE OF RELIANCE INSURANCE COMPANY, Plaintiffs,

against

Dynamic Painting Corp., ARNOLD JACINTO & IRMA JACINTO, Defendants.



5717/04

Stephen A. Bucaria, J.

This motion, by defendants, brought on by order to show cause, for an order pursuant to CPLR 5015[a][1] vacating and setting aside a default judgment entered dated June 10, 2005; and a cross motion, by plaintiffs, for an order pursuant to CPLR 3212 for summary judgment as against codefendant Dynamic Painting Corp., are both determined as hereinafter set forth.

In the early to mid-1990's, the defendant Dynamic Painting Corp ["Dynamic"], entered into a subcontract with general contractor Kiewet Eastern Company ["Kiewet"], pursuant to which Dynamic was to perform certain painting work in the State of Connecticut (A. Jacinto Aff., ¶ ¶ 3-4; Traveler's Mot., Exh., "C"). [*2]

In June of 1989, Dynamic and non-party Reliance Insurance Company ["Reliance"] Dynamic's bonding company entered into a "Continuing Agreement of Indemnity." The June, 1989 indemnity agreement was also jointly executed by the individual codefendants, Irma Jacinto and Arnold Jacinto, Dynamic's president (Agreement at 3).

Pursuant to the agreement, Reliance later issued payment and performance bonds to Dynamic as principal in connection with the Connecticut project (OSC Exh., "B"; Montero Aff.,¶ 3).

The project was completed at some point in 1995, but some years later in October of 2000, the Connecticut Department of Transportation ["CDOT"], made certain claims against the Reliance bonds alleging, inter alia, that Dynamic had failed to properly perform its work (A. Jacinto Aff., ¶ 4; Cmplt.,¶ 11; White Aff.,¶ 11).

Dynamic claims that it possessed its own outstanding claim against Kiewit for an alleged unpaid balance of some $200,000.00

Settlement negotiations thereafter ensued among the interested parties, who were each represented by separate counsel, and a handwritten "settlement term sheet" was executed. By virtue of the settlement, it was agreed that CDOT would be paid the aggregate sum of $745,000.00 in discharge of its claims (Travelers Exh., "D").

Dynamic agreed to contribute $25,000.00 to the settlement and claims that it also relinquished its claim against Kiewit as part of the agreement. Notably, Dynamic's $25,000.00 payment was to be "guaranteed by Travelers." Travelers also agreed to fund $250,000.00 of the settlement while Kiewit's contribution was to be $260,000.00.

In a subsequent letter dated November 3, 2000, which was authored by Traveler's counsel, counsel summarized the terms of the proposed settlement, and advised, among other things, that Traveler's participation in the settlement would be "without prejudice to any of its rights or claims in connection with its principal and indemnitors, all such rights being expressly reserved" (Travelers Exh., "E", Letter at 2).

Although a space was provided for Dynamic's counsel to sign the letter and thereby indicate his assent to its terms the signature line therefor on the copy annexed to Traveler's motion papers is blank. Notably, there is no "reservation of rights" language contained in the handwritten, settlement term sheet which was actually executed by Dynamic. Moreover, that agreement provides, in part, that "all parties * * * shall execute mutual releases of [*3]all claims arising out of [the] Project * * *."

Thereafter, Dynamic failed to pay its $25,000.00 settlement contribution and Travelers paid that sum in July of 2001 pursuant to its guarantee (Travelers Exh., "F"). Accordingly, Travelers paid the aggregate sum of $275,000.00 to the CDOT in accord with the terms of the settlement.

Travelers contends that it subsequently made demand upon Dynamic and the Jacintos for payment of $275,000.00 pursuant to the terms of the bonds, but that no payment was forthcoming (White Aff.,¶ 15).

In pertinent part, the 1989 indemnity agreement provides that the "Surety shall have the exclusive right for itself * * * to decide and determine whether any claim, demand suit, or judgment upon said * * * Bonds shall * * * be paid, settled, defended or appealed and its determination shall be final, conclusive and binding * * *" (Agreement, ¶ 10).

The agreement further states that any "loss, costs, charges, expenses or liability thereby sustained or incurred, as well as "any and all disbursements on account of costs, expenses and attorney's fees, shall be borne and paid immediately" by the indemnitors and/or principal (Agreement, ¶ 10 see also, ¶ 2, 9).

Thereafter, by summons and verified complaint dated April of 2004, Travelers commenced the within action against the Jacintos and Dynamic, demanding the sum of $372,003.15.

Specifically, the complaint seeks entitlement to: (1) the principal amount of $275,000; (2) unspecified, "additional" expenses in the amount of $48,481.00; and (3) a further sum of $48,522.00, representing similarly unspecified "disbursements on account of costs, expenses and attorney's fees * * *" (Cmplt.,¶¶ 11-13). After the complaint was served, defense counsel Ross & Cohen, LLP requested and received a series of eight extensions within which to respond to the complaint. The last stipulation was executed on November 15, 2004, and extended the defendants' time to respond to December 15, 2004 (Travelers Mot., Exh., "B").

According to defendants' counsel, after the action was commenced and the initial stipulation had been executed, he spoke frequently with plaintiff's counsel, during which negotiations aimed at settling the matter were conducted (Canizio Aff.,¶¶ 4-6).

Apparently, the Jacintos had offered to pay Travelers the amount which they had [*4]originally agreed to contribute to the settlement, i.e., $25,000.00 (A. Jacinto Aff.,¶¶ 10-11).

According to Arnold Jacinto, plaintiff's counsel allegedly represented in late 2004 that the $25,000.00 offer would be "probably" be accepted, but that Travelers would need to review the defendants' financial information first (A Jacinto Aff., ¶¶ 8, 14).

It was thereafter agreed that the defendants would provide certain financial information to Travelers and that Travelers would analyze the information. Defense counsel contends that it was also agreed that the defendants' time to respond to the complaint would be extended until Traveler's analysis of the information was complete and Travelers supplied an affirmative response to the defendants concerning its analysis (Canizio Aff., ¶ 7-8).

Notably, the record contains a letter dated November 30, 2004 from defense counsel addressed to plaintiff's counsel, which recounts that certain financial records were being forwarded for Traveler's review (Defs' Exh., "G").

Defense counsel advises that although the financial information was supplied in late 2004, he heard nothing further from Traveler's counsel until he was contacted in mid-2005 by his clients the Jacintos. The Jacintos advised him that restraining orders had been placed on their bank accounts and counsel ascertained that a default judgment (dated June 10, 2005), in the amount of $430, 598.85, had been obtained by the plaintiff as against Arnold and Irma Jacinto (Canizio Aff., ¶ 8).

Counsel claims that he immediately contacted Traveler's counsel and inquired why Travelers had applied for a default judgment without informing him in response to which plaintiff's counsel supposedly replied that, "'he was not very proud himself'" for doing so, but that he had been "'directed to take [a] default judgment by his client [Travelers]'" (Canizio Aff., ¶ 10).

The Court notes that there is a stipulation in the record by which all parties agreed that an answer dated June 30, 2005, interposed by Dynamic would be deemed "served

nunc pro tunc within one year of [the] service of [the] summons and complaint" (Travelers Exh., "B").

The defendants now move for an order pursuant to CPLR 5015[a][1] setting aside and vacating the June, 2005 default judgment, which was obtained through application to the clerk pursuant to CPLR 3212[a].

Travelers opposes the Jacintos' motion to vacate and cross moves pursuant to the [*5]Indemnity Agreement for summary judgment solely against codefendant Dynamic, seeking recovery in the amount of $323,488.00 (Travelers has withdrawn its claim for $48,522.15 in counsel fees [White Aff.,¶ 15]). The motion is granted. The cross motion should be denied.

A defendant seeking to vacate its default in appearing or answering the complaint must provide a reasonable excuse for the default and demonstrate a meritorious defense to the action (Tyberg v. Neustein, ___AD3d___ [2nd Dept. 2005]; O'Loughlin v. Delisser, 15 AD3d 372; Waste Management of New York, Inc. v. Bedford-Stuyvesant Restoration Corp., 13 AD3d 362; Costanza v. Gold, 12 AD3d 551; Macias v. Motor Vehicle Acc. Indemnification Corp., 10 AD3d 396; CPLR 5015[a][1]).

"Generally, the determination of what constitutes a reasonable excuse for a default lies within the sound discretion of the court" and in "making its determination, the court should consider relevant factors such as the extent of the delay, prejudice or lack of prejudice to the opposing party, whether there has been willfulness, and the strong public policy in favor of resolving cases on the merits" (Thompson v. Steuben Realty Corp., 18 AD3d 864; 65 North 8 Street HDFC v. Suarez, 18 AD3d 732; Carnazza v. Shoprite of Staten Island, 12 AD3d 393; Costanza v. Gold, supra; Scarlett v. McCarthy, 2 AD3d 623). In sum, "[w]here, * * * there is no evidence of willfulness, deliberate default, or prejudice * * * the interest of justice is best served by permitting the case to be decided on its merits" (Beizer v. Funk, 5 AD3d 619, 620; Scielzi v. Gold, 213 AD2d 872 supra, see, Tyberg v. Neustein, supra; Orwell Bldg. Corp. v. Bessaha, 5 AD3d 573).

The defendants Jacinto have sustained their burden of establishing a reasonable excuse for their default and the existence of a meritorious defense

More particularly, the record at bar contains evidence supporting defense counsel's assertion that settlement negotiations were being conducted and that the plaintiff had continually extended the defendants' time to answer the complaint during this period (see, Haviaris v. 25 Broadway Corp., 93 AD2d 789-790 see also, Scarlett v. McCarthy, supra; Scielzi v. Gold, supra; cf., Katina, Inc. v. Town of Hempstead, 13 AD3d 343).

Moreover, the defendants have produced correspondence supporting the contention that Travelers had, in fact, received and was reviewing financial records submitted by the defendants in conjunction with the discussions (Defs' Mot., Exh., "E"). Additionally, defense counsel has averred that despite the prior discussions which had ensued, and the speaking relationship which he had developed with plaintiff's counsel, plaintiff's counsel "never mentioned that he would be moving for leave to enter a default judgment" (Scarlett v. McCarthy, supra; Lehrman v. Lake [*6]Katonah Club, 295 AD2d 322).

Although plaintiff's counsel has disputed certain factual allegations advanced by the defendants (Lopez v. Northern Assurance Co. of America, 290 AD2d 628, 629; Scielzi v. Gold, supra), the record nevertheless supports the conclusion that settlement negotiations were conducted (Scarlett v. McCarthy, supra); that successive extensions to respond had been granted (Haviaris v. 25 Broadway Corp., supra); that the default was not willful (Orwell Bldg. Corp. v. Bessaha, supra); and that the plaintiff will not be prejudiced by the relatively brief delay which ensued (e.g., New York University Hosp. Tisch Institute v. Merchants Mut. Ins. Co., 15 AD3d 554; Kapsis v. Peragine, 8 AD3d 446).

Furthermore, the defendants' submissions are sufficient to demonstrate the existence of a potentially meritorious cause of action (Tyberg v. Neustein, supra; Carnazza v. Shoprite of Staten Island, supra), and further preclude, at this juncture, any award of summary judgment as against Dynamic on the plaintiff's cross motion.

Significantly, "[a] defendant is not required to establish its defense as a matter of law; it need only set forth sufficient facts to make out a prima facie showing of a meritorious defense" (Quis v. Bolden, 298 AD2d 375; Bergen v. 791 Park Ave. Corp., 162 AD2d 330; Tat Sang Kwong v. Budge-Wood Laundry Service, Inc., 97 AD2d 691, 692).

Although the subject indemnity agreement authorizes the surety, inter alia, to settle cases in its discretion and recover the sums advanced from its principal and indemnitors, the parties each represented by separate counsel subsequently entered into a settlement "term sheet" which disposed of the CDOT's claim. Moreover, pursuant to the terms of that agreement was the only document actually executed by Dynamic each involved entity (including Travelers) agreed to make a separate and distinct contribution to the underlying settlement. Significantly, the term sheet also expressly provides that "all parties * * * shall execute mutual releases of all claims arising out of [the] Project * * *."

In light of the foregoing, and considering the scant, pre-discovery evidentiary record before the Court, the parties' conflicting submissions have generated issues of fact with respect to whether, inter alia, Dynamic's contribution was intended to compromise or supplant any previously existing duty to indemnify arising out of the 1989 Indemnification Agreement.

It is settled that summary judgment is a drastic remedy which may be granted only where there is no clear triable issue of fact (Andre v. Pomeroy, 35 NY2d 361 [1974]; Mosheyev v. Pilevsky, 283 AD2d 469). Indeed, "[e]ven the color of a triable issue forecloses the remedy" (In re Cuttitto Family Trust, 10 AD3d 656; Rudnitsky v. Robbins, 191 AD2d 488, 489). [*7]

In light of the Court's determination with respect to the defendants' showing of good cause and a potentially meritorious defense, it is unnecessary to reach their remaining contentions based on the plaintiff's alleged failure to comply with, inter alia, CPLR 3215[a] and 3215[f], [g][1] (Defs' Mem. of Law at 7-13).

Accordingly, it is,

ORDERED that the motion pursuant to CPLR 5015[a][1] by the defendants Arnold Jacinto and Irma Jacinto for an order vacating and setting aside a default judgment entered against them on or about June 10, 2005, is granted, and the defendants Jacinto shall serve their answer within 20 days after service upon them of a copy of this decision and order, and it is further,

ORDERED that the plaintiff's cross motion for summary judgment as against co-defendant Dynamic Painting Corp., is denied.

The making of this motion has triggered assignment pursuant to Part 202 of the Uniform Rules for New York State Trial Court. The Preliminary Conference mandated by Section 202.12 shall be held in the Chambers of the undersigned on October 6, 2005 at 11:00 a.m.

The foregoing constitutes the decision and order of the Court. [*8]