Fabcon E., L.L.C. v Steiner Bldg. Co. NYC, L.L.C.

[*1] Fabcon E., L.L.C. v Steiner Bldg. Co. NYC, L.L.C. 2005 NY Slip Op 52171(U) [10 Misc 3d 1066(A)] Decided on December 12, 2005 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 12, 2005
Supreme Court, Kings County

Fabcon East, L.L.C., Plaintiffs,

against

Steiner Building Company NYC, L.L.C. and Eponymous Associates, L.L.C., Defendants.



24639/02

Carolyn E. Demarest, J.

Plaintiff, Fabcon East, LLC ("Fabcon") was hired as the subcontractor to manufacture and install a pre-cast concrete structure in the Brooklyn Navy Yard ("Navy Yard") to be used as film studios. Defendant Steiner Building Company NYC, LLC ("Steiner") was the general contractor and Defendant Eponymous Associates ,LLC ("Eponymous"), which is a joint venture between Steiner Digital Studios, LLC and New York Studios, Inc. managed by David and Douglas Steiner, possessed the ground lease from the Navy Yard and is the owner of the building. Pursuant to Decision and Order dated January 25, 2005, signed by Justice Ariel Belen of this Court, Defendant Eponymous was granted summary judgment dismissing the complaint as to it. The only remaining Defendant therefore is Steiner ("Defendant").

The case, tried before this Court non-jury over a two-week period in July 2005, presents a classic example of the problems that result when a construction contract is entered prematurely upon conditions that have not been clearly defined. Plaintiff has brought this action seeking damages against Steiner for Breach of Contract, Breach of Duty of Good Faith and Fair Dealing, Account Stated and Wrongful Termination. Defendant has counter-claimed under the terms of the Agreement for damages for Breach of Contract and Attorney's Fees.

Findings of Fact

Plaintiff Fabcon is in the business of manufacturing precast concrete walls and floors to be used as the structural components of commercial buildings. It does not manufacture the bolts and columns required for the installation of the walls and floors and must therefore obtain these items pursuant to a subcontract; it does, however, construct the building on site using columns and bolts purchased from others. In February, 2001, Fabcon was the successful low bidder for the project known as "Steiner Studios" ("the Project"). The bid was based upon plans dated March 5, 2001,characterized as "Design Development", which were prepared by the Defendants' architect Paulus, Sokolowski and Sartore ("PS&S") and supplied to Plaintiff.

Defendants were eager to have a signed contract available in order to advance their plans with the Navy Yard and prepared such contract for signature by Plaintiff. The "Agreement", dated "as of March 15, 2001", was signed by Vice President of Project Management Mark Hansen, on behalf of Fabcon, on March 21, 2001 ("Contract"). The Contract provided for completion of the building by November 30, 2001, at an agreed price of $7,141,500, not including $71,000 designated "for the cost of the payment and performance bond required by this [*2]Section A-1 of this Agreement." The testimony establishes that although the bid had been submitted based upon architectural plans dated March 5, 2001, which were specified in the Contract, the project design was a work in progress and was not actually final at the time the Contract was signed. In fact, the Contract itself contains Exhibit B, an itemized list of the unit price for possible add-ons or deletions to the scope of work provided under the Contract. Clearly, significant changes were anticipated. Notwithstanding the lack of finality of the design, Plaintiff began its performance with the preparation of shop drawings and by locating Project Manager Mark McMillan in New York in order to facilitate meetings and supervise performance. Plaintiff also subcontracted with Jersey Precast to manufacture and supply the necessary custom-designed columns and beams and retained H. Wilden and Associates, Inc. ("Wilden") as an engineering consultant to prepare shop drawings and design the columns and beams.

For reasons not revealed at trial, but conceded to be unrelated to Fabcon's performance of the Contract herein, construction of the Project was significantly delayed. Fabcon first learned of the delay in May 2001. Mr. Hansen testified to a telephone conversation with Steiner in which he was told that certain shop drawings had been approved but that production should be put on hold due to delays. [FN1] An internal memo from Defendant's Project Manager Gerard Heilmann to "DSS" (presumably David Steiner) regarding concerns expressed by Jersey Precast confirms this communication, specifically that "the original pourdates' of July/August may slip", and suggesting that Jersey Precast proceed with manufacturing and store the beams and columns until needed, noting "($1,200,000 cost exposure)". The memo (Pl's Ex.4), dated May 23, 2001, establishes Defendant's awareness that Jersey had "set aside manufacturing capacity".

In June, Wilden, which was responsible for designing the various components to be supplied under the Contract by Fabcon and preparing the required shop drawings, wrote to Mark McMillan at Fabcon complaining of its inability to complete its work due to insufficient and conflicting information. Specifically, among other complaints, Wilden indicated that calculations previously submitted on May 1 had not been returned, that it was not possible to determine the actual length of columns from the contract drawings supplied and, with respect to the "Commissary Area", a portion of the Project which was the subject of much dispute at trial, "numerous design issues related to the lateral analysis" were not resolved and prevented completion of the drawings (Pl's Ex.5). A copy of this letter was supplied to Gerry Heilmann at Steiner on June 5, 2001, together with a FAX from Jersey Precast indicating the need to expedite approval of drawings and order the needed materials for production. Mr. McMillan expressly noted "concern" for "the lack of information". Although Wilden was retained by Fabcon to design the components to be supplied by Fabcon and prepare required drawings, the overall design of the building was the responsibility of PS&S, the architect and engineer of record. Without final plans and specifications, Fabcon could not perform. A significant issue regarding fabrication of the Commissary components was the lateral load analysis for the entire building which was the responsibility of PS&S.

By letter dated July 7, 2001, Fabcon acknowledged receipt of "the latest set" of drawings dated June 22, 2001, noting that the delays and new plans would result in "revised pricing". The letter states, confirming a prior conversation:

" [W]e understand that we will continue to submit our shop drawings for approval, and that these submittals will be reviewed and approved in a timely manner. We understand that although we are receiving approvals on our shop drawings, we will not be moving forward with production until you have authorized us to do so" (Pl's Ex.7). The letter clearly evidences a willingness to work with Defendant to complete the Project, but cautions that a new time frame needed to be established (a responsibility of the General Contractor under paragraph 11 of the Contract) and [*3]that the original reserved production slots had been filled upon learning of the delays.

In late July, Fabcon was notified that the Project was proceeding "on an aggressive schedule" (Hansen Test, Tr. p. 135). In an effort to expedite its performance, Fabcon sent a letter to Steiner dated August 7, 2001 (Pl's Ex. 8) detailing various issues that required resolution. The letter states: "Our contract dated March 15, 2001 has expired per Exhibit C', section i, paragraph 1 [sic]. We were unable to file the Vendex forms as required for this contract. Per previous

conversations with Lou Madigan, Fabcon is requesting that the contact be re-done with the Fabcon, Inc. corporate entity in lieu of Fabcon East, LLC to facilitate meeting the Vendex requirement." The referenced section of the Contract provides that the "Agreement is subject to the BNYDC's approval of the Sub-Contractor, and shall be null and void until such approval is granted." Approval was to be supplied by Defendant "in writing" prior to Fabcon's commencing to perform. Part of the approval process required Fabcon to file the Vendex questionnaire, annexed to the Contract as Exhibit E, with the City of New York within 30 days. Failure to file rendered the Contract "null and void, with no penalty payable to either party". Fabcon's self-acknowledged failure to comply rendered the Agreement null and void and certainly provided cause for Defendant to terminate the Contract; however, both parties have urged this Court not to treat this issue as dispositive and both parties continued to act in reliance upon the viability of the Contract. No futher explanation was given as to the reason for the proposed substitution of Fabcon, Inc. for Plaintiff Fabcon East. The two companies are closely related and appear to share resources.

The August 7 letter further advised that securing the payment and performance bond would require information relating to the funding of the Project or "an external guarantee that the funding is in place", as per a letter from Fabcon's surety consultant attached, and requested a personal financial guarantee from David Steiner. The letter anticipates the preparation of a revised contract to substitute for the now "expired" Agreement and lists provisions Fabcon believes should be incorporated therein, specifically: special payment terms sought by Jersey Precast; "re-established" production and erection schedules and negotiation of additional costs relating to the expanded scope of work and schedule changes; finalization of the design of the Commissary; and confirmation that at least 40 feet of access would be provided on the west side of the building for erection. Contained in the letter of August 7 are also inquiries as to tax exemption, prevailing wage rates and whether there are "any new requirements that we haven't heard about yet?". The letter, signed by Mark Hansen, suggests that "a number of issues and questions" needed to be addressed. Mr. Hansen testified that substantial changes hand been made in the June 22 drawings (Tr., p. 138). A project meeting was held on August 9 at which some of the issues were discussed but Defendant never provided a written response to the letter of August 7.

By Memorandum dated August 20, 2001 from Gerry Heilmann at Steiner to Robin Brown at Fabcon, confirming a telephone conversation of the same day, Fabcon was advised: "Field construction has been stopped (indefinitely) pending resolvement of an issue with the BNY. Please cease all production of precast. Please continue with shop drawings. RFI's. & engineering." (Pl's Ex.9)

Based upon an appeal from Jersey Precast that the interruption in their production, which was already underway, would cause them hardship, communicated to Steiner on August 21, Defendant's Gerry Heilmann faxed a memorandum to Robin Brown at Fabcon on August 27 directing the continuation of "fabrication of precast columns & beams only (NJ Precast work)." Fabcon was specifically directed not to fabricate the beams and columns along " E' line" as "heavy" electrical transformers were expected to be added which would create a design change (Pl's Ex.10).

On September 4, 2001, Fabcon submitted its "Change Request No.1" for the expanded scope of work contained in the revised Plans of June 22, 2001 (Pl's Ex.11). The Request sought an increase over the original contract price of $1,714,743. It included an itemization of additional work, some of which was calculated based upon Exhibit B to the Contract which lists [*4]"unit prices" for various components of the work to be performed by Fabcon, but also sought an additional $147,200 for "Revised access at West wall (less than 40' clear)" and an additional $640,000 for "Winter conditions for erection (Dec. through Feb.)".

A number of previously disputed items, including the payment and performance bond and "unresolved design issues in Commissary Area", were excluded.

Steiner never addressed the Change Request with Fabcon. On September 5, it notified Fabcon to stop production on all precast components, including those under fabrication by Jersey Precast. After receiving this notice, which was confirmed by letter dated September 12 (Pl's Ex. 12), Fabcon continued to perform engineering work and prepare shop drawings. On September 13, 2001, Fabcon's Project Manager Mark McMillan faxed a letter to Gerry Heilmann at Steiner, noting that the catastrophe of September 11 may have significantly impacted the Project, and seeking direction from Steiner (Pl's Ex.13). Among concerns expressed was the "discrepancy" between the site plan and structural drawings from PS&S and "design problems in the commissary area". Specifically, Fabcon proposed the creation of a "shear wall extending to the foundation" at no additional cost in order to counter the lateral loads generated by the building's design. Additional information regarding stair towers was still required in order to complete design. Again, no response was forthcoming from Steiner. On September 27, 2001, Fabcon discontinued all work on the Project and so notified Gerry Heilmann of Steiner. Following up by FAX on October 1, 2001, Fabcon requested payment on two outstanding invoices.

After submitting to Steiner notice dated November 27, 2001, that invoices for work performed through November 30, 2001, totaling $536,470 including retainage, were due and unpaid, to which no response was received, on December 12 Fabcon notified Defendant's David Steiner that it would be filing a lien against the Project. A telephone conversation was invited, however, Steiner's only response was the termination letter dated December 14, 2001.

Steiner did not respond to any of Fabcon's several efforts to communicate following submission of its Change Request until December 14, 2001, when, by certified letter, it notified Fabcon of "certain defaults" that constituted grounds for termination of the Agreement under paragraphs 21 and 50 [FN2]. The grounds alleged for such termination included: 1) the failure to supply a performance bond; 2) the inability to supply wall panels with an STC of 68; 3) the failure to comply with design in adding a shear wall and supplemental material to meet the required fire rating; 4) the lack of details concerning the expansion joint at column line 55; 5) requests for additional payments for erection within the building footprint, winter work and additional anchors and deadmen; and 6) the failure to timely submit shop drawings and calculations. The Contract was purportedly terminated effective December 20, 2001.

Plaintiff's Exhibit 43 (Defendant's Exhibit 38) is a Steiner internal memorandum dated October 22, 2001, referencing a meeting on October 17, 2001 in which Louis Madigan, President of New York Studios, Inc., was assigned "to justify the termination of Fabcon's contract" from a list of complaints prepared by Project Manager Gerry Heilmann. On cross-examination, Mr. Heilmann acknowledged that he was considering the substitution of Oldcastle Precast, Inc. ("Oldcastle"), which had bid the Project in competition with Fabcon for approximately $9,000,000, at the time he directed Madigan to justify Fabcon's termination. Mr. Heilmann admitted that at no time prior to December 14, 2001 did Steiner notify Fabcon of its intentions. On April 15, 2002, Oldcastle submitted its revised proposal and, on March 3, 2003, Oldcastle executed an "Agreement" with Defendant dated October 15, 2002, based upon plans for the Project dated August 17, 2001, at an agreed price of $9,466,000, including the cost of a payment and performance bond.

Much testimony was adduced, particularly on behalf of Defendant in support of its counterclaim, comparing Oldcastle's contract with the Agreement entered with Plaintiff in March 2001 which was based upon plans dated March 5, 2001, and the Change Request submitted by [*5]Plaintiff on September 4. While it will be relevant to the determination of the threshold question as to which party is responsible for the termination of Fabcon's Contract, the voluminous evidence establishes that the building ultimately constructed by Oldcastle pursuant to a contract entered in March of 2003 is not the building described in the plans dated March 5, 2001 upon which Fabcon's Contract was premised. Within weeks of the execution of the Agreement with Fabcon, Defendant began to revise and change the design of the building in significant ways, sometimes in response to suggestions and information supplied by Fabcon. It is clear, therefore, that notwithstanding the fact that Oldcastle was ultimately paid more for construction of the building than the sum specified in Fabcon's Contract, many factors attributable exclusively to Steiner intervened to increase costs, including the extended delay, in excess of two years, in performance. According to the Contract, Fabcon was to complete the structure by November 30, 2001, time being of the essence (Pl's Ex.2, paragraph 10). Well before the events of September 11, Defendant had delayed the Project for its own reasons, rendering compliance with the original schedule impossible and increasing costs to all parties. This Court finds, therefore, that Defendant Steiner has failed to prove that it sustained any damages reasonably attributable to Fabcon's failure to perform.

The Alleged Breach

Fabcon commenced this action in June 2002 alleging that Steiner had wrongfully terminated the Contract and had breached its duty of good faith and fair dealing. According to its letter of December 14, Defendant's termination was predicated on paragraph 21 of the Agreement which provides that upon the Sub-Contractor's failure, at any time, to supply sufficient labor or proper material or to prosecute the Work promptly and diligently or to comply with any of the contractual provisions:

General Contractor shall have the right, at its option, upon four (4) days

written notice to Sub-Contractor, either (i) [to complete the job at Sub-Contractor's expense] or (ii) to terminate this Agreement, take possession of all of Sub-Contractor's materials at the job site for the purpose of completing the Work, and employ any other person or persons to finish the Work, and to provide materials therefore. Sub-Contractor hereby assigns, transfers, and sets over unto General Contractor all and every part of said materials. If this Agreement is terminated pursuant to the foregoing

provisions of this Section, Sub-Contractor shall not be entitled to

receive any further payment from General Contractor hereunder or

otherwise until the Work shall be fully completed, at which time,

if the unpaid balance of the amount otherwise payable under this

Agreement shall exceed the costs and expenses incurred by General

Contractor in finishing the Work, such excess shall be paid by General

Contractor to Sub-Contractor: but if such costs and expenses shall exceed

such unpaid balance, then Sub-Contractor shall, within ten (10) days of

demand therefor, pay the difference to General Contractor. Said costs and

expenses shall include, but not be limited to, the cost of furnishing materials and/or labor and/or the cost of finishing the Work, as well as any other cost or direct damage, excluding ,however, consequential, incidental,

or liquidated damages incurred by General Contractor as a result of Sub-

Contractor's defaults. . .

The Bond [*6]

Among items listed as cause for termination is the failure to obtain a performance and payment bond. Fabcon argues that the bond provision was "ambiguous" and that the separate itemization of the cost of such bond supports its contention that the inclusion of this item was meant to permit Steiner to "exercise its option" at a later time. However, this Court finds that the Agreement is unequivocal in requiring a bond and that the testimony of Plaintiff's bonding underwriter Andrew Krane of RJ Ahmann & Co. ("Ahmann") regarding his efforts to provide the required bond corroborates that Plaintiff knew such bond was required.

Plaintiff's efforts were frustrated, however, by Steiner's refusal to supply requested information regarding the source of funding for the Project or to provide guarantees that would ensure the availability of funds to pay Fabcon's costs. On August 29, 2001, Mark Hansen wrote to Defendant's David Steiner enclosing a letter from Ahmann which described the surety's "concern" that "you [Fabcon] are being required to assure performance of the project and payment to your subcontractors without any assurance that the Owner, Eponymous, has the money or access to the money. Thus, all assurance is one-sided in favor of the Owner" (Pl's Ex. 25). Steiner failed to co-operate in supplying either information or guarantees, or to even respond to Fabcon's repeated requests, thus frustrating Fabcon's performance of this element of the contract. This Court rejects Steiner's contention that Fabcon's requests were "contrary" to the language of the Agreement. Although the language cited in Defendant's post-trial brief, paragraph 44 of the Agreement, would not permit the demand for a personal guarantee and does limit liability for any loss suffered by Fabcon to the assets of Steiner as the General Contractor, the mere request for information concerning the source of funding was far from unreasonable.

STC of 68

Mark Hansen admitted that the provision in the Agreement for a sound transmission class ("STC") rating of 68 for the wall panels was "a mistake". The error derived from testing done at Fabcon's request in 1973 in which the STC of 8 inch thick panels was determined to be 50. From that result, Fabcon extrapolated that 12 inch panels would produce an STC of 68 (Pl's Ex. 47). The test information was provided to Steiner which transmitted it to its architectural consultant Janson Design Group on March 8, 2001, with the caveat:"Please do not contact Fabcon until such time that we have finalized contract negotiations. We anticipate this to be 3/16/01." (Pl's Ex. 47). On March 14, 2001, days before the Agreement was signed, Steiner's Project Manager G. Heilmann created an internal memorandum indicating that Fabcon's analysis of the STC was erroneous but concluded that the STC of 55, which would be provided by the 12 inch panels, would be "ok" (Pl's Ex. 48). Thus, Steiner was actually aware of the error in the Agreement and consciously decided to forego further discussion and accept the STC of 55, without apprising Fabcon of the error. In so doing Steiner waived this provision of the Contract and the Contract is deemed to have been revised in accordance with the known information. Steiner's intent to waive is particularly apparent in light of the specification of an STC of 55 in the subsequent drawings of August 17, 2001 (Pl's Ex. 37 CCC-Detail 9) which were incorporated into the contract Steiner ultimately signed with Oldcastle (Def's Ex. 45, Exhibit A). Steiner's termination of Fabcon's Contract cannot be justified by the failure to provide an STC of 68 for the wall panels.

Design Alterations

Steiner also based its termination on purported inconsistencies between Fabcon's proposals and the original design. The most significant issue concerned structural problems associated with the Commissary area. The plans of March 5, 2001, upon which Fabcon relied in formulating its bid, showed a wall in the middle of this area which Fabcon interpreted to be a shear wall intended to provide the required support for the building's components. The Agreement expressly stated however (Pl's Ex. 2, Exhibit C):

K.Clarification of Plans [*7]

Notwithstanding anything to the contrary shown and detailed in the Plans and Specifications Sub-Contractor shall make no provisions:

1. For precast walls demising the Commissary and Light and Grip

areas as shown on drawing A-103 along grid line F between the

southern most face of stair tower 6 and corridor 4.

The described wall was the subject of much dispute at trial. Defendant credibly contends this wall was merely a "demising wall" meant to be moveable so as to afford maximum flexibility to the use of the larger space. In bidding on the Project, Fabcon understood, in part based upon the notations indicating footing and grade beam placement, that the wall was a structural shear wall necessary to sustain the lateral loads of the building. The above-quoted language in the Agreement should have alerted Fabcon to the need for clarification prior to signing the Contract which, as Defendant points out, includes the express representation by Fabcon that it had "carefully examined the Plans and Specifications and agrees that they are adequate and suitable for the purposes intended" (Pl's Ex. 2, paragraph 24 (6)).

However, critical to the evaluation of this issue as a just cause for termination is the "purposes intended" by the drawings of March 5. On the face of the drawings it is specified that the "Design Development" plans of March 5, 2001 were " ISSUED FOR DESIGN DEVELOPMENT, CLIENT REVIEW, AND APPROVAL". Thomas Kuckhahn, a professional structural engineer and Plaintiff's Vice President of Engineering, testified that "Design and Development" means that "the design is not complete" but "is still a work in progress" "subject to change" (Tr. p. 432). This characterization was never disputed by Defendant and is supported by Exhibit B to the Agreement that specifies unit prices for calculating the modifications to be made to the contract price for increases or decreases in the scope of work. The fact that modified plans were provided in June and August establishes that, notwithstanding the language of the Contract, it was never intended that the Plans of March 5, 2001 would be final or provide all the information necessary to construct the building. The intended purpose of the March 5 Plans was to provide a rough basis upon which to formulate a bid and obtain necessary permits. Steiner's Project Manager Heilmann, qualified as an expert in civil engineering and construction management, acknowledged that it was expected that design errors or problems requiring modification might be identified by a subcontractor and that a "delicate negotiation" would follow regarding a change order and price adjustment (Tr. pp.654-656).

The design dated March 5 did not indicate that the wall at issue was a shear wall, however, perhaps partly based on the information communicated by Fabcon and its engineering consultant Wilden, Steiner was made aware of a serious structural problem that needed to be addressed. The record is replete with evidence of requests from Fabcon for additional information concerning the "lateral [stress] analysis" for the Commissary area necessary to complete the design of this area (e.g. Pl's Ex.5). The calculation of the lateral loads and the structural design of the building was the responsibility of PS&S. As late as September 13, there remained "design problems" relating to this area (Pl's Ex.13). In fact, the problem was never resolved between Plaintiff and Defendant. Fabcon suggested several remedies, but none were directly addressed by Steiner. Ultimately, the problem created by the absence of the wall in the Commissary area was solved by altering the location of the expansion joint along column line 55. It is clear that Fabcon's identification of and attempts to remedy the design defects or omissions in the March 5 Plan relating to the Commissary area was not a breach of the Agreement and did not provide cause to terminate the Contract. Had Steiner continued to work with Fabcon in good faith this same solution might well have been reached at no additional cost. In preemptively terminating the Contract, Steiner prevented Fabcon from performing under the terms of the Agreement.

Fire Rating

Nor did the proposed application of supplemental fire retardant to the floor planks in order to meet New York City's fire code ratings constitute a breach of the terms of the Agreement. Other [*8]than the specification that Fabcon meet the requirements of the New York City Code, there is no provision in the Agreement that would prohibit the use of such supplemental material. The first indication of Steiner's concern appears in the August 9 meeting memo in which several alternative remedies are suggested, including the application of "fireproofing" and the possibility that an "Expeditor" would solve the problem (Pl's Ex. 27).

The testimony of Gerry Heilmann of Steiner and Robin Brown, the salesman for Fabcon who made initial presentations to Defendant, is consistent in establishing that fire ratings were never expressly addressed prior to signing the Contract (Tr. pp. 623-24 and 949-951). Only Lou Madigan of New York Studios, Inc. testified that Robin Brown had expressly represented that Fabcon would not need fireproofing to meet fire code requirements (Tr. p. 487). Mr. Madigan's testimony on this point is rejected as not credible in light of Mr. Brown's unequivocal denial of such representations and his statement that he didn't even know the fire rating of the material at the time. Paragraph 51 of the Agreement states that all prior negotiations are merged therein; the document itself constitutes the entire agreement. No provision specifying the rating per se or limiting the manner in which the rating could be achieved is contained in the Agreement. The Court may not imply a term within the written document where the evidence indicates that the issue was foreseen and the contract is otherwise enforceable by its terms. Reiss v. Financial Performance Corp., 97 NY2d 195, 199 (2001). Although Plaintiff cannot be excused from its obligation to comply with all code requirements and had an independent duty to ascertain what those requirements were, Fabcon's good faith attempt to find a satisfactory solution to the inadequacy of the fire-rating of its material for some areas of the building, consistent with the Agreement, was rebuffed by Steiner which did not communicate its rejection of the supplemental material prior to the termination letter of December 14, thus precluding further discussion of alternatives.

This Court finds, however, that any attempt by Fabcon to obtain additional compensation for the supplemental fire retardant would contravene the Agreement since it is clear from the Contract that all materials to be supplied were to comply with all New York City Codes (Pl's Ex.2, paragraph 31).

Details of Column Line 55

Among the items listed as grounds for termination was "Fabcon's refusal to provide details associated with the expansion joint at column line 55 as required pursuant to the Agreement" (Pl's Ex. 23). There was insufficient evidence adduced at trial to support this ground. This Court speculates that the expansion joint was somehow related to the structural problem of the Commissary area in light of the fact that that problem was apparently remedied in the final design by changing the position of the expansion joint. Since the evidence establishes that Fabcon was awaiting further information from Steiner and PS&S in order to complete the drawings for this area, the stated "default" is rejected as unfounded.

Request for Additional Payment

Defendant listed three additional payment demands contained in Fabcon's Change Request #1 as grounds for termination. The evidence does establish that Fabcon had indicated a need for forty feet of clearance around the exterior perimeter of the building in order to erect the panels well prior to execution of the Contract (Brown Test., Tr. pp. 935-938; Pl's Ex. 64). At no time did Plaintiff promise to erect the entire structure from within the footprint of the building. Had there been such an understanding, it surely would have been included in the Agreement. However, since there is also no provision within the Agreement speaking to the requirement for forty feet of clearance, and Fabcon had agreed to a price which expressly included the cost of erecting the building, it was not justified in seeking the additional $147,200 for "Revised access at West wall (less than 40' clear)."

Similarly, the request for an additional $640,000 for "winter erection" was not justified since the Agreement provides that the only consideration for delay caused by the General Contractor or [*9]Architect, including specifically delay caused by the Navy Yard's failure to issue approvals, would be an extension of time to the Subcontractor to complete the Project. This item was, however, like the request for $147,200 for access, subject to "delicate negotiation". Fabcon did not refuse to perform if not paid these sums. Its Request for consideration did not constitute an anticipatory breach of any contractual provisions and did not, therefore, justify termination under paragraph 21.

There is insufficient evidence regarding any demand for additional funds for "additional anchors and deadmen".

Submission of Shop Drawings

The final ground asserted for termination of the Contract is Fabcon's alleged "failure to submit Shop Drawings and Calculations in a timely manner." While it is true that some drawings were rejected and required revision and resubmission, it is not clear that any submissions were untimely. Moreover it is obvious that the primary cause of Plaintiff's failure to complete the drawings was Steiner's constant revision of the plan and its failure to provide necessary calculations regarding lateral loads and other information which was the responsibility of its architect. In any event, Fabcon certainly did not delay the Project or "fail in any respect to prosecute the Work with promptness and diligence." The Court rejects Defendant's contention that Fabcon was in default on this ground.

The Account Stated

Plaintiff was paid $34,830 on its first invoice dated June 26 for $38,700 less ten percent retainage. However, no further payments were made. The Invoice dated July 26, 2001 for $29,443.50 after deduction of retainage, based upon engineering charges as provided in the Agreement, was ignored; no payment or objection was made thereon. The Application of August 30 indicating a current sum due, less previously approved requisitions, of $221,476.50, to which was attached a detailed breakdown of work completed pursuant to the Schedule of Values under the Contract, was neither paid nor disputed by Steiner. Similarly, Invoices dated September 26 for $195,300, October 29 for $28,800 and November 27, 2001 for $4320, and each itemizing the previously issued and unpaid invoices, were ignored by Steiner; neither payment nor complaint was made. The invoices covered sums owed by Fabcon to Jersey Precast totaling $225,000 and also included the costs incurred for services supplied by Wilden as Fabcon's engineering consultant. Giving Defendant the benefit of a settlement reached with Jersey Precast, for work performed under the Contract through November 2001, Plaintiff had billed $416, 092.87 (Pl's Ex.21). By letter dated December 12, 2001, Fabcon demanded payment, indicating its intent to file a lien on the Project (Pl's Ex.22). At no time did Steiner indicate a reason for its failure to pay or object to Plaintiff's invoices in any way. Between September 29 and December 14, 2001, despite numerous efforts to communicate by letter and telephone, Steiner did not respond.

Mr. Hansen further testified that Fabcon lost profits totaling $655,000 on the Project as a result of Defendant's termination of the Agreement, over and above the profit that was included in the invoiced sums (Tr. p.168).

Conclusions of Law

Defendant terminated the Contract pursuant to paragraph 21 claiming that Plaintiff had failed to perform various provisions of the Agreement and asserting in the course of litigation that such defaults by Plaintiff constituted a failure "to prosecute the Work with promptness and diligence." However, this Court finds from the totality of the evidence adduced on both sides, including admissions by Defendant's witnesses that Fabcon did not cause the delay in construction, that Defendant Steiner was solely responsible for all delays, including any delays in Fabcon's preparation [*10]and submission of shop drawings. The evidence establishes that it was Steiner that repeatedly notified Fabcon to cease performance for reasons unrelated to Fabcon's performance and failed to provide information necessary to Fabcon's design of the components and drafting of drawings.

As urged by both parties, the Agreement was reformed by the waiver of the provision requiring Fabcon to obtain Vendex approval and was thereafter treated on both sides as valid and binding until terminated by Defendant. Fabcon's letter of August 7, 2001, noting that the Contract of March 15 had "expired" due to Fabcon's failure to file the Vendex forms and seeking various revisions of the Contract, including a substitution of Fabcon, Inc. as the Subcontractor, was orally rejected by Defendant and resulted, through negotiations on August 9, in a revised Agreement which was thereafter treated as binding and effective. (See, Matter of Rothko, 43 NY2d 305, 324, (1977); Lopez v. O'Rourke, 86 Misc 2d 441 (Dist. Ct., Suffolk Co. 1976). Although paragraph 52 of the Agreement prohibits any waiver or oral modification, the conduct of the parties and the express admissions during litigation (e.g. with respect to Vendex), indicates that this provision was itself waived. The presence of this clause does not preclude its waiver where the affirmative conduct of the parties evinces a clear intent to do so. Dice v. Inwood Hills Condominium, 237 AD2d 403 (2d Dep't, 1997).

It is noted that the STC rating of 68 was also waived by Defendant when it signed the Agreement in March with full knowledge that this provision was an error and subsequently incorporated the STC of 55 into the August Plan for the Project. New York's doctrine of election of remedies required Defendant not to sign the Contract containing this error. Medinol, Ltd. v. Boston Scientific Corp., 346 F. Supp. 2d 575, 620 (SDNY 2004); ESPN, Inc. v. Commissioner of Baseball, 76 F. Supp. 2d 383, 387-88 (SDNY 1999); Inter-Power of NY, Inc. v. Niagara Mohawk Power Corp., 259 AD2d 932, 934 (3d Dep't, 1999). By proceeding to execute the Agreement and perform thereunder Steiner is precluded from claiming the error as a "default". Thus, the identification of Fabcon's failure to comply with this specification as a stated ground for termination is meritless.

As previously noted, Steiner was also responsible for Fabcon's failure to obtain the required bond in that it refused to provide any information regarding the funding of the Project. While the Contract does provide that Fabcon would look only to Steiner for recovery in litigation (Pl's Ex.2, paragraph 44), it was entirely reasonable and consistent with established procedures, and not inconsistent with any contractual provision, to expect that a surety would need to know the source of funding in order to assure itself that the contracting parties did have the resources to complete the Project. " He who prevents a thing from being done may not avail himself of the non-performance which he has, himself, occasioned'. . ." Nassau Trust Co.v. Montrose Concrete Prods Corp., 56 NY2d 175, 185 (1982), quoting Imperator Realty Co. v. Tull, 228 NY 447, 457. Under the implied covenant of good faith and fair dealing inherent in every contract, it was incumbent on Defendant not to frustrate Plaintiff's performance. 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 153 (2002). "Encompassed within the implied obligation of each promisor to exercise good faith are any promises which a reasonable person in the position of the promisee would be justified in understanding were included'. " Dalton v. Educational Testing Service, 87 NY2d 384, 389 (1995), quoting Rowe v. Great Atlantic & Pacific Tea Co., 46 NY2d 62,69. The failure to obtain the bond, which was diligently sought by Fabcon, is rejected as a legitimate cause for termination by Steiner and did not constitute a breach by Fabcon in the circumstances.

The evidence from both sides and the language of the Agreement itself establishes that the parties contemplated substantial modifications in the plans and provided a formula for adjusting the contract price in accordance with future changes. Paragraph 1 of the Agreement states that the Subcontractor will perform in accordance with Plans and Specifications identified in Exhibit A, which lists various plans, the most current being those of March 5. Paragraph 2 provides that the work must be to the satisfaction of the Architect and General Contractor and the General Contractor will furnish additional information and drawings prepared by the Architect. Paragraph 6 provides for modifications to be made in writing, for which compensation for any additional work necessitated by such modification would be made in conformity with paragraph 14 and Exhibit B [*11]to the Agreement. When Fabcon signed the Agreement in March 2001 acknowledging that the Plans and Specifications of March 5 were "adequate and suitable for purposes intended" (Pl's Ex. 2, paragraph 24), it was justified in understanding that these plans, characterized as "Design Development", were meant to provide an architectural sketch of the Project that was still in the process of design and would be modified over time, for which additional compensation would be provided where appropriate. The "purpose" at the time was to provide a basis to formulate a bid so that a contract could be signed, something Steiner desperately needed to secure its position with the Navy Yard. Plaintiff reasonably expected to work closely with Steiner and its architect in creating the Project and solving the various unresolved structural issues. In fact, Fabcon made every effort to assist Defendant and co-operated with Steiner and PS&S despite extended delays and contradictory instructions, as evidenced by its letters of September 13, 2001 (Pl's Ex. 13) and October 1, 2001 (Pl's Ex.14) to which Steiner failed to respond. Defendant's attempts to lock Fabcon into the details of the March 5 plans is unwarranted and contrary to the intent of the Agreement taken as a whole.

Paragraph 5 obligates the Subcontractor to notify the General Contractor of any perceived defects in work to be performed by others. Although Fabcon was required to engineer the components to be supplied by it and provide shop drawings to be approved by Steiner and PS&S, contrary to Defendant's contentions, it was not responsible for the design of the structure and was expected and required to rely on the directions of the architect and engineer of record PS&S. When a structural problem, such as that relating to the shear loads in the Commissary area, was discovered, it was Fabcon's duty to notify Steiner and await further information and instruction prior to proceeding. It is clear that two of the grounds cited for termination, "the addition of a shear wall" and "details associated with expansion joint at column line 55", as well as the alleged failure to provide shop drawings and calculations, was due to the failure of PS&S to complete the overall design and provide the necessary information. It is interesting, given the volume of testimony elicited concerning the interpretation of the plans and the deficiencies in Fabcon's submissions, that Steiner offered no testimony from PS&S.

Defendant has cited Fabcon's Change Request # 1 dated September 4 as justifying its termination of the Agreement. That document was prompted by the submission to Fabcon, sometime prior to July 7, of a new set of plans dated June 22 (see Pl's Ex. 7). On August 7, Fabcon wrote its "expiration" letter requesting a revised contract. When this suggestion was orally rejected by Steiner, and pursuant to negotiations in a meeting held August 9, Fabcon prepared the Change Request reflecting increased costs relating to the design changes contained in the June 22 Plans based on the unit allowances contained in Exhibit 14 to the Agreement. The Change Request also reflected several of the concerns expressed at the meeting and which remained unresolved, including the "shear load on Grid 55". Defendant's Memorandum of the August 9 meeting reveals that PS&S had provided revised foundation drawings the previous day, that new PS&S drawings were expected on August 17 and that Fabcon was continuing to prepare and revise its drawings. No mention is made of Defendant's dissatisfaction with Fabcon's performance except to note "Fire rating of plank: major problem" but that "Expeditor may get us out of this problem." The memo also reveals Defendant's expectation that additional costs would be incurred and acknowledges that Fabcon's panels were UL approved and that submission had been made for the MEA rating required by New York City (Pl's Ex.25). There is no indication at this time that either party did not expect to conclude the Contract. Defendant's memorandum of a telephone conversation on September 10 with Fabcon's Glen Johnson and Mark McMillan, in which several possible solutions to the Commissary shear load problem were discussed, indicates Heilmann's "shock" at discovering the problem so late (Pl's Ex. 28). Such "shock" is, however, disingenuous since this problem had been raised repeatedly by Fabcon since June and was expressly recited in Hansen's letter of August 7. That such "shock" is first expressed only following receipt of Fabcon's Change Request is telling.

The Court finds that Defendant's recitation of Fabcon's alleged "defaults" as grounds for termination was purely pretextual. Fabcon was performing in good faith within the parameters of the Agreement. Its request for additional compensation was justified based on the many revisions [*12]to the plans. The request for additional compensation for winter erection and limitations on exterior clearance may have been unwarranted but there is no evidence that Fabcon had refused to perform without such adjustments. (See O'Shanter Resources, Inc. v. Niagara Mohawk Power Corp., 915 F. Supp. 560 (WD NY 1996) (repudiation so as to constitute anticipatory breach must be clear and overt communication of intent not to perform).) The Change Request was merely the accepted and expected invitation to negotiate which was rebuffed by Steiner. It is Defendant's failure to negotiate in good faith that this Court finds constitutes a breach of the covenant of good faith and fair dealing inherent in the Agreement.

Steiner's bad faith is evidenced even prior to the execution of the Contract by its failure to alert Fabcon to the problem with its STC of 68 and its direction to Janson not to communicate with Fabcon regarding its findings, so as to lay a foundation for a later allegation of breach.Steiner's refusal to even identify its source of funding for the Project so as to enable Fabcon to obtain the required bond appears to have also been calculated to provide grounds for termination. Most telling is an internal memo dated September 25, 2001, prepared by Lou Madigan, addressed to various Steiner employees regarding "Fabcon Contract Notes". It states(Pl's Ex.51): Any work specified in any plan and/or specification, even if contradicted in another plan and/or specification is deemed to be part of the sub-contractor's (Fabcon) obligation. So if something shows up on even one drawing, while not appearing on other drawings, Fabcon does not have a claim.Payment by General Contractor does not imply acceptance of any work by subcontractor.Upon first glance, Fabcon's failure to produce the payment and performance bond clearly places them in default. We can terminate for default upon 4 days notice. It does not state that subcontractor has any right to cure the default. Under a default we are not required to pay any additional monies to Fabcon and may hold them responsible for the difference between the amount to complete the work under the contract to be performed by Fabcon and the cost of having someone else perform the work.Their failure to file Vendex gives us the right to terminate the contract, but not under the default provisions, in which case we may be liable to pay for work actually performed (% completion of shop drawings and any fabrication).

This document reveals Steiner's conscious effort, orchestrated by Lou Madigan who negotiated and drafted the Agreement, to place Fabcon in an impossible position so as to afford Steiner grounds to claim default regardless of Fabcon's efforts to perform.

It is well-settled that in New York, "[e]very contract contains an implied covenant of good faith and fair dealing" which requires that " neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract". O'Shanter Resources, Inc. v. Niagara Mohawk Power Corp., id. at 568, quoting, Kirke LaShelle Co. v. Paul Armstrong Co., 263 NY 79, 87 (1933) (other citations omitted).

It is apparent from the totality of the evidence that Steiner had contracted with Fabcon in order to obtain the rights to build the Project from the Navy Yard while leaving the door open to terminate and avoid any costs if the deal fell through. It experienced serious delays in obtaining the necessary approvals and, even before September 11, undoubtedly began to realize that the Project itself was in jeopardy. Nevertheless, while Fabcon's own manufacturing was put on hold, Steiner directed the expedited manufacture of the needed beams and columns from Jersey Precast, to be stored until needed, fully aware of the "$1,200,000 cost exposure". Steiner also encouraged Fabcon's continuing preparation of shop drawings, even into September, never responding to Fabcon's inquiries or requests for information, and also aware that Fabcon was incurring additional costs.

It is further apparent that Steiner determined to terminate Fabcon's Contract before October 2001 and had already begun to negotiate with Oldcastle, probably recognizing that the Project had [*13]been so modified that the increased costs under the Fabcon Agreement would exceed the differential in the price originally bid by Oldcastle and also aware that the completion date anticipated under the Agreement was no longer a possibility. One advantage to Steiner in negotiating an entirely new contract with Oldcastle was that it could delay execution of the new contract while design flaws were addressed and negotiations with the Navy Yard continued. It is noted that the Oldcastle contract was not signed until March of 2003.

Defendant's manipulation of Fabcon's rights and interests in order to keep it available as a resource for Steiner while entering into negotiations for Fabcon's replacement, though not uncommon, in light of its awareness of the actual costs incurred by Fabcon, demonstrated a lack of good faith and fair dealing under the Contract. Steiner's effort to place the blame upon Fabcon in order to terminate the Contract pursuant to paragraph 21, which, if successful, might entitle it to damages, was disingenuous.

Paragraph 23 of the Agreement provides, however: This contract may not be terminated at will. Notwithstanding anything to the contrary in this Agreement, the General Contractor shall have the right, with cause, upon three (3) days written notice to Sub-Contractor, to terminate this Agreement and require the Sub-Contractor to cease work at the premises. If General Contractor exercises its rights hereunder and terminates this Agreement, and if, at the time of such termination, Sub-Contractor is not in default under, or in breach of, any provision hereof, then and in that event, General Contractor shall pay Sub-Contractor all amounts due hereunder for the portion of the Work completed by Sub-Contractor as of the date of termination, provided, however, that the amount due does not exceed the value of the completed Work as specified in the Schedule of Values and also provided that nothing herein shall be construed to allow Sub-Contractor to recover fees and/or prospective profits on portions of the Work unperformed prior to the date of termination. Subcontractor shall be compensated for all direct costs it incurs as a result of such suspension, delay or termination, including, without limitation, costs related to commencement and mobilization of the Work, whether on-site or off-site, including all materials fabricated in whole or in part for and delivered to the Project. It being understood and agreed that material being provided under this Sub-Contract is specially fabricated for this particular Project and not easily available for resale to third parties. In the event that Sub-Contractor, at the date of the aforesaid termination, has materials fabricated for, but not permanently incorporated in the improvement, General Contractor shall have the option of requesting delivery of said materials and a bill of sale will be provided reflecting the transfer of such material to the General Contractor.

Paragraph 48 of the Agreement directs that its provisions are to be construed "in such manner as to render all of them consistent with each other"but also so as to give the greatest advantage to the General Contractor. Although this Court has determined that Defendant did not effectively terminate the Contract under paragraph 21 in good faith because it failed to establish any default on Fabcon's part, nonetheless, given its predicament, Defendant did have "cause" to terminate under Paragraph 23. The word "cause" generally connotes fault, however, since the language of paragraph 21 suggests that that provision would apply to any fault on Plaintiff Sub-Contractor's part leading to termination, paragraph 23, which expressly excludes any default on Sub-Contractor's part, must reasonably be construed, consistent with other provisions of the Agreement, to be applicable where there exists a valid reason to terminate for which no fault is attributable to the Sub-Contractor. Taking judicial notice of the impact of the World Trade Center attack on all construction within the City of New York and particularly within lower Manhattan and the area of Brooklyn occupied by the Navy Yard, this Court finds that the delays caused by problems in gaining approvals from the [*14]Navy Yard and the uncertainty of completing the entire Project after September 11 constituted "cause" for termination under paragraph 23 though "at the time of such termination, Sub-Contractor [was] not in default under, or in breach of, any provision" of the Agreement. Plaintiff's inability to comply with the City's fire ratings without the application of additional fire-retardant material, though not a "default" under the Agreement, might also have justified termination pursuant to paragraph 23 in light of Defendant's concerns as described at trial.

Paragraph 23 specifies the damages recoverable by the Subcontractor in such circumstances, limiting them to "all amounts due [under the Agreement] for the portion of the Work completed . . . as of the date of termination" consistent with the Schedule of Values and excluding "prospective profits on portions of the Work unperformed prior to the date of termination", but including all direct costs related to "mobilization of the Work, whether on-site or off-site". Recognizing that the materials to be supplied were custom fabricated and could not easily be resold, the cost of all materials fabricated in whole or in part is compensable under the Contract. Paragraph 23, by its terms, requires compensation for materials that have been fabricated but not yet delivered. The option to have such material delivered to the site remains with the General Contractor.

There is no dispute that Jersey Precast fabricated beams and columns for the Project prior to termination. Fabcon's payment of $155,000 to that firm is unchallenged. That Steiner decided not to seek delivery following its termination of the Agreement is irrelevant. Fabcon's final invoice of November 27, 2001 indicated a total due, including the 10% retainage, of $536, 470. That sum was adjusted to $416, 092.87 when Fabcon settled a lawsuit with Jersey Precast. Mark Hansen estimated that between 50 and 60 thousand dollars had been paid to Wilden. This sum would be included in the $119,000 itemized as Pre-Manufacturing Engineering Services, including design calculations and shop drawings. (Heilmann Test., Tr. pp 647-48). This Court finds credible the representation that 75.80 percent of Pre-Manufacturing Services had been completed prior to the date of termination, $34, 830 of which has been paid. However, Defendant successfully impeached Plaintiff's claim for $87,300 in On-Site and Additional Engineering. Gerald Heilmann convincingly explained that this item in the Schedule of Values related to supervision of the actual installation of the precast components on-site (Tr. pp. 660-667). Since no components were ever delivered to the site and Plaintiff failed to offer any evidence of other costs which would fall within this category, the demand is reduced by $87,300[FN3]. Mr. Hansen testified that, in addition to the beams and columns manufactured by Jersey Precast, Fabcon manufactured some embeds and anchor bolts, valued at between 30 and 40 thousand dollars, which were shipped to the site. In the absence of reliable evidence to substantiate this claim, however, Plaintiff cannot be compensated for such items. Accordingly, this Court finds Plaintiff is entitled to $239,170 in compensatory damages for work performed prior to termination.

Having determined that the Agreement remained effective and that the contractual provisions are applicable, it is not necessary to address Plaintiff's Account Stated cause of action.

Plaintiff also offered evidence of lost profits as a result of Defendant's pre-emptive termination of the Contract. However, as Plaintiff itself acknowledges, prospective profits are not recoverable unless liability for such loss was within the contemplation of the parties at the time the contract was executed. Kenford Co., Inc. V. Erie County, 67 NY2d 257, 261 (1986). There can be no dispute, in light of the language of paragraph 23 expressly prohibiting recovery by the Sub-Contractor for prospective profits on uncompleted work, that such damages were not within the contemplation of the parties. It is noted, moreover, that Mr. Hansen's testimony that lost profits were approximately nine percent of the Contract price does not comport with the contractual "Profit Allowance" of five percent. The application for lost profit as an item of damage is denied. [*15]

Plaintiff is awarded judgment for compensatory damages in the sum of $239,170, with pre-judgment interest from December 20, 2001 to the date of entry, on its claim for breach of the covenant of good faith and fair dealing implicit in the Agreement. The claim for Wrongful Termination, which is, in any event, subsumed within the claim for Breach of Contract, is dismissed, this Court having determined that paragraph 23 of the Agreement would support termination in the circumstances. Defendant's counterclaim for damages for Breach of Contract is dismissed as unproved.

Pursuant to paragraph 53, Plaintiff, as the prevailing party, is entitled to recover its costs and expenses of this litigation, including attorney's fees. Plaintiff shall submit the affidavit of counsel attesting to the fair and reasonable amount of its

services, to be served upon opposing counsel and filed with this Court within forty-

five days. Defendant may respond thereto within 20 days.

The foregoing constitutes the decision and order of the Court.

E N T E R :

J.S.C. Footnotes

Footnote 1:This Court rejects Defendant's contentions that Hansen's testimony should not be credited because he lacked personal knowledge. Hansen participated in the negotiation and implementation of the Contract throughout the period of Fabcon's dealings with Steiner.

Footnote 2:Paragraph 50 merely provides for the manner in which notice was to be given.

Footnote 3:Plaintiff's contention that the cost of locating its Project Manager Mark McMillan in New York during the early planning stages would be part of On-Site and Engineering is not accepted since the evidence suggests that McMillan was involved in several other projects in New York at that time and was not working on the site of this Project.