Construction Industry Newsletter
Lewis & Greer, P.C.
510 Haight Avenue, Suite 202
Poughkeepsie, New York 12603
Tel: (845) 454-1200
Fax: (845) 454-3315
SUBCONTRACTOR NOT ENTITLED TO ‘DELAY DAMAGES’; COURT CONSIDERS CONSTRUCTION
SCHEDULE IN SPECIFICATIONS TO ‘SAMPLE’
Premier-New York, Inc. v. Travelers Property Casualty Corp.
IN AN ACTION in New York County Supreme Court arising out of the
construction of a new ‘vertical campus” for Baruch College, a subcontractor
sued the general contractor and surety for delay damages totaling
The subcontractor’s main claim was that it relied on the CPM schedule
contained in the specifications while preparing its bid, and that the
schedule was not adhered to and instead the subcontractor was made to work
out of sequence. The GC and surety both defended by pointing to a
“no-damage-for-delay” provision in the subcontract. The subcontractor
countered that adherence to the specified schedule in the bid package was a
fundamental obligation of the parties’ contract and the GC’s failure to
follow the specified schedule constituted a breach of a fundamental
obligation sufficient to nullify the enforcement of the
The subcontractor was relying on the rule in New York that a
no-damage-for-delay clause will not bar a contractor’s delay damages arising
from: (1) a party’s bad faith or willful, malicious, or grossly negligent
conduct, (2) delays that were not contemplated by the parties at the time
they entered into the contract, (3) delays so unreasonable in length that
they constitute an intentional abandonment of the project, and (4) a parity’
breach of a fundamental obligation of the contract.
The court denied the subcontractor’s claim and enforced the
no-damage-for-delay clause. Initially, the court defined the pre-bid CPM
schedule as a sample. It also found the subcontractor’s argument that
adherence to the sample schedule as a fundamental obligation of the
subcontract to be lacking where it could not be reconciled with the
subcontract’s other provisions that expressly stated the schedule was
subject to change and, specifically allowed for the scheduled work to be
resequenced. The subcontract contained the following provision:
The Subcontractor understands that the work of this trade may not be
continuous and that he may be required to work out of sequence and/or leave
a portion of work out due to coordination at the direction of the General
Contractor. There shall be no charges for “comeback time” or out of sequence
The court found that plaintiff had notice that the schedule was subject to
change and its delay claims were dismissed.
The case serves as a further reminder of the importance of contract review
so the parties can assess and manage the risks they have assumed by the
written terms of the agreement.
JUDGE BOOSTS AWARD TO BUILDER FROM $3 THOUSAND TO $128,000 IN SUIT OVER
EMCO Tech Construction Corp. v. Pilavas
IN A NASSAU COUNTY SUPREME COURT ACTION—the judge multiplied his original
award to a general contractor by 38. The case arises from a
residential construction project in Nassau County New York. At the
close of evidence the court awarded the GC just $3,413. The GC moved
to reargue arguing that the court had mistaken in its computation of
damages. The judge agreed and upped the award to $128,028!
The case centered around the question of substantial completion and the
percentage of work complete. Upon review of his trial notes the judge
agreed that he had arrived at a defectively low completion percentage by
failing to include the completion of the carpentry portion of the
construction. If it had not been corrected on reargument the owner would
have gotten a windfall because he would have received the completed
carpentry and also been credited with the cost to complete the carpentry.
For some reason the judge was not provided with trial transcripts by the
parties as is typical and so had to rely solely on his handwritten trial
TRIABLE ISSUES OF FACT IF SUBCONTRACTOR PERFORMED SATISFACTORILY RAISED
PRECLUDING SUMMARY JUDGMENT
Berto Construction Inc. v. Pergament Mall of Staten Island LLC, 101254/2006, Decided 07/22/08, Supreme Court, Justice McMahon.
PLAINTIFF SUBCONTRACTOR sought to recover monies allegedly due and Owing
from defendant NY Paving, for asphalt, paving work performed on defendant
Mall’s property. Plaintiff contended It started work on the site, but
stopped after payment from NY Paving ceased, to which it concedes same. The
court noted while the contract was not alleged to have a “pay-when-paid”
clause, plaintiff alleged NY Paving failed to perform under the contract as
codefendant Mall failed to remit payment to NY Paving. The Court of Appeals
ruled that “pay-when-paid” clauses were generally unenforceable as against
public policy. The court found plaintiff made a prima facie showing of
entitlement to summary judgment establishing NY Paving had yet to pay under
the terms of the contract for work completed. However, NY Paving raised a
triable issue of fact presenting admissible evidence of whether the Work
performed by plaintiff was satisfactory, denying plaintiff’s summary
LIMITATION OF LIABILITY CLAUSE ENFORCED
R&J Construction Corp. v. E.W. Howell Co. Inc.,
Defendant carpentry subcontractor moved for summary judgment to dismiss
plaintiff general contractor’s cause of action for consequential damages and
lost profits for intentional bad faith termination. Defendant argued
that the general contractor’s claims had to be dismissed because the
parties’ contract, while allowing termination for convenience, barred
recovery of consequential damages and lost profits. The general
contractor argued the bar clause should not be enforced because of the
allegedly intentional bad faith wrongful termination by the subcontractor.
In certain instances, courts will set aside limitation of liability clauses,
for example, in the case a contractor who demanded $6,000,000.00 to approve
certain alterations. In that case, the agreement did not allow for
such exorbitant sums. In the instant action, however, the court
granted the defendant’s summary judgment motion holding that the
subcontractor’s conduct was not so egregious as to warrant denial of the
enforcement of the limitation of damages clause.
POST VERDICT RULING IS LAW OF THE CASE
Metropolitan Steel Industries Inc. v. Perino Corp.
Plaintiff steel contractor sued defendant prime contractor for contract
balance and damages for extra work based upon 27 outstanding change orders.
Defendant moved for partial summary judgment to dismiss, alleging that at
least 11 of the 27 change order proposals were claims for delay claims,
which were barred by a no damage for delay clause. Defendant’s motion
papers identified the 11 change orders alleged to be claims for delay
damages. In opposition, the plaintiff argued that the parties’
contract did not contain a no damage for delay clause and even if it did, it
was unenforceable but, did not deny that the 11 change orders were for delay
damages. The motion for partial summary judgment was granted
but, the court’s order did not specify which of the 27 change orders were
for delay claims. Thereafter, the parties proceeded to trial before a
different judge than who decided to partial summary judgment motion.
The issue arose at trial as to which specific claims had been previously
dismissed. At trial Defendant challenged plaintiff’s entry of evidence
as to change orders X-22A and X-23 on the ground that these change orders
had been dismissed. Defendant did not challenge entry of evidence as
to a third change order X-32A. Before going to the jury the issue came
up again. The trial judge let the case go to the jury and instructed
the parties to resolve any ambiguity after verdict. The jury found for
the plaintiff steel company. Defendant moved to set aside the verdict
on the claims X-22A, X-23, and X-32A on the ground that they were previously
dismissed. The trial judge denied the motion to set aside the verdict,
but permitted the defendant to “seek clarification” from the judge who
decided the summary judgment motion. In response to the motion for
clarification, the court held that the three change orders were in fact
dismissed. Thus, while the specific change orders were not specified
in the initial order and even though defendant did not object to entry of
evidence as to change order X-32A, the order clarifying the prior order
became the law the case dismissing the claims.
CONTRACTOR BOUND BY CONTRACT’S FORFEITURE CLAUSE
FCI Group, Inc. v. City of New York
Plaintiff FCI Group, Inc. (“FCI”) sued the City of New York for breach of
contract in the amount of $260,928.37, the alleged balance remaining unpaid
on its contract with the City for general construction work at Brooklyn’s
Borough Hall. The court held that FCI forfeited its rights under the
contract when its president, James Lee attempted to bribe two City employees
responsible for approving payment to FCI.
The work was substantially complete on November 30, 2005. The
following month, two city employees informed the Inspector General’s office
that they found envelopes with Christmas cards containing $3,000 each and a
copy of FCI’s August, 2005 change order request for $101,708.82 on their
desks. Lee admitted to the payments and ultimately entered a guilty
plea to attempted giving of unlawful gratuities. Thereafter, the City
canceled FCI’s contract as a result of Lee’s misconduct pursuant to a
forfeiture clause in the contract that provided for its termination in the
event of illegal or unethical conduct on the part of the contractor.
In its action against the City, FCI contended that terminating its contract
under the forfeiture clause was a violation of public policy. The
court held that the illegal conduct at issue had a direct connection to the
obligation sued upon since it concerned a significant portion of the
outstanding balance remaining due on the contract. While the work had
been substantially completed, payment for the outstanding balance had to be
approved by the City employees Lee attempted to bribe, including the
outstanding change order request for $101,708.82. A material amount of
the contract consideration was at risk, and Lee’s attempted bribe was
intended to influence the employees’ decision. Thus, the corruption
was not merely incidental to FCI’s performance under the contract and the
City was within its rights to terminate the contract.
US SUPREME COURT LIMITS APPELLATE REVIEW OF ARBITRATION AWARDS
Hall Street Associates, LLC v. Mattel, Inc.
552 U.S. ---, 128 S.Ct. 1396 (2008)
The United States Supreme Court recently
resolved a dispute among the lower courts as to whether the parties to a
contract containing an arbitration clause can agree in the contract to
change the standards set forth in the Federal Arbitration Act (FAA) for
vacating an arbitration award.
Under Section 9 of the FAA, the court must confirm an arbitration award
unless vacated, modified, or corrected as provided in Sections 10 and 11 of
the FAA. Under Section 10 of the FAA, a court may vacate an
arbitration award only if the award was obtained by corruption, fraud, or
undue means, or if the arbitrator was biased, engaged in misconduct, or
exceeded the scope of his or her powers and authority under the arbitration
In Hall Street Associates, LLC v. Mattel, Inc. 552 U.S. ---, 128
S.Ct. 1396 (2008), the Supreme Court was asked to decide whether the parties
to a contract containing an arbitration clause could authorize the court to
vacate an arbitration award on appeal if the arbitrator’s findings of fact
are not supported by the evidence or if the arbitrator’s conclusions of law
are erroneous. The Supreme Court held that the FAA expresses
Congressional intent to establish a “national policy favoring arbitration
with just a limited review needed to maintain arbitration’s essential virtue
of resolving disputes straight away.” Thus, under Hall Street,
courts can no longer enforce arbitration agreements that provide extended
grounds for vacating an arbitration award.
COURT BACKS CONTRACTOR OVER CONTRACT DISPUTE
Wallkill Medical Development, LLC v. Sweet Constructors, LLC
In this case, the plaintiff Wallkill Medical Development, LLC (“Wallkill”)
entered into a written contract with the defendant Sweet Constructors, LLC
(“Sweet Constructors”) to provide only design services for the construction
of a medical office building in Dutchess County, New York. The two
parties never entered into a written contract for the construction of the
project. Wallkill terminated Sweet Constructors due to its failure to
obtain payment and performance bonding. Wallkill claimed that this was
a breach of the parties’ contract which forced Wallkill to rebid the
contract and sustain damages resulting from delay. Additionally,
Wallkill claimed that based on the parties’ actions that they agreed to all
of the terms of an unwritten comprehensive contract for the design and
construction of the project. On the other hand, Sweet Constructors
claimed that the parties intended to enter into a separate written contract
for the construction of the project in addition to the written contract for
the design on the project. Sweet Constructors claimed that since the
parties never entered into a construction contract and since the design
contract did not have a bonding requirement, that their failure to obtain
bonding was not a breach.
The Appellate Division, Second Department determined that the parties never
entered into a construction contract because there was never any complete
agreement on any essential contract terms such as dates for commencement and
substantial completion of work, and the contract price. Additionally,
the court found that the parties manifested a mutual intent not to be bound
until the execution of a formal written construction contract. Based
on these finding, the court held that no enforceable obligation or agreement
existed for the construction of the project and dismissed Wallkill’s third
cause of action.
FIRM HIT WITH $105K PENALTIES FOR ALTERED OSHA REPORT
Secretary of Labor v. A. G. Mazzocchi, Inc.
This action involved the OSHA Review Commission upholding three “Serious”
and two “Willful” citation items, together with $105,000 in penalties
against A. G. Mazzocchi, Inc. (“Mazzocchi”) resulting from airborne lead
exposure to employees. Mazzocchi, a demolition contractor had workers
on a project for the demolition of a 350-ton crane at the Philadelphia Navy
Yard. The Mazzocchi workers had spent about six months torch-cutting
steel, which was covered in lead-based paint. Upon receiving reports
that Mazzocchi workers had sustained high blood-lead levels (“BLL”), the
Occupational Safety and Health Administration (“OHSA”) commenced an
inspection. As a result of the inspection, OSHA issued Mazzocchi a
citation alleging serious, willful and “other than serious” violations of
the Occupational Safety and Health Act of 1970 (“the Act”), 29 U.S.C. §§
651-678, for failing to comply with various provisions of 29 C.F.R.
§ 1926.62, OSHA’s lead in construction standard. The Secretary
proposed a penalty of $105,000 for those items. Mazzocchi contested the
citations, and after a hearing, Chief Administrative Law Judge Irving Sommer
affirmed all but one of the lead in construction items, and assessed the
total proposed penalty.
Mazzocchi had retained Omni-Med to take blood samples from employees on the
project and a second company had been retained to perform the laboratory
analysis. The BLL’s for Mazzocchi’s main torch-cutter, “John Doe”
exceeded the “action level” of 30 ug/m3, which required him to be removed
from tasks involving exposure.
OSHA investigators had asked Mazzocchi for copies of all biological
monitoring reports for workers who had been on the project. Some were
produced but not all, including “John Doe”. Further investigation
revealed that the general contractor and its environmental consultant had
been thwarted in requests for BLL reports on Mazzocchi workers on the
project. When “John Doe’s” report was produced the BLL results were
lower then the previous reports which showed higher BLLs.
A “Serious” citation was upheld when Mazzocchi had failed to provide and
make available to “John Doe” at the required intervals prescribed the
sampling and analysis for zinc protoporphyrin (“ZPP”) levels.
Furthermore, the other “Serious” citations were upheld when Mazzocchi failed
to provide “John Doe” with a compliant medical examination.
A “Willful” citation was affirmed when Mazzocchi failed to provide written
notice to “John Doe” of his elevated BLL along with his right to temporary
medical removal. The second “Willful” citation was affirmed when
Mazzocchi violated 29 C.F.R. § 1926.62(n)(5), which requires the employer to
make available all relevant records to affected employees and to OSHA, for
inspection and copying when Mazzocchi failed to produce BLL reports on two
occasions. The first occasion was when a request was made by the
Compliance Officer and the second occasion was in response to a subpoena.
The commission affirmed these violations and found that Mazzocchi had
altered “John Doe’s” BLL report, and lied about having done so, and had
withheld records showing elevated BLLs from both the affected employee and
Experience in providing legal services and advice on a wide variety of
issues and matters arising in the construction industry. The firm represents
owners, architect/engineers, construction managers, general contractors,
material suppliers, specialty subcontractors, and surety and bonding
companies with regard to projects in both the private and public sectors.
The firm currently provides legal services for construction projects
throughout the Northeastern states and internationally as required by the
needs of our clients.
J. Scott Greer
Daniel P. Adams
Veronica A. McMillan
© Lewis & Greer, P.C., 2009, All rights reserved
Our offices are located in Poughkeepsie, New York,
in the Arlington section of Poughkeepsie,
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