Navillus Tile, Inc. v. CNY Constr. 701 (In re Navillus Tile, Inc.)

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In re: NAVILLUS TILE, INC., Debtor.

NAVILLUS TILE, INC., Plaintiff, v. CNY CONSTRUCTION 701 LLC, Defendant.

No. 17-13162 (DSJ)

Adv. Proc. No. 17-01245 (DSJ)

United States Bankruptcy Court, S.D. New York

August 7, 2023

NOT FOR PUBLICATION

PECKAR & ABRAMSON, P.C. Counsel for Navillus Tile, Inc., d/b/a Navillus Contracting By: Howard M. Rosen, Esq.

RICH INTELISANO & KATZ, LLP Counsel for CNY Construction 701 LLC By: Daniel E. Katz, Esq. Robert J. Howard, Esq.

MEMORANDUM OPINION AND ORDER RESOLVING NAVILLUS TILE INC.'S MOTION FOR PARTIAL SUMMARY JUDGMENT

David S. Jones United States Bankruptcy Judge

Before the Court is Plaintiff Navillus Tile, Inc.'s ("Navillus") motion for partial summary judgment (the "Motion"). In this adversary proceeding Navillus, a trade contractor, is suing Defendant CNY Construction 701 LLC ("CNY"), the general contractor on a project known as 701 Seventh-Mixed Use Development, Seventh Avenue and 47th Street (the "Project"), for, inter alia, money allegedly earned but not paid in connection with certain superstructure concrete work (the "Work") which Navillus allegedly performed pursuant to a trade contract between Navillus and CNY (the "Contract"). [See generally ECF No. 106-9].^[1] CNY, in turn, is countersuing Navillus for, inter alia, "back-charges" for costs which CNY allegedly incurred to remediate alleged deficiencies in Navillus's Work, and asserted "delay damages" allegedly caused by Navillus. [ECF No. 106-10 at 9-22].

Navillus acknowledges that a trial will be required to fully resolve the parties' dispute, but it seeks partial summary judgment as to the following contentions: (i) Navillus is entitled to a roughly $2,505,187 payment from CNY (the "Unpaid Total"), consisting of roughly $1,623,328^[2]in unpaid payment applications for Work allegedly completed (the "Unpaid Applications")^[3] and roughly $881,859 allegedly held by CNY as retainage pending completion of the Work (the "Retainage"), all subject to a possible set-off based on disputed back-charges to be proved by CNY at trial; (ii) CNY's non-payment of the Unpaid Total materially breached the Contract; (iii) CNY's non-payment violated the New York Prompt Payment Act, N.Y. Gen. Bus. Law § 756-a et seq. (the "PPA"); (iv) the Court should dismiss CNY's counterclaims for delay damages on behalf of CNY and 20 TSQ Lessee LLC, who eventually became the owner of the Project ("20 TSQ" or the "Successor Owner"); and (v) all delay damages alleged on behalf of CNY and 20 TSQ are contractually capped at $1,000,000. [ECF No. 105 at 1-2; ECF No. 108 at 1].

For the reasons that follow, the Motion is granted to the limited extent that it seeks to cap all delay damages asserted on behalf of CNY and 20 TSQ at $1,000,000, but it is denied in all other respects.

BACKGROUND

A. The Contract

On or about April 3, 2014, Navillus entered into the Contract with CNY to perform certain Work on the Project. [ECF No. 116 at 1]. The scope of Navillus's Work under the Contract included pouring concrete and installing cast-in-place concrete columns, sheer walls, and floor slabs on various floors of a 40-story tower. [ECF No. 108 at 1; ECF No. 106-1 at 35-53 of 78]. CNY also occasionally had Navillus perform work outside the Contract's scope ("Extra Work") resulting from design changes, design issues, and differing site conditions. [ECF No. 107 at 3]. Navillus would submit "change requests" to CNY for the cost of any such Extra Work, and CNY either would or would not approve the requests. [Id.]. The initial Contract price for Navillus's Work was $28,900,000 [ECF No. 108 at 1; ECF No. 106-1 at 5 of 78], but by the time Navillus had concluded its Work the total contract price, including the price of all approved Extra Work, was roughly $35,274,394 (the "Final Contract Price") [ECF No. 107 at 5; ECF No. 106-19 at 2 of 19, 17 of 19].^[4]

The Contract incorporated by reference a schedule that imposed various Project deadlines, but, even before Navillus was to start its Work, delays from other aspects of the Project made the originally drafted Navillus deadlines impossible. [ECF No. 108 at 11]. Even so, once Navillus began its Work, for each month of Work, Navillus submitted a "pencil requisition" to CNY, discussed any billing issues with CNY, and then, after reaching agreement with CNY, sent a final payment application to CNY. [ECF No. 107 at 3]. Navillus understood that CNY would then submit Navillus's payment applications to the owner and developer of the Project-originally, the Witkoff Group LLC, operating as 701 Seventh Property Owner LLC ("701 Seventh" or the "Original Owner," and, together with the Successor Owner, the "Owners")-along with all other trade contractors' payment applications as part of CNY's own payment application. [Id.]. CNY paid Navillus for every payment application except for the seven Unpaid Applications, which were for a combined total of approximately $1,623,328. [Id. at 4]. According to an April 5, 2021 verified statement provided by CNY to Navillus pursuant to section 76 of the New York Lien Law, CNY had submitted six of these seven Unpaid Applications to the Owners as part of CNY's own request for payment (the "Submitted Unpaid Applications"), and the Owners had paid CNY for five of those six. [Id.; ECF No. 106-3 at 82 of 87].

By Navillus's account as reflected in the final Unpaid Application (which Navillus submitted to CNY on February 28, 2019, but which CNY never submitted to the Owners), all Work was 100% complete, CNY had paid Navillus approximately $32,769,207, and CNY was still holding approximately $881,860-2.5% of the Final Contract Price-as Retainage. [ECF No. 107 at 5; ECF No. 106-19 at 2 of 19, 17 of 19]. Thus, Navillus is seeking to recover the difference between the $35,274,394 Final Contract Price and the $32,769,207 that CNY has already paid, or about $2,505,187-the Unpaid Total. [ECF No. 107 at 5]. As Navillus's counsel explained during the Hearing, the Unpaid Total consists of "four pieces": (i) about $914,881 for the five Submitted Unpaid Applications for which the Owners paid CNY; (ii) about $700,022 for the one Submitted Unpaid Application for which the Owners did not pay CNY; (iii) about $8,422 for the one Unpaid Application which CNY did not submit to the Owners; and (iv) about $881,859 in Retainage. [Hearing Tr. at 14:23-15:20].

CNY opposes the Motion, contending that Navillus's Work was often deficient in various respects and caused an additional 94 days of delay to the Project in addition to the delays that preceded Navillus's Work; CNY further contends that Navillus's delays caused CNY and 20 TSQ to incur damages. [E.g., ECF No. 106-10 at 14-15]. Specifically, CNY argues that CNY incurred approximately $1,788,245 in expenses to remedy Navillus's deficient Work, which CNY seeks to recover from Navillus as back-charges; that CNY incurred approximately $3,673,144 in actual damages caused by Navillus's alleged delays (or that, alternatively, CNY is owed unpaid "General Conditions Fee and Insurance" on the Project, Navillus's portion of which is about $896,229); and that CNY is entitled to recover $940,000 in liquidated damages caused by Navillus's alleged delays on behalf of 20 TSQ. [ECF No. 106-23 at 2-3].

B. The Adversary Proceeding

On December 21, 2017, Navillus filed this adversary proceeding against CNY. [ECF No. 1]. According to the currently operative version of the Complaint, Navillus is suing CNY for (i) breach of the Contract by virtue of CNY's alleged nonpayment of the Unpaid Total; (ii) quantum meruit (unjust enrichment) by virtue of CNY's alleged disapproval of-and nonpayment for- certain Extra Work which Navillus allegedly completed; (iii) quantum meruit (unjust enrichment) for the amounts just described in points (i) and (ii); and (iv) violation of the PPA by virtue of CNY's alleged nonpayment for the Submitted Unpaid Applications. [ECF No. 106-9 at 5-8]. The Motion concerns only the claims for breach of contract and violation of the PPA.

In its Answer, CNY asserts various defenses, including that (i) "Navillus failed to discharge its obligations under the Trade Contract with CNY, resulting in significant back-charges that are a setoff against the amount requested by Navillus," (ii) "Navillus failed to perform its contractual obligations and otherwise breached the Trade Contract, and consequently, this action is barred" (iii) "Navillus' claims are barred in whole or in part by setoff and/or recoupment"; (iv) "Navillus has not sustained any damage or loss as a result of any wrongful act or breach of the Trade Contract committed by CNY"; (v) "Navillus' claims are barred because any and all duties and obligations owed by CNY have been discharged"; and (vi) "Navillus performed its work negligently." [ECF No. 106-10 at 7-9]. Additionally, CNY has filed counterclaims against Navillus, including for breach of the Contract by virtue of Navillus's alleged failure to perform its obligations thereunder. [Id. at 18]. According to CNY, "[a]s a result of Navillus' failures, CNY has incurred and will continue to incur damages, both consequential and compensatory, and remains exposed to third parties, for damages which are the responsibility of Navillus. All such damages and resulting costs and expenses are recoverable from Navillus under the Trade Contract, in the form of back-charges and otherwise." [Id.]. Thus, CNY seeks damages that include, inter alia, "actual compensatory and consequential damages, delay/extended performance-related damages, [and] liquidated damages." [Id. at 23]. These include $1,788,245 of disputed back-charges, which, as the parties agree, must be tried [e.g., Hearing Tr. at 9:8-20; ECF No. 107 at 6], and alleged delay damages of $4,613,144 ($3,673,144 of actual delay...