Travelers Cas. v. Dormitory Auth.-State

735 F.Supp.2d 42

TRAVELERS CASUALTY AND SURETY COMPANY as Administrator for Reliance Insurance Company, Plaintiff,

v.DORMITORY AUTHORITY-STATE OF NEW YORK, TDX Construction Corp., and Kohn Pedersen Fox Associates, P.C., Defendants.

Dormitory Authority of the State of New York and TDX Construction Corp., Third-Party Plaintiffs,

v.Trataros Construction, Inc., Third-Party Defendant.

Trataros Construction, Inc. and Travelers Casualty and Surety Company, Fourth-Party Plaintiffs,

v.Carolina Casualty Insurance Company; Bartec Industries, Inc.; Dayton Superior Specialty Chemical Corp. a/k/a Dayton Superior Corporation; Specialty Construction Brands, Inc. t/a Tec; Kemper Casualty Insurance Company d/b/a Kemper Insurance Company; Great American Insurance Company; National Union Fire Insurance Company of Pittsburgh, PA.; United States Fire Insurance Company; North American Specialty Insurance Company; Allied World Assurance Company (U.S.) Inc. f/k/a Commercial Underwriters Insurance Company; Zurich American Insurance Company d/b/a Zurich Insurance Company; Ohio Casualty Insurance Company d/b/a Ohio Casualty Group; Harleysville Mutual Insurance Company (a/k/a Harleysville Insurance Company); John Does 1-20; and XYZ Corps. 1-19, Fourth-Party Defendants.

Kohn Pedersen Fox Associates, P.C., Third-Party Plaintiff,

v.Weidlinger Associates Consulting Engineers, P.C.; Castro-Blanco Piscioneri and Associates, Architects, P.C.; Arquitectonica New York, P.C.; Cosentini Associates, Inc.; Cermak, Peterka Petersen, Inc.; Jordan Panel Systems Corp.; Trataros Construction, Inc.; and LBL Skysystems (U.S.A.), Inc., Third-Party Defendants.

Master File No. 07 Civ. 6915(DLC).

United States District Court,

S.D. New York.

Aug. 26, 2010.

[735 F.Supp.2d 50]

JoAnne M. Bonacci, Eli J. Rogers, Dreifuss Bonacci & Parker, LLP, Florham Park, NJ, for Travelers Casualty and Surety Company and Trataros Construction, Inc.

Stephen B. Shapiro, Timothy B. Froessel, Holland & Knight LLP, New York, NY, for Dormitory Authority of the State of New York.

Robert Mark Wasko, Kaufman Dolowich Voluck & Gonzo, LLP, New York, NY, for Carolina Casualty Insurance Company.

OPINION & ORDER

DENISE COTE, District Judge:

TABLE OF CONTENTS

BACKGROUND 51

I.	The DASNY-Trataros Contracts	51
II.	Delays on the Project	53

PROCEDURAL HISTORY	54
DISCUSSION	55

I. Travelers' Claims Against DASNY 57

A. Trataros' Impact Claim 57

1.	No-Damages-for-Delay Clauses Under New York Law	57
2.	The Applicability of Corinno Exceptions	59
3.	Waiver of No-Damages-for-Delay Clause	66

B. Subcontractors' Pass-Through Claims 69

1.	Crocetti's Impact Claims	71
2.	Jordan Panel's Extra Work Claim	73
3.	Remaining Subcontractors' Impact Claims	76

C. Travelers' Bond Losses Claim 79

II. DASNY's Counterclaims Against Travelers 80

A.	DASNY's Breach-of-Contract Counterclaim	80
B.	DASNY's Performance Bond Counterclaim	83
C.	DASNY's Payment Bond Counterclaim	85

1.	Payment Bonds Under New York Law	85
2.	General Principles of Obligee Standing	87
3.	Obligee Standing Under New York Law	87
4.	Application	88

CONCLUSION 91

[735 F.Supp.2d 51]

This complex litigation arises out of the construction of a 785,000 square-foot vertical campus for Baruch College ("Baruch"), part of the City University of New York ("CUNY"), between about 1998 and 2002 (the "Project").¹ Plaintiff Travelers Casualty & Surety Company ("Travelers")-the surety to a prime contractor for the Project, Trataros Construction, Inc. ("Trataros")-has brought suit against the Project's "Owner," the Dormitory Authority-State of New York ("DASNY"),² asserting various claims arising out of Trataros' performance of its two prime contracts. DASNY, in turn, asserts counterclaims against Travelers for breach of those prime contracts and breach of two sets of surety bonds administered by Travelers.

On February 19, 2010, both parties filed motions for summary judgment. For the following reasons, Travelers' motion is granted in part, and DASNY's motion is granted in its entirety.

BACKGROUND

The instant litigation has already been the subject of numerous Opinions by this Court.³ Familiarity with all prior proceedings is assumed, and only the facts relevant to the two pending motions are outlined herein. These facts, taken from the parties' evidentiary submissions, are undisputed unless otherwise noted.

I. The DASNY-Trataros Contracts

As Owner of the Project, DASNY entered into some thirteen prime contracts for carrying out the substance of the Project's construction work.⁴ Trataros was eventually awarded two of these prime contracts, known as "Contract 15" and "Contract 16" (jointly, the "Contracts"). Contracts 15 and 16 were among the last

[735 F.Supp.2d 52]

prime contracts put out to bid and awarded by DASNY on the Project.

Trataros submitted its bid for Contract 15 on or about March 19, 1998. Trataros' bid of $50,222,000 was accepted on April 22 of that year, and Contract 15 was executed between DASNY and Trataros on or about April 27. The scope of work under Contract 15 included construction of the Project's windows, exterior curtainwall, exterior metal siding, elevators, rough carpentry, and ceilings.

Contract 16, in turn, included the interior fitout/curtainwall, roofing installation, flooring installation and finishing, swimming pool, acoustical spray, and miscellaneous metal work. Trataros' bid of $24,140,000 was accepted on August 27, 1998, and Contract 16 was executed between DASNY and Trataros on or about September 1.

Both Contracts incorporated by reference certain "General Conditions" governing the Project as a whole. Among many other things, the General Conditions contain: required representations, warranties, and guarantees by contractors; a "time-is-of-the-essence" provision; a clause reserving DASNY's right to suspend the performance of work; a definition of "Extra Work," and an exclusive process for determining additional compensation therefor; a dispute-resolution article; and several risk-allocation provisions, including a clause stipulating that contractors cannot seek "increased costs, charges, expenses or damages of any kind" against DASNY as a result of "any delays or hindrances from any cause whatsoever" relating to the Project (the "no-damages-for-delay clause").

As a condition of being awarded Contracts 15 and 16, Trataros was required to obtain certain surety bonds, including both labor and materials payment bonds (the "Payment Bonds") and performance bonds (the "Performance Bonds").⁵ On or about April 27, 1998, Trataros obtained a Performance Bond and Payment Bond, each in the "penal sum" of $50,222,000, to guarantee its work under Contract 15. On or about September 1, 1998, Trataros obtained another Performance Bond and Payment Bond, each in the penal sum of $24,140,000, to guarantee its work under Contract 16. The terms and conditions of these two sets of bonds were drafted by DASNY as part of the Project's standard contract documents, and the Performance and Payment Bonds for Contracts 15 and 16 are identical in all material respects.

The issuing surety for both sets of bonds was Reliance Insurance Company ("Reliance"), and both sets of bonds named Trataros as principal and DASNY as obligee. Travelers and Reliance subsequently entered into an agreement, however, granting Travelers a power of attorney to act as administrator for the Project bonds, such that Travelers then became Trataros' surety under both the Performance and Payment Bonds.

[735 F.Supp.2d 53]

In order to carry out its scope of work under Contracts 15 and 16, Trataros hired various subcontractors. Among its many subcontractors were LBL Sky Systems Corporation ("LBL"),⁶ Jordan Panel Systems Corp. ("Jordan Panel"),⁷ G.M. Crocetti, Inc. ("Crocetti"),⁸ and Brooklyn Welding Ironworks, Inc. ("Brooklyn Welding") ⁹ (collectively, the "Subcontractors"). In each of its subcontracts (the "Subcontracts"), Trataros included a standard "flow-down" or "conduit" provision providing that "[i]n respect of work covered by this Subcontract, and except as expressly modified herein, Subcontractor shall have all rights which contractor has under the Contract Documents, and Subcontractor shall assume all obligations, risks and responsibilities which Contractor has assumed towards Owner in the Contract Documents." Thus, pursuant to the flow-down clause, the General Conditions and other terms of Contracts 15 and 16 also became applicable to the Subcontractors.

II. Delays on the Project

The Project, which was designed and built on a "fast-track" basis, did not proceed on schedule. Contract 15 was originally to be completed by September 1, 2000, while Contract 16 was originally to be completed by November 1, 2000. On or about August 15, 1999, the Project's construction manager, TDX, provided Trataros with a new construction schedule including a "late finish" date of September 1, 2001 for Trataros' work under both Contracts. Trataros agreed to complete its work within this new time frame, provided that it did not "encounter future circumstances causing delays" or "some unforeseen calamity."

On or about April 6, 2001, DASNY executed Change Order No. GC2-064 ("Change Order GC2-64") to formalize an extension of time for Trataros' performance of the Contracts until the aforementioned "late finish" date.¹⁰ Change Order GC2-64 provided that Trataros' time for completion of Contract 15 would be extended 365 days, while the time for Contract 16 would be extended 304 days, thereby mandating a "new contract completion date for both Contracts of September 1, 2001." In accordance with General Conditions § 11.02 (the no-damages-for-delay clause), however, Change Order GC2-64 did not provide any additional compensation to Trataros or its subcontractors.

In about July 2001, DASNY received a temporary certificate of occupancy ("TCO") for the above-ground floors of the

[735 F.Supp.2d 54]

Project. In late August 2001, those fourteen stories opened for the use of Baruch. On or about February 1, 2002, DASNY received a TCO for the three basement levels of the Project. As of about that date, according to the...