Opinion
No. 04 Civ. 686 (DC).
May 20, 2005
MARISCAL, WEEKS, McINTYRE FRIEDLANDER, P.A., By: Robert P. Majerus, Esq., Phoenix, Arizona. and
POSTNER RUBIN, By: William J. Postner, Esq., New York, New York, Attorneys for Plaintiff.
KING SPALDING LLP, By: John W. Hinchey, Esq., Peter M. Crofton, Esq., Angus N. McFadden, Esq., Atlanta, Georgia. and
By: Edward G. Kehoe, Esq., Rishona Fleishman, Esq., New York, New York. and
MORGAN, LEWIS BOCKIUS LLP, By: Michael R. Libor, Esq., Philadelphia, Pennsylvania, Attorneys for Defendant.
MEMORANDUM DECISION
In advance of the May 31, 2005 trial in this case, plaintiff Fluor Daniel Caribbean, Inc. ("Fluor") and Humphreys (Cayman) Limited ("Humphreys") move for partial summary judgment on various grounds. For the following reasons, both parties' motions are denied.
I. Fluor's Motions
Fluor moves for partial summary judgment (1) to limit its potential liability under the terms of the parties' construction agreement and attachments (the "Contract") and (2) for a determination that (a) Humphreys failed to provide reasonable evidence that sufficient financial arrangements had been made by Humphreys to fulfill its payment obligations to Fluor, in violation of the Contract, and (b) such a failure was a material breach of the Contract.
A. Limitation of Fluor's Potential Liability
Fluor seeks a determination as a matter of law that paragraph 8.1.1 of the Contract's general conditions, designated "Attachment J" (the "General Conditions"), limits Fluor's liability to 10 percent of the Contract value. Fluor argues that if Humphreys prevails on its breach of contract claim, Fluor should not be liable for damages in excess of 10 percent of the Contract value. I hold that paragraph 8.1.1's limitation is restricted to damages related to work delays and, as a result, Fluor's motion for partial summary judgment on the limitation of its liability is denied.
Paragraph 8.1.1 is within article 8 (titled "Time") of the General Conditions and within subsection 8.1 (titled "Time, Delays and Extensions"). Paragraph 8.1.1 provides that
[t]ime is of the essence in the performance of the Work by [Fluor] and its Subcontractors. . . . In the event [Fluor] fails to achieve Substantial Completion or complete the Work by the dates set forth in the Construction Schedule . . . [Fluor] agrees to pay liquidated damages only as set forth in Paragraph 4.2 of the [Contract]. Under no circumstances, whether arising out of contract, tort (including negligence), strict liability, warranty or otherwise, shall [Fluor] be liable for special, indirect, incidental, exemplary or consequential damages of any nature, other than the aforementioned liquidated damages. Notwithstanding anything herein or in the [Contract] to the contrary, [Fluor's] aggregate liability for direct and liquidated (if any) damages shall in no case exceed 10% of the [C]ontract value, and [Humphreys] agrees to release [Fluor] for all damages in excess of 10% of the [C]ontract value.
(Kehoe Aff. Ex. A at Attach. J, p. 23). There is arguably some ambiguity in this paragraph as to whether the 10 percent restriction is a complete limit on Fluor's liability or only a limitation on damages related to work delays. Other provisions of the Contract eliminate any ambiguity, however, and make clear that this limitation applies to delay-related damages and that Fluor could be subject to other damages that are not limited to 10 percent of the Contract value.
According to paragraph 4.2 of the Contract,
[i]n the event [Fluor] fails to achieve Substantial Completion of the Work within the Construction Schedule . . . [Fluor] agrees to pay to [Humphreys] as liquidated damages . . . the following amounts: $5,000 per day for the first 20 days, $15,000 per day for the next 14 days and $30,000 per day thereafter; provided, however, in no event shall the total cumulative amount of liquidated damages owed by [Fluor] to [Humphreys] exceed ten percent (10%) of the Contract Price. Said liquidated damages being [Humphreys's] sole and exclusive remedy for all delay related damages.
(Id. Ex. A at 2-3) (emphasis in original). Liquidated damages contemplated in paragraph 8.1.1 of the General Conditions are limited to those set forth in paragraph 4.2 of the Contract, which specifically applies to delay-related damages. The last two sentences of paragraph 8.1.1 — limiting Fluor's liability — reflect restrictions in paragraph 4.2. Accordingly, in all likelihood, they do not apply to all potential damages but seek to clarify and provide further restrictions on the requirement that "[i]n the event [Fluor] fails to achieve Substantial Completion of the Work by the dates set forth in the Construction Schedule . . . [Fluor] agrees to pay liquidated damages only as set forth in Paragraph 4.2 of the [Contract]."
Page 2 of Exhibit A was not included in the copy of the Kehoe Affidavit received by the Court. Humphreys's counsel faxed the Court a copy of this page, which is page 2 of the Contract.
Other provisions of the Contract support the finding that paragraph 8.1.1 contemplates delay-related damages. For example, paragraph 3.7 of the General Conditions provides that if Fluor "neglects to prosecute the Work in accordance with the Contract Documents," Humphreys may correct the work and deduct the cost of the correction from payment due to Fluor. (Kehoe Aff. Ex. A at Attach. J, p. 3-4). "[I]f the payments then or thereafter due [Fluor] are not sufficient to cover the cost as aforesaid, [Fluor] shall pay the difference to [Humphreys] promptly upon request." (Id.). Paragraphs 3.7 does not limit the amount potentially owed by Fluor to 10 percent of the Contract value. Nor does paragraph 4.5, a warranty clause included in the General Conditions that provides for the reperformance of work in certain circumstances and requires that "[a]ll costs associated with the reperformance of [Fluor's] work which exceed the Guaranteed Maximum Price shall be assumed by [Fluor]." (Kehoe Aff. Ex. A at Attach. J, p. 7).
The guaranteed maximum price is defined in the Contract as "[t]he maximum cost to [Humphreys], including the Cost of the Work, and [Fluor's] fee." (Kehoe Aff. Ex. A at 3).
Likewise, paragraph 7.6 of the General Conditions, titled "Rights and Remedies," generally limits liability to that set forward in the Contract but does not limit damages to a percentage of the Contract. (Id. at Attach. J, p. 21). It does prohibit liability, whether based on contract, strict liability, tort (including negligence), or warranty, for "any indirect, incidental, consequential or special damages of any nature whatsoever." (Id.).
Furthermore, paragraph 7.9 of the General Conditions requires Fluor to "provide corporate surety performance bonds and labor and material payment bonds for the entire Guaranteed Maximum Price" of the Contract. (Id. at Attach. J, p. 22). A bond of such value would be unnecessary if Fluor's liability was limited to 10 percent of the Contract value.
Taking into consideration the Contract as a whole, I conclude that it is not ambiguous and that Fluor's limitation of liability is restricted to delay-related damages. See Hudson-Port Ewen Assoc. v. Chien Kuo, 78 N.Y.2d 944, 944 (1991) ("Where consideration of a contract as a whole resolves the ambiguity created by one clause, there is no occasion to consider extrinsic evidence of the parties' intent."); Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 300 (2d Cir. 1996).
I apply New York law because the General Conditions provides that "[t]he Contract Documents shall be construed in accordance with the laws of the State of New York, U.S.A. as if all Work was to be performed within such state." (Kehoe Aff. Ex. A at Attach. J, p. 21). In addition, both sides rely on New York law.
Accordingly, Fluor's motion for summary judgment on the limitation of its liability is denied. At trial, Fluor may not claim that paragraph 8.1.1 of the General Conditions limits its potential damages to 10 percent of the Contract value, although it may make that argument regarding any delay-related damages.
B. Material Breach
Fluor next moves for partial summary judgment on its claim that Humphreys materially breached the Contract by failing to provide, upon request, reasonable evidence that sufficient financial arrangements had been made by Humphreys to fulfill its payment obligations to Fluor. This motion is denied as well, as material issues of fact exist regarding compliance with the relevant provision of the Contract by both Fluor and Humphreys.
Under paragraph 14.3 of the Contract,
[Humphreys] shall furnish to [Fluor], from time to time, as reasonably requested by [Fluor], reasonable evidence that sufficient financial arrangements have been made by [Humphreys] to fulfill its payment obligations under the Contract Documents.
(Kehoe Aff. Ex. A at 12).
First, the reasonableness of Fluor's requests and of Humphreys's responses to those requests are material issues of fact for the jury. Fluor argues that between August 2003 and December 2003, it made multiple requests to Humphreys to provide reasonable evidence under paragraph 14.3, Humphreys failed to respond to most of the requests, and the few responses Humphreys did make were inadequate. Humphreys counters that Fluor's requests were unreasonable and that its responses to Fluor's requests — including a letter from Humphreys and one from its bank and a conversation between officers of Fluor and Humphreys — constituted reasonable evidence of its ability to meet payment obligations under the Contract. The first letter, dated August 22, 2003, is from Humphreys's chief financial officer and states that "I can confirm that the balance of project financing available from the project lender, Royal Bank of Scotland, exceeds the Fluor [C]ontract amount as adjusted by change orders. Accordingly, we continue to be able to meet our payment obligations under the [C]ontract." (Ryan Decl. Ex. A). A rational jury could find that this letter, and additional correspondence, was reasonable evidence under the circumstances.
A rational jury could also find that Fluor's requests were not reasonable, which would excuse Humphreys's limited responses to Fluor. Material issues of fact exist as to whether Fluor had good reason to be concerned that Humphreys might not make payments and as to whether Humphreys's initial communications should have assuaged the concern.
Second, even if Humphreys did violate paragraph 14.3, there is an issue of fact as to whether the breach of the Contract was material. "`Courts and commentators have long recognized that materiality is primarily a question of fact, the resolution of which is necessarily a function of context and circumstances.'"Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F. Supp. 2d 283, 295-96 (S.D.N.Y. 2005) (citing Dopp v. Pritzker, 38 F.3d 1239, 1244 (1st Cir. 1994)). Relevant to whether any alleged breach by Humphreys was material is, inter alia, the extent to which Humphreys had fulfilled and continued to fulfill its financial obligations at the time of Fluor's first request and through the time that Fluor filed this action, and the amount of time that Fluor continued to work under the Contract after it first requested evidence of Humphreys's ability to pay.
The Contract provided that Fluor was to submit monthly pay applications showing all money paid or costs incurred by Fluor during the previous month. (See Kehoe Aff. Ex. A at 11). Fluor argues that Humphreys withheld substantial sums from the pay applications submitted by Fluor and that Fluor and Humphreys disagreed about reimbursement of change order requests, causing Fluor to be concerned that Humphreys was unable to fulfill its financial obligations under the Contract. (Benoit Aff. ¶¶ 13, 18). Humphreys argues that Fluor "had no discernable reason to be insecure" and Fluor did not provide to Humphreys a reasonable ground for Fluor's insecurity, and that Humphreys had adequate available financing throughout the duration of the project — in excess of the original Contract value — and that it paid Fluor all undisputed amounts. (Humphreys Resp. Mot. Summ. J. at 4-5, 10; Fleishman Decl. Ex. B ¶¶ 4, 6-12). Humphreys also argues that Fluor consistently inflated its payment applications and that Humphreys did not pay for Fluor's excess charges, but that Fluor continued to accept progress payments that Humphreys did make through February 2004. (Ryan Decl. ¶¶ 9; 14).
Thus there is a dispute of fact as to whether Fluor's payment applications and change orders were payable by Humphreys in full and whether Humphreys violated the Contract by not paying them. These issues are relevant to Humphreys's alleged material breach and the reasonableness of Fluor's requests under paragraph 14.3. If the available facts are viewed in the light most favorable to the nonmoving party — Humphreys — a reasonable jury could find that Humphreys did not materially breach the Contract. Accordingly, Fluor's motion for partial summary judgment on Humphreys's alleged material breach is denied.
II. Humphreys's Motions
Humphreys seeks partial summary judgment (1) on Count One of the complaint, claiming that Fluor has not provided a necessary damages calculation, and (2) to limit Fluor's potential quantum meruit recovery to costs paid. A. Count One
Humphreys first argues that Fluor provided a damages computation for its quantum meruit claim — Count Two — but not for Count One, its breach of contract claim, and that without a damages computation and evidence of damages, the breach of contract claim fails as a matter of law. Indeed, courts have found that summary judgment is appropriate where a plaintiff has not provided any evidence of its damages. See New Paradigm Software Corp. v. New Era of Networks, Inc., No. 99 Civ. 12409 (AJP), 2002 U.S. Dist. LEXIS 23753, at *57-58 (S.D.N.Y. Dec. 9, 2002). Fluor responds that its damages computation for Count One is the same as for its quantum meruit claim, and that the computation was made in its initial disclosures pursuant to Fed.R.Civ.P. 26(a)(1). Furthermore, Fluor argues that it has produced substantial evidence related to damages.
Because Fluor has now confirmed a damages computation for Count One and because the record contains evidence of Fluor's damages, Humphreys's motion for partial summary judgment is denied. Humphreys has been aware of the Count One damages computation — if only in relation to the quantum meruit claim — since Fluor's initial disclosures were provided in May 2004. The parties are, of course, precluded from relying on undisclosed computations of damages at trial or calculations based on speculation.
B. Fluor's Potential Recovery under Quantum Meruit
Humphreys next moves for partial summary judgment to preclude Fluor from including, in its damages calculation under the quantum meruit claim, amounts that Fluor has not actually paid to subcontractors. Humphreys also seeks to prevent Fluor from including project costs that Fluor has not actually paid. This motion is also denied.
Humphreys claims that under New York law, a party cannot recover money under quantum meruit that it has not actually paid, citing Najjar Indus. Inc. v. City of New York, 451 N.Y.S.2d 410 (App.Div. 1982), and Franklin Pavkov Constr. Co. v. Ultra Roof, Inc., 51 F. Supp. 2d 204 (N.D.N.Y. 1999). Those cases, however, do not stand for that proposition. In Najjar, the court found that under quantum meruit, the customary method of calculating damages is actual job costs plus overhead and profit minus amounts paid. 451 N.Y.S.2d at 413. The court held that prebid estimates are not valid for computing recovery; nor can disputed subcontractor claims or speculative damages be included in damages calculations. Id. at 413, 414-15. The court did not consider whether the term "actual job costs" includes amounts incurred by a plaintiff and owed to subcontractors or only amounts actually paid by the plaintiff. In Franklin Pavkov, the court found that the defendant could not recover from the plaintiff for unpaid invoices it owed a third party, but it had separately determined that the plaintiff was responsible for paying the third party. 51 F. Supp. 2d at 219, 220.
Generally, to recover under quantum meruit, a party "must establish performance of [its] services in good faith, acceptance of the services by persons to whom such services were rendered, expectation of compensation, and the reasonable value of such services." Weinreich v. Sandhaus, 805 F. Supp. 1169, 1183 (S.D.N.Y. 1994) (citations and quotations omitted). The New York Court of Appeals has found a contractor entitled to recover damages on behalf of its subcontractor under quantum meruit, although the court did not specify if the contractor had already paid the subcontractor. Whitmyer Bros. Inc. v. State of New York, 419 N.Y.S.2d 954, 955 (1979). Indeed, all of the abovementioned courts are silent on whether a party may recover under quantum meruit for costs incurred but not yet paid. At least one court understood Najjar to include amounts owed as well as those paid to subcontractors in calculating damages under a quantum meruit claim. Aniero Concrete Co. v. Aetna Cas. Sur. Co., No. 94 Civ. 9111 (CSH), 2002 U.S. Dist. LEXIS 20527, *6-7 (S.D.N.Y. Oct. 25, 2002) (stating that the Najjar court had held that amounts paid to a subcontractor should be counted in tabulating damages and quoting from the case that "the amount of [an arbitration] award plus other amounts paid to [the subcontractor] would seem to constitute the total amount paid or owed to [the subcontractor]"). It follows from these cases that if a party satisfies the elements required under Weinreich, it should not matter whether it has paid the costs or is simply liable for those costs.
Here, Humphreys acknowledges that the subcontractor amounts in question are Fluor's subcontractors. Humphreys does not point to any provision of the Contract, any subcontracts, or other evidence that it is directly liable, or has assumed responsibility, for amounts owed by Fluor to its subcontractors. In fact, the General Conditions provide that "the term `Subcontractor' shall mean any person or organization who has a direct contract with [Fluor] to perform any of the Work at the Project site. . . . Nothing contained in the Contract Documents shall create any contractual relation between [Humphreys] or Development Manager and any Subcontractor or any Sub-subcontractor." (Kehoe Aff. Ex. A at Attach. J, p. 17). The Contract requires that Fluor's subcontracts for the project include a provision stating that in the event the Contract is terminated, Humphreys has the right but not the obligation to assume the rights and obligations of Fluor under the subcontract. (Id. at Attach. J, p. 18). There is no indication that Humphreys has assumed the obligations of Fluor for subcontract claims included in Fluor's damages calculation.
In its memorandum of law, Humphreys states that "[m]any of the sums will, in fact, be paid to the subcontractors by Humphreys pursuant to Humphreys taking an assignment of the subcontractors at issue." (Humphreys Mem. of Law at 16-17 n. 8). Similarly, an expert witness retained by Humphreys testified that "Humphreys has, in fact, paid to several subcontractors . . . over $2.6 million that was owed by [Fluor] at the time Humphreys terminated its right to perform the work." (Fleishman Aff. Ex. H ¶ 10 (Miller Decl.)). There is no other reference to or documentation of Humphreys's payments to Fluor's subcontractors in the parties' papers other than these statements. If it is established at trial that Humphreys did pay Fluor's subcontractors, then any potential recovery by Fluor should not include those amounts.
Even so, Humphreys argues that because Fluor did not confer a benefit on Humphreys for those amounts — instead, according to Humphreys, any benefit it received was from the subcontractors — Fluor cannot recover for those amounts. It argues that unpaid subcontractors may ultimately sue Humphreys for the unpaid amounts. In fact, if Flour prevails in this suit and yet does not recover for amounts it owes to its subcontractors, Fluor is still liable under its subcontracts for those payments. If Humphreys benefitted from the work of Fluor's subcontractors and has not yet paid Fluor or Fluor's subcontractors for that work, it is liable to Fluor for those benefits.
In sum, the motion for partial summary judgment is denied. Fluor's calculation may include amounts that it incurred but has not yet paid, but, as Fluor acknowledges, it may not include amounts that are speculative or have been assigned to or paid by Humphreys. Ultimately the jury must determine if either party owes the other damages and the amount of any such damages.
Humphreys does not seem to argue that Fluor's calculation includes speculative amounts or estimates.
CONCLUSION
For the reasons set forth above, the parties' motions for partial summary judgment are denied.
SO ORDERED.