Opinion
Civ. Action No. 00-CIV-5963 (NT).
June 5, 2006
OPINION AND ORDER
[The Court finds that there shall be an evidentiary hearing in order to resolve certain disputed issues.]
Westermann Hamilton Sheehy Aydelott Keenan, LLP, 100 Quentin Roosevelt Blvd., Ste. 502, Garden City, NY 11530 (Robert Fryman and Christopher J. Sheehy) for Third-Party Plaintiffs, Fireman's Fund Insurance Company and the American Insurance Company.
Berman, Paley, Goldstein Kannry, LLP, 500 Fifth Avenue, New York, NY 10110 (Tony Berman; of counsel: Howard Burger) for Third-Party Defendants, Laquila Construction, Inc., Laquila Contracting, Inc., Laquila Industries, Inc., Dino Tomassetti, Serafino Tomassetti and Rocco Tomassetti.
Opinion and Order
TSOUCALAS, District Judge by Designation:Third-Party Plaintiffs, Fireman's Fund Insurance Company and The American Insurance Company ("Sureties"), move before this Court for a judgment pursuant to the Stipulation and Order, dated June 28, 2001, and in connection with the Court's Judgment entered on July 16, 2004, in favor of the Sureties against Third-Party Defendants, Laquila Construction, Inc., Laquila Contracting, Inc., Laquila Industries, Inc., Dino Tomassetti, Serafino Tomassetti and Rocco Tomassetti ("Indemnitors"). The Court's ruling, based on a careful review of the record, is detailed below.
FACTUAL BACKGROUND
The Court assumes familiarity with the facts, and thus only recites the relevant details here. The initial action was brought by Toporoff Engineers, P.C. against the Sureties, for payment of certain construction management and professional engineering services allegedly performed in connection with three public improvement projects for the New York City Transit Authority and the Metropolitan Transit Authority. See Toporoff I, 2003 U.S. Dist. LEXIS 18700 at *2. The three projects were awarded to Third-Party Party Defendant, Laquila Construction, Inc. ("Laquila"), who, as prime contractor, secured separate labor and material bonds naming Laquila the principal and the Third-Party Plaintiffs the Sureties for each project. See id. at *2-3. Toporoff Engineers, P.C. ("Toporoff"), the Plaintiff in the initial action, alleged that Laquila never compensated it for $2,985,027 worth of services performed never compensated with these three projects. See id. Thus, Toporoff claimed that it was entitled to recover that amount plus interest from the Sureties. See id. at *3. The jury awarded Toporoff a total of $2,976,527 of which $2,976,527 of which $2,782,027 constituted compensation for engineering services. See id. at *15. This Court then granted the Sureties' motion to set aside the jury's verdict. See id. at *27. The Court of Appeals for the Second Circuit later reversed this Court's decision. See Toporoff II, 371 F.3d at 110. Complying with the reversal, this Court issued a Judgment on July 15, 2004, ordering that the Indemnitors compensate the Sureties in the amount of $4,045,853.74. On October 31, 2005, the Sureties filed a Notice of Mot. for Att'ys' Fees ("Sureties' Mot.") requesting $510,000 in attorneys' fees. See Sureties' Mot. at 2.
The factual background in this case has been litigated inToporoff Eng'rs, P.C. v. Fireman's Fund Ins. Co. ("Toporoff I"), No. 00-CIV59863NT, 2003 U.S. Dist. LEXIS 18700, 2003 WL 22400195 (S.D.N.Y. 2003), Toporoff Eng'rs, P.C. v. Fireman's Fund Ins. Co. ("Toporoff II"), 371 F.3d 105 (2d Cir. 2004).
The Court calculated the total sum, by taking the jury award of $2,976,527, and adding interest from August 11, 2000 at the rate of nine percent per annum, in the amount of $1,052,467.33. The Court then included the $16,859.41 in taxes on the appellate costs for a total award of $4,045,853.74. See Judgment, Document 94, dated July 15, 2004.
PARTIES' CONTENTIONS
The Sureties' main contention is that the Indemnity Agreement executed between the Sureties and the Indemnitors in "which the Indemnitors agreed to provide the Sureties with certain rights and remedies in return for the Sureties' agreement to provide surety bonds on behalf of Laquila in connection with" the above mentioned construction projects, explicitly indemnifies the Sureties against attorneys fees. Aff. of Martin Van Tassell, dated October 19, 2005 ("Van Tassell Aff.") at 2. The Indemnity Agreement states: "The Indemnitors shall indemnify the Surety against any and all liability, loss, costs, damages, attorneys fees and other expenses which the Surety may sustain or incur by reason of or in connection Bonds or claims, suits or judgments under the Bonds. . . ." with . . . sums paid or liabilities incurred in connection with the Bonds or claims, suits or judgments under the Bonds. . . ." Sureties' Mot., Ex. A, ("Indemnity Agreement") (emphasis added).
The Indemnitors, while conceding that the Indemnity Agreement clearly states that they are responsible for indemnifying the Sureties for attorneys' costs, contend that those costs must be reasonable. See Third-Party Def.'s Mem. of Law in Opp'n to Sureties' Mot. for Att'ys Fees ("Indemnitors' Mem.") at 3. The Indemnitors further contend that although the Indemnity Agreement "contains no limitation to reasonableness, such a term must be implied." Indemnitors' Mem. at 4. The Indemnitors state that "[a] surety's claim for recovery of legal fees, even where an indemnity agreement plays a role, is, like other instances in which attorney's fees are sought, subject to the court's consideration and determination of what is reasonable." Id. at 6. The Indemnitors argue that the Sureties should have "tendered their defense to their principal, Laquila, which is a commonplace action by a surety sued under a payment bond." Aff. of Tony Berman in Opp'n to Sureties' Mot., dated January 9, 2005 ("Berman Aff.") at 4. Thus, the Indemnitors specifically contend that the Sureties unreasonably failed to tender the defense of the initial action to the Indemnitors, and, as a result, the Sureties merely duplicated litigation efforts. See id. at 4-5. The Indemnitors further state that "should this Court rule that the Sureties are entitled to any recovery whatsoever" an evidentiary hearing is required by law. Id. at 4.
The Sureties respond that "a joint defense or tender of the defense to Laquila's counsel could have been arranged" had the Sureties received "more than vague assurances from [Laquila's counsel] that Laquila and the Indemnitors had sufficient financial ability to secure the Sureties in the event a judgment was obtained by Toporoff." Reply Aff. of George F. Mackey in Further Supp. of Mot. for Att'ys' Fees, dated February 28, 2006 ("Mackey Reply Aff.") at 3; see also Mackey Reply Aff. at Ex. 12-14. The Sureties further respond that an evidentiary hearing is not required, and its need "rests in the sound discretion of the Court[.]" Sheehy Reply Aff. at 18.
Despite the reference to the possibility of a joint defense, the Sureties claim that they have "no recollection" of the Indemnitors directly requesting that the "Sureties tender their defense to Laquila or the other Indemnitors." Reply Aff. of Christopher J. Sheehy in Further Supp. of Mot. for Att'ys' Fees ("Sheehy Reply Aff.") at 11.
DISCUSSION
There is an implicit covenant of good faith and fair dealing in all contracts. See Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 979, 633 N.E.2d 289, 291 (1995). "Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion." Id. at 389, 639 N.Y.S.2d at 979, 633 N.E.2d at 291 (1995). The Court finds that as the Indemnity Agreement is a contract, the above mentioned rules require that the contract be executed reasonably. Although the Indemnity Agreement clearly states that the Indemnitors are liable for "attorneys fees and other expenses" those fees must be reasonable in nature. Indemnity Agreement (emphasis added); See Dalton, 87 N.Y. 2d at 389, 639 N.Y.S.2d at 979, 633 N.E.2d at 291 (1995). As such, this Court cannot rule in favor of the Sureties based on the Indemnity Agreement language alone.
Under the Erie Doctrine, the substantial law of New York State applies to the case at bar. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
Although the Court was initially skeptical about the necessity of the Sureties' conducting its own independent defense, the Court finds that there is sufficient evidence indicating that the Sureties' separate defense was not completely unnecessary. Specifically, the Court pays considerable credence to the letters drafted by Sureties' counsel, in which collateral is requested by the Sureties as a requirement for tendering the defense to Laquila. See Mackey Reply Aff. at Ex. 13-14.
Despite Indemnitors' declaration to the contrary, an evidentiary hearing is not required if this Court were to rule in favor of the Sureties. See Crescent Publ'g Group, Inc. v. Playboy Enters., Inc., 246 F. 3d 142, 147 (2d Cir. 2001). "While not required in every case, an evidentiary hearing, or at the very least an opportunity to submit evidence, is necessary to determine the propriety of a fee award and the amount of such award if it is evident that the material facts necessary for those determinations are genuinely in dispute and cannot be resolved from the record." Id. at 147 (emphasis added) (citations omitted). However, upon reviewing all materials, the Court finds that an evidentiary hearing would serve in clarifying the record prior to the final adjudication of the case at bar.
The Indemnitors make such declarations repetitively without ever once citing a statue, case or rule that would require this Court to hold an evidentiary hearing under the present fact pattern. See Berman Aff. at 4, 8 15.
CONCLUSION
The Court holds that because more information is required prior to the issuance of a final decision on the case at bar, an evidentiary hearing shall be held.
Upon consideration of Sureties' Mot., the Indemnitors' Mem. and all other pleadings and papers on file herein, it is hereby
ORDERED that an evidentiary hearing consistent with this Opinion will be held at the United States Court of International Trade, New York, New York, beginning at a date and time which is feasible to the Indemnitors, Sureties and the Court.
IT IS SO ORDERED.