Opinion
Civil Action No. 97-1263 (NHP).
April 5, 2000.
Erwin G. Goovaerts, Esq., FITZGIBBONS GOOVAERTS, Franklin, N.J., Attorneys for Plaintiff Pipe Installation Corporation.
David J. Canfield, Esq., CANFIELD, VENUSTI, MADDEN ROSSI, LLP, Douglaston, NY, Attorneys for Defendants, Seaboard Surety/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company Hercules Construction Corp.
THE ORIGINAL OF THIS LETTER OPINION IS ON FILE WITH THE CLERK OF THE COURT
Dear Counsel:
This matter comes before the Court on defendants Hercules Construction Corporation, Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company's motions for leave to file an Amended Answer and for summary judgment dismissing plaintiff Pipe Installation Corporation's Amended Complaint. This Court heard oral argument on August 11, 1999 and requested that the parties submit supplemental certifications. For the reasons explained below, defendants Hercules Construction Corporation, Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company's motion for summary judgment dismissing plaintiff Pipe Installation Corporation's Amended Complaint is DENIED. Defendants Hercules Construction Corporation, Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company's motion for leave to amend its Answer is GRANTED.
BACKGROUND
This is a case where a subcontractor has sued a surety for a general contractor to recover on the general contractor's payment bond pursuant to the Miller Act, 40 U.S.C. § 270a-270d. Defendant, Hercules Construction Corporation ("Hercules"), was awarded a government construction contract to build an Armament Technology Facility at the Picatinny Arsenal in Dover, New Jersey, for the United States Army. Pursuant to certain project requirements and the provisions of the Miller Act, 40 U.S.C. § 270(a), Hercules secured a Miller Act payment bond through co- defendant Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company. On February 12, 1992, Hercules subcontracted a portion of the contract to plaintiff Pipe Installation Corporation ("PIC").The construction of the facility was closely monitored by the U.S. Army Corps of Engineers (the "Corps"). According to Hercules' contract with PIC (the "Subcontract"), PIC was to provide "all labor, testing, materials, tools, machinery, equipment and service" for the installation of an air conditioning/heating/humidifier system in a "loading" room where powder was loaded into shell casings. As per the Subcontract specifications, PIC was responsible for the installation of a central refrigeration system, a packaged brine cooling and heating system, an above-ground heat distribution system, and an air-supply and distribution system. PIC began work at the Picatinny facility sometime in 1992.
In order to keep the shells from prematurely discharging, it was necessary that the "loading" room be kept at a constant humidity of 50%.
In early 1996, several problems occurred with the project. First, prior to February 1996, testing by PIC and the Corps revealed fluctuations in the humidifier system which were unacceptable to the Corps. In addition, in February 1996, the air conditioning unit sustained damage as a result of a short in one of the high voltage conduits which services the unit. This "voltage spike" damaged both the microprocessor controls for the system and some of the system's components. PIC then worked to repair the system and completed this task on or about March 28, 1996. In addition, PIC tested the system between March 28, 1996 and April 11, 1996, during which time it was discovered that the humidity continued to fluctuate. As a result, PIC sent its subcontractor to check the system, and PIC's subcontractor completed adjustments to the system on May 1, 1996.
PIC alleges that May 1, 1996, was the last date on which it performed work related to the project.
During the course of the project, certain changes in PIC's performance were made necessary as a result of changing circumstances and demands from the Corps. These changes were memorialized in "change orders," which were typically issued by Hercules. Each change order included a price for that particular item. In this action, PIC is attempting to recover monies it alleges is owed to it pursuant to change orders 7, 9, and 16, and extended overhead costs, totaling $68,577.
On December 14, 1995, PIC issued a notice of claim to defendants claiming that it completed work valued at $126,219, for which it had not been paid. On June 10, 1995, PIC and Hercules executed an agreement which was a summary of payments made and payments due to PIC. Change orders 7, 9, and 16 were listed as completed but not paid, and totaled $58,830. By letter dated January 22, 1996, Hercules asserted that it only owed PIC $26,782. On February 1, 1996, PIC sent a letter to Hercules in which it disagreed with the $26,782 amount and requested a meeting with Hercules to discuss the disagreement regarding monies due to PIC. At a meeting on May 14, 1996, Hercules paid PIC $60,473 in return for the execution of a General Release on Hercules' behalf.
PIC filed a Complaint in this Court on March 19, 1997, seeking amounts due under the payment bond. Specifically, PIC seeks payment for change orders 7, 9, and 16, and its extended overhead costs. Hercules now moves for summary judgment, arguing that PIC's action is time-barred and that the General Release executed between the parties bars PIC's claim under the doctrine of accord and satisfaction. PIC contends that its action is timely and that the change orders and extended overhead costs it seeks in this action were not contemplated by the May 14, 1996 General Release.
PIC filed an Amended Complaint on April 1, 1997.
Hercules failed to plead accord and satisfaction as an affirmative defense in its initial Answer. The reason for this oversight, Hercules explains, is that it could not locate the General Release. Having since obtained a copy of the General Release through discovery, Hercules now seeks to amend its Answer to include the affirmative defense of accord and satisfaction. PIC, of course, opposes Hercules' motion to amend its Answer.
DISCUSSION
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment may only be granted if, drawing all inferences in favor of the nonmoving party, there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 896 (3d Cir. 1987). Summary judgment may be granted against a party who fails to adduce facts sufficient to establish the existence of any element essential to that party's case, for which that party will bear the ultimate burden of proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Moreover, the moving party bears the initial burden of identifying evidence that demonstrates the absence of a genuine issue of material fact. See id. at 323; Chipollini, 814 F.2d at 896. Once that burden has been met, the nonmoving party must set forth "specific facts showing that there is a genuine issue for trial," or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The nonmovant must "do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586. To defeat "a properly supported summary judgment motion, the party opposing it must present sufficient evidence for a reasonable jury to find in its favor." Groman v. Township of Manalapan, 47 F.3d 628, 633 (3d Cir. 1995). If the record, as a whole, cannot "lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587.
I. Miller Act Limitations Period
The Miller Act was enacted to protect persons supplying labor and materials for public works against prime contractors who fail to pay subcontractors. See United States for the Use of Celanese Coatings Co. v. Gullard, 504 F.2d 466, 468 (9th Cir. 1974). Pursuant to Section 270a(a), the prime contractor must secure a performance bond and payment bond with a surety satisfactory to the government. In the event a prime contractor fails to pay, Section 270b(a) provides the supplier of labor or material with the right to sue on the payment bond furnished by the prime contractor. See United States for the Use and Benefit of Statham Instruments, Inc. v. Western Casualty Surety Co., 359 F.2d 521, 523 (6th Cir. 1966).
A threshold issue is whether PIC filed its complaint in a timely manner. Section 270b(b) of the Miller Act provides that no "suit shall be commenced after the expiration of one year after the day on which the last of the labor was performed or material was supplied by" the complainant. The one-year filing requirement has been construed as a condition precedent to the right to maintain the action. See United States for the Use and Benefit of Harvey Gulf Int'l Marine, Inc. v. Maryland Casualty Co., 573 F.2d 245, 247 (5th Cir. 1978); Celanese, 504 F.2d at 468; United States for the Use and Benefit of General Dynamics Corp. v. Home Indemnity Co., 489 F.2d 1004, 1005 (7th Cir. 1973); Statham Instruments, 359 F.2d at 523; United States for the Use of Soda v. Montgomery, 253 F.2d 509, 512 (3d Cir. 1958). PIC filed its Complaint on March 19, 1997.
A. When the Limitations Period Begins To Run
Section 270b(b) specifically provides that an action must be commenced one year "after the day on which the last of the labor was performed or material was supplied" by the complainant. Federal courts have struggled to determine when the Miller Act's limitations period begins. Here, the parties strongly disagree over when the limitations period began to run.
The Third Circuit has not directly addressed the issue of when the Miller Act's limitations period begins to run. The majority of courts that have addressed this issue have held that remedial or corrective work or materials, or inspection of work already completed, does not fall within the meaning of "labor" or "materials" and will not extend the Miller Act's one-year limitations period. See, e.g., United States for the use of Magna Masonry, Inc. v. R.T. Woodfield, Inc., 709 F.2d 249, 250 (4th Cir. 1983); United States for the use of Elec. Supply Co. v. Hesselden Constr. Co., 404 F.2d 774, 776 (10th Cir. 1968); United States ex rel. Austin v. Western Elec. Co., 337 F.2d 568, 572 (9th Cir. 1964);United States for use of Mod-Form v. Barton Barton Co., 769 F. Supp. 235, 238 (E.D.Mich. 1991), aff'd, 966 F.2d 1453 (6th Cir. 1992); United States for use of E.J. and Sons, Inc. v. Viatech Sys., Inc., 1989 WL 109551, *2 (D.N.J. Sept. 20, 1989); United States for the use of Billows Elec. Supply Co., Inc. v. E.J.T. Constr. Co., Inc., 517 F. Supp. 1178, 1181 (E.D.Pa. 1981), aff'd, 688 F.2d 827 (3d Cir.), cert. denied, 459 U.S. 856 (1982); United States for use of H.T. Sweeney Son, Inc. v. E.J.T. Constr. Co., 415 F. Supp. 1328, 1332 (D.Del. 1976); United States ex rel. McGregor Architectural Iron Co. v. Merritt-Chapman Scott Corp., 185 F. Supp. 381, 383 (M.D.Pa. 1960). But see United States for the use and benefit of Hussmann Corp. v. Fidelity and Deposit Co. of Maryland, 999 F. Supp. 734, 745 (D.N.J. 1998) (declining to adopt or reject majority rule, but rather applying test which considered value of materials, original contract specifications, unexpected nature of work, and importance of materials to operation of system in which they were to be used).
Under this majority rule, it must be determined whether the labor and materials were supplied as part of the original contract, or merely for the purpose of repairing or correcting defects and conducting post-completion inspections. See Western Electric, 337 F.2d at 572-73. The correction or furnishing of repair materials and labor does not toll the running of the limitations period; only the furnishing of labor or materials pursuant to a requirement of the original subcontract tolls the running of the statute. See id. This Court adopts the majority test and, therefore, must inquire as to when the last labor or materials were supplied pursuant to the original subcontract between Hercules and PIC.
Hercules contends that the limitations period began to run on October 3, 1995, when the Corps issued a "punch list" to Hercules. Because the punch list contained a list of corrections or repairs that needed to be completed, so the argument goes, the work or materials that PIC performed pursuant to the punch list — and after October 3 — did not toll the running of the statute of limitations. PIC counters that the system's malfunctions were caused by a different subcontractor that Hercules had hired, and that the repairs PIC performed were to fix defects caused by this other subcontractor. PIC also asserts that certain tests it performed on the system up to May 1, 1996, were conducted pursuant to the terms of the original Subcontract.
For example, PIC returned to the project site on or around March 28, 1996, and then monitored the system's performance intermittently until April 11, 1996. Hercules asserts that all of this work constituted repairs and therefore did not toll the limitations period.
The Corps' "punch list" is denominated as a "punchlist/latent deficiencies" summary, which contains "warranty items" requiring "investigation" and "rectification." On its face, at least, the punch list appears to enumerate mere repair work that was necessary, and, as Hercules correctly points out, repair work does not toll the limitations period. However, a closer reading of the punch list reveals that it contained not only items that needed repair, but also items that had not yet been installed. As to the items that had not yet been completed, the punch list provided, in pertinent part:
e) MCC, switchgear, and switches have not been labeled.
f) Various asphalt sink holes exist in areas of contract-required asphalt patches.
I) exterior weather-stripping has yet to be installed at the bottom of Door 63.
j) CWW above ground storage tank bottoms and cover plate undersides require painting.
k) door seals have yet to be installed on all blast resistent [sic] doors.
n) The following has yet to be submitted regarding the CWW Systems: Record Drawings, OM Manuals for control panels (pumps and leak detection), Control/Electrical Diagrams for pumps and leak detection, Startup/Shutdown procedures for pumps and leak detection.
o) Duct access door has yet to be installed for motorized damper.
It is difficult to characterize the work items listed above as repairs. Rather, these items, as of October 3, 1995, had not yet been installed or completed. As such, these are items that were part of the original Subcontract. This evidence tends to support PIC's claim that at least some of the work it performed subsequent to October 3, 1995 was performed pursuant to the original Subcontract terms.
PIC also cites to a February 27, 1996 letter sent by Phil Starapoli ("Starapoli"), an employee of Hercules, to Frank Kirchoff ("Kirchoff"), owner and president of PIC, to support its contention that work performed by PIC between February and April of 1996 was part of the original Subcontract and not repair work. Starapoli's letter contained a list of both unfinished repairs and unfinished work that the Corps had complained about, and items three through five read:
3) Wiring diagrams for the CWW tank is [sic] not submitted.
4) Cooling tower manufacturer's literature not yet submitted.
5) Demonstration that humidity unit and controls work for RM 130.
Much like the punch list items, this work cannot be characterized as repair work. This list describes work and materials that had not yet been completed or supplied as of February 27, 1996. This letter further supports PIC's claim that the work performed by PIC between February and April of 1996 was not repair work, but rather work completed pursuant to the original Subcontract requirements.
More importantly, the Subcontract itself bolsters PIC's argument. The bulk of PIC's obligations under the Subcontract are found in "Rider A" of the Subcontract. Rider A directs PIC to "provide all labor, testing, materials, tools, machinery, equipment and service necessary to complete work" set forth in the prime contractor's contract (emphasis provided). Clearly, then, one of PIC's obligations under the Subcontract was to perform "testing" at the facility. It is uncontested that the Corps would not accept the final project if written reports of the testing were not submitted to the Corps. Moreover, Kirchoff's testimony that PIC tested the system from March 28, 1996 to April 11, 1996 remains uncontested. As denoted in Rider A above, this testing was conducted pursuant to the original Subcontract, and therefore constitutes "work" or "labor" as provided in § 270b(b) of the Miller Act. Furthermore, it is significant that PIC asserts that the repairs it performed were due to defects caused by other subcontractors, and not caused by PIC. Accordingly, this Court finds that the last date upon which PIC provided work or labor under the original Subcontract was April 11, 1996. PIC filed its Complaint on March 19, 1997, within the Miller Act's one-year limitations period. Therefore, PIC's action is timely.
II. Hercules' Motion to Amend Its Answer
Hercules next seeks to amend its Answer to plead the affirmative defense of accord and satisfaction. Rule 8(c) of the Federal Rules of Civil Procedure provides that "a party shall set forth affirmatively accord and satisfaction. . . ."
PIC directs the Court's attention to Charpentier v. Godsil, 937 F.2d 859 (3d Cir. 1991), in support of its argument that Hercules waived the defense of accord and satisfaction by failing to plead it as an affirmative defense in its initial Answer. PIC's reliance on Charpentier is misguided. Charpentier does not stand for the proposition that when a party fails to initially plead the affirmative defense of accord and satisfaction, that party has waived the defense. Quite the contrary,Charpentier acknowledges that such an affirmative defense may be asserted in an amended Answer pursuant to Rule 15(a). In fact, Charpentier held that a "defendant does not waive an affirmative defense if '[h]e raised the issue at a pragmatically sufficient time, and [the plaintiff] was not prejudiced in its ability to respond.'" 937 F.2d at 864 (quoting, in part, Lucas v. United States, 807 F.2d 414, 418 (5th Cir. 1986)).
Federal Rule of Civil Procedure 15(a) provides that a party may amend the party's pleading by leave of court, and that such leave shall be freely given when justice so requires. Here, Hercules claims that it did not initially plead the defense because it could not locate the General Release. It then obtained a copy of the General Release through discovery.
Hercules filed its initial Answer on August 4, 1997. Hercules did not file its motion to amend the Answer and include the defense of accord and satisfaction until June 9, 1999. While at first blush this lapse in time may appear unreasonable, it must be noted that this action was administratively terminated for a period of over one year, from September 3, 1997 to December 9, 1998. In light of the administrative termination of the case, Hercules' delay in moving for leave to amend its Answer was not unreasonable. Through discovery requests, PIC was put on notice of the possible existence of the defense of accord and satisfaction and therefore was not prejudiced. Not counting the period when the case was administratively terminated, Hercules waited a total of seven months after the filing of its first Answer to move for leave to file an amended Answer. Hercules has proffered a reasonable and sufficient excuse for the delay. Therefore, Hercules' motion to amend its Answer is granted.
III. The General Release
Hercules asserts that PIC's claim is barred by accord and satisfaction because it paid PIC $60,473 in return for a complete release of all claims by PIC against Hercules. PIC contends that the General Release executed by the parties did not cover change orders 7, 9, and 16, and overhead costs, for which PIC is suing now.
Although the Court has granted Hercules leave to file an amended Answer, genuine issues of fact exist which preclude this Court from entering summary judgment on behalf of Hercules based on the affirmative defense of accord and satisfaction.
The General Release appears to be a fully integrated written agreement which might otherwise preclude the introduction of extrinsic evidence of the parties' intent based on the parol evidence rule. However, it is settled that extrinsic evidence, such as a course of dealing between two contracting parties, may be introduced to supplement or give meaning to even a fully integrated written agreement. See In re New Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996), cert. denied, 519 U.S. 1110 (1997);Sumitomo Machinery Corp. of America v. Allied Signal, Inc., 81 F.3d 328, 332 (3d Cir. 1996); American Cyanamid Co. v. Fermenta Animal Health Co., 54 F.3d 177, 181 (3d Cir. 1995); Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301-02 (1953); Restatement (Second) of Contracts § 223 (1981). Cf. N.J.S.A. 12A:2- 202 (New Jersey parol evidence rule).
The Restatement (Second) of Contracts § 223, entitled "Course of Dealing," provides the following:
(1) A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
(2) Unless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement.
Restatement (Second) of Contracts § 223 (1981).
Comment b to Section 223 notes that "[t]here is no requirement that an agreement be ambiguous before evidence of a course of dealing can be shown, nor is it required that the course of dealing be consistent with the meaning the agreement would have apart from the course of dealing." Before determining whether an agreement is ambiguous or not, a court may consider such extrinsic evidence as "the structure of the contract, the bargaining history, and the conduct of the parties that reflects their understanding of the contract's meaning." American Cyanamid, 54 F.3d at 181. This is so because the law acknowledges that the meaning of words can depend on the context in which they were used. See id.; In re New Valley Corp., 89 F.3d at 149 ("A court cannot interpret words in a vacuum, but rather must carefully consider the parties' context. . . .").
For purposes of comparison only, New Jersey's Uniform Commercial Code defines a course of dealing as "a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." N.J.S.A. 12A:1-205(1). In addition, the statute provides that a course of dealing gives "particular meaning to and supplement[s] or qualif[ies] terms of an agreement." N.J.S.A. 12A:1-205(3); see also N.J.S.A . 12A:2-202 (A fully integrated agreement "may be explained or supplemented . . . by course of dealing. . . .").
The authority in this area of the law is the Supreme Court of New Jersey's decision in Schwimmer, where the Court stated:
Evidence of the circumstances is always admissible in aid of the interpretation of an integrated agreement. This is so even when the contract on its face is free from ambiguity. The polestar of construction is the intention of the parties to the contract as revealed by the language used, taken as an entirety; and, in the quest for the intention, the situation of the parties, the attendant circumstances, and the objects they were thereby striving to attain are necessarily to be regarded.12 N.J. at 301.
Considering such extrinsic evidence is only for the purpose of interpreting the writing, and not for the purpose of modifying, enlarging, or curtailing its terms. See id. at 301- 02. Thus, the parol evidence rule does not preclude the admission of evidence for the purpose of interpretation. See id. at 302.
In this case, there is evidence that throughout the performance of the Subcontract, PIC and Hercules entered into many releases that are similar, if not identical, to the General Release at issue here. In fact, it appears that the parties executed at least forty-four identical releases between a time period of May 7, 1992 and August 21, 1995. The scope of each release is quite broad, and each release similarly provides that it releases and discharges Hercules from all actions, causes of action, suits, debts, dues, sum of money, contract controversies, agreements, promises, damages, judgments, and claims by PIC. In addition, each release discharges such claims that PIC "ever had, now have or hereafter can, shall or may, have or, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of the date of this release." Moreover, each release indicates the check number and dollar amount paid to PIC. These releases establish a course of dealing between the parties.
Clearly, each of these prior releases did not completely discharge all of PIC's claims for monies due against Hercules. Rather, it appears that as PIC completed work pursuant to the many change orders agreed to, PIC would submit a bill to Hercules covering the amount due on that particular change order. Hercules would then pay PIC for work done pursuant to that change order and, in return, receive a release of PIC's claims only as to the change orders which were paid. The existence of these general releases indicates that the General Release at issue in this case does not necessarily include within its ambit change orders 7, 9, 16, or the overhead costs of PIC. The parties, in fact, hotly contest this issue. Therefore, at the very least, this evidence raises a genuine issue of fact as to whether the May 14, 1996 General Release included PIC's claims for amounts due for change orders 7, 9, 16, and its extended overhead costs. This genuine issue of fact precludes the granting of summary judgment on behalf of Hercules.
CONCLUSION
For the foregoing reasons, Hercules Construction Corporation, Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company's motion for leave to file an Amended Answer is GRANTED. Hercules Construction Corporation, Seaboard Surety Company/The St. Paul Surety a/k/a St. Paul Fire and Marine Insurance Company's motion for summary judgment is DENIED.
An appropriate Order accompanies this Letter Opinion.