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WPCNR FOR THE RECORD, PART 2. From United States District Court, Southern District. February 11, 2007: Herewith is Part 2 of the Judge Brieant Court Order against the White Plains City School District.
Travelers’ current contention that WPPS improperly terminated Trataros before allowing Trataros to meet its new deadlines under the Forbearance Agreement is regarded as precluded or waived by Travelers’ agreement to complete the Construction Contract under §4.2 of the Performance Bond, and its entry onto the premises to accomplish that completion after WPPS’ demand for action under the Performance Bond. At that time, Travelers had the option to waive its right to perform and complete, and deny liability in whole or in part and so notify the Owner, under §4.4.2 of the Performance Bond.
Memorandum and Order at 1O.
There is a meaningful difference between this Court’s earlier finding which precluded
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Travelers’ procedurally-based argument that White Plains’ notice of default was insufficient, relieving Travelers of liability, and the one urged by White Plains at this stage of litigation, namely, that Travelers has waived the substantive defense that substantial completion was achieved by the date of termination. It has not.
“Waiver is an intentional relinquishment of a known right and should not be lightly presumed.” Gilbert Frank Corp. v. Federal Ins. Co., 70 N.Y.2d 966, 968 (N.Y. 1988). “Either party to a contract may waive any of its provisions made for his benefit.” Liberty MUL Ins. Co. v. Lodha, 131 Misc. 2d 670, 672 (N.Y. Misc. 1986).
While express waiver rests upon intention, and estoppel upon misleading conduct, implied waiver may rest upon either, for it exists when there is an intention to waive unexpressed, but clearly to be inferred from circumstances, or when there is no such intention in fact, but the conduct of the insurer has misled the insured into acting on a reasonable belief that the company has waived some provision of the policy.
Kiernan v. Dutchess County Mist. Ins. Co., 150 N.Y. 190, 195 (N.Y. 1896).
The Court declines to conclude that there was an intentional relinquishment of a known right because Trataros on January 8, 2003, had already claimed substantial completion prior to the notice of default, a fact known to Travelers because it was signed by Mr. Carbone, then on the payroll of Travelers. See PX-l1. In previously finding Travelers’ argument regarding notice of default precluded, the Court declined to exalt form over substance. On September 27, 2001, White Plains requested that “the surety intervene in this matter immediately and provide sufficient supervision and construction expertise to Trataros so that the project can be performed pursuant to Contract Documents.” See DX-74. The request was described as an “urgent demand
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that the bonding company take an active role in this construction project on behalf of Trataros before we reach the point of no return and are forced to default the contractor.” Id. Travelers did as requested, as any competent surety should. It had already acted in the matter, by having someone on site to assist and monitor Trataros’ performance. To deny liability at that late stage in the Project, without a Certification of Substantial Completion from the Architect, could have presented a risk of additional liabilities for Travelers, which had already been actively involved in the completion of the project, pursuant to White Plains’ September 2001 demand. In consideration of this, the Court does not conclude that Travelers waived its right to argue substantial completion, when it essentially continued a work it had already begun, and when a notice of default issued only after Trataros had already declared that substantial completion was achieved. While Travelers could have denied liability at the time that White Plains declared a default against Trataros, it did not, by virtue of completing the job it had already begun to oversee, waive its right to claim that substantial performance was actually achieved by the default date.
Date of Substantial Completion/Performance
The Court of Appeals of New York has held:
In the execution of a contract for the construction of a building or of a public improvement, involving many details, there occurs a point at which performance is so nearly reached that were the work terminated, recovery might be had by the contractor for substantial performance — abatement being made to the other party for deficiencies on the part of the contractor. In such a case, if the work under the contract terminated, it may very well be that the doctrine of substantial performance would apply and the improvement be deemed complete within the statute.
Milliken Bros., Inc. v. New York, 201 N.Y. 65, 73 (N.Y. 1911).
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Plaintiff argues, and Defendant denies that substantial completion of the Project was achieved by the time of White Plains’ act of terminating Trataros on January 30, 2003. Plaintiff contends, and I find that the overwhelming percentage of the Contract work was then complete and that the school was occupied for its intended use well before that date.
Defendant argues that the Architect’s certification date of June 16, 2003, is the proper date of substantial completion. The General Conditions provide that the “date of Substantial Completion is the date certified by the Architect in accordance with Paragraph 9.8.” See PX-6 at 8.1.3. Paragraph 9.8 includes the following: “Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use” and “[w]hen the Work or designated portion thereof is substantially complete, the Architect will prepare a Certificate of Substantial Completion which shall establish the date of Substantial Completion.” Id. at 9.8.1, 9.8.3. The Supplementary General Conditions also state that “[t]he occupancy of any portion of the building does not constitute an acceptance of any work as the Project will be accepted as a whole and not in units; Further, such occupancy alone shal not determine when substantial completion and performance has been reached.” See PX-7 at 9.9.4.
This Court earlier held that “[i}f substantial completion was achieved prior to the termination of Trataros, White Plains would be precluded from stating a claim for delay damages under the Performance Bond.” Memorandum and Order, p. 10. It held:
The Supplementary Conditions define the factual circumstances under which substantial
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completion could be certifiable, but did not revoke the authority of the Architect to determine such date. The Court concludes that in the absence of fraud, mistake or obvious error, the date certified by the Architect would the appropriate date of substantial completion.
Id., p. 9. In adherence to its earlier ruling and with the benefit of a plenary trial record, the Court now concludes that the evidence weighs strongly in favor of a finding of either mistake or obvious error, and additionally supports a strong inference of constructive fraud or unreasonableness by the Architect, such that the date of its certification cannot be determinative of whether delay damages may be awarded to White Plains.
The New York Court of Appeals has held that “an unreasonable refusal on the part of an architect … to give the certificate dispenses with its necessity.” Arc Electrical Constr. Co. v. George A. Fuller Co., 24 N.Y.2d 99, 104-105 (N.Y. 1969). In Arc Electrical, the Court of Appeals also held that “[w]hen [the plaintiff] had substantially performed his contract, the architect was bound to give him the certificate, and his refusal to give it was unreasonable.” Id. The Court noted the reasoning behind the rule, and explained:
The rule is based upon the fact that the architect, in contracts of this sort, rarely a disinterested arbiter, is usually the representative of the party, often the owner, who must ultimately bear the cost of the work. … Since approval, when given, constitutes an admission that the work is acceptable, it may be relied upon as a good indication that the contract was, in fact, properly performed. On the other hand, there is no denying that the architect has some incentive to delay approval or even withhold it entirely.
Id. at 104, n.2.
The Second Department of the Appellate Division of the Supreme Court of New York
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determined that prior case law stood for the proposition that “where the plaintiff has performed the work so as to entitle him to the certificate, the refusal of the architect to give the certificate is unreasonable and the plaintiff is excused from its production.” Wilson vs. Curran, 190 A.D. 581, 584 (N.Y. App. Div. 1920), aff’d 232 N.Y. 587(1922).
[W]here the facts show that the duty rested upon the architect to issue the certificate, his failure so to do will be held to be unreasonable awl the contractor relieved from the condition that it must be obtained. It is a rule growing out of the practical difficulty of the architect’s serving two masters, and the milder word “unreasonable” is under the circumstances preferred by the courts to the words “constructive fraud.”
Id. at 585.
The lead Architect in this case, Mr. Davidson, certified that substantial completion was
achieved as of June 16, 2003. See PX-t0. It therefore is undisputed that by June 16, 2003, at the very latest, the Project was fully completed, with the exception of only de minimis punch-list items ($12,300), most of which the owner White Plains never finished, as of the time of trial. See PX82; PX-16, at 3. The evidence presented at trial, however, compels the Court to consider on the issue, the extent of the work accomplished before the default date of January 30, 2003.
Mr. Davidson testified that his office, as Defendant’s Architect, reviewed each line item
and/or work completed before it certified each of Trataros’ requisitions, and that it would make downward adjustments on requisitions for work not completed. See Davidson Tv. at 876-880. Defendant’s Architect certified that, during the month of September 2002, work under Contract # I in the amount of more than $217,000 had been done and approved; and that as of September 2002 the total work under the Contract done and approved was in the amount of $12,367,687.30
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minus $15,000, out of a total contract amount of $12,856,102.00, which represents 96.1% of the Contract as completed and approved. See PX-8, at WPSD 034142. Defense witness Joseph DePaul, who was at relevant times employed by Thomas Management, also testified that he reviewed Trataros’ Payment Requisition No. 28, for September 30, 2002, and that at that point in time the work by Trataros was represented to be approximately 96% complete. See DePaul Tr. At 760-61. Accordingly, by the end of September 2002, I find that Trataros had completed approximately 96% of the Contract.
The Architect certified that, during the month of October 2002, work under the Contract in the amount of more than $ 173,000 was done and approved; and as of October 2002 the total amount of work under the Contract done and approved was in the amount of $12,452,126.19, out of a total contract amount of $12,885,154.06, which constitutes over 96.6% of the Contract as completed and approved. See PX-9, at WPSD 034038. Accordingly, by the end of October 2002, Trataros had completed approximately 96.6% of the Contract.
The Architect certified that, between November 2002 and December 2002, work under the Contract in the amount of more than $141,000 was done and approved; and as of December 2002 the total amount of work under the Contract done and approved was in the amount of $12,601,092.48, out of a total contract amount of$12,914,755.94, which represents nearly 98% of the Contract completed and approved. See PX-1 I, at WPSD 033920. Accordingly, by the end of December 2002, Trataros had completed approximately 98% of the Contract.
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The Architect certified that, during the month of January 2003, work under the Contract in the amount of more than $54,000 was done and approved; and as of January 2003 the total amount of work under the Contract completed and approved was in the amount of $12,672,853.02 minus $13,800 Disallowed, out of a total contract amount of $12,914,755.94, which constituted over 98% of the work as completed and approved. See PX-l 2, at WPSD 033861. Accordingly, I find that within one day of the date of default, by the end of January 2003, the work on the Contract was more than 98% complete. See PX-8; Px-ii; PX-12; PX-13.
Although Architect Davidson testified at trial that the percentage complete listed on the payment requisitions did not accurately reflect the percentage of completion of actual work, because the percentage figures did not account for all faulty work and omitted certain punchlist work, he also testified that his office reviewed each line item and/or work completed before it certified Trataros’ requisitions for work not completed. See Davidson Tr. at 821; 876-880. This Court declines to find that the Architect certified work not actually done, or defective work. Nor may the Architect, as an agent for White Plains, be heard to impeach his own certifications simply because to do so would assist Defendant’s litigation position. See infra at pp. 35-38.
By the time the Architect certified substantial completion as of June 16, 2003, the items of actual “work” remaining were valued by KG&D and construction manager Thomas at $72,075, out of the over $12.9 Million Contract, a mere one-half of one-percent of the work, demonstrating that substantial completion must have been achieved long before then. See DX140, at Change Directive OC 42.
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As noted earlier, prior to the default, on January 8, 2003, Mr. Carbone’s application for payment No. 30 advised the Architect that “Trataros maintains that the Project at 98% completion is considered to be substantial completion.” See PX-l 1. Approximately three weeks thereafter White Plains declared a default. Mr. Carbone’s memoranda or letters to Trataros, which express an urgency toward completion do not, in the Coart’s view, contradict his posture that substantial completion was ultimately achieved prior to January 30, 2003. See e.g., DX-262; DX-230; DX- 265.
Defendant’s construction manager, Mr. DePaul, testified and I find that as early as October of 2002, Trataros was working on punchlist items. See DePaul Tr. at 761-762. Defendant’s expert, Mr. Mauzo, conceded at trial that by January 2003, all but “Punch List” work had been completed by Trataros. See Manzo Tr. 962-963. During depositions, Charles Ackerman, who worked for Thomas Management and served as White Plains’ construction manager for the Project, stated that as of January 29, 2003, the Project was “on its last legs.” See PX-200; Ackerman Dep. at 128:22-25.
Also significant is the fact that by letter dated September 10, 2002, the Architect requested the following from Trataros and the other prime contractors:
As per section 9.8.2 of the General Conditions of the Specification, please proceed to prepare a comprehensive list of open items that will require completion or correction prior to final payment. These “punchlists” … are to include a schedule of dates when the activities will be completed.
See PX-98. Section 9.8.2 of the General Conditions falls under Section 9.8, entitled “Substantial
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Completion.” See PX-6. It provides, in relevant part:
When the Contractor considers that the Work, or a portion thereof which the Owner agrees to accept separately, is substantially complete, the Contractor shall prepare and submit to the Architect a comprehensive list of items to be completed or corrected prior to final payment…
See PX-6, at §9.8.2 (emphasis added). Accordingly, the request for punchlist on September 10, 2002 is regarded as an admission at that early date that the project was substantially complete. Trataros replied with what is designated a “Final Completion List,” which the Court regards as a punch list, and a proposed calendar schedule of remaining activities. See PX-99.
Ms. Catherine Dixon of KG&D authored the September 10, 2002 letter which directly invokes §9.8.2, implying rather directly that Trataros had achieved substantial completion by that date. Although at trial she testified that it wasn’t her job to determine substantial completion, when asked in an earlier deposition whether “substantial completion [was] achieved as defined [] in 9.8.1 in September 2002 for the entire project except for the art rooms,” she conceded: “1 think that because I wrote this, that we thought that was the case.” See Dixon Tr. at 512-518.
The Vertex analysis dated December 12, 2002, which concluded that it would cost approximately $1,130,000.00 and take three months or thirteen weeks to complete the Project does not negate the Court’s finding. See DX-948. That estimate does not mean that substantial completion could not have been achieved within approximately six to seven weeks from that time, or by January 30, 2003.
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By letter dated December 9, 2002, Counsel for White Plains reported to Mr. Scarpellino of Travelers that Dick Lasselle and Don Carbone were “in agreement that in order to achieve substantial completion by December 31, [] there must be substantial acceleration of the work force.” See DX-293. Accordingly, the parties were collectively aware by early December of 2002, that substantial completion was possible by late December 2002, even if requiring enhanced effort. Certainly then, it was possible by the end of January 2003.
Although under the terms of the Supplementary Conditions, the occupancy and use of the school for its intended purpose was not to be dispositive of whether substantial completion was achieved, it is nevertheless of some probative value that the entire school was occupied in 2002. See e.g. Landow & Landow Architects, P.C v. Shorefront Jewish Geriatric Or., 289 A.D.2d 492,493 (N.Y. App. Div. 2001)(substantial completion of the project occuced no later than when the premises was occupied for its intended use). By September 2002, White Plains certified to the New York State Education Department that the building was safe for its students to use. Prior to the termination of Trataros on January 30, 2003, the State’s Education Department issued an unrestricted “Certificate of Occupancy” to White Plains, allowing for use of the total facility. See PX-10 at WPSD 023026; Connors Tr. at 547. The Certificate was dated to expire on November 1, 2003, and was presumably issued on an annual basis, meaning that it would have issued on November 1, 2002. See Kelly Tr. at 564. Mr. Davidson attached copies of the Certificate of Occupancy and the compliant Fire Safety Report to his Certificate of Substantial Completion, which he did not issue until June, indicating he regarded the issuance thereof as having some relevance.
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Also, by letter dated January 15, 2003, the Attorney for White Plains enumerated only 18 items with proposed deadlines requiring completion by Trataros and stated that “[i]fTrataros is unable to meet any deadline identified above, the School District will immediately send a notice of default to you and to the bonding company.” See PX-108a. Several of the items were listed as needing to be completed by May 1, 2003. See Id. However, by confidential memorandum dated January 27, 2003, Mr. Lasselle sought from his superior, Mr. Connors (the Superintendent of Schools of White Plains) authorization to execute a notice of default to Trataros Construction “in the event that they fail to perform according to the latest schedule.” See PX-109 (emphasis added). The “latest schedule” was presumably the January 15 schedule of enumerated tasks composed by Defendant’s Attorney, which, as noted, contained several tasks not requiring completion until May of 2003. See PX-lO8a.
Misconduct of the Architect
The evidence developed at trial supports a finding of either mistake or obvious error by the Architect in delaying certification of substantial performance until June 2003, because by any measure of reasonable determination, substantial completion was achieved before the claimed default date of January 30, 2003. The evidence also supports a finding of unreasonableness or constructive fraud by the Architect in refusing to certify an earlier date. Relevant to the issue is the fact that prior to October 9, 2002, and several months prior to the notice of default, the Architect entered into an additional and wholly separate agreement with White Plains, which gave the Architect a contingent financial interest in the outcome of the instant litigation, on top of the inherent conflict of interest recognized in Arc Electrical, infra. In so doing, the Architect
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lost whatever objectivity it might have had.
Under the separate agreement, the Architect agreed to support and serve White Plains in already contemplated litigation over the Project. KG&D agreed to side with Defendant against Tratoras/Travelers by providing services to it in support of any “legal actions and defenses of claims related to the High School project.” At the same time, the Architect remained obligated to issue impartial certificates of completion and act on requests for change orders by Trataros. See PX-197. Such impartiality is precluded where, as in this case, all costs for additional litigation support services beyond two-thirds of customary rates were to be “paid only if these amounts are recovered from the contractors.” See DX-954.
KG&D was to send invoices for these newly agreed upon services directly to the office of Defendant and they were to be “separate and distinct from all of the services provided to the District as part of [the] Contract.” See PX-197.
“[T}here is no denying that [an] architect has some incentive to delay approval or even withhold [a certificate of substantial completion] entirely.” Arc Electrical, 24 N.Y.2d at 104 n.2. In Arc, the Court noted that “[I]t is well established that, where work has, in fact, been substantially performed in accordance with the provisions of a contract, the withholding of approval does not bar recovery.” Id. at 104.
The existence of the Architect’s October 9, 2002 agreement to support Defendant in any
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legal action or claim including this case, and its contingent fee interest in the outcome of this litigation bears heavily on the credibility of the Architect, and is certainly relevant circumstantial evidence of an incentive or possible bias in favor Defendant as early as October 2002, and of a constructive fraud in declining to earlier issue a certificate of substantial completion.
This voluntarily assumed additional conflict of interest and potential for bias amounting to constructive fraud is particularly troubling in light of the American Institute of Architects’ Code of Ethics & Professional Conduct. That Code provides in relevant part:
When acting by agreement of the parties as the independent interpreter of building contract documents and the judge of contract performance, Members shall render decisions impartially.
A Member shall not render professional services if the Member’s professional judgment could be affected by responsibilities to another project or person, or by the Member’s own interests, unless all those who rely on the Member’s judgment consent after full disclosure.
Pound at http://www.aks.org/SiteObjects/Jiles/codeofethics.pdf
No contemporaneous disclosure of the separate agreement was ever made to Trataros or Travelers. Before the Notice of Default, at Least 98% of the work on the Project was accomplished and the contractor had accordingly declared substantial completion. Well before that time frame, the Architect had undertaken a clandestine personal financial interest in the outcome of the school’s anticipated litigation with Travelers.
Considering the totality of the circumstances in this case, the Court concludes that it was
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at least mistake or obvious error, compounded by unreasonableness, and probably constructive fraud, for the Architect to withhold until June of 2003, the Certification of Substantial Completion, which was part of its explicit duty to issue under Article 9.8.4 of the General Conditions, as well as under its own profession’s Code of Ethics & Professional Conduct. See PX-6. The Court finds and concludes that substantial completion was achieved before the date of the Architect’s certification and in all events by January 30, 2003, the date of default.
White Plains also argues that Travelers’ acceptance of its completion obligations necessarily requires acceptance of its obligation to pay for actual damages incurred by Trataros’ delays. It argues that the three conditions precedent contained in Paragraph 3 of the AlA 312 surety bond apply equally to the surety’s Paragraph 4 completion options and to its Paragraph 6 obligations to pay delay damages and that the default notice sufficient to trigger the surety’s completion obligation under Paragraph 4 is also sufficient to trigger the surety’s obligations under Paragraph 6. White Plains urges the Court to conclude that Travelers accepted its obligation to pay damages under Paragraph 6 of the Performance Bond when it accepted its obligation to complete the Trataros Contract under Paragraph 4 of the Performance Bond. The Court declines to do so.
[B)efore a surety’s obligations under a bond can mature, the obligee must comply with any conditions precedent. “A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.
United States Fid. & Guar. Co. v. Braspetro Oil Servs. Co, 369 F.3d 34, 51 (2d Cir. 2004). “[A] surety’s liability to perform under a performance bond is coextensive with that of the principal
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contractor.” Id. at 67.
As just explained, the Court concludes that substantial completion was achieved by the time of notice of default. Furthermore, White Plains and its Architect are deemed to have had knowledge by the termination date that substantial completion was already achieved. For these reasons, no delay damages may be awarded to White Plains.
The liabilities or provisional liabilities willingly incurred by White Plains and asserted as pass-through claims owing to contractors Richards and Burchetta, are unrecoverable from Travelers, as either the Surety of Trataros, or from Travelers, as it stood in the shoes of Trataros as assignee of contract balances due.
In accordance with all of the foregoing, Counsel shall confer and thereafter submit within twenty (20) days, a joint proposed final judgment with the net amount due and owing, considering the adjudications herein made as well as any and all prior payments, credits, back-charges or relevant transactions affecting the net amounts due. If Counsel are unable to agree upon such a joint proposed final judgment, each shall submit their own. Any possible ambiguity, which prevents entry of final judgment, shall be promptly resolved by discussion, if possible or directed to the attention of the Court and opposing Counsel by letter. Pre-judgment interest is awarded on the net amount from October 15, 2003, to the date of judgment pursuant to New York CPLR § 5004.
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SO ORDERED.
Dated: White Plains, NY
January 25, 2007 Charles L. Brieant, U.S.D.J.
