United States of America for the use and Benefit of Five Star Electric Corp. v. Liberty Mutual Insurance Company et al

Filing 68

MEMORANDUM OPINION AND ORDER: For the foregoing reasons, Five Star's motion for leave to file the proposed amended complaint is denied as futile. This Memorandum Opinion and Order resolves docket entry no. 62. The Clerk of the Court is directe d to enter judgment dismissing the Complaint with prejudice, and close this case, and as further set forth in this order. Motions terminated: 62 MOTION for Leave to File Amended Complaint, filed by United States Of America. (Signed by Judge Laura Taylor Swain on 8/28/2017) (ap) Modified on 8/28/2017 (ap).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------- x
UNITED STATES OF AMERICA for the use
and benefit of FIVE STAR ELECTRIC CORP.,
Plaintiff,
-v-

No. 15 CV 4961-LTS

LIBERTY MUTUAL INS. CO. and
CAULDWELL-WINGATE CO., LLC,
Defendants.
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MEMORANDUM OPINION AND ORDER
Plaintiff Five Star Electric Corp. (“Five Star”), a subcontractor of defendant
Cauldwell-Wingate Co., LLC (“Cauldwell”) for a construction project at the Thurgood Marshall
United States Courthouse in Manhattan (the “Project”), brings this suit under the Miller Act, 40
U.S.C. § 3133, and for breach of contract and quantum meruit. This Court has subject matter
jurisdiction of the Miller Act claim pursuant to 28 U.S.C. § 1331, and may exercise
supplemental jurisdiction of the state-law claims pursuant to 28 U.S.C. § 1367.
On November 1, 2016, this Court granted a motion to dismiss by Cauldwell and
Liberty Mutual Insurance Company (“Liberty Mutual” and, with Cauldwell, “Defendants”), and
dismissed Five Star’s original complaint (docket entry no. 1, “Complaint”) for failure to state a
claim, with leave to replead (docket entry no. 57, “November Opinion”). Five Star now moves
for leave to file a proposed Amended Complaint (docket entry no. 63, Decl. of Matthew Minero,
Ex. B., the “AC”). This Court has carefully considered the parties’ submissions and, for the
reasons that follow, Five Star’s motion for leave to amend is denied as futile.
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BACKGROUND
The Court assumes the parties’ familiarity with the allegations in the Complaint,
as detailed in the November Opinion. All abbreviations used herein have the same meaning as
in the November Opinion.
The proposed AC repeats all the allegations and claims in the Complaint (see AC
¶¶ 1-11, 36-55), and adds a new breach of contract claim for underpayment based on additional
work requested by Cauldwell under the subcontract (the “Changes”) (id. ¶¶ 32-35). The
proposed AC also contains new factual allegations relating to the second breach of contract
claim, alleging delays and inefficiencies in the Project caused by Cauldwell. (Id. ¶¶ 12-31.)
On the first breach of contract claim based on underpayment, the proposed AC
alleges that Five Star and Cauldwell entered into a subcontract for construction work at the
Project (the “Subcontract”) for a specified price of $43,100,000.00. (Id. ¶ 8.) The proposed AC
further alleges that Five Star performed additional work under the Changes as required by
Cauldwell (id. ¶ 9), with the total price of the Subcontract and the Changes amounting to a sum
of $56,576,658.69 (id. ¶ 33). The proposed AC contains no factual allegations about the nature
of the Changes, except for stating the man hours allegedly spent performing the Changes. (Id.
¶ 19.) Five Star alleges that it has been paid $55,899,500.64 for the work it performed (id. ¶ 31),
and seeks the difference of $667,158.05 between the payment it received and the alleged total
price in monetary damages against Cauldwell (id. ¶ 35).
On the second breach of contract claim based on delays caused by Cauldwell, the
proposed AC alleges that Cauldwell failed to timely coordinate the work of its subcontractors,
imposed unanticipated changes in the design and sequencing of contractual work, and failed to
timely respond to Five Star’s requests for information. (Id. ¶¶ 14-18.) Such failure allegedly
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caused delays in Five Star’s work on the Project, resulting in damages in the form of labor
inefficiency costs and extended general condition costs. (Id. ¶¶ 42-43.) While Five Star did not
attach the Subcontract to either its Complaint or the proposed AC, a copy of “Subcontract
Agreement”, together with an attachment entitled “Subcontract Terms & Conditions”, was filed
by Cauldwell with its memorandum of law in opposition to Five Star’s motion for leave to
amend. (Docket entry no. 65., Decl. of Michael T. Contos, Ex. 1.) § 5.0 of the “Subcontract
Terms & Conditions” provides as follows:
[I]n the event SUBCONTRACTOR is delayed in performing any of
its obligations under this SUBCONTRACT, and such delay is caused
by ... or by acts or omissions of CONTRACTOR, OWNER or others,
such delays shall be excused and the period thereof shall be added to
the time for performance of the obligation delayed. Said time
extension(s) shall constitute SUBCONTRACTOR’s sole and
exclusive remedy with respect to such delay(s), and
SUBCONTRACTOR shall not be entitled to additional compensation
as a result of such delays.
(Id. at ECF p. 9.) Five Star alleges that the costs incurred due to the delays amount to a sum of
$22,136,009.00, and seeks this amount in compensatory damages against Cauldwell. (Id. ¶ 42.)
In the proposed AC, Five Star relies on the same factual allegations underlying
the two breach of contract claims to raise a quantum meruit claim, seeking $22,813,167.95 in
monetary damages as the alleged fair and reasonable value of work performed. (Id. ¶¶ 47-48.)
As the fourth and last cause of action, Five Star alleges that the Subcontract was entered into as
part of a government construction project, and that a payment bond was posted by Liberty
Mutual as a surety for the payment to subcontractors and material suppliers, pursuant to
requirement of the Miller Act, 40 U.S.C. § 3131. (Id. ¶¶ 7, 50.) Invoking the payment bondbased cause of action established by 40 U.S.C. § 3133, and relying on the factual allegations
underlying the two breach of contract claims, Five Star alleges that it was underpaid under the
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Subcontract and seeks the sum of $22,813,167.05 in monetary damages.

DISCUSSION
Federal Rule of Civil Procedure 15 provides that the court may give leave to a
party to amend its pleading when justice so requires. Fed. R. Civ. P. 15(a)(2). A proposed
amendment to a pleading may be denied on grounds of futility, however, “if it could not
withstand a motion to dismiss pursuant to Rule 12(b)(6).” Oneida Indian Nation of N.Y. v. City
of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (citation omitted). The party opposing the motion
to amend bears the burden of establishing that the amendment would be futile. Ballard v.
Parkstone Energy, LLC, No. 06 CV 13099, 2008 WL 4298572, at *3 (S.D.N.Y. Sep. 19, 2008).
Under the standard of Rule 12(b)(6), the Court accepts as true the non-conclusory
factual allegations in the complaint, and draws all reasonable inferences in the plaintiff’s favor.
Roth v. Jennings, 489 F.3d 499, 501 (2d Cir. 2007). To survive a motion to dismiss, a complaint
must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. v.
Twombly, 550 U.S. 544, 570 (2007). A pleading that only offers “labels and conclusions or a
formulaic recitation of elements of a cause of action” will not suffice. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).
In ruling on a motion under Rule 12(b)(6), the court may consider the facts as
asserted within the four corners of the pleading, together with the documents attached to it as
exhibits, any documents incorporated in it by reference, see Peter F. Gaito Architecture, LLC v.
Simone Dev. Corp., 602 F.3d 57, 64 (2d Cir. 2010), and documents upon which the pleading
relied and which are integral to the pleading, see Subaru Distribs. Corp. v. Subaru of Am, Inc.,
425 F.3d 119, 122 (2d Cir. 2005). In most instances where the material is recognized as integral,
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the material is a contract or other legal document containing obligations upon which the nonmoving party’s claim stands or falls, but was not attached to the pleading. Global Network
Commc’ns, Inc. v. City of N.Y., 458 F.3d 150, 157 (2d Cir. 2006).

Count One: Breach of Contract Based on Underpayment
To make out a viable claim for breach of contract under New York law, Five Star
must allege facts that plausibly plead (1) the formation of a contract between the parties, (2)
adequate performance of the contract by one party, (3) breach of contract by the other party, and
(4) damages. See Orlander v. Staples, Inc., 802 F.3d 289, 294 (2d Cir. 2015) (citation omitted).
Here, the breach of contract claim based on underpayment fails because Five Star has failed to
sufficiently plead the occurrence of a breach and resulting damages.
The proposed AC states that Five Star and Cauldwell entered into the Subcontract
for a specified sum of $43,100,000.00, and that Five Star has been paid $55,899,500.64, a sum
well above the agreed contract price. The proposed AC also alleges that Five Star performed
additional work under the Changes pursuant to the requirement of Cauldwell, and asserts that the
total price of the Subcontract and the Changes amounts to a sum of $56,576,658.69. Thus, the
price for the work performed under the Changes allegedly amounts to $13,476,658.69, the
difference between the alleged total price and the Subcontract price.
Five Star, however, makes no allegations about the nature or content of the work
allegedly performed under the Changes, and provides no basis to determine the price of such
work, apart from one allegation of the approximate man hours spent in completing the Changes.
Without any allegations regarding how the parties value the work performed under the Changes,
or how Five Star calculates the price of its work based on man hours, the general assertions in
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the proposed AC are insufficient to raise a plausible inference that the proper price for the
Changes amounts to more than $13 million, or that such sum is more than the payment amount
that Five Star has already received above the original Subcontract price. Granting leave to add
Five Star’s breach of contract claim based on underpayment as framed in the proposed AC
would be futile, and leave to make the proposed amendment is therefore denied.

Count Two: Breach of Contract Based on Delays
In its proposed AC, Five Star alleges that Cauldwell caused various delays in the
progress and scheduling of the work on the Project resulting in Five Star’s damages, and
provides a list of examples in the form of proposed change orders submitted by Five Star to
Cauldwell, seeking indemnification. (AC ¶¶ 22-28.)
Since the Subcontract between Five Star and Cauldwell forms the basis of Five
Star’s breach of contract claims, the Subcontract is a document integral to the proposed AC,
which this Court can properly consider on a motion to dismiss. See Global Network Commc’ns,
Inc., 458 F.3d at 157. Here, § 5.0 of the “Subcontract Terms & Conditions”, which is annexed to
the “Subcontractor Agreement” and is quoted above, provides that any delays caused by
Cauldwell in Five Star’s work at the Project shall be excused, and that time extension for the
performance of the Subcontract shall constitute Five Star’s sole and exclusive remedy. Five
Star’s claim for monetary damages for delays caused by Cauldwell falls under this clause.
Under New York law, no-damage-for-delay clauses are not against public policy
and are generally enforceable, unless: (1) delays are caused by the contractee’s bad faith or its
willful, malicious, or grossly negligent conduct; (2) delays are uncontemplated; (3) delays result
from the contractee’s breach of a fundamental obligation of the contract; or (4) delays are so
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unreasonable that they constitute an intentional abandonment of the contract by the contractee.
U.S. for Use and Benefit of Evergreen Pipeline Const. Co., Inc. v. Merritt Meridian Consti.
Corp., 95 F.3d 153, 166 (2d Cir. 1996). The proposed AC asserts that the first three exceptions
apply here, but merely recites the language of the standard, without providing any underlying
factual allegations that would plausibly demonstrate that any of the exceptions apply here. (See
AC ¶¶ 39-41.) The Court will not accept as true a legal conclusion couched as a factual
conclusion, and such “[t]hreadbare recitals of the elements of a cause of action” do not suffice to
state a plausible cause of action. Iqbal, 556 U.S. at 678 (2009). Therefore, granting leave to
make the proffered amendment of Five Star’s breach of contract claim based on delays caused
by Claudwell as proposed would be futile, and leave to amend is denied.

Count Three: Quantum Meruit
Under New York law, when a valid agreement governs the subject matter of a
dispute between parties, claims arising from that dispute are contractual in nature, and alternative
claims under a theory of quantum meruit are precluded. Poplar Lane Farm LLC v. Fathers of
Our Lady of Mercy, 449 F. App’x 57, 59 (2d Cir. 2001). Courts will permit pleading in the
alternative in the face of a written agreement only when there is a bona fide dispute as to the
agreement’s validity, or where the agreement does not cover the dispute at issue. Id.; see also
Air Atl. Aero Eng'g Ltd. v. SP Aircraft Owner I, LLC, 637 F. Supp. 2d 185, 195-96 (S.D.N.Y.
2009). Here, in the proposed AC, Five Star neither disputes the validity of the Subcontract nor
alleges that the Subcontract is silent as to the subject matter of its breach of contract claims.
(See AC ¶¶ 7-31.) Therefore, granting leave to make the proffered amendment to Five Star’s
quantum meruit claim would be futile, and leave to amend is denied.
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Count Four: Miller Act
“[T]o make out a Miller Act claim and avoid a futility finding,” Five Star must
plead that “(1) it provided labor or materials in performing work provided for in a contract for
which a payment bond is furnished and (2) it has not been paid in full for the work performed.”
M.E.S., Inc. v. Safeco Ins. Co. of Am., No. 10 CV 02798, 2014 WL 2931398, at *4 (E.D.N.Y.
Jun. 27, 2014); see also Empire Enters. JKB, Inc. v. Union City Contractors, Inc., 660 F.Supp.2d
492, 507 (W.D.N.Y. 2009). Because Five Star can not plausibly state a claim of underpayment
in either breach of contract or quantum meruit, it cannot sufficiently plead that it was underpaid
for its work under the Subcontract and the Changes. Therefore, granting leave to amend the
cause of action asserting a claim under the Miller Act would be futile, and leave to amend is
denied.

CONCLUSION
For the foregoing reasons, Five Star’s motion for leave to file the proposed
amended complaint is denied as futile. This Memorandum Opinion and Order resolves docket
entry no. 62.
The Clerk of the Court is directed to enter judgment dismissing the Complaint
with prejudice, and close this case.
SO ORDERED.
Dated: New York, New York
August 28, 2017
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge

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