Turf Nation, Inc. v. Platte River Insurance Company

Filing 18

DECISION and ORDER denying 14 Motion to Stay. Signed by Hon. Leslie G. Foschio on 11/30/2017. (SDW)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
____________________________________
TURF NATION, INC.
Plaintiff,
v.
PLATTE RIVER INSURANCE COMPANY,

DECISION
and
ORDER
17-CV-534V(F)

Defendant.
____________________________________
APPEARANCES:

GETMAN & BIRYLA, LLP
Attorneys for Plaintiff
SETH L. HIBBERT, of Counsel
800 Rand Building
14 Lafayette Square
Buffalo, New York 14203
ALSTON & BIRD LLP
Attorneys for Plaintiff
THOMAS P. CLINKSCALES,
WILLIAM S. SUGDEN, of Counsel
1201 West Peachtree Street NW
Atlanta, Georgia 30309-3424
MCELROY DEUTSCH MULVANEY &CARPENTER, LLP
Attorneys for Defendant
THEODORE M. BAUM, of Counsel
820 Bausch & Lomb Place
Rochester, New York 14604

In this action to enforce a performance bond, commenced on May 12, 2017, in
New York Supreme Court, Erie County and removed to this court, Defendant moves, by
papers filed September 8, 2017 (Dkt. 14), to stay further proceedings (“Defendant’s
motion”). Specifically, Plaintiff seeks payment from Defendant, a surety, for
approximately $145,000 representing an unpaid balance due for artificial turf
manufactured by Plaintiff and ordered by UBU Sports, Inc., a non-party (“UBU”), as

general contractor and Defendant’s principal, for a recently constructed professional
football practice field under a public works contract awarded to UBU by Erie County as
owner of the facility and the obligee on Defendant’s surety bond (“the Erie County
Project”). Plaintiff is a leading supplier of high quality artificial turf for NFL and high
school sports facilities throughout the United States and foreign countries; UBU is a
major installer of Plaintiff’s turf product in such facilities. Plaintiff opposed Defendant’s
motion by filing, on September 21, 2017, its Memorandum of Law In Opposition (Dkt.
16); Defendant’s reply was filed October 12, 2017 (Dkt. 17). Oral argument was
deemed unnecessary.
The basis for Defendant’s motion is Plaintiff’s action against UBU pending in
Superior Court of Delaware (“the Delaware Court Action”) which Plaintiff commenced on
January 12, 2017, approximately four months before the instant action, as a class action
on behalf of unpaid materialmen to recover approximately $369,000 for artificial turf sold
to UBU for installation at two facilities located in New York State including the Erie
County Project (the other is a high school in Philadelphia, N.Y.) (“the New York State
Projects”). In the Delaware Court Action, Plaintiff also seeks payment against UBU for
approximately $3 million, now known as Artificial Turf Sports Field, Inc., for unpaid
shipments of Plaintiff’s turf for 20 projects, similar to the Erie County Project, including
the New York State Projects, located within the United States during the period May –
November 2016. The Delaware Court Action also includes claims against UBU’s former
president for diversion of trust funds subject to state trust fund statutes, e.g., N.Y. Lien
Law §§ 70-71[4], representing payments to UBU from the owners of the various projects
which UBU was obligated to pay to Plaintiff as a supplier for the Erie County Project and

2

other projects. Plaintiff also alleges that Erie County has made partial payments on its
contract with UBU. In response to the Delaware Court Action, UBU asserts that Plaintiff
and UBU conducted business with respect to the projects under a revolving $5 million
credit line (“the Supply Agreement”) and that UBU has, during the period covering UBU
work on the Erie County Project, paid millions of dollars to Plaintiff to cover balances on
the revolving credit facility between Plaintiff and UBU, including for the Erie County
Project, but that Plaintiff failed to properly credit such payments against any of Plaintiff’s
alleged outstanding invoices, instead crediting such payments against invoices for
projects for which Plaintiff could not seek payment from a bonding company such as
Defendant in this action, or other sources for payment such as guarantors, or by
enforcement of a mechanics or supplier lien. Based on UBU’s assertion that contrary to
its directions, Plaintiff failed to credit UBU’s repayments on either a chronological or by
invoice basis UBU requested the court direct an accounting of UBU’s payments to
Plaintiff during the relevant period. As a result of the Supply Agreement between
Plaintiff and UBU, UBU also contends Plaintiff waived any right to enforce a supplier lien
pursuant to N.Y. Lien Law §§ 70-71, and N.Y. State Finance Law § 137, requiring
performance bonds for public works projects in New York State such as the Erie County
Project. UBU also alleges that the Delaware Court Action represents a form of
retaliation by Plaintiff on account of the termination in late October 2016 by UBU
shareholders and investors of UBU’s founder and former CEO, Mark Nicholls, the son of
Sid Nicholls who is Plaintiff’s sole owner and CEO. The Delaware Court Action also
includes UBU’s $6.6 million counter-claim which is predicted on allegations of fraudulent
cancellation of the Supply Agreement and mismanagement of UBU by Mark Nicholls

3

while UBU’s CEO, and Sid Nicholls, who UBU alleges aided and abetted Mark
Nicholls’s mismanagement of UBU, constituting tortious interference with UBU’s
contractual relations. According to Plaintiff, Plaintiff and UBU, during the period of the
non-payments accrued by UBU, engaged in a course of conduct whereby payments by
UBU to Plaintiff would be credited to the oldest, outstanding accounts, i.e., invoices, first
and then to other balances.
In a related matter commenced March 13, 2017 in Delaware Chancery Court,
UBU has sued Plaintiff and Mark Nicholls as an aider and abettor, alleging breach of
corporate loyalty, waste and diversion of assets including allegations of fraud in
connection with the creation, i.e., back-dating, and cancellation of the Supply
Agreement which was required to obtain a large capital infusion to UBU (“the Chancery
Court Action”). The Chancery Court Action and the Delaware Court Action have been
consolidated. According to Plaintiff, UBU recently admitted in discovery an inability to
pay its current obligations. The instant action seeks performance of Defendant’s surety
bond, issued July 12, 2016, securing any amounts owed to Plaintiff for Plaintiff’s supply
of material to UBU in connection with the Erie County Project up to $264,313.
Defendant’s motion is premised on Defendant’s assertion that UBU’s alleged
debt to Plaintiff for the turf supplied for the Erie County Project, which is the basis for
Plaintiff’s claim on Defendant’s bond, will be determined in the Delaware Court Action
albeit as a component of Plaintiff’s numerous other claims arising on the other projects
which are the subject of the Delaware Court Action, and if that claim is decided against
Plaintiff, it will moot the instant action under collateral estoppel as Plaintiff is a party to
the Delaware Court Action and will be thus bound by the Delaware court’s

4

determination. See Dkt. 14-7 at 3. Defendant therefore contends Plaintiff will not be
prejudiced by a stay of this action whereas Defendant will be burdened by significant
and potentially unnecessary litigation costs in this case if Defendant’s request for stay is
not granted. See Dkt 14-7 at 4-6. Defendant also points to the fact that a stay will
obviate any possibility of inconsistent results should the Delaware court find UBU does
not owe anything to Plaintiff in connection with the Erie County Project, but on the same
evidence this court may conceivably find it does. Dkt. 14-7 at 4-5. Defendant does not
explicitly agree to be bound by an adverse determination in the Delaware Court Action,
and argues that any additional delay associated with the litigation of Defendant’s “surety
defenses” in this action, presumably including late notice of Plaintiff’s claim, see
Defendant’s Answer, Dkt. 3 ¶ 48, can be remedied by an award of interest. See Dkt.
14-7 at 5 (citing caselaw). Defendant also contends a stay will avoid unnecessarily
burdening third-parties, such as Erie County officials, with duplication of discovery in
both actions, Dkt. 14-7 at 5, and that avoidance of the risk of inconsistent verdicts and
potential duplicative discovery serves the public’s interest. Dkt. 14-7 at 7.
In opposition, Plaintiff argues that delaying this action in favor of the Delaware
Court Action is inconsistent with Plaintiff’s right to enforce Defendant’s bond protecting
Plaintiff as Defendant’s supplier for amounts due Plaintiff in connection with the Erie
County Project as contemplated by N.Y. State Fin. Law § 137 (McKinney’s 2011), Dkt.
16 at 6-7, and will result in severe prejudice to Plaintiff as Defendant has admitted in the
Delaware Court Action it is unable to pay current debts,1 and delaying Plaintiff’s
recovery in this action will render collection of a judgment in Plaintiff’s favor in the

1

To date, the court has not been advised UBU has filed for or been placed in bankruptcy.
5

Delaware Court Action problematic assuming Plaintiff prevails. Id. (citing Chittenden
Lumber Co. v. Silberblatt & Lasker, 43 N.E.2d 459, 462 (N.Y. 1942) (surety’s liability on
§ 137 bond not contingent on existence of a fund to which a supplier’s lien may attach)).
Although Plaintiff acknowledges an adverse determination in the Delaware Court Action
on whether Defendant owes Plaintiff for any unpaid balances due on the Erie County
Project may, under collateral estoppel, bind Plaintiff in this action, Plaintiff also points to
the fact that if Plaintiff is successful on this issue, such determination will not bind
Defendant as Defendant is not a party to the Delaware Court Action. See Dkt. 16 at 8.
Plaintiff also maintains awaiting the outcome of the Delaware Court Action will not
resolve the instant case as there is not an identity of all issues in that Defendant may
choose to assert here several surety defenses (e.g., Plaintiff is not a proper party, Dkt. 3
¶ 41; Plaintiff failed to give proper notice of claim, Dkt. 3 ¶ 48) not presented in the
Delaware Court Action. Dkt. 16 at 9-10 (citing Herbstein v. Bruetman, 743 F.Supp. 184,
190 (S.D.N.Y. 1990) (stay of an action pending outcome of parallel litigation presumes
such litigation will be “an adequate vehicle for resolution of the issues between the
parties” (quoting Moses H. Cone Mem. Hosp. v. Mercury Construction Corp., 460 U.S.
1, 28 (1983)))). See also American Stock Exchange, LLC v. Towergate Consulting Ltd.,
2003 WL 21692814, at *3 (S.D.N.Y. July 21, 2003) (denying stay based on absence of
congruity of parties and issues in two pending actions).
Generally a stay will be granted where, in the discretion of the court, the interests
of justice require. See Travelers Casualty & Surety Company of America v. DiPizio
Construction Company, Inc., 103 F.Supp.3d 366, 369 (W.D.N.Y. 2015) (citing cases)
(denying stay where plaintiff’s indemnification claims not identical to defendant’s claims

6

being litigated in state court). In deciding whether to grant a stay, courts consider “(1)
the private interests of plaintiffs proceeding expeditiously with the civil litigation as
balanced against the prejudice to the plaintiffs if delayed; (2) the private interests of and
burden on the defendants; (3) the interests of the courts; (4) the interests of persons not
parties to the civil litigation; and (5) the public interest.” DiPizio, 103 F.Supp.3d at 370
(citing Kappel v. Comfort, 914 F.Supp. 1056, 1058 (S.D.N.Y. 1996) (quoting Volmar
Distributors, Inc. v. New York Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993))).
Additionally, “‘the proponent of a stay bears the burden of establishing its need.’”
DiPizio, 103 F.Supp.3d at 370 (quoting Clinton v. Jones, 520 U.S. 681, 708 (1997)).
Here, Defendant has not met its burden to establish that a stay of this action should be
granted pending the outcome of the Delaware Court Action.
First, there is insufficient identicality of claims between the Delaware Court Action
and the instant action in that in this case Defendant raises several surety defenses that
will not be resolved in the Delaware Court Action, and granting a stay usually occurs
where deference to another pending action will result in a complete resolution of the
litigation for which a stay is requested. See DiPizio, 103 F.Supp.3d at 370; Herbstein,
743 F.Supp. at 190. Second, there are numerous allegations and counter-allegations of
corporate malfeasance involved in the Delaware Court Action creating a distinct
likelihood, if not certainty, that discovery and motion practice in the Delaware Court
Action will be protracted and resolution, including Plaintiff’s claim with respect to the
Erie County Project, therefore substantially delayed. Thus, Plaintiff’s potential
entitlement to recovery and payment as a result of a favorable determination in this
action will be prejudiced if this action is stayed in deference to the Delaware Court

7

Action. See American Steamship Owners Mutual Protection and Indemnity Association,
Inc. v. LaFarge North American, Inc., 474 F.Supp.2d 474, 482 (S.D.N.Y. 2007) (in
considering factors, relevant to whether to grant a stay “principal objective being
avoidance of unfair prejudice”) (citing caselaw). The public policy expressly underlying
§ 137 favoring prompt and full payment by a surety of material suppliers to public works
projects for unpaid balances due from the surety’s principal, see Chittenden Lumber
Co., 43 N.E.2d at 1374; State Bank of Albany v. Dan-Bar Contracting Co., 199 N.Y.S.2d
309, 313 (S. Ct. Albany Cty 1960) (purpose of § 137 bond is to protect providers of
labor and material suppliers on public works projects against risk of non-payment by
general contractor as a principal particularly where balance due is insufficient to cover
such claims under Lien Law), will thus be negated by a stay of this action. That Plaintiff
has elected to prove the alleged underlying debt owed to it by UBU in the Delaware
Court Action, as well as Defendant in this action on the Erie County Project is therefore
irrelevant to whether a stay of the instant action will significantly prejudice Plaintiff’s
interests. Plaintiff’s claim against Defendant need not abide the outcome of the
Delaware Court Action. Defendant’s interests in a stay are less palpable given that
Defendant is not a party to the Delaware Court Action and in the event Plaintiff prevails
in the Delaware Court Action, Defendant would be entitled to relitigate the question of
the principal, UBU’s, alleged prior payment as a surety defense in this action. See
Durable Group, Inc. v. De Benedetto, 444 N.Y.S.2d 662, 663 (1st Dep’t 1981) (surety
“entitled to assert any defenses or counterclaims . . . available to principal”). The court’s
interest in early resolution of a case where parallel litigation will not necessarily resolve
entirely the pending case also points away from a stay in this case. See DiPizio, 103

8

F.Supp.3d at 369. The interests of non-parties is a neutral factor in this case. To the
extent that Erie County representatives may be needed as witnesses on any fact
questions that cannot be stipulated to in both actions their involvement in both actions
cannot be avoided. As to the public interest, prompt resolution of a material supplier’s
right to payment under a surety bond issued pursuant to § 137 on a local public works
project also supports denial of Defendant’s request. Additionally, the court finds that as
the merits of Plaintiff’s claim will eventually turn on comparison of Plaintiff’s and
Defendant’s business records with respect to the issuance of invoices and receipt of
payments between Plaintiff and UBU, the risk of inconsistent judicial determinations is
minimal. Defendant concedes as much. See Defendant’s First Affirmative Defense,
Dkt. 3 ¶ 40 (“Plaintiff’s claims are barred . . . by documentary evidence.”). In sum, the
issues in the Delaware Court Action will not necessarily result in a resolution of the
instant case, the prejudice to Plaintiff outweighs any prejudice flowing to Defendant in
the absence of a stay, third-parties will not be significantly affected whether a stay is
granted or not, the court’s interest in an early resolution of the instant case is selfevident, that the issue of payment will likely turn on admissible business records kept by
Plaintiff and UBU minimizes the risk of inconsistent outcomes, and the public interest in
prompt vindication of Plaintiff’s rights under the § 137 surety bond will be served if
Defendant’s stay request is denied and the instant action proceeds.

9

CONCLUSION
Based on the foregoing, Defendant’s motion, Dkt. 14, is DENIED.
SO ORDERED.
/s/ Leslie G. Foschio
________________________________
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
Dated: November 30, 2017
Buffalo, New York

10