RAD & D’Aprile Inc. v Arnell Constr. Corp., 502464/2014 (Demarest, J.)

Breach of contract; breach of covenant of good faith; CPLR 231; pass-through agreements

By Timothy Broschardt | Managing Editor

Plaintiff, a masonry subcontractor, performed services for Defendant, a general contractor as part of a construction contract with New York City. Defendant won a contract to construct two New York City Department of Sanitation garages within a 42 month period. Construction was scheduled to begin November 2001 and Plaintiff’s masonry work was scheduled to begin August 2002 and end October 2003. Due to alleged delays and interferences with Plaintiff’s access to the work site by New York City, the NYC Department of Sanitation, and Defendant, Plaintiff began work in November 2003 and finished in September 2005. This was nearly two years behind schedule and about eight months over the allotted work time. Construction was ultimately finished in December 2007.

Pursuant to a modification to the subcontract, in August 2010, Defendant filed an action against New York City on behalf of itself and its subcontractors for a variety of overages and interferences. However, the suit was time-barred because the primary contract required any claim to be commenced within six months of completion of the project. Plaintiff filed the instant action against Defendant in March 2014.

Plaintiff asserted five causes of action: (1) breach of contract for failure to pay, (2) breach of defendant’s duty to file pass-through delay claims, (3) breach of defendant’s fiduciary duty, (4) breach of contract for defendant’s actions causing delay, and (5) quantum meruit. Defendant moved to dismiss all causes of action.

The court found that Plaintiff’s first and fourth causes of action were time-barred under CPLR § 213(2). Breach of contract claims must be brought within six years of substantial completion of the contract in question. Here, the primary contract work was substantially completed 6.5 years prior to the instant action, while Plaintiff’s subcontract with Defendant was substantially completed 8.5 years before.

The third cause of action was also time-barred, given that breaches of fiduciary duty resulting only in monetary damages carry a three year statute of limitations. Defendant breached its fiduciary duty in May 2008 when it did not commence its action against New York City within the contractual six-month limitations period. Since Plaintiff failed to file the instant action until 2014, it was clearly time-barred.

The fifth cause of action for quantum meruit was dismissed for failure to state a claim. The written agreement sets out the payment structure, obviating the need for a quantum meruit award. The action was also time-barred under CPLR 213(2).

The second cause of action for breach of the covenant of good faith under the subcontract survived the motion to dismiss. Although the original subcontract did not address Defendant’s liability for delays caused by itself or New York City, a series of letters between the parties may have created a pass-through agreement, by which Defendant assumed a duty to assert Plaintiff’s delay claims against New York City.

Under a pass-through agreement, a contractor agrees to prosecute a subcontractor’s claims against the owner of a property (with whom the subcontractor is not in privity) in exchange for release from liability to the subcontractor. A pass-through agreement requires only that (1)the general contractor accept liability for the subcontractor’s increased costs, (2) that liability be liquidated as recovery from the owner, and (3) that the recovery “pass-through” to the subcontractor.

Here, a letter from Defendant to Plaintiff stated that Defendant would increase its contract amount by $100,000 to offset Plaintiff’s costs due to delay. The letter also provided that any of Plaintiff’s costs due to delay would be incorporated into Defendant’s lawsuit against New York City. Under CPLR § 231(2), breach of the implied covenant of good faith carries a six year statute of limitation period, which began when Defendant failed to timely commence an action against New York City in June 2008. Therefore, it was not time-barred. Furthermore, questions of fact regarding the pass-through agreement and extent of damages remain.

The court also denied Defendant’s request for sanctions for a frivolous lawsuit under 22 NYCRR 130-1.1, as it found Plaintiff’s cause of action to be potentially meritorious.

RAD & D’Aprile Inc. v Arnell Constr. Corp., 502464/2014 (Demarest, J.).

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