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Deluxe Building Systems, Inc v. Constructamax

February 8, 2011


The opinion of the court was delivered by: Brown, Chief Judge



This matter comes before the Court upon the motion for partial summary judgment filed by Whitlock Mills, LP ("Whitlock").*fn1 (Doc. No. 241) Arch Insurance Co. and Arch Reinsurance Co. (collectively, "Arch") oppose Whitlock's present motion. (Doc. No. 246) The Court has considered the parties' submissions without oral argument pursuant to Federal Rule of Civil Procedure 78. Having done so, the Court will grant Whitlock's motion for the reasons that follow.


The Court has issued numerous memorandum opinions in this nearly five-year-old case since it was reassigned to the undersigned on September 15, 2008. The parties are fully familiar with the facts and procedural history. Additionally, the Court concludes that the parties' submissions address factual and legal issues not relevant to the resolution of the present motion.

As such, for the sake of economy, the Court will discuss only those matters that are relevant and necessary to the Court's decision.

Whitlock is the owner of an affordable housing project known as Whitlock Mills (the "Project") located in Jersey City, New Jersey. (Whitlock 56.1 at ¶ 1: Arch 56.1 Reply at ¶ 1; Doc. Nos. 241, 246) On April 23, 2004, Whitlock and Constructamax ("Cmax"), as general contractor, entered into a construction contract (the "Contract"), and then a letter agreement on April 26, 2004 (collectively, the "Letter Agreement"). (Id. at ¶ 2.) Pursuant to the Contract, Cmax was required to perform work ("Work") on the Project. (Id. at ¶¶ 3, 4.) Article 2 of the Contract defines Work to include the furnishing of: all of the materials, supplies, tools, equipment, labor, management and supervision and [the performance of] all other acts and [the supplying of] all other things . . . necessary to produce the Project described in the Contract Documents, including Work expressly specified and such Work as may be reasonably inferred therefrom, including appropriate professional and non-professional services necessary to complete the Contractor's services as required under the Contract, saving and excepting only such items of Work as are specifically stated in the Contract Documents not to be the obligation of the Contractor. (Id. at ¶ 4.) Article 3 of the Contract required Cmax to complete its Work on the Project, "to the satisfaction of the Owner, Architect, and the Agency no later than 730 Days [two calendar years] following the commencement date specified in the Notice to Proceed, as said completion may be adjusted in accordance with this Contract, time being of the essence." (Id. at ¶ 5.)

On May 26, 2004, pursuant to Article 29 of the Contract, Arch, as surety, issued on behalf of Cmax, as principal, to Whitlock and the Agency, as obligees, Payment and Performance Bond (the "Bond") No. SU1001182, in the penal sum of $34,581,371. (Id. at ¶ 18.) Several years later, on June 16, 2006, Cmax abandoned its Work on the Project. (Id. at ¶ 19) In response, Whitlock, as obligee under the Bond, demanded that Arch, as obligor, satisfy its obligations under the Bond. (Id. at ¶ 23.) Ultimately, on February 13, 2007, Whitlock and Arch ratified the Surety Takeover Agreement ("the Takeover Agreement"), which framed Arch's future performance under the Bond through completion of the Project. (Id. at ¶ 26.) The Takeover Agreement contained the following relevant clauses:

7. Completion. The Work to be performed under the Contract shall be completed pursuant to the terms of the Contract, and, as applicable, to the reasonable satisfaction of the Owner [Whitlock], architect, and Agency not later than eight (8) months after the date of this Takeover Agreement. It is expressly understood and agreed by Surety [Arch] and Owner that eight (8) months is a sufficient and reasonable time within which to correct the deficiencies and complete the remaining Work to be performed under the Contract. . . . If Surety fails to correct the deficiencies and substantially complete the Work within eight (8) months plus any authorized extension thereof, then Surety shall be in default under this Takeover Agreement . . . .

8. Withholding of Payments: Liquidated Damages. For cash flow purposes only . . . Owner [Whitlock] may withhold and offset form the payment of the Contract Balance to be made . . . the sum of $7,775.00 per day in liquidated damages . . . .

13. Applicability of Contract. Except as modified by this Takeover Agreement, Owner [Whitlock] and Agency shall have the rights, obligations, and responsibilities under the Contract with respect to Surety [Arch] as Owner and Agency had thereunder with respect to Cmax, and Surety shall have the rights, obligations, and responsibilities under the Contract with respect to Owner and Agency as Cmax had thereunder with respect to Owner and Agency.

(Whitlock Mot. Br., Ex. 11; Doc. No. 241) Thus, unless modified by the Takeover Agreement, the terms of the Contract continued to control. Relevant here, the Contract contained the following clauses that were not modified by the Takeover Agreement: Section 7.1(b)

The intent of this provision is that, inasmuch as the prompt completion of the work is a matter of public importance, the Agency shall be the sole judge as to the fitness of the material or the compliance of the work with the provisions of the Contract, and that all work required shall be promptly and satisfactorily performed, reserving to the parties the right to have determined by the method hereinafter provided all questions relating to compensation, damages, or other payments. The Contractor [Cmax] shall under no circumstances cause any delay of work during any dispute as to work or compensation, or because of any dissatisfaction with any decision of the Agency.

Article 27 Inasmuch as the Contractor [Cmax] agrees that it can be adequately compensated by money damages for any breach of the Contract which may be committed by the Owner [Whitlock], the Contractor expressly agrees that no default, act, or omission of the Owner, except non payment of the amount approved by the Agency, shall constitute a material breach of the Contract entitling it to cancel, or rescind the Contract or to suspend or abandon performance of the Work of the Contract. The Contractor hereby waives any and all rights and remedies to which it might otherwise be or become entitled because of ...

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