New York District Court Upholds Termination of Subcontractor for Davis-Bacon Act Violations; Subcontractor’s Claim for Quantum Meruit Reimbursement Rejected

United States ex rel. Tower Masonry, Inc. v. J. Kokolakis Contracting, Inc.,
1995 U.S. Dist. LEXIS 13024, 90 Cont. Cas. Fed. [CCH] [[paragraph]] 76,843 (S.D.N.Y., Sept. 8, 1995).

Prime contractor properly terminated subcontractor for non-compliance with Davis-Bacon Act requirements. Because cost to complete exceeded subcontract balance, terminated contractor not entitled to reimbursement of value of work completed. 

Defendant J. Kokolakis Contracting, Inc., (“Kokolakis”), a general contractor, entered into a subcontract with plaintiff Tower Masonry, Inc. (“Tower”), for masonry work on a United States Department of Labor project involving the construction of two new dormitory buildings for the Delaware Valley Job Corps Center in Callicoon, New York. The job was subject to the minimum wage levels and record-keeping requirements of the Davis-Bacon Act, 40 U.S.C. [[section]]276(a) et seq., and these requirements were incorporated into the subcontract.

Right from the start, however, Tower failed to comply with the Davis-Bacon requirements by, inter alia, failing to provide appropriate records to Kokolakis, and paying wage rates which were below the minimum set by the Secretary of Labor. When Tower failed to correct these problems despite repeated warnings, Kokolakis terminated its subcontract. Tower then brought this action for damages, claiming that Kokolakis’ termination of the subcontract was improper. Kokolakis counterclaimed for the damages it sustained as a result of the termination.

After reviewing the evidence regarding Tower’s noncompliance with the Davis-Bacon provisions and apparent unwillingness to rectify the situation, the court found that Kokolakis had sustained its burden of proving that termination of the contract was justified. Accordingly, the court held that Tower was not entitled to recover contract damages.

The court next considered Tower’s claim that it was entitled to recover on a quantum meruit basis for the value of the benefit it had conferred upon Kokolakis during its approximately three and a half months of work on the project. This claim was also rejected, as the court found that 1) the work had not been substantially completed, and 2) the cost to Kokolakis of completing the masonry work exceeded any benefit conferred on it by Tower.

In denying Tower’s quantum meruit claim, the court rejected Tower’s contention that invoices it submitted to Kokolakis and requisitions Kokolakis submitted to the Department of Labor were sufficient proof that 55% of Tower’s work had been completed. The court noted that the requisitions did not contain a detailed breakdown and were not susceptible to verification by Kokolakis. It further stated that “periodic payments are not dispositive of the value of the work done at a particular time.”

The court also rejected the testimony of Tower’s expert regarding the value of the work completed, finding many of his assumptions to be flawed. Instead, it chose to accept Kokolakis’ expert’s valuation of the work performed.

The court next considered Kokolakis’ counterclaim for the difference between the subcontract price and the cost of completing the work left undone by Tower. Kokolakis completed the work under direct contract with various union trade groups.

The court granted Kokolakis’ claims for extra costs based primarily on the state in which Tower had left the work, but declined to award amounts attributable to the use of union labor rather than non-union labor as had been used by Tower. The court also awarded pre-judgment interest, but only starting from the date on which Kokolakis’ costs exceeded the Tower contract price. The court held that to award interest from the date the cause of action accrued would result in an inequitable windfall to Kokolakis.

Finally, the court addressed Kokolakis’ claim that judgment in its favor should be entered not just against Tower (which was feared to be judgment proof) but also against various other entities and individuals, all of which were alleged to be corporate alter-egos of two entities known as Navillus Contracting, Inc. and Navillus Tile, Inc. (collectively, “Navillus”).

In considering whether to pierce the corporate veil, the court found that the evidence indicating that Tower lacked any separate status or identity and was totally dependent upon Navillus presented a strong case for treating Tower and Navillus as a single entity. Nevertheless, the court chose to preserve the separate corporate identities, finding that Kokolakis had not met its burden of proving that the equities favored disregard of the corporate status.

In considering the evidence, the court first explained the practice in the construction industry of “double breasting,” wherein a single commercial entity functions as if it were two entities, one a “union” entity subject to a collective bargaining agreement, and the other a “non-union” entity. It then noted that although Kokolakis had initially dealt with Navillus, it may well have intended to contract with the separate and distinct corporate entity, Tower. There was little evidence that Kokolakis had been deceived into thinking that Navillus was the truly responsible entity or that Tower was capable of functioning independently when in fact, it was not. In any event, Kokolakis was partially at fault for failing to investigate Tower’s past work history, credit standing, or general reputation.

Ultimately, the court declined to pierce the corporate veil, concluding that “Kokolakis made a conscious decision to do the masonry ‘on the cheap’ with a [non-union] entity distinct from Navillus.” The damages judgment in favor of Kokolakis was entered against Tower only.

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