U.S. District in New York Denies Architect’s Motion for Summary Judgment Seeking Dismissal of Claim By Surety of Defaulted Contractor for Damages Due to Architect’s Alleged Improper Certification of Contractor’s Payment Applications

American Manufacturers Mutual Insurance Co. v. Payton Lane Nursing Home, Inc.
2010 U.S. Dist. LEXIS 8537 (E.D.N.Y. Feb. 2, 2010)

The United States District Court for the Eastern District of New York (“EDNY”) recently considered whether a surety could maintain a breach of contract claim against a construction project owner’s architect based upon the architect’s alleged wrongful certification of payments occurring prior to the execution of a takeover agreement. In rendering its opinion, the EDNY concluded that expert opinions were not required where the claim sounded in contract, rather than in tort. The EDNY also found that summary judgment was defeated because there remained genuine issues of material fact as to the extent of the architect’s scope of construction phase services and whether the architect failed to satisfy its construction phase service obligations.

The matter before the EDNY involved the construction of the Payton Lane Nursing Home in Southampton, New York (the “Project”). The Project owner, Payton Lane Nursing Home, Inc. (the “Owner”) hired defendant Perkins Eastman Architects, P.C. (the “Architect”) to provide architectural services for the Project. Perkins’ architectural services were divided into two phases – design phase services and construction administration services. Among other things, the Architect was responsible for making observations at the Project site and evaluating the contractor’s payment applications to determine the amount due to the contractor. As part of that process, the Architect was to issue Certificates for Payment and report all observed deviations from the contract documents.

The Owner also contracted with IDI Construction Company, Inc. (“IDI”) to provide general construction services. During the Project, the Owner terminated IDI and demanded that IDI’s sureties, American Manufacturers Mutual Insurance Company and American Motorists Insurance Company (the “Sureties”), satisfy the performance bond relative to the Project. As a result, a takeover agreement was entered into between the Sureties and the Owner. The Sureties retained and entered into an agreement with a completion contractor to complete the Project.

Following its commencement of work on the Project, the completion contractor identified numerous construction defects which were not identified by the Architect in its payment application review process. The Sureties argued that the items found to be defective had been certified by the Architect as complete during the payment application review process and payment had been issued to IDI for the same. As a result of these alleged deficiencies by IDI and in the Architect’s certification of payment, the Sureties filed a lawsuit against the Architect. The Sureties alleged, among other things, a breach of contract claim based upon the contract between the Architect and the Owner. The Sureties argued that the Architect failed to fulfill its contractual obligations to the Owner for construction administration phase services and that the Sureties were subrogated to the rights of the Owner.

The Architect moved for summary judgment seeking dismissal of the Sureties’ claim for breach of contract. The Architect argued that (a) there was no expert proof in support of Sureties’ claim; (b) there was no evidence of breach on the part of the Architect; (c) the Architect’s certifications of payment were subject to certain conditions; and (d) the Owner did not suffer any damages.

With respect to the Architect’s first point, the EDNY concluded that because the Sureties’ claim was one for breach of contract, and not for professional architectural malpractice, expert testimony was not required. The EDNY explained that the Architect’s construction administration phase services were expressly identified in and governed by the contract. Based upon that fact and the absence in the complaint of allegations by the Sureties of malpractice or negligence, the EDNY declined to construe the Sureties’ claim as one for architectural malpractice requiring expert testimony.

The EDNY next considered the Architect’s second point in favor of its motion for summary judgment. The Architect argued that the agreement between the Architect and the Owner contained limits of its construction phase services, which terms were similar to that found in the AIA architectural services form agreements. The Sureties argued, however, that because this was HUD-funded project, the Architect was also bound by a HUD-issued handbook pertaining to architectural analysis and inspections. After reviewing the parties’ moving and opposition papers, the EDNY found that there existed material issues of fact as to the Architect’s scope of work for construction administration phase services. The EDNY further opined that there remained genuine issues of material fact in dispute with respect to whether the steps taken by the Architect during the Project fulfilled its contractual obligations. Because there remained material issues of fact in dispute, the EDNY concluded that the matter was not ripe for summary judgment.

Click here to view full text of decision courtesy of LexisNexis.

This entry was posted in Breach of Contract, Negligence, Payment bond and tagged , , , , . Bookmark the permalink.