New York Appellate Court Holds That Affidavits Can Cure Pleading Defects and Extrinsic Evidence Permitted When Contract Clause Is Ambiguous

Servidone, Inc./B. Anthony Constr. Corp., J.V. v. State of New York, No. 2016-05238, 2019 BL 7232 (App. Div., 2d Dept. Jan. 09, 2019)

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Sophia L. Cahill

Servidone, Inc./B. Anthony Construction Corp., J.V. (the “Contractor”) and the New York State Department of Transportation (the “DOT”) entered into a construction contract to reconstruct and replace bridges on Route 59 in New York State. The Contractor retained L.M. Sessler Excavating & Wrecking, Inc. (the “Subcontractor”) to perform the demolition and disposal portion of the project.

The construction contract required the parties to comply with all applicable laws, and the original contract price included the cost of this compliance. The contract also allowed the Subcontractor to dispose of debris at a permitted solid waste management facility, which, in turn, paid the Subcontractor for the material’s recycled value.  Nothing in the contract prevented the parties from removing the waste to appropriate facilities for such beneficial purposes.

During the first construction season, the Subcontractor disposed of the waste at a facility which paid it the recycled value.  During the second season, however, the county Waste Management Authority began to enforce the County Flow Control Law (“Flow Control Law”). The Flow Control Law required the Subcontractor to pay a fee to dispose the material at a county facility, as opposed to receiving payment for disposal at a facility of its choosing.  Due to this development, the Contractor sought additional compensation from the DOT, arguing that enforcement of the Flow Control Law caused a significant change in the work’s character and required additional compensation as the Subcontractor now had to pay a fee for waste removal.

The DOT declined to pay additional compensation to the Contractor, so the Contractor and Subcontractor entered into a liquidating agreement.  The Contractor then brought suit against the DOT alleging that the DOT breached the contract by failing to compensate for the costs of complying with the Flow Control Law.

The DOT first argued that the Contractor’s breach of contract action should be dismissed because it did not specify the contractual provision allegedly breached, with which the lower court agreed.  The Second Department, however, considered the affidavits submitted by the Contractor in opposition to the DOT motion to dismiss and ultimately found that these affidavits cured the pleading defects because they clearly identified the contractual provision which the DOT purportedly breached.

The Court also found that neither party was entitled to summary judgment because an issue of fact existed as to the “means of complying” with the contract.  The Court explained that the contractual provisions regarding debris removal raised an ambiguity as to whether the parties were required to deposit waste in the subject county when such a facility did not exist at the time the parties entered into the contract.  In arriving at its decision, the Second Department found that extrinsic evidence in the form of affidavits could be considered due to the ambiguity of the terms of the contract. Further, such an ambiguity of how the parties were meant to comply with the contract terms clearly created an issue of fact. As a result, the Second Department affirmed the lower court’s decision to deny summary judgment in favor of the Contractor.

To view the full text of the court’s decision, courtesy of Bloomberg, click here.