In 2014, LPCiminelli, Inc. entered into a contract with the State University Construction Fund to serve as the general contractor for the State University of New York at Buffalo School of Medicine & Biomedical Sciences Building Project. Insulation Coatings & Consultants, LLC (the Debtor) was subcontracted to provide labor, services, and materials for the project. To ensure performance and payment to subcontractors, LPCiminelli secured bonds from Liberty Mutual Insurance Company.
The project faced significant challenges. According to separate litigation filed against the Fund in 2022, LPCiminelli alleged extensive redesigns shortly after work commenced, attributing these changes to the Fund's mismanagement. Despite these issues, work continued to meet accreditation deadlines, leading to increased scope and costs without amended contracts.
In February 2017, the Debtor and LPCiminelli executed a liquidating agreement addressing the Debtor's claim for "lost time." LPCiminelli agreed to submit a claim for $820,977 to the Fund on behalf of the Debtor. The agreement stipulated that LPCiminelli's liability to the Debtor would be limited to the amount recovered from the Fund. The Debtor agreed to accept this amount in full satisfaction of its claim against LPCiminelli.
The Debtor completed its work in November 2017, with the project deemed substantially complete by the end of that month. However, the claim remained unresolved, and LPCiminelli withheld payment of the retention balance, citing offsets for charges exceeding the subcontract.
In October 2018, the Debtor initiated legal action against Liberty Mutual in the Supreme Court of New York, seeking $1,059,386 for unpaid labor and materials under the bonds. This action primarily aimed to prevent the release of the surety while negotiations with LPCiminelli and the Fund were ongoing.
In August 2019, a second liquidating agreement was executed to settle the dispute over the retention balance. LPCiminelli agreed to pay the $126,412.56 retention balance to the Debtor, with the right to recoup up to that amount from any recovery of the claim from the Fund. The Debtor waived any recourse against LPCiminelli related to the project if the claim proved uncollectable.
The Fund's refusal to issue change orders and provide additional compensation led LPCiminelli to commence litigation against the Fund to recover alleged cost impacts for itself and its subcontractors. This litigation remains pending, with ongoing settlement efforts proving unfruitful.
In August 2022, the Debtor filed a Chapter 11 petition and subsequently removed the bond litigation to the United States District Court for the Western District of New York. The case was then transferred to the Western District of Pennsylvania and referred to the Bankruptcy Court. Both parties filed motions for summary judgment.
Chief United States Bankruptcy Judge Gregory L. Taddonio presided over the case. The court noted that while the facts were undisputed, they did not present a complete and coherent narrative. The central issue was the nature of the Debtor's claim and its relation to the bonds.
The bonds in question covered labor or materials furnished in prosecution of the work provided in the general contract. The court observed that the Debtor's claim related to unpaid labor and material expenses arising from the project. However, it was unclear whether these expenses were contemplated in the general contract, as the project faced significant changes and delays not initially anticipated.
The liquidating agreements between the Debtor and LPCiminelli played a crucial role in the court's analysis. The 2017 agreement stipulated that the Debtor would accept any amount recovered by LPCiminelli from the Fund in full satisfaction of its claim. The 2019 agreement further stated that if LPCiminelli did not recover any portion of the Debtor's claims from the Fund, the Debtor waived any recourse against LPCiminelli related to the project.
The court concluded that these agreements limited LPCiminelli's obligation to pay the Debtor to the amount recovered from the Fund. Since the Fund litigation was still pending, there was no present obligation for LPCiminelli to pay the Debtor. Consequently, Liberty Mutual, as the surety, had no current obligation under the bonds.
Given the lack of a present, quantifiable obligation from LPCiminelli to the Debtor, the court determined that the Debtor could not establish a right to payment under the bonds at this time. Therefore, the court granted Liberty Mutual's motion, denied the Debtor's cross-motion, and dismissed the complaint without prejudice.
Parties involved
