Henkels & McCoy Group, Inc. v. Verizon Sourcing LLC

Background

Henkels & McCoy Group, Inc. and Henkels & McCoy, Inc. sued Verizon Sourcing LLC concerning an agreement under which H&M would design and construct fiberoptic network infrastructure for projects in Portland, Oregon; Detroit, Michigan; and San Diego, California. H&M alleged that Verizon changed the projects’ scope of work, causing additional costs and scheduling impacts. H&M submitted change-order requests seeking payment. The complaint alleged that Verizon had not paid $10,143,674.67 for the Portland project, still owed $8,462,762.80 for the Detroit project after agreeing to pay a larger amount, and had not paid $25,651,911.49 for the San Diego project.

H&M asserted claims for breach of contract, account stated, breach of the duty of good faith and fair dealing, unjust enrichment, and violation of New York’s Prompt Payment Act. Verizon moved to dismiss the account-stated, unjust-enrichment, and Prompt Payment Act claims and H&M’s request for punitive damages. The court applied the rule that a complaint must allege enough facts to make a claim plausible, meaning reasonably supported rather than merely possible.

Rulings

Good-Faith-and-Fair-Dealing Claim

The court denied Verizon’s motion to dismiss Count III, H&M’s claim for breach of the duty of good faith and fair dealing. The court explained that New York law implies this duty in contracts and that whether particular conduct violates the duty ordinarily depends on the facts. H&M alleged that Verizon negotiated agreements to compensate H&M for increased costs, delayed finalizing those agreements in bad faith, and assured H&M it would be paid so that H&M would continue working. The court held that dismissing this claim was premature and allowed H&M to plead multiple theories of recovery, while noting that H&M could not obtain double recovery.

Unjust-Enrichment Claim

The court denied Verizon’s motion to dismiss Count IV as moot. H&M agreed to withdraw the unjust-enrichment claim after stating that Verizon did not dispute that the claims in the complaint were covered by the parties’ agreement. The court stated that H&M’s withdrawal was without prejudice. Verizon had requested dismissal with prejudice, but the court did not adopt that request.

New York Prompt Payment Act Claim

The court granted Verizon’s motion to dismiss Count V, the claim under New York’s Prompt Payment Act. The court interpreted the statute as applying only to construction contracts and projects involving construction services in New York. It relied on the statute’s legislative-intent language referring to firms providing construction services “in this state.” The court found that none of the projects occurred in New York: the work was performed in Portland, Detroit, and San Diego. The court also stated that neither party was alleged to be a New York domiciliary, the contracts were not alleged to have been negotiated in New York, and the parties’ choice of New York as the litigation venue did not make the statute applicable.

Punitive Damages

The court denied Verizon’s motion to dismiss H&M’s request for punitive damages. H&M had withdrawn the request without prejudice while reserving the ability to seek punitive damages later in the litigation, including by requesting permission to amend the complaint. The court stated that punitive damages are a type of requested relief rather than a separate cause of action and that it was not appropriate to decide the issue at the beginning of the case. The court noted that it doubted punitive damages would ultimately be available in what it described as essentially a breach-of-contract case, but it did not decide that question.

Disposition

The court’s sections and discussion state that the motion to dismiss the good-faith claim was denied; the motion to dismiss the unjust-enrichment claim was denied as moot; the motion to dismiss the Prompt Payment Act claim was granted; and the motion concerning punitive damages was denied. The clerk was directed to remove the motion from the list of open motions.