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Great American Insurance Co. v. Honeywell International Inc.

September 28, 2007

GREAT AMERICAN INSURANCE COMPANY, PLAINTIFF/COUNTERCLAIM DEFENDANT,
v.
HONEYWELL INTERNATIONAL INC., DEFENDANT/COUNTERCLAIMANT.



The opinion of the court was delivered by: Conti, District Judge

MEMORANDUM OPINION

In this memorandum opinion, the court considers the motion for summary judgment (Doc. No. 40) filed by defendant/counterclaimant Honeywell International Inc. ("defendant" or "Honeywell") with respect to all claims against Honeywell asserted by plaintiff/counterclaim defendant Great American Insurance Company ("plaintiff" or "Great American"). Plaintiff, in its complaint, asserted claims against Honeywell for breach of contract, unjust enrichment, breach of express warranty, breach of the implied warranty of merchantability and breach of the implied warranty of fitness for a particular purpose. After considering the joint statement of facts ("J.S.") and the other submissions of the parties, and drawing all reasonable inferences in favor of plaintiff, defendant's motion for summary judgment will be denied with respect to plaintiff's breach of contract and unjust enrichment claims. With respect to plaintiff's breach of express warranty claims, defendant's motion for summary judgment will be granted. Defendant's motion for summary judgment will be granted without prejudice with respect to plaintiff's breach of implied warranty of merchantability and breach of implied warranty of fitness for particular purpose claims. Because plaintiff's breach of contract and unjust enrichment claims survive summary judgment, the court will deny defendant's motion for summary judgment with respect to defendant's counterclaim.

Factual Background

The Parties

The Clay Center for the Performing Arts and Sciences (the "Center") is a multi-use museum and cultural facility. (J.S. ¶ 1.) The Center is located in Charleston, West Virginia. (Id.) Dick Corporation ("Dick") was hired as the project general contractor for the construction of the Center (the "Project"). (J.S. ¶ 2.) Dick subcontracted various components of the Project to a number of other companies. (Id.) Limbach Companies ("Limbach") was subcontracted to perform the mechanical work. (Id.) Rost Enterprises ("Rost") was subcontracted to perform the building management systems work. (Id.) Initially, the parties structured an agreement whereby Comfort and Process Solutions ("CPS") was subcontracted by Limbach to perform the control system work. (Pl.'s Ex. 2.) The control system was to regulate properly the heating, air conditioning and ventilation of the Center. (J.S. ¶ 69.) Honeywell was in the business of providing control systems equipment, literature explaining how to install and use that equipment, programming, software and technical support to its customers. (J.S. ¶ 35.) Great American was the surety for Rost and provided certain payment and performance bonds to Limbach for the Project. (J.S. ¶ 3.)

Negotiations Between Limbach, CPS and Honeywell

In the summer of 2000, Limbach had discussions with CPS regarding CPS being awarded the subcontract for the control system work. (J.S. ¶¶ 4, 6, 7-8.) Limbach expressed concerns relating to CPS's ability timely and properly to complete the control system work. (Pl.'s Ex. 2.) On July 13, 2000, Limbach's estimating manager/contract manager, James Claus ("Claus"), sent CPS a letter detailing Limbach's concerns. (Id.) Claus indicated in his July 13, 2000 letter that Limbach's concerns may be alleviated by drawing support, in the form of a guarantee, from Honeywell. (Id.) Notwithstanding any concerns, Limbach continued negotiations with CPS. See infra.

During the course of the negotiations between Limbach and CPS, Honeywell indicated to Limbach that CPS was a qualified installer of Honeywell control systems. (Pl.'s Ex. 2; J.S. ¶ 37.) On June 20, 2000, Mike Keller ("Keller"), area market leader for Honeywell, wrote to Limbach regarding CPS's qualifications. In that letter, Keller stated:

Comfort and Process Solutions (CPS) is an Authorized Honeywell Excel 5000 Contractor. This authorizes CPS to sell, engineer, install and service Honeywell's EXCEL 5000 direct digital control systems and related HVAC control components for building automation. CPS works directly with Honeywell to provide its customers with cost-effective solutions based on Honeywell's high-quality HVAC controls and building automation systems.

Honeywell selected CPS after it met several stringent requirements. These include its proven reputation within the construction industry, financial resources necessary to undertake large projects, and its technical expertise in all facets of building control applications, such as engineering, project management, commissioning and ongoing maintenance. Honeywell has chosen CPS, in particular, because of their strong presence and quality reputation in the new construction and retrofit control industry. CPS has trained its staff at Honeywell's Home and Building Control University and through the company's professional training courses.

Since being authorized to sell Honeywell's Excel direct digital control systems CPS has demonstrated a very high level of technical expertise. Their staff includes ex-Honeywell personnel. Should CPS ever require support they have full access to Honeywell's direct factory technical support. Honeywell warrantees the products to CPS who in turn provides the specified warrantees to the customer. With CPS, you are being served by one of our foremost Excel 2000 Contractors.

(Pl.'s Ex. 2.) Keller had no recollection of any projects previously completed by CPS that rivaled the magnitude of the Project. (J.S. ¶ 43.) At the time of the negotiations related to the control system work, CPS had only been in business for approximately one year. (J.S. ¶ 42.) Keller believed that it was in Honeywell's interest that CPS procure a subcontract with Limbach because Honeywell would ultimately benefit from selling the control system products to CPS. (J.S. ¶ 40.) Keller's compensation was affected by the amount of Honeywell products sold in his territory, which encompassed the Center. (J.S. ¶ 41.)

The August 2000 Letter Agreement

Despite Honeywell's representations regarding CPS's qualifications to complete the controls work on the Project, Limbach sought further assurances from Honeywell. (J.S. ¶¶ 7-8.) Specifically, Limbach wanted to enter into a written agreement with Honeywell that ensured that Honeywell would complete the control systems work if CPS did not. (Def.'s Ex. A.) Further, Limbach required that CPS provide a payment and performance bond to Limbach. (Id.) On August 23, 2000, Limbach sent a letter to Honeywell, which memorialized the agreement among Limbach, Honeywell and CPS (the "August 2000 letter agreement"). (Id.) The August 2000 letter agreement provided:

We have issued a Subcontract to Comfort & Process Solutions of Lexington, KY. One of the conditions of this Subcontract is that Comfort and Process Solutions provide a double obligee bond naming both Limbach and Honeywell on the bond. This bond will protect both our firms in the event of default.

By executing this letter, Honeywell hereby agrees to assume the obligations of Comfort & Process Solutions under the Subcontract and to complete the work in a timely manner to meet the project schedule requirements in the event of default by Comfort & Process Solutions on the Subcontract as determined by Limbach. As an obligee under the bond, Honeywell can then pursue the bonding company for its costs beyond those costs covered by the remaining Subcontract balance between Comfort & Process Solutions and Limbach Company.

Limbach will submit all CPS payment applications to Honeywell for review and approval before payment to CPS.

(Id.) The August 2000 letter agreement was executed by Keller, on behalf of Honeywell, and Claus, on behalf of Limbach. (Id.) Mark Saunier ("Saunier"), president of CPS, was copied on the August 23, 2000 letter agreement. (Id.; J.S. ¶ 80.) Keller testified that, in his twenty-three years of employment with Honeywell, this was the first and only time he knew of where Honeywell obtained the right to review and approve an approved installer's payment applications on a job. (J.S. ¶ 63.) Honeywell obtained the right to review and approve payment applications in part to monitor CPS's work on the Project and the subcontract balance. (J.S. ¶ 64.)

By letter dated August 24, 2000, Keller forwarded the executed August 2000 letter agreement to Limbach and indicated that Honeywell was providing "firm assurance that Honeywell will assume the obligation of [CPS] in the event of default of [its] subcontract." (Pl.'s Ex. 2.)

The March 2001 Letter Agreement

After the August 2000 letter agreement was executed, the parties learned that CPS was unable to obtain a surety bond for the control system work. (J.S. ¶ 10.) The parties, therefore, sought to restructure their previous agreement so that CPS would still be subcontracted to perform the control system work. (J.S. ¶ 11.) Limbach, Rost and CPS agreed that Limbach would issue the control system subcontract to Rost. (Id.) Rost would then subcontract the control system work to CPS. (J.S. ¶ 11.) On March 23, 2001, the parties entered into a letter agreement that memorialized the new agreement among the parties (the "March 2001 letter agreement"). (J.S. ¶ 12; Def's. Ex. D.) The March 2001 letter agreement, which was directed to Keller, provided:

Referring to the letter dated August 2 [sic], 2000 that was executed by you on behalf of Honeywell (copy enclosed), Comfort & Process Solutions, in conjunction with Rost Enterprises (the electric contractor selected by Comfort & Process Solutions), has requested that we restructure the agreement. Specifically, they would like us to issue our subcontract to Rost Enterprises for the control system. Rost Enterprises, in turn, will issue the double obligee bond, required in our agreement, which will name both Limbach and Honeywell as oblige[e]s.

All other terms of our August 23, 2000 agreement will remain in effect. If Honeywell agrees with this revised amendment, please have the enclosed copy of this letter executed by an authorized representative of Honeywell . . . .

(Def.'s Ex. D.) Saunier from CPS, Bill Rost from Rost and Jack Kumper from Limbach were copied on the March 2001 letter agreement. (Id.) Keller executed the March 2001 letter agreement on behalf of Honeywell and Mark Shaffer, vice president of Limbach, executed the agreement on behalf of Limbach. (Id.) By letter dated March 27, 2001, Keller again stated that Honeywell was providing "firm assurance that Honeywell will assume the obligation of [CPS] in conjunction with [Rost]." Limbach, Rost and Honeywell intended that any unpaid amount on CPS's subcontract would be available to compensate Honeywell for its costs if Honeywell had to complete the control system work for CPS. (J.S. ¶ 72.)

Great American issued a subcontract performance bond (the "bond") dated August 10, 2000. The bond named Rost as the principal and Limbach as the obligee. (Def.'s Ex. F.) By way of dual obligee rider, Honeywell was named as an additional obligee. (Id.) Great American did not know about the August 2000 and March 2001 letter agreements (collectively referred to as the "Letter Agreements") when it issued the bond. (J.S. ¶ 81.)

CPS's Performance of the Control System Work

During the course of the Project, CPS purchased control system products from Honeywell. (J.S. ¶¶ 15, 35, 55.) The purchased products cost CPS approximately $150,000. (J.S. ¶ 36.)*fn1 Honeywell employee, Steven Amato ("Amato"), building control specialist, performed some of the work for CPS. The parties dispute the amount of work Amato performed during the time CPS was responsible for completing the control system work. (J.S. ¶ 56.) According to Saunier, Amato completed approximately 80% to 90% of the programming work related to the control system. (Deposition of Mark Saunier ("Saunier Dep."), at 56-57.) Amato indicated that he completed between 40% to 50% of the programming related to the control system. (Deposition of Steven Amato ("Amato Dep.") at 38-39.)

CPS experienced problems and delays with respect to the control work by reason of erroneous written instructions relating to the Honeywell's products. (J.S. ¶ 80; Saunier Dep. at 61-63.) Saunier recounted an incident where CPS found that Honeywell's literature was inaccurate. (See Saunier Dep. at 61-63.) Saunier testified that in some instances, the literature would direct an installer to install equipment one way. When the installer attempted to complete the installation, the equipment did not properly function. Saunier testified that upon notifying Honeywell at its 1-800 number, the Honeywell employees indicated that the literature was wrong. (Id.) CPS did not identify the specific literature that was inaccurate or otherwise defective. (Id.; J.S. ¶ 31.) Amato believed that CPS employees were not properly trained to do the programming work related to the control system. (Amato Dep. at 43-44.)

In February 2003, Limbach sent Rost letters indicating that the control system work was behind schedule. (Pl.'s Exs. 15,16.) In a letter dated February 13, 2003, Limbach project manager, Greg Nastal ("Nastal"), advised Rost that

[Limbach] has provided the notification required for default on Subcontract Number 4009-01. We are proceeding to complete the controls scope of work, identified in the Subcontract referenced above, by any means necessary. The costs associated with the completion of this work will be back charged to [Rost]. (Pl.'s Ex. 15.)*fn2 On February 21, 2003, Nastal wrote Rost another letter notifying Rost that there had been no "remedy of the problem addressed in [the] letter of February 13, 2003." (Pl.'s Ex. 16.) Nastal informed Rost that the February 21, 2003 letter served as "notification of breach of contract." (Id.) Each of these letters was forwarded to Honeywell. (Pl.'s Ex. 4.)

By letter dated February 26, 2003, Rost informed Keller that CPS had failed to complete properly and timely the control system work as determined by both Limbach and Rost. (Pl.'s Ex. 4; J.S.¶ 82.) In its letter, Rost advised Keller that CPS had not remedied problems identified in prior notifications directed to CPS. Specifically, Rost stated:

The inability of [CPS] to respond in a timely manner to meet the project schedule requirements has forced [Rost] into a position where we must claim breach of contract on the part of [CPS]. [Rost] hereby notifies [Honeywell] that in accordance with the executed Limbach Agreement letters dated August 23, 2000 and, March 23, 2001, [Honeywell] is to immediately assume the obligations of [CPS] under the Subcontract and complete the work in a timely manner to meet the project schedule requirements. (Pl.'s Ex. 4.)

In a March 27, 2003 memorandum directed to Drew Logan of CPS, however, Amato indicated that he was "pleased to see that the control system is closed [sic] to completion." (Pl.'s Ex. 10.) Amato further indicated that the control system was coming together well. (Id.)

Dick expressed concerns about the quality and status of the control system work as well. (Def.'s Ex. I.) On April 24, 2003, Todd Anderson ("Anderson"), MEP coordinator for Dick, wrote a letter to Walter Daniels ("Daniels"), Limbach operations manager, to express concerns related to the control system work. (Id.) Anderson's letter indicated that, although CPS had previously reported that the majority of the system was completed and operational, a subsequent inspector found that there were problems with the system. (Id.) Anderson also indicated that Amato's reports regarding the control system work were brief and contained some inaccuracies. (Id.) Anderson requested that Limbach address the problems with the control system work. (Id.)

Anderson's letter indicated that the Center claimed that Dick was in default because of incomplete building maintenance system work, which included the control system. (Id.; J.S. ¶ 19.) The Center required Dick to remedy the alleged default. (Id.)

In a June 30, 2003 email directed to Keller, Amato discussed problems that Dick and its subcontractors were having with respect to the Project. (Pl.'s Ex. 10.) Amato discussed problems related to the control system work and with the software. Amato stated that he had completed about 50% of the software in the previous year. (Id.)

On July 1, 2003 Daniels sent Keller a letter addressing problems with CPS and demanding that Honeywell take action. (Pl.'s Ex. 12.) The letter provided:

CPS failed to complete and deliver the controls portion of the referenced project. We are now several months late delivering a schedule with severe damage penalties, and still counting. Dick Corporation hired Automated Control Solutions from Pittsburgh at $130.00/straight time plus expense to correct and complete the controls. The delay and labor cost of these problems are significant, not to mention potential collateral damages. Limbach selected CPS for this project based on your guarantee that Honeywell would provide the support necessary to insure the controls installation success, letters attached. The project is not a success, CPS did not meet the contract requirements and our many requests to you for support fell on deaf ears. Honeywell didn't stand behind the 3/23/2001 agreement signed by you and Mark Shaffer. Because Honeywell did not live up to the agreement Limbach will seek to recover from Honeywell all cost incurred through the CPS failure, including but not limited to back charges for Honeywell Technicians, schedule impacts, delay direct cost, and related consequential cost.

(Id.) Honeywell did not respond to demands made on it by Limbach or Rost to complete CPS's subcontract. (J.S.¶ 60; Pl.'s Ex. 4.) Keller was aware of letters from Limbach and Rost relating to problems with the control system. (J.S. ¶ 77.) Keller did not understand how it was that CPS was in default (Deposition of Michael ...


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