ANDREwS & KURTH L.L.P.
ATTORNEYS

1701 PENNSYLVANIA AVENUE, suite 300
WASHINGTON, D.C.  20006-5805

interoffice memorandum

TO:	Tom Kline	
FROM:	Chris Cobb	
DATE:	July 2, 2001	
SUBJECT:	Litigation Risk Analysis Regarding PMNC’s Quantum meruit Claim	

ISSUE

	Whether the Court of Appeals of New York would likely hear PMNC’s claim for quantum meruit and, if so, whether PMNC would be likely to prevail on that claim.  

CONCLUSION

	Based on my preliminary analysis, it appears that the Court of Appeals is very unlikely to hear PMNC’s quantum meruit claim and, even if the Court hears the claim, it is quite likely that the Court of Appeals would deny PMNC recovery thereon.

DOCUMENTS REVIEWED

	I have reviewed relevant New York case law as well as the following documents: (1) BNYCP’s Complaint; (2) PMNC’s Answer and Counterclaims; (3) the trial court’s Memorandum of Decision and Order; (4) BNYCP’s Appellate Brief; (5) PMNC’s Appellate Brief; (6) BNYCP’s Reply to PMNC’s Appellate Brief; and (6) the Appellate Division’s Order.  The following background and analysis is preliminary and is not based on any further review apart from that mentioned above.

BACKGROUND

	The following is an abbreviated summary of the facts relevant to PMNC’s cause of action in quantum meruit.  

	On November 1, 1994, BNYCP and PMNC entered into the Turnkey Agreement (“Agreement”) under which PMNC was to construct a cogeneration facility at the Brooklyn Navy Yard.  As relevant here, the Agreement expressly authorized BNYCP to offset its additional costs due to PMNC’s non compliance with the Agreement from amounts otherwise due to PMNC, and to terminate the Agreement for PMNC’s default.  BNYCP began to offset amounts it paid for PMNC’s allegedly defective work in June 1996, and on January 31, 1997, BNYCP exercised its right under the Agreement to declare PMNC in default and terminate the Agreement.  Despite the fact that BNYCP was withholding payments to PMNC under the Agreements offset provisions, PMNC continued performance under the Agreement and alleged to have completed its performance on January 30, 1997.

	BNYCP sued PMNC for amounts allegedly due under the contract in New York Supreme Court.  PMNC answered BNYCP’s complaint, in part, by asserting an affirmative defense that BNYCP materially breached and therefore abandoned the Agreement, and further asserting a counterclaim for recovery in quantum meruit.  The Supreme Court dismissed BNYCP’s motion for summary judgment as to the quantum meruit claim, finding that a triable issue of fact existed as to whether BNYCP had so materially breached or otherwise abandoned the Agreement as to permit PMNC to state a claim for receiving in quantum meruit.  On appeal, the Appellate Division dismissed PMNC’s quantum meruit claim, finding that the claim was barred because the Agreement covered the matter that was the subject of the claim (therefore limiting PMNC to a claim for breach of the Agreement).

ANALYSIS

	As an initial matter, New York Civil Practice Law and Rules § 5501(b) sets forth the basic rule regarding the scope of jurisdiction by the Court of Appeals: “The court of appeals shall review questions of law only, except that it shall also review questions of fact where the appellate division, on reversing or modifying a final or interlocutory judgement, has expressly or impliedly found new facts and a final judgment pursuant thereto is entered.”  Because the Appellate Division of the Supreme Court did not make any new findings of fact when it vacated the lower court’s ruling as to the quantum meruit claim, the Court of Appeals would review PMNC’s quantum meruit claim, if at all, only as a question of law.  

	The Appellate Division’s dismissal of PMNC’s quantum meruit claim apears to be  consistent with well-settled and clearly-established New York law.  The rule in New York is that “Where . . . there is an existing contract between the parties covering the dispute in issue there can be no recovery in quantum meruit.” Tako Holdings, Inc. v. Tillman, 707 N.Y.S.2d 658, 660 (N.Y. App. Div. 2000) (citing Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389 (N.Y. 1987)).  “Without in some manner removing the express contract from the picture in the normal fashion (rescission, abandonment, etc.) it is not possible to ignore it and proceed in quantum meruit.”  Unisys Corp. v. Hercules Corp., 638 N.Y.S.2d 461, 463 (N.Y. App. Div. 1996).  

	I understand that PMNC continued performance of the Agreement after BNYCP began to offset payment to PMNC in June 1996, rather than halting its performance and seeking to rescind the contract, or otherwise suggesting the BNYCP had abandoned the Agreement.  Under these facts, New York law would likely prohibit PMNC from recovering in quantum meruit.  Clark-Fitzpatrick, Inc., is the Court of Appeals’ most recent decision, and the leading case, on point.  It provides:
Notwithstanding plaintiff’s claim that defendant breached the contract, plaintiff chose not to rescind the agreement, but instead to complete performance of the contract and sue to recover damages, which of course was plaintiff’s right.  Having chosen this course, however, plaintiff is now limited to recovery of damages on the contract, and may not seek recovery based on an alleged quasi contract.  Clark-Fitzpatrick, Inc., 70 N.Y.2d 382, 389.

See also Aviv Construction, Inc. v. Antiquarium, Ltd., 687 N.Y.S.2d 344, 345 (“A contractor cannot bring a quantum meruit claim for extra payments beyond the original contract price where there exists a contract governing how payment for extra work will be determined.”). 
 
	There are a few cases in which courts have allowed contractors to recover in quantum meruit.  In those cases, however, either the plaintiff abandoned and sought rescission of the contract upon the defendant’s breach or there were special circumstances enabling the plaintiff to seek recovery outside of the contract.  See, e.g., Paterno & Sons, Inc. v. Town of New Windsor, 351 N.Y.S.2d 445 (N.Y. App. Div. 1974) (contractor abandoned any claim under the contract and elected to sue for quantum meruit and for rescission); Anthony L. Castiglia, Inc. v. City of Lockport, 446 N.Y.S.2d 748 (N.Y. App. Div. 1981) (allowing contractor to recover under quantum meruit where City unjustifiably prevented contractor from completing contract); United States ex rel. Maltese & Sons, Inc. v. Juno Construction Corp., 759 F.2d 253 (2nd Cir. 1985) (allowing choice of recovery in quantum meruit or on contract where contractor left job site and did not finish work after alleged breach); New Era Homes Corp. v. Forster, 86 N.E.2d 757 (N.Y. 1949) (permitting contractor which stopped work upon nonpayment to recover in quantum meruit).1 

	PMNC, however, did not seek to rescind the Agreement, and it is improbable that PMNC can establish the special circumstances necessary to support a claim for recovery in quantum meruit (e.g., that BNYCP abandoned the agreement).  Rather, PMNC’s principal claim is for damages specifically contemplated by the express terms of the Agreement concerning offset, default and the available remedies for default.  It is therefore reasonably certain that PMNC can recover damages, if at all, only under the contract itself and not in quantum meruit.  

	Based on the foregoing, it seems that the Court of Appeals would not hear PMNC’s quantum meruit claim should PMNC petition the Court of Appeals to hear its case.  Further, even if the Court of Appeals heard the claim, there does not appear to be a reasonable basis on which PMNC could prevail in quantum meruit.