The following papers numbered 1 to 5 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1-23-4

Opposing Affidavits (Affirmations)45

Reply Affidavits (Affirmations)5

Affidavit (Affirmation)

Other Papers Memoranda of Law

Upon the foregoing papers, Travelers Casualty and Surety Company of America [*2](plaintiff) moves for an order, pursuant to CPLR 3212, granting it summary judgment in this action. SRC Construction Corp. of Monroe, doing business as SRC Industries, (SRC) Michael Caridi (Caridi) and Jill DeBiasi-Caridi (DeBiasi-Caridi) (collectively, defendants) cross-move for an order, pursuant to CPLR 3211, dismissing plaintiff's complaint.

Non-party Atlantic City Housing Authority (ACHA) awarded SRC a "lump sum contract," on November13, 2001, to construct a senior assisted living facility (the Project). SRC and ACHA executed a construction contract (the Construction Contract) on April 24, 2002, wherein they agreed that the Project would be completed within 630 days and that SRC would accept a reduced payment in exchange for ACHA's providing various services and resources. SRC, to fulfill a condition of the Construction Contract, obtained a payment and performance bond for the contract price, $5,815,000, from plaintiff (the Bond).

SRC, as well as its president, Caridi, and his wife, DeBiasi-Caridi, executed a general agreement of indemnity in conjunction with obtaining the bond (the GAI). The GAI provided that "[t]he Indemnitor [(here, SRC, Caridi and DeBiasi-Caridi)] shall exonerate, indemnify and save the Company [(plaintiff)] harmless from and against every claim, loss, damage, demand, liability, cost, charge, suit, judgment, attorney's fee, and expense which the Company incurs in consequence of having executed, or procured the execution of such Bonds." It further specified that "[e]xpense includes the cost of procuring or attempting to procure release from liability, or in bringing suit to enforce this Agreement against any Indemnitor." The GAI also stipulated,

"The Company shall have the right, in its sole discretion, to determine for itself and the Indemnitor whether any claim or suit brought against the Company or the Indemnitor upon any such Bond shall be paid, compromised, settled, defended or appealed, and its decision shall be binding and conclusive upon the Indemnitor. An itemized statement thereof sworn to by an employee of the Company or a copy of the voucher of payment shall be prima facie evidence of the propriety and existence of Indemnitor's liability. The Company shall be entitled to reimbursement for any and all payments made by it under the belief that it was necessary or expedient to make such payments."

The Project experienced numerous delays. On May 7, 2009, the Project remained incomplete, and ACHA terminated the Construction Contract. ACHA asked plaintiff to complete the Project under the terms of the Bond. Plaintiff retained a construction consultant to facilitate bidding for the Project's completion, which produced one bid for approximately $3 million. Plaintiff thereafter retained another construction consultant and conducted another bidding round, which resulted in three bids, the lowest for approximately $1.1 million.

ACHA and plaintiff executed an agreement, which provided that plaintiff would simply tender the funds necessary for ACHA to complete the Project, based on the $1.1 million low bid and additional amounts to correct any latent defects (the Tender Agreement). Plaintiff subsequently demanded indemnity from defendants, pursuant to the GAI, for the amount paid to ACHA and other costs, but defendants refused to comply.

Plaintiff commenced this action on November 1, 2010 and sought defendants' specific performance under the terms of the GAI, as well as damages under theories of contractual indemnification, exoneration and common-law indemnification. Plaintiff alleged that, pursuant to the terms of the Tender Agreement, it paid a replacement contractor $694,602.92 to complete the Project, and it claimed that the GAI contractually requires defendants to reimburse plaintiff for that amount. It further claimed that defendants must reimburse its legal fees and costs, which amounted to $63,058.77. Defendants' failure to indemnify, plaintiff alleged, constituted default under the GAI's terms.

Defendants, in their verified answer, asserted counterclaims for breach of the Bond agreement and for "bad faith." Defendants alleged that plaintiff was obliged to make only reasonable and good faith payments and that the amounts plaintiff agreed to pay ACHA were, instead, unreasonable and not made in good faith. Defendants further claimed that plaintiff acted in bad faith by entering into the Tender Agreement with ACHA without properly investigating whether SRC had defaulted under the Construction Contract and while knowing that SRC was planning to sue ACHA and the Project's architect and engineer.

Plaintiff now moves for an order, pursuant to CPLR 3212, granting it summary judgment as to its causes of action and dismissing defendants' counterclaims. Plaintiff urges that New York courts generally recognize and enforce indemnity agreements like the GAI and that a surety has the right to indemnity for claims paid with a good faith belief in liability. Plaintiff argues that the GAI governs its relationship with defendants and entitles it to indemnification for all Bond-related losses and expenses that it believed were expedient. Plaintiff contends that the GAI permitted it to decide whether to pay or settle any claim under the Bond. This clause, maintains plaintiff, must be enforced unless defendants can clearly establish that plaintiff acted in bad faith. Plaintiff urges that whether defendants would have been ultimately liable to ACHA is irrelevant to plaintiff's motivation in settling the claims.

Plaintiff rejects the contention that its investigation was insufficient. It recounts that it retained a construction consultant to determine whether SRC's termination was proper, and, though it admits that the result was inconclusive, it urges that substantial evidence indicates propriety. Plaintiff thus characterizes its execution of the Tender Agreement as a good faith attempt to mitigate damages. Plaintiff explains that, in exchange for its agreement to pay the estimated cost of the Project's completion, ACHA waived (1) its contractual right to demand that plaintiff actually complete the project and (2) its right to pursue liquidated damages of $1000 per day after the Project's deadline against both plaintiff and SRC. Plaintiff estimates that, given the length of delay, these liquidated damages could have totaled up to $1.9 million in additional liability for SRC. Plaintiff argues that defendants have failed to establish plaintiff's purported bad faith, as Caridi admitted at deposition that he did not know why plaintiff executed the Tender Agreement. Plaintiff further contends that the GAI renders the itemized statement it sent to defendants " prima facie evidence of the propriety and existence of [their] liability.'"

Plaintiff, in opposition to defendants' counterclaims, argues that New York does not recognize bad faith claims against sureties because, unlike under an insurance contract, a suretyship establishes a contractual relationship between three parties. Plaintiff contends that it performed a sufficient investigation concerning the propriety of [*4]SRC's termination and that its execution of the Tender Agreement thus was not in bad faith. It reiterates that significant evidence suggests that SRC or its subcontractors caused at least some of the delays that ultimately led to the termination. Plaintiff argues that the bad faith cause of action must be dismissed as a party cannot bring a tort claim without some underlying, non-contractual duty. Plaintiff also asserts that New York law restricts a surety's liability to the face value of its bond. Finally, plaintiff urges that its retention of a new contractor and completion of the ACHA project served the public good.

Plaintiff supports its motion with the affidavit of Shawn Pikas (Pikas), its claim counsel, who recounts that ACHA issued a notice of default to SRC in June 2006, but then permitted SRC to continue working. She states that, in January 2008, ACHA demanded that SRC accelerate its work and, in October 2008, advised SRC of its intent to issue another notice of default. Pikas asserts that SRC, at a meeting with ACHA and plaintiff, requested that plaintiff complete the Project and that plaintiff then advised SRC that it would be liable for the difference in cost, which plaintiff then estimated at about $1 million. Such a voluntary assumption was, apparently, never completed. Pikas states that, in investigating SRC's termination and at Caridi's suggestion, plaintiff interviewed a former SRC project manager, Richard Levine, who purportedly stated that "the majority of the delay and problems with the Project were caused by SRC."

Pikas explains that plaintiff entered into the Tender Agreement, rather than actually assuming the duty to complete the Project, as an effort to avoid significant fees. Pikas reiterates that ACHA, in exchange for the Tender Agreement, agreed to release both plaintiff and defendants from liability for liquidated damages as well as releasing plaintiff from its bond. Pikas itemizes plaintiff's expenses in relation to the bond as $694,602.92 paid to ACHA under the Tender Agreement, $65,000 paid to the replacement contractor for latent defects, $274,132.61 in legal costs, $219,378.02 in consulting fees, $8409 to subcontractor Schindler Elevator and $4054.81 in travel expenses, totaling $1,265,573.36, for which amount plaintiff seeks summary judgment.

Defendants now cross-move for an order, pursuant to CPLR 3211,^[FN1] dismissing plaintiff's complaint. They first argue, in opposition to plaintiff's summary judgment motion, that plaintiff fails to make a prima facie showing that the guaranty is enforceable and that it did not act in bad faith. Defendants concede the GAI's validity, but argue that plaintiff failed to make a proper investigation into SRC's termination before adopting the Tender Agreement and paid too much to complete the Project. They urge that plaintiff solicited bids for a contractor to take over the Project and chose a replacement contractor despite its own inconclusive finding concerning SRC's termination.

Defendants contend that the work remaining on the Project when ACHA terminated SRC should have cost only $475,000 and that $580,000 remained unspent under the Construction Contract. They allege that plaintiff's spending "an additional $1,200,000" to complete the project was, thus, unreasonable and a failure to mitigate damages. More specifically, defendants claim that plaintiff spent $50,000 for work on the Project's roof, which was purportedly under warranty, and also spent $225,000 for bathroom work and $25,000 for smoke detector installation that fell outside SRC's [*5]obligations under the Construction Contract. Defendants argue that plaintiff also failed to mitigate damages by rejecting the bid produced by the first consultant and hiring a second consultant to solicit further bids. They contend that plaintiff further increased damages by refusing to permit SRC to provide subcontractors for the Project's completion or to discuss decisions with SRC. Defendants argue that plaintiff fails to provide any documentation underlying their payment of $65,000 to the replacement contractor for latent defects.

Defendants allege that plaintiff overlooks documentation suggesting that SRC's termination was improper, such as SRC's complaints that the Project's delays were caused by ACHA, the architect or the engineer. They argue that a showing of bad faith requires a mere demonstration of conscious indifference to a party's interests rather than a sinister motive. Defendants assert that plaintiff demonstrated its indifference to their interests "because it knew that it would seek reimbursement from Mr. and Mrs. Caridi pursuant to the GAI - so . . . [plaintiff] used [Caridi] as an open checkbook.'"

Defendants then argue that this action must be dismissed, under CPLR 3211 (a) (4), because plaintiff commenced a separate action against the individual defendants in Connecticut (the Connecticut Action). Defendants stress that the Connecticut Action's complaint alleges the same four causes of action and is substantially identical to the complaint herein. Defendants explain that the Connecticut court granted plaintiff attachment of the individual defendants' home and that this order was affirmed on appeal.

Defendants support their motion with the affidavit of Caridi, who contends that ACHA unilaterally terminated SRC when the Project was 98% complete. He alleges that plaintiff said it would consult with SRC before going forward with the Tender Agreement, but never did. He further claims that SRC had already retained subcontractors to complete the Project but that plaintiff turned away subcontractors who went to the site and attempted to work.

Plaintiff replies that it makes a prima facie showing it acted in accord with the GAI's terms and notes that the Connecticut court held, in attaching the individual defendants' home, that plaintiff had not breached its duty of good faith and fair dealing. It contends that the Caridi affidavit is not properly notarized and asserts facts that are irrelevant or contradicted by his deposition testimony. Plaintiff argues that defendants must show that plaintiff had malicious intent or engaged in fraud or collusion to show that plaintiff acted in bad faith. Plaintiff contends that its detailed investigation concerning the propriety of SRC's termination was sufficient, but that even a failure to properly investigate would not amount to bad faith. It reiterates that whether SRC actually defaulted under its construction contract is irrelevant to plaintiff's motive in executing the Tender Agreement. Plaintiff points out, in any case, that defendants introduce evidence of delays caused by ACHA only in 2002-2003 and 2005-2006 and that almost three years, i.e., longer than the contract period, passed between the latest document purportedly evincing ACHA's delays and the date of SRC's termination. New York courts, argues plaintiff, have established that a surety may rightfully settle a claim regardless of whether its principal was at fault.

Plaintiff argues that Caridi, contrary to his assertion that SRC was not responsible for any of the Project's delays, testified at his deposition about delays caused by subcontractors, for which SRC, as the general contractor, would have borne responsibility. Plaintiff contends that it actively sought to mitigate damages and stresses that it hired a second consultant only after the first solicitation produced only one [*6]completion bid, for over $3 million, whereas the second solicitation produced a low bid of $1.1 million, upon which plaintiff based the Tender Agreement's terms. Plaintiff asserts that it retained some of SRC's subcontractors to complete the Project. It also emphasizes that Caridi admitted at deposition that his belief that plaintiff was turning away subcontractors was based entirely on hearsay and that he did not know if plaintiff subsequently contacted such subcontractors.

Plaintiff urges that defendants' cross motion must be denied because plaintiff filed the New York action first and CPLR 3211 (a) (4) generally permits dismissing only a subsequently commenced action. Plaintiff further argues that substantial identity of the parties in the two actions is lacking as SRC is not a party to the Connecticut Action and that no discovery has yet occurred in the Connecticut Action.

A summary judgment movant must show prima facie entitlement to judgment as a matter of law by producing sufficient admissible evidence demonstrating the absence of any material factual issues (CPLR 3212 [b]; Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). Failure to make such a showing requires denying the motion regardless of the sufficiency of any opposition (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012]). The opposing party overcomes the movant's showing only by introducing "evidentiary proof in admissible form sufficient to require a trial of material questions" (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Considering a summary judgment motion requires viewing the evidence in the light most favorable to the motion opponent (Vega, 18 NY3d at 503). Nevertheless, "mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat a summary judgment motion (Zuckerman, 49 NY2d at 562). "The court's function on a motion for summary judgment is to determine whether material factual issues exist, not to resolve such issues" (Ruiz v Griffin, 71 AD3d 1112, 1115 [2010] [internal quotation marks omitted]).

A plaintiff surety, who entered into an indemnification agreement with a defendant principal in conjunction with the issuance of a bond, "is entitled to indemnification upon proof of payment, unless payment was made in bad faith or was unreasonable in amount, and this rule applies regardless of whether the principal was actually in default or liable under its contract with the obligee" (John Deere Ins. Co. v GBE/Alasia Corp., 57 AD3d 620, 621 [2008] [internal quotation marks omitted]; see also Lee v T.F. DeMilo Corp., 29 AD3d 867, 868 [2006]; Frontier Ins. Co. v Renewal Arts Contr. Corp., 12 AD3d 891, 892 [2004]). Accordingly, payments for which a plaintiff seeks reimbursement under an indemnity agreement executed in conjunction with a bond are scrutinized only for good faith and reasonableness (see Acstar Ins. Co. v Teton Enters., 248 AD2d 654, 654 [1998]; International Fid. Ins. Co. v Spadafina, 192 AD2d 637, 639 [1993]; see also Dramar Constr. v G & A Renovation & Restoration, 302 AD2d 487, 488 [2003] [reversing denial of summary judgment as defendants "failed to raise a triable issue of fact as to either the bona fides of the payment or the reasonableness of its amount"]). Such a plaintiff makes a prima facie showing of entitlement to summary judgment by [*7]demonstrating the specific, good faith, reasonable payments made under an enforceable indemnity agreement (see International Fid. Ins. Co. v Kulka Constr. Corp., 100 AD3d 967, 968 [2012]; Travelers Cas. & Sur. Co. of Am. v Stransky, 93 AD3d 781, 781 [2012]; John Deere Ins. Co., 57 AD3d at 621; Lee, 29 AD3d at 868).

Here, plaintiff makes a prima facie showing warranting summary judgment in its favor by submitting substantial evidence demonstrating the contractual obligations of itself and defendants and the payments made pursuant to those obligations. Plaintiff adequately demonstrates that it had a good faith belief in its own liability under the bond, and any questions whether SRC in fact defaulted under the Construction Contract do not bear on this good faith belief.

Defendants fail to raise any factual questions whether plaintiff's payments under the bond were in good faith, particularly as plaintiff demonstrates that it expended effort to find the lowest bidder to complete the job and that it obtained ACHA's release of the potential liquidated damages claim against SRC. Furthermore, defendants fail to raise any questions regarding whether plaintiff's expenses for construction consultants were reasonable as they played an integral part in minimizing the Project's completion costs.^[FN2] Defendants succeed, however, in raising factual questions as to the reasonableness of certain of plaintiff's construction expenses, namely, the $25,000 plaintiff put towards smoke detector installation and $225,000 plaintiff put towards bathroom work, which tasks defendants claim fell outside the Construction Contract, as well as the $50,000 plaintiff put towards work on the Project's roof, which defendants claim was under warranty. Hence, summary judgment must be partially granted to plaintiff for indemnification of its expenses other than the three listed above, where reasonableness questions exist.

Additionally, defendants' counterclaims are premised entirely on allegations that plaintiff acted in bad faith, and the finding herein, as a matter of law, that plaintiff acted in good faith, thus mandates granting plaintiff summary judgment dismissing those counterclaims.

CPLR 3211 (a) (4) states, in relevant part, that "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that . . . there is another action pending between the same parties for the same cause of action in a court of any state in the United States." CPLR 3211 (e), however, requires that a defendant raise a 3211 (a) (4) defense prior to or in a responsive pleading; otherwise, the defense is waived (see Green Point Sav. Bank v Clarke, 220 AD2d 384, 385 [1995]). Defendants did not raise the 3211 (a) (4) defense in their verified answer, and their cross motion must, therefore, be denied.^[FN3] Accordingly, it is

ORDERED that plaintiff's summary judgment motion is granted, except as to its expenses of $25,000 towards smoke detector installation, $225,000 towards bathroom work and $50,000 [*8]towards roof repairs; and it is further

ORDERED that defendants' cross motion to dismiss the action is denied in its entirety.

This constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C.