Defendant's motion for partial summary judgment on the issue of delay damages granted in part, to the extent that claimant's recovery for delay damages, if proven, will be limited to the amount allocated by the contract.
|Claimant(s):||CGI TECHNOLOGIES & SOLUTIONS, INC.|
|Claimant short name:||CGI|
|Footnote (claimant name) :|
|Defendant(s):||THE STATE OF NEW YORK|
|Footnote (defendant name) :|
|Judge:||W. BROOKS DeBOW|
|Claimant's attorney:||HODGSON RUSS, LLP
By: Christopher Massaroni, Esq.
McDERMOTT WILL & EMERY, LLP
Margaret H. Warner, Esq.
Lisa M. Richman, Esq.
Theodore E. Alexander, Esq.
|Defendant's attorney:||LETITIA JAMES, Attorney General
of the State of New York
By: Richard C. Maider, Assistant Attorney General
Cornelia Mogor, Assistant Attorney General
|Third-party defendant's attorney:|
|Signature date:||November 17, 2020|
|See also (multicaptioned case)|
This claim arises from a dispute over a State contract between claimant CGI Technologies and Solutions, Inc. (CGI) and the New York State Office of Mental Health (OMH). Defendant moves pursuant to CPLR 3212 (b) and (e) for partial summary judgment on the claim. CGI opposes the motion. For the reasons that follow, defendant's motion will be granted in part.
CGI is an information technology consulting company that develops and implements software solutions for government and private sector entities. OMH is a State agency that operates 23 mental health facilities and oversees approximately 310 outpatient mental health programs throughout the State. On August 27, 2013, the parties executed a $51 million, four-year contract pursuant to which CGI would provide OMH with an Electronic Medical Record (EMR) system to be used in its facilities and outpatient programs. The claim alleges that CGI had contracted to implement a "new commercial off-the-shelf EMR" (Maider Affirmation, Exhibit L [Claim No. 132590, ¶ 31]), but that a number of actions on the part of OMH, including a large-scale reorganization, staffing changes, and significant alterations to the project, created "constantly changing parameters and increasing demands [that] fundamentally altered the project from a standard commercial off-the-shelf project . . . to a custom development project that was specifically tailored to OMH's requests" (id. at ¶ 57). The claim further alleges other failures and deficiencies by OMH that contributed to delays and problems with the contract.
The claim alleges that the parties began to negotiate a contract extension when it became apparent that the project would not be completed by the expiration of the original four-year term. The claim alleges that OMH insisted that the parties first agree to a time extension before discussing additional costs caused by the extension and that CGI agreed to a time extension in reliance on OMH's assurances that CGI would be compensated for its additional work. One day prior to the contract's expiration in August 2017, a two-year extension of the agreement was approved that extended the date of performance but did not otherwise alter the contract.
The claim alleges that CGI continued its work under the contract, that Track 1 of the project, which addressed OMH's inpatient facilities, was completed by October 2017, and that OMH had full use of the custom EMR product. The claim alleges that CGI continued to work on Track 2 of the project, which addressed OMH's outpatient facilities, but when CGI requested additional compensation as discussed when the time extension was negotiated, OMH stated that it would consider the request only if CGI continued working on the project and provided documentation. The claim alleges that although CGI supplied OMH with thousands of documents to support its request for additional compensation, OMH suspended the contract on May 18, 2018 without responding to CGI's request. The claim alleges that after CGI suspended its performance under the contract and shut down the project, the parties attempted to resolve the issues that led to the suspension. The claim alleges that during that period of discussions, CGI reestablished OMH's access to the unfinished work product based on assurances from OMH that the contract would resume. The claim alleges that despite its assurances that the contract would resume, OMH invoked the contract's termination "for convenience" clause to terminate the contract in a letter dated August 6, 2018. The claim alleges that OMH has failed to pay sums due on the contract and has continued to use the EMR product at the facilities where it was fully implemented by completion of Track 1 of the contract. The claim asserts causes of action sounding in breach of contract and conversion, and seeks compensatory damages and a declaration that CGI is the owner of all protectable intellectual property relating to the contract.(1)
Defendant moves for partial summary judgment on the claim, seeking to dismiss Counts II and VII, which demand delay damages in the amount of $21.7 million or, alternatively, to limit CGI's delay damages "to the remaining unpaid balance under the Contract ($17,286,261.00)" (Maider Affirmation, ¶ 2). In support of its motion for partial summary judgment, defendant submits the affidavits of Gerald M. Engel, the Associate Commissioner and Chief Medical Informatics Officer of OMH who "was the Project Sponsor for the Contract that is the subject of this claim, from its inception on August 27, 2013, through its termination for convenience on August 6, 2018, and thereafter" (Engel Affidavit, ¶ 5), and Paul J. Murray, the Director of State Operations Contracts and Procurements Services Division for OMH and a Contract Manager in the OMH Consolidated Business Office who "actively managed the contract during the effective period" and "was responsible for overseeing the execution of" the amendment of the contract, also known as "Appendix X" (Murray Affidavit, ¶ 5), as well as the contract and its amendment, and communications between the parties.
The contract obligated defendant to pay CGI a sum not to exceed $51,660, 207 as consideration for its performance under the contract (see Murray Affidavit, Exhibit G at pp. 4-5 [Contract No. C009999, ¶ II (B)]), which was broken down into three parts: (1) $42,657,605 for construction and implementation of the EMR system; (2) $5,432,034 for project change requests; and (3) $3,570,568 for maintenance of MHARS, OMH's existing software system (see id. at pg. 1 [Face Page], and pp. 23-24 [Appendix B]; see also Engel Affidavit, ¶ 6). The original contract period was from May 1, 2013 through April 30, 2017, with two optional one-year renewal terms from May 1, 2017 to April 30, 2018 and May 1, 2018 to April 30, 2019 (see id., Exhibit G, pg.1 [Face Page]). Pursuant to the terms of the contract, the parties could amend the contract in order to extend the contract period or to increase the budget for the EMR project, provided that any contract amendments were required to be executed using a form known as "Appendix X" and were subject to approval by the Office of the State Comptroller (OSC) (see id. at pg. 4 [¶¶ I (A), (D)]). The contract provided that the funding for any amendment contract period "shall not exceed the amount specified in the appropriate appendix for that PERIOD" (id. [¶ I (B)]). The contract provided that any terms of the contract that were not modified by the amendment remained in effect for the period of the amendment (see id., at pg. 4 [¶ I (D)]). The contract specifically provided that "[a]bsent a mutually agreed upon Change Request, [CGI] is obligated to complete this Project, including agreed upon Enhancements, even if its actual costs exceed those in Appendix B - OMH EMR Budget(2) and the budget for any agreed upon Enhancements" (id. at pg. 27 [Appendix C]). The contract provided that "[n]o Change Request Form shall be effective unless approved and executed by authorized representatives of both [CGI] and OMH" (id. at pg. 29 [Appendix D, ¶ IV (B)]). The contract further provided that
"[i]f action or inaction by OMH or its suppliers' (excluding DSS and NTT) failure to perform their responsibilities in a timely manner, has a significant effect on [CGI's] ability to perform its responsibilities in a timely manner, the parties will address the impact of such delays in a Change Request to account for an equitable adjustment in the schedule for performance, any corrective actions and associated compensation, if any."
(id. at 50 [Appendix D-1, ¶ Q (7)]). The "Executory Clause" contained in Appendix A to the contract states: "In accordance with Section 41 of the State Finance Law, the State shall have no liability under this contract to the Contractor or to anyone else beyond funds appropriated and available for this contract" (id. at pg. 8 [Appendix A, ¶ 1]).
Murray avers that he sent an email to Michael Pogozelski, who was "CGI's engagement manager on the Project," on May 1, 2017 "with [a] proposed Appendix X for [a] time extension" after it became apparent that the EMR project would not be completed within the four-year time frame originally contemplated in the contract (Murray Affidavit, ¶ 16; see id., Exhibit H [Murray Email, dated May 1, 2017]).(3) In the e-mail, Murray stated that the extension was for "an additional two years, at no cost " (id., Exhibit H). Murray avers that he had exchanged e-mails with Pogozelski during the month of June 2017 "concerning the precise language of Appendix X," and that Pogozelski "never objected to the proposed time extension as being 'at no cost' " during those exchanges (Murray Affidavit, ¶ 17). The parties subsequently executed Appendix X extending the term of the contract to August 26, 2019, which Pogozelski signed on June 30, 2017 and Murray signed on July 5, 2017 (see Engel Affidavit, Exhibit A, pg.1). Appendix X restated the contract amount as being $51,660,207, and stated that the "Amendment Amount" for the period of the extension was "$0.00" (id.). OSC approved Appendix X on August 25, 2017 (see id.). Murray asserts that when Appendix X was fully executed by Pogozelski on June 30, 2017, "CGI had unconditionally agreed to a two-year Contract extension at no cost" (Murray Affidavit, ¶ 18; see id., Exhibit H [Murray Email, dated May 1, 2017] & Exhibit I [June 2017 Emails]). Murray further avers that Pogozelski "never brought up the subject of additional payment to CGI as a condition for agreeing to the Contract extension" prior to OSC's approval of the contract extension on August 25, 2017, and he asserts that Appendix X "clearly indicates" that there was no additional compensation for the extension (Murray Affidavit, ¶ 20). Similarly, Engel asserts that Appendix X "clearly provide[d] that CGI was not entitled to any additional financial consideration in exchange for the two-year extension" (Engel Affidavit at ¶ 11; see id., Exhibit A [Appendix X, pg. 1]).
Engel avers that on August 1, 2017, following the parties' execution of Appendix X, Michael Reagan, the Vice President of Consulting Services for CGI, wrote to Engel seeking additional "compensation for delays CGI allege[d] it experienced on the Contract" (Engel Affidavit, ¶¶ 8-9). In his letter, Reagan stated that once Appendix X was approved by OSC, he would "schedule meetings to discuss the cost associated with the overall project delay" (id., Exhibit B [Undated Reagan Correspondence, unnumbered pg. 2]). Reagan further stated that "[w]e both acknowledge that the delays to this project have been due to various factors - some vendor team-driven and some OMH team-driven. Please let me know once you receive approvals on the contract vehicle so we can begin this dialog" (id.). In correspondence dated August 3, 2017, Engel responded to Reagan's correspondence stating that he required "a better understanding of why it [was] necessary to schedule meetings to discuss additional cost[s] you believe are associated with the overall project delay" (id., Exhibit C [Engel Correspondence, unnumbered pg. 2]; see Engel Affidavit, ¶ 10). Engel further stated that "[a]s this is a fixed-price deliverable-based contract, the costs for completing the project were built into the initial 48-month term," and that "if CGI had a clear understanding of the project requirements and contractual demands upon its commencement, the resulting delays would have been non-existent" (id., Exhibit C [Engel Correspondence, unnumbered pg. 2]). Murray avers that "OMH never agreed to negotiate any additional payments to CGI beyond the Budget," and that even if Reagan and Engel had discussed additional payment, "no increase in the Budget could occur without a properly executed Appendix X in which the parties agreed to additional funding and the OSC approved that request" (Murray Affidavit, ¶ 21 [emphasis in original]).
Engel avers that on November 8, 2017, CGI submitted a PowerPoint presentation seeking $7,727,000 in "delay damages allegedly experienced by CGI and caused by OMH during the original contract term" - which CGI indicated reflected a 45% share of the responsibility for the delays on OMH's part - despite the lack of additional compensation provided for in Appendix X and Engel's own "rejection of CGI's request to discuss supposed additional costs for delay" (Engel Affidavit, ¶ 12; see id., Exhibit D [PowerPoint Slides]).(4) In correspondence dated March 1, 2018, Murray "rejected" CGI's demand for additional compensation, stating that the parties were aware when they executed Appendix X that there was no "additional consideration" involved, that CGI had failed to comply with the "Notice of Adverse Condition" requirement in the contract,(5) and that "many" of the "factors cited by CGI as resulting in project delay . . . were solely related to CGI's own failure to perform (and thus, not subject to additional compensation) or were periods of CGI-caused delay that were concurrent with alleged OMH delays" (id., Exhibit E [Murray Correspondence, dated Mar. 1, 2018, pp. 1-2]). Murray stated, however, that notwithstanding that OMH had no contractual obligation to do so, it would be "willing to review portions of the Claim" provided that CGI submit an analysis identifying and attributing responsibility for the alleged delays and "demonstrat[ing] a causal connection between the alleged delays (excluding periods of delay resulting from CGI's actions or failure to act and periods of concurrent delay) and the alleged costs," with supporting documentation (id. at pg. 2). Murray further stated that "OMH may request a formal audit of the EMR project to further substantiate the alleged costs" and that "CGI's arbitrary allocation of 45% OMH responsibility for the alleged costs will not be entertained further" (id.).
Engel avers that on or about April 25, 2018, CGI submitted Proposed Change Request No. 328, which demanded delay damages in the amount of $21,711,436, approximately triple the amount initially requested, and "without explanation, . . . allocate[d] 100% of the responsibility for project delays to OMH" (Engel Affidavit, ¶ 14; see also Maider Affirmation, Exhibit C [Verified Claim, Exhibit 7]). In a letter accompanying the Proposed Change Request, Reagan stated that "OMH had notice of the many delays occasioned by OMH and the impact of OMH's decision to greatly expand the scope of the project" and that the parties had "continuously discussed . . . [the] resulting financial impact on CGI" (Maider Affirmation, Exhibit L [Verified Claim, Exhibit 7 (Reagan Correspondence, dated Apr. 25, 2018)]). Reagan further stated that CGI had agreed to the August 2017 contract extension "with the understanding that such extension would be promptly followed by a [Change Request] for the additional funds to address OMH delays and requested scope expansion" (id.). Further, Reagan stated in his correspondence that
"[w]here OMH's failure to perform its responsibilities in a timely manner has a significant effect on CGI's ability to perform its responsibilities in a timely manner, as has occurred here, our contract provides that the parties will address the impact of such delays in a Change Request (to provide an equitable adjustment in the schedule for performance, any corrective actions and associated compensation)"
(id.). CGI submitted, with Reagan's letter, voluminous documentation "regarding the schedule analysis, causal connection and supporting documentation" as requested by OMH (id.).
In correspondence dated August 6, 2018, Murray denied the April 25, 2018 Change Request, informing CGI that OMH "maintain[ed] its position that CGI [was] due no further compensation" (Engel Affidavit, Exhibit F [Murray Correspondence, dated Aug. 6, 2018, at unnumbered pg. 3]). Murray stated that OMH had "determined that [CGI's submission in support of the Change Request was] unresponsive to the request for additional documentation" (id. at unnumbered pg. 2), and that CGI's submission was "unpersuasive, and fail[ed] to establish any basis for additional compensation" for several reasons, including that CGI had failed to provide certain documentation or support or to identify anything more than "the garden variety issues that occur over the course of any large project," had failed to demonstrate a causal connection between the delays and additional costs, and had failed to address the ways in which CGI had contributed to the delays or to establish that the "delays [were] excusable and compensable" (id. at unnumbered pp. 2-3). Finally, Murray noted that "CGI ha[d] increased the amount of its Claim . . . without providing any credible explanation or basis as to the revised amount," and "place[d] 100% of the delay responsibility and purported costs on OMH without any adequate rationale for this revision from the original Claim" (id. at unnumbered pg. 3). On that same day, Murray terminated the contract "for convenience, in the best interests of the State," stating that "OMH is responsible for 'payment for all work-in-progress in the Project management Plan as of the date of notice of termination utilizing a percent complete methodology' " pursuant to Appendix D-1 of the contract (Maider Affirmation, Exhibit L [Verified Claim, Exhibit 12 (Murray Correspondence, dated Aug. 6, 2018)]).
Murray avers that CGI has been paid in excess of $34 million, or approximately 66% of the $51 million total contract price, despite the EMR project having not been completed (see Murray Affidavit, ¶¶ 22-25). Engel asserts that it is undisputed that the parties never mutually agreed to CGI's Change Request regarding delay damages and that Appendix X provided for no further compensation to CGI (see Engel Affidavit, ¶¶ 18-19).
In seeking partial summary judgment dismissing the delay damages claim, defendant argues that OMH has already paid CGI $34,373,946 under the contract, and that if CGI is awarded damages in the amount of $35,159,795.77 as demanded in the claim, CGI will have been paid $69,533,741.77, almost $18 million over the $51,660,207 amount agreed upon in the contract (see Defendant's Memorandum of Law, pp. 1-3). Defendant argues that it is entitled to summary judgment dismissing the delay damages claim because the parties never mutually agreed upon and executed a Change Request, as required by the contract, or any other written agreement for the payment of additional compensation to CGI related to the delays in the EMR project, and because the contract extension that was agreed upon and executed by the parties merely extended the time within which to complete the EMR project and did not provide for any additional compensation (see id. at pp. 5-8, 10). Defendant further argues that CGI has failed to identify "any written document or agreement" reflecting alleged assurances by OMH representatives that the parties would discuss additional compensation after the execution of the contract extension (id. at pg. 9). Defendant asserts that "OMH considered entertaining a request for compensation as a courtesy or 'business accommodation' to CGI," but denied CGI's November 2017 request for approximately $7.7 million in delay damages, which was based on CGI's assertion that OMH bore a 45% share of the responsibility for the delays (see id. at pg. 9), and that OMH likewise denied CGI's April 25, 2018 Change Request, in which it increased the amount of delay damages to approximately $21.7 million and attributed the delays solely to OMH (see id. at pp. 9-10). Defendant argues that the termination for convenience provision of the contract limits the damages CGI can recover to "[p]ayments for all deliverables received and accepted prior to [the] effective date of termination" and "[p]ayments for work-in-progress as of the notice of termination" (id. at pg. 10).
Defendant further argues that if the Court declines to dismiss CGI's delay damages claim, CGI's recovery should be limited "to the unpaid remaining balance under the Contract Budget" of $51 million because, under the terms of the contract, funding for the initial four-year term of the contract was not to exceed the $51 million budget agreed upon in the contract, any additional funding for an additional contractual term was to be specified in the contract extension, and the parties extended the contract without agreeing upon any additional payments to CGI (see id. at pp. 11-14). Defendant further argues that the terms of the contract expressly limited the State's liability under the contract to the $51 million contract amount and that the Executory Clause prohibits recovery beyond the funds made available under the contract (see id. at pp. 12-13).(6)
In opposition to the motion, CGI argues that genuine issues of material fact remain as to the amount of damages to which CGI is entitled (see Massaroni Affirmation, ¶ 3), and has included with its submission the affidavits of several CGI executives that were previously submitted in support of CGI's prior motion for a preliminary injunction, as well as communications between CGI and OMH concerning CGI's delay damages.(7) As pertinent to this motion, James Titus, CGI's Vice President of Consulting Services for the U.S. East Public Sector, avers that "OMH and CGI extended their contract upon OMH's promise that OMH would provide CGI with additional compensation for the additional work CGI was required to perform as a result of the time extension" (id., Exhibit 17 [Titus Affidavit, ¶ 11]). Steven Starace, CGI's Senior Vice President and U.S. East Business Unit Leader, avers that "prior to August 2017, CGI and OMH engaged in numerous discussions and communications concerning the financial compensation that CGI expected for the delays and additional work in exchange for agreeing to OMH's request for an extension" (id., Exhibit 21 [Second Starace Affidavit, ¶ 3]). Starace further avers that "[d]uring those discussions, CGI made clear to OMH that it would not sign a contract term extension until OMH provided assurance that CGI would be compensated for the project delays," and that "OMH, in turn, explained that the negotiations concerning the amount of compensation would need to occur after the contract term extension was signed" (id. at ¶ 5).
Reagan likewise avers that "negotiations on the amount OMH owed CGI for project delays began in early 2017 . . . in conjunction with OMH's asking CGI to seek a contract vehicle extension" (id., Exhibit 18 [Reagan Affidavit, ¶ 6]). Reagan avers that "CGI was not willing to sign a contract vehicle extension unless it received assurances from OMH that it would be compensated for the delays caused by OMH," and that "OMH assured CGI that CGI would be compensated for the delay costs after the contract extension vehicle was fully executed" (id.). Pogozelski avers that he assisted Reagan in drafting his correspondence to Engel in July and August 2017, that Reagan's correspondence to Engel summarizing their July 31, 2017 discussion "summarized briefly the prior discussions between OMH and Mr. Reagan regarding additional costs associated with the contract vehicle extension and a reference to the fact that a dialogue on those costs would begin shortly after the signing of the extension Change Request," and that Reagan's August 7, 2017 letter to Engel "reiterated that point" (id., Exhibit 20 [Pogozelski Affidavit, ¶ 6]). Pogozelski further avers that Reagan's letters demonstrate that "OMH was not only aware, prior to the extension Change Request . . . of CGI's intent to develop a delay Change Request, but that OMH also had discussion with CGI, prior to execution of the extension Change Request, regarding the fact that there would be costs associated with the contract vehicle extension" (id.).
Attached as an exhibit to CGI's opposition is an August 7, 2017 letter from Reagan responding to Engel's August 3, 2017 correspondence, in which Reagan stated, as relevant here, that
"[o]nce OSC approves [Appendix X] and it is executed, estimated in late August 2017, we will schedule meetings to discuss the cost associated with the overall project delay. We both acknowledge that the delays to this project have been due to various factors - some vendor team-driven and some OMH team-driven. You are correct in stating that this is a fixed price contract but you cannot expected CGI to bear the cost of delays caused by NYS OMH. The delay, caused by all parties, did have an impact on overall project management and added additional time to complete the project"
(Massaroni Affirmation, Exhibit 8 [Reagan Correspondence, dated August 7, 2017, unnumbered pg. 2]). Reagan avers that following his exchange of correspondence with Engel in August 2017, representatives from CGI and OMH held a meeting on August 15, 2017, during which they discussed "additional funds required to complete the project," and that "[t]he action item for CGI from that meeting was for CGI to create a 'back of the envelope' justification for additional funds" (id., Exhibit 18 [Reagan Affidavit, ¶ 10]). Starace avers that he participated in the August 15, 2017 meeting, the purpose of which was, among other things, "to reach an agreement with OMH on . . . the amount in addition to the amounts already set forth in the Contract that CGI was to be paid to complete the EMR project" (id., Exhibit 21 [Second Starace Affidavit, ¶ 8]). Starace avers that during the meeting, "the parties . . . discussed in rough terms the additional money CGI needed in order to finish the project as defined by the updated project plan to which the parties had agreed, and OMH understood that additional funding was necessary if there was to be an extension of the Contract," and that "[t]he parties discussed CGI's monthly burn rate for the project, and OMH understood the impact this had on CGI's need for additional funds to complete the project" (id. at ¶ 11). Starace further avers that Christopher Tavella, the OMH Acting Executive Deputy Commissioner, stated during the meeting that "OMH and CGI would first finalize the contract term extension and later address the amount of the additional funds" and "acknowledged that OMH was at least partially at fault for the project delays" that necessitated the contract extension (id.). Finally, Starace avers that at the conclusion of the meeting, "OMH conveyed that it was very receptive to" agreeing to additional compensation for CGI "for the additional work it needed to perform" due to the two-year contract extension (id.).
Reagan avers that representatives from CGI and OMH met again on November 8, 2017 to discuss CGI's PowerPoint presentation seeking $17.17 million in additional compensation, and he explains that CGI assumed 55% of the responsibility for the delays "because [CGI] approached these negotiations in good faith and were trying to demonstrate to OMH that, as a good project partner, we were willing to compromise" (id., Exhibit 18 [Reagan Affidavit, ¶ 12]). Reagan further avers, however, that CGI "never would have taken a conciliatory approach" had it been able to foresee the events that followed and "instead would have insisted OMH bear the burden of the additional costs OMH caused, 100% of the delay costs" (id.). Reagan avers that during a January 15, 2018 meeting, Engel informed him that the Dormitory Authority of New York State (DASNY) had to "review the project before OMH could continue discussions on additional payment . . . to CGI for delays OMH caused to the project," and that CGI subsequently learned that the purpose of the DASNY review was to "tak[e] an objective look at the cost of delays, and the portion that should be borne by the State," which would then allow OMH "to assert its claim with the financial control agencies" (id. at ¶¶ 13-14). Reagan avers that Murray's March 1, 2018 letter denying CGI's claim for additional compensation due to delays "made no mention of DASNY or the outcomes of their assessment" and that "[b]ased on OMH's representations during the course of [the parties'] negotiations prior to the execution of [Appendix X] . . . , [he] understood that . . . CGI would be compensated for additional work that had been performed already and would be performed during the contract vehicle extension period from August 2017 forward" (id. at ¶¶ 14-15). Finally, Reagan avers that the additional compensation CGI sought for the delays increased to $21.7 million when CGI submitted its April 25, 2018 proposed Change Request "because when CGI performed the back of the envelope calculation of the cost of delays caused by OMH in mid-to-late 2017, the parties believed they would be able to complete the project by January 2019 and would not need the full two year extension," but that "[b]y April 2018, it was clear that delays caused by OMH . . . meant that . . . the full two years of the contract vehicle extension would be necessary to complete the project" (id. at ¶ 16). Reagan further avers that the $21.7 million requested in the proposed Change Request "included costs only for the OMH-caused delays and did not include the approximately $10 [million] in costs that CGI attributed to itself because of CGI-caused delays" (id.).
CGI argues that the contract does not contain a clause prohibiting delay damages and permits CGI to seek additional compensation through the Change Request process, and that while the contract prohibits CGI from seeking delay damages "arising from certain specific causes of delays," it does not prohibit "damages caused by a party's actions or inactions" (CGI Memorandum of Law, pg. 7 [emphasis in original]). CGI further argues that it is entitled to delay damages because the delays were caused by OMH's breach of a number of contractual provisions (see id. at pp. 8-9). CGI argues that it was damaged when OMH "fail[ed] to reasonably approve CGI's [Change Request] to compensate CGI for the additional work CGI was required to perform to complete the project," in violation of provisions of the contract stating that the parties would address any delays and associated costs occasioned by OMH's action or inaction in a Change Request, that the parties perform in good faith under the contract and not withhold any consent that the other party requires to perform under the contract, and that OMH make a good faith effort to respond promptly to any request by CGI that was reasonably necessary for CGI to perform under the contract (id. at pg. 9). CGI further argues that OMH representatives agreed to sign a Change Request in order to induce CGI to sign Appendix X and complete Track 1 of the EMR project, but then refused to approve the Change Request and terminated the contract for convenience on the same day (see id. at pp. 10-11).
CGI argues that "a party who delays the performance of the other party is responsible to that party for the additional costs and damages resulting from the delay . . . [i]n the absence of contract language that clearly and unequivocally limits a party from exposure to delay damages," and that this rule applies "to delay claims against the State and municipalities" (id. at pg. 11; see id. at pg. 13). CGI further argues that "[d]elay damages are not limited by the amount due under the contract and may be awarded in excess of the amount for which the parties contracted" (id. at pg. 12). CGI argues that defendant is not entitled to summary judgment on the issue of delay damages because although Appendix X did not alter the compensation as agreed upon in the contract, "[d]iscovery will show the parties agreed that resources would be allocated after the Contract was extended and, crucially, agreed the State would pay CGI additional amounts (through a [Change Request] vehicle) to account for the OMH-caused delays occurring before and after the parties signed [the contract extension]" (id. at pg. 14). CGI further argues that the State cannot limit its liability based on State Finance Law § 41, which limits the State's liability to the amount appropriated for the contract, because the statute does not prohibit CGI from collecting delay damages stemming from "liability for [the State's] actions or inactions during or after the contractual period" (id. at pg. 15). CGI argues, in conclusion, that defendant is not entitled to partial summary judgment on the issue of delay damages inasmuch as genuine issues of material fact remain as to "the delays attributable to each party" and "whether OMH failed to reasonably approve CGI's [Change Request] for delay damages" (id. at pg. 16).(8)
In reply, defendant argues that OMH considered CGI's $21 million claim for delay damages prior to denying its proposed Change request, and that CGI's assertion "that OMH did not meaningfully address CGI's request [for delay damages] is not supported by the record" (Maider Reply Affirmation, ¶ 4). Defendant further argues that this motion presents an issue of strict contract interpretation with respect to "the Contract terms regarding increased financial compensation and Change Requests," and that "the underlying facts of who is responsible for various Project delays" are irrelevant because "CGI's failure to comply with the Contract terms, particularly the failure to seek any additional compensation in Appendix X, necessitates a finding by [the] Court that limits the amount of damages CGI can recover" (id. at ¶ 5). Defendant further argues that CGI has failed to dispute that the terms of the contract limit CGI's recovery to the initial $51 million budget in the absence of a mutually agreed upon Change Request providing for additional compensation (see Defendant's Reply Memorandum of Law, pp. 1-3), and that because CGI agreed to the no-cost contract extension as memorialized in Appendix X after incurring the majority of the claimed delay damages (see id. at pp. 3-4), "CGI has waived and released its claim for alleged damages" (id. at pg. 4). Defendant further argues that CGI is not entitled to delay damages because CGI's proposed Change Request was never mutually executed or approved by OSC, and because the $21.7 million in delay damages CGI sought in the proposed Change Order was in excess of the $5.4 million allocated for Change Requests in the budget (see id. at pp. 5-7). Defendant also asserts that CGI has failed to produce any documentary evidence in which OMH agreed to provide CGI with additional compensation in exchange for the execution of Appendix X, denies that OMH made any oral assurance to that effect, and states that OMH merely indicated that it would discuss possible additional compensation for delays in the future (see id. at pp. 7-8).(9) Defendant asserts that CGI's damages are limited to " 'deliverables received and accepted' " and "payments for 'work-in-progress' " in the event the contract was terminated for convenience pursuant to the contract (id. at pg. 9), and argues that CGI's position that delay damages are generally permitted under New York law ignores the relevant contractual provisions at issue here and instead relies upon distinguishable case law (see id. at pp. 9-12). Finally, defendant argues that CGI has failed to demonstrate a likelihood that further discovery will reveal facts in support of its delay damages claim, and that defendant's motion for partial summary judgment must not be denied on that basis (see id. at pp. 12-13).
It is well settled that a "party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, producing sufficient evidence to demonstrate the absence of any material issue of fact" (Giuffrida v Citibank Corp., 100 NY2d 72, 81 ; see Arias v State of New York, 195 Misc 2d 64, 65 [Ct Cl 2003]). The evidence must be submitted in admissible form and must establish the movant's right to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 NY2d 320, 324 ; Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065, 1067 ). If the movant establishes prima facie entitlement to summary judgment, the burden shifts to the opponent of the motion to establish, by admissible proof, the existence of genuine issues of material fact (Alvarez v Prospect Hosp., 68 NY2d at 324; Zuckerman v City of New York, 49 NY2d 557, 562 ). However, when a movant fails to demonstrate its entitlement to summary judgment as a matter of law in the first instance, the burden does not shift to the opponent, and the motion must be denied (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 ; Tiano v Lane, 260 AD2d 908, 908 [3d Dept 1999]).
It is well established that a party to a contract may seek damages for any delays caused by the other party to the contract (see Mid-State Precast Sys. v Corbetta Constr. Co., 202 AD2d 702, 704 [3d Dept 1994], lv dismissed, 84 NY2d 923 , lv dismissed 86 NY2d 855 ; see also Manshul Constr. Corp. v Dormitory Auth. of State of N.Y., 79 AD2d 383, 387 [1st Dept 1981]), provided that parties may agree to an exculpatory clause relieving a party from liability for delays that were contemplated by the parties at the time the contract was entered into (see Corinno Civetta Constr. Corp. v City of New York, 67 NY2d 297, 309-310 , rearg denied 68 NY2d 753 ). As the Court of Appeals has observed, "[i]n general the courts have declared on countless occasions that it is the responsibility of the court to interpret written instruments" (Hartford Acc. & Indem. Co. v Wesolowski, 33 NY2d 169, 172 ). Courts thus have consistently held that "[w]hen determining a motion for summary judgment based upon a written contract, the construction of an unambiguous contract is for the court to pass on, and circumstances extrinsic to the agreement or varying interpretations of the contract provisions will not be considered when the intention of the parties can be gathered from the instrument itself" (Besicorp Group v Enowitz, 235 AD2d 761, 763 [3d Dept 1997], on subsequent appeal 268 AD2d 846 [3d Dept 2000] [internal quotation marks omitted]), but that "[i]f there is ambiguity in the terminology used, . . . and determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, . . . such determination is to be made by the [factfinder]" (Hartford Acc. & Indem. Co., 33 NY2d at 172). Nevertheless, "[s]ummary judgment is not limited to those cases where the contract is free from ambiguity and not subject to differing interpretations," as long as the ambiguity can be resolved without resort to extrinsic evidence (Hudson-Port Ewen Assoc. v Chien Kuo, 165 AD2d 301, 303 [3d Dept 1991], affd 78 NY2d 944 ).
Several provisions of the contract are relevant to the Court's analysis. As noted above, the contract provides, as relevant here, that "[f]unding for the first PERIOD [of the contract] shall not exceed the Contract amount specified on the face page hereof [$51,660,207]," and that "[f]unding for each subsequent PERIOD, if any, shall not exceed the amount specified in the appropriate appendix for that PERIOD" (Engel Affidavit, Exhibit G, pg. 4 [¶ I (B)]). The contract further provides:
"For each succeeding PERIOD of this AGREEMENT, the parties shall prepare new appendices, to the extent that any require modification, and a Modification Agreement. (The attached Appendix X is the blank form to be used). Any terms of this AGREEMENT not modified shall remain in effect for each PERIOD of the AGREEMENT to modify the AGREEMENT within an existing PERIOD; the parties shall revise or complete the appropriate appendix form(s). Any change in the amount of consideration to be paid, or change in the term, is subject to the approval of the Office of the State Comptroller. Any other modifications shall be processed in accordance with agency guidelines as stated in Appendix A1"
(id. [¶ I (D)] [emphasis added]). The contract further provides that in the event the EMR project was not completed during the initial four-year contract period, OMH could elect to extend the contract for up to two years, and that "[f]or the avoidance of doubt, the parties agree that all work for the Project shall be performed at the rates in Appendix B" (id. at pg. 36 [Appendix D-1, ¶ B (1) (b)]). The contract also states, however, "that for any Change Requests with work that, at the time the Change Request is executed, will extend beyond the expiration of the initial term, the parties agree that any such work will be performed at mutually agreed upon rates as set forth in the applicable Change Request" (id.). Importantly - in the section of the contract entitled "Project Delays - the contract provides, as pertinent here, that
"if action or inaction by OMH or its suppliers' (excluding DSS and NTT) failure to perform their responsibilities in a timely manner, has a significant effect on Contractor's ability to perform its responsibilities in a timely manner, the parties will address the impact of such delays in a Change Request to account for an equitable adjustment in the schedule for performance, any corrective actions and associated compensation, if any"
(id. at pg. 50 [Appendix D-1, ¶ Q (7)]). Appendix X states that the "Entire Contract Amount" for the two year extension of the contract was $51,660,207 "[a]s per Exhibit B" - which included $5,443,034 for Change Requests - and that the "Amendment Amount" for the "Amendment Period" was "$0.00" (Engel Affidavit, Exhibit A [Appendix X, pg. 1] [emphasis added]). Appendix X provided that except for the amendments contained in that agreement, "[a]ll other provisions" of the contract "shall remain in full force and effect" (id.).
As an initial matter, CGI is entirely correct that the contract does not include a clause expressly relieving defendant of liability for damages resulting in delays in the performance of the contract (see generally Corinno Civetta Constr. Corp., 67 NY2d at 309). Furthermore, the Court agrees with CGI that defendant's reliance upon the Executory Clause contained in the contract to support its argument that CGI is not entitled to damages beyond the $51 million contract budget is misplaced. As noted above, the Executory Clause states that pursuant to State Finance Law § 41, the State's liability under the parties' contract is limited to "funds appropriated and available for this contract" (Engel Affidavit, Exhibit G [Contract, Appendix A, ¶ 1]). However, clauses based on that statute are "intended to be utilized as a shield against the imprudent use of taxpayers' dollars and not as a sword to divorce the State, for purposes of its own convenience, from a contract fairly entered into and honestly performed," and "[a]n executory clause will be enforced only where it is established that in the course of ordinary budgetary procedures funds were not available, and that such unavailability was not the result of any improper act or omission by the State" (Green Is. Contr. Corp. v State of New York, 117 Misc 2d 435, 437-438 [Ct Cl 1983], affd 99 AD2d 330 [3d Dept 1984], lv denied 66 NY2d 605  [internal citation omitted]). Here, defendant has not made the requisite showing in order to invoke the protection of the contract's Executory Clause, and thus it cannot rely on that provision of the contract to bar CGI's demand for delay damages. Nevertheless, the terms of the contract and Appendix X do limit CGI's claim for delay damages, for the reasons that follow.
The terms of the contract, as discussed above, established a $51 million budget for the EMR project, which was to be completed in four years. When the contract was extended for an additional two years, as provided for by the terms of the contract, the parties - who were two sophisticated entities negotiating at arm's length - agreed to that extension without any additional compensation.(10) The submissions establish that at the time of the extension, CGI knew that it had sustained substantial damages as the result of OMH's alleged delays, yet it executed the no-cost extension of the contract without additional compensation being included therein. The contract is unambiguous that any delays caused by OMH that affected CGI's ability to complete the EMR project as scheduled would be addressed through a Change Request to adjust the schedule and provide for additional compensation, if any (see Engel Affidavit, Exhibit G, pg. 50 [Contract, Appendix D-1, ¶ Q (7)]), that in the absence of a mutually agreed upon Change Request, CGI was obligated to complete the project, even if its costs exceeded the budget (see id. at pg. 27 [Appendix C]), and that the contract budgeted $5,432,034 for any such Change Requests. Thus, it is clear that the contract intended to limit OMH's liability for any attendant delays to the agreed upon amount in the budget in the contract set aside for Change Requests, and accordingly, any recovery for CGI's delay claim cannot exceed $5,432,034.
In the Court's view, the contract and Appendix X are "complete, clear and unambiguous on their face and should be enforced," and to the extent CGI attempts to show that OMH had agreed to provide CGI with additional compensation once the two-year contract extension was finalized, resort to extrinsic evidence - in the form of letters between representatives of the two parties in the summer of 2017 and affidavits of various CGI executives - would be improper inasmuch as "[e]vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing" and "extrinsic evidence cannot be used to create an ambiguity in what is otherwise an unambiguous contract" (Bast Hatfield v General Elec. Co., 229 AD2d 892, 894 [3d Dept 1996]). In any event, the extrinsic evidence that purports to show an informal agreement to provide CGI with further compensation following the execution of Appendix X is of no moment inasmuch as any such purported agreement would nevertheless have been ineffective and nonbinding absent approval of additional funding by OSC (see C&L Elec., Inc. v City Univ. of N.Y., 169 AD3d 755, 756 [2d Dept 2019] [claimants "could not avoid summary judgment dismissing their claims for damages for delay prior to approval by (OSC) by showing that the parties had engaged in a course of conduct indicating that they would treat such damages as recoverable despite the statutory and contract bars" because "(e)mployees of a state agency cannot, through words or a course of conduct, bind the State to a contract that (OSC) has not approved"]; see also Murray Affidavit, Exhibit G at pg. 4 [¶ I (D)][any change in the contract subject to OSC approval]).
In sum, the clear and unambiguous terms of the contract, as amended by Appendix X, indicate that CGI was entitled to $51 million in compensation for completion of the EMR project. Although CGI seeks an additional $21 million in damages as additional compensation for the delays - which it alleges are the 100% responsibility of OMH - the parties agreed to the two-year extension at no further cost to the State, and the contract clearly and unambiguously states that the parties will address any delays caused by OMH through a Change Request, which capped the amount of defendant's liability for any delay claim to the amount specified in the contract for Change Requests. Therefore, the Court concludes that defendant is entitled to partial summary judgment, only to the extent that any delay damages are limited to $5,432,034, if proven.
Accordingly, it is
ORDERED, that defendant's motion number M-95716 is GRANTED IN PART to the extent that defendant's liability for delay damages in Counts II and VII of the Verified Claim, if proven, is limited to $5,432,034.
November 17, 2020
Saratoga Springs, New York
W. BROOKS DeBOW
Judge of the Court of Claims
1. Verified Claim, filed January 31, 2019;
2. Verified Answer, filed April 5, 2019;
3. Notice of Partial Motion for Summary Judgment, dated June 29, 2020;
4. Affidavit of Gerald M. Engel in Support of Motion for Partial Summary Judgment, sworn to July 29, 2020, with Exhibits A-F;
5. Affidavit of Paul J. Murray in Support of Motion for Partial Summary Judgment, sworn to July 29, 2020, with Exhibits G-I;
6. Affirmation of Richard C. Maider, AAG, in Support of Defendant's Motion for Partial Summary Judgment, dated July 28, 2020, with Exhibits J-M;
7. Defendant's Memorandum of Law in Support of Partial Summary Judgment, dated July 29, 2020;
8. Affirmation of Christopher Massaroni, Esq., in Opposition to the State's Motion for Partial Summary Judgment, dated September 2, 2020, with Exhibits 1-22;
9. CGI's Memorandum of Law in Opposition to the State's Motion for Partial Summary Judgment, dated September 2, 2020;
10. Reply Affirmation of Richard C. Maider, AAG, in Support of Defendant's Motion for Partial Summary Judgment, dated September 14, 2020;
11. Defendant's Reply Memorandum of Law, dated September 14, 2020.
1. The Court previously dismissed causes of action sounding in breach of contract (misuse of termination for convenience), breach of contract implied-in-law, unjust enrichment, declaratory judgment, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing (see CGI Technologies and Solutions, Inc. v State of New York, UID No. 2019-038-565 [Ct Cl, DeBow, J., July 18, 2019]). The Court also denied CGI's motion seeking a preliminary injunction to enjoin defendant from continuing to use and share its intellectual property on the ground that the Court lacks jurisdiction to grant the equitable relief sought (see CGI Technologies and Solutions, Inc. v State of New York, UID No. 2019-038-541 [Ct Cl, DeBow, J., May 8, 2019]).
2. The term "OMH EMR Budget" is likely a typographical error inasmuch as Appendix B contains two budgets, one for the "OMH EMR Project" and the other for "MHARS Maintenance and Support" (see Murray Affidavit, Exhibit G [Contract No. C00999, Appendix B]). Thus, that term likely should either read as the "OMH EMR Project" or the "OMH EMR Project Budget."
3. Pogozelski is also listed as a Vice President of CGI (see Engel Affidavit, Exhibit A, at pg. 1).
4. In the PowerPoint presentation, CGI indicated that its 55% share of the responsibility for the delays cost $9,444,000, for a total of $17,170,000 in delay damages (see Engel Affidavit, Exhibit D [Power Point Slides, pg. 3]).
5. The "Notice of Adverse Situation" provision of the contract states: "The Contractor shall promptly notify OMH upon learning of any situation that Contractor reasonably expects or should reasonably expect to adversely affect the delivery of services under this Contract. If such notification is verbal, the Contractor shall submit to the OMH a written description of the situation. Contractor shall submit a recommendation for its resolution within three (3) business days of learning of the situation. Contractor's intentional failure to provide OMH with notice which should have been provided hereunder may be deemed a material breach of the Agreement and a basis for termination under Section B (2) (a) (92) [Termination for Cause]" (Engel Affidavit, Exhibit G, pg. 39 [Appendix D-1, ¶ E]).
6. Defense counsel further argues that partial summary judgment is appropriate here because if the Court grants the motion and dismisses CGI's claim for delay damages, the remaining discovery of this claim, which has been voluminous, will be significantly streamlined, and the claim will be more amenable to mediation (see Maider Affirmation, ¶¶ 4-6; see also Maider Reply Affirmation, ¶ 3), and states that in a January 2, 2020 Decision and Order in the parallel action in Supreme Court, Albany County, that Court "questioned CGI's ability to succeed on the $21 million delay claim" (id. at ¶ 9). However, as claimant's counsel correctly argues, neither the volume of discovery nor the possibility of mediation of this claim has any bearing on whether defendant is entitled to partial summary judgment on this claim, and Supreme Court's January 2, 2020 Decision and Order includes the factual statement that CGI sought $21 million in delay damages "notwithstanding a two-year, no-cost extension that was executed by the parties in mid-2017" but otherwise does not pass on the issue of CGI's entitlement to delay damages (Engel Affidavit, Exhibit J [CGI Technologies and Solutions, Inc. v New York State Office of Mental Health, et al., Index No. 903156-19, Sup Ct, Albany County, Dec. 31, 2019, Motion #004, pg. 8]).
7. To the extent CGI's submission in opposition to the instant motion is appended with exhibits duplicative of exhibits attached to defendant's moving papers and previously discussed above, they will not be addressed again in connection with CGI's arguments in opposition to the motion.
8. CGI also argues that the claim's cause of action for conversion in Count VII of the Verified Claim should not be dismissed inasmuch as "the State [has] fail[ed] to discuss any of the elements of conversion" (CGI Memorandum of Law, pg. 15). Defendant argues in reply that because CGI seeks the same delay damages in connection with its conversion cause of action as it does in connection with its breach of contract cause of action asserted in Count II of the Verified Claim, "the Conversion claim must fail" in the event that the Court determines that "the damages sought by CGI are not recoverable under the Contract" (Maider Reply Affirmation, ¶ 6). The Court agrees with defendant that its motion for partial summary judgment, which is clearly limited to the issue of delay damages, seeks to dismiss Count VII of the claim only insofar as it seeks delay damages against the State (see Engel Affidavit, Exhibit L [Verified Claim, ¶ 202 and "Wherefore" clause (seeking delay damages in the amount of $21 million dollars in connection with the conversion cause of action)]), and defendant has not sought summary judgment on the conversion cause of action itself. Accordingly, defendant was not obligated to address all of the elements of the conversion cause of action in connection with the instant motion.
9. Defendant argues that CGI cannot defeat its motion for partial summary judgment by asserting that OMH representatives made oral assurances regarding additional compensation for delays because those arguments were made in connection with CGI's causes of action for negligent misrepresentation and breach of the implied covenant of good faith and fair dealing, which were previously dismissed (see CGI Technologies and Solutions, Inc. v State of New York, UID No. 2019-038-565 [Ct Cl, DeBow, J., July 18, 2019]). However, the Court dismissed those causes of action on the grounds that CGI had failed to allege the necessary elements of a cause of action for negligent misrepresentation and that the cause of action for breach of the implied covenant of good faith and fair dealing was duplicative of CGI's first breach of contract cause of action, and not because the Court rejected the factual assertions underlying those causes of action.
10. To the extent that CGI argues that Appendix X "did not (indeed, could not) amend or void provisions of the contract other than its term" (CGI Memorandum of Law, pp. 13-14 [emphasis added]), the Court notes that pursuant to the terms of the Contract, "[f]unding for each subsequent PERIOD, if any, shall not exceed the amount specified in the appropriate appendix for that PERIOD" (Engel Affidavit, Exhibit G [Contract ¶ I (B)] [emphasis added]). Moreover, the face page of Appendix X itself includes a line for the "Amendment Amount for Period," which indicates "$0.00" (see id., Exhibit A [Appendix X, pg. 1]). Thus, CGI's contention that Appendix X "could not" amend any provision of the contract other than its term is undermined by the language of the contract and by the contract extension itself, which both clearly indicate that the amount of compensation due to CGI under the contract could have been amended in Appendix X, but that the parties simply did not do so.