Background
This is the companion decision to the Second Department’s ruling in WDF, Inc. v. A.J. Pegno Construction Corp./Tully Construction Co., Inc. (Docket 2022-03700, decided the same day). The underlying dispute arises from a public-works liquidating agreement executed in connection with a New York City DEP project at the Newtown Creek Water Pollution Control Plant. WDF, Inc., the subcontractor, alleged that the joint venture general contractor breached the liquidating agreement by improperly calculating and distributing the pass-through claim settlement proceeds.
In this companion appeal, the joint venture defendants—A.J. Pegno Construction Corp./Tully Construction Co., Inc.—challenged the denial of their motion for summary judgment on two grounds: (1) that the release provision in the liquidating agreement barred WDF’s second cause of action for breach of the liquidating agreement and fourth cause of action for breach of the implied covenant of good faith and fair dealing; and (2) alternatively, that even if the release did not bar the claims, summary judgment was warranted on the merits because the joint venture had complied with the liquidating agreement and had not improperly calculated the claim value.
The Court’s Holding
The court affirmed denial of the joint venture defendants’ motion on all grounds. On the release defense, the court held that while the release’s plain language demonstrated mutual discharge of claims arising from “obligations with respect to the project and their performance of those obligations,” the release was ambiguous as to three additional categories of claims: (1) claims arising from the settlement of the litigation against the City; (2) claims arising from the liquidating agreement itself; and (3) claims accruing after the release’s execution. Because the release was ambiguous as to these categories—and WDF’s breach claims arose precisely from what happened after the agreement was executed and during the post-execution settlement phase—the joint venture defendants could not establish that the release served as a complete bar.
On the merits, the court likewise found triable issues. The joint venture defendants failed to demonstrate prima facie that the liquidating agreement did not require disclosure of claim valuation methodologies and cost computations. The language of the cooperation and disclosure provisions was itself ambiguous on this point. And the joint venture defendants did not establish that their methodology for calculating the value of the City claim was appropriate, or that they had not inflated the claim in violation of the implied covenant of good faith and fair dealing. Because both the release defense and the merits defenses generated genuine issues of material fact, summary judgment was properly denied.
Key Takeaways
- A release in a liquidating agreement is not a blanket bar to all subsequent disputes between the parties; its scope must be defined by the plain language of the release clause, and ambiguity as to post-settlement and post-execution claims requires trial.
- A party seeking to use a release as a complete defense to a breach-of-contract claim must establish prima facie that the release unambiguously covers the specific claims at issue—conclusory assertions that a release bars “all claims” will not suffice under New York contract interpretation principles.
- Construction liquidating agreements should explicitly address whether mutual releases apply to disputes arising from the post-settlement accounting and distribution process, or the release ambiguity will be a litigation battleground.
Why It Matters
Taken together with the companion decision, these rulings confirm that New York courts will scrutinize liquidating agreement releases carefully and will not infer that a release intended to resolve project-performance disputes also covers later-arising claims about how pass-through settlement proceeds were calculated and distributed. For New York construction practitioners, the practical lesson is the same as in the companion case: liquidating agreements need explicit, comprehensive release language that covers the entire life cycle of the pass-through claim—from execution through settlement, distribution, and final accounting. Without that clarity, both the subcontractor and the general contractor face the prospect of litigating through trial on what was presumably intended to be a cooperative arrangement.