Opinion ID: 681303
Heading Depth: 2
Heading Rank: 1

Heading: facts

Text: 5 West is a wholly owned subsidiary of US West, Inc., one of the telephone operating companies formed from the breakup of AT & T. US West, Inc. is incorporated under Colorado law and based outside Denver. East is incorporated under New York law and has its principal place of business in Mount Vernon, New York. Thus, the district court had diversity jurisdiction under 28 U.S.C. 1332 (1988). 6 The deadline for completion of the New York City area portion of the GSA Project, on which West was a primary contractor, was February 28, 1987. In August 1986, West subcontracted with Telefacs to perform some of the work on the New York portion of the project. West's subcontract with Telefacs prohibited Telefacs from second-tier subcontracting, that is, hiring another business to perform its obligations. Despite that provision, on November 10, 1986, Telefacs hired East to perform Telefacs' obligations on the New York project. 7 The manner in which work was billed proved to be an important issue at trial. West's agreement with Telefacs provided for task billing, that is, payment of preset amounts for particular jobs. Notwithstanding this agreement, East billed Telefacs on a time-and-materials basis, and Telefacs used East's billing invoices as the bases for its own billing invoices to West, adding a mark-up to the rates charged by East. Thus, Telefacs submitted its bills to West on a time-and-materials basis, and West, despite continuing wrangling over the proper billing procedure, paid Telefacs' bills. After taking its markup, Telefacs would pay East. 8 In early December 1986, a check from Telefacs to East bounced. Telefacs quickly covered this bounced check with a new check. Again, in early January 1987, another check from Telefacs to East bounced. Again, Telefacs quickly covered this bounced check--this time with a wire transfer. 9 Fearing that Telefacs was experiencing financial difficulty and would not be able to perform its obligations under its contract with East, Carmine Monte Montemarano, 1 the Treasurer of East, called Charlie Castillo, the Vice-President of Telefacs, to seek assurances that Telefacs would perform its obligations to East. Monte testified that [w]hat he basically told me was I have a problem here with the IRS in my office and they are closing me down and I don't know whether I'm going to be in business next week or not. Transcript of 10/14/92 at 121. Mike McCarthy, the Vice-President of East, who listened to the conversation on speakerphone, testified that Mr. Castillo informed us he was upset, he informed us the IRS had shut his doors and he was out of business, and we said--well Carmine said, 'what should we do now', and he said 'go set up your deal with U.S. West. I'm out of business, I can't pay you guys.'  Transcript of 10/20/92 at 11. 10 Monte testified that he then spoke with George Kotlarchik, West's installation supervisor for the GSA Project in New York, and asked Kotlarchik how East could arrange getting direct payment from West. Kotlarchik referred Monte to Mike Marsh, West's New York Operations Manager. Monte testified that he called Marsh and threatened to pull East's workers off the GSA Project in New York if East did not get paid. Marsh responded, according to Monte's testimony, [W]e will get you paid. We know you are doing work, let me straighten this out. Transcript of 10/14/92 at 124. In addition, Monte testified that he had similar conversations with Mitch Sherman, West's Operations Manager for the Northeast Region, and Bill Stone, a member of West's Subcontractor Resources Group. Both Sherman and Stone assured him, Monte testified, that West would get [East] paid. Id. at 124-26. 11 According to West's own internal procedures, it could not pay East directly unless East became an approved subcontractor. Therefore, Monte was advised that East must complete the subcontractor application package before it could be approved. Monte responded that he would fill it out but that he preferred to hand-deliver the application to West's headquarters in Denver. On January 27, 1987, Monte and Salvani met with West representatives at West's Denver headquarters and discussed the different ways in which East might get paid for its remaining work on the New York job. Monte testified that he made it clear to West that he would have to pull his men off the job if East was not paid directly on its outstanding invoices and all remaining work. Witnesses at trial had conflicting recollections of West's responses. For instance, Mike McCarthy, East's Vice-President, testified that a West representative, Jan Kabachus, told him, You're working for us now. Transcript of 10/19/92 at 153. Kabachus, on the other hand, denied making such a statement, and West's Stone testified that he told Monte, Our relationship [is] with Telefacs, ... and if you have a problem getting paid, then you need to deal with [Telefacs]. Transcript of 10/21/92 at 61. 12 While witnesses disagreed at trial as to exactly what was said, there was agreement that West representatives suggested several alternative ways in which East might get paid. Three options were raised: (1) West could get East paid indirectly, by pressuring Telefacs to pay East's invoices; (2) West could pay East directly by issuing split checks to East and Telefacs--one paying East directly for its time and materials, and the other paying Telefacs its mark-up of East's invoices; or (3) West could bypass Telefacs entirely and hire East as an approved subcontractor in place of Telefacs. See, e.g., Transcript of 10/14/92 at 139. While the second and third of these options--payment by split checks and direct payment as a subcontractor--were clearly preferable for East to the first, indirect option, both required certain preliminary steps. That is, West could not issue split checks to Telefacs and East without Telefacs' permission and without lien waivers executed by both parties. Additionally, West was willing to sign East up as a direct subcontractor only if East went through West's formal subcontractor application process, which required East to offer proof of insurance and to post a performance bond. 13 East, West, and Telefacs agreed on the second option--split checks--as the method of payment for some of East's outstanding invoices for work performed prior to January 1987, and West issued split checks for those invoices. The method of payment for future work, however, was not finalized. Monte testified that he insisted on direct payment by West, and that Kabachus responded by telling him to continue filling out time sheets as before and to send copies of East's invoices to both Telefacs and West. Transcript of 10/14/92 at 138-39. 14 Before leaving Denver, Monte filled out West's subcontractor application package. Back in New York, however, East experienced difficulties in obtaining a performance bond, one of West's requirements for hiring East as a subcontractor. East continued nevertheless to work on the GSA Project throughout February 1987. Meanwhile, East and West representatives exchanged correspondence in which their understandings about how East was to get paid increasingly diverged. On February 27, the day before the scheduled completion date for the New York portion of the GSA Project, West called East's representatives into West's satellite office in New York and presented them with a letter officially terminating Telefacs and East from the project. The termination letter was addressed to Telefacs, not to East, and advised Telefacs that notice of termination of your subcontractor [East] should take place immediately. Ex. 29. 15 Two weeks later, on March 13, 1987, Telefacs filed a Chapter 11 bankruptcy petition. The petition included claims against West for unpaid invoices from the GSA Project, and listed East as a creditor to whom Telefacs owed approximately $400,000. When East contacted Telefacs about payment, Telefacs responded that the money was tied up in bankruptcy court. East then contacted West about the possibility of payment by split checks, but with no greater success. East's invoices for work performed during January and February 1987 went unpaid. This litigation ensued.