Opinion ID: 482811
Heading Depth: 2
Heading Rank: 1

Heading: The Parties and the Events

Text: 2 Krear was a firm that offered administrative services to employee benefit plans. The Trustees were trustees of three benefits funds (the Funds) maintained by Local 69 of the Hotel and Restaurant Employees and Bartenders Union (Local 69) for the benefit of its members. 3 In early 1979, the Trustees, anticipating the growth of contributions to the Funds, decided that the Funds needed computerization and professional administration. They formed a committee to select a company to provide these services, and asked third- and fourth-party-defendant Robert Mozer, the Funds' attorney, to assist. They also hired Grauso, a computer consultant with whom the Funds later entered into a five-year consulting contract, to evaluate any proposals the Funds had received or would receive. 4 During this period a controversy developed between Local 69 and the Hotel and Restaurant Employees and Bartenders International Union (International) concerning which of them would control the Funds. When Mozer contacted several potential computer and administrative service companies, most of them declined to submit service proposals, stating that they did not want to get involved in a struggle between Local 69 and the International. Consequently only two written proposals were received by the Funds: one from a company called Administrative Consultants, Inc., and the other from Krear. Both Mozer and Grauso recommended that the Trustees negotiate agreements with Krear. 5 On July 1, 1979, each of the three Funds entered into a three-year contract (collectively the Contracts) for Krear to furnish, inter alia, [a]ll administrative functions related to the collection of monies due the Fund ... [and] [d]evelopment of all computer software as defined by the Fund as reasonably necessary.... Each contract provided that Krear would receive a minimum monthly payment or a specified percentage of the collections it made on behalf of the Fund, whichever was greater. Although the Contracts did not specify how much time it should take to develop the computer system, Krear's proposal and Grauso's recommendation estimated an eight-to-twelve month start-up period. Each contract provided that New York law would govern, and each contained the following provision: In the event of any litigation between the parties, the prevailing party shall have the right to reimbursement of reasonable attorney's fees in regards to such litigation from the other. 6 On October 1, 1979, the International prevailed in the struggle with Local 69 over control of the Funds. Local 69 was merged into another local union (Local 6) headed by one Vito Pitta, who had the support of the International, and Local 6 began administering the Funds. In that month, the Funds ceased to pay Krear and, according to Krear, barred it from entering the Funds' offices to collect data in preparation for computerization. 7 Krear promptly commenced the present action against the Trustees seeking, inter alia, $1,382,500 in damages for breach of contract, contending that they had ceased payments to Krear and interrupted its performance without any valid reason but solely because of the International's political victory over Local 69. The Trustees counterclaimed, contending that Krear had failed to perform the Contracts and that the Contracts had been fraudulently procured by means of a conspiracy among Krear, Grauso, and Mozer, resulting in excessively high fees to Krear. On the counterclaims, the Trustees demanded $158,476 in compensatory damages and a total of $475,428 as punitive damages. The Trustees also sued Grauso, asserting that he had failed to perform his contractual duties, and Mozer, asserting that he had breached his fiduciary duties to the Funds. Grauso counterclaimed against the Trustees for terminating his five-year consulting contract.