SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK COMMERCIAL DIVISION
MERIDIAN INFRASTRUCTURE PARTNERS LLC,
Plaintiff,
— against —
NORTHGATE FIBER AMERICAS INC.,
Defendant.
Index No. 654321/2024
Assigned Justice: Hon. Eleanor M. Ricci
Part: 49
VERIFIED ANSWER WITH AFFIRMATIVE DEFENSES AND COUNTERCLAIMS OF DEFENDANT NORTHGATE FIBER AMERICAS INC.
Filed: September 3, 2024
CALDERWOOD & HARKNESS LLP 425 Park Avenue, 33rd Floor New York, NY 10022 Telephone: (212) 555-7400 Facsimile: (212) 555-7401
Linda Osei, Responsible Partner Priya Anand, Billing Partner Jeffrey Park, Lead Associate Yuki Nakamura, Working Associate
Attorneys for Defendant Northgate Fiber Americas Inc.
Matter No. 1022-00005
PRELIMINARY STATEMENT
Defendant Northgate Fiber Americas Inc. ("NFA"), a Delaware corporation (File No. 7182934) and wholly owned subsidiary of Northgate Telecommunications PLC ("Northgate" or "NTP"), a public limited company incorporated in England and Wales (Co. No. 08234517; LSE: NTP; Nasdaq ADR: NTPLF), respectfully submits this Verified Answer with Affirmative Defenses and Counterclaims in response to the Verified Complaint filed by Plaintiff Meridian Infrastructure Partners LLC ("Meridian" or "MIP") on July 15, 2024.
Meridian's claim for approximately $200 million in damages is meritless in its entirety. The gravamen of Meridian's Complaint is its contention that NFA wrongfully terminated the Master Construction Agreement dated March 15, 2020 (the "MCA"). The undisputed record demonstrates the opposite: NFA lawfully and properly terminated the MCA for cause under Section 14.1 thereof after Meridian committed persistent, material breaches of its contractual obligations through chronic schedule delays, substandard workmanship, and a categorical failure to cure identified deficiencies despite receiving two formal cure notices and the full benefit of a thirty-day cure period expressly provided under the MCA.
The MCA governed the design, engineering, permitting, and construction of approximately 18,500 route miles of underground and aerial fiber-optic cable infrastructure across seven northeastern states — New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia — with a total contract price of $1.2 billion. This was a phased, multi-year build-out program of critical importance to NFA's network expansion strategy and to the communities that depend upon the broadband services this infrastructure was designed to deliver.
Meridian's failures were neither isolated nor trivial. They were systemic, recurring, and of increasing severity. Milestone after milestone was missed — by 22 days, 47 days, 68 days, 91 days, and ultimately 134 or more days. By the date of termination, Meridian had completed only approximately 9,140 of the 18,500 contractually required route miles — a mere 49.4% of the total scope. In Phase 3, which encompassed 9,700 route miles across Maryland, Virginia, and Eastern Pennsylvania, Meridian had constructed only approximately 340 route miles, or 3.5% of the Phase 3 scope, despite having mobilized in July 2023. NFA's quality assurance team issued a total of 287 non-conformance reports ("NCRs") documenting defects in Meridian's work, of which 43 were classified as "critical," encompassing splice loss exceeding specification, improper conduit depth, and unauthorized route deviations in violation of Northgate Technical Specification NS-FIBER-2020, ANSI/TIA-568, and BICSI guidelines.
NFA provided Meridian with every reasonable opportunity to cure its breaches. Cure Notice No. 1, issued on January 18, 2024, by Renata Voss, NFA's Vice President of US Network Infrastructure, specifically identified Meridian's failure to achieve Milestone 8 of Phase 2, inadequate mobilization for Phase 3, and the 43 critical NCRs as constituting material breach. Meridian's February 2, 2024 response, authored by its Managing Member and CEO, Victor Sandoval, failed to cure the identified breaches and instead attempted to shift blame to NFA. A second Cure Notice, issued on February 19, 2024, declared Meridian's continuing material breach and demanded a remediation plan within fifteen days. Meridian's March 5, 2024 "Corrective Action Plan" proposed a nine-month schedule extension and $87 million in additional compensation — a transparent attempt to extract concessions rather than cure its defaults. NFA rejected the plan on March 12, 2024. In February 2024 alone, even after receipt of the first Cure Notice, NFA issued 12 additional critical NCRs against Meridian's work, underscoring the ongoing and worsening nature of Meridian's quality failures.
Having exhausted its contractual remedies and having afforded Meridian every reasonable opportunity to perform, NFA issued a Notice of Termination for Cause on April 1, 2024, effective immediately. The termination was lawful, justified, and fully consistent with the rights expressly reserved to NFA under MCA § 14.1.
Far from being a victim of wrongful termination, Meridian is the party that breached the MCA. NFA asserts counterclaims totaling $149,000,000 against Meridian for: (i) $49,000,000 in liquidated damages for unexcused schedule delays under MCA § 9.1; (ii) $81,700,000 in excess completion costs incurred by NFA in engaging a replacement contractor to complete the remaining scope; and (iii) $18,300,000 in remediation costs to correct defective work that Meridian left behind.
Accordingly, NFA respectfully requests that this Court dismiss Meridian's Verified Complaint in its entirety, with prejudice, and enter judgment in NFA's favor on each of its counterclaims, together with pre-judgment interest at the statutory rate, costs and disbursements, and such other and further relief as the Court deems just and proper.
ANSWER TO VERIFIED COMPLAINT
Defendant Northgate Fiber Americas Inc. ("NFA"), by and through its attorneys, Calderwood & Harkness LLP, hereby answers the Verified Complaint of Plaintiff Meridian Infrastructure Partners LLC ("Meridian"), paragraph by paragraph, as follows:
Responses to Jurisdictional and Introductory Allegations
1. NFA admits that Meridian Infrastructure Partners LLC is a limited liability company organized and existing under the laws of the State of Delaware (File No. 6439821), with principal offices at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056. NFA denies any characterizations, implications, or legal conclusions contained in Paragraph 1 of the Complaint.
2. NFA admits that it is a corporation organized and existing under the laws of the State of Delaware (File No. 7182934), with its principal office at 600 Lexington Avenue, 28th Floor, New York, New York 10022.
3. NFA admits that the Supreme Court of the State of New York, County of New York, Commercial Division, has jurisdiction over the parties and the subject matter of this action pursuant to Section 22.3 of the MCA, which provides for exclusive jurisdiction in the state and federal courts sitting in New York County.
4. NFA admits that both parties waived the right to a jury trial pursuant to MCA § 22.4.
5. NFA admits that the MCA is governed by the laws of the State of New York pursuant to MCA § 22.1, without regard to principles of conflicts of law.
6. To the extent that Paragraph 6 of the Complaint describes the general nature of Northgate Telecommunications PLC's business — including that NTP provides enterprise-grade fiber-optic telecommunications services, managed connectivity solutions, and cloud-based software-as-a-service platforms, including the platform branded as NorthConnect — NFA admits these facts. NFA denies any characterizations, implications, inferences, or legal conclusions contained in or suggested by Paragraph 6 of the Complaint that are inconsistent with a fair and accurate description of NTP's business.
7. NFA admits that it is a wholly owned subsidiary of Northgate Telecommunications PLC, a public limited company incorporated in England and Wales (Co. No. 08234517), whose ordinary shares are listed on the London Stock Exchange under the ticker symbol "NTP" and whose American Depositary Receipts are traded on Nasdaq under the symbol "NTPLF."
8. NFA admits that it was designated as the "Owner" party under the MCA. NFA denies any characterizations or implications regarding NFA's role or conduct that are inconsistent with the express terms of the MCA.
9. NFA admits that Meridian was designated as the "Contractor" party under the MCA.
10. NFA admits that Meridian is a specialty fiber-optic and telecommunications infrastructure contractor. NFA lacks knowledge or information sufficient to form a belief as to any specific representations Meridian makes regarding its qualifications, experience, or reputation, and therefore denies those allegations.
11. NFA lacks knowledge or information sufficient to form a belief as to the accuracy of the allegations in Paragraph 11 of the Complaint regarding the internal ownership structure of Meridian, including the alleged equity percentages held by Ridgepoint Capital Group LP, Victor Sandoval, and a senior management pool, and therefore denies those allegations.
12. NFA admits that venue is proper in New York County pursuant to MCA § 22.3.
13. NFA admits that this action has been assigned to the Commercial Division, Part 49, before the Honorable Eleanor M. Ricci, J.S.C.
14. To the extent Paragraph 14 of the Complaint contains a description of the amount in controversy, NFA admits that Meridian's Complaint asserts claims exceeding the jurisdictional threshold for the Commercial Division. NFA denies that Meridian is entitled to recover any of the damages it claims.
15. NFA denies the allegations contained in Paragraph 15 of the Complaint to the extent they contain characterizations, legal conclusions, or self-serving summaries of Meridian's claims. To the extent Paragraph 15 merely describes the nature of the claims Meridian purports to assert, NFA refers the Court to the Complaint and this Answer for a complete statement of the parties' positions.
Responses to Allegations Regarding the Master Construction Agreement
16. NFA admits that the MCA was executed on March 15, 2020, between NFA, as Owner, and Meridian, as Contractor. The MCA speaks for itself, and NFA respectfully refers the Court to the full text of the MCA for an accurate statement of its terms and conditions. NFA denies any characterizations or interpretations of the MCA that are inconsistent with its plain language.
17. NFA admits that a Notice to Proceed was issued on April 1, 2020, and that the original contractual completion date was March 31, 2025.
18. NFA admits that the total contract price under the MCA was $1,200,000,000, structured as a fixed-price milestone component of $780,000,000 (approximately 65% of the total contract price) and a unit-rate component of $420,000,000 (approximately 35% of the total contract price).
19. NFA admits that the scope of work under the MCA encompassed the design, engineering, permitting, and construction of approximately 18,500 route miles of underground and aerial fiber-optic cable infrastructure across seven states: New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia.
20. NFA admits that the MCA established a fourteen-milestone schedule structure under Section 8.2 thereof. The MCA speaks for itself regarding the specific milestone dates, deliverables, and associated values. NFA denies any characterizations of the milestone schedule that are inconsistent with the plain terms of MCA § 8.2.
21. NFA admits that MCA § 9.1 contains liquidated damages provisions providing for the assessment of liquidated damages at the rate of $175,000 per day per milestone for unexcused delay, subject to a per-milestone cap of 10% of the applicable milestone value and an aggregate cap of 5% of the total Contract Price, or $60,000,000. The MCA speaks for itself regarding the full terms and conditions of the liquidated damages provision, and NFA denies any characterizations or interpretations thereof that are inconsistent with the plain language of MCA § 9.1.
22. NFA admits that MCA § 12.4 establishes quality standards for the work, including compliance with Northgate Technical Specification NS-FIBER-2020, the ANSI/TIA-568 standard for telecommunications cabling, and applicable guidelines of the Building Industry Consulting Service International ("BICSI"). The MCA speaks for itself, and NFA denies any characterizations inconsistent with its terms.
23. NFA admits that MCA § 14.1 contains provisions for termination of the MCA for cause based upon material breach, and that the provision affords the breaching party thirty calendar days from receipt of written notice to cure the identified breach. The MCA speaks for itself regarding the full terms and conditions of MCA § 14.1, and NFA denies any characterizations or interpretations thereof that are inconsistent with the plain language of the provision.
24. NFA admits that MCA § 14.3 contains provisions for termination for convenience by the Owner upon sixty days' prior written notice, with a termination fee equal to 8% of the remaining unperformed contract value. NFA specifically denies Meridian's characterization of the April 1, 2024 termination as a termination for convenience under MCA § 14.3. The termination was a termination for cause under MCA § 14.1, and the termination-for-convenience fee provision of MCA § 14.3 is inapplicable.
25. NFA admits that MCA § 14.5 sets forth the consequences of a termination for cause, including but not limited to the Contractor's forfeiture of any termination fee, the Owner's right to complete the remaining work using substitute contractors and to charge the excess costs to the Contractor, and the Owner's right to draw upon the performance bond. The MCA speaks for itself, and NFA denies any characterizations inconsistent with its plain language.
26. NFA admits that MCA § 16.1 requires that all changes to the scope of work, schedule, or contract price be documented in a written Change Order signed by authorized representatives of both parties. NFA denies any allegation that NFA directed scope changes outside of the Change Order process.
27. NFA admits that MCA § 18.1 provides for monthly progress payments based upon certified work completed, subject to 10% retainage withheld until final completion and acceptance.
28. NFA admits that MCA § 20.1 contains a mutual waiver of consequential damages, providing that neither party shall be liable for consequential, indirect, incidental, special, or punitive damages arising under or in connection with the MCA, except as expressly carved out for claims arising from willful misconduct, breaches of intellectual property indemnification obligations, and breaches of confidentiality obligations. NFA affirms that MCA § 20.1 is fully enforceable and bars Meridian's claims for lost profits, loss of bonding capacity, and reputational harm.
29. Through 40. NFA denies the allegations contained in Paragraphs 29 through 40 of the Complaint to the extent they contain characterizations, interpretations, implications, or legal conclusions regarding the MCA or the parties' conduct that are inconsistent with the positions set forth in this Answer and in NFA's Counterclaims. To the extent Paragraphs 29 through 40 purport to quote or paraphrase the MCA, NFA states that the MCA speaks for itself. NFA specifically denies any allegation that the MCA imposed upon NFA obligations or created rights for Meridian beyond those expressly stated in the plain language of the agreement.
Responses to Count I Allegations — Breach of Contract (Wrongful Termination)
41. NFA denies the allegations in Paragraph 41 of the Complaint. The termination of the MCA on April 1, 2024 was not wrongful. NFA terminated the MCA for cause under MCA § 14.1 based upon Meridian's persistent and material breach of its obligations, including chronic schedule delays, substandard workmanship evidenced by 287 NCRs (43 critical), and failure to cure within the contractually provided cure period.
42. NFA denies the allegations in Paragraph 42 of the Complaint. NFA's termination was based upon the grounds set forth in its Cure Notice No. 1 (January 18, 2024), Cure Notice No. 2 (February 19, 2024), and Notice of Termination for Cause (April 1, 2024), each of which identified specific, documented bases for termination.
43. NFA denies the allegations in Paragraph 43 of the Complaint. The termination was not pretextual and was not motivated by any desire to bring construction in-house, to re-procure the remaining work at a lower cost, or for any other improper purpose. The termination was compelled by Meridian's continuing material breach and its demonstrated inability and unwillingness to cure.
44. NFA denies that Meridian is entitled to a termination-for-convenience fee of $50,424,000 (calculated as 8% of $630,300,000 in remaining unperformed contract value). MCA § 14.3, which provides for a termination-for-convenience fee, is inapplicable because NFA terminated the MCA for cause under MCA § 14.1. Under MCA § 14.5, upon a valid termination for cause, the Contractor forfeits any right to a termination fee.
45. NFA denies that Meridian is entitled to $41,976,000 in lost profits. Meridian's claim for lost profits constitutes a claim for consequential damages that is expressly barred by the mutual consequential damages waiver set forth in MCA § 20.1. Lost profits are the paradigmatic form of consequential damages under New York law, and the waiver is fully enforceable as between sophisticated commercial parties.
46. NFA denies that Meridian is entitled to recover $92,400,000, or any amount, under Count I of the Complaint.
47. Through 50. NFA denies the allegations contained in Paragraphs 47 through 50 of the Complaint insofar as they allege that NFA's conduct was wrongful, that NFA breached the MCA, or that the termination lacked justification.
51. NFA affirmatively states that on January 18, 2024, Renata Voss, Vice President of US Network Infrastructure for NFA, sent Meridian a written cure notice ("Cure Notice No. 1") identifying the following material breaches: (a) Meridian's failure to achieve Milestone 8 of Phase 2; (b) Meridian's inadequate mobilization for Phase 3 work in Maryland, Virginia, and Eastern Pennsylvania; and (c) the issuance of 43 critical non-conformance reports documenting systemic quality failures. Cure Notice No. 1 demanded that Meridian cure these breaches within thirty calendar days pursuant to MCA § 14.1.
52. NFA affirmatively states that on February 2, 2024, Meridian, through its Managing Member and CEO Victor Sandoval, responded to Cure Notice No. 1. Meridian's response failed to cure any of the identified breaches and instead attempted to shift responsibility to NFA by alleging: (a) that NFA had failed to obtain municipal permits, which Meridian claimed was an Owner responsibility under MCA § 5.3; (b) that 14 alleged Owner-directed scope changes had not been formalized as Change Orders; and (c) that force majeure conditions, specifically COVID-19 aftereffects on labor supply and supply chain disruptions, excused Meridian's delays.
53. NFA affirmatively states that on February 19, 2024, NFA issued a second written cure notice ("Cure Notice No. 2"), declaring that Meridian had failed to cure the material breaches identified in Cure Notice No. 1, rejecting Meridian's proffered defenses, and demanding that Meridian submit a comprehensive remediation plan within fifteen days.
54. NFA affirmatively states that on March 5, 2024, Meridian submitted a document styled as a "Corrective Action Plan," which proposed an accelerated construction schedule, the deployment of additional construction crews, a nine-month extension of the project completion date, and $87,000,000 in additional compensation. The Corrective Action Plan was wholly inadequate as a cure of Meridian's material breaches and constituted, in substance, a demand for renegotiation of the MCA rather than a good faith effort to cure identified deficiencies.
55. NFA affirmatively states that on March 12, 2024, NFA rejected Meridian's Corrective Action Plan as inadequate, citing, among other things, the issuance of 12 additional critical NCRs during February 2024 alone — even after Meridian had received Cure Notice No. 1 — which demonstrated the ongoing and worsening nature of Meridian's quality failures.
56. NFA affirmatively states that on April 1, 2024, NFA issued a written Notice of Termination for Cause under MCA § 14.1, effective immediately, based upon Meridian's persistent material breach and failure to cure.
57. Through 65. NFA denies the remaining allegations in Paragraphs 57 through 65 of the Complaint to the extent not specifically admitted herein. NFA specifically denies any allegation that the termination was pretextual, that NFA acted in bad faith, or that Meridian is entitled to any damages under Count I of the Complaint.
Responses to Count II Allegations — Breach of Contract (Unpaid Invoices)
66. NFA denies the allegations in Paragraph 66 of the Complaint. NFA did not improperly withhold $16,500,000, or any amount, in payment for Phase 3 work.
67. NFA affirmatively states that during the Phase 3 construction period, Meridian submitted payment applications totaling approximately $48,200,000 for Phase 3 work. NFA reviewed and evaluated each payment application in accordance with MCA § 18.1, approved $31,700,000 in payment applications that were properly supported and certified, and paid the full amount of such approved applications, less applicable retainage.
68. NFA affirmatively states that the remaining $16,500,000 in Phase 3 payment applications was disputed and properly withheld on the grounds that the work for which payment was sought was defective and did not conform to the quality standards established by MCA § 12.4, and that Meridian's payment applications contained inflated unit counts that did not accurately reflect the quantities of work actually performed and accepted. NFA was fully entitled to withhold payment for such disputed amounts under MCA § 18.1, which expressly conditions the obligation to pay upon the work's conformity with the contractual quality standards and the accuracy of the Contractor's payment applications.
69. Through 78. NFA denies the remaining allegations in Paragraphs 69 through 78 of the Complaint to the extent not specifically admitted herein. NFA denies that Meridian is entitled to recover $16,500,000, or any amount, under Count II of the Complaint.
Responses to Count III Allegations — Breach of Contract (Wrongful Withholding of Retainage)
79. NFA denies the allegations in Paragraph 79 of the Complaint. NFA did not wrongfully withhold $56,966,667 in retainage, or any amount.
80. NFA admits that it withheld retainage in the amount of approximately $56,966,667, representing 10% of approximately $569,666,670 in gross certified work, in accordance with MCA § 18.1. NFA denies that its withholding of retainage was wrongful.
81. NFA affirmatively states that under MCA § 14.5, upon a valid termination for cause, the Owner is expressly entitled to retain all retainage and other withheld amounts and to apply such amounts against the costs of completing the remaining work using substitute contractors and against any other damages arising from the Contractor's breach, including but not limited to excess completion costs and remediation costs for defective work.
82. NFA affirmatively states that it is entitled to set off and apply the retainage against its counterclaim damages, which total $149,000,000 and include $49,000,000 in liquidated damages, $81,700,000 in excess completion costs, and $18,300,000 in defective work remediation costs.
83. Through 90. NFA denies the remaining allegations in Paragraphs 83 through 90 of the Complaint to the extent not specifically admitted herein. NFA denies that Meridian is entitled to recover $56,966,667, or any amount, under Count III of the Complaint.
Responses to Count IV Allegations — Breach of Implied Covenant of Good Faith and Fair Dealing
91. NFA denies the allegations in Paragraph 91 of the Complaint. NFA did not breach any implied covenant of good faith and fair dealing.
92. NFA denies that Meridian suffered $34,133,333 in consequential damages for loss of bonding capacity and reputational harm, or any other damages, as a result of NFA's conduct.
93. NFA affirmatively states that Meridian's Count IV for breach of the implied covenant of good faith and fair dealing is duplicative of its breach of contract claims asserted in Counts I, II, and III. Under well-settled New York law, a claim for breach of the implied covenant of good faith and fair dealing that arises from the same facts and seeks the same damages as an accompanying breach of contract claim is redundant and fails as a matter of law. See, e.g., Harris v. Provident Life & Acc. Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002); ICD Holdings S.A. v. Frankel, 976 F. Supp. 234, 243–44 (S.D.N.Y. 1997). Meridian's Count IV allegations arise from the identical facts underlying its breach of contract claims — namely, the alleged wrongful termination, withholding of payments, and withholding of retainage — and seek damages that are entirely derivative of its contract claims.
94. NFA affirmatively states that the mutual consequential damages waiver in MCA § 20.1 bars recovery for Meridian's alleged loss of bonding capacity and reputational harm. Loss of bonding capacity and reputational harm are consequential damages, not direct damages, and fall squarely within the scope of the MCA § 20.1 waiver. The carve-outs in MCA § 20.1 — limited to claims arising from willful misconduct, intellectual property indemnification, and confidentiality breaches — do not encompass the claims Meridian asserts under Count IV.
95. NFA affirmatively states that Meridian's damages allegations under Count IV are speculative, unsupported, and not cognizable. Meridian has not alleged, and cannot demonstrate, any quantifiable, non-speculative harm to its bonding capacity or reputation that is causally connected to any actionable conduct by NFA.
96. Through 105. NFA denies the remaining allegations in Paragraphs 96 through 105 of the Complaint to the extent not specifically admitted herein. NFA denies that Meridian is entitled to recover $34,133,333, or any amount, under Count IV of the Complaint.
General Denials.
106. NFA denies each and every allegation of the Complaint that is not expressly admitted herein.
107. NFA denies that Meridian is entitled to any damages, relief, award, or recovery of any kind or amount whatsoever under the Complaint.
108. NFA respectfully reserves all rights to amend this Answer as may be warranted by discovery, further investigation, or developments in this action.
AFFIRMATIVE DEFENSES
NFA asserts the following affirmative defenses, without assuming the burden of proof on any issue as to which the burden is properly allocated to Meridian under applicable law:
FIRST AFFIRMATIVE DEFENSE
Justified Termination for Material Breach
NFA's termination of the MCA on April 1, 2024 was lawful and justified under MCA § 14.1. Meridian committed material breach of the MCA through, inter alia, the following acts and omissions:
(a) Persistent schedule delays across multiple milestones and phases. Meridian failed to achieve contractual milestone completion dates by the following margins: Milestone 3, Phase 1 — 47 days late; Milestone 5, Phase 2 — 22 days late; Milestone 6, Phase 2 — 68 days late; Milestone 7, Phase 2 — 91 days late; Milestone 8, Phase 2 — 134 or more days of delay accrued as of the date of termination, with the milestone never completed. These delays were persistent, escalating, and unremedied, reflecting a systemic inability to perform in accordance with the contractual schedule.
(b) Substandard workmanship and quality failures. NFA's quality assurance team issued a total of 287 non-conformance reports during the course of the project, of which 43 were classified as "critical" and 244 as "non-critical." Critical NCRs documented defects including, without limitation, splice loss exceeding the specifications set forth in Northgate Technical Specification NS-FIBER-2020, improper conduit burial depth in violation of applicable standards, and unauthorized route deviations from the approved design documents. These quality failures were pervasive, occurring across all three phases of the project.
(c) Failure to cure. Meridian failed to cure its material breaches within the thirty-day cure period following Cure Notice No. 1 (January 18, 2024). Meridian's February 2, 2024 response failed to identify or implement any curative measures. Its March 5, 2024 "Corrective Action Plan" proposed a nine-month schedule extension and $87 million in additional compensation — demands that were wholly inconsistent with a good faith effort to cure. In the meantime, 12 additional critical NCRs were issued in February 2024 alone, demonstrating that Meridian's quality failures were not only continuing but worsening.
(d) Failure to meet milestone deliverables constituting material breach as defined in MCA § 14.1. The cumulative effect of Meridian's schedule delays and quality failures constituted a material breach of the MCA within the meaning of Section 14.1, entitling NFA to terminate the MCA for cause.
As a result of Meridian's material breach and NFA's lawful termination for cause, Meridian's claims premised upon allegations of wrongful termination fail as a matter of law and fact.
SECOND AFFIRMATIVE DEFENSE
Contractual Consequential Damages Waiver (MCA § 20.1)
MCA § 20.1 provides, in relevant part, that neither party shall be liable to the other for any consequential, indirect, incidental, special, or punitive damages arising under or in connection with the MCA, except as expressly carved out for claims arising from willful misconduct, breaches of intellectual property indemnification obligations, and breaches of confidentiality obligations.
Meridian's claims for lost profits under Count I of the Complaint, in the amount of $41,976,000, and for loss of bonding capacity and reputational harm under Count IV of the Complaint, in the amount of $34,133,333, constitute consequential damages that are expressly barred by the mutual consequential damages waiver in MCA § 20.1. None of the enumerated carve-outs apply to any of Meridian's claims.
The consequential damages waiver was freely negotiated at arm's length between sophisticated commercial parties, each represented by experienced counsel, and is fully enforceable under New York law. See, e.g., Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, Inc., 84 N.Y.2d 430, 436 (1994).
THIRD AFFIRMATIVE DEFENSE
Failure to Mitigate Damages
Meridian failed to take reasonable steps to mitigate its alleged damages following the termination of the MCA. Meridian is a major specialty fiber-optic and telecommunications infrastructure contractor. At the time of termination, Meridian's reported project backlog was approximately $1.4 billion. Following termination, Meridian's reported backlog was approximately $770 million — indicating that Meridian retained a substantial portfolio of ongoing and prospective work. Despite this, Meridian failed to pursue available replacement projects with reasonable diligence and failed to redeploy its workforce, equipment, and resources in a manner calculated to reduce any losses attributable to the termination.
Under New York law, a party claiming damages for breach of contract has an affirmative duty to mitigate its losses by taking reasonable steps to minimize harm. See LaSalle Bank N.A. v. Marlowe Commerce Bank Asset Capital Corp., 424 F.3d 195, 208 (2d Cir. 2005). Meridian's damages, to the extent any exist — which NFA denies — should be reduced by the full amount that Meridian could have earned through reasonable mitigation efforts.
FOURTH AFFIRMATIVE DEFENSE
Comparative Fault / Contributory Negligence
To the extent Meridian suffered any damages as a result of the termination of the MCA — which NFA denies — such damages were caused in whole or in substantial part by Meridian's own acts, omissions, and failures, including but not limited to:
(a) Meridian's failure to maintain adequate workforce levels and construction crew counts sufficient to meet the contractual schedule, particularly in Phases 2 and 3;
(b) Meridian's failure to effectively manage, supervise, and coordinate the work of its subcontractors, resulting in delays and quality deficiencies;
(c) Meridian's failure to comply with the quality standards established by MCA § 12.4, Northgate Technical Specification NS-FIBER-2020, ANSI/TIA-568, and BICSI guidelines;
(d) Meridian's failure to comply with the MCA's Change Order procedures under Section 16.1 for any alleged changes in scope, and its corresponding failure to preserve its rights to additional time or compensation through the contractually mandated change order process.
Meridian's own conduct was the proximate cause of any damages it may have sustained, and its recovery, if any, should be barred or reduced accordingly.
FIFTH AFFIRMATIVE DEFENSE
Set-Off. NFA is entitled to set off against any amounts that may be found owing to Meridian the full amount of NFA's counterclaims, totaling $149,000,000, consisting of:
(a) $49,000,000 in liquidated damages for unexcused schedule delays (Counterclaim I);
(b) $81,700,000 in excess completion costs incurred by NFA in engaging a replacement contractor (Counterclaim II); and
(c) $18,300,000 in remediation costs for defective work (Counterclaim III).
NFA's right of set-off is both contractual — arising under MCA § 14.5, which permits the Owner to apply retainage and other withheld amounts against costs of completion and remediation upon a valid termination for cause — and equitable, arising under the well-established common law right of set-off recognized under New York law. NFA's counterclaim damages substantially exceed any conceivable recovery by Meridian, and accordingly, Meridian's claims are subject to complete set-off.
SIXTH AFFIRMATIVE DEFENSE
Failure to Comply with Contractual Change Order Procedures
Meridian's allegations that 14 Owner-directed scope changes excuse its schedule delays and quality failures are barred by MCA § 16.1, which requires that all changes to the scope of work, schedule, or contract price be documented in a written Change Order executed by authorized representatives of both parties. The Change Order provision reflects the parties' clear intent that no change in the work shall be effective or entitle the Contractor to additional time or compensation unless and until memorialized in a signed Change Order.
Meridian never obtained written Change Orders for any of the 14 alleged scope changes identified in its Complaint. Meridian's failure to comply with the mandatory Change Order procedures deprives it of any right to rely upon such alleged changes as a defense to its performance failures, as a basis for claiming additional time, or as a basis for additional compensation. See, e.g., Loral Corp. v. Meridian Group, 558 F.2d 1218 (2d Cir. 1977); E.W. Howell Co. v. S.A.F. La Sala Corp., 36 A.D.2d 378 (1st Dep't 1971).
SEVENTH AFFIRMATIVE DEFENSE
Force Majeure Inapplicable
Meridian's assertion that COVID-19 aftereffects on labor supply and supply chain disruptions constitute force majeure events excusing its delays is without merit. The MCA's force majeure provision, MCA § 11.1, requires, among other things, that the claiming party demonstrate a causal link between the force majeure event and the specific delay claimed, and that the claiming party take reasonable steps to mitigate the effects of the force majeure event. The schedule delays at issue in this action — which persisted and worsened through January 2024, nearly four years after the onset of the COVID-19 pandemic — extended well beyond any reasonable period attributable to pandemic-related effects on labor markets or supply chains.
The delays were predominantly and proximately caused by Meridian's own mismanagement of its workforce, equipment, subcontractors, and quality control processes, not by any qualifying force majeure event. Meridian did not comply with the MCA's notice requirements for force majeure claims under MCA § 11.2 and cannot invoke force majeure as a defense.
EIGHTH AFFIRMATIVE DEFENSE
Waiver and Estoppel
To the extent Meridian alleges or argues that NFA waived or is estopped from asserting any of its contractual rights — including its rights to assess liquidated damages, to withhold payments for defective work, to demand cure of material breach, or to terminate for cause — NFA denies any such waiver or estoppel. NFA consistently and continuously enforced its rights under the MCA throughout the term of the agreement, including by: (a) commencing liquidated damages assessments no later than November 5, 2021 (following the late completion of Milestone 3); (b) issuing 287 NCRs documenting quality deficiencies; (c) issuing Cure Notice No. 1 on January 18, 2024; (d) issuing Cure Notice No. 2 on February 19, 2024; and (e) terminating the MCA for cause on April 1, 2024.
NFA's rights under the MCA were at all times preserved by MCA § 22.6, which provides that no failure or delay in exercising any right or remedy shall constitute a waiver thereof, and that no waiver shall be effective unless in writing and signed by the waiving party.
NINTH AFFIRMATIVE DEFENSE
Duplicative Claim (Count IV)
Meridian's Count IV, asserting breach of the implied covenant of good faith and fair dealing, is duplicative of its breach of contract claims in Counts I, II, and III, and fails as a matter of New York law. It is well settled that a claim for breach of the implied covenant of good faith and fair dealing cannot survive where it is premised upon the same facts and seeks the same damages as an accompanying breach of contract claim. See ICD Holdings S.A. v. Frankel, 976 F. Supp. 234, 243–44 (S.D.N.Y. 1997); Harris v. Provident Life & Acc. Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002). Meridian's Count IV arises from the identical operative facts as its contract claims — the alleged wrongful termination, withholding of payments, and withholding of retainage — and seeks damages that are entirely derivative of those claims. Count IV should be dismissed on this independent ground.
TENTH AFFIRMATIVE DEFENSE
Unclean Hands. Meridian comes to this Court with unclean hands. Meridian persistently and materially failed to perform its obligations under the MCA, submitted payment applications containing inflated unit counts that did not accurately reflect the quantities of work actually performed and accepted, and engaged in a pattern of obfuscation, deflection, and misrepresentation regarding the true causes of its schedule delays and quality deficiencies. Meridian's inequitable conduct, which is directly related to the subject matter of this litigation, bars or limits any recovery to which it might otherwise be entitled. See National Distillers & Chem. Corp. v. Seyopp Corp., 17 N.Y.2d 12, 15–16 (1966).
RESERVATION OF RIGHTS
NFA hereby reserves the right to assert additional affirmative defenses as may be warranted by discovery, further factual investigation, or subsequent developments in this action, including but not limited to any defenses that may become available based upon documents or testimony produced or disclosed during discovery.
COUNTERCLAIMS
Defendant-Counterclaimant Northgate Fiber Americas Inc. ("NFA" or "Counterclaimant"), by and through its attorneys, Calderwood & Harkness LLP, hereby asserts the following Counterclaims against Plaintiff-Counterclaim-Defendant Meridian Infrastructure Partners LLC ("Meridian" or "Counterclaim-Defendant"):
PRELIMINARY STATEMENT TO COUNTERCLAIMS
NFA asserts three counterclaims against Meridian, each sounding in breach of contract and arising from Meridian's persistent and material breach of the Master Construction Agreement dated March 15, 2020 (the "MCA"). NFA's counterclaims seek total damages of $149,000,000, consisting of $49,000,000 in liquidated damages for unexcused schedule delays, $81,700,000 in excess completion costs incurred as a direct result of NFA's need to engage a replacement contractor following Meridian's termination for cause, and $18,300,000 in costs to remediate defective work that Meridian performed in violation of the MCA's quality standards. In this section, NFA is referred to as "Counterclaimant" and Meridian as "Counterclaim-Defendant."
PARTIES TO THE COUNTERCLAIMS
109. Counterclaimant Northgate Fiber Americas Inc. ("NFA") is a corporation organized and existing under the laws of the State of Delaware (File No. 7182934), with its principal office at 600 Lexington Avenue, 28th Floor, New York, New York 10022. NFA is a wholly owned subsidiary of Northgate Telecommunications PLC ("NTP"), a public limited company incorporated in England and Wales (Co. No. 08234517), headquartered at 14 Cavendish Square, London W1G 0BX, United Kingdom. NTP's ordinary shares are listed on the London Stock Exchange under the ticker symbol "NTP," and its American Depositary Receipts are traded on Nasdaq under the symbol "NTPLF." NFA provides enterprise-grade fiber-optic telecommunications services, managed connectivity solutions, and cloud-based software-as-a-service platforms, including NorthConnect, to commercial customers throughout the United States.
110. Counterclaim-Defendant Meridian Infrastructure Partners LLC ("Meridian") is a limited liability company organized and existing under the laws of the State of Delaware (File No. 6439821), with principal offices at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056. Meridian is a specialty fiber-optic and telecommunications infrastructure contractor. Upon information and belief, approximately 55% of Meridian's equity is held by Ridgepoint Capital Group LP, a Delaware limited partnership with offices at 2100 Ross Avenue, Suite 3300, Dallas, Texas 75201. Approximately 30% is held by Victor Sandoval, Meridian's Managing Member and Chief Executive Officer. The remaining approximately 15% is held by a senior management pool.
JURISDICTION AND VENUE
111. This Court has jurisdiction over the parties and the subject matter of these Counterclaims pursuant to MCA § 22.3, which provides for the exclusive jurisdiction of the state and federal courts sitting in the County of New York, State of New York.
112. Venue is proper in New York County pursuant to MCA § 22.3 and CPLR § 503.
113. The MCA is governed by the laws of the State of New York, without regard to principles of conflicts of law, pursuant to MCA § 22.1.
114. Both parties waived the right to a trial by jury in any action arising under or in connection with the MCA, pursuant to MCA § 22.4.
COMMON FACTUAL ALLEGATIONS FOR ALL COUNTERCLAIMS
The Master Construction Agreement.
115. On March 15, 2020, NFA, as Owner, and Meridian, as Contractor, executed the Master Construction Agreement (the "MCA") for the design, engineering, permitting, and construction of approximately 18,500 route miles of underground and aerial fiber-optic cable infrastructure across seven states in the northeastern United States: New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia.
116. The total contract price under the MCA was $1,200,000,000, composed of a fixed-price milestone component of $780,000,000 (approximately 65% of the total contract price) and a unit-rate component of $420,000,000 (approximately 35% of the total contract price).
117. The Notice to Proceed was issued on April 1, 2020. The original contractual completion date for all work under the MCA was March 31, 2025.
118. The MCA established a fourteen-milestone schedule under Section 8.2, with defined completion dates and deliverables for each milestone. The milestones were organized across three construction phases: Phase 1 (New York Metro and Northern New Jersey, approximately 3,200 route miles, $208,000,000 in milestone value), Phase 2 (Connecticut, Western Massachusetts, and Southern Pennsylvania, approximately 5,600 route miles, $363,000,000 in milestone value), and Phase 3 (Maryland, Virginia, and Eastern Pennsylvania, approximately 9,700 route miles, $629,000,000 in milestone value).
119. MCA § 9.1 provided for the assessment of liquidated damages at the rate of $175,000 per day per milestone for each day of unexcused delay beyond the applicable milestone completion date. Liquidated damages were subject to a per-milestone cap of 10% of the applicable milestone value and an aggregate cap of 5% of the total Contract Price, equal to $60,000,000.
120. MCA § 12.4 established comprehensive quality standards for the work, requiring compliance with Northgate Technical Specification NS-FIBER-2020, the ANSI/TIA-568 standard for telecommunications cabling infrastructure, and applicable guidelines of the Building Industry Consulting Service International ("BICSI").
121. MCA § 14.1 provided for termination of the MCA for cause upon the occurrence of a material breach by either party that remained uncured for thirty calendar days after written notice specifying the breach and demanding cure.
122. MCA § 14.5 set forth the consequences of a valid termination for cause, including, without limitation: (a) the breaching Contractor's forfeiture of any termination fee that would otherwise be payable under MCA § 14.3; (b) the Owner's right to complete the remaining work using substitute contractors and to charge the excess costs of completion to the Contractor; (c) the Owner's right to draw upon the Contractor's performance bond; and (d) the Owner's right to retain and apply retainage and other withheld amounts against costs of completion, remediation, and other damages.
123. In connection with the MCA, Meridian procured and delivered to NFA a performance bond in the amount of $120,000,000, issued by Ironclad Surety Group Inc. (Bond No. ISG-2020-NE-04417), pursuant to MCA § 13.1.
Meridian's Persistent Delays.
124. Meridian persistently failed to achieve the contractual milestone completion dates established under MCA § 8.2, with delays escalating in both frequency and severity over the course of the project.
125. Phase 1 (New York Metro and Northern New Jersey; approximately 3,200 route miles; $208,000,000 milestone value). Milestone 3, which required completion of a defined segment of the Phase 1 build-out, had a contractual target completion date of August 28, 2021. Meridian did not achieve Milestone 3 completion until October 14, 2021 — 47 calendar days late. NFA assessed liquidated damages of $8,225,000 (47 days × $175,000/day) by letter dated November 5, 2021, and deducted that amount from Meridian's subsequent payment application. Meridian did not contest the deduction at the time.
126. Phase 2 (Connecticut, Western Massachusetts, and Southern Pennsylvania; approximately 5,600 route miles; $363,000,000 milestone value). Meridian's delays in Phase 2 were more severe and pervasive than in Phase 1, with each successive milestone exhibiting a greater degree of delay:
(a) Milestone 5: Completed 22 calendar days late. Liquidated damages assessed: 22 days × $175,000/day = $3,850,000.
(b) Milestone 6: Completed 68 calendar days late. Liquidated damages assessed: 68 days × $175,000/day = $11,900,000.
(c) Milestone 7: Completed 91 calendar days late. Liquidated damages assessed: 91 days × $175,000/day = $15,925,000.
(d) Milestone 8: Never completed before the termination of the MCA on April 1, 2024. As of the termination date, 134 calendar days of delay had accrued. The raw liquidated damages calculation yields $23,450,000 (134 days × $175,000/day). However, application of the per-milestone cap of 10% of the Milestone 8 value ($91,000,000 × 10%) limits the liquidated damages for Milestone 8 to $9,100,000.
127. The total Phase 2 liquidated damages amount to $40,775,000, calculated as the sum of the assessments for Milestones 5, 6, 7, and 8 ($3,850,000 + $11,900,000 + $15,925,000 + $9,100,000).
128. Phase 3 (Maryland, Virginia, and Eastern Pennsylvania; approximately 9,700 route miles; $629,000,000 milestone value). Meridian mobilized in Maryland in approximately July 2023 but made only minimal progress on Phase 3 construction before the termination of the MCA. At the time of termination, Meridian had completed only approximately 340 of the 9,700 route miles comprising the Phase 3 scope — a mere 3.5% of the Phase 3 work. This minimal progress, despite more than eight months of alleged mobilization, reflected the same systemic workforce deficiencies, subcontractor management failures, and quality control breakdowns that plagued Meridian's performance in Phases 1 and 2.
Meridian's Quality Failures.
129. In addition to its schedule failures, Meridian persistently delivered defective work that failed to conform to the quality standards established by MCA § 12.4.
130. Over the course of the project, NFA's quality assurance team issued a total of 287 non-conformance reports ("NCRs") documenting defects and deviations in Meridian's work. Of these, 43 were classified as "critical" NCRs and 244 were classified as "non-critical" NCRs.
131. Critical NCRs documented defects of a nature and severity that threatened the structural integrity, safety, or operational performance of the constructed infrastructure. Categories of critical defects included, without limitation:
(a) Splice loss exceeding specification: Optical fiber splices that produced insertion loss values in excess of the maximum thresholds established by Northgate Technical Specification NS-FIBER-2020 and ANSI/TIA-568, resulting in signal degradation that would impair network performance;
(b) Improper conduit burial depth: Underground conduit installed at depths shallower than the minimum depths required by NS-FIBER-2020, applicable building codes, and utility installation standards, creating risks of damage from surface loading, excavation, and environmental exposure; and
(c) Unauthorized route deviations: Deviations from the approved route design documents without prior written authorization from NFA, resulting in routing through easements not secured by NFA, interference with existing utility infrastructure, and noncompliance with municipal permit conditions.
132. NFA's Director of Construction Management, Sean Calloway, administered the NCR tracking system and ensured that all identified defects were documented, categorized by severity, and communicated to Meridian with demands for corrective action. Monthly quality assurance reports prepared by NFA's engineering team summarized the status of outstanding NCRs and tracked Meridian's responsiveness (or lack thereof) to corrective action demands.
133. In February 2024 alone — after Meridian had received Cure Notice No. 1 — NFA issued 12 additional critical NCRs against Meridian's work. The issuance of these additional critical NCRs demonstrated that Meridian's quality failures were not only continuing but actively worsening, even after NFA had formally demanded cure.
Cure Notices and Termination.
134. On January 18, 2024, Renata Voss, NFA's Vice President of US Network Infrastructure, sent Meridian a written cure notice ("Cure Notice No. 1") pursuant to MCA § 14.1. Cure Notice No. 1 identified the following as constituting material breach of the MCA: (a) Meridian's failure to achieve Milestone 8 of Phase 2; (b) Meridian's inadequate mobilization for Phase 3 work in Maryland, Virginia, and Eastern Pennsylvania; and (c) the cumulative issuance of 43 critical non-conformance reports documenting systemic and recurring quality deficiencies. Cure Notice No. 1 demanded that Meridian cure the identified breaches within thirty calendar days, as provided under MCA § 14.1.
135. On February 2, 2024, Meridian, acting through its Managing Member and CEO, Victor Sandoval, responded to Cure Notice No. 1 in writing. Meridian's response disputed the characterization of its performance as a material breach and asserted the following defenses: (a) NFA had allegedly failed to obtain municipal permits necessary for portions of the Phase 2 and Phase 3 work, which Meridian characterized as an Owner responsibility under MCA § 5.3; (b) NFA had allegedly directed 14 scope changes that were never formalized as written Change Orders under MCA § 16.1, and that these alleged scope changes caused delays and additional costs; and (c) COVID-19 aftereffects on labor supply and supply chain disruptions constituted force majeure events excusing Meridian's delays under MCA § 11.1. Meridian's response did not identify or implement any specific curative actions and did not cure any of the identified breaches.
136. On February 19, 2024, NFA issued a second written cure notice ("Cure Notice No. 2") to Meridian, declaring that Meridian had failed to cure the material breaches identified in Cure Notice No. 1 within the thirty-day cure period. Cure Notice No. 2 rejected each of Meridian's proffered defenses and demanded that Meridian submit a comprehensive remediation plan within fifteen days addressing both the schedule delays and the quality deficiencies.
137. On March 5, 2024, Meridian submitted a document styled as a "Corrective Action Plan." The plan proposed the following: (a) an accelerated construction schedule; (b) the deployment of additional construction crews; (c) an extension of the project completion date by nine months; and (d) $87,000,000 in additional compensation. The Corrective Action Plan was wholly inadequate as a cure of Meridian's material breaches. Rather than demonstrating a good faith commitment to cure, the plan constituted a demand for fundamental renegotiation of the MCA's schedule and price terms, conditioned on NFA's agreement to substantially increase compensation and extend deadlines.
138. On March 12, 2024, NFA formally rejected Meridian's Corrective Action Plan as inadequate. In its rejection letter, NFA cited, among other grounds, the issuance of 12 additional critical NCRs during February 2024, which demonstrated that Meridian's quality failures were continuing unabated even during the cure period.
139. On April 1, 2024, NFA issued a written Notice of Termination for Cause to Meridian pursuant to MCA § 14.1, effective immediately. The Notice of Termination recited the history of Meridian's material breaches, the failure to cure following two formal cure notices, and NFA's determination that continued performance by Meridian would be contrary to the interests of the project and NFA's network deployment program.
140. On April 8, 2024, Meridian responded to the Notice of Termination, contesting the termination and alleging that it was pretextual. Meridian's contestation was without merit.
Work Completed and Payments at Termination.
141. At the time of termination on April 1, 2024, Meridian had completed approximately 9,140 of the 18,500 route miles comprising the total MCA scope, representing approximately 49.4% of the total work.
142. The total contract value earned by Meridian, based upon NFA's certification of completed work, was approximately $569,666,670, or approximately 47.5% of the $1,200,000,000 contract price.
143. NFA made total payments to Meridian during the course of the project in the amount of $512,700,000, allocated as follows: Phase 1 payments of $199,775,000; Phase 2 payments of $281,225,000; and Phase 3 payments of $31,700,000.