Calderwood & Harkness LLP
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK COMMERCIAL DIVISION
DEFENDANT NORTHGATE FIBER AMERICAS INC.'S ANSWER WITH AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
CALDERWOOD & HARKNESS LLP 425 Park Avenue, 33rd Floor New York, New York 10022 Telephone: (212) 555-7800 Facsimile: (212) 555-7801
Attorneys for Defendant / Counterclaim Plaintiff Northgate Fiber Americas Inc.
Right-click to update Table of Contents
PRELIMINARY STATEMENT
Defendant Northgate Fiber Americas Inc. ("NFA" or "Defendant"), by and through its attorneys, Calderwood & Harkness LLP, hereby answers the Verified Complaint of Meridian Infrastructure Partners LLC ("Meridian" or "Plaintiff"), dated July 15, 2024 (the "Complaint"), and asserts affirmative defenses and counterclaims as set forth herein.
This action arises from a $1.2 billion Master Construction Agreement (the "MCA"), dated March 15, 2020, pursuant to which Meridian undertook the design, engineering, permitting, and construction of approximately 18,500 route miles of underground and aerial fiber-optic cable across seven northeastern states — New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia. The MCA represented one of the largest private fiber-optic infrastructure deployments in the northeastern United States, and NFA entrusted Meridian with the execution of this critical network buildout based on Meridian's representations regarding its technical capabilities, workforce capacity, and project management expertise.
Meridian's performance under the MCA deteriorated progressively and dramatically over the life of the contract. What began as a manageable delay in Phase 1 — Milestone 3 completed 47 days behind schedule — metastasized into a pattern of systemic failure across Phase 2, where delays escalated from 22 days (Milestone 5) to 68 days (Milestone 6) to 91 days (Milestone 7). Milestone 8 was never completed prior to termination, with 134 days of delay having accrued as of April 1, 2024. This escalating pattern of delay was compounded by pervasive quality deficiencies: NFA's quality assurance team issued 287 non-conformance reports during Phase 2 alone, 43 of which were classified as critical, encompassing splice loss exceeding specifications, improper conduit depth, and unauthorized route deviations that compromised the integrity and functionality of the constructed network.
On April 1, 2024, after providing Meridian with two formal Cure Notices and more than 70 days to remedy its material breaches — far exceeding the 30-day cure period required by Section 14.1 of the MCA — NFA terminated the MCA for cause. NFA's decision to terminate was neither pretextual nor made in bad faith. It was the necessary and contractually authorized response to a contractor whose performance had become untenable, whose corrective action plan demanded an additional nine months and $87 million in compensation rather than addressing the root causes of its failures, and whose quality of work continued to decline even during the cure period, as evidenced by 12 additional critical non-conformance reports issued in February 2024 alone.
Meridian now seeks $200 million in damages, characterizing NFA's justified termination as wrongful and pretextual. Meridian's claims are meritless. The termination was for cause, not convenience, and accordingly Meridian is not entitled to the termination-for-convenience fee it seeks. Meridian's claims for lost profits and consequential damages are barred by the mutual consequential damages waiver in Section 20.1 of the MCA. Meridian's claims for unpaid invoices fail because the disputed payment applications were properly rejected on account of defective work and inflated unit counts. And Meridian's retainage claims fail because retainage is properly held pending resolution of NFA's counterclaims and the correction of Meridian's defective work.
NFA asserts counterclaims against Meridian totaling in liquidated damages for schedule delays, in excess completion costs incurred by NFA in engaging a replacement contractor (Crestline Construction Group Inc.) to complete the remaining work, and in costs to remediate Meridian's defective work. NFA will demonstrate at trial that these damages flow directly from Meridian's own failures and that NFA is entitled to recover in full.
ANSWER TO VERIFIED COMPLAINT
NFA responds to the numbered paragraphs of the Complaint as follows. To the extent any paragraph of the Complaint contains allegations not specifically addressed herein, such allegations are denied.
Response to Paragraph 1
NFA admits that Meridian Infrastructure Partners LLC is a Delaware limited liability company with its principal office located at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056. NFA further admits that Meridian is engaged in the business of fiber-optic and telecommunications infrastructure construction. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraph 1 of the Complaint.
Response to Paragraph 2
NFA admits that Northgate Fiber Americas Inc. is a corporation organized and existing under the laws of the State of Delaware, with Delaware Secretary of State File Number 7182934, and that NFA maintains its principal office at 600 Lexington Avenue, 28th Floor, New York, New York 10022. NFA further admits that it is a wholly owned subsidiary of Northgate Telecommunications PLC, a public limited company incorporated in England and Wales under Companies House Company Number 08234517, whose ordinary shares are listed on the London Stock Exchange under the ticker symbol "NTP" and whose American Depositary Receipts are traded on the Nasdaq Stock Market under the symbol "NTPLF." NFA denies any and all characterizations in Paragraph 2 regarding NFA's motives, intent, or purposes, including but not limited to any suggestion that NFA acted for improper purposes in connection with the MCA or its termination. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraph 2 of the Complaint.
Response to Paragraphs 3 Through 5
NFA admits that this Court has subject matter and personal jurisdiction over this action. NFA admits that venue in New York County is proper pursuant to Section 22.3 of the MCA, which provides that the parties consent to the exclusive jurisdiction and venue of the courts of the State of New York located in the County of New York for all disputes arising under or in connection with the MCA. NFA admits that the MCA is governed by the laws of the State of New York without regard to conflict-of-law principles, as provided in Section 22.1 of the MCA. NFA further admits that the parties waived their respective rights to trial by jury in connection with any dispute arising under or relating to the MCA, as provided in Section 22.4 of the MCA. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 3 through 5 of the Complaint.
Response to Paragraphs 6 Through 15
NFA admits that the MCA was executed on March 15, 2020, between NFA (as "Owner") and Meridian (as "Contractor"). NFA admits that the MCA provided for the design, engineering, permitting, and construction of approximately 18,500 route miles of underground and aerial fiber-optic cable across seven northeastern states: New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia.
NFA admits that the Contract Price under the MCA was $1.2 billion, structured as a $780 million fixed-price milestone component (representing approximately 65% of the total Contract Price) and a $420 million unit-rate component (representing approximately 35% of the total Contract Price).
NFA admits that the MCA provided for a five-year term commencing upon issuance of the Notice to Proceed, which was issued on April 1, 2020, with an original completion date of March 31, 2025.
NFA admits that the MCA set forth 14 defined milestones in Section 8.2, with associated target completion dates and milestone payment values. NFA admits that Section 9.1 of the MCA provided for liquidated damages of $175,000 per day per milestone for each day of unexcused delay beyond the applicable milestone target date, subject to a cap of 10% of the milestone value for each individual milestone and an aggregate cap of 5% of the Contract Price (i.e., $60,000,000).
NFA admits that Section 12.4 of the MCA required all work performed by the Contractor to conform to Northgate Technical Specification NS-FIBER-2020, as well as all applicable industry standards, including without limitation ANSI/TIA-568 and Building Industry Consulting Service International ("BICSI") guidelines.
NFA admits that Section 14.1 of the MCA permitted the Owner to terminate the MCA for cause upon material breach by the Contractor that remained uncured for 30 calendar days after written notice specifying the breach and demanding cure.
NFA admits that Section 14.3 of the MCA provided for termination for convenience by the Owner upon 60 days' prior written notice, subject to payment of a termination fee equal to 8% of the remaining unperformed contract value.
NFA admits that Section 14.5 of the MCA set forth the consequences of a termination for cause, including (a) forfeiture by the Contractor of any termination fee that would otherwise be payable under Section 14.3; (b) the Owner's right to complete the remaining work using substitute contractors; and (c) the Owner's right to charge to the Contractor any excess costs incurred in completing the work above the remaining contract value.
NFA admits that Section 16.1 of the MCA required that all changes to the scope of work or the project schedule be effected through written Change Orders signed by authorized representatives of both parties.
NFA admits that Section 18.1 of the MCA provided for monthly progress payments based on certified payment applications, subject to 10% retainage.
NFA admits that Section 20.1 of the MCA contained a mutual limitation on the recovery of consequential damages, with express carve-outs for willful misconduct, intellectual property indemnification obligations, and breaches of confidentiality obligations.
NFA states that the MCA is a fully integrated written agreement that speaks for itself, and NFA respectfully refers the Court to the MCA for its complete and accurate terms. To the extent that any allegations in Paragraphs 6 through 15 of the Complaint characterize or interpret the MCA in a manner inconsistent with its plain terms, NFA denies such allegations. NFA further denies any and all allegations that NFA failed to perform its obligations under the MCA. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 6 through 15 of the Complaint.
Response to Paragraphs 16 Through 22
NFA denies Meridian's characterization that its performance under the MCA was satisfactory, substantially in compliance, or otherwise adequate. To the contrary, as set forth in detail below and in NFA's Counterclaims, Meridian's performance was deficient in material respects throughout the contract term, and its failures worsened progressively.
NFA admits that Phase 1 of the project (New York Metro and Northern New Jersey, encompassing approximately 3,200 route miles with a milestone value of $208 million) was completed. However, NFA affirmatively states that Milestone 3 within Phase 1 was completed 47 days late — with actual completion occurring on October 14, 2021, as against a target completion date of August 28, 2021 — resulting in the assessment of liquidated damages in the amount of $8,225,000 (47 days × $175,000/day), as communicated to Meridian by letter dated November 5, 2021.
NFA denies that Meridian timely or properly completed its Phase 2 work. NFA affirmatively states that Phase 2 of the project (Connecticut, Western Massachusetts, and Southern Pennsylvania, encompassing approximately 5,600 route miles with a milestone value of $363 million) was plagued by escalating schedule delays and pervasive quality failures. Specifically:
(a) Milestone 5 was completed 22 days behind schedule;
(b) Milestone 6 was completed 68 days behind schedule;
(c) Milestone 7 was completed 91 days behind schedule; and
(d) Milestone 8 was never completed prior to the termination of the MCA, with 134 days of delay having accrued as of the termination date of April 1, 2024.
NFA further affirmatively states that NFA's internal quality assurance team issued a total of 287 non-conformance reports ("NCRs") during Phase 2 of the project. Of these, 43 NCRs were classified as critical, documenting deficiencies including splice loss measurements exceeding the specifications set forth in NS-FIBER-2020, improper conduit burial depth in violation of applicable standards, and unauthorized deviations from approved route alignments. These deficiencies were documented in NFA's monthly QA reports and communicated to Meridian on an ongoing basis.
NFA denies that Meridian's Phase 3 mobilization was adequate. NFA affirmatively states that as of the date of termination, Meridian had constructed only approximately 340 of the 9,700 route miles comprising Phase 3 (Maryland and Virginia), representing a mere 3.5% completion rate despite Meridian having mobilized in Maryland in July 2023, approximately nine months prior to termination.
NFA denies all allegations in Paragraphs 16 through 22 regarding the adequacy of Meridian's workforce, equipment deployment, project management, and overall performance. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 16 through 22 of the Complaint.
Response to Paragraphs 23 Through 28
NFA denies that NFA caused or contributed to any of Meridian's schedule delays. NFA performed its obligations under the MCA in a timely and professional manner and at no point obstructed, hindered, or impeded Meridian's performance.
NFA denies that NFA failed to timely obtain municipal permits or that any alleged permitting delays by NFA contributed to Meridian's schedule failures. NFA affirmatively states that the responsibility for obtaining construction-level permits was allocated to the Contractor under Section 5.3 of the MCA. To the extent Meridian experienced permitting delays, such delays arose from Meridian's own failure to timely submit complete permit applications and to coordinate with local permitting authorities, as required by the MCA.
NFA denies that force majeure, including any alleged aftereffects of the COVID-19 pandemic or supply chain disruptions, excused Meridian's schedule delays. NFA affirmatively states that to the extent Meridian now claims force majeure as a defense, such claims are untimely, factually unsupported, and legally insufficient. The MCA's force majeure provisions required prompt written notice of any claimed force majeure event, and Meridian failed to provide such notice within the time frames required by the MCA. Moreover, Meridian's delays extended far beyond any period reasonably attributable to force majeure conditions, and Meridian failed to take reasonable steps to mitigate the effects of any alleged force majeure events. Under New York law, a party claiming force majeure bears the burden of establishing that the claimed event was beyond its control and that it took all reasonable steps to perform despite the event, a burden Meridian cannot meet here.
Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 23 through 28 of the Complaint.
Response to Paragraphs 29 Through 35
NFA admits that on January 18, 2024, Renata Voss, Vice President of US Network Infrastructure for NFA, sent to Meridian a formal Cure Notice ("Cure Notice No. 1") pursuant to Section 14.1 of the MCA. NFA admits that Cure Notice No. 1 cited Meridian's failure to achieve Milestone 8, Meridian's inadequate Phase 3 mobilization, and the 43 critical NCRs issued during Phase 2 as evidence of material breach by Meridian. NFA admits that Cure Notice No. 1 demanded that Meridian cure the identified breaches within 30 calendar days, as required by Section 14.1 of the MCA.
NFA admits that Meridian responded to Cure Notice No. 1 by letter dated February 2, 2024, signed by Victor Sandoval on behalf of Meridian. NFA denies, however, that Meridian's February 2, 2024 response constituted a valid cure of any of the material breaches identified in Cure Notice No. 1, or that Meridian's response raised any meritorious defenses to NFA's exercise of its contractual termination rights. Meridian's response disputed the existence of material breach but took no concrete remedial action to address the schedule delays, quality deficiencies, or inadequate mobilization that had been identified.
NFA admits that on February 19, 2024, NFA sent Meridian a second Cure Notice ("Cure Notice No. 2") stating that Meridian had failed to cure the material breaches identified in Cure Notice No. 1 and that Meridian's breaches were continuing. Cure Notice No. 2 demanded that Meridian submit a detailed remediation plan within 15 calendar days addressing the identified schedule and quality failures.
NFA admits that Meridian submitted a document titled "Corrective Action Plan" on March 5, 2024, which proposed NFA denies that this purported Corrective Action Plan was adequate, responsive, or constituted a cure of Meridian's material breaches. Rather than accepting responsibility for its failures and proposing genuine remedial measures, Meridian conditioned any corrective action on a substantial extension of time and a demand for tens of millions of dollars in additional payments — effectively seeking to profit from its own breaches.
NFA admits that on March 12, 2024, NFA rejected Meridian's Corrective Action Plan as inadequate and non-responsive to the cure requirements. NFA's rejection letter cited, among other things, the issuance of 12 additional critical NCRs during February 2024 alone, demonstrating that Meridian's quality failures were continuing and worsening even during the cure period.
NFA admits that on April 1, 2024, NFA delivered to Meridian a Notice of Termination for Cause under Section 14.1 of the MCA, effective immediately, invoking NFA's right under Section 14.5 to complete the remaining work using substitute contractors and to charge any excess costs to Meridian.
NFA denies that NFA's termination was improper in any respect. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 29 through 35 of the Complaint.
Response to Paragraphs 36 Through 40
NFA admits that the total payments made by NFA to Meridian under the MCA were $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.
NFA admits that retainage in the amount of $56,966,667 is currently held by NFA, representing 10% of the gross certified work of $569,666,670 before liquidated damages deductions.
NFA denies that retainage is wrongfully withheld. NFA affirmatively states that retainage is properly held in accordance with the terms of the MCA, pending completion of punch-list items, correction of defective work documented in the NCRs, and final resolution of NFA's counterclaims and set-off rights as set forth herein.
NFA admits that NFA disputed $16.5 million in Phase 3 payment applications submitted by Meridian. NFA affirmatively states that the disputed payment applications were properly rejected on the grounds that the work covered by such applications was defective, that the unit counts claimed by Meridian were inflated, and that the applications failed to comply with the payment certification requirements set forth in Section 18.1 of the MCA.
NFA denies that any amounts are owed to Meridian beyond the $512,700,000 that has already been paid. Except as expressly admitted, NFA denies each and every remaining allegation in Paragraphs 36 through 40 of the Complaint.
Response to Count I: Breach of Contract — Wrongful Termination (Claimed Damages of $92,400,000)
NFA denies each and every allegation set forth in Count I of the Complaint. NFA specifically denies that the termination of the MCA on April 1, 2024, was wrongful, improper, or in breach of any obligation owed by NFA to Meridian.
NFA affirmatively states that the termination was for cause, justified by Meridian's material breach of the MCA, including but not limited to Meridian's persistent and escalating schedule delays across multiple milestones, its pervasive quality failures as documented in 287 NCRs (43 of which were classified as critical), and its failure to cure despite two formal Cure Notices and a cure period substantially exceeding the 30 calendar days required by Section 14.1 of the MCA.
NFA denies that Meridian is entitled to a termination-for-convenience fee of $50,424,000 (calculated by Meridian as 8% of the remaining unperformed contract value of $630,300,000). The termination was for cause, not for convenience. Section 14.5 of the MCA expressly provides that, in the event of a termination for cause, the Contractor forfeits any right to the termination fee that would otherwise be payable under Section 14.3. Meridian's claim for the termination fee is therefore barred by the plain terms of the MCA.
NFA denies that Meridian is entitled to recover lost profits of $41,976,000 on unperformed work. Even if such lost profits were otherwise recoverable — which NFA denies — they constitute consequential damages barred by the mutual consequential damages waiver set forth in Section 20.1 of the MCA. None of the express carve-outs to Section 20.1 (willful misconduct, intellectual property indemnification, and confidentiality breaches) are applicable to Meridian's claims in Count I.
NFA denies liability in any amount on Count I of the Complaint.
Response to Count II: Breach of Contract — Unpaid Invoices (Claimed Damages of $16,500,000)
NFA denies each and every allegation set forth in Count II of the Complaint. NFA affirmatively states that the $16.5 million in Phase 3 payment applications disputed by NFA were properly rejected for cause. Specifically, the disputed payment applications included claims for work that was defective and did not conform to the quality standards required by Section 12.4 of the MCA and Northgate Technical Specification NS-FIBER-2020; included inflated unit counts that were not supported by field verification; and failed to comply with the certification requirements set forth in Section 18.1 of the MCA. NFA denies that any additional amounts are owed to Meridian, and NFA denies liability in any amount on Count II of the Complaint.
Response to Count III: Breach of Contract — Wrongful Withholding of Retainage (Claimed Damages of $56,966,667)
NFA denies each and every allegation set forth in Count III of the Complaint. NFA affirmatively states that the retainage in the amount of $56,966,667 is properly held by NFA under the terms of the MCA, pending (a) completion of all punch-list work, (b) correction of all defects documented in the 287 NCRs, and (c) final resolution of NFA's counterclaims and set-off rights as set forth herein. The MCA provides that retainage shall not be released until all conditions for final payment have been satisfied, and those conditions have not been met. NFA denies that any retainage is currently due and payable to Meridian, and NFA denies liability in any amount on Count III of the Complaint.
Response to Count IV: Breach of Implied Covenant of Good Faith and Fair Dealing (Claimed Damages of $34,133,333)
NFA denies each and every allegation set forth in Count IV of the Complaint. NFA denies that it acted in bad faith, engaged in arbitrary or irrational conduct, or otherwise acted in a manner that deprived Meridian of the benefit of the MCA. NFA's actions throughout the contract term and in connection with the termination were consistent with the MCA's terms and with NFA's rights and obligations thereunder.
NFA affirmatively states that Meridian's claim for breach of the implied covenant of good faith and fair dealing is duplicative of Meridian's breach of contract claims asserted in Counts I through III.
NFA further denies that Meridian suffered any loss of bonding capacity or reputational harm attributable to NFA's conduct. To the extent Meridian claims such damages, NFA affirmatively states that loss of bonding capacity and reputational harm constitute consequential damages that are barred by the mutual consequential damages waiver in Section 20.1 of the MCA. None of the express carve-outs to Section 20.1 apply to Meridian's claims in Count IV.
NFA denies liability in any amount on Count IV of the Complaint.
AFFIRMATIVE DEFENSES
Without assuming any burden of proof that NFA would not otherwise bear, NFA asserts the following affirmative defenses to Meridian's Complaint:
FIRST AFFIRMATIVE DEFENSE: Justified Termination for Material Breach
NFA's termination of the MCA on April 1, 2024, was justified and authorized under Section 14.1 of the MCA. Meridian committed material breach of the MCA through its persistent and escalating schedule delays across multiple milestones — including 47 days of delay on Milestone 3, 22 days on Milestone 5, 68 days on Milestone 6, 91 days on Milestone 7, and 134 or more days of uncured delay on Milestone 8 (which was never completed). Meridian's material breach was further established by the issuance of 287 non-conformance reports, including 43 classified as critical, documenting pervasive quality failures throughout Phase 2 of the project. NFA provided Meridian with two formal Cure Notices and afforded Meridian a cure period substantially exceeding the 30 calendar days required by Section 14.1, yet Meridian failed to cure its breaches. Meridian's claims in this action are barred in whole or in part because NFA properly exercised its contractual right to terminate the MCA for cause, and all consequences of that termination — including Meridian's forfeiture of the termination fee and NFA's right to complete the work through substitute contractors at Meridian's expense — are governed by Section 14.5 of the MCA.
SECOND AFFIRMATIVE DEFENSE: Contractual Consequential Damages Waiver (MCA § 20.1)
Meridian's claims for lost profits on unperformed work (Count I, in the amount of $41,976,000), loss of bonding capacity (Count IV), and reputational harm (Count IV, in the amount of $34,133,333) constitute consequential, incidental, or indirect damages that are barred by the mutual consequential damages waiver set forth in Section 20.1 of the MCA. The parties expressly and knowingly agreed to waive their respective rights to recover consequential damages arising from or relating to the MCA, subject only to the express carve-outs for willful misconduct, intellectual property indemnification obligations, and breaches of confidentiality obligations. None of those carve-outs apply to any of the claims asserted by Meridian in this action. Meridian's consequential damages claims are therefore barred as a matter of contract.
THIRD AFFIRMATIVE DEFENSE: Failure to Mitigate Damages
Meridian failed to take reasonable steps to mitigate any damages it allegedly sustained as a result of the termination of the MCA. Upon termination, Meridian had a duty under New York law to exercise reasonable efforts to minimize its losses, including by pursuing alternative projects to replace lost revenue and by reducing its overhead, staffing, and equipment costs to reflect the loss of the Northgate contract. Meridian failed to do so. At the time of termination, Meridian's fiscal year 2023 construction backlog was approximately $1.4 billion, including the Northgate contract. Following termination, Meridian's backlog was approximately $770 million, reflecting a substantial portfolio of alternative work available to Meridian. To the extent Meridian suffered any damages — which NFA denies — such damages were exacerbated by Meridian's failure to pursue available mitigation opportunities.
FOURTH AFFIRMATIVE DEFENSE: Comparative Fault / Contributory Negligence
To the extent Meridian suffered any damages — which NFA denies — such damages were caused in whole or in part by Meridian's own acts, omissions, and negligence. Meridian failed to adequately staff the project with qualified personnel, failed to effectively manage and oversee its subcontractors, failed to implement adequate quality assurance and quality control procedures, and failed to comply with the quality standards set forth in Section 12.4 of the MCA and Northgate Technical Specification NS-FIBER-2020. Any damages awarded to Meridian must be reduced in proportion to Meridian's own fault.
FIFTH AFFIRMATIVE DEFENSE: Set-Off
NFA is entitled to set off against any amounts that may be found owing to Meridian — which NFA denies — the full amount of NFA's counterclaims against Meridian. NFA's counterclaims seek recovery of in liquidated damages for schedule delays, in excess completion costs incurred in engaging a substitute contractor, and in costs to remediate Meridian's defective work, for a total of Under well-established principles of New York law, NFA is entitled to set off these amounts against any recovery by Meridian, and NFA's counterclaim damages substantially exceed the total amount of Meridian's claims.
SIXTH AFFIRMATIVE DEFENSE: Failure to Comply with Contractual Procedures
Meridian failed to follow the Change Order procedure set forth in Section 16.1 of the MCA with respect to its alleged 14 scope changes. The MCA required that all changes to the scope of work or the project schedule be documented through written Change Orders signed by authorized representatives of both parties. No written Change Orders were executed with respect to any of the 14 alleged scope changes identified in the Complaint. Meridian is therefore contractually barred from relying on those alleged scope changes as a defense to its own breaches of the MCA, as a justification for its schedule delays, or as a basis for any claim for additional time, compensation, or damages.
SEVENTH AFFIRMATIVE DEFENSE: Waiver / Estoppel
Meridian has waived and/or is estopped from asserting certain of its claims by virtue of its own conduct during the performance of the MCA. Meridian accepted the assessment of liquidated damages on Milestone 3 without timely objection. Meridian continued to perform work under the MCA without formally invoking the force majeure provisions of the MCA, without initiating the dispute resolution procedures set forth in the MCA, and without objecting to NFA's administration of the contract in the manner now complained of. By its course of conduct, Meridian acquiesced in NFA's exercise of its contractual rights and is now barred from challenging that exercise as wrongful, pretextual, or in bad faith.
EIGHTH AFFIRMATIVE DEFENSE: Performance Bond and Surety Rights
NFA has rights under Performance Bond No. ISG-2020-NE-04417, issued by Ironclad Surety Group Inc. in the penal sum of $120,000,000, which secures Meridian's performance obligations under the MCA. NFA reserves all rights to make claims under the Performance Bond and to recover from the surety any amounts due to NFA as a result of Meridian's material breach and the termination of the MCA. Nothing in this Answer or in NFA's Counterclaims shall be construed as a waiver or limitation of NFA's rights under the Performance Bond.
NFA reserves the right to assert additional affirmative defenses as discovery proceeds, additional facts are developed, and the legal theories and factual bases of Meridian's claims become more fully apparent. This reservation is made without waiver of any rights or defenses.
COUNTERCLAIMS
Counterclaim Plaintiff Northgate Fiber Americas Inc. ("NFA"), by and through its attorneys, Calderwood & Harkness LLP, asserts the following counterclaims against Counterclaim Defendant Meridian Infrastructure Partners LLC ("Meridian"):
COUNTERCLAIM PRELIMINARY STATEMENT
NFA asserts three counterclaims against Meridian arising from Meridian's material breach of the Master Construction Agreement dated March 15, 2020 (the "MCA"). Meridian's material breaches — including persistent and escalating schedule delays across multiple project milestones, pervasive quality failures documented in 287 non-conformance reports, and Meridian's failure to cure those breaches despite multiple formal cure notices — compelled NFA to terminate the MCA for cause on April 1, 2024.
As a direct result of Meridian's material breaches and the termination of the MCA, NFA has suffered and will continue to suffer damages totaling at least in liquidated damages for schedule delays under Section 9.1 of the MCA; (ii) in excess completion costs resulting from NFA's engagement of Crestline Construction Group Inc. as a replacement contractor to complete the remaining work at a contract price of $712,000,000, which exceeds the remaining unperformed MCA value of $630,300,000 by $81,700,000; and (iii) in estimated costs to remediate defective work performed by Meridian, as documented in the non-conformance reports issued by NFA's quality assurance team.
COUNTERCLAIM PARTIES
1. Counterclaim Plaintiff Northgate Fiber Americas Inc. is a corporation organized and existing under the laws of the State of Delaware, with Delaware Secretary of State File Number 7182934, maintaining its principal office at 600 Lexington Avenue, 28th Floor, New York, New York 10022.
2. Counterclaim Defendant Meridian Infrastructure Partners LLC is a limited liability company organized and existing under the laws of the State of Delaware, with Delaware Division of Corporations File Number 6439821, maintaining its principal office at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056.
COUNTERCLAIM FACTUAL ALLEGATIONS
A. The Master Construction Agreement
3. On March 15, 2020, NFA (as "Owner") and Meridian (as "Contractor") entered into 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 across seven northeastern states: New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia.
4. NFA issued the Notice to Proceed on April 1, 2020, commencing the five-year contract term with an original completion date of March 31, 2025.
5. The Contract Price under the MCA was $1,200,000,000, structured as a $780,000,000 fixed-price milestone component (approximately 65% of the Contract Price) and a $420,000,000 unit-rate component (approximately 35% of the Contract Price).
6. The MCA defined 14 milestones in Section 8.2, each with specified target completion dates and associated milestone payment values. The milestones were organized across three project phases: Phase 1 (New York Metro and Northern New Jersey, approximately 3,200 route miles, $208,000,000 milestone value); Phase 2 (Connecticut, Western Massachusetts, and Southern Pennsylvania, approximately 5,600 route miles, $363,000,000 milestone value); and Phase 3 (Maryland and Virginia, approximately 9,700 route miles, with the remaining milestone and unit-rate value).
7. Section 9.1 of the MCA provided for liquidated damages in the amount of $175,000 per day per milestone for each day of unexcused delay beyond the applicable milestone target completion date. The liquidated damages provision was subject to a cap of 10% of the applicable milestone value for each individual milestone and an aggregate cap of 5% of the total Contract Price, or $60,000,000.
8. Section 12.4 of the MCA required all work performed by the Contractor to conform to Northgate Technical Specification NS-FIBER-2020 and all applicable industry standards, including without limitation ANSI/TIA-568 (telecommunications cabling standards) and Building Industry Consulting Service International ("BICSI") guidelines for telecommunications distribution methods and practices.
9. Section 14.1 of the MCA permitted the Owner to terminate the MCA for cause upon material breach by the Contractor that remained uncured for 30 calendar days after written notice from the Owner specifying the nature of the breach and demanding cure.
10. Section 14.5 of the MCA set forth the consequences of a termination for cause, including: (a) the Contractor's forfeiture of any right to a termination fee under Section 14.3; (b) the Owner's right to complete the remaining work using one or more substitute contractors; (c) the Owner's right to charge to the Contractor any excess costs incurred by the Owner in completing the remaining work above the remaining unperformed contract value; and (d) the Owner's right to draw upon the performance bond.
B. Meridian's Schedule Delays
11. Throughout the contract term, Meridian failed to achieve multiple milestones by their target completion dates, and its schedule performance deteriorated progressively.
12. In Phase 1, Milestone 3 was completed 47 days late, with actual completion occurring on October 14, 2021, as against a target completion date of August 28, 2021. NFA assessed liquidated damages of $8,225,000 (47 days × $175,000/day) by letter dated November 5, 2021.
13. In Phase 2, Meridian's schedule performance deteriorated dramatically, with delays escalating across successive milestones:
(a) Milestone 5 was completed 22 days behind schedule, resulting in liquidated damages of $3,850,000 (22 days × $175,000/day);
(b) Milestone 6 was completed 68 days behind schedule, resulting in liquidated damages of $11,900,000 (68 days × $175,000/day);
(c) Milestone 7 was completed 91 days behind schedule, resulting in liquidated damages of $15,925,000 (91 days × $175,000/day); and
(d) Milestone 8 was never completed prior to the termination of the MCA. As of the termination date of April 1, 2024, 134 days of delay had accrued. Liquidated damages calculated at the per-diem rate would equal $23,450,000 (134 days × $175,000/day); however, the 10% per-milestone cap applies to Milestone 8, which had a milestone value of $91,000,000, resulting in a cap of $9,100,000 for Milestone 8.
14. Total liquidated damages across all delayed milestones are $49,000,000, calculated as follows:
15. The aggregate total of $49,000,000 is within the aggregate liquidated damages cap of $60,000,000 (5% × $1,200,000,000 Contract Price).
16. The pattern of escalating delays — from 47 days on Milestone 3, to 22 days on Milestone 5, to 68 days on Milestone 6, to 91 days on Milestone 7, to 134 days (and counting) on Milestone 8 — demonstrates a systemic and worsening failure in Meridian's project execution and construction management capabilities.
C. Meridian's Quality Failures
17. NFA's internal quality assurance team issued a total of 287 non-conformance reports during Phase 2 of the project, documenting instances in which Meridian's work failed to conform to the quality standards required by Section 12.4 of the MCA, Northgate Technical Specification NS-FIBER-2020, and applicable industry standards.
18. Of the 287 NCRs, 43 were classified as critical, reflecting deficiencies that posed a material risk to the integrity, functionality, or long-term reliability of the fiber-optic network. The critical NCRs documented, among other things:
(a) Splice loss measurements exceeding the maximum loss specifications set forth in NS-FIBER-2020, compromising signal integrity and network performance;
(b) Improper conduit burial depth in violation of applicable standards and local code requirements, increasing the risk of damage to the fiber-optic cable from excavation, environmental conditions, and third-party intrusion; and
(c) Unauthorized deviations from approved route alignments, resulting in fiber-optic cable being installed along routes that had not been permitted, engineered, or approved by NFA.
19. In addition to the 43 critical NCRs, 244 NCRs were classified as non-critical but nevertheless documented work that failed to meet the contractual quality standards.
20. During February 2024 alone — after NFA had issued Cure Notice No. 1 — NFA's quality assurance team issued 12 additional critical NCRs, demonstrating that Meridian's quality failures were continuing and indeed worsening even during the cure period.
21. All quality deficiencies were documented in NFA's monthly quality assurance reports and communicated to Meridian on an ongoing basis throughout the project.
22. The defective work documented in the NCRs requires remediation at an estimated total cost of broken down as follows:
(a) 43 critical NCRs at an estimated average remediation cost of approximately $275,000 per NCR = $11,825,000; and
(b) 244 non-critical NCRs at an estimated average remediation cost of approximately $26,500 per NCR = $6,466,000.
D. Cure Notices and Termination
23. On January 18, 2024, Renata Voss, Vice President of US Network Infrastructure for NFA, issued Cure Notice No. 1 to Meridian pursuant to Section 14.1 of the MCA. Cure Notice No. 1 identified the following material breaches by Meridian: (a) failure to achieve Milestone 8 by its target completion date; (b) inadequate Phase 3 mobilization, with only approximately 340 of 9,700 route miles constructed despite mobilization in Maryland in July 2023; and (c) 43 critical NCRs reflecting pervasive quality failures. Cure Notice No. 1 demanded that Meridian cure the identified breaches within 30 calendar days.
24. On February 2, 2024, Meridian responded to Cure Notice No. 1 by letter signed by Victor Sandoval, disputing the existence of material breach and asserting various defenses. Meridian did not, however, take any concrete remedial action to address its schedule delays, quality deficiencies, or mobilization shortcomings.
25. On February 19, 2024, NFA issued Cure Notice No. 2, stating that Meridian had failed to cure the material breaches identified in Cure Notice No. 1, that Meridian's breaches were continuing, and that additional material breaches had occurred. Cure Notice No. 2 demanded that Meridian submit a detailed remediation plan within 15 calendar days.
26. On March 5, 2024, Meridian submitted a document titled "Corrective Action Plan" in response to Cure Notice No. 2. The Corrective Action Plan proposed: (a)
27. On March 12, 2024, NFA rejected Meridian's Corrective Action Plan as inadequate, citing the continued deterioration of Meridian's quality performance, including the issuance of 12 additional critical NCRs during February 2024.
28. On April 1, 2024, NFA delivered to Meridian a Notice of Termination for Cause under Section 14.1 of the MCA, effective immediately. The Notice of Termination invoked NFA's right under Section 14.5 to complete the remaining work using substitute contractors and to charge any excess costs to Meridian.
29. NFA fully complied with all procedural requirements of Section 14.1 of the MCA. NFA provided written notice of Meridian's material breaches, identified the specific breaches with particularity, afforded Meridian a cure period of more than 70 days (substantially exceeding the 30-day minimum required by Section 14.1), and terminated the MCA only after Meridian failed to cure.
E. Phase 3 Inadequate Performance
30. As of the date of termination, Meridian had constructed only approximately 340 of the 9,700 route miles comprising Phase 3 of the project (Maryland and Virginia), representing a completion rate of approximately 3.5%. Meridian had mobilized in Maryland in July 2023, approximately nine months prior to termination, yet had made negligible progress on the Phase 3 work.
31. Meridian submitted Phase 3 payment applications totaling $48,200,000 during the course of Phase 3 work. NFA approved and paid $31,700,000 of those applications. The remaining $16,500,000 was properly disputed by NFA on the grounds that the work covered by those applications was defective, that unit counts were inflated, and that the applications failed to comply with Section 18.1's certification requirements.
F. Replacement Contractor
32. Following the termination of the MCA, NFA undertook a competitive solicitation process to identify and engage a qualified replacement contractor to complete the remaining Phase 2 (Milestone 8) and Phase 3 work.
33. On June 10, 2024, NFA entered into a replacement construction agreement with Crestline Construction Group Inc. ("Crestline"), a Virginia corporation with its principal office at 8200 Greensboro Drive, Suite 900, McLean, Virginia 22102. Crestline is led by Chief Executive Officer Frank DiBello and is an experienced fiber-optic infrastructure contractor with a track record of successful large-scale deployments.
34. The Crestline replacement contract provides for a contract price of $712,000,000 and a contract term of 30 months from the issuance of Notice to Proceed, with an estimated completion date of December 2026.
35. The remaining unperformed contract value under the MCA at the time of termination was $630,300,000. The Crestline replacement contract price of $712,000,000 therefore exceeds the remaining MCA value by $81,700,000.
36. Under Section 14.5 of the MCA, NFA is entitled to charge these excess completion costs of $81,700,000 to Meridian. The excess costs are the direct and foreseeable result of Meridian's material breach and the termination of the MCA for cause.
COUNTERCLAIM I: BREACH OF CONTRACT — LIQUIDATED DAMAGES
37. NFA repeats and re-alleges each of the allegations set forth in paragraphs 1 through 36 above as if fully stated herein.
38. Meridian breached Section 8.2 (Milestone Schedule) of the MCA by failing to timely complete Milestones 3, 5, 6, 7, and 8 by their respective target completion dates.
39. Under Section 9.1 of the MCA, Meridian is liable for liquidated damages in the amount of $175,000 per day per milestone for each day of unexcused delay beyond the applicable milestone target completion date, subject to the per-milestone cap of 10% and the aggregate cap of 5% of the Contract Price.
40. The parties agreed at the time of contract formation that actual damages flowing from schedule delays would be difficult or impossible to calculate with certainty and that the liquidated damages rate of $175,000 per day per milestone represented a reasonable estimate of the probable damages resulting from such delays. The liquidated damages provision is enforceable under New York law as a reasonable pre-estimate of damages and not a penalty.
41. Total liquidated damages assessed against Meridian are calculated as follows:
(a) Phase 1, Milestone 3: 47 days × $175,000/day = $8,225,000;
(b) Phase 2, Milestone 5: 22 days × $175,000/day = $3,850,000;
(c) Phase 2, Milestone 6: 68 days × $175,000/day = $11,900,000;
(d) Phase 2, Milestone 7: 91 days × $175,000/day = $15,925,000;
(e) Phase 2, Milestone 8: 134 days × $175,000/day = $23,450,000, capped at 10% of the Milestone 8 value of $91,000,000 = $9,100,000.
42. The aggregate total of $49,000,000 is within the aggregate liquidated damages cap of $60,000,000 (5% of the $1,200,000,000 Contract Price).
43. NFA is entitled to judgment against Meridian in the amount of on Counterclaim I, together with pre-judgment interest at the statutory rate.
COUNTERCLAIM II: BREACH OF CONTRACT — EXCESS COMPLETION COSTS
44. NFA repeats and re-alleges each of the allegations set forth in paragraphs 1 through 43 above as if fully stated herein.
45. Meridian's material breach of the MCA — including its persistent schedule delays, pervasive quality failures, and failure to cure — constituted material breach entitling NFA to terminate the MCA for cause under Section 14.1.
46. NFA terminated the MCA for cause on April 1, 2024, in accordance with the procedural requirements of Section 14.1, after providing Meridian with two formal Cure Notices and a cure period of more than 70 days.
47. Under Section 14.5 of the MCA, NFA was entitled, upon termination for cause, to complete the remaining work using one or more substitute contractors and to charge to Meridian any excess costs incurred by NFA in completing the work above the remaining unperformed contract value.
48. On June 10, 2024, NFA entered into a replacement construction agreement with Crestline Construction Group Inc. for the completion of the remaining Phase 2 (Milestone 8) and Phase 3 work at a contract price of $712,000,000.
49. The remaining unperformed contract value under the MCA at the time of termination was $630,300,000.
50. NFA's excess completion costs are calculated as the difference between the Crestline replacement contract price ($712,000,000) and the remaining unperformed MCA value ($630,300,000).
51. These excess completion costs are the direct and foreseeable result of Meridian's material breach and the termination of the MCA for cause. NFA acted reasonably and in good faith in engaging Crestline through a competitive solicitation process and in negotiating the replacement contract at the most competitive price available in the market.
52. NFA is entitled to judgment against Meridian in the amount of on Counterclaim II, together with pre-judgment interest at the statutory rate.
COUNTERCLAIM III: BREACH OF CONTRACT — COST OF REMEDIATION OF DEFECTIVE WORK
53. NFA repeats and re-alleges each of the allegations set forth in paragraphs 1 through 52 above as if fully stated herein.
54. Meridian breached Section 12.4 (Quality Standards) of the MCA by delivering work that failed to conform to Northgate Technical Specification NS-FIBER-2020 and applicable industry standards, including ANSI/TIA-568 and BICSI guidelines.
55. NFA's quality assurance team issued 287 non-conformance reports documenting Meridian's defective work, including 43 critical NCRs and 244 non-critical NCRs.
56. The critical NCRs documented deficiencies including splice loss exceeding specifications, improper conduit depth, and unauthorized route deviations, all of which require remediation to bring the constructed network into conformance with the applicable quality standards and to ensure the long-term integrity and reliability of the fiber-optic infrastructure.
57. Estimated remediation costs for the defective work are calculated as follows:
(a) 43 critical NCRs at an estimated average remediation cost of approximately $275,000 per NCR = $11,825,000; and
(b) 244 non-critical NCRs at an estimated average remediation cost of approximately $26,500 per NCR = $6,466,000.
58. NFA has incurred and will continue to incur costs to remediate Meridian's defective work. These remediation costs are the direct and foreseeable result of Meridian's breach of its quality obligations under the MCA.
59. NFA is entitled to judgment against Meridian in the amount of on Counterclaim III, together with pre-judgment interest at the statutory rate.
TOTAL COUNTERCLAIM DAMAGES
60. NFA's total counterclaim damages are as follows:
61. In addition to the foregoing damages, NFA seeks pre-judgment interest on all counterclaim amounts at the statutory rate, as well as attorneys' fees and costs of this action to the extent permitted by the MCA or applicable law.
PRAYER FOR RELIEF
WHEREFORE, Defendant and Counterclaim Plaintiff Northgate Fiber Americas Inc. respectfully prays for relief as follows:
1. An Order and Judgment dismissing the Verified Complaint of Plaintiff Meridian Infrastructure Partners LLC in its entirety, with prejudice, and denying Meridian any and all relief sought therein;
2. An Order and Judgment sustaining each of NFA's Affirmative Defenses;
3. An Order and Judgment in favor of NFA and against Meridian on Counterclaim I (Breach of Contract — Liquidated Damages) in the amount of
4. An Order and Judgment in favor of NFA and against Meridian on Counterclaim II (Breach of Contract — Excess Completion Costs) in the amount of
5. An Order and Judgment in favor of NFA and against Meridian on Counterclaim III (Breach of Contract — Cost of Remediation of Defective Work) in the amount of
6. Total counterclaim judgment in the amount of