Contour Constr., LLC v Kohlbach

[*1] Contour Constr., LLC v Kohlbach 2009 NY Slip Op 50508(U) [22 Misc 3d 1139(A)] Decided on March 11, 2009 Supreme Court, Broome County Lebous, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 11, 2009
Supreme Court, Broome County

Contour Construction, LLC, Tri-City Highway Products, Inc., Jeffrey Brian Kenyon, and James William Reppard, Plaintiffs/, Petitioners,

against

Richard "Rocky" Kohlbach, in His Capacity as Superintendent of the Town of Windsor Highway Department, the Town of Windsor, Michael Kwartler, in His Capacity as Superintendent of the Town of Chenango Highway Department, the Town of Chenango, Broome Bituminous Products Inc., and the County of Broome, Defendants, Respondents.



2008-2842



APPEARANCES:

COUNSEL FOR PLAINTIFFS/PETITIONERS:

COUCH WHITE, LLP

BY:JEREMY M. SMITH, ESQ., OF COUNSEL

540 BROADWAY, P.O. BOX 22222

ALBANY, NY 12201-2222

COUNSEL FOR TOWN OF WINDSOR:

COUGHLIN & GERHART, LLP

BY:OLIVER N. BLAISE, III, ESQ. and CHERYL INSINGA, ESQ.

19 CHENANGO STREET

P.O. BOX 2039

BINGHAMTON, NY 13902

COUNSEL FOR TOWN OF CHENANGO:

DONALD G. WALLS, ESQ.

405 PRESS BUILDING

P.O. BOX 507

BINGHAMTON, NY 13902

COUNSEL FOR BROOME BITUMINOUS

PRODUCTS, INC.:

LEVENE, GOULDIN & THOMPSON, LLP

BY:MICHAEL R. WRIGHT, ESQ., OF COUNSEL

P.O. BOX F-1706

BINGHAMTON, NY 13902

COUNSEL FOR COUNTY OF BROOME:

BROOME COUNTY ATTORNEY'S OFFICE

BY:WILLIAM L. GIBSON, JR., ESQ. OF COUNSEL

BROOME COUNTY OFFICE BUILDING

GOVERNMENT PLAZA

P.O. BOX 1766

BINGHAMTON, NY 13902

Ferris D. Lebous, J.

This is a combined proceeding pursuant to CPLR article 78 and an action for a declaratory judgment, as well as a taxpayer's action under General Municipal Law § 51, all relating to a Broome County contract for the purchase of asphalt product.

BACKGROUND

Generally, municipalities must advertise for competitive bids for the purchase of materials in excess of $10,000 or services in excess of $20,000 (General Municipal Law §103 [1]). However, in lieu of such advertising, a municipality may purchase materials and/or services from vendors who are awarded contracts with the County in which the municipality is located (GML § 102 [3]; County Law § 408-a). Here, both the Town of Windsor and the Town of Chenango decided to purchase asphalt materials from approved vendors under the applicable Broome County contract. [*2]

The genesis of the Broome County contract at issue began on February 22, 2006, when the Broome County Department of Public Works published the 2006 General Highway Requirements which, among other things, solicited for bids on various asphalt materials and services (hereinafter the "County Contract"). The quantities of asphalt involved were simply listed as "500-1,000 Ton", "1,000-1,500 Ton", and "over 1,500 Ton" without any reference to the manner in which the quantities were measured.[FN1] On March 28, 2006, Broome Bituminous Products, Inc. (hereinafter "Broome Bituminous") was awarded the County Contract on asphalt under 500 tons. On March 29, 2006, Contour Construction, LLC (hereinafter "Contour") was awarded the County Contract on asphalt over 500 tons.[FN2] Under the County Contract, the price for asphalt purchased in amounts over 500 tons was less than the price for asphalt purchased in amounts under 500 tons, thus rewarding purchases in bulk.

At some point, Contour became concerned that the Town of Windsor was purchasing asphalt from Broome Bituminous in quantities over 500 tons (which was the portion of the County Contract awarded to Contour), but at the higher price applicable to purchases under 500 tons (which was the portion of the County Contract awarded to Broome Bituminous). On May 1, 2006, Contour's president, David Black, sent a letter to the Town of Windsor identifying his concern and raised the issue again at a Windsor Town Board meeting on May 3, 2006.

In 2007 and 2008, Broome County renewed Contour, Tri-City, and Broome Bituminous as approved vendors according to the terms of the 2006 Highway Requirements.[FN3]

Contour's suspicions that the Towns of Windsor and Chenango were bypassing the County Contract continued unabated culminating in counsel submitting a Freedom of Information request to the Towns of Windsor and Chenango seeking various documents, including invoices, for asphalt purchases made since 2006.

Contour alleges that the documents received from the Town of Windsor reveal that from 2006 through 2008, the Town unlawfully purchased more than 13,000 tons of asphalt paving products from Broome Bituminous costing over $700,000, notwithstanding that Contour had been awarded the County Contract for asphalt in amounts over 500 tons.

Contour further alleges that said FOIL documents revealed that in 2008 the Town of Chenango unlawfully purchased over 7,000 tons of asphalt paving products from Broome Bituminous costing over $400,000, notwithstanding that Contour had been awarded the County [*3]Contract for asphalt in amounts over 500 tons.

On October 23, 2008, plaintiffs/petitioners Contour, Tri-City Highway Products, Inc., Jeffrey Brian Kenyon, and James William Reppard submitted a proposed Order to Show Cause (ultimately signed on October 28, 2008 and filed on October 29, 2008) and a Verified Petition seeking twenty-three items of relief, eleven of which consist of declaratory relief, seeking to challenge defendants/respondents implementation of the County Contract as arbitrary, capricious, and illegal, a declaratory judgment declaring purchases of asphalt product from Broome Bituminous by the Town of Windsor in 2006, 2007, and 2008 and by the Town of Chenango in 2008 as unlawful, a forfeiture from Broome Bituminous of any such unlawful purchases, as well as a taxpayer action seeking to recoup any monies overpaid.

Defendant/respondent County submits a pre-answer cross-motion to dismiss this hybrid proceeding on the basis that it fails to state a cause of action against the County.

Defendant/respondent Broome Bituminous also submits a pre-answer cross-motion seeking to dismiss this hybrid proceeding.

Defendant/respondent Richard "Rocky" Kohlbach, in his capacity as Superintendent of the Town of Windsor Highway Department, and the Town of Windsor (hereinafter collectively referred to as the "Town of Windsor") submits a Verified Answer with objections in point of law pursuant to CPLR § 7804 (f).

Defendant/respondent Michael Kwartler, in his capacity as Superintendent of the Town of

Chenango Highway Department, and the Town of Chenango (hereinafter collectively referred to as the "Town of Chenango") also submits a Verified Answer with objections in point of law pursuant to CPLR § 7804 (f).

THE PARTIES' POSITIONS

Before proceeding the court believes a preliminary statement regarding the parties' respective positions will be beneficial in placing the rest of the discussion into context.

Plaintiffs/petitioners Contour, Tri-City Highway Products, Inc., Jeffrey Brian Kenyon, and James William Reppard do not attack the County's awarding of bids in 2006 or subsequent renewals thereafter regarding asphalt purchases, but rather focus on an ambiguity in the County's original bid specifications and resulting County Contract. More specifically, the parties agree that the County's solicitation for bids merely listed asphalt in terms of under 500 tons and over 500 tons without providing any threshold basis for measurement such as per road, per project, or per year. Further, Contour concedes that the Town of Windsor and the Town of Chenango properly sought to purchase asphalt under the County Contract rather than directly through competitive bidding, but argues that both Towns unlawfully bypassed the County Contract by purchasing asphalt from Broome Bituminous contrary to the terms of the County Contract, namely in amounts over 500 tons at the higher under 500 tons price. [*4]

The County argues that the complaint/petition does not make any allegations directly against the County nor does it seek any relief from the County. The County submits an affidavit from Michael Restino, the drafter of the bid specifications, stating that "[t]he intent and purpose of the Broome County Contract was that asphalt tonnage would be measured per project" (Restino Affidavit sworn to December 30, 2008, ¶ 9; emphasis in original).

Broome Bituminous agrees that the County Contract is silent on how the 500 ton threshold is measured. However, Broome Bituminous argues that custom and practice dictate that tonnage should be measured either by road or by project while emphasizing the per road methodology. Broome Bituminous describes the third option of measurement - by year - as "absurd" (Wright Affirmation, ¶ 17). Broome Bituminous further argues that the Opinions of the State Comptroller prohibiting segmentation in competitive bidding situations are inapplicable here since the County Contract was awarded via the competitive bidding process.

The Town of Windsor contends that most of its asphalt purchases were made pursuant to the terms of the County Contract, while conceding that said contract contains an obvious ambiguity in failing to indicate how the 500 ton threshold should be measured. The Town of Windsor unequivocally states that its Highway Department measured the asphalt on a per road basis. The Town of Windsor does concede one situation (Dodd Road in 2006) and several emergency situations after the Flood of 2006 in which purchases of asphalt were made without regard to the terms of the County Contract.

The Town of Chenango takes the position that its purchases were made in accordance with the County Contract and based upon a fair and reasonable interpretation of said contract. The Town of Chenango further alleges that on at least once occasion, Contour refused to supply asphalt product upon request and that based upon that refusal the Town continued to purchase asphalt from the next lowest bidder, Broome Bituminous, regardless of tonnage (Kwartler Affidavit, ¶11).

The court heard oral argument from counsel on January 16th, 2009. Additionally, the court held a conference with counsel on February 4, 2009 in order to further delineate the issues at hand.

DISCUSSION

I.Article 78/Declaratory Judgment

The court must first address petitioners/plaintiffs choice of remedies as between an Article 78 proceeding and a declaratory judgment action. The parties all agree that the focus of this matter is the ambiguous clause in the County Contract regarding the manner in which asphalt amounts should be measured.

It is well-settled that a determination of the contractual rights and responsibilities of [*5]parties is not the proper subject of an article 78 proceeding (Sagamore Auto Body, Inc. v Nassau County, 104 AD2d 818 [1984]; Cornerstone Realty Group, LLC v County of Greene, 18 Misc 3d 1146(A) [2005], affd 28 AD3d 1033 [2006]). Stated another way, "[a]n article 78 proceeding...is not the proper vehicle to resolve contractual rights [citations omitted]" (Automated Ticket System, Ltd. v Quinn, 70 AD2d 726, 727 [1979], mod. on other grounds 49 NY2d 792 [1980]; Nassau Chapter et al v County of Nassau, 154 Misc 2d 545 [1992], affd 203 AD2d 267 [1994]). Consequently, this court finds, that to the extent not already pled as such, this Article 78 petition shall be converted into an action for a declaratory judgment (CPLR § 103 [c]).[FN4]

Next, the court addresses defendants' statute of limitations defense. The statute of limitations applicable to a declaratory judgment action depends on the nature of the underlying claim (Solnick v Whalen, 49 NY2d 224 [1980]). Here, the declaratory judgment action which seeks to resolve the interpretation of a contract is an action governed by the six year limitation period set forth in CPLR § 213 (2). Thus, this complaint is timely under any scenario. Consequently, the court anticipates that the proof at trial will cover the entire term of the County Contract, namely from 2006 through the present.

With respect to the substance of Broome Bituminous' cross-motion for dismissal, the parties have set forth three possible interpretations of the ambiguous portion of the County Contract as to how asphalt should be measured, namely per road, per project, or per fiscal year.

The "per road" interpretation has been used by the Town of Windsor. Under this interpretation, the Town of Windsor has been splitting up asphalt purchases on a road-by-road basis. Plaintiffs argue this methodology has resulted in purchases under 500 tons on intersecting roads paved on the same day or within days of each other despite being part of the same "project" or mobilization of equipment and/or labor. Plaintiffs argue that the result of this practice is that the Town of Windsor has been paying more for asphalt because it is segmenting asphalt purchases into amounts under 500 tons.

The "per project" interpretation is the interpretation supported by the County itself. The County submits the affidavit of Mr. Restino, the drafter of the ambiguous provision, who avers that "[t]he intent and purpose of the Broome County Contract was that asphalt tonnage would be measured per project" (Restino Affidavit, ¶ 9; emphasis in original). The County concedes, however, that the term "project" is not defined in the bid specifications. The parties agree that the definition of "per project" is subject to a variety of interpretations such as being based upon a geographic area, a certain time period, or a designated mobilization of equipment and/or labor, or a combination thereof. In any event, plaintiffs argue that even using a "per project" analysis that the Towns of Windsor and Chenango have still violated the County Contract by overpaying for asphalt. [*6]

The "per fiscal year" interpretation is self-explanatory and the only interpretation which has support in the Opinions of the State Comptroller which prohibit any sort of segmenting to avoid competitive bidding (Ops. St. Comp. 81-103, 82-224, and 92-46). Broome Bituminous argues that a per fiscal year analysis is "absurd" because it would essentially eliminate asphalt purchases under 500 tons meaning Broome Bituminous would rarely, if ever, receive any business under the County Contract. Needless to say, however, in reviewing public contracts, the overriding concern is not fairness or the lack thereof to Broome Bituminous, but rather the protection of the public fisc. Stated another way, the viability of this interpretation is not dictated by whether or not the County Contract is profitable for Broome Bituminous.

On this record the court is presented with three possible interpretations under the County Contract on how asphalt should be measured - per road, per project, and per fiscal year. The court finds obvious and numerous questions of fact exist as to the proper interpretation of this Contract. Moreover, the court finds that there are questions of fact as to whether the respective Towns used the ambiguity in the County Contract to bypass the County Contract and purchase from a favored vendor. The bottom line here is that the Towns have, apparently intentionally, paid more for asphalt than necessary. The resulting questions are numerous and troubling. When would a public official seek to pay more for a service or product when he could pay less? While there may well be innocent explanations for the decisions made, other explanations cannot be eliminated on this record. Thus, the court finds that it must hear from the parties themselves regarding their interpretations of the County Contract, their justifications and explanations, and determine the credibility of the parties in relation thereto. Consequently, the court finds that Broome Bituminous's cross-motion for dismissal is denied. As such, the court finds that Broome Bituminous shall be permitted an opportunity to submit an answer in accordance with the time limits set forth in CPLR § 7804 (f).

With respect to the County's cross-motion for dismissal on the ground that the complaint fails to state a cause of action, neither plaintiff nor co-defendants object to the County being let out of this litigation. Although the County clearly played a lead role in having drafted a patently ambiguous provision in the first instance, since the parties themselves do not object to the relief requested the court will grant the County's cross-motion for dismissal.

II.General Municipal Law § 51

General Municipal Law § 51 authorizes an action against town officers and others "[t]o prevent any illegal official act on the part of any such officers...or to prevent waste or injury to, or to restore and make good, any property, funds or estate...." It is well-settled, however, that a taxpayer's action is proper "'only when the acts complained of are fraudulent, or a waste of public property in the sense that they represent a use of public property or funds for entirely illegal purposes' [citations omitted]" (Palmateer v Greene County Indus. Development Agency, 38 AD3d 1087, 1089 [2007]). Additionally, the applicable statute of limitations for a valid claim under GML § 51, in the Third Department in which this claim is venued, is one year (Clowes v Pulver, 258 AD2d 50 [1999], lv dismissed 94 NY2d 858 [1999]). [*7]

The moving defendants contend they are entitled to dismissal of plaintiffs' GML § 51 taxpayer's action because the complaint fails to state a cause of action thereon. Defendants further argue that the alleged acts and/or omissions at issue here do not rise to the level of fraud or illegality necessary to support a taxpayer action under GML § 51.

The court finds that there is enough in this record to raise questions of fact as to whether the Towns knowingly evaded competitive bidding under the false pretense of purchasing under the County Contract via GML § 103 (3) with every intention of favoring Broome Bituminous (Gerzof v Sweeney, 16 NY2d 206 [1965]; Schulz v Warren County Bd of Supervisors, 179 AD2d 118, n 2 [1992], lv denied 80 NY2d 754 [1992]). In other words, this record raises questions of fact as to whether Town officers and others were intentionally segmenting projects to avoid purchasing under the County Contract. For instance, this record establishes that the Town of Windsor was regularly and systematically paying higher prices for asphalt by segmenting asphalt work by road. What could be the possible motivation under any set of facts for a public official to interpret a contract in a manner which would result in paying a higher price? While there may well be an innocent explanation for these purchases, this record does not foreclose the possibility of nefarious purposes as well.

In this court's view, even a cursory review of this record, particularly the invoices submitted, raises questions of fact as to whether the Towns knew or should have known they were avoiding competitive bidding under GML § 103 (1) by claiming they were purchasing under GML § 103 (3) and then straining any logical interpretation of the County Contract to the detriment of their residents (Resnick v Town of Canaan, 38 AD3d 949 [2007]; Starburst Realty Corp. v City of New York, 125 AD2d 148 [1987], appeal denied 70 NY2d 605 [1987]). Accordingly, this court finds that "[l]iberally construed the allegations comprise a facially sufficient cause of action under GML 51 and raise issues of fact that must await a trial" (Resnick, 38 AD3d 949). Consequently, the court finds that plaintiffs Kenyon and Reppard have stated a cause of action under GML § 51, that those claims are timely with respect to the year 2008 and, as such, Broome Bituminous' motion to dismiss plaintiffs' claims under GML § 51 is denied.

CONCLUSION

Based upon the foregoing, the court finds as follows: the Article 78 petition shall be converted into an action for a declaratory judgment; the County's cross-motion for dismissal is granted; Broome Bituminous' cross-motion for dismissal is denied; and Broome Bituminous is permitted an opportunity to submit an answer in accordance with the time limits set forth in CPLR § 7804 (f).

This matter remains on the court's trial calendar as a back-up from May 4, 2009 through May 8, 2009, and, if necessary, first status on August 3, 2009 through August 12, 2009.

The foregoing constitutes an order of the court upon which judgment may be entered according to its terms. [*8]

It is so ordered.

Dated:March 11, 2009 Binghamton, New York

s/ Ferris D. Lebous

Hon. Ferris D. Lebous

Justice, Supreme Court Footnotes

Footnote 1:For ease of reference the court will not itemize the individual types of asphalt at issue.

Footnote 2:On March 28, 2006, Tri-City was awarded the County contract on other asphalt related items.

Footnote 3:Parenthetically, the parties agree that the three year term of the County Contract will terminate on March 31, 2009 and that Broome County will advertise for bids again for the awarding of these items.

Footnote 4:As such, the court will hereinafter refer to the parties as "plaintiffs" and "defendants" and to the pleading as a "complaint".