Crana Elec. Inc. v Battery Park City Auth.

[*1] Crana Elec. Inc. v Battery Park City Auth. 2016 NY Slip Op 50108(U) Decided on February 2, 2016 Supreme Court, New York County Stallman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 2, 2016
Supreme Court, New York County

Crana Electric Inc., Petitioner/, Plaintiff,

against

Battery Park City Authority d/b/a HUGH L. CAREY BATTERY PARK CITY AUTHORITY and its VICE PRESIDENT OF INTERNAL AUDIT, Respondents/, Defendants.



650378/2014



For petitioner/plaintiff Crana Electric Inc.:

Farrell Fritz, P.C.

By: Jason Samuels, Esq.

Aaron E. Zerykier, Esq.

1320 RXR Plaza

Uniondale, NY 11556-1320

For respondents/defendants:

Holland & Knight, LLP

By: Stephen B. Shapiro, Esq.

Timothy B. Froessel, Esq.

Marie E. Larsen, Esq.

31 West 52nd Street

New York, NY 10019
Michael D. Stallman, J.

In this hybrid Article 78 proceeding-action, an electrical contractor that worked on the renovation and restoration of Pier A in Battery Park asserts that it is owed over $1.5 million from the Battery Park City Authority, due to additional work and construction delays on the project. According to the contractor, when the Battery Park City Authority did not pay for the additional work, it submitted a claim to an arbiter to decide whether the Battery Park City Authority should [*2]pay for the additional work and delays, but the arbiter allegedly has not rendered a determination. The contractor now asks the Court to compel the arbiter to issue a decision in its favor.

The Battery Park City Authority argues that the lawsuit should be dismissed, asserting that the contractor was required to take additional steps before seeking the Court's intervention. The crux of the Battery Park City Authority's argument is that the electrical contractor should have sought a determination from the Battery Park City Authority before submitting its claim to the arbiter.

After a series of conferences before the Court, the Battery Park City Authority agreed to issue a determination, which it did, by a letter dated August 21, 2014. In light of the letter, Battery Park City insists that the lawsuit should be dismissed so that the dispute can be determined by the arbiter.

I.

Petitioner/Plaintiff Crana Electric Inc. (Crana) is a prime electrical contractor that worked on Phase III of the renovation and restoration of historic Pier A in Battery Park (the Project), pursuant to a contract with respondent Battery Park City Authority (BPCA). On September 6, 2013, Crana received a letter of substantial completion from the Project's architect. On October 4 and 11, 2013, Crana submitted a "Proof of Claim" and a "Municipal Law Notice of Claim" respectively, to the BPCA and BPCA's Vice President, Internal Audit, seeking payment in the amount of $1,551,129.18. (Verified Petition, Exs A, B.) Crana asserts that, as a result of design changes, unanticipated remedial work, damage from Tropical Storm Sandy, and the replacement of the MEP Engineer, the General Contractor, and the Construction Manager, there were additional work and delays in Crana's work on the Project.

The parties' contract provides for a "Dispute Resolution Procedure" which is the "sole means for challenging any determination, order, or other action of the [BPCA] or otherwise asserting against [BPCA] any claim of whatever nature arising under, or in any way relating to, the [contract]." (Dawson 5/1/14 Aff., Ex 1.) Pursuant to the contract, the BPCA's "Vice President, Internal Audit" is named as the Arbiter, and his or her decision is reviewable in an Article 78 proceeding.

According to Crana, the BPCA's Vice President, Internal Audit has not rendered a decision.

On February 4, 2014, Crana commenced this hybrid proceeding-action (Motion Seq. No. 001). The first cause of action of the petition-complaint seeks $1,551,129.18 in damages plus interest, based on a breach of contract theory. The second cause of action seeks $1,551,129.18 in damages plus interest, based on quantum meruit. The third cause of action, entitled Mandamus Relief/Breach of Contract, asserts that "the Arbiter's failure to issue a decision was unlawful, irrational, arbitrary and capricious and therefore the Arbiter must issue a decision granting Crana the entirety of its claim." (Petition-Complaint ¶ 193.)

The BPCA moved to dismiss the hybrid proceeding-action on the ground that Crana has not exhausted its administrative remedies (Motion Seq. No. 002). The BPCA argued that Crana's claim was prematurely submitted to the Arbiter because the BPCA had not yet rendered its own final determination as to Crana's claim. (Dawson 3/28/14 Aff. ¶¶ 18-19.)

After a series of court conferences, the parties entered into a so- ordered stipulation dated June 26, 2014, which provides, in relevant part, "Respondent BPCA agrees to issue a [*3]determination on petitioner[']s pending claim on or before August 22, 2014." (NYSCEF Doc. No. 31.) The BPCA agreed to the stipulation to address the crux of this lawsuit, i.e., Crana's concern that "BPCA could indefinitely delay Crana's pursuit of its rights under the Disputes Resolution Procedures by not issuing a determination on Crana's proposals." (Respondents' Reply Mem. to Petitioner's Suppl. Mem, at 5.) Gwen Dawson Vice President, Real Property at the BPCA sent a letter to Crana dated August 21, 2014, which states, "This letter is Battery Park City Authority's ( BPCA') final determination with respect to Crana Electric Inc.'s ( Crana') outstanding change order proposals and request for additional compensation related to alleged delays on the Pier A core and shell construction project." (Dawson 4/17/15 Affirm., Ex 1.)

Pursuant to a so-ordered stipulation dated March 26, 2015, the parties agreed to submit supplemental papers. (NYSCEF Doc. No. 33.)In light of August 21, 2014 letter, the BPCA maintains that the matter is now ripe for presentation to the Arbiter; Crana is unmoved. Crana points out that the August 21, 2014 letter is not the "final determination" issued by the Arbiter. It maintains, as it did before, that the BPCA's determination was not a prerequisite to submit a claim to the Arbiter.

Crana also objects to Benjamin Jones, the BPCA's Vice President of Administration and Internal Audit, as the Arbiter.[FN1] The contract designates the BPCA's Vice President of Internal Audit as the Arbiter, and Crana believes that the BPCA does not have a Vice President of Internal Audit. Crana asserts that Jones is the Vice President of Administration only, based on publicly filed meeting minutes of the BPCA, and information contained on a website of the New York City's Department of Citywide Administrative Services.

II.

As an initial matter, courts have regarded the alternative dispute resolution provisions in similar contracts for public construction as akin to arbitration provisions. (See Yonkers Contr. Co., Inc. v Port Auth. Trans-Hudson Corp., 87 NY2d 927, 929-30 [1996]; Maross Constr. v Central NY Regional Transp. Auth., 66 NY2d 341, 344 [1985]; Lovisa Constr. Co., Inc. v Metropolitan Transp. Auth., 225 AD2d 740, 741 [2d Dept 1996] ["the subject arbitration provision precluded the plaintiff from maintaining this action"]; Phoenix Mar. Co., Inc. v New York City Tr. Auth., 4 Misc 3d 1014 (A) [Sup Ct, NY County 2004] ["the alternate dispute resolution clause found in the NYCTA's contracts has already been defined as a compulsory arbitration clause"].)

Nevertheless, "[t]he doctrine of exhaustion of administrative remedies applies to contractual provisions which provide for dispute resolution procedures as a condition precedent to any action or proceeding in the courts.'" (Matter of People Care Inc. v City of NY Human Resources Admin., 89 AD3d 515, 516 [1st Dept 2011], quoting Pantel v Workmen's Circle/Arbetter Ring Branch 281, 289 AD2d 917, 918 [3d Dept 2001].)

"The exhaustion rule, however, is not an inflexible one. It is subject to important qualifications. It need not be followed, for example, when an agency's action is challenged as either unconstitutional or wholly beyond its grant of power, or when resort to an administrative remedy would be futile or when its pursuit would cause irreparable injury."

(Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52, 57 [1978].) Here, the issues presented are whether Crana should have submitted its claim to the BPCA for a determination before submitting the claim to the Arbiter, and whether resort to the alternative dispute resolution procedures of the parties' contract would be futile.

A.

Section 27.12 of the contract, entitled "Disputes Resolution Procedure", sets forth a procedure for submitting "Dispute(s)" to an Arbiter, whose final determination is then reviewable in an Article 78 proceeding, as provided in Section 27.13 (d).

Section 27.12 sets forth the following steps for resolution of the parties' disputes prior to judicial review of the Arbiter's decision:[FN2]

(1) A party submits a Dispute Notice to the Arbiter within 10 days of the determination which is the subject of the Dispute;(2) Within 10 days after submission of the Dispute Notice, the party initiating the dispute must provide the Arbiter with evidence and other pertinent information;(3) Within 30 days from the date of the Dispute Notice, the party against whom the Dispute Notice is filed shall submit materials to the Arbiter;(4) Within 60 days of the receipt of all materials, the Arbiter renders a decision.

Section 27.13 (a) sets different deadlines for claims for "compensation for any damage or loss sustain by reason of any act, neglect, fault or default of Owner." For those claims, Crana must furnish a written notice to the Arbiter "within seven (7) days of the occurrence of such loss or damages" in lieu of a Dispute Notice. If Crana's claim for compensation or monetary damages depends upon a technical determination in its favor, then Crana must "first obtain[ ] a favorable determination with respect to the technical issue," and then must make such a claim to the Arbiter "within five (5) business days of such determination." [FN3]

The BPCA argues that it must render "a determination, order or action" before a Dispute Notice may be sent, because the contract defines "Dispute" as "challenging any determination, order or other action of the Owner [BPCA]." For the first time in reply, the BPCA further argues that, with respect to claims for extra work, Article 14 (a) (2) of the parties' contract requires that, if Crana believes that extra work is required, then Crana must "notify Owner, Construction Manager and Architect in writing within 72 hours of such determination, order or directive of its reasons for its opinion and request a final determination thereon by the Owner." (Respondents' Reply Mem. at 5; see also Respondents' Suppl. Mem. at 4; Respondents' Reply Mem. to Petitioner's Suppl. Mem., at 2.) The BPCA maintains that it advised Crana that it could not render the "final determination" under Article 14 (a) (2) until Crana provided additional information, which the BPCA says was not done until October 2013, when Crana submitted its "Proof of Claim" and exhibits.

The BPCA's reliance upon the definition of "Dispute" is misplaced. As Crana indicates, the contract also appears to define "Dispute" as "otherwise asserting against Owner any claim of whatever nature arising under, or in any way relating to, this Agreement." (Dawson 5/1/14 Aff., Ex 1, at 66-67.)

On the one hand, the BPCA's position—that a determination from the BPCA is a prerequisite to the alternative dispute resolution procedures under Article 27—finds support in [*4]the framework of deadlines set forth in Section 27.12 (c). The deadline to submit a "Dispute Notice" to the Arbiter is measured from the date of a determination, i.e., "within (10) days of the determination which is the subject of the Dispute." (Id.)

On the other hand, Crana persuasively argues that the BPCA could simply shut out Crana from seeking a remedy from the Arbiter by refusing to issue or delaying a determination indefinitely. Crana also points out that, for claims for compensation or money damages caused by "any act, neglect, fault or default" of the BPCA, the dispute resolution procedure under Section 27.13 is different from Section 27.12. Section 27.13 does not require a "Dispute" to be "initiated" after "the determination which is the subject of dispute," as set forth in Section 27.12. Instead, Section 27.13 requires written notice to the Arbiter "within seven (7) days of the occurrence of such loss or damages."[FN4]

Thus, the Court rejects the BPCA's contention that a determination from the BPCA is a prerequisite to any claim submitted to the Arbiter pursuant to Article 27.

A more difficult question is whether, under Article 14 (a) (2) of the contract, Crana was required to await a determination from the BPCA as to the performance of extra work before submitting a claim for extra work to the Arbiter. However, the question is academic. The BPCA rendered its determination on August 21, 2014.

B.

Citing Lehigh Portland Cement Co. v New York State Dept. Of Environmental Conservation (87 NY2d 136 [1995]), Crana emphasizes that any further proceeding would be futile based on BPCA's refusal to state when the Arbiter would decide the matter and because any review would be biased. (Petitioner's Suppl. Mem. at 7.)

The Court disagrees that resort to the contract's Disputes Resolution Procedure would be futile. Lehigh Portland Cement Company is distinguishable.

In Lehigh, the plaintiff submitted petitions to an agency for permission to use waste materials instead of raw materials in its cement manufacturing process. The plaintiff invoked the provisions of the Uniform Procedures Act, "which authorizes a procedure to induce prompt administrative determinations of permit applications." (Lehigh Portland Cement Co., 87 NY2d at 143-144.) However, the agency took the long-standing position that the Uniform Procedures Act did not apply to the Lehigh plaintiff's petitions. When the plaintiff brought a declaratory judgment action against the agency, the agency argued that the case should be dismissed because the plaintiff did not seek an administrative ruling as to the applicability of the Uniform Procedures Act to plaintiff's petitions. The Court of Appeals ruled that the pursuit of administrative remedies would have been futile, because of the agency's clear and unequivocal statement regarding its long-established position that it was not governed by certain statutory timeframes, which affected the status of plaintiff's claims. The Court noted that the agency's definitive position left the plaintiff "in the dark as to when it could expect" its application to be processed (id. at 141).

Here, the Disputes Resolution Procedure is unlike the administrative procedures in [*5]Lehigh. The administrative procedure in Lehigh involved obtaining a ruling from the agency's general counsel, who would have articulated the same agency position that had already been communicated to the plaintiff in Lehigh. By contrast, the Arbiter is not bound by the BPCA's determination of Crana's claim.

Neither is Crana "left in the dark" as to when it could expect its claim to be decided by the Arbiter. The BPCA rendered its determination on August 21, 2014; even the BPCA believes that a "Dispute" has ripened that Crana can submit to the Arbiter. (Respondents' Reply Mem. at 4.) The timelines are set forth in Section 27.12.

To the extent that Crana argues that the Disputes Resolution Procedure would be futile due to bias, its fear of bias is unpersuasive. First, the parties agreed that their disputes would be decided by an employee of the BPCA, the Vice President of Internal Audit. "[E]ven in cases where the contract expressly designated a single arbitrator who was employed by one of the parties or intimately connected with him, the courts have refused to disqualify the arbitrator on the ground of either interest or partiality." (Westinghouse Elec. Corp. v New York City Tr. Auth., 82 NY2d 47, 54 [1993].) Second, the fear of bias is premised only on delay, and there is nothing in the record to indicate that the Arbiter is refusing to issue a determination on Crana's claim.

C.

Section 27.12 (a) clearly states that the provisions of Article 27 are Crana's "sole means for . . . asserting against [BPCA] any claim of whatever nature arising under, or in any way relating to, this Agreement." As the BPCA indicates, Crana did not obtain a determination from the Arbiter before resorting to the courts. Therefore, Crana's causes of action for breach of contract and quantum meruit must be dismissed. (Laquila Constr. v New York City Tr. Auth., 282 AD2d 331, 332 [1st Dept 2001]; see Westinghouse Elec. Corp., 82 NY2d at 55.)

The third cause of action is a peculiar blend of mandamus to compel, mandamus to review, and breach of contract. The third cause of action alleges that the Arbiter's failure to issue a timely decision was "unlawful, irrational, arbitrary and capricious", and therefore seeks an order compelling the Arbiter to issue a decision in Crana's favor. Crana argues that an Article 78 proceeding is appropriate "when a body fails, in violation of its obligations, to issue a determination." (Petitioner's Mem. in Further Support, at 11.)[FN5]

To the extent that the third cause of action seeks mandamus to review under the "arbitrary and capricious" standard, review implies that the Arbiter must have rendered a determination. The contract does not provide that the lack of any determination would itself constitute a determination that is reviewable, i.e., a de facto denial of Crana's claim. Because the [*6]Arbiter has not rendered a final determination as to Crana's claim, the Arbiter's determination is not ripe for review. (Church of St. Paul and St. Andrew v Barwick, 67 NY2d 510, 521 [1986].)

Citing CPLR 7503, Crana argues that the proper procedure would be to stay the hybrid proceeding-action pending a determination of the Arbiter, were the Court to find this hybrid proceeding-action to be premature. However, Crana did not bring a petition to compel arbitration pursuant to CPLR 7503. As discussed above, the Arbiter's determination is not ripe for review. In such circumstance, it is appropriate to dismiss the proceeding. Otherwise, to stay this proceeding would create confusion as to whether an Article 78 proceeding for review of the Arbiter's determination was timely commenced, because this hybrid proceeding-action would predate the Arbiter's determination.

To the extent that Crana seeks mandamus to compel,

"An article 78 proceeding may lie in the absence of a final determination where the relief sought is by way of mandamus to compel performance by an administrative agency of a duty enjoined by law. Mandamus for such purpose, however, lies only where the right to relief is clear' and the duty sought to be enjoined is performance of an act commanded to be performed by law and involving no exercise of discretion."

(Hamptons Hosp. & Med. Ctr., Inc. v Moore, 52 NY2d 88, 96 [1981].) Here, the Arbiter's duty to issue a determination within 60 days of the receipt of all materials of Crana's is one founded on the parties' contract, not a duty commanded by law.[FN6]

However, CPLR 103 (c) grants the Supreme Court "the authority to treat the CPLR article 78 proceeding as an application pursuant to CPLR article 75." (Matter of Rodriguez v New York City Tr. Auth., 269 AD2d 600, 600-01 [2d Dept 2000].) Accordingly, pursuant to CPLR 103 (c), this Court will treat that part of the third cause of action which seeks mandamus to compel the Arbiter to issue a decision, as an application pursuant to CPLR 7506 (b), to direct the Arbiter to proceed promptly with the hearing and determination of the controversy.

CONCLUSION

Accordingly, it is hereby

ORDERED that respondents/defendants' motion to dismiss (Motion Seq. No. 002) is granted in part, and the first and second causes of action of the petition-complaint are dismissed, and so much of the third cause of action that alleges breach of contract and seeks mandamus to review is dismissed, and the motion is otherwise denied; and it is further

ORDERED that respondents are directed to answer the remainder of

the third cause of action of the petition-complaint (as converted to a petition seeking relief under CPLR 7506 [b]) within 30 days of service a copy of this decision and order with notice of entry; and it is further

ORDERED that the petition-complaint (Motion Seq. No. 001) is ADJOURNED and RECALENDARED to April 14, 2016 at 9:45 a.m. in IAS Part 21, 80 Centre St Room 278 for submission only of respondents' answer and petitioner's reply, if any.

Dated: February 2, 2016

New York, New York

ENTER:



/s/

J.S.C. Footnotes

Footnote 1:By a so-ordered stipulation dated May 8, 2015, the parties consented to the submission of additional papers on this issue. (NYSCEF Doc. No. 54.)

Footnote 2:Section 27.12 states, in relevant part: "(a) The provisions of this Article [Article 27] shall constitute Contractor's [Crana's] sole means for challenging any determination, order or other action of the Owner [BPCA] or otherwise asserting against Owner any claim of whatever nature arising under, or in any way relating to, this Agreement (any such challenge or assertion by Contractor being herein referred to as a Dispute(s)'). Exhaustion of these dispute resolution procedures, including the judicial review set forth below, shall be the parties' sole remedy in connection with any Dispute. (b) The parties to this Agreement hereby authorize and agree to the resolution of all Disputes arising out of, under or in connection with, this Agreement in accordance with the following and pursuant to the procedures set forth in paragraph (c) of this Section 27.12. With respect to any Dispute which relates in whole or primary part to a technical issue(s) under this Agreement including, without limitation, determinations as to the acceptability of fitness of any Work, the meaning or interpretation of the Contract Documents, the question of whether any Work falls within the scope of the Specifications as set forth in the Contract Documents, the acceptability of any proposed substitutions, modifications or other submission under this Agreement, the disapproval of proposed Subcontractors or Materialmen (to the extent that such disapproval is related to technical issues), the extension of time to the extent related to a technical matter, the question of whether Substantial Completion or Final Completion has been achieved. The parties hereby authorize the Vice President, Internal Audit of the Owner (hereinafter referred to as the Arbiter'), acting personally, to render a final and binding decision. (c) All Disputes shall be initiated through written submission by either party (such submission to be hereinafter referred to as the Dispute Notice') to the Arbiter within ten (10) days of the determination which is the subject of the Dispute. Within ten (10) days after the submission of such Dispute Notice, the party initiating the Dispute shall provide the Arbiter with all evidence and the other pertinent information in support of the party's position and/or claim. Within thirty (30) days from the date of the Dispute Notice, the party against whom the Dispute Notice was filed shall submit any and all materials which it deems pertinent to the Arbiter. Upon submission of a Dispute Notice to the Arbiter, the Arbiter shall render its decision in writing and deliver a copy of the same to the parties within a reasonable time not to exceed sixty (60) days after the receipt of all materials. . . ." (Dawson 5/1/14 Aff., Ex 1, at 66-67.)

Footnote 3:The BPCA does not assert that Crana's claim depended upon a technical determination in its favor.

Footnote 4:If a claim for compensation or monetary damages necessarily depends upon a technical determination favorable to Crana, Section 27.13 (b) requires Crana to first obtain a favorable determination with respect to the technical issue, which "must be made within five (5) business days of such determination."

Footnote 5:Had Crana opted to seek relief under CPLR Article 75 to deal with the delay in getting a determination from the Arbiter, its entitlement to relief might have been more straightforward. CPLR 7506 (b) states, in pertinent part, "The court, upon application of any party, may direct the arbitrator to proceed promptly with the hearing and determination of the controversy." The issue of whether Benjamin Jones was properly appointed as Arbiter is addressed in CPLR 7504. "CPLR 7504 authorizes a court to appoint an arbitrator only if the parties fail to designate an arbitrator, or if for some reason the parties' method of selection cannot be followed, or the selected arbitrator fails to act." (13-7504 Weinstein-Korn-Miller, NY Civ Prac CPLR ¶ 7504.01.)

Footnote 6:" [T]here are circumstances in which the same governmental action may constitute a violation of contract and also be of a character that would support a claim for article 78 relief.' However, the issues presented in a contract action differ significantly from those presented in an article 78 proceeding . . . Stated differently, where the focus of the controversy is on an agency's breach of an express contractual right, or on the agency's violation of the implied obligations of good faith, fair dealing and cooperation, a contract action is the recommended remedy." (Abiele Contr. v New York City School Constr. Auth., 91 NY2d 1, 8 [1997] [emphasis added; internal quotation marks and citations omitted].)