Perini Corp. v. City of N.Y. (Honeywell St. and Queens Blvd. Bridges)

• Decision Date: 16 March 2010
• Citation: 897 N.Y.S.2d 860,27 Misc.3d 813
• Parties: PERINI CORPORATION, Plaintiff, v. CITY OF NEW YORK (Honeywell Street and Queens Boulevard Bridges), Defendant.
• Court: New York Supreme Court

897 N.Y.S.2d 860
27 Misc.3d 813

PERINI CORPORATION, Plaintiff,
v.
CITY OF NEW YORK (Honeywell Street and Queens Boulevard Bridges), Defendant.

Supreme Court, New York County, New York.

March 16, 2010.

897 N.Y.S.2d 861

Howard Jacobowitz, Esq., McDonough Law Firm, LLP, New Rochelle, for plaintiff.

Susan Smollens, ACC, Corporation Counsel, New York, for defendant.

BARBARA JAFFE, J.

27 Misc.3d 814

By notice of motion dated September 18, 2009, defendant moves pursuant to 22 NYCRR 202.21(e) for an order vacating plaintiff's note of issue and certificate of

897 N.Y.S.2d 862

readiness for trial and

27 Misc.3d 815

pursuant to CPLR 3025(b) for an order granting it leave to amend its answer to plaintiff's amended complaint. Plaintiff opposes the motion and, by notice of cross-motion dated November 17, 2009, moves for an order declaring unconstitutional a New York State and City program that requires participants to award a percentage of work on construction projects to disadvantaged business enterprise contractors (DBE subcontractors).

I. BACKGROUND

Since 1980, recipients of grants from the United States Department of Transportation (USDOT) must establish programs that are specifically designed to award a percentage of work on construction projects to DBE subcontractors. (Affirmation of Susan Smollens, Esq., dated Sept. 18, 2009 [Smollens Aff.] ). New York State and New York City have incorporated the federal requirements and jointly developed such a program, the New York DBE program. ( Id.).

In 1999, the federal DBE regulation was modified to "narrowly tailor" the federal DBE program. (64 FR 5096, 1999 WL 40535).

In 1999, the parties entered into a contract whereby plaintiff agreed to perform services related to the reconstruction of the Honeywell Street and Queens Boulevard Bridges. (Smollens Aff.). In Section H of the addendum to the contract, defendant accepted plaintiff's proposal for the project conditioned on plaintiff's satisfaction of the New York DBE program's requirements. ( Id., Exh. H). In April 1999, plaintiff submitted its bid and DBE plan for the project and in June 1999, was awarded the contract. ( Id., Exhs. J, K; Plaintiff's Memo. of Law, dated Nov. 5, 2009).

On June 2, 2003, plaintiff commenced an action against defendant for breach of the contract and, on or about October 21, 2003, filed an amended complaint seeking damages of over $16 million, alleging that defendant failed to pay it an equitable adjustment for damages caused by certain work conditions, and to apprise it of conditions that affected and delayed its work. ( Id., Exh. B). On or about January 21, 2004, defendant filed its answer denying liability. ( Id., Exh. C).

On or about May 11, 2004, the parties executed a Memorandum of Understanding (2004 Memorandum) by which, pursuant to section three, they agreed that it and plaintiff's actions thereunder "would be deemed to satisfy the DBE requirements in the Contract fully and completely." (Affidavit of Arthur G. Folster, dated Nov. 17, 2009 [Folster Affid.], Exh. A).

27 Misc.3d 816

On or about December 18, 2008, a federal grand jury indicted two of plaintiff's former officers on charges of conspiracy, mail fraud, wire fraud, and money laundering in connection with federally-funded contracts entered into by plaintiff between 1998 and 2000, including the contract at issue. (Smollens Aff., Exh. A). The indictment was unsealed on March 2, 2009. (Smollens Aff.).

The indictment charges the officers with conspiring with other contractors to implement the New York DBE program falsely. Pursuant to this alleged "fronting" conspiracy, non-DBE subcontractors agreed, in exchange for money, to list their employees on the payrolls of the DBE subcontractors, and the DBE subcontractors agreed to submit false invoices to plaintiff for materials and work actually performed by the non-DBE subcontractors, which plaintiff paid with knowledge of the fraud. Between 2001 and 2007, three of the DBE subcontractors hired by plaintiff either pleaded guilty to or were indicted for conspiracy

897 N.Y.S.2d 863

and other charges related to the scheme to defraud the New York DBE program. (Smollens Aff., Exh. A).

On or about August 28, 2009, plaintiff filed a certificate of readiness and note of issue, in which it stated, as pertinent here, that all discovery was complete except for defendant's request to depose a non-party witness and documents sought in defendant's Supplemental Notice to Produce. ( Id., Exh. F). On or about September 10, 2009, plaintiff served its response to defendant's Supplemental Notice to Produce. ( Id., Exh. G). The deposition of the non-party witness has not yet been held.

II. MOTION TO VACATE THE NOTE OF ISSUE

A. Contentions

Defendant relies on plaintiff's acknowledgment in its certificate of readiness that discovery is not complete, and maintains that plaintiff's response to the supplemental discovery demands is insufficient absent most of the requested documents. Defendant thus argues that the note of issue must be vacated. (Smollens Aff.).

Plaintiff denies that its certificate of readiness is incorrect, alleging that it has produced more than 4,500 documents and asks that as defendant has not accepted any of the dates it proposed for the non-party witness' deposition, it should be conducted through written questions. (Folster Affid.).

Defendant observes in reply that plaintiff has not disputed that discovery is incomplete and rejects plaintiff's request to

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depose the witness by written questions. (Reply Affirmation of Susan Smollens, Esq., dated Dec. 14, 2009 [Smollens Reply Aff.] ).

B. Analysis

Pursuant to 22 NYCRR 202.21(e), a note of issue may be vacated if "it appears that a material fact in the certificate of readiness is incorrect ..." As it is undisputed that a deposition remains outstanding, a material fact in plaintiff's certificate of readiness is incorrect, and thus, the motion to vacate the note of issue is granted. ( Gomes v. Valentine Realty LLC, 32 A.D.3d 699, 822 N.Y.S.2d 2 [1st Dept. 2006] [court erred in denying defendant's motion to vacate note of issue as certificate of readiness contained incorrect assertions, including that discovery was complete]; Vargas v. Villa Josefa Realty Corp., 28 A.D.3d 389, 815 N.Y.S.2d 30 [1st Dept. 2006] [motion to vacate note of issue granted where defendant showed that certificate of readiness was incorrect] ).

A party seeking a non-party witness' deposition has the option of conducting the deposition by oral or by written questions. (CPLR 3108; Lane Bryant, Inc. v. Cohen, 86 A.D.2d 805, 452 N.Y.S.2d 573 [1st Dept. 1982] ). Consequently and notwithstanding the parties' inability to choose a date for the deposition, defendant need not accept plaintiff's request that it depose the witness by written questions. (CPLR 3108).

III. MOTION TO AMEND

A. Contentions

Having learned, relatively recently, of the indictment of plaintiff's officers, defendant moves to amend its answer to include affirmative defenses of fraud in the inducement and fraud or illegality in the performance of the contract and counterclaims for same. ( Id., Exh. A). It denies that plaintiff will be prejudiced as it knew of the impending indictment and that if the note of issue is vacated, discovery will continue.

Plaintiff argues that as any cause of action for fraud accrued no later than

897 N.Y.S.2d 864

2002, and that defendant knew or should have known of it by then, the statute of limitations has expired and the cause of action for fraud must fail due to defendant's laches. It maintains that an allegation of fraud may not be based on future intentions or promises, such as its contractual agreement to comply with the New York DBE program, and that pursuant to the 2004 Memorandum, defendant acknowledged that it had

27 Misc.3d 818

satisfied the program's requirements, thus estopping it from alleging that plaintiff committed fraud. It also asserts that its allegedly fraudulent acts cannot be used as a basis for avoiding liability as the contract was executed more than 10 years ago, and that in any event, the New York DBE program is unconstitutional because it is based on an unconstitutional federal regulation. In the alternative, plaintiff argues that if defendant's motion to amend its answer is granted, the court should sever the new counterclaims. (Folster Affid.).

In reply, defendant denies having learned of plaintiff's fraud prior to or at the time of the 2004 Memorandum, that the statute of limitations has expired, or that its claim of fraud is barred by laches, and claims that plaintiff's argument that the contract calls for future performance is irrelevant, as is the regulation's constitutionality. Rather, defendant asserts that the primary issue is whether plaintiff falsely represented that it intended to comply with the New York DBE program. It also observes that plaintiff neither alleges nor demonstrates that any prejudice results from the requested amendment. ( [Smollens Reply Aff.] ).

B. Analysis

Pursuant to CPLR 3025(b), a party may amend its pleading at any time by leave of the court, which is "freely...