Abiele Contracting, Inc. v. New York City School Const. Authority

• Decision Date: 28 October 1997
• Citation: 689 N.E.2d 864,666 N.Y.S.2d 970,91 N.Y.2d 1
• Parties: , 689 N.E.2d 864, 123 Ed. Law Rep. 1241, 1997 N.Y. Slip Op. 8870 ABIELE CONTRACTING, INC., Appellant, v. NEW YORK CITY SCHOOL CONSTRUCTION AUTHORITY, Respondent. (And a Related Action.)
• Court: New York Court of Appeals Court of Appeals

Page 970

666 N.Y.S.2d 970

91 N.Y.2d 1, 689 N.E.2d 864, 123 Ed.

Law Rep. 1241,

1997 N.Y. Slip Op. 8870

ABIELE CONTRACTING, INC., Appellant, v. NEW YORK CITY SCHOOL CONSTRUCTION AUTHORITY, Respondent (And a Related Action.)

Court of Appeals of New York.

Oct. 28, 1997.

Alvy, Tablante & Agovino, L.L.P., Great Neck (Peter L. Agovino and Norman D. Alvy, of counsel), and Meyer, Suozzi, English & Klein, P.C., Mineola (Bernard S. Meyer, of counsel), for appellant.

Paul A. Crotty, Corporation Counsel of New York City (Alan G. Krams, Kristin M. Helmers and Marilyn M. Schechter, of counsel), for respondent.

Hart & Hume, L.L.P., New York City (Henry James Wallach, of counsel), for Surety Association of America, amicus curiae.

OPINION OF THE COURT

SMITH, Judge.

The primary issue presented on this appeal is whether a municipal agency's determination of default and subsequent termination of contract with its general contractor was reviewable only in a CPLR article 78 proceeding, and therefore not subject to a plenary action instituted by the general contractor. We hold that since the municipal agency had neither statutory nor contractual authority to render a quasi-judicial determination, it was not empowered to issue a final and binding determination of default reviewable only in an article 78 proceeding. Thus, a plenary action sounding in contract is not precluded under the circumstances presented here.

I.

On May 17, 1990, plaintiff Abiele Contracting, Inc., was awarded a contract by defendant, the New York City School Construction Authority (the SCA), to renovate and modernize the facilities at Samuel J. Tilden High School in Brooklyn for approximately $16.4 million. Abiele commenced performance under the contract soon thereafter. Over the course of two years, the renovation of Tilden High School was plagued with complications including staff turnover, multiple site and design conflicts, and numerous changes in scheduling and in the scope of work. The SCA attributed these problems to Abiele's lack of planning, failure to follow instructions and inadequate staffing. Abiele, in response, traced the problems to the SCA's lethargic response to expressed concerns and its failure to grant Abiele access to certain work areas. Not surprisingly, conflicts arose between the parties over costs and payments.

In November 1992, the SCA proposed that the construction contract be closed out "on consent" and offered to pay Abiele $2 million to achieve that end. Abiele rejected the offer on the ground that it was owed more than $5 million for unpaid work and materials. The parties met in early January 1993 to continue negotiations and to review the status of Abiele's performance. When negotiations failed, the SCA's Chief Project Officer directed Abiele, by letter dated January 14, 1993, to cease all work at the site pending a scheduled meeting of the SCA's Default Committee. ¹ The letter asserted 11 proposed grounds for termination and stated that the Committee would convene to consider whether Abiele should be terminated for cause pursuant to article 9 of the contract and whether it would be barred from bidding, contracting and subcontracting on future contracts with the SCA. Abiele was advised that it could attend the meeting, with counsel, to present its position.

The Default Committee and Abiele met on January 29, February 11, 18, and 19, 1993. During those sessions, Abiele contested virtually all of the SCA's allegations of its substandard performance. Both parties submitted numerous memoranda and exhibits in support of their respective positions and both parties called several witnesses. No transcript or record of the proceedings exists. On April 23, 1993, Abiele was notified that its contract with the SCA had been terminated for cause and it would be barred from bidding, contracting or subcontracting on any SCA contracts for three years. The written decision enumerated the grounds for termination while also finding some claims against Abiele to be unsubstantiated. Abiele appealed its termination and debarment to the president of the SCA, but on June 10, 1993, Abiele's appeal was denied.

On October 22, 1993, Abiele commenced a plenary action against the SCA seeking money damages for breach of the contract. In moving for summary judgment, the SCA argued that since plaintiffs had failed to challenge the administrative finding of default in an article 78 proceeding, they were bound by that determination and could not attempt a collateral attack upon the default determination by instituting a plenary action. Supreme Court granted SCA's motion for summary judgment. The court concluded that an article 78 proceeding was the appropriate mechanism by which to contest the SCA's default determination and a failure to do so "precludes a plenary action for damages and has res judicata effect."

The Appellate Division affirmed and held that the initiation of an article 78 proceeding was a prerequisite to recovery. The Court also reasoned that since the plenary action was "framed * * * in terms of wrongful termination of contract" it was nothing more than a collateral attack on the Default Committee's finding, and was therefore barred (232 A.D.2d 440, 441, 648 N.Y.S.2d 468). This Court granted leave to appeal.

II.

We have recognized that "there 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" (Matter of Goodstein Constr. Corp. v. Gliedman, 117 A.D.2d 170, 176, 502 N.Y.S.2d 136 [Sandler, J.P., concurring], affd. 69 N.Y.2d 930, 516 N.Y.S.2d 655, 509 N.E.2d 350). However, the issues presented in a contract action differ significantly from those presented in an article 78 proceeding. When the damage allegedly sustained arises from a breach of the contract by a public official or governmental body; then the claim must be resolved through the application of traditional rules of contract law. On the other hand, when a petitioner asserts that the determination of a governmental body or public official is "in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion" and seeks nullification of same, then an article 78 proceeding is the appropriate vehicle through which the claim may be addressed (CPLR 7803).

Thus, where the language of the complaint asserts violations of a plaintiff's rights under a contract and the primary thrust of the allegations is in contract, a plenary action sounding in contract is the appropriate remedy. 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's complaint contains allegations of a breach of an express contractual term requiring notice and an opportunity to cure as well as allegations of conduct on the part of the SCA which sufficiently raise the spectre that the agency violated its obligation to act in good faith. ² Whether or not Abiele ultimately prevails on its claims, clearly the nature of the allegations here indicates that a plenary action sounding in contract is the appropriate remedy.

III.

A municipal agency's finding that a general contractor has defaulted on its performance under the contract will not bind the general contractor, and foreclose a plenary action, unless the agency is endowed with contractual or statutory authority to render a quasi-judicial, final and binding determination. While defendant correctly notes that judicial review of administrative actions is generally achieved through an article 78 proceeding, the administrative action must, as a prerequisite, be authorized (see, Matter of Foy v. Schechter, 1 N.Y.2d 604, 612, 154 N.Y.S.2d 927, 136 N.E.2d 883; Allied Chem. v. Niagara Mohawk Power Corp., 72 N.Y.2d 271, 276, 532 N.Y.S.2d 230, 528 N.E.2d 153, cert. denied 488 U.S. 1005, 109 S.Ct. 785, 102 L.Ed.2d 777). We conclude that the SCA had neither statutory nor contractual authority to render a binding administrative determination in this case and, thus, Abiele was not precluded from challenging the default finding in a contract action.

The SCA relies primarily on terms within the written agreement between the parties which, it claims, granted it the requisite authority to render a final and binding determination. Specifically, the SCA points to section 9.01 of the standard form construction contract, entitled "Termination for Cause," as the source of its power. This provision states, in relevant part, that if

"a substantial violation of a material provision hereunder shall have occurred due to the fault of the Contractor and the Contractor shall fail to cure such default within ten (10) days after receipt of Notice from [the SCA] specifying the nature of such default * * * then [the SCA] may, in addition to all other rights [the SCA] may have as provided by law, terminate the Contract by giving not less than ten (10) days' Notice of termination to the Contractor, whereupon the Contract shall be deemed terminated at the end of such Notice period." ³

Unless statutory language or public policy dictates otherwise, the terms of a written agreement define the rights and obligations of the parties to the agreement (see, Westinghouse Elec. Corp. v. New York City Tr. Auth., 82 N.Y.2d 47, 55, 603 N.Y.S.2d 404, 623 N.E.2d 531). We have long held that the fundamental objective when interpreting a written contract is to determine the intention of the parties as derived from the language employed in the contract (see, Morlee Sales Corp. v. Manufacturers Trust Co., 9 N.Y.2d 16, 19, 210 N.Y.S.2d 516, 172 N.E.2d 280). Similarly, where the parties have agreed to conduct themselves in accordance with the rights and duties expressed in a contract, a court should strive to give a fair and...