Christ Gatzonis Elec. Contractor, Inc. v. New York City School Const. Authority

• Decision Date: 26 April 1994
• Docket Number: No. 1024,D,1024
• Citation: 23 F.3d 636
• Parties: 91 Ed. Law Rep. 472 CHRIST GATZONIS ELECTRICAL CONTRACTOR, INC., Evangelos Gatzonis and Dina Gatzonis, Plaintiffs-Appellants, v. NEW YORK CITY SCHOOL CONSTRUCTION AUTHORITY, Barry E. Light, and Alan Marinoff, Defendants-Appellees. ocket 93-9017.
• Court: U.S. Court of Appeals — Second Circuit

Page 636

23 F.3d 636

91 Ed. Law Rep. 472

CHRIST GATZONIS ELECTRICAL CONTRACTOR, INC., Evangelos Gatzonis and Dina Gatzonis, Plaintiffs-Appellants, v. NEW YORK CITY SCHOOL CONSTRUCTION AUTHORITY, Barry E. Light and Alan Marinoff, Defendants-Appellees.

No. 1024, Docket 93-9017.

United States Court of Appeals Second Circuit.

Argued Jan. 10, 1994.

Decided April 26, 1994.

Carter G. Phillips, New York City (Sidley & Austin, New York City, of counsel), for plaintiffs-appellants.

George Gutwirth, New York City (O. Peter Sherwood, Corp. Counsel of the City of New York, of counsel, Francis Caputo, Marilyn Schechter, on the brief), for defendants-appellees.

Before: WINTER, WALKER and JACOBS, Circuit Judges.

JACOBS, Circuit Judge:

The New York City School Construction Authority (the "SCA") has suspended all payments under nearly thirty contracts for work completed or substantially completed by plaintiff-appellant Christ Gatzonis Electrical Contractor, Inc. ("Gatzonis Electric"). The SCA took that action immediately after plaintiff-appellant Evangelos Gatzonis, the president of Gatzonis Electric, was arrested on charges of bribing an SCA official in a bid rigging scheme to secure a contract for his company. The bribery allegedly achieved the award of a single contract executed on March 17, 1992.

Gatzonis Electric commenced an action pursuant to 42 U.S.C. Sec. 1983 claiming that the SCA's failure to make payments promptly for work done on contracts other than the March 17 contract constitutes a deprivation of property without procedural or substantive due process. The United States District Court for the Eastern District of New York (Sifton, J.) dismissed the complaint for failure to state a claim, holding that, even if Gatzonis Electric had a constitutionally protected property interest in prompt payment, the SCA afforded Gatzonis Electric all the process it was due under the Fourteenth Amendment.

Without reaching the issue that was dispositive in the district court, we affirm on the threshold ground that Gatzonis Electric has no property interest in the prompt payment of monies allegedly due under the various SCA contracts.

BACKGROUND

The SCA, a public benefit corporation established pursuant to Public Authorities Law Secs. 1727 et seq., employs private contractors to carry out construction and repair work at educational facilities in New York City.

The contractors are selected through a stringent bid process designed in part to counteract corruption in New York's construction industry. Under a system called "prequalification," the SCA accepts bids only from those contractors satisfying established criteria concerning experience, past performance, and "financial capability, responsibility and reliability". N.Y.Pub.Auth.Law Sec. 1734(3)(b) (McKinney's Supp.1993). Contractors deemed to lack sufficient business integrity are precluded from bidding on SCA projects.

Gatzonis Electric is an electrical contractor which has obtained roughly thirty contracts with the SCA through the bid process. Evangelos Gatzonis is the owner and president of Gatzonis Electric; and plaintiff-appellant Dina Gatzonis (his wife) is a co-signatory on Gatzonis Electric's bonding indemnification agreements executed on all SCA contracts.

On or about April 20, 1993, Evangelos Gatzonis was arrested on charges of bid-rigging and bribery in connection with a contract executed between Gatzonis Electric and the SCA on March 17, 1992 (the "March 17 contract"). According to the criminal complaint, a scheme was devised in February of 1992 whereby a Gatzonis Electric official paid an SCA employee $4,000 to manipulate the bid process in favor of Gatzonis Electric. The SCA employee agreed to open Gatzonis Electric's bid last, and to alter the Gatzonis Electric bid to closely undercut the lowest bidder. At the time of this appeal, the criminal charges were still pending.

On the day the criminal charges were announced, the SCA sent a letter offering Evangelos Gatzonis an opportunity "to dispute whether in fact there are pending criminal charges" or to present "any additional information." Evangelos Gatzonis let that opportunity pass. Three days later, on April 23, 1993, school custodians acting under the direction of the SCA barred Gatzonis Electric from entering job sites to perform contract work. On April 27, 1993, the SCA began sending faxed notices ordering Gatzonis Electric "to discontinue all activities" on each of the uncompleted SCA projects. Thereafter, the SCA has refused to honor any of the payment requisitions submitted by Gatzonis Electric.

Gatzonis Electric immediately requested a meeting to discuss the status of its outstanding contracts and the payment of funds for work performed under them. By letter dated May 18, 1993, the SCA declined to meet, curtly advising that "the Authority will contact you if it considers a meeting warranted." The SCA never contacted Gatzonis Electric.

On June 1, 1993, Gatzonis Electric commenced an action in the United States District Court for the Eastern District of New York (Sifton, J.), seeking a preliminary injunction enjoining the SCA from withholding payments. The complaint, as amended June 18, 1993, claims that Gatzonis Electric is entitled to the prompt payment of $1,325,375.93 for work completed or partially completed under 27 different SCA contracts; there is no claim for money due on the March 17 contract that gave rise to the criminal charges. Gatzonis Electric calculates the amount due and owing as follows: (i) $484,088.56 for previously approved progress payments; (ii) $487,225.76 for substantially complete or completed projects; and (iii) $354,061.61 for work that is in the "process of billing." Gatzonis Electric argues that, because it has a constitutionally protected property interest in these funds, the SCA's nonpayment constitutes a deprivation of property without procedural or substantive due process, in violation of 42 U.S.C. Sec. 1983. There is no claim for breach of contract.

In the district court, the SCA asserted that plaintiffs' claims are exaggerated and that in fact the SCA owes nothing net of its demands against Gatzonis Electric. As to three of the contracts, the SCA argues that Gatzonis Electric is the subcontractor and therefore must seek payment from the primary contractor, not the SCA. As to a number of other contracts, the SCA contends that the work has not been substantially completed; and as to contracts on which work has been substantially completed, the SCA asserts the right to withhold four times the value of uncompleted tasks. The SCA contests Gatzonis Electric's claim that $484,088.56 in progress payments has been approved, asserting that the amount does not exceed $176,137. The SCA also asserts that the March 17 contract and the four other contracts entered into after the bid-rigging scheme began in February 1992 were fraudulently induced because the SCA would have disqualified Gatzonis Electric from bidding on any contracts had it known of the corruption. Since the SCA claims that it has rescinded the five post-February 1992 contracts, it asserts that Gatzonis Electric owes restitution to the SCA for the $2,442,313 already paid out on these contracts.

On July 2, 1993, the district court denied Gatzonis Electric's motion for a preliminary injunction, finding that (i) Gatzonis Electric failed to make a sufficient showing of irreparable harm, and (ii) even if Gatzonis Electric had made such a showing, it failed to demonstrate a likelihood of success on the merits in respect of its Sec. 1983 claim. In particular, the district court found that Gatzonis Electric and the other plaintiffs had not shown "a Gatzonis Electric appeals.

                substantial likelihood of prevailing on their claim that the contractual rights at issue here arise to the level of a constitutionally protected property interest."   Then, on September 17, 1993, the district court granted the SCA's motion to dismiss the complaint for failure to state a claim.  See Fed.R.Civ.P. 12(b)(6).  Assuming that Gatzonis Electric was actually owed money under the SCA contracts and that such a contractual entitlement amounted to a constitutionally protected property interest, the district court ruled nevertheless that Gatzonis Electric was denied neither procedural nor substantive due process
                

DISCUSSION

We review de novo the dismissal of a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In re Ames Dep't Stores Inc. Stock Litigation, 991 F.2d 953, 963 (2d Cir.1993). Such a dismissal is warranted only where plaintiffs can prove no set of facts in support of their claim that would entitle them to relief. Id.

Gatzonis Electric argues that the SCA's refusal to pay promptly the amounts owed under the various SCA contracts constitutes a deprivation of property without due process of law. That claim fails because Gatzonis Electric cannot establish a constitutionally protected property interest in prompt payment under the SCA contracts. ¹ "To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). The critical inquiry under Roth is whether Gatzonis Electric's contractual relationships with the SCA create a "legitimate claim of entitlement" to prompt payment and thus a constitutionally protected property interest.

"It is well established that a contractor has a right to timely payment for work it performs under a contract with a state agency, and that such right is a property interest protected by the due process clause." General Elec. v. New York State Dep't of Labor, 936 F.2d 1448, 1453 (2d Cir.1991). This property interest, however, arises only where there exists "a contractual or state law entitlement to prompt payment." S & D...