Citiwide News, Inc. v. New York City Transit Authority

• Decision Date: 03 July 1984
• Citation: 62 N.Y.2d 464,478 N.Y.S.2d 593,467 N.E.2d 241
• Parties: , 467 N.E.2d 241 In the Matter of CITIWIDE NEWS, INC., Respondent, v. NEW YORK CITY TRANSIT AUTHORITY et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 593

478 N.Y.S.2d 593

62 N.Y.2d 464, 467 N.E.2d 241

In the Matter of CITIWIDE NEWS, INC., Respondent, v. NEW YORK CITY TRANSIT AUTHORITY et al., Appellants.

Court of Appeals of New York.

July 3, 1984.

Gerald D. Roth, Stephen Sussman and Seth J. Cummins, New York City, for New York City Transit Authority and another, appellants.

Stephen H. Penn and Brian Weiss, New York City, for Kapoor Brothers, Inc., appellant.

Herman Badillo, Kenneth G. Schwarz and Stuart F. Gruskin, New York City, for respondent.

Frederick A.O. Schwarz, Jr., Corporation Counsel, New York City (June A. Witterschein and Stephen J. McGrath, New York City, of counsel), for City of New York, amicus curiae.

OPINION OF THE COURT

WACHTLER, Judge.

Subdivision 1 of section 1209 of the Public Authorities Law provides that a contract for public work in excess of a specified cost may be entered into by the New York City Transit Authority (Authority) only after competitive bidding procedures have been followed. This appeal raises the question whether a license agreement, having as its predominant focus the use of real property and the operation of a specified business thereon, is subject to the competitive bidding requirements by reason of the agreement's provision that the licensee must construct certain improvements and rehabilitate or repair existing facilities in connection with its use of the property.

In the latter part of 1982, the Authority advertised its intention to seek qualified persons or firms to offer proposals for a long-term license to operate newsstands in the New York City subway system. Interested parties were invited to submit proposals. Those who qualified, in terms of their financial and business ability to undertake the project, would be permitted to submit bids for the license. Several firms were found to be qualified, including petitioner Citiwide News, Inc. (Citiwide), and respondent Kapoor Brothers, Inc. (Kapoor).

Thereafter, the Authority issued to each of the qualified firms a formal invitation to submit bids. The Request for Proposals (RFP), in addition to setting forth the requirements for the operation and maintenance of the newsstands, details the obligations to be undertaken by the proposer in connection with the rehabilitation of existing newsstands and the construction of additional facilities. The RFP made clear that the Authority believed that it had no obligation to offer the license through a competitive bid process. Thus, the contract would not necessarily be awarded to the highest bidder; rather, the proposals submitted would be used as a basis for negotiations. Proposals were to be evaluated on the basis of several criteria, including: (1) compensation; (2) the proposer's ability to operate the newsstands in accordance with professional business management standards; and (3) the proposer's plan for construction and rehabilitation of the newsstands. Proposers were permitted to submit a bid for the license on the basis of either a 10- or 15-year term.

Citiwide submitted a proposal for a term of 10 years, offering to compensate the Authority for the license in the amount of $22,321,000. Kapoor's proposal, based upon a 15-year term, provided for payments to the Authority of approximately $49,292,000. The Authority determined that Kapoor was the preferred proposer, as it had rated considerably higher than the others in all categories except compensation. Following negotiations, the Authority and Kapoor reached agreement, which included payments to the Authority in the amount of $62,210,000 (subject to potential downward adjustments), and the "Master License to Install, Operate, and Maintain Newsstands at Approved Locations on the New York City Transit Authority Rapid Transit System" was executed accordingly.

In addition to setting forth such provisions as the term of the license, the compensation to be paid, and the licensee's obligations with respect to the maintenance of the property, the master license regulates the conduct of business at the subway station newsstands in some detail. Thus, the license details the items that may be sold at the newsstands and those that must be provided, the reports and records to be maintained, management and supervision requirements, the licensee's obligations with respect to utilities, insurance, safety and sanitary conditions, and sets forth a sublicense agreement to be used should a limited number of the newsstands be subleased pursuant to the terms of the agreement. The master license also contains the parties' agreement concerning the required construction of new newsstands, the estimated cost of which is $2 million. Pursuant to the agreement, all newsstands, as well as improvements to existing stands, become the property of the Authority when made.

Citiwide commenced this article 78 proceeding, naming the Authority and Kapoor as respondents, challenging the validity of the master license upon the ground that the Authority failed to follow competitive bidding procedures. Special Term dismissed the petition, 121 Misc.2d 536, 468 N.Y.S.2d 795, holding that the award of the master license did not involve the expenditure of public money and thus was not subject to public bidding requirements. The Appellate Division reversed, 99 A.D.2d 1026, 473 N.Y.S.2d 816, by a divided court, holding that the construction aspect of the license involved an indirect expenditure of public funds for a public work, requiring that the contract be publicly bid. We now reverse. Notwithstanding the fact that an indirect expenditure of public money is involved, the Authority was not required to follow competitive bidding procedures before making the contract, inasmuch as the "total character of the arrangement" is clearly that of a license agreement for the maintenance and operation of newsstands and not that of a "contract for public work".

The public bidding requirements applicable to the Authority are found in section 1209 of the Public Authorities Law. Subdivision 1 of that section provides, in part: "Any contract for public work, except where...