Construction Management Corp. v. Brown & Root, Inc.

Decision Date07 January 1964
Citation41 Misc.2d 864,246 N.Y.S.2d 465
PartiesCONSTRUCTION MANAGEMENT CORP., Entrecanales y Tavora, S. A., and Baltimore Contractors, Inc., a joint venture, Plaintiffs, v. BROWN & ROOT, INC., Raymond International, Inc., and Walsh Construction Company, d/b/a Brown-Raymond-Walsh, Defendants.
CourtNew York Supreme Court

Richard Owen, New York City, for plaintiffs.

Robert M. Morgenthau, U. S. Atty. for Southern District of New York, New York City, for defendants.

IRVING H. SAYPOL, Justice.

After trial before the court, judgment is directed for the defendants dismissing the plaintiffs' amended complaint, with costs.

The action is at law. Of nine separately stated causes of action in the amended complaint, six were eliminated before commencement of the trial, leaving the first, second, and ninth causes to be tried.

Plaintiffs were subcontractors for defendants. In 1950, the latter as prime contractors engaged with the United States Government for the construction of several United States Navy and Air Force bases in Spain. All work was to be supervised by the Bureau of Yards and Docks of the United States Navy. In August 1957 plaintiffs were successful in competitive bidding and were awarded the subcontract PAB-13 for a fixed and what eventuated as the finally paid price of $532,812.00, to build an electrical power plant at San Pablo, Spain, including installation therein of the Government-supplied diesel-powered electric generating and distribution system. Work under the subcontract commenced in September 1957. It was to be completed by May 1, 1958. In November 1958 it remained unfinished.

Details of the three separate causes of action for an aggregate of demanded damages of $125,053.08 are related in the findings and conclusions. The first two causes deal with mixed questions of fact and law. Each required interpretation or construction of the PAB-13 contract, determining whose obligation it was to supply respectively air intake and exhaust facilities and also a bank of electric storage batteries with charger, both to serve as auxiliaries to the diesel engines. The plaintiffs claim both were complements of the Government-supplied diesel engines. The ninth cause represents a claim for damages for delay attributable to the defendants and involves solely fact questions regarding the course of the work as affected by the parties' performance.

The subcontract contained these provisions pertinent to the lawsuit Payment was guaranteed by the United States Government. It was stipulated that

'* * * any dispute concerning a question of fact arising under this contract which is not disposed of by agreement * * *'

between them should be adjudicated administratively by appeal to the Officer in Charge of Construction of the Naval Bureau of Yards and Docks or his representative (hereinafter OICC). The latter's decision, it was further agreed, was to be final and conclusive

'* * * unless determined by a court of competent jurisdiction to have been fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence.'

It was also stipulated that if the defendants delayed in delivering to plaintiffs materials required to be supplied by the defendants, then relief would be limited solely to administrative procedure and

'The Prime Contractor shall not be liable to suit for breach of contract by reason * * *'

of such delays.

The quoted portion of the 'Disputes' clause, providing for self-adjudication first by the defendant, one of the interested parties, and affording only appeal to the United States Government, the actual principal in interest, reinforced by the provision for finality thus foreclosing judicial relief except for the stated exceptions, is a paraphrase of the provisions of a federal statute, the Wunderlich Act, 41 U.S.C. §§ 321, 322. Those most familiar with it who deal frequently with contracts and subcontracts with the United States Government know the clause as 'the standard disputes clause'. This 'Disputes' clause traces back to the time 'we built the Monitor and the Merrimac' (Practicing Lawyer's guide to the current Law Magazines, Arthur John Keeffe, COURT OF CLAIMS AND THE ARMED SERVICES BOARD OF CONTRACT APPEALS, A.B.A. Journal, November 1963, v. 49, p. 1134). Before the enactment of the Wunderlich Act in 1954 (68 Stat. 81; 41 U.S.C.A . §§ 321-322), the Supreme Court had ruled in 1951 that the Administrative Procedure Act, 5 U.S.C. §§ 1001-1011, required agency decisions to be supported by substantial evidence on the administrative record as a whole (Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456). In the same year the court also held that administrative decisions under 'Disputes' clauses could be attacked only for fraud. That the Court defined as

'conscious wrongdoing, an intention to cheat or be dishonest'

(United States v. Wunderlich, 342 U.S. 98, 100, 72 S.Ct. 154, 155, 96 L.Ed. 113, reversing Wunderlich v. United States, 117 Ct.Cl. 92). Just before these decisions the Court had held in 1950 (United States v. Moorman, 338 U.S. 457, 70 S.Ct. 288, 94 L.Ed. 256) that administrative decisions under 'Disputes' procedures were final on questions of law. In 1954, without subjecting such 'Disputes' proceedings to the operative application of the Administrative Procedure Act, yet to afford protection against the possible evils implicit in self-judgment, at the same time retaining generally the finality of such administrative determinations, Congress enacted the Wunderlich Statute, supra (House Judiciary Committee Report No. 1380, 83rd Cong. 2d Sess. [1954], reprinted in 1954 U.S. Code Cong. & Ad.News, pp. 2191, 2194-95; Senate Committee on Judiciary Report No. 32, 83rd Cong., 1st Session [1953]). The standards for review expressed in the Wunderlich Act, 41 U.S.C. §§ 321, 322, provide that 'Disputes' decisions shall not be final on questions of law and shall be final on questions of fact unless found to be fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith or unsupported by substantial evidence.

This trial opened on the plaintiffs' position for a trial de novo of their claims against the defendants. Initially those claims had been rejected by the defendants. Thereafter the administrative appeals provided by their contract, to the OICC from the adverse conclusions of the defendants, were turned down. Now, they argue, they were denied due process in the administrative proceedings because witnesses were not sworn and there was no verbatim written record of testimony and evidence. These are matters of law. It was argued, too, that the unfavorable decisions of the OICC on the various claims were unsupported by substantial evidence, constituting mistakes in law. The defendants objected to a full-blown trial de novo as a matter of their affirmative defenses invoking the provisions of the Wunderlich law. Decision was reserved on the objection. At the time of the trial and even after post trial submission, judicial opinion was divided, the federal courts holding that a trial de novo was unavailable, review in the courts being limited solely to consideration of the administrative record. On the other hand the United States Court of Claims uniformly allowed trial de novo before its Commissioners (Allied Paint & Color Works, Inc. v. United States 2 Cir., 309 F.2d 133, 137). The decision of the Supreme Court in United States v. Carlo Bianchi and Company, Inc., 373 U.S. 709, 83 S.Ct. 1409, 10 L.Ed.2d 652, reversing that of the Court of Claims which had allowed a trial de novo (169 F.Supp. 514, 144 Ct.Cl. 500) finally resolved the conflict, although it came after both trial and post trial submission by the parties here.

The following are apt quotations from the majority opinion of the Supreme Court, per Mr. Justice Harlan, in Bianchi, supra:

'We granted...

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