Cox v. Nap Const. Co., Inc.

• Decision Date: 05 June 2008
• Docket Number: No. 1 No. 85,No. 84.,84.,1 No. 85
• Citation: 891 N.E.2d 271,10 N.Y.3d 592
• Parties: Anthony COX et al., on Behalf of Themselves and All Others Similarly Situated, Respondents, v. NAP CONSTRUCTION COMPANY, INC., Appellant, and Greenwich Insurance Company, Respondent, et al., Defendants. (And Other Actions.) Teofilo Araujo et al., Appellants, v. Tiano's Construction Corp. et al., Respondents, et al., Defendants. (And a Third-Party Action.)
• Court: New York Court of Appeals Court of Appeals

891 N.E.2d 271

10 N.Y.3d 592

Anthony COX et al., on Behalf of Themselves and All Others Similarly Situated, Respondents, v. NAP CONSTRUCTION COMPANY, INC., Appellant, and Greenwich Insurance Company, Respondent, et al., Defendants.

(And Other Actions.)

Teofilo Araujo et al., Appellants, v. Tiano's Construction Corp. et al., Respondents, et al., Defendants.

(And a Third-Party Action.)

No. 84.

No. 1 No. 85

Court of Appeals of New York.

June 5, 2008.

Biaggi & Biaggi, New York City (Mario Biaggi, Jr., and Richard Mario Biaggi of counsel), for appellant in the first above-entitled action.

Barnes, Iaccarino, Virginia, Ambinder & Shepherd, PLLC, New York City (Dennis Cariello and Lloyd R. Ambinder of counsel), for Anthony Cox and others, respondents in the first above-entitled action.

Wolff & Samson PC, New York City (Jonathan Bondy and Andrew S. Kent of counsel), for Greenwich Insurance Company, respondent in the first above-entitled action.

Barnes, Iaccarino, Virginia, Ambinder & Shepherd, PLLC, New York City (Dennis Cariello and Lloyd R. Ambinder of counsel), for appellants in the second above-entitled action.

Mayer, Ross & Hagan, P.C., Patchogue (Robert W. Mayer of counsel), for Tiano's

Construction Corp., respondent in the second above-entitled action.

Dreifuss Bonacci & Parker, LLP, Florham Park, New Jersey (Derek A. Popeil of counsel), for Lumbermens Mutual Casualty Company, respondent in the second above-entitled action.

OPINION OF THE COURT

SMITH, J.

We hold that, when a contractor has promised to pay its workers the prevailing wages required by the United States Housing Act, the workers may sue under state law to enforce the promise.

I

Both of these cases involve contractors' agreements with the New York City Housing Authority (N.Y.CHA) to do construction work on public housing projects funded by the federal government under the Housing Act (42 USC § 1437 et seq.). In each case, the contract between NYCHA and the contractor provided "The Contractor shall pay to all laborers and mechanics employed in the Work not less than the wages prevailing in the locality of the Project, as predetermined by the Secretary of Labor of the United States pursuant to the Davis-Bacon Act." (The Davis-Bacon Act [DBA] is now codified in 40 USC § 3141 et seq.) The payment of Davis-Bacon Act DBA wages is required by the Housing Act, which says that any contract between the federal government and a public housing agency for funding of a project shall "contain a provision that not less than the wages prevailing in the locality, as predetermined by the Secretary of Labor pursuant to [the DBA] shall be paid to all laborers and mechanics employed in the development of the project involved" (42 USC § 1437j [a]).

Plaintiffs are workers on the projects who claim that the contractors paid them substantially less than the "wages prevailing in the locality" as determined pursuant to the DBA. Having complained without success to NYCHA, the workers sued the contractors and their sureties in Supreme Court, alleging several violations of state law. Claims for breach of contract, quantum meruit and unjust enrichment, along with other claims we need not discuss, were asserted in both actions. The complaint in Cox v. NAP Constr. Co. also included claims under various provisions of the New York Labor Law.

In Cox, Supreme Court dismissed plaintiffs' breach of contract, quantum meruit and unjust enrichment claims on the authority of Gonzalez v. D & S Zaffuto Joint Venture, 271 A.D.2d 356, 707 N.Y.S.2d 87 [1st Dept.2000], which held, following Grochowski v. Ajet Constr. Corp., 1999 WL 688450, *3-4, 1999 U.S. Dist LEXIS 13473, *10-11 [S.D.N.Y.1999], affd. sub nom. Grochowski v. Phoenix Constr., 318 F.3d 80 [2d Cir.2003], that "no private right of action exists to enforce contracts requiring payment of Federal Davis-Bacon Act ... prevailing wages." However, Supreme Court upheld the Cox plaintiffs' Labor Law claims, finding Gonzalez inapplicable to them. Defendants appealed to the Appellate Division, but plaintiffs did not.

The Appellate Division affirmed in Cox, with one Justice dissenting. The majority did not follow Supreme Court's course of distinguishing between common-law claims that were barred by Gonzalez and Labor Law claims that were not; rather, the Appellate Division panel in Cox overruled Gonzalez and rejected Grochowski, adopting instead the reasoning of the Grochowski dissent (318 F.3d at 89-91). Thus, though the contract claim in Cox was not directly before it, the Appellate Division implicitly held that that claim was legally sufficient and that Supreme Court had erred in dismissing it. The Appellate Division assumed without discussion that overruling Gonzalez required affirmance of Supreme Court's decision upholding plaintiffs' Labor Law claims — i.e., that if the contract claim was sufficient, the Labor Law claims were also. Thus Cox raises in an indirect way the issue of whether plaintiffs have a state law claim for breach of contract.

Araujo v. Tiano's Constr. Corp. raises the same issue directly. In that case, Supreme Court granted summary judgment dismissing the claims for breach of contract, quantum meruit and unjust enrichment. Plaintiffs appealed to the Appellate Division. Their appeal was decided on the same day as that of the Cox defendants, but by a different panel that reached an opposite result. The Araujo panel, with two Justices dissenting, adhered to Gonzalez and Grochowski and affirmed Supreme Court's dismissal.

We granted the motion of defendants in Cox for permission to appeal. Plaintiffs in Araujo appeal to us as of right, pursuant to CPLR 5601(a). We affirm the Appellate Division's order in Cox and modify its order in Araujo, holding in both cases that plaintiffs may bring breach of contract claims under state law.

II

If the agreements between NYCHA and the contractors in these cases were ordinary private contracts, there could be no doubt about plaintiffs' right to sue on them. The contractors promised NYCHA that they would pay plaintiffs certain wages, and under long-settled rules plaintiffs would be third-party beneficiaries of those promises (Restatement [Second] of Contracts § 304; Lawrence v. Fox, 20 N.Y. 268 [1859]). It is the statutory background of the contracts that complicates the issue.

The contractors' agreement to pay "wages prevailing in the locality" was put into the contracts by NYCHA in order to comply with a condition on which NYCHA received funding from the federal government. The federal government was required to impose that condition on NYCHA by the language of the Housing Act quoted above (at 600), which refers to the DBA. The DBA requires construction and certain other contracts to which the federal government is a party to "contain a provision stating the minimum wages to be paid various classes of laborers and mechanics" (40 USC § 3142[a]). Those "minimum wages shall be based on the wages the Secretary of Labor determines to be prevailing" in the place where the work is to be performed (40 USC § 3142[b]).

As a matter of New York law, the fact that the contractual provisions at issue were inserted in order to comply with statutes does not alter plaintiffs' status as third-party beneficiaries (Fata v. S.A. Healy Co., 289 N.Y. 401, 46 N.E.2d 339 [1943, Lehman, Ch. J.]; Strong v. American Fence Constr. Co., 245 N.Y. 48, 156 N.E. 92 [1927, Cardozo, Ch. J.]). In Strong, a supplier of labor and materials on a construction project sued a subcontractor for breach of an undertaking to furnish a bond that was required by federal law. We upheld the plaintiff's claim, explaining:

"A beneficiary of the promise, a laborer or materialman for whose protection it was given, has a right of action for the damages resulting from the breach (Lawrence v. Fox, 20 N.Y. 268; Seaver v. Ransom, 224 N.Y. 233, 120 N.E. 639). The promise was exacted by the promisee in fulfillment of a legal duty. It was exacted for the very purpose of assuring to the plaintiff and to others similarly situated the benefit of the security established by the statute. Within the narrowest interpretation of the rule in Lawrence v. Fox, a beneficiary thus related to the promise has a standing to enforce it (Seaver v. Ransom, supra, at pp. 237, 238, 120 N.E. 639)." (245 N.Y. at 53, 156 N.E. 92 [emphasis added].)

In Fata, we upheld a third-party beneficiary claim in a case similar to this one, though the relevant statute in Fata was state, not federal. The plaintiff there sought enforcement of a contract by which his employer agreed to "comply with the Labor Law of the State of New York" and to pay "not less than the prevailing rate" of wages (289 N.Y. at 405, 46 N.E.2d 339). We concluded that the plaintiff had a valid common-law contract claim, even though the Labor Law provision in issue had its own enforcement mechanism: "It cannot be doubted that provisions requiring the contractor to pay such wages are also inserted in the contract, whether voluntarily or under compulsion of the statute, for the benefit of the laborers" (id.). We held that "where a valid statute requires the insertion of provisions intended for the protection of laborers or other groups in contracts relating to matters which are subject to regulation by the State," a "contractual obligation is created which may be enforced by action brought by one of the group for whose benefit the provisions have been inserted" (id. at 406, 46 N.E.2d 339; see also United States ex rel. Johnson v. Morley Constr. Co., 98 F.2d 781, 788-789 [2d Cir.1938, L. Hand, J.] [laborers held to be "donee beneficiaries" of a contract that incorporated the provisions of a statute passed to protect them]).

In short, it is clear that New York law gives plaintiffs here a remedy, unless something in federal law prevents it from doing so.

III

Defendants argue — and Grochowski and Gonzalez hold — that federal law is indeed a barrier to plaintiffs' assertion of state-law contract...