Dormitory Authority of State of N. Y. v. Span Elec. Corp.

• Decision Date: 07 July 1966
• Citation: 218 N.E.2d 693,271 N.Y.S.2d 983,18 N.Y.2d 114
• Parties: , 218 N.E.2d 693 In the Matter of the Arbitration between DORMITORY AUTHORITY OF the STATE OF NEW YORK, Appellant, and SPAN ELECTRIC CORP., Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 983

271 N.Y.S.2d 983

18 N.Y.2d 114, 218 N.E.2d 693

In the Matter of the Arbitration between DORMITORY AUTHORITY OF the STATE OF NEW YORK, Appellant and SPAN ELECTRIC CORP., Respondent.

Court of Appeals of New York.

July 7, 1966.

Edgar A. B. Spencer and Frank N. Beckwith, New York City, for appellant.

Marvin L. Schechter, New York City, for respondent.

SCILEPPI, Judge.

After a public bidding, the Dormitory Authority of the State of New York awarded a contract to the respondent corporation, pursuant to which it was to furnish labor and material in connection with electrical work to be installed in Dormitory G, a new structure which was to be erected on the campus of the State University at Stony Brook, Long Island. The contract, as drawn by the Authority, contained the following arbitration provision: '(a) All disputes between parties, as to the interpretation of this Contract, or in performance of same, except cases where the decision of the Architect is final, as hereinbefore described, either party may demand that the matter in dispute be submitted to arbitration in accordance with provisions of the Standard Arbitration Procedure of the American Arbitration Association. This agreement shall be enforceable under the prevailing arbitration law, and judgment upon award rendered may be entered in the court having jurisdiction. It is agreed that neither of the parties will start legal action against the other previous to the decision of the arbitrators.'

As originally agreed, the electrical work was to be completed within 540 days. However, as respondent alleges, due to delays caused by the Authority, the corporation did not complete its contract until 183 days after the original completion date. The corporation, having attempted a negotiated settlement of the dispute, finally had its claim for damages refused by the Authority. Soon after the claim was rejected, the respondent filed the instant demand for arbitration, and the Authority petitioned the Supreme Court to stay the arbitration. The stay was denied, the denial was unanimously affirmed, and we granted permission to come to this court.

The principal argument advanced by the Authority is that, in carrying out a governmental function of the State of New York (education), sovereign immunity protects it from the operation of the arbitration clause which it had inserted into the contract. In short, the appellant asserts that it is identified with the State and such identity, because of sovereign immunity shields it from the effect of the arbitration clause.

In determining whether the Authority is identified with the State, an examination must be made of the relationship between the State and the body in question (see Matter of Plumbing, Heating, Piping & Air Conditioning Contractors Assn. v. New Jersey State Thruway Auth., 5 N.Y.2d 420, 185 N.Y.S.2d 534, 158 N.E.2d 238; Pantess v. Saratoga Springs Auth., 255 App.Div. 426, 8 N.Y.S.2d 103). Employing such an approach, it has been held that the Dormitory Authority 'is a separate body politic, for whose tortious acts the State is not responsible' (Braun v. State of New York, 203 Misc. 563, 564, 117 N.Y.S.2d 601, 602); that it is 'a distinct and separate political entity' (Windalume Corp. v. Rogers & Haggerty, 36 Misc.2d 1066, 1067, 234 N.Y.S.2d 112, 114); and that it is 'an independent corporate agency with governmental function * * * as distinguished from a mere arm of the State' (Thompson Constr. Corp. v. Dormitory Auth., 48 Misc.2d 296, 298, 264 N.Y.S.2d 842, 845).

In making our independent judgment of the relationship between the State and the Authority, we direct our attention to the enabling legislation from which the Dormitory Authority, a public benefit corporation whose board consists of the Commissioner of Education, the Comptroller, the President of the State University, and four members appointed by the Regents (Public Authorities Law, Consol.Laws, c. 43--A, § 1677), draws its life (Public Authorities Law, §§ 1675--1690 incl.).

A reading of section 1678 discloses that the Authority has been given power: to sue and be sued; to have its own seal; to make its own bylaws; to appoint officers, agents and employees as well as fix their compensation; to acquire real property in the name of the State; to acquire personal property for its own corporate purposes (see, also, § 1680, subd. 2, par. c); to enter contracts and execute instruments necessary for its purposes, subject only to the State Budget Director's approval as to cost; to fix and collect rentals for the use of the dormitories; and to borrow money and issue negotiable bonds. In addition, section 1678 bestows upon the Authority a broad grant of power to do all things necessary and convenient to carry out its purposes. The Authority may also make loans to educational institutions and determine the conditions thereof (e.g., payment, redemption, security, interest, etc.) (§ 1680, subd. 3, par. a). Moneys received by the Authority from an educational institution under subdivision 3 (par. a) must be deposited in separate accounts and not be commingled with other funds of the Authority (§ 1680, subd. 3, par. d). Such funds are to be paid out by checks signed by the Chairman of the Authority or by someone designated by the Authority (§ 1680, subd. 3, par. d). The statute has also provided that the moneys of the Authority are to be maintained in its own accounts and drawn only by authorized officers, except that sums from State appropriations, sale of bonds, and reserve funds are to be paid to the Comptroller, as agent of the Authority, not to be commingled with other funds and to be retained in a separate bank account (§ 1681, subds. 1, 2). Funds so retained by the Comptroller are to be disbursed by him on requisition of a person authorized by the Authority (§ 1681, subd. 2). Finally, the State is Not liable on the bonds or on other obligations of the Authority which are all payable only out of Authority funds (§ 1683).

Considering and weighing all the above powers, functions, and obligations, it is clear that this Authority, enjoying a separate existence, transacting its own business, hiring and compensating its own personnel, is not identical with the State (see Matter of New York Post Corp. v. Moses, 10 N.Y.2d 199, 219 N.Y.S.2d 7, 176 N.E.2d 709; Matter of Plumbing, Heating, Piping & Air Conditioning Contractors Assn. v. New York State Thruway Auth., 5 N.Y.2d 420, 185 N.Y.2d 534, 158 N.E.2d 234, supra).

Assuming for the moment the validity of the Authority's argument that it is identified with the State, we hold that the State itself is not insulated against the operation of an arbitration clause in a contract because the power to contract implies the power to assent to the settlement of disputes by means of arbitration (see Campbell v. City of New York, 244 N.Y. 317, 331, 155 N.E. 628, 632, 50 A.L.R. 1473; People ex rel. Benedict v. Board of Supervisors of Oneida County, 24 Hun 413, 418; Brady v. Mayor of Brooklyn, 1 Barb. 584, 590; see, also, Merritt-Chapman & Scott Corp. v. Public Utility Dist. No. 2, 2 Cir., 319 F.2d 94, 108; State Highway Dept. v. MacDougald Constr. Co., 189 Ga. 490, 6 S.E.2d 570, 137 A.L.R. 520; State ex rel. M. E. Murphy Co. v. Donahey, 98 Ohio St. 442, 121 N.E. 645). ¹

Therefore, appellant, even if it were identified with the sovereign, would not be shielded against the operative effect of the clause. Consequently, the stay was properly denied below.

Other allegations of error were considered and found to be without merit.

The order appealed from should be affirmed, with costs.

BERGAN, Judge (concurring).

Since the respondent argues that the Dormitory Authority is not entitled to sovereign immunity from suits in resistance to the demand for arbitration under its contract with respondent, and since the court is expressly holding that the Authority is 'not identical with the State', it seems injudicious, as well as unnecessary, to venture into the much more difficult and vexatious question whether the power of a State officer to make a contract for the State carries with it by implication the power to submit the State itself to arbitration without express legislative authorization for such a submission. The constitutional and legal questions are of major public consequence and ought not be decided tangentially and unnecessarily in litigation in which the questions are not decisive.

It seems, moreover, if we must feel obliged to come to grips with the broad question of sovereign immunity, that the State has not yet permitted its officers to submit it to arbitration and there is no known way in which an arbitration award against the State, if made, would be enforcible. The statutory mechanism for implementing an award by arbitrators, i.e., 'A judgment shall be entered' (CPLR 7514, subd. (a)) would, in respect of the State, be a procedural futility.

Nor does the general waiver of sovereign immunity in section 8 of the Court of Claims Act, by which the State submits to adjudication of liability by 'the same rules of law as applied to actions' amount to a general submission to arbitration proceedings. The constitutional base of any claim against the State is audit (N.Y.Const., art. III, § 19) and this function is now exercised by the Court of Claims in determining 'claims against the state' (N.Y.Const., art. VI, § 9), although historically it has been exercised by other auditory agencies and boards.

The insulation of the sovereign itself from adverse adjudication without its consent as to place and form of remedy lies imbedded in general legal theory. 'It is an established principle of jurisprudence in all civilized nations', Chief Justice Taney noted, 'that the sovereign cannot be sued in its own courts, or in any other, without its consent and permission; but it may, if it thinks proper, waive this privilege, and permit itself to be made a defendant in a suit by individuals, or by another...