John Grace & Co., Inc. v. State University Const. Fund

Decision Date28 March 1978
CourtNew York Court of Appeals Court of Appeals
Parties, 375 N.E.2d 377 JOHN GRACE & CO., INC., Respondent, v. STATE UNIVERSITY CONSTRUCTION FUND, Appellant. A. D. HERMAN CONSTRUCTION CO., INC., Respondent, v. STATE UNIVERSITY CONSTRUCTION FUND, Appellant.

Jay R. Handwerger and Henry G. Cohn, Albany, for appellant in the first and second above-entitled actions.

William B. Flynn, Flushing, and Peter Goetz, for respondent in the first and second above-entitled actions.

OPINION OF THE COURT

COOKE, Judge.

We hold that the State University Construction Fund (Fund), although created by the State of New York, is neither the State of New York nor an agency thereof for purposes of application of chapters 944 and 945 of the Laws of 1974.

Respondents were successful bidders for public contracts and entered into lump-sum construction contracts with the Fund in the fall of 1973. The agreement with respondent John Grace & Co. called for the construction of a project described as a "Sitework High Temperature-water Distribution" on the campus of the State University of New York at Stony Brook. Respondent A. D. Herman Construction Co. agreed to construct certain buildings at "Campus Core West" at the State University College at Old Westbury.

Subsequent to the execution of these contracts, the Legislature enacted two general laws, "to provide equitable relief to those contractors who, having been awarded public contracts, have sustained damage by reason of (the) energy crisis" (L.1974, ch. 944, § 1). Chapter 944 authorizes certain adjustments in public construction contracts to reflect the increased cost of products containing petroleum derivatives; chapter 945 amends the previous chapter to include adjustments for increased steel costs. So far as is relevant here, the statute provides: "Whenever the terms and conditions of a construction contract awarded by the state of New York * * * requires a contractor to furnish materials containing petroleum derivatives of any kind or steel products * * * line items in such contracts pertaining to such materials may be adjusted upon a determination made by the officer of the department, board or agency that awarded such contract" (L.1974, ch. 945, § 1).

Upon refusal by the Fund to adjust prices to reflect the escalated cost of petroleum derivatives and steel products used by them in the performance of their contractual obligations, each respondent instituted an action seeking, inter alia, a declaration that the Fund is subject to the provisions of chapters 944 and 945 and is required to make the adjustments requested. Asserting that the statutes in issue are inapplicable to it, the Fund moved to dismiss the respondents' complaints on the ground that they failed to state a cause of action (CPLR 3211, subd. (a), par. 7). The court at Special Term denied the motion. A unanimous Appellate Division affirmed, certifying the following question for our review: "Did Special Term err as a matter of law in denying defendant's motion to dismiss the complaint?"

The Fund was created in 1962 as a public benefit corporation to receive and administer moneys available for the construction of facilities of the State University of New York (L.1962, ch. 251, § 1). We begin our inquiry, then, with the proposition that public benefit corporations, such as the Fund, created by the State for the general purpose of performing functions essentially governmental in nature, are not identical to the State or any of its agencies, but rather enjoy, for some purposes, an existence separate and apart from the State, its agencies and political subdivisions (Matter of Smith v. Levitt, 37 A.D.2d 418, 421, 326 N.Y.S.2d 335, 338, affd. 30 N.Y.2d 934, 335 N.Y.S.2d 687, 287 N.E.2d 380; Matter of New York Post Corp. v. Moses, 10 N.Y.2d 199, 203, 219 N.Y.S.2d 7, 8, 176 N.E.2d 709, 710; Benz v. New York State Thruway Auth., 9 N.Y.2d 486, 489, 215 N.Y.S.2d 47, 48, 174 N.E.2d 727; Pantess v. Saratoga Springs Auth., 255 App.Div. 426, 428, 8 N.Y.S.2d 103, 105). Although there is necessarily some degree of relationship between the fund and the State the Fund was created by the State and is subject to dissolution by the Legislature as a public benefit corporation, the Fund is "independent and autonomous, deliberately designed to be able to function with a freedom and flexibility not permitted to an ordinary State board, department or commission" or agency (see Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Ass'n v. New York State Thruway Auth., 5 N.Y.2d 420, 423, 185 N.Y.S.2d 534, 536, 158 N.E.2d 238, 239; see, also, 1951 Opns. Atty. Gen. 130, 132).

The distinction is at once obvious. The mere fact that the Fund is an instrumentality of the State, and as such, engages in operations which are fundamentally governmental in nature does not inflexibly mandate a conclusion that it is the State or one of its agencies for purposes of chapters 944 and 945 (compare Easley v. New York State Thruway Auth., 1 N.Y.2d 374, 376-377, 153 N.Y.S.2d 28, 29, 30, 135 N.E.2d 572, 573-574, with Matter of Plumbing, Heating, Piping & Air Conditioning Contrs. Auth., supra, 5 N.Y.2d p. 424, 185 N.Y.S.2d p. 536, 158 N.E.2d p. 240). Instead, a particularized inquiry into the nature of the instrumentality and the statute claimed to be applicable to it is required. In the context of this case, if...

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