Michael R. Gianatasio, PE, P.C. v. City of N.Y.

• Decision Date: 26 August 2016
• Citation: 2016 N.Y. Slip Op. 26270,37 N.Y.S.3d 828,53 Misc.3d 757
• Parties: MICHAEL R. GIANATASIO, PE, P.C. d/b/a MRG Engineering & Construction, Plaintiff, v. The CITY OF NEW YORK, the New York City Administration for Children's Services, and Leake & Watts Services, Inc., Defendants.
• Court: New York Supreme Court

53 Misc.3d 757

37 N.Y.S.3d 828

2016 N.Y. Slip Op. 26270

MICHAEL R. GIANATASIO, PE, P.C. d/b/a MRG Engineering & Construction, Plaintiff,

v.The CITY OF NEW YORK, the New York City Administration for Children's Services, and Leake & Watts Services, Inc., Defendants.

Supreme Court, New York County, New York.

Aug. 26, 2016.

Michael J. Khader, P.C., for plaintiff.

Corporation Counsel, for the NYC Defendants.

Putney, Twombly, Hall, & Hirson LLP, for LWS.

SHIRLEY WERNER KORNREICH, J.

Motion sequence numbers 001 and 002 are consolidated for disposition.

Defendants the City of New York (the City) and the New York City Administration for Children's Services (ACS) (collectively, the NYC Defendants) move, pursuant to CPLR 3211, to dismiss the claims asserted against them in the Amended Complaint (the AC). Seq. 001. Defendant Leake & Watts Services, Inc. (LWS) separately moves to dismiss the claims asserted against it in the AC and for sanctions against plaintiff Michael R. Gianatasio, PE, P.C. (MRG). Seq. 002. MRG opposes both motions and cross-moves for sanctions against LWS. For the reasons that follow, defendants' motions to dismiss are granted and the cross-motions for sanctions are denied.

I. Factual Background & Procedural History

As this is a motion to dismiss, the facts recited are taken from the AC (see Dkt. 33)¹ and the documentary evidence submitted by the parties.

This action concerns the NYC Defendants' failure to pay MRG the full amount owed under two construction contracts. The NYC Defendants admit nonpayment and have no issue with the quality of MRG's work. They contend, however, that the contracts are illegal and, therefore, unenforceable. The other defendant in this action, LWS, also seeks dismissal on the ground that the contracts only obligate the NYC Defendants, and not LWS, to pay MRG.

In March 2012, Governor Cuomo signed what is known as the “Close to Home” legislation, which authorizes the City to house young people who were adjudicated as delinquent by the Family Court to be placed in secure facilities near their homes. See AC ¶¶ 14–15. The facilities would be under the auspices of and in buildings owned by ACS. A not-for-profit entity, in this case LWS, would provide the youth services. Id.

In November 2014, ACS reached out to and hired MRG to build two of the six facilities. Those two facilities are located at 170 East 210th Street in the Bronx (the Bronx Location) and 1125 Carroll Street in Brooklyn (the Brooklyn Location) (collectively, the Facilities). ACS wanted both Facilities to be operational by March 13, 2015. Consequently, in November 2014, ACS asked MRG to begin work immediately even though contracts for the work had not yet been executed. MRG agreed to do so, commencing work at the Bronx Location on November 15, 2014 and at the Brooklyn Location on December 8, 2014. The parties negotiated the contracts during the next few weeks. The final versions are dated December 3, 2014 [see Dkt. 56 (the Bronx Contract); Dkt. 57 (the Brooklyn Contract) (collectively, the Contracts) ]² and were fully executed on December 23, 2014. See Dkt. 56 at 6; Dkt. 57 at 8–9. LWS signed as “Financial Conduit/Services Provider”, ACS signed as “Managing Agent”, and MRG signed as “General Contractor”. See id. The Contracts were approved by ACS's commissioner.³

The Contracts provide that “[LWS ] shall promptly reimburse, once they receive payment from ACS, MRG all costs incurred in connection with the Services rendered.” See Dkt. 56 at 4 (emphasis added); Dkt. 57 at 7. The Contracts also provide that “MRG shall provide standard general liability, workman's compensation, professional liability and disability insurance naming [LWS] as certificate holder and additional insured.” See id.

The total price of the Bronx Contract is $4,598,000. See Dkt. 56 at 5. The initial deposit was $1,532,667; $1,500,000 was due on February 2, 2015; $1,000,000 was due on March 2, 2015; and the final $565,333 was due on April 3, 2015. See id. at 6. The total price of the Brooklyn Contract is $1,565,120. See Dkt. 57 at 8. The initial deposit was $521,000; $521,000 was due on February 2, 2015; $261,560 was due on March 2, 2015; and the final $261,560 was due on March 15, 2015. See id.

MRG was partially paid pursuant to the Contacts. Under the Bronx Contract, MRG received the initial deposit of $1,532,667 on December 29, 2014 and $1,500,000 on February 11, 2015, for a total of $3,032,667. MRG was not paid on its third invoice of $1 million, was not paid on a $20,000 purchase order issued by ACS, and was out-of-pocket $61,000 because MRG had to pay one of its subcontractors a restocking fee due to ACS's non-payment. Under the Brooklyn Contract, MRG received $521,707 on December 24, 2014 and $521,000 on February 12, 2015, for a total of $1,042,707. MRG was not paid on its third and fourth invoices in the amounts of $261,560 and $260,853, was not paid for $20,000 of work performed under a purchase order issued by ACS, and was not paid for $109,250 of work performed under a change order.

In early March 2015, MRG requested payment of these amounts. On a March 4, 2015 phone call between MRG and ACS, ACS's deputy commissioner, Mitch Gipson, discussed ACS's failure to pay and attempts to remedy the nonpayment. In the recorded conversation, he stated, among other things, that “Close to Home is a project that is near and dear to both the governor and the mayor. [E]veryone is becoming very thoughtful and cautious about how we fix a problem which I, unfortunately at the moment, can't describe to you in detail.” See Dkt. 83 at 6. Gipson noted that ACS was discussing the issue directly with “City Hall ”. See id. at 7 (emphasis added). He stated:

I want to just say to you that it would be very, very harmful to everybody if MRG or any other contractor or general contractor or CM stopped work. I understand the challenge you're in, but there are others that are, I mean, officially, everybody is in this challenge the spigot has been turned off by a directive, and we are now trying to figure out what we have to do to open it So you know, this is at the highest levels. I don't know whether the mayor and governor know that we've done this, but I suspect it's possible that they very well may, at some point. At least they will know what we've done to fix it.

See id. at 7–8 (emphasis added).

In other words, just as when ACS wanted MRG to begin working before entering into a contract, ACS was now asking MRG to continue expediting work despite not being paid. Gipson stressed “the sensitivity [of] this matter, because it goes all the way to the governor's house ” and that “any delay in bringing those young people closer to home will be frowned upon and disappoint people, including the governor. ” See id. at 10 (emphasis added). Gipson did not know if the mayor was involved, but stated that “I know the deputy mayors are involved in this.” See id. at 14.

On March 11, 2015, Gipson again spoke with MRG. He stated in the recorded conversation:

So just so you understand a little bit, I'll have to go back a little bit in time to when we approached you in the first place. We were at a point where we realized that we could not do this work with our internal staff. And so we needed, and we weren't sure of the scope and time, the time and cost of the work had apparently surprised us. And that was an initial frustration of mine, back in November or December. So we reached out to you and another party and the idea was to confirm how much this would cost and confirm how much, how long it would take, and to get a sense of what you would—how much you would charge us to do the work. The thought process then was that due to our procurement rules, we knew we couldn't hire you within a timeframe that would allow us to meet the schedule, which was the end of March. Our procurement rules would've taken maybe three or four months, at least, and so that was a nonstarter. Our procurement rules though do allow for a subcontractor of ours, in this case [LWS], to enter into a contract with a third party to do construction work. And that is what's going on on most of our sites, and now this one, these two. But these two sites that we approached you on were the only two that weren't being managed in that fashion, and we realized that that was a mistake, so we endeavored to back into an agreement that was similar to our other agreements, in which the—our subcontractor, well, we have three of them, [LWS] being one of them, were to actually [ ] contract with the provider. They can do so through a process that is internal to them, but not internal to us, so it's quicker. And that allowed us to maintain schedule. All good, except that once we sign a document, it becomes our contract as well as their contract, and then it's subject to our rules, which we then have to go through and fix all these marks, which we endeavored to not have to do by going to [LWS].

See id. at 18–19 (emphasis added).⁴

In other words, Gipson explained that ACS circumvented the City's procurement rules by entering into a contract with a private company, which was a service provider not subject to the rules, and having that company directly contract with the construction company. ACS agreed to pay the contractor through the private company (the service provider) and indemnify the private company.⁵ This allowed ACS to avoid a multitude of regulations, such as putting the contract up for public bidding and paying the requisite prevailing wage.⁶ The four other Close to Home projects, one of which also involved LWS, were constructed and fully paid for by ACS without a problem. In this case, as noted in the recorded conversation, ACS made a “mistake” by directly contracting with MRG, and that caused scrutiny of the contract and prevented MRG from being paid. Gipson was candid with MRG about this “mistake”, explaining:

Okay. So our mistake was in agreeing to sign that document, because it should've been a document just between the two of you [i.e.

...