Author: Charles Fastenberg

At the continued urging of a New York City official, and to meet certain deadlines, a contractor performed substantial quantities of work for the City before the contract was signed, and without the contract even having been publicly bid. The work, which was satisfactorily performed, called for the construction of “close to home” housing facilities for youths adjudicated as delinquents by the Family Court. At the point at which approximately two thirds of the price had been paid to the contractor, the contract – – by this time signed – – could not be registered with the Comptroller’s office because it had not been publicly bid and thus was “illegal.” Consequently, the contractor’s then pending requisitions for approved work could not be paid.[i]

The contractor discontinued its work and filed an action against the City for breach of contract based on non-payment of the pending requisitions. However, the action was dismissed on the ground that the contract was illegal and unenforceable for not having been publicly bid; and the contractor’s related claims, including quantum meruit, were dismissed on related grounds. Notwithstanding its dismissal of the claims, the court noted that in urging the contractor to perform the work without a public bidding of the contract, the City “acted unlawfully and treated… [the contractor] unfairly.”[ii]

The “illegal but equitable” provision of the New York City Administrative Code, §7-206, provides a possible remedy in this scenario. Section 7-206 provides that a claim against the City may fully or partially be paid if the Comptroller first certifies that the claim “is illegal or invalid, but that it is equitable and proper that such claim be paid in whole or in part.” While payment under the “illegal but equitable” theory is discretionary with the designated City officials, §7-206 nevertheless should be considered where an irregularity in the formation of a contract with the City impedes payment for the work provided.[iii]

[i] Michael R. Gianatasio, P. E., P.C. v. City of New York, 2016 N.Y.Misc. LEXIS 3110 (Sup. Ct., N. Y. Co., Aug. 26, 2016)

[ii] The City had designated a private party – – the manager of the youth housing facilities that were being built — as the entity that would enter into the construction contract with the contractor. This, arguably, would have dispensed with the need for public bidding and the other formalities that are required for contracts entered into with a governmental body. However, the City itself mistakenly signed the contract, thus triggering the need for public bidding and other public contract requirements.

[iii] See also Prosper Contracting Corp. v. Bd. of Educ., 73 Misc.2d 280 (Sup. Ct., N. Y. Co., 1973), aff’d, 43 A. D.2d 823 (1st Dep’t 1974), recognizing a contractor’s equitable position in a similar fact pattern.

A vendor to the City of New York was terminated from its existing contracts and disqualified from future contracts following internal City correspondence and a front page article in the New York Times indicating alleged irregularities in the vendor’s procurement of certain City contracts. The vendor filed an action in federal court claiming, among other things, deprivation of its liberty interest without due process under the 14^th Amendment and seeking injunctive relief. The ground for the liberty interest claim was that the City in effect debarred the vendor on the spot, without initiating the administrative reviews that are called for by the City’s own procedures. The procedures in question were designed specifically to provide “due process” to vendors whose eligibility for City contracts is in question.[i]

The district court granted the vendor’s request for injunctive relief, but the Second Circuit reversed. The Second Circuit held that even though no administrative review had been undertaken prior to the debarment, the vendor nevertheless was afforded due process since it could have filed an Article 78 proceeding in state court challenging the debarment after the debarment was effectuated; that this is an adequate “post-deprivation” remedy. Where the deprivation of constitutionally protected rights is random or unauthorized, and a pre-deprivation remedy is not available, a post-deprivation remedy, if “meaningful,” may suffice.[ii]

[i] See Hellenic Amer. Action Neighborhood Action Committee v. City of New York, 933 F. Supp. 286 (S.D.N.Y.), rev’d 101 F.3d 877 (2d Cir. 1996), cert. dismissed, 521 U.S. 1140 (1997).

[ii] Where the deprivation or debarment is not “random” or “unauthorized,” but is pursuant to established procedure, a “post-deprivation” remedy may not be sufficient. See A.F.C. Enterprises, Inc. v. NYC School Constr. Auth., 2001 WL 1335010, * 14-16 (E.D.N.Y., Sept. 6, 2001). In view of the holding in Hellenic that “due process” had been provided, the Second Circuit did not reach the issue whether the plaintiff’s liberty interests had been violated.