18 N.Y.2d 114 | NY | 1966
Lead Opinion
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
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 Assn. v. Thruway Auth., 5 N Y 2d 420; Pantess v. Saratoga Springs Auth., 255 App. Div. 426). 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); that it is “a distinct and separate political entity” (Windalume Corp. v. Rogers & Haggerty, 36 Misc 2d 1066, 1067); 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).
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, § 1677), draws its life (Public Authorities Law, §§ 1675-1690 inch.).
A reading of section 1678 discloses that the Authority ha,s been given power: to sue and be sued; to have its own seal; to make its own by-laws; 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
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; Matter of Plumbing Assn. v. Thruway Auth., 5 N Y 2d 420, 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; People ex rel. Benedict v. Supervisors, 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, 319 F. 2d 94, 108; State Highway Dept. v. MacDougald Constr. Co., 189
Therefore, appellant, even if it were identified with the sovereign, would not he shielded against the operative effect of the clause. Consequently, the stay was properly denied below.
Other allegations of error were considered and found to he without merit.
The .order appealed from .should be affirmed, with costs.
In this connection, the words of. Judge Earl, written in 1882, are of relevance: “ The sovereign can contract and has very many occasions to do so; it can build canals and public buildings, and engage in public works, and in carrying forward its projects it makes use of the instrumentalities which individuals use.for the same purposes. It must be governed by the same rules of common honesty and justice which bind individuals. It is for its interests that its contracts should be binding upon all parties thereto. If it can at pleasure violate or abandon its contracts, in the absence of any stipulation authorizing it to do so, there will be such uncertainty and risk attending all its contracts that it will go into the market for work and materials at a ’great disadvantage.
As was well said by Judge Allen, in People v. Stephens (71 N. Y. 549), There is not one law for the sovereign and another for the subject, but when the sovereign engages in business and the conduct of business enterprises, and contracts with individuals, whenever the contract in any form comes before the courts, the rights and obligation of the contracting parties must be adjusted upon the same principles as if both contracting parties were private persons. Both stand upon equality before the law, and the sovereign is merged in the dealer, contractor and suitor.’ ” (Danolds v. State of New York, 89 N. Y. 36, 44).
The above words, suitable then, are ’generally even more appropriate today when the State qua State is becoming increasingly involved in what were once considered private sectors of the economy.
Concurrence Opinion
(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 hot 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
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. Ill, § 19) and this function is now exercised by the Court of Claims in determining “ claims against the state ” (N. Y. Const., art. YI, § 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 State.” (Beers v. State of Arkansas, 20 How. [61 U. S.] 527, 529 [1857].) The court there held that'Arkansas, having consented by statute to be sued to enforce its bonds, could validly and later impose new and more restrictive conditions on the terms of its waiver.
This court has taken particular care to differentiate a liability of the State itself as sovereign to answer in ordinary litigation for the acts of its officers, even where this amounts to the taking of private property, from the individual and personal responsibility of the officers (Pauchogue Land Corp. v. Long Is. State Park Comm., 243 N. Y. 15). There, Pound, J., observed that since “the State may not be sued without its consent” the action against the State Park Commission ‘ ‘ cannot .be maintained ” but the wrongful taking of plaintiff's land by the pub-
' It would follow that a State officer hy merely signing a contract with an arbitration clause would be equally incompetent to subject the sovereign to the ordinary compulsion of arbitration processes and its ancillary enforcement procedures in the Supreme Court.
The cases all point this way. “ The problem, therefore, is to determine who is the real defendant in the case at bar”, Judge FiNch wrote in Breen v. Mortgage Comm. (285 N. Y. 425, 429). “ If the real defendant is the State, then, of course, it may be sued only as it has consented to be sued, to wit, in the Court of Claims.”
Even when in form the suit is against State officers but it is actually a “ suit against the State itself ”, it will not lie (Psaty v. Duryea, 306 N. Y. 413, 417). The creditor’s action in Glassman v. Glassman (309 N. Y. 436) was sustained upon the express ground that although the .State Retirement System was a party, the action was in reality not one against the System, but between individuals, and hence ‘ ‘ by that token ’ ’ not an action against the State (p. 441).
Municipal corporations which by law had been made subject to the ordinary jurisdiction of law courts for the enforcement of their contracts, have been held to be answerable to the arbitration process when their officers, acting with their authority, have entered into agreements containing arbitration clauses. The fact that these contracts to arbitrate made with authority were enforced according to their terms at a time when in the performance of sovereign functions the municipal corporations were held free from liability for their torts is not material to the problem. The question is not the State’s immunity from liability; it is, rather, the place and form in which it has given consent that a liability be imposed.
In the case of sovereign liability the authority of the agent to submit the sovereign to arbitration process must be explicit. In this direction is District of Columbia v. Bailey (171 U. S. 161, 176-177) which held the District Commissioners were unable to submit the District to the arbitration of a claim arising from repair of streets ’within .the Commissioners’ jurisdiction,
The New York cases in which municipal corporations have been required to conform to arbitration clauses stated in contracts duly authorized by the corporation and executed by their officers do not examine the sovereign submission to the arbitration process and certainly do not equate the procedural status of municipal corporations which have submitted to the process with the State which has not submitted. To read the cases will make this perfectly clear. One recent example is Matter of Baker (Board of Educ.) (309 N. Y. 551). The Board of Education had entered into a contract for the construction of a school which contained an arbitration clause. The power of the board to agree to an arbitration was not challenged. The issue was whether a bona fide dispute existed within the arbitration provision and the court held there was such a dispute.
Although municipal corporations, such as the school board in Matter of Baker, have been held bound by their contracts to arbitrate, they have been held so because, unlike the State, they have been made amenable to ordinary suits in contract in 'the general law courts of the State, and a judgment based on an arbitration award would be enforeible against them' in due course. They have been held bound by their arbitration agreements especially when those agreements have had the sanction of legislative authority or have been made by officers who have been vested with that authority.
This is illustrated clearly in one of the early and significant decisions in the General Term affecting the power of a city to agree to arbitration of a dispute arising from a paving contract (Brady v. Mayor of Brooklyn, 1 Barb. 584 [1847]). There a dispute with a contractor had been submitted to arbitration and the award was approved by the Common Council of the city. The council’s power to make the contract and to pay for
The actions before the court in Campbell v. City of New York (244 N. Y. 317) were brought by taxpayers to test the constitutionality of the prevailing wage requirements of public contracts as applied to the City of New York,’and this was the main issue litigated. It was held collaterally the arbitration provision in the contract at issue did not invalidate it at the suit of the taxpayers and that on the record before the court, this provision was within the authority of the city officers who made the contract.
The basis for the general statement by Judge Cardozo (p. 331) that there was nothing illegal about the arbitration clause was Matter of Berkovitz v. Arbib & Houlberg (230 N. Y. 261); a decision which was concerned with arbitration between private parties. There is not the slightest suggestion in Campbell v. City of New York that it approved any general authorization by State officers in the absence of explicit legislative authorization to submit the State itself to private arbitration.
It is significant to notice that in Merritt-Chapman & Scott Corp. v. Public Utility Dist. No. 2 (319 F. 2d 94) the question of arbitration was not decisive (p. 108). The problem was whether a levy in New York on property of the public utility district was good and it was held that unless on remand it be found that the levy interfered substantially with the public duties of the district the levy would be good because, in general, the district fell in the same “ category as municipalities, counties, villages” (p. 103). What seems particularly important for our'purposes is the statement of MediNA, J. t “We are not here concerned with the doctrine of sovereign immunity, as we would be if the defendant were a member of the family of nations or one of the sovereign states of the United States of America ” (p. 103).
In People ex rel. Benedict v. Supervisors (24 Hun 413) the power of the Board of Supervisors to submit a disputed claim to a Referee was discussed, but the decision did not turn on this power and the discussion of it was treated by Mr. Hun, the reporter, as dictum (p. 414). The case cannot be read to
Finally, the words of Judge Earl in Danolds v. State of New York (89 N. Y. 36, 44) that the sovereign “ must be governed by the same rules of common honesty and justice which bind individuals ” and, quoting Judge Allen in People v. Stephens (71 N. Y. 527, 550) that the rights of the sovereign in its contracts “ must be adjusted upon the same principles as if both contracting parties were private persons ”, must be read in the context of the question before the court and be measured against what was actually decided.
Most lawyers agree to general legal principles in the abstract. It is the hard application to real cases that gives trouble. The Danolds case was a claim against the State in its Board of Audit, a predecessor of the Court of Claims. It considered the question whether a provision of the contract excluding prospective profits if the State suspended work on the contract prevented- the assertion of a claim for prospective profits based on the entire repudiation of the entire contract. The case had nothing, to do with arbitration, and Judge Allen’s case was even more remote from that question and involved an action by the State to recover damages against contractors for illegal combinations to prevent competition in bidding for canal contracts.
The order should be affirmed on the sole ground that the Dormitory Authority, having a separate identity from the State, was bound by its contractual agreement to arbitrate.
Order affirmed.
