Testwell, Inc. v. New York City Department of BuildingsTestwell, Inc. v. New York City Department of Buildings
Michael A. Cardozo, Corporation Counsel, New York City (Cheryl Payer, Stephen J. McGrath and Teresita V. Magsino of counsel), for appellants.
Tarter Krinsky & Drogin, LLP, New York City (David J. Pfeffer of counsel), for respondent.
OPINION OF THE COURT
Andrias, J.P.
At issue in this
Testwell provides inspection, testing, and quality control services for the construction industry. Since 1994, it has held a concrete testing laboratory license issued by the Department.
By indictment filed in New York County and dated October 29, 2008, Testwell, its sole shareholder Vidyаsagar Reddy Kancharla, and certain Testwell employees were charged with enterprise corruption, scheme to defraud, grand larceny, attempted grand larceny, offering a false instrument for filing, and falsifying business records. The indictment, to which all defendants pleaded not guilty, was based, among other things, on allegations that Testwell prepared and offered false mix design reports to both public and private entities.1
Based on the indictment, by letter dated October 30, 2008, the Department, pending a hearing, suspended Testwell‘s license and Kancharla‘s site-safety manager license and his professional certification and filing privileges. In a report and recommendation dated December 2, 2008, an Administrative Law Judge found that while the prehearing suspension of the licenses and Kancharla‘s profеssional certification privileges were proper, the indictment was insufficient evidence to support further suspensions and Testwell was deprived of due process. By decision and order dated January 20, 2009, the Department‘s Commissioner rejected that finding and reinstated, pending resolution of the criminal charges, the suspension of the licenses and Kancharla‘s professional certification privileges.
Testwell commenced an
While the motion was sub judice, by letter dated April 21, 2009, Testwell applied to renew its license, which was due to expire on June 17, 2009. In May 2009, Testwell filed for chapter 11 bankruptcy protection. By order entered on or about June 29, 2009, Supreme Court (Edward J. McLaughlin, J.) found that the grand jury minutes provided legally sufficient evidence to show fraud in that Testwell, among other things, had issued reports stating that it used the test batch method, whereas “the evidence presented to the Grand Jury demonstrated that Testwell created most of its mix design reports without conducting any laboratory testing of concrete.”
By letter dated July 8, 2009, the Department informed Testwell that it would “consider” renewing its license subject to certain conditions, including that Testwell: (1) be placed on probation for two years, during which time the Department could revoke the license without a hearing for any violation of the terms of the renewal; (2) provide proof that indicted persons were not engaged by Testwell in technical or managerial positions related to concrete testing; and (3) retain the services of an independent third party, acceptable to the Department and qualified to assess and evaluate concrete testing operations during the probationary period, to oversee technical operations, including development of a new quality assurance/quality control plan for monitoring and auditing technical activities.
“[i]n the interim, Testwell may continuе to perform services provided that Testwell is directly supervised by an independent, licensed concrete testing laboratory acceptable to the Department. This independent concrete testing laboratory shall be capable of overseeing the technical aspects of Testwell‘s concrete testing operations, both in the laboratory and at the job site.”
By letter dated July 10, 2009, Testwell, by counsel, replied that “[w]hile [it] was willing to accept and immediately implement the Department‘s conditions during its post-renewal probationary period, Testwell requests that the Department remove the interim condition that a third-party testing laboratory be retained to oversee Testwell‘s operations.” As an alternative, Testwell proposed that it retain Irwin Cantor P.E. or an engineer acceptable to the Department to assess and evaluate Testwell‘s concrete testing operations and to implement the Department‘s other conditions. Testwell also argued that the denial of its motion to dismiss the indictment, like the indictment itself, had no impact on whether Testwell met the qualifications for renewal.
By letter dated July 15, 2009, the Department accepted Testwell‘s modification of the interim condition, stating that it would accept a third-party entity, “such as an engineering firm or other entity with the technical expertise to oversee concrete testing operations, to oversee Testwell‘s operations in the interim in place of a independent concrete testing laboratory.” The Department disagreed with Testwell‘s assessment of the legal significance of the order denying the motion to dismiss the indictment and advised Testwell that it was “available to meet with Testwell and any proposed third-parties as described in the terms of renewal to resolve this issue.”
By letter dated August 12, 2009, the Department informed Testwell of its determination to deny renewal of Testwell‘s license pursuant to
“[i]n accordance with
Administrative Code § 28-401.12 , Testwell is hereby afforded the opportunity to demonstrate why renewal of its concrete testing laboratory license should not be denied on the additional grounds of fraudulent dealings and poor moral character. Such submission must be rеceived by Friday, August 14, 2009, noon.”
By letter dated August 14, 2009, Testwell protested all aspects of the Department‘s denial, contending that “the stated grounds are not a proper basis upon which the Commissioner should deny renewal of the license. Rather, the facts demonstrate that Testwell has acted in compliance with the orders of the Department, according to the terms that were communicated to Testwell.” In support, Testwell asserted that it had acted in good faith to satisfy the Department‘s terms for a renewal license, which were not made subject to a deadline, and had not engaged in fraudulent conduct and did not display poor moral character. In this regard, Testwell contended that the July 8th letter asked only that Testwell indicate its willingness to accept the proposed conditions within 30 days, not that it satisfy all of the conditions within that time period. Testwell also reiterated that an indictment is not a finding of guilt and argued that in any event, the Department “has mistakenly conflated the alleged misconduct of the former management of Testwell with the question of whether the company, as operated and managed today, is a worthy recipient of a renewed [l]icense.” Thus, Testwell asserted that denial of a renewal license was not compelled by the facts, was not necessary to protect the public and would impose an undue and unnecessary hardship.
By letter dated August 18, 2009, the Department adhered to its decision to deny renewal and restated its order that Testwell cease and desist аll concrete testing operations immediately. The Department explained that Testwell‘s
“point that the July 8 letter did not require that all of the conditions be satisfied within thirty (30) days is . . . correct, but irrelevant. Testwell‘s failure to comply with the requirement that, during the thirty (30) day period commencing July 8, 2009, it obtain independent technical oversight acceptable to the Department, of its concrete testing laboratory operations during this period, coupled with the evidence of its operation on August 11, 2009 at 795 Columbus Avеnue, warrants the Department‘s determination
to deny the renewal for failure to comply with the Commissioner‘s order.”
The Department rejected Testwell‘s argument that changes in management and the appointment of a restructuring officer by the Bankruptcy Court justified renewal of the license, in that
“[y]our letter pointedly makes no mention of Testwell‘s ownership and the Department has no evidence suggesting that the lab‘s ownership has changed since the indictment. Morever, although Testwell‘s guilt or innocenсe will be determined in the upcoming trial, the trial court‘s indication on the omnibus motion regarding the nature of the reports Testwell produced and the admissions Testwell made in that motion constitute a basis for the Department‘s determination that Testwell engaged in fraudulent dealings and displayed poor moral character that adversely reflects on Testwell‘s fitness to conduct regulated work.”
Testwell then commenced this
“Once licenses are issued . . . their continued possession may become essential in the pursuit of a livelihood . . . In such cases the licenses are not to be taken away without that
Although Testwell had no constitutional right to notice and a hearing regarding the renewal of its license, it did have a statutory right to “notice and an opportunity to be heard” under
First, the Supreme Court erred when it found that the Department did not give Testwell sufficient notice of the prohibited conduct and an opportunity to be hеard because its July 8, 2009 letter did not constitute an order for Testwell to take specific action by a “drop dead” date or it would be “at risk,” and therefore the Department‘s August 12, 2009 letter rested on the faulty assumption that Testwell had defied a Department order. Testwell received reasonable notice in the Department‘s July 8, 2009 letter of the interim condition placed on its continued operations after the expiration of its license.
This correspondence demonstrates that Testwell received adequate notice of and in fact agreed to accept the interim condition, as modified, providing that after the expiration of its licensе, and during the 30-day period it was given to accept the Department‘s conditions, it could not continue to perform services under its expired license unless Testwell retained an engineer, acceptable to the Department, “to assess and evaluate Testwell‘s concrete testing operations and implement the other conditions proposed by the Department.” Accordingly, the requirements set forth in the Department‘s July 8, 2009 letter for Testwell‘s continued operations pending renewal, as modified by the parties’ subsequent correspondence, could and did serve as a predicate for the future action taken by the Department in its August 12th and August 18th determinations.
Second, Testwell received adequate notice of the charges against it and an opportunity to be heard. In its August 12, 2009 letter, the Department informed Testwell of the specific reasons for the denial of renewal and advised Testwell that, in accordance with
Because Testwell received the due process to which it was entitled, and because no hearing was held, the issue before us is whether respondents’ determination is supported by a rational
An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts (Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 231 [1974]; see also Matter of Arrocha v Board of Educ. of City of N.Y., 93 NY2d 361, 363-364 [1999]). Where the agency‘s determination involves factual evaluation within an area of the agency‘s expertise and is amply supported by the record, the determination must be acсorded great weight and judicial deference (see Matter of Medical Malpractice Ins. Assn. v Superintendent of Ins. of State of N.Y., 72 NY2d 753, 763 [1988], cert denied 490 US 1080 [1989]; Flacke v Onondaga Landfill Sys., 69 NY2d 355, 363 [1987]).
The first ground for the Department‘s determination was that Testwell violated
A license, being a personal privilege and not a vested right, is subject to reasonable restrictions by an issuing authority (see Big Apple Food Vendors’ Assn. v City of New York, 228 AD2d 282 [1996], appeal dismissed 88 NY2d 1064 [1996], lv denied 89 NY2d 807 [1997]; Matter of Lap v Axelrod, 95 AD2d 457 [1983], lv denied 61 NY2d 603 [1984]). Here, Testwell‘s alleged misconduct was directly related to the work for which it was issued a concrete testing laboratory license, and the Department
The second ground for the Department‘s determination was
The discretion of the Department extends to the determination of what constitutes untrustworthy conduct (see Matter of Gold v Lomenzo, 29 NY2d 468, 476-477 [1972]). In finding that Testwell violated section
“[a]ccording to the evidence, Testwell did not create four trial batches of concrete, and did not conduct compressive strength tests on any trial batсhes. Instead, the evidence showed that Testwell learned which mix recipe the concrete contractor, as opposed to the building‘s owner or project engineer, desired to be approved, and that, virtually always, Testwell used a computer program to create a false mix design report showing that the desired mix recipe had passed compressive strength testing. The fraud-
ulent test report was presented to a Testwell engineer, who certified the false report to bе genuine and recommended one of the four mix recipes for use in the building project.”
In this regard, Justice McLaughlin noted that 64 false mix design reports from at least nine different construction projects had been introduced into evidence before the grand jury. Further, as to Testwell‘s claim that it had used an alternate, acceptable method for testing the strength of concrete, Justice McLaughlin observed:
“This alternate method is called the previously accepted mix method, but the evidence before the Grand Jury does not suggest that Testwell used that alternate method. The evidence showed that the reports purported to show that Testwell had used the test batch method, not the previously accepted mix method, and that a test batch report does not resemble a previously accepted mix method report. Moreover, the evidence showed that Testwell did not follow any of the procedures or testing required under the test batch method, but that Testwell used a computer prоgram to generate the reports. From this evidence, the Grand Jury was entitled to infer that the defendants who prepared and approved of those reports knew that the reports were false and acted with intent to defraud the engineers, builders, and building owners who rely on those reports to plan and build a construction project.”
Based on the foregoing, the Department rationally found:
“In denying Testwell‘s omnibus motion, the trial court found the grand jury evidence sufficient to show that Testwell‘s reports purported to show that Testwell had used one method of generаting a concrete mix design when in fact it had used another . . . In fact, Testwell‘s motion papers in that case admit that it did not use the method purportedly reflected in the reports . . . [T]he finding of the trial court regarding the nature of the reports Testwell produced, coupled with its admissions, constitutes fraudulent dealings and poor moral character that adversely reflects on Testwell‘s fitness to conduct regulated work.”
As to Testwell‘s claim that its past conduct should be excused due to its alleged change in mаnagement, the issue here is not
Accordingly, the order of the Supreme Court, New York County (Jane S. Solomon, J.), entered September 1, 2009, which granted the amended petition to the extent of annulling the Department‘s August 12, 2009 and August 18, 2009 determinations, should be reversed, on the law, without costs, the petition denied and the proceeding brought pursuant to
Catterson, Renwick, DeGrasse and Manzanet-Daniels, JJ., concur.
Order, Supreme Court, New York County, entered September 1, 2009, reversed, on the law, without costs, the amended petition denied and the proceeding brought pursuant to