This case concerns a contract dispute between plaintiff-appellant Westinghouse Electric Corporation (“Westinghouse”), and defendants-appellees the New York City Transit Authority (“NYCTA”) and the Metropolitan Transportation Authority (“MTA”) (collectively herein “NYCTA” or the “Authority”). Following a series of conflicts between the parties concerning their contractual obligations, Westinghouse submitted a claim pursuant to the contract’s alternative dispute resolution (“ADR”) provision for damages and additional compensation. The ADR provision provided for dispute resolution by the NYCTA’s Superintendent, W.D. Westfall (the “Superintendent”). The Superintendent denied Westinghouse’s claim.
Westinghouse subsequently brought suit challenging the validity of the Superintendent’s decision and thе contract’s ADR provision. The United States District Court for the Southern District of New York (Haight,
J.)
upheld both the provision and the Superintendent’s determination.
See Westinghouse Elec. Corp. v. New York City Transit Auth,
BACKGROUND
Although a brief factual background of the ease was presented in our Certification to the New York Court of Appeals, see 990 F.2d at *820 77-79, the following more detailed description of the parties’ interactions is necessary for our review of the Superintendent’s determination.
In 1983, NYCTA аnd Westinghouse entered into a contract for the sale, delivery, and installation of power rectifier equipment to five substations for the New York City subway system. Over the course of Westinghouse’s performance under the contract, disputes arose as to whether NYCTA failed to give Westinghouse timely access to the various substations, whether NYCTA improperly deleted certаin contract work, and whether Westinghouse was being restrained from performing under the contract.
On November 3,1988, at a meeting held to resolve various disputes, Westinghouse notified the Superintendent that Westinghouse’s performance was- effectively suspended due to numerous longstanding issues relating to design, access, and other matters. Westinghouse further explained that the effective suspension of its work constituted a constructive “work stop order” pursuant to the com tract, and that Westinghouse would consider the contract terminated “for convenience” if the work restraints were not removed within 90 days. Westinghouse cited Article 2.07 of the contract, which provides as follows:
Stop Work Order, (a) The Authority may, at any time, by written order to the Contraсtor, require the Contractor to stop all, or any part, of the Work for a period of ninety (90) days (or any lesser period) after the order is delivered to the Contractor, and for any further period to which the parties may agree. Any such order shall be specifically identified as a “Stop Work Order” issued pursuant to this Article. Within the period of ninety (90) days (or the lesser period specified) after a stop work order is delivered to Contractor, or within any extension of that period to which the parties shall have agreed, the Authority shall either:
(i) cancel the stop work order, or
(ii) terminate the work covered by such order as provided in Article 2.08 — Termination for convenience by the Authority.
Also on November 3, 1988, Westinghouse submitted a letter reiterating the above points.
The Superintendent responded to Westinghouse in a letter dated November 14, 1988, explaining that there was no such thing as a “constructive work stop order,” and that the contract did not ordinarily provide for damages for delay. The Superintendent further explained that the contract provided for a dispute procedure for evaluating claims for compensable damagеs, and that he would recommend Westinghouse be declared in default of the contract if it abandoned the work.
Subsequently, on February 3, 1989, Westinghouse suspended performance under the contract. In its notification to NYCTA, Westinghouse claimed that NYCTA’s failure to remove certain impediments either physically prevented performance of the contract work, or so altered the work as to change the nature of the contractual obligations. The Superintendent responded by directing Westinghouse to discontinue all work pursuant to the contract. He explained that Westinghouse’s suspension of performance constituted a breach of contract, and that he would recommend it be held in default of the contract.
NYCTA then notifiеd Westinghouse that NYCTA was in the process of determining whether to declare Westinghouse in default of the contract, and directed Westinghouse to show cause as to why it should not be so found. In response, Westinghouse sought a meeting to discuss the issue of the default. NYCTA rejected the meeting proposal, and instead' invited Westinghouse to submit a written statement. Westinghouse did not submit a statemеnt, and informed NYCTA that it would be submitting a comprehensive claim on the contract.
On June 13,1989, based on Westinghouse’s abandonment of work, NYCTA declared Westinghouse in default- under the contract pursuant to Article 7.01 of the contract. On June 21, 1989, Westinghouse submitted a “Request for Additional Compensation and Time Extension.” Westinghouse sought payment for the cost of additional labor, materials and equipment, compensation for field office overhead and additional general and *821 administrative expenses, and damages caused by NYCTA’s deletion of contract work items. Westinghouse also requested that the default be rescinded, and asked for a Superintendent’s decision pursuant to Article 8.03 of the contract. Article 8.03 of the contract, in relevant part, provides as follows:
Disputes, (a) In the event the Contractor and Authority are unable to resolve their differences concerning a determination by the Superintendent, the Contractor may initiate a dispute in accordance with the procedure set forth in this Article. Exhaustion of these procedures shall be a precondition to any lawsuit permitted hereunder.
(b) The рarties to this contract authorize the Superintendent, acting personally, to decide all questions of any nature whatsoever arising out of, under, or in connection with, or in any way related to or on account of, this Contract (including claims in the nature of breach of contract or fraud or misrepresentation before or subsequent to acceptancе of the Bidder’s Proposal) ] and his decision shall be conclusive, final and binding on the parties.
On July 26, 1989, the Superintendent notified Westinghouse of his rejection of its claim. Specifically, he found “that as a result of the willful abandonment of and failure to complete the contract by Westinghouse, the contractor has forfeited any claim for any compensation by the Authority, and thаt the Authority is entitled to recover from Westinghouse all expenses and damages as stated in Chapter 7 of the contract.”
Westinghouse subsequently filed an action for breach of contract and reeision on August 2, 1989. Westinghouse contended that Article 8.03 contravened New York State public policy and was therefore void and unenforceable, and alternatively that the Superintendent’s decision was erroneous. NYCTA claimed that the ADR provision was enforceable and that the Superintendent’s decision was justified because of Westinghouse’s unilateral suspension of performance and failure to seek timely recourse under Article 8.03.
The district court granted summary judgment in favor of NYCTA.
See Westinghouse Elec. Corp. v. New York City Transit Auth.,
DISCUSSION
The first issue on this appeal concerns the validity of the contract’s ADR provision. Given the conflicting case lаw on the force of contract provisions appointing one of the parties to a contract as arbiter of all disputes arising out of that contract, we certified the question of the ADR provision’s validity to the New York Court of Appeals.
See Westinghouse Elec. Corp. v. New York City Transit Auth.,
We now turn to Westinghouse’s appeal of the district court’s determination of the merits of the Superintendent’s decision. We reviеw the district court’s grant of summary judgment
de novo, see Citizens Bank of Clearwater v. Hunt,
(c) If the Contractor protests the determination of the Superintendent, the Contractor may commence a lawsuit in a Court of competent jurisdiction of the State of New York under Article 78 of the New York Civil Practice Law and Rules or a United States Court in New York, under the procedures and laws applicable in that court, it being understood the review of the Court shall be limited to the question (sic) of *822 whether or not the Superintendent’s determination is arbitrary, capricious or so grossly erroneous to evidence bad faith.
(emphasis added).
The district court applied the above standard and found that “it is impossible ... to conclude that [the Superintendent] acted in an arbitrary, capricious or grossly erroneous manner.”
Westinghouse,
a. Challenge to the Standard of Review
Despite the clear language in the contraсt concerning the arbitrary and capricious standard of review, Westinghouse contends that we -should review the Superintendent’s determination under an “error of law” standard. Westinghouse grounds this argument in the reférence to Article 78 of the New York Civil Practice Law and Rules (“Article 78”) in Article 8.03(c) of the contract. Article 78 provides for special proceedings to challengе certain determinations. See N.Y.Civ. Prac.L. & R. § 7801 et seq. (McKinney 1981). Among the questions that may be raised in an Article 78 proceeding are “whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline impоsed.” Id. § 7803(3).
Because Article 78 allows for the review of an “error of law,” Westinghouse claims that should be the applicable standard of review. We disagree. We find that the contract clearly sets out an arbitrary and capricious standard of review, and that Article 78 is mentioned only as a procedural vehicle for commencing a lawsuit to challenge the Supеrintendent’s determination. Furthermore, although Article 78 provides for review of certain questions, it does not mandate that any proceeding initiated pursuant to it must thereby encompass each of those specified questions, nor does it preclude parties from contractually limiting the questions that might otherwise be presentable under Article 78. Here the parties expressly agreed that judicial review would be limited to the question of whether the Superintendent’s decision was “arbitrary, capricious or so grossly erroneous to evidence bad faith.”
In further support of its argument that the contract’s reference to Article 78 supports a broader standard of review than an arbitrary and capricious standard, Westinghouse relies on the fоllowing language used by the New York Court of Appeals in its affirmance of the ADR provision:
Most importantly, we conclude only that public policy has not been transgressed in this case, particularly because of the provision for judicial review of the adjudicator’s decision. That review, under the terms of the agreement, is by article 78 and thus allows broader review than the usual and stricter standards of arbitration award review in article 75.
Westinghouse,
if the court finds that the rights of that party were prejudiced by:
(i) corruption, fraud or misconduct in procuring the award; or
(ii) partiality of an arbitrator appointed as a neutral,-except where the award was by confession; or
(iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and *823 definite award upon the subject matter submitted was not made.
N.Y.Civ.Prac.L. & R. §'7511(b)(1) (McKinney 1981).
Accordingly, an arbitrary and capricious award is not ordinarily subject to Article 75 review.
See Motor Vehicle Mfrs. Ass’n of the United States, Inc. v. New York,
Is a contractual alternative dispute resolution (“ADR”) provision that ... subjects such determinations to judicial review limited to the question of whether or not such determinations are “arbitrary, capricious or so grossly erroneous to evidence bad faith, ” void as against the public policy of New York?
See Westinghouse,
For the foregoing reasons we limit our review of the Superintendent’s decision to the arbitrary and capricious standard specifically set forth in the contract.
b. Review of Superintendent’s Decision
Under New York law, a determination is arbitrary and capricious when it is said to be “without sound basis in reason.”
See Pell v. Board of Educ.,
There is no dispute that Westinghouse walked off the job on February 3, 1989. Such abandonment of work constituted a default under Artiсle 7.01 of the contract. Months later, Westinghouse then invoked Article 8.03 to submit a Request for Additional Compensation and Time Extension seeking $8,317,967.35 “for the extra costs it incurred as a result of unforeseeable site access delays, disruptions and interference during the performance of its contract, and changes in its scope of work.” The Superintendent determined that Westinghouse had forfeited its right to such relief because rather than abiding by Article 8.03’s dispute ' resolution procedure, it willfully abandoned the job.
Notably, this was not a “forfeiture” in the traditional sense — the Superintendent did not require the contractor to refund sums already paid under the contract, nor did he withhold a balance due for completed work, harsh remedies that are nonethеless available, for example, when a public contract is void because procured by bribery.
See S.T. Grand, Inc. v. City of New York,
Westinghouse challenges the above analysis. It contends, among other things, that in affirming the Superintendent’s determination, the district court resolved disputed issues of material fact. For example, Westinghouse claims that it is unclear whether it walked off the job without complying with the contract’s dispute resolution provision. It claims that the November 3, 1988 letter was a submission for purposes of Article 8.03. We find this argument wholly unpersuasive. Westinghouse did not make this argument to the district court, nor did it ever suggest to NYCTA that it was invoking Article 8.03. In fact, Westinghouse gave no response when the Superintendent responded to its threats *824 of walking off the job by explaining that there was a way to handle this under the contract.
In any event, even if we found that the November 3,1988 letter was a submission for purposes of Article 8.03, we still would not find that the Superintendent’s rejection of Westinghouse’s claim was arbitrary and capricious. Had Westinghouse submitted a claim, such submission does not necessarily justify its abandonment of work. We cannot find it arbitrary or capricious for the Superintendent to expect Westinghouse to continue its work while its claim was pending. Article 2.01 specifically provides that Westinghouse must “prosecute the work continuously and diligently.” Consequently, given the Superintendent’s reasonable conclusion that Westinghouse had abandoned its work when it walked off the job, it was equally reasonable to then find that Westinghouse had forfeited any right to additional compensation undеr the contract.
See American Standard, Inc. v. New York City Transit Auth.,
We have examined Westinghouse’s remaining contentions and find them to be without merit.
CONCLUSION
In sum, we find that the ADR provision at issue is not contrary to New York public policy, and that the applicable standard of review is the arbitrary and capricious standard expressly provided for in the contract. Applying that standard of review to the Superintendent’s determination, we affirm the judgment of the district court.