To be Argued by:
MARK C. ZAUDERER
(Time Requested: 30 Minutes)
APL # 2016-00202
New York County Clerk’s Index Nos. 403436/06,
590732/08, 591020/09, 591133/10 and 590318/12
Court of Appeals
of the
State of New York
DORMITORY AUTHORITY – STATE OF NEW YORK
and THE CITY OF NEW YORK,
Plaintiffs-Respondents,
– and –
NEW YORK CITY HEALTH AND HOSPITALS CORPORATION,
Plaintiff,
– against –
SAMSON CONSTRUCTION CO. (a/k/a Sansom Construction Co., Inc.
d/b/a Samson Construction Company, Samson Construction Co., Inc.
and Samson Construction Inc.),
Defendant,
(For Continuation of Caption See Inside Cover)
BRIEF FOR DEFENDANT-APPELLANT
MARK C. ZAUDERER
JASON T. COHEN
GRANT A. SHEHIGIAN
FLEMMING ZULACK WILLIAMSON
ZAUDERER LLP
Attorney for Defendant-Appellant
One Liberty Plaza, 35th Floor
New York, New York 10006
Tel.: (212) 412-9500
Fax: (212) 964-9200
Dated: January 18, 2017
– and –
PERKINS EASTMAN ARCHITECTS, P.C.,
Defendant-Appellant.
––––––––––––––––––––––––––––––
SAMSON CONSTRUCTION CO., INC.,
Third-Party Plaintiff,
– against –
HAYWARD BAKER, INC., VACHRIS ENGINEERING, P.C.
and AKRF ENGINEERING, P.C.,
Third-Party Defendants.
––––––––––––––––––––––––––––––
VACHRIS ENGINEERING, P.C.,
Fourth-Party Plaintiff,
– against –
MUESER RUTLEDGE CONSULTING ENGINEERS,
Fourth-Party Defendant.
––––––––––––––––––––––––––––––
PERKINS EASTMAN ARCHITECTS, P.C.,
Second Third-Party Plaintiff,
– against –
SEVERUD ASSOCIATES CONSULTING ENGINEERS, P.C., GILBANE
BUILDING COMPANY, TDX CONSTRUCTION CORPORATION, GILBANE
BUILDING COMPANY/TDX CONSTRUCTION CORPORATION, a Joint
Venture, and PILE FOUNDATION CONSTRUCTION COMPANY, INC.,
Second Third-Party Defendants.
––––––––––––––––––––––––––––––
SAMSON CONSTRUCTION CO., INC. and PILE FOUNDATION
CONSTRUCTION COMPANY, INC.,
Third Third-Party Plaintiffs,
– against –
ROADWAY CONTRACTING, INC., SOIL SOLUTIONS, INC.,
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,
KLINE IRON & STEEL CO., INC., A.J. MCNULTY
& COMPANY, INC. and SPX CORPORATION,
Third Third-Party Defendants.
i
CORPORATE DISCLOSURE STATEMENT
Pursuant to §500.1(f) of the Rules of the Court of Appeals, Defendant-
Appellant Perkins Eastman Architects, P.C. states that it has no publicly traded
parents, subsidiaries or affiliates.
ii
TABLE OF CONTENTS
Page
CORPORATE DISCLOSURE STATEMENT .......................................................... i
TABLE OF AUTHORITIES .................................................................................... iv
PRELIMINARY STATEMENT ............................................................................... 1
Why Was DASNY’S Duplicative Negligence Claim Allowed Here?
The Court Below Misapplied This Court’s Seminal Holding In
Sommer ............................................................................................................ 2
Why Is The City, Which Has No Contract With Perkins, Permitted
To Sue It For Breach Of Contract? .................................................................. 5
QUESTIONS PRESENTED ...................................................................................... 6
STATEMENT OF JURISDICTION.......................................................................... 7
STATEMENT OF FACTS ........................................................................................ 7
The Contract Between The City And DASNY ............................................... 7
The Contract Between DASNY And Perkins Eastman ................................... 8
The Contract Between DASNY And The Contractor ..................................... 9
Settlement And Damage To Adjacent Property ............................................ 10
Commencement Of The Lawsuit And Subsequent Appeal ........................... 12
ARGUMENT ........................................................................................................... 14
POINT I
DASNY CANNOT ASSERT A TORT CLAIM AGAINST
PERKINS THAT IS DUPLICATIVE OF ITS BREACH OF
CONTRACT CLAIM BECAUSE PERKINS DID NOT OWE AN
INDEPENDENT LEGAL DUTY TO DASNY AND BECAUSE
DASNY’S TORT AND CONTRACT DAMAGES ARE
IDENTICAL .................................................................................................. 14
A. Perkins Does Not Owe A Legal Duty To DASNY That Is
Independent Of Their Contract ........................................................... 16
iii
1. Perkins Did Not Violate Any Regulatory Scheme
Involving Public Safety ............................................................. 17
2. Perkins’ Alleged Breach Did Not Result In Sudden
“Catastrophic Consequences” That Posed A Serious
Threat To Public Safety ............................................................ 19
B. The Damages That DASNY Seeks Under Both Its Tort And
Contract Claims Are Identical ............................................................. 24
POINT II
THE CITY IS NOT AN INTENDED THIRD-PARTY
BENEFICIARY OF THE CONTRACT BETWEEN DASNY AND
PERKINS BECAUSE (1) IT IS NOT THE ONLY PARTY THAT
CAN RECOVER UNDER THE CONTRACT, AND (2) THE
CONTRACT DOES NOT EXPRESSLY CONFER INTENDED
BENEFICIARY STATUS UPON THE CITY.............................................. 30
A. DASNY Can Recover Under The Contract For The Same
Damages .............................................................................................. 33
B. There is No Express Language In The Contract Conferring
Third-Party Beneficiary Status Upon The City ................................... 34
C. The City Cannot Rely On Extra-Contractual Extrinsic
Evidence To Make It A Third-Party Beneficiary ................................ 36
D. This Court Should Reinforce Its Holdings In Port Chester
And Fourth Ocean To Exclude Reliance On Extrinsic
Evidence .............................................................................................. 39
CONCLUSION ........................................................................................................ 41
iv
TABLE OF AUTHORITIES
Page(s)
Cases:
Bd. of Managers of Riverview at College Point Condo. III v.
Schorr Bros. Dev. Corp.,
182 A.D.2d 664, 582 N.Y.S.2d 258 (2d Dep’t 1992) ................................... 38
Belgrave Owners, Inc. v. Or Holding Corp.,
233 A.D.2d 352, 650 N.Y.S.2d 249 (2d Dep’t 1996) ................................... 39
Bellevue S. Assocs. v. HRH Constr. Corp.,
78 N.Y.2d 282, 574 N.Y.S.2d 165 (1991) ............................................... 22, 26
Bloomfield v. Bloomfield,
97 N.Y.2d 188, 738 N.Y.S.2d 650 (2001) ..................................................... 33
Bocre Leasing Corp. v. Gen. Motors Corp. (Allison Gas Turbine Div.),
84 N.Y.2d 685, 621 N.Y.S.2d 497 (1995) ..................................................... 25
Clark-Fitzpatrick, Inc. v. Long Island R.R. Co.,
70 N.Y.2d 382, 521 N.Y.S.2d 653 (1987) ..............................................passim
Duane Reade v. SL Green Operating Partnership,
30 A.D.3d 189, 817 N.Y.S.2d 230 (1st Dep’t 2006) ..................................... 27
E. Coast Athletic Club, Inc. v. Chicago Title Ins. Co.,
39 A.D.3d 461, 833 N.Y.S.2d 585 (2d Dep’t 2007) ..................................... 39
Encore Lake Grove Homeowners Ass’n v. Cashin Assocs., P.C.,
111 A.D.3d 881, 976 N.Y.S.2d 143 (2d Dep’t 2013). .................................. 39
Espinal v. Melville Snow Contractors, Inc.,
98 N.Y.2d 136, 746 N.Y.S.2d 120 (2002) ..................................................... 15
Ferluckaj v. Goldman Sachs & Co.,
12 N.Y.3d 316, 880 N.Y.S.2d 879 (2009) ..................................................... 37
Fourth Ocean Putnam Corp. v. Interstate Wrecking Co.,
66 N.Y.2d 38, 495 N.Y.S.2d 1 (1985) ....................................................passim
Kerusa Co. v. W10Z/515 Real Estate Ltd. P’ship,
50 A.D.3d 503, 858 N.Y.S.2d 109 (1st Dep’t 2008) ..................................... 37
Lake Placid Club Attached Lodges v. Elizabethtown Builders, Inc.,
131 A.D.2d 159, 521 N.Y.S.2d 165 (3d Dep’t 1987) ................................... 38
v
LaSalle Nat’l Bank v. Ernst & Young LLP,
285 A.D.2d 101, 729 N.Y.S.2d 671 (1st Dep’t 2001) ............................. 39-40
Matter of Greiff,
92 N.Y.2d 341, 680 N.Y.S.2d 894 (1998) ..................................................... 33
Miller v. Cont’l Ins. Co.,
40 N.Y.2d 675, 389 N.Y.S.2d 565 (1976) ..................................................... 15
New York Univ. v. Cont’l Ins. Co.,
87 N.Y.2d 308, 639 N.Y.S.2d 283 (1995) ................................... 18, 19, 26, 29
Port Chester Elec. Constr. Corp. v. Atlas,
40 N.Y.2d 652, 389 N.Y.S.2d 327 (1976) ..............................................passim
Sommer v. Federal Signal Corp.,
79 N.Y.2d 540, 583 N.Y.S.2d 957 (1992) ..............................................passim
Trustees of Columbia Univ. in City of N.Y. v.
Gwathmey Siegel & Assocs. Architects,
192 A.D.2d 151, 601 N.Y.S.2d 116 (1st Dep’t 1993) ....................... 20, 23, 27
U.S. Bank Nat’l Ass’n v. GreenPoint Mortgage Funding, Inc.,
105 A.D.3d 639, 965 N.Y.S.2d 401 (1st Dep’t 2013), leave to
appeal denied, No. 2013-1140, 2014 WL 702159 (Feb. 25, 2014) .............. 40
Verizon N.Y., Inc. v. Optical Commc’ns Group, Inc.,
91 A.D.3d 176, 936 N.Y.S.2d 86 (1st Dep’t 2011) ....................................... 20
Statutes & Other Authorities:
CPLR 5602(b)(1) ....................................................................................................... 7
1
PRELIMINARY STATEMENT
Defendant-Appellant Perkins Eastman Architects, P.C. (“Perkins”) submits
this brief in support of its appeal from the order of the Appellate Division, First
Department, dated March 3, 2016 (the “Order”), that (i) permitted, over a dissent,
plaintiff-respondent Dormitory Authority of the State of New York (“DASNY”) to
assert a negligence claim against Perkins that is entirely duplicative of its contract
claim, even though DASNY could fully recover any damages under its contract
with Perkins, and (ii) reversed the motion court, thereby allowing plaintiff-
respondent City of New York (the “City”) to assert a claim against Perkins as a
third-party beneficiary despite the fact that the contract between Perkins and
DASNY does not designate the City as a third-party beneficiary, and the City
claims no damages separate from those claimed by DASNY.
This dispute arises from an architectural services contract between DASNY,
as owner, and Perkins, as architect, for the design of a facility that would house a
forensic laboratory for the City’s Office of the Chief Medical Examiner. As a
result of excavation work performed by a contractor hired by DASNY (not by
Perkins), an adjacent building settled at times over the course of two years, causing
repairable damage to the building and other adjacent structures. No person was
injured or faced threat of injury as a result of the settlement. DASNY and the City
jointly filed a complaint asserting identical breach of contract and negligence
2
causes of action and identical damages against Perkins: solely the cost of fixing
damage caused by the contractor’s work and resulting settlement.
Why Was DASNY’S Duplicative Negligence Claim Allowed Here?
The Court Below Misapplied This Court’s Seminal Holding In Sommer
New York courts have long recognized the principle of affording parties the
freedom to contract and resolve disputes arising out of the performance of that
contract by reference to the contract’s terms. This keystone principle empowers
parties to freely negotiate contracts to mutually establish their respective rights and
interests and to manage their risks. It gives parties a level of certainty and
predictability as to how they should perform under a contract, to whom they owe
duties under that contract, and the consequences if they fail to perform. Consistent
with this policy, New York jurisprudence generally prohibits a party to a contract
from asserting a tort claim based on the same conduct that constitutes an alleged
breach of the contract.
This Court’s decision in Sommer v. Federal Signal Corp., 79 N.Y.2d 540,
583 N.Y.S.2d 957 (1992), required the Court to delve into the murky intersection
between contract and tort – a distinction that is critical on this appeal. In Sommer,
the owner of a midtown Manhattan building contracted with Holmes Protection,
Inc. to provide central station fire alarm monitoring. A Holmes employee failed to
notify the fire department after he received fire signals from the building and, as a
3
result, the building suffered serious damage when a four-alarm fire spread out of
control. Defending a lawsuit brought by the building owner, Holmes invoked a
contract clause that limited its liability to the lesser of $250 or 10% of the annual
service charge “as liquidated damages.” Were the building owner able to proceed
on a tort theory, its potential recovery would have included compensation well in
excess of the capped damages under the contract.
On the appeal, this Court examined the case law in the context of two critical
features that together permit a tort claim to be asserted by a contracting party:
first, a legal duty independent of obligations imposed by contract, such as not
creating a risk of “catastrophic consequences”; and second, an injury that is
separate from that flowing from the contractual breach, such as personal injury or
damage to property not covered by the contract.
As the Court noted in Sommer:
Fire alarm companies thus perform a service affected
with a significant public interest; failure to perform the
service carefully and competently can have catastrophic
consequences. The nature of Holmes’ services and its
relationship with is customer therefore gives rise to a
duty of reasonable care that is independent of Holmes’
contractual obligations.
79 N.Y.2d at 553, 583 N.Y.S.2d at 962. With this template established, this Court
allowed a tort claim to proceed.
4
The Sommer test can be summarized as follows: Suppose A and B have a
contract whose terms fully cover the parties’ obligations to one another. For a tort
claim, there must be (a) a duty separate from those imposed by the contract; and
(b) separate damages to person or property not rectifiable under the contract. Thus,
there were in Sommer: (a) a duty of care to the public at large (a violation of
which could potentially vitiate the contractual limitation of liability clause); and (b)
separate damages to a person or property (fire damage in excess of the limitation of
liability). As the Court held, “Thus, where plaintiff is essentially seeking
enforcement of the bargain, the action should proceed under a contract theory.”
The tort claim allowed here by the Appellate Division fails the Sommer test.
In order for Perkins to owe a duty to DASNY independent of the duties set forth in
their contract, DASNY must demonstrate that the imposition of such a duty would
advance the State’s interest in protecting public safety. However, the factors that
Sommer looks to are not present here: Perkins’ work did not violate any regulatory
scheme involving public safety; its alleged breach did not result in a sudden,
cataclysmic event that posed a serious threat to public safety; and there are no
unique damages asserted that are recoverable in tort but not contract. To the
contrary, plaintiffs’ pleading asserts the same damages for both causes of action.
Employing the Sommer rationale, allowing a tort claim would be meaningless, as it
will not benefit DASNY or the public or incentivize different behavior. It logically
5
follows, therefore, that because there is no benefit to the public and no greater
incentive for Perkins to perform, there is no reason to disturb the parties’
contractual relations to permit the assertion of a duplicative tort claim. Indeed, it
would be contrary to the public purpose of allowing parties to manage risks and
uncertainty through contract.
Why Is The City, Which Has No Contract With
Perkins, Permitted To Sue It For Breach Of Contract?
Based on this Court’s decisions in Port Chester Elec. Const. Corp. v. Atlas
and Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., third-parties may
assert contract claims only when it is clear from the express language of the
contract that the parties intended it or, based on public policy considerations, when
no one other than the third-party could recover for the promisor’s breach. The
City’s contract claim against Perkins should be dismissed because the parties did
not expressly make the City an intended third-party beneficiary in the Perkins-
DASNY contract. The City’s claim is also deficient because the City is not the
only party that can recover under the contract. To the contrary, DASNY is seeking
to recover under the contract for the same damages based on the same conduct as
the City. Any remedy the City may have should be asserted against DASNY,
pursuant to its contractual relationship.
6
QUESTIONS PRESENTED
1. Should a tort claim be dismissed as duplicative of a breach of contract claim
when there is no legal duty owed to the plaintiff by the promisor that is
independent of the promisor’s duty under the contract and when the
plaintiff’s alleged tort damages are identical to the alleged contract
damages?
The Appellate Division, First Department affirmed the Supreme Court and
answered the question in the negative over a dissent. The Appellate
Division, First Department granted leave to appeal.
2. Should a breach of contract claim asserted by a third-party be dismissed
when the language of the contract does not clearly evidence an intent by the
parties to permit enforcement by the third party and when that third-party is
not the only party capable of recovering damages under the contract?
The Appellate Division, First Department reversed the Supreme Court and
answered the question in the negative. The Appellate Division, First
Department granted leave to appeal.
7
STATEMENT OF JURISDICTION
This Court has jurisdiction over the instant appeal pursuant to CPLR
5602(b)(1), because the Appellate Division, First Department granted leave to
appeal from an order that did not finally determine an action. R.4.
STATEMENT OF FACTS
The Contract Between The City And DASNY
In 2000, the City decided to build a facility that would house a forensic
laboratory for the Office of the Chief Medical Examiner of the City of New York
on City-owned land next to Bellevue Hospital in Manhattan. R.5-6 (Order); 92
(Plaintiffs-Respondents’ Verified Complaint, dated February 1, 2007 (the
“Complaint”), at ¶ 8). DASNY, a New York State public authority that provides
professional services and expertise for the financing and construction of public
projects, was responsible for the planning, design and construction of the
laboratory. R.6 (Order); 92 (Complaint at ¶ 9).
The City and DASNY entered into a Project Management Agreement
(“PMA”) for the construction of the facility in August 2001 pursuant to which
DASNY would contract for, oversee and manage the construction of the facility.
R.92 (Complaint at ¶¶ 9, 11); 626-627 (PMA). The Project Management
Agreement provides that DASNY “shall contract for the design of the Project
directly” and “administer the design contract” (R.627 (PMA at II(A))); that all
8
construction contracts “shall be awarded, held and administered” by DASNY
(R.628 (PMA at II(C))); and that the relationship between DASNY and the City is
“one of an independent contractor and its client” and “not to be construed as
creating an agency relationship” between them (R.641 (PMA at XI)).
The Contract Between DASNY And Perkins Eastman
DASNY retained Perkins in July 2001 to serve as the architect. R.6 (Order);
130-178 (DASNY-Perkins Contract). The contract is between DASNY, as
“OWNER,” and Perkins, as “ARCHITECT,” only. R.130 (DASNY-Perkins
Contract). All rights and responsibilities that DASNY and Perkins had under the
contract were only to each other. For example, Perkins would report, make
recommendations, and otherwise provide services only to DASNY. See, e.g.,
R.156-158 (DASNY-Perkins Contract at Appendix A(II)(H)). In return for those
services, it was DASNY, and only DASNY, which would compensate Perkins for
its work on the project and reimburse Perkins’ expenses. R.131-135 (DASNY-
Perkins Contract at Articles V-VIII).
Although the contract provides for certain entities to be named as Perkins’
insureds (R.135 (DASNY-Perkins Contract at Article XI(A)(3)(a))), and identified
the ultimate end-users of the project as the Office of the Chief Medical Examiner,
New York City Police Department and New York City Fire Department (R.148
(DASNY-Perkins Contract at Appendix A(I)), no other party signed the contract,
9
was bound by the contract, or was expressly afforded any rights or subjected to any
obligations under the contract.
The DASNY-Perkins contract includes liability provisions. First, the parties
agreed that any “[e]xtra costs to the OWNER resultant from design errors or
omissions shall be recoverable from the ARCHITECT and/or its Professional
Liability Insurance carrier.” R.138 (DASNY-Perkins Contract at Article XIV).
Second, Perkins would “indemnify and hold harmless” DASNY “against all claims
arising out of the negligent acts, alleged negligent acts, or failure to act” by
Perkins. R.138 (DASNY-Perkins Contract at Article XII). The contract
encompasses the claims asserted by DASNY against Perkins for its alleged failure
to perform under the contract – the very claims that are also the subject of
DASNY’s negligence claims. No provision limits Perkins’ potential liability under
the contract.
The Contract Between DASNY And The Contractor
In January 2002, DASNY retained Samson Construction Co. (“Samson”).
R.6 (Order); 93 (Complaint at ¶ 14). Perkins, as architect, has no contractual
relationship with Samson. Samson was responsible for site excavation, excavation
support and constructing the foundation. R.6 (Order); 93-94 (Complaint at ¶ 14).
The DASNY-Samson contract makes Samson responsible for protecting “all
adjoining property” and repairing or replacing “any said property damaged or
10
destroyed during the progress of the Work.” R.763 (DASNY-Samson Contract at
§14.04). Neither the DASNY-Samson contract nor the DASNY-Perkins contract
makes Perkins responsible for Samson’s work or to see that Samson’s work was
performed properly.
Moreover, unlike the DASNY-Perkins contract, the DASNY-Samson
contract contained an express third-party beneficiary provision:
It is understood that the Client [the City] is an intended
third party beneficiary of the Contract for the purposes of
recovering any damages caused by the Contractor.
R.786 (DASNY-Samson Contract at § 20.19). No such or similar provision
appears in the DASNY-Perkins contract.
Settlement And Damage To Adjacent Property
In or about May 2002, Samson began installation of its excavation support
system that Samson conceived and designed, and for which it was responsible. R.6
(Order); 93-94 (Complaint at ¶¶ 14-16). The excavation support consisted of a
series of interlocking steel sheets driven into the ground. R.94 (Complaint at ¶ 16).
Approximately two weeks after Samson commenced sheet driving, the adjacent
Bellevue Hospital building, known as the C&D building, settled. R.6 (Order);
R.94 (Complaint at ¶ 16). The settling, a result of vibrations, occurred when
Samson, with DASNY’s approval, drove the steel sheets through obstructions in
contravention of Project specifications. R.94 (Complaint at ¶ 16); 222-223
11
(Excerpt of Transcript of Deposition of Edward F. Wagner, DASNY’s project
manager (“Wagner Tr.”), at pp. 1147-1150); 275-276 (Wagner Tr. at pp. 193-196);
301-302 (LERA Report, dated June 13, 2003, at pp. 5-6).
The C&D Building settled a second time in mid-July 2002 after Samson
again drove sheets through obstructions. R.236 (Wagner Tr. at p. 1859); 294
(Wagner Tr. at p. 2487-2488); 302-303 (LERA Report at pp. 6-7).
Further settlement also occurred in January 2003. R.94-95 (Complaint at ¶¶
18-20); 285-286 (Wagner Tr. at pp. 456-457, 461); 326 (Wagner Tr. at p. 583).
Respondents attribute this settlement to Samson’s “failure to properly install [its]
Steel Sheeting System, leaving below-grade openings which allowed water to enter
the excavation site….” R.95 (Complaint at ¶ 19).
Respondents contend that the final instance of purported settlement
occurred:
On or about August 26, 2003, [when] Samson damaged
[its] Steel Sheeting System by removing a section of steel
plating which had been placed too close [to] an opening
in [its] Steel Sheeting System. When the plat[e] was
removed, water and soil rushed into the excavation site.
R.95 (Complaint at ¶ 21); see also R.329 (DASNY Quality Assurance Trip Report,
dated September 4, 2003, at 3.1.1); 343-344 (Wagner Tr. at pp. 772-773).
Additionally, Respondents allege that this “settlement further damaged...nearby
sewer and water mains.” R.95 (Complaint at ¶ 21).
12
Although the settlement of the C&D building caused some damage to
structures adjacent to the project site, such as sidewalks and roadbeds, no person
was injured or ever faced threat of injury as a result of the settlement.
Commencement Of The Lawsuit And Subsequent Appeal
In August 2006, Respondents commenced this action with a Summons with
Notice, which did not name Perkins. R.707-709 (Summons with Notice). Perkins
was added as a defendant in February 2007. R.88-101 (Complaint). DASNY and
the City both asserted contract and negligence claims against Perkins for the same
damages,1 totaling $37 million, for the cost of fixing damage to the project site and
adjacent properties caused by Samson’s work. R.7 (Order); 99-100 (Complaint);
351 (OCME DNA Lab Summary). No other damage or injury was alleged.
Perkins moved for summary judgment to dismiss (1) DASNY’s negligence
claim as duplicative of its breach of contract claim, and (2) the City’s contract
claims on grounds that the City was not an intended third-party beneficiary of the
DASNY-Perkins contract. The motion court denied the motion as to DASNY’s
duplicative negligence claim and dismissed the City’s contract claim on the
grounds that the City is not a third-party beneficiary. R.55-60 (Motion Court
Order at pp. 23-28).
1 The City’s negligence cause of action against Perkins was dismissed on statute of
limitations grounds. R.60-64 (Decision and Order of Supreme Court, New York
County, dated February 27, 2013 (the “Motion Court Order”), at pp. 28-32).
13
On appeal, the First Department affirmed, with a dissent, the motion court’s
decision to permit DASNY to proceed with its duplicative negligence claim. It did
so after concluding that there was a factual question as to whether Perkins assumed
an independent legal duty as an architect, and whether the project was so affected
with the public interest that Perkins’ failure to comply with the relevant
professional standards could result in catastrophic consequences. R.9-10 (Order).
The dissent vigorously disagreed, noting that “there are no issues of fact presented
whether the project was so affected with the public interest that any alleged failure
by Perkins resulted in catastrophic consequences” and that therefore, “DASNY
cannot claim a legal duty on the part of Perkins independent of Perkins’ contractual
obligations, and the cause of action for negligence is duplicative and should be
dismissed.” R.15-16 (Order, Tom, J.P., dissenting). The majority also reversed
the motion court’s dismissal of the City’s contract claim, holding that the City
raised an issue of fact as to whether it is an intended third-party beneficiary. R.7
(Order).
14
ARGUMENT
POINT I
DASNY CANNOT ASSERT A TORT CLAIM AGAINST PERKINS
THAT IS DUPLICATIVE OF ITS BREACH OF CONTRACT CLAIM
BECAUSE PERKINS DID NOT OWE AN INDEPENDENT LEGAL
DUTY TO DASNY AND BECAUSE DASNY’S TORT
AND CONTRACT DAMAGES ARE IDENTICAL
It has long been the general rule in New York that a tort claim based upon
the same facts as a breach of contract claim will be dismissed as duplicative of the
contract claim. Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 551-53, 583
N.Y.S.2d 957, 961-62 (1992); Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70
N.Y.2d 382, 389-90, 521 N.Y.S.2d 653, 656-57 (1987). This Court’s decisions
have established a narrow exception to this rule: a party to a contract may assert a
tort claim against the party that allegedly breached the contract only when (i) the
breaching party owed the plaintiff a legal duty that is independent of the contract,
and (ii) the plaintiff’s tort damages are unique or otherwise different from the
alleged contract damages. See Sommer, 79 N.Y.2d at 551-53, 583 N.Y.S.2d at
961-62; Clark-Fitzpatrick, 70 N.Y.2d at 389-90, 521 N.Y.S.2d at 656-57. In other
words, a plaintiff may assert a tort claim in addition to a contract claim when that
tort claim is based on both a separate duty and a separate injury.
This exception recognizes that public policy concerns, such as the protection
of the public from serious threats of physical injury that may result from a breach
15
of contract (which would give rise to an independent duty of care) and the need to
incentivize the promisor to competently perform under the contract (by subjecting
the promisor to different or additional damages in the event of a breach), may,
under limited circumstances, take priority over the countervailing policy that
disputes between contracting parties should be resolved by reference to the
contract’s terms. See generally Espinal v. Melville Snow Contractors, Inc., 98
N.Y.2d 136, 138, 746 N.Y.S.2d 120, 122 (2002) (negligence must be based on
breach of duty; “the existence and scope of a duty is a question of law requiring
courts to balance sometimes competing public policy considerations”); Miller v.
Cont’l Ins. Co., 40 N.Y.2d 675, 679, 389 N.Y.S.2d 565, 568 (1976) (“[T]he usual
and most important function of courts of justice is rather to maintain and enforce
contracts than to enable parties thereto to escape from their obligation on the
pretext of public policy….”) (quotation and citation omitted).
DASNY cannot establish a right to extra-contractual relief because it cannot
make either of the requisite showings. It cannot demonstrate that Perkins owed it a
legal duty that is independent of their contract. And its alleged tort damages are no
different than its alleged contract damages. Consequently, no public policy
concern warrants an exception to the general rule that a party cannot recover in tort
for the same damages for which it is seeking to recover under its contract claim, or
16
for disturbing the policy that contract disputes should be resolved by reference to
the contract.
A. Perkins Does Not Owe A Legal Duty To
DASNY That Is Independent Of Their Contract
For a party to a contract to assert both a contract claim and tort claim based
upon the same underlying facts, that party must first establish that the promisor
owed it a legal duty independent of the contract. As this Court held in Clark-
Fitzpatrick, “It is a well-established principle that a simple breach of contract is not
to be considered a tort unless a legal duty independent of the contract itself has
been violated.” 70 N.Y.2d at 389, 521 N.Y.S.2d at 656 (citations omitted). This
Court added that the “legal duty must spring from circumstances extraneous to, and
not constituting elements of, the contract, although it may be connected with and
dependent upon the contract.” Clark-Fitzpatrick, 70 N.Y.2d at 389, 521 N.Y.S.2d
at 656-57 (citation omitted).
In Sommer-- a landmark decision addressing the “borderland between tort
and contract” -- this Court explained when and why a legal duty independent of a
party’s contractual obligations may arise. 79 N.Y.2d at 550, 583 N.Y.S.2d at 960.
In doing so, the Court identified factors rooted in a policy of public safety that help
determine whether such a duty exists. These factors include: (i) whether the
promisor violated any regulatory scheme involving public safety; and (ii) whether
17
the failure to perform under the contract with due care could result in sudden
“catastrophic consequences” or an “abrupt, cataclysmic occurrence” that poses a
serious threat to public safety. Sommer, 79 N.Y.2d at 551-53, 583 N.Y.S.2d at
961-62.
Here, examination of these factors demonstrates that the imposition of an
independent legal duty on Perkins is not warranted; nor would it advance the
State’s interest in protecting the public.
1. Perkins Did Not Violate Any
Regulatory Scheme Involving Public Safety
As set forth in Sommer, an important factor in determining whether a
promisor owed a promisee a duty that is independent of their contract is whether
the promisor’s breach violated a regulatory scheme designed to protect the public
safety. Unlike in Sommer, there is no allegation here that Perkins violated any
regulations, let alone regulations designed to protect the public safety.
In Sommer, this Court held that a fire alarm company hired to provide
central station monitoring service owed its customer a duty of reasonable care
independent of its contractual obligations, and that the alarm company could be
held liable in tort for allegedly breaching that duty when its “untrained,
inexperienced” employee failed to transmit fire alarm signals. 79 N.Y.2d at 548-
49, 552-53, 583 N.Y.S.2d at 959, 962. In reaching this conclusion, the Court cited
18
“New York City’s comprehensive scheme of fire-safety regulations,” including
regulations permitting penalties to be imposed on central station operators “for
failing to transmit alarm signals, provide qualified operators, and other acts and
omissions,” as reflecting a “significant public interest” in the careful performance
of a fire alarm services contract. Sommer, 79 N.Y.2d at 552-53, 583 N.Y.S.2d at
962.
A few years after deciding Sommer, this Court addressed this factor in New
York Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283 (1995). In that
case, an insured sued its insurer for breach of contract for failing to pay an
insurance claim, and also sought punitive damages. New York Univ., 87 N.Y.2d at
314-15, 639 N.Y.S.2d at 286-87. This Court dismissed the insured’s claim for
punitive damages after concluding that the insurer’s denial of coverage was not
actionable as an independent tort, even though the insurer may have violated
certain provisions of New York’s Insurance Law. New York Univ., 87 N.Y.2d at
316-20, 639 N.Y.S.2d at 287-90. In so holding, this Court analyzed Sommer and
clarified that the existence of statutory or regulatory provisions related to the
services due under a contract do not “necessarily or generally impose tort duties
independent of contractual obligations.” New York Univ., 87 N.Y.2d at 317, 639
N.Y.S.2d at 288. It further explained:
19
To be sure, the provisions of the Insurance Law reflect
State policy that insurers must deal fairly with their
insureds and the public at large. But governing the
conduct of insurers and protecting the fiscal interests of
insureds is simply not in the same league as the
protection of the personal safety of citizens. As
compared to the fire-safety regulations cited in Sommer,
the provisions of the Insurance Law are properly viewed
as measures regulating the insurer’s performance of its
contractual obligations, as an adjunct to the contract, not
as a legislative imposition of a separate duty of
reasonable care.
New York Univ., 87 N.Y.2d at 317, 639 N.Y.S.2d at 288 (citations omitted).
Therefore, based on this Court’s prior holdings in Sommer and New York
Univ., a promisor’s violation of a regulatory scheme will not give rise to an
independent duty unless that regulatory scheme concerned “the protection of the
personal safety of citizens.” New York Univ., 87 N.Y.2d at 317, 639 N.Y.S.2d at
288.
Here, there has been no allegation that Perkins violated any relevant statutes
or regulations. As a result, plaintiffs have not demonstrated that Perkins owed an
independent duty to DASNY.
2. Perkins’ Alleged Breach Did Not Result In Sudden “Catastrophic
Consequences” That Posed A Serious Threat To Public Safety
Another factor identified in Sommer for determining whether a promisor
owes a promisee a duty independent of their contract is whether the failure to
perform under the contract with due care could result in sudden “catastrophic
20
consequences” or an “abrupt, cataclysmic occurrence” that poses a serious threat to
public safety. 79 N.Y.2d at 553, 583 N.Y.S.2d at 962.
The First Department has described this factor as “one of the most
significant elements in determining whether the nature of the type of services
rendered gives rise” to such an independent duty. Trustees of Columbia Univ. in
City of N.Y. v. Gwathmey Siegel & Assocs. Architects, 192 A.D.2d 151, 154, 601
N.Y.S.2d 116, 118 (1st Dep’t 1993); see also Verizon N.Y., Inc. v. Optical
Commc’ns Group, Inc., 91 A.D.3d 176, 181, 936 N.Y.S.2d 86, 90 (1st Dep’t
2011); R.13-14 (Order, Tom, J.P., dissenting). Nevertheless, this “significant”
factor has been inconsistently interpreted and applied by lower courts, and wrongly
applied by the majority in its decision below.
In the decision below, the majority, over a vigorous dissent, permitted
DASNY to assert a tort claim in addition to a contract claim on the basis that
failure by Perkins to perform the contract and comply with relevant professional
standards could have had “catastrophic consequences.” R.9-10 (Order). It did so
even though the harm caused by Perkins’ alleged breach occurred over a two-year
period, never posed an actual threat to public safety, and was fully cured. R.9-10
(Order), 13-15 (Order, Tom, J.P., dissenting). As observed in the dissent, the
“catastrophic consequences” factor had never before been interpreted as broadly by
an appellate court. See R.15-16 (Order, Tom, J.P., dissenting).
21
The dissent further explained, based on the record, that “no ‘catastrophic’
harm is or could be alleged in this case. The settling of the building took place
gradually over a couple of years and never posed a serious threat to the public’s
safety.” R.14 (Order, Tom, J.P., dissenting). The dissent observed that the alleged
breach of contract by Perkins never resulted in an actual and serious threat to the
public safety, but, “resulted only in the delay of the project and additional costs
expended for repairs to the sidewalks, roadbeds, sewers and water systems as a
result of the settling of the foundation of the adjoining building.” R.15 (Order,
Tom, J.P., dissenting).
If lower courts interpret the catastrophic consequences factor as broadly as
the majority did below, it would substantially expand the number of tort claims
asserted between contract parties and expose promisors to claims contemplated
neither by them nor this Court when it articulated this factor in Sommer. This
Court’s guidance is therefore needed to reinforce and limit the requirement of
“catastrophic consequences” resulting from an “abrupt, cataclysmic occurrence” to
give rise to an independent duty. This Court should adopt the reasoning set forth
in the dissent below, and hold that consequences are not “catastrophic” and cannot
give rise to an independent duty unless those consequences occurred suddenly and
posed “actual, not hypothetical, threats to the public safety.” R.14-16 (Order,
Tom, J.P., dissenting).
22
Limiting the catastrophic consequences factor to circumstances in which the
harm both occurred suddenly and posed an actual and serious threat to public
safety is necessary, because otherwise, the exception would swallow the rule. In
theory, the failure to perform or the improper performance of almost any service,
under almost any construction contract, could result in hypothetical catastrophic
consequences. Thus, if the limitation described in the dissent is not reinforced by
this Court, this factor could almost always be construed by a court in favor of
finding that the promisor owed the promisee an independent duty.
This limitation is not only necessary, but is practical and easily understood
and applied, as every appellate court prior to the majority’s decision below has
limited the application of the “catastrophic consequences” factor to circumstances
in which the harm was sudden and posed an actual threat to the public. For
example, the harm in Sommer that this Court addressed was “a fire that spread out
of control” in a 42-story skyscraper, which the Court described as an “abrupt,
cataclysmic occurrence.” 79 N.Y.2d at 553, 583 N.Y.S.2d at 962. A year prior to
Sommer, this Court rejected a plaintiff’s attempt to assert a duplicative tort claim in
Bellevue S. Assocs. v. HRH Constr. Corp., because the injury complained of --
delamination of floor tiles over a period of years -- was not an “abrupt, cataclysmic
occurrence.” 78 N.Y.2d 282, 294, 574 N.Y.S.2d 165, 170 (1991).
23
Similarly, Appellate Division cases finding an independent duty as a result
of catastrophic consequences involve sudden events that posed a real and
immediate threat to public safety. See. e.g., Trustees of Columbia Univ. in City of
N.Y., 192 A.D.2d at 154-55, 601 N.Y.S.2d at 118 (“sudden extremely dangerous
partial collapse of the façade” in courtyard of campus could have struck and killed
students and other pedestrians, and required emergency safety measures to prevent
continued risk of injury).
This Court should limit “catastrophic consequences” to those circumstances
in which the alleged harm occurred suddenly and posed an actual threat to public
safety; and it should adopt the view of the dissent and conclude that Perkins’
alleged breach of contract did not result in any catastrophic consequences, as the
alleged damages occurred over a two-year period and never posed any public
safety threat.2
2 The Court in Sommer also identified as a factor whether there is a special
relationship of trust between the parties. It stated that “A legal duty independent of
contractual obligations may be imposed by law as an incident to the parties’
relationship. Professionals, common carriers and bailees, for example, may be
subject to tort liability for failure to exercise reasonable care, irrespective of their
contractual duties.” Sommer, 79 N.Y.2d at 551, 583 N.Y.S.2d at 961. Although
Perkins, as an architect, is a professional and may be said to have a special
relationship of trust with DASNY, this factor, by itself, does not outweigh the
other factors identified by the Court. This is true especially when, as here, the
public safety was not affected by the parties’ relationship of trust. Moreover, if
this factor were, by itself, sufficient, it would essentially render moot the tenet that
negligent performance of a contract does not give rise to a tort claim as it applies to
architects and other professionals.
24
B. The Damages That DASNY Seeks Under Both
Its Tort And Contract Claims Are Identical
Even if DASNY could prove that Perkins owes it a duty of care that is
independent of the contract, DASNY’s tort claim still should be dismissed as
duplicative because the damages sought by DASNY under both its tort and
contract claims are identical. Requiring a plaintiff, like DASNY, to seek different
or additional damages under a tort claim is both necessary for policy reasons and
consistent with this Court’s prior jurisprudence.
New York courts have long recognized the policy of affording parties the
freedom to contract and resolving any disputes arising out of the performance of
that contract by reference to and enforcement of the contract’s terms. This policy,
in turn, led to the general rule that a tort claim based upon the same facts as a
breach of contract claim should generally be dismissed as duplicative of the
contract claim.
The only policy-based reason for creating an exception to the general rule is
to permit the plaintiff, in order to advance the State’s countervailing interest in
public safety, to obtain some remedy or measure of damages that it otherwise
would not have been entitled to under a contract theory alone. If the plaintiff may
pursue different or additional damages, the promisor would be incentivized to
carefully perform its duties so as to avoid any potential tort claims that exposed it
25
to liability beyond that available in contract. This, in turn, would advance the
State’s interest in protecting the public from a party’s failure to perform.
On the other hand, if the plaintiff cannot obtain any different or additional
damages under a tort theory, then the tort claim would be duplicative of the
contract claim and provide no meaningful benefit to either the plaintiff or the
public at large. This Court has recognized that, when the damages that a plaintiff
seeks under tort are the same as the damages it seeks under contract, there is no
incentive for the defendant to act differently or perform its duties more carefully.
See Bocre Leasing Corp. v. Gen. Motors Corp. (Allison Gas Turbine Div.), 84
N.Y.2d 685, 690-91, 621 N.Y.S.2d 497, 499-500 (1995) (concluding that where
the alleged damages are only contractual-based losses, the “safety incentive
rationale” for permitting separate tort claims “dissolves”).
Here, because the damages that DASNY seeks in tort are identical to the
damages it seeks in contract, there is no public benefit to be gained by permitting
DASNY to assert both claims. The imposition of the tort claim will not incentivize
any different behavior, and worse, it would be contrary to the public policy of
allowing parties to manage risks and uncertainty through contract. See Bocre
Leasing Corp., 84 N.Y.2d at 691-92, 621 N.Y.S.2d at 500 (“Allowing plaintiffs
recovery in tort for [contract-based] losses of the type at issue here. . . interjects
uncertainty in law and commercial transactions risk allocation. . . which [contract-
26
parties] could neither reasonably predict nor properly insure against.”) (citations
omitted).
Requiring different or additional damages under a tort claim is also
consistent with this Court’s jurisprudence. This Court has repeatedly held that
“where a party is merely seeking to enforce its bargain, a tort claim will not lie.”
New York Univ., 87 N.Y.2d at 316, 639 N.Y.S.2d at 288 (citing Sommer and
Bellevue S. Assocs.). When a party seeks only contract damages, it is seeking
nothing more than to enforce its bargain. For that reason, this Court does not allow
a tort claim to proceed when the damages sought under tort are identical to the
damages sought under contract.
This Court punctuated the point in Clark-Fitzpatrick. A contractor sued the
Long Island Railroad, the property owner, under both contract and tort theories,
because the owner allegedly provided flawed designs during the bidding process
for a track improvement project which caused the contractor to later perform
substantially more work at increased costs, for which it sought compensation. 70
N.Y.2d at 385-86, 521 N.Y.S.2d at 654. In affirming the dismissal of the tort
claims as duplicative of the contract claims, this Court held that “the damages
plaintiff allegedly sustained as a consequence of defendant’s violation of a ‘duty of
due care’ in designing the project were clearly within the contemplation of the
written agreement….” Clark-Fitzpatrick, 70 N.Y.2d at 390, 521 N.Y.S.2d at 657.
27
A few years later, in Sommer, after determining that the fire alarm company
owed an independent duty of care to the plaintiff, this Court addressed the
exculpatory and limitation of liability clauses in the contract between the parties.
The Court noted that if the plaintiff had been limited to asserting a breach of
contract claim, the potential recovery may have been limited to $55.50 based on
the contract’s exculpatory and limitation of liability clauses. Sommer, 79 N.Y.2d
at 553, 583 N.Y.S.2d at 962. However, by permitting the plaintiff to proceed with
a gross negligence claim, neither the exculpatory nor limitation of liability clauses
would apply, and the plaintiff would be able to seek a recovery that would fully
compensate it for the damage caused by the fire. Sommer, 79 N.Y.2d at 553-55,
583 N.Y.S.2d at 962-63.
Courts that have applied these holdings in Sommer and Clark-Fitzpatrick
properly recognize that, in addition to establishing an independent legal duty owed
by the promisor to the promisee, a plaintiff must also allege different or additional
damages between its tort and contract claims in order to proceed with both claims.
However, the Court below, as well as the courts in Trustees of Columbia Univ. in
City of N.Y. and Duane Reade v. SL Green Operating Partnership, 30 A.D.3d 189,
817 N.Y.S.2d 230 (1st Dep’t 2006), disregarded this obvious limitation and
impermissibly extended Sommer to permit the assertion of both tort and contract
claims even when the alleged damages were identical.
28
In light of lower courts, including the Court below, misapplying and
improperly extending Sommer to permit duplicative tort claims when there would
be no benefit to either the plaintiff or public, this Court’s guidance is needed to
strengthen this Court’s rulings supporting the proposition that plaintiffs may assert
tort claims in addition to contract claims only when the damages sought in tort are
different than the damages sought in contract. In doing so, this Court should
reverse the court below.
Here, the majority below acknowledged that the only damages sought by
DASNY were approximately $37 million for the cost of fixing damage to the
project site and adjacent properties. R.7, 9 (Order). These damages are exactly the
same under both its contract theory and tort theory. As noted in the dissent, there
is a provision in the contract that expressly contemplates the type of damages
sought by respondents. R.12-13 (Order, Tom, J.P., dissenting). It states “[e]xtra
costs to the OWNER resultant from design errors or omissions shall be recoverable
from the ARCHITECT and/or its Professional Liability Insurance carrier.” R.138
(DASNY-Perkins Contract at Article XIV); R.12-13 (Order, Tom, J.P., dissenting).
Damages sought under a tort theory that “were clearly within the contemplation of
the written agreement,” as is the case here, are the precise type of damages that this
Court said in Clark-Fitzpatrick do not give rise to separate tort claims in breach of
contract actions. 70 N.Y.2d at 390, 521 N.Y.S.2d at 657. As these facts
29
demonstrate, DASNY is seeking nothing more than “to enforce its bargain.” New
York Univ., 87 N.Y.2d at 316, 639 N.Y.S.2d at 288.
* * * * *
Lest this point get obscured in a discussion of public safety, we would point
out that the rights of third parties who might be injured by negligence on a
construction site, and the rights of state and local authorities to protect the public
are unaffected by disallowing a tort claim to the plaintiff here. This case involves
the rights and obligations only of two parties that are in a contractual
relationship. Disallowing DASNY a duplicative tort claim does not deprive a third
party of any negligence claim it might otherwise have against a professional. Nor
does disallowing a duplicative tort claim restrict state or local authorities from
taking appropriate actions to protect the public. Since injuries to third parties can
be redressed by the injured third parties, and injuries to the public and public safety
concerns can be redressed by the public’s representatives, DASNY should be
accorded no standing to assert an extra-contractual claim to pursue remedies
available to the parties actually affected.
30
POINT II
THE CITY IS NOT AN INTENDED THIRD-PARTY BENEFICIARY
OF THE CONTRACT BETWEEN DASNY AND PERKINS BECAUSE
(1) IT IS NOT THE ONLY PARTY THAT CAN RECOVER UNDER
THE CONTRACT, AND (2) THE CONTRACT DOES NOT EXPRESSLY
CONFER INTENDED BENEFICIARY STATUS UPON THE CITY
The City is a mere bystander to the contract between DASNY and Perkins
that it seeks to enforce. The contract for the design of a DNA laboratory building,
in which DASNY is defined as the Owner and Perkins as the Architect, does not
make explicit reference to the City of New York, much less a direct expression that
the parties intended that the City may directly enforce the terms of the contract.
The only allusions to the City in the contract, all tangential at best, are a reference
that the “labs in the new building will be operated by OCME” (R.148 (Appendix
A(I))), the definition of OCME (along with other City agencies) as DASNY’s
“Client” (id.), and the “Clients” being subjects of boilerplate hold harmless and
insurance clauses (R.135 (Article XI), 138 (Article XII)). These are not clear
expressions of intended third-party beneficiary status.
Based on this record, the motion court properly concluded that the “Perkins
Eastman Contract, unlike the Samson Contract, does not refer to the City as an
intended third-party beneficiary. The City has not pointed to any provision which
clearly evidences an intent to permit enforcement by the City.” R.59 (Motion
Court Order at p. 27). Looking at the same record, the only language from the
31
nearly 40-page design contract cited by the First Department in support of its
reversal of the motion court’s dismissal of the City’s breach of contract claim
against Perkins is that the “contract expressly states that a City agency will operate
the DNA laboratory.” R.7 (Order). Although they reached different legal
conclusions from this record, the motion court and the First Department both agree
that all that can be gleaned from the contact is that a City agency is expected to be
an ultimate end-user of a building for which Perkins was retained by DASNY to
perform architectural services.
As a matter of law, the City’s position as an expected end-user of a building
being constructed is insufficient to confer upon it a right of action for breach of
contract against Perkins, a promisor in an architectural services contract to which
the City is not a party. See Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d
652, 655-56, 389 N.Y.S.2d 327, 330-331 (1976) (fact that contract performance
can ultimately benefit non-contracting party, such as project owner or end-user, is
insufficient to create third-party beneficiary status). Otherwise, as this Court in
Port Chester points out, any performance in a construction contract can be said to
“ultimately, if indirectly, run[] to each party of several contracts,” which could
undesirably create third-party beneficiaries to every construction contract. Id.
“Hence, interpretational difficulties prevalent in third-party beneficiary contracts
32
are compounded as a result of the peculiar problems presented by construction
contracts.” Port Chester, 40 N.Y.2d at 656, 389 N.Y.S.2d at 330.
To protect against the overextension of the third-party beneficiary doctrine
and combat such interpretational difficulties, this Court has held that to create a
third-party beneficiary to a construction contract, the intent to do so must be
expressly stated in the contract:
Generally it has been held that the ordinary construction
contract – i.e., one which does not expressly state that the
intention of the contracting parties is to benefit a third
party – does not give third parties who contract with the
promisee the right to enforce the latter’s contract with
another. Such third parties are generally considered mere
incidental beneficiaries.
Port Chester, 40 N.Y.2d at 656, 389 N.Y.S.2d at 330. As noted above, the
contract between DASNY and Perkins does not expressly state that the intention of
the contracting parties is to bestow the City with a right to enforce the contract.
This Court later reinforced the requirement that there be an express
statement of intention in the contract in another construction contract case, when it
explained that a stranger to a contract becomes an intended third-party beneficiary
under one of two sets of circumstances: if (a) “no one other than the third party
can recover if the promisor breaches the contract,” or (b) “the language of the
contract otherwise clearly evidences an intent to permit enforcement by the third
party.” Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 45,
33
495 N.Y.S.2d 1, 5 (1985). The City cannot meet its burden of proving either of
these requirements.
A. DASNY Can Recover Under The Contract For The Same Damages
Under Fourth Ocean, the first set of circumstances under which a third-party
can enforce a contract is if “no one other than the third party can recover if the
promisor breaches the contract.” Fourth Ocean Putnam Corp., 66 N.Y.2d at 45,
495 N.Y.S.2d at 5. When otherwise appropriate, it serves the ends of justice to
permit a third-party to recover for a promisor’s breach when no one other than the
third-party can do so. Just the same, a promisor’s right to choose with whom it
contracts, and with whom it may have contractual disputes, should not be disturbed
in the absence of compelling public policy reasons warranting an exception to the
bedrock principle that parties are free to choose with whom they make their
bargains. See Bloomfield v. Bloomfield, 97 N.Y.2d 188, 193, 738 N.Y.S.2d 650,
652 (2001) (“[T]here is a ‘strong public policy favoring individuals ordering and
deciding their own interests through contractual arrangements.’” (quoting Matter
of Greiff, 92 N.Y.2d 341,344, 680 N.Y.S.2d 894, 896 (1998))).
Here, because the City is not the only party who could recover against
Perkins, there is no countervailing public policy consideration warranting
subjecting Perkins to contractual claims by a party with which it did not contract.
Plaintiffs DASNY and the City served a single joint complaint, alleging the cause
34
of action for breach of contract against Perkins, seeking the same damages. R.88-
101 (Complaint). If it proves its case, DASNY can recover any damages incurred.
Moreover, the City did not suffer any unique damages that cannot be
recovered by DASNY, because all purported losses asserted in the underlying
action were directly incurred by DASNY. The only damages alleged by
Respondents DASNY and the City are on the grounds that “plaintiffs [DASNY and
the City] incurred significant additional expenses to complete the Project.” R.100
(Complaint at ¶ 46). Respondents’ witness testified at his deposition that all of the
“additional expenses” incurred arise from payments made by DASNY and none
arise from payments made by the City of New York. R.477-479 (Wagner Tr. at
2986-2988). Even if that were not so, the City could be made whole and fully
compensated for any damages pursuant to its contractual relationship with
DASNY. R.639-640 (PMA at VIII, “Default and Remedies”). Accordingly, the
City will not be deprived of a complete remedy for any harm that it may have
suffered if it cannot sue Perkins for breach of contract.
B. There is No Express Language In The Contract
Conferring Third-Party Beneficiary Status Upon The City
The second set of circumstances under which an entity can enforce a
contract to which it is not a party is if “the language of the contract otherwise
clearly evidences an intent to permit enforcement by the third party.” Fourth
35
Ocean Putnam Corp., 66 N.Y.2d at 45, 495 N.Y.S.2d at 5. It is reasonable to
conclude that a party to a contract that “clearly evidences an intent to permit
enforcement by the third party” has assented to suit from that third party. There is
nothing in the record that suggests that Perkins has assented to suit by the City.
The contract language does not state that Perkins intends to permit
enforcement by the City or that the City is a third-party beneficiary; nor does it
expressly name the City as a third-party beneficiary. The First Department
correctly observed that “it [the City] is not named in the contract.” R.7 (Order).
As noted above, there is no language in the contract even suggesting that the City
has enforcement rights. In addressing this point, the motion court noted that the
“City has not pointed to any provision which clearly evidences an intent to permit
enforcement by the City.” R.59 (Motion Court Order at p. 27).3
3 On this project, by contradistinction, DASNY included express language when it
wanted to make clear to the other contracting party that the City has third-party
beneficiary rights. DASNY’s contract with the contractor Samson, which is also
the subject of this litigation, provided that: “It is understood that the Client [the
City] is an intended third party beneficiary of the Contract for the purposes of
recovering any damages caused by the Contractor.” R.786 (DASNY-Samson
Contract at § 20.19). DASNY is sophisticated and experienced in asserting and
protecting its contractual rights, has significant leverage in contractual
negotiations, and has proven that it knows how to clearly evidence an intent to
permit enforcement by a third-party, which it clearly and intentionally chose not to
do in the contract with Perkins. Contracts involving such sophisticated parties
should be subjected to the highest levels of scrutiny when examined for evidence
of intent and before granting contractual enforcement rights to third-parties.
36
Despite concluding that Perkins made a prima facie case that the City is not
a third-party beneficiary, the First Department relied on the contention that a City
agency would ultimately operate the building and extrinsic evidence that the City
would have some participation in the means and methods of the construction of the
facility (with respect to which Perkins would play a limited role as architect) to
reach the conclusion that “the City raised an issue of fact whether it is an intended
third-party beneficiary of the contract.” R.7 (Order). The only language from the
Agreement that the First Department relied upon for that conclusion is that the
“contract expressly states that a City agency will operate the DNA laboratory.”
R.7 (Order). As explained above, the City’s right to sue under the contract, to
which it is not a party, cannot be based merely on the fact that it is a likely end-
user.
C. The City Cannot Rely On Extra-Contractual Extrinsic
Evidence To Make It A Third-Party Beneficiary
In the absence of an express statement in the contract making the City a
third-party beneficiary, the First Department relied on extrinsic evidence outside of
the contract to conclude that “[a]lthough Perkins made a prima facie showing that
the City is not a third-party beneficiary of the contract because it is not named in
the contract, the City raised an issue of fact whether it is an intended third-party
37
beneficiary of the contract.” R.7 (Order).4 The Court below, based only on
extrinsic evidence, found that “the City retained control over various aspects of the
project, including participation in and approval of the design of the building, the
budget for the project, the selection of contractors, including Perkins, and the
construction of the building.” R.7 (Order). These facts, even if accepted as true,
are insufficient to defeat summary judgment.
First, there is no evidence in the record that Perkins knew of these “various
aspects of the project.” In the absence of this being shared information of which
Perkins was aware, these “aspects” cannot clearly evidence Perkins’ intent to
permit enforcement by the City.
Second, these “aspects” demonstrate nothing more than that the City was an
end-user with an ordinary involvement or interest in the project. As demonstrated
above, contract enforcement rights are not conferred on a non-party to a contract
by virtue of its role as an end-user. See Port Chester, 40 N.Y.2d at 655-56, 389
N.Y.S.2d at 330-331.5 If all that is necessary is knowledge that a non-contracting
4 Having concluded that Perkins made a prima facie showing of entitlement to
summary judgment, the burden shifted to the City to demonstrate, through
admissible evidence, the existence of a factual issue requiring a trial of the action.
E.g., Ferluckaj v. Goldman Sachs & Co., 12 N.Y.3d 316, 320, 880 N.Y.S.2d 879,
881 (2009) (citation omitted). The extrinsic evidence relied upon by the City is
insufficient as a matter of law to create an issue of fact.
5 See also, e.g., Kerusa Co. v. W10Z/515 Real Estate Ltd. P’ship, 50 A.D.3d 503,
504, 858 N.Y.S.2d 109, 111 (1st Dep’t 2008) (end-user who had no contractual
38
party is a potential end-user or that there is some commonplace level of interest or
involvement in a project by a non-contracting party, every ground lessee, tenant,
owner, lender or anticipated occupant or beneficiary of some construction-related
work could sue every architect, engineer, construction manager, general contractor,
subcontractor or vendor on a construction project. That would unjustifiably disrupt
the right of contracting parties to choose with whom and how they contract. It
would also create significant commercial uncertainty, including with insurers,
bonding agencies, investors and others who could not reasonably predict who
might have a right of action with respect to any particular project.
Third, this Court should disregard extrinsic evidence when deciding whether
to confer third-party beneficiary status, including the extrinsic evidence
inappropriately relied upon by the First Department. When this Court required an
“express[] state[ment] that the intention of the contracting parties is to benefit a
third party” (Port Chester, 40 N.Y.2d at 656, 389 N.Y.S.2d at 330), and
conditioned the existence of an intended third-party beneficiary on circumstances
relationship with architect was not intended beneficiary of contract between
architect and sponsor); Bd. of Managers of Riverview at College Point Condo. III
v. Schorr Bros. Dev. Corp., 182 A.D.2d 664, 664-65, 582 N.Y.S.2d 258, 259-60
(2d Dep’t 1992) (end-users were not intended beneficiaries of contracts between
project owner and contractors); Lake Placid Club Attached Lodges v.
Elizabethtown Builders, Inc., 131 A.D.2d 159, 161-62, 521 N.Y.S.2d 165, 166-67
(3d Dep’t 1987) (end-users were not intended beneficiaries of contract between
developer and architect; noting that “ordinarily, construction contracts are not
construed as conferring third-party beneficiary enforcement rights” (citing Port
Chester, 40 N.Y.2d at 656, 389 N.Y.S.2d at 330)).
39
where “the language of the contract otherwise clearly evidences an intent to permit
enforcement by the third party” (Fourth Ocean Putnam Corp., 66 N.Y.2d at 45,
495 N.Y.S.2d at 5), it a fortiori excluded reliance on extrinsic evidence.
D. This Court Should Reinforce Its Holdings In Port Chester And
Fourth Ocean To Exclude Reliance On Extrinsic Evidence
Notwithstanding the clear guidance of Port Chester and Fourth Ocean, there
has been a divergence of positions and a lack of consistency whether a court can
look at “surrounding circumstances” or is limited to considering what is clearly
stated in the contract. For example, the Second Department has stated that “in
determining third-party beneficiary status it is permissible for the court to look at
the surrounding circumstances as well as the agreement itself.” Belgrave Owners,
Inc. v. Or Holding Corp., 233 A.D.2d 352, 354, 650 N.Y.S.2d 249, 250 (2d Dep’t
1996) (citations omitted); see also, e.g., Encore Lake Grove Homeowners Ass’n v.
Cashin Assocs., P.C., 111 A.D.3d 881, 882, 976 N.Y.S.2d 143, 145 (2d Dep’t
2013). Other Second Department panels have limited its consideration to the
language of the contract. See, e.g., E. Coast Athletic Club, Inc. v. Chicago Title
Ins. Co., 39 A.D.3d 461, 463, 833 N.Y.S.2d 585, 588 (2d Dep’t 2007).
However, the First Department has held that “the parties’ intent to benefit
the third party must be apparent from the face of the contract.” LaSalle Nat’l Bank
v. Ernst & Young LLP, 285 A.D.2d 101, 108, 729 N.Y.S.2d 671, 676 (1st Dep’t
40
2001) (citations omitted); see also U.S. Bank Nat’l Ass’n v. GreenPoint Mortgage
Funding, Inc., 105 A.D.3d 639, 640, 965 N.Y.S.2d 401, 402 (1st Dep’t 2013)
(“The absence of any clear language on the face of the sale agreements regarding
any third-party beneficiary rights precludes reliance on subsequent documents to
raise an issue of fact.”) (citation omitted), leave to appeal denied, No. 2013-1140,
2014 WL 702159, at *1 (Feb. 25, 2014).
In this case, by relying, and heavily so, on extrinsic evidence to confer third-
party beneficiary status on the City, the First Department drifted from the position
expressed by this Court in Port Chester and Fourth Ocean, and its own
jurisprudence, and respectfully, in our view, the preferred position.6
In the absence of an express contractual statement that the intention of the
contracting parties is to benefit a third party, the third-party cannot enforce the
terms of a contract. Port Chester, 40 N.Y.2d at 656; 389 N.Y.S.2d at 330; Fourth
Ocean Putnam Corp. 66 N.Y.2d at 45, 495 N.Y.S.2d at 5. The First Department in
this case and some lower courts have departed from this standard. Consistent with
this Court’s prior decisions and in line with public policy considerations, a third-
6 Additional examples of the divergent positions New York State courts have taken
on whether to consider extrinsic evidence can be found in the April 18, 2014 article
Varied Approaches to Determining Third-Party Beneficiary Status authored by
George Bundy Smith and Thomas J. Hall for the New York Law Journal. The
article offers the opinion that “clearer guidance is required from the Court of
Appeals on third-party beneficiary law.” The article can be found at
http://www.chadbourne.com/files/upload/thomashallnylj.pdf.
party seeking to enforce the terms of a contract should be able to do so only when
the contract explicitly confers intended beneficiary status upon that third-party, or
when the third-party is the only party that can recover if the promisor breaches the
contract. Because neither of those circumstances applies here, the First
Department's decision should be reversed and the City's contract claim against
Perkins should be dismissed as a matter of law.
CONCLUSION
This Court should reverse the order of the Appellate Division, First
Department, and dismiss Respondent DASNY's tort claim against Perkins as
duplicative of its contract claim, and dismiss Respondent City ofNew York's
breach of contract claim against Perkins because the City is not an intended third-
party beneficiary of the contract between DASNY and Perkins.
Dated: New York, New York
January 18, 201 7
FLEMMJNG ZULACK
WILLIA ZAUDERER LLP
Jason T. Cohen
Grant A. Shehigian
One Liberty Plaza
New York, New York 10006
Tel: (212) 412-9500
Fax: (2 12) 964-9200
41
NEW YORK STATE COURT OF APPEALS
CERTIFICATE OF COMPLIANCE
I hereby certify pursuant to 22 NYCRR PART 500.1 0) that the foregoing brief was
prepared on a computer using Microsoft Word.
Type. A proportionally spaced typeface was used, as follows:
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Point size: 14
Line spacing: Double
Word Count. The total number of words in this brief, inclusive of point headings
and footnotes and exclusive of pages containing the table of contents, table of
citations, proof of service, certificate of compliance, corporate disclosure
statement, questions presented, statement of related cases, or any authorized
addendum containing statutes, rules, regulations, etc., is 9,640 words.
Dated: January 18, 2017
A. SHE GIAN
FLEMMING ZUt.; CK
ZAUDERER LLP
Attorney for Defendant-Appellant
One Liberty Plaza, 35th Floor
New York, New York 10006
Tel.:(212) 412-9500
Fax: (212) 964-9200