State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: February 23, 2017 522936 

522939

_________________________________

In the Matter of W.M. SCHULTZ 

CONSTRUCTION, INC., et al.,

Petitioners,

v MEMORANDUM AND JUDGMENT

MARIO J. MUSOLINO, as Acting

Commissioner of Labor,

Respondent.

(And Another Related Proceeding.)

_________________________________

Calendar Date: January 18, 2017

Before: McCarthy, J.P., Garry, Lynch, Devine and Mulvey, JJ.

__________

Ernstrom & Dreste, LLP, Rochester (John W. Dreste of

counsel), for W.M. Schultz Construction, Inc., petitioner.

Couch White, LLP, Albany (Harold D. Gordon of counsel), for

William M. Schultz, petitioner.

Eric T. Schneiderman, Attorney General, New York City (Seth

Kupferberg of counsel), for respondent.

Adams Bell Adams, PC, Rochester (Anthony J. Adams Jr. of

counsel), for Empire Chapter of Associated Builders and

Contractors, Inc., amicus curiae.

__________
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McCarthy, J.P.

Proceedings pursuant to CPLR article 78 (initiated in this

Court pursuant to Labor Law §§ 220 and 220-b) to review a

determination of respondent finding that petitioners failed to

pay prevailing wages and supplements.

The New York Racing Association (hereinafter NYRA) is a

not-for-profit corporation, incorporated September 12, 2008. 

NYRA is both the lessee of state-owned racetracks and their

facilities, including Saratoga Race Course, and a franchisee

tasked with continuing racing and racing operations at those

racetracks. In April 2009, NYRA entered into a contract with

petitioner W.M. Schultz Construction, Inc. (hereinafter Schultz

Construction) requiring Schultz Construction to perform

construction relating to a concentrated animal feeding operation

in the stable area of the Saratoga Race Course (hereinafter the

project), which included constructing horse showers and a

drainage control system. In November 2009, at the conclusion of

the project, the Department of Labor issued a notice in response

to a labor union inquiry that construction, maintenance and

repair work at NYRA would be subject to the prevailing wage laws. 

In October 2014, after receiving complaints that Schultz

Construction was violating the prevailing wage laws by

underpaying workers for the project, respondent commenced an

investigation of the matter and ultimately issued a notice of

hearing and scheduled enforcement proceedings. In lieu of live

hearing testimony, the parties agreed to proceed on stipulated

facts and that the hearing would address the applicability of

Labor Law article 8. In March 2016, a Hearing Officer issued a

report and recommendation, adopted by respondent, which found

that the contract between NYRA and Schultz Construction for the

project was subject to prevailing wage laws. Thereafter, Schultz

Construction and petitioner William M. Schultz separately

commenced CPLR article 78 proceedings in this Court (see Labor

Law §§ 220, 220-b) seeking to annul respondent's determination. 

We annul. Labor Law § 220 provides that "[t]he wages to be

paid for a legal day's work . . . to laborers, work[ers] or

mechanics upon . . . public works, shall be not less than the
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prevailing rate of wages" (Labor Law 220 § [3] [a]), defined as

the rate paid to "workers, laborers or mechanics in the same

trade or occupation in the locality where the work is being

performed" (Labor Law § 220 [5]). The NY Constitution further

provides that "[n]o laborer, worker or mechanic, in the employ of

a contractor or sub-contractor engaged in the performance of any

public work, shall . . . be paid less than the rate of wages

prevailing in the same trade or occupation in the locality within

the state where such public work is to be situated, erected or

used" (NY Const, art I, § 17). The Court of Appeals has recently

clarified the meaning of a public work: "[f]irst, a public agency

must be a party to a contract involving the employment of

laborers, workers, or mechanics. Second, the contract must

concern a project that primarily involves construction-like labor

and is paid for by public funds. Third, the primary objective or

function of the work product must be the use or other benefit of

the general public" (De La Cruz v Caddell Dry Dock & Repair Co.,

Inc., 21 NY3d 530, 538 [2013]).

This Court's "review of an administrative determination

made after a hearing required by law, and at which evidence is

taken, is limited to whether that determination is supported by

substantial evidence" (Matter of Scuderi v Gardner, 103 AD3d 645,

646 [2013]; see e.g. Matter of Nash v New York State Dept. of

Labor, 34 AD3d 905, 906 [2006], lv denied 8 NY3d 803 [2007]). 

"Substantial evidence 'means such relevant proof as a reasonable

mind may accept as adequate to support a conclusion or ultimate

fact'" (Matter of R.I., Inc. v New York State Dept. of Labor, 72

AD3d 1098, 1098 [2010], lv denied 17 NY3d 703 [2011], quoting 300

Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176,

179 [1978]).

Substantial evidence does not support the conclusion that

the project was paid for by public funds. As respondent conceded

in his determination, NYRA's financial statements establish that

they received no funds from the state prior to or during the term
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of the contract for the project.1 Moreover, the only evidence in

the record of the provision of funding by the state relates to a

transfer of funds from the state to NYRA's predecessor, also

known as the New York Racing Association, Inc. (hereinafter Old

NYRA), which, at the time of the project, no longer had an

interest in Saratoga Race Course and was not a party to the

contract for the project.2 The transfer of funds from the state

to Old NYRA was pursuant to a settlement agreement, dated

September 12, 2008, that had been entered into by Old NYRA, NYRA,

the state, the New York State Non-Profit Racing Association

Oversight Board and the New York State Division of the Lottery. 

Under the settlement agreement and as between Old NYRA and the

state, Old NYRA conveyed to the state its title and interest in

three racetracks, including the Saratoga Race Course, as well as

all improvements and appurtenant physical assets. In return, the

state paid Old NYRA $105 million "for services and expenses

required relating to payments for capital works or purposes." 

The record also establishes that, in November 2008, Old NYRA made

a $5 million transfer to NYRA. Notably, even assuming that the

$105 million transfer from the state was the source of the

subsequent $5 million transfer from Old NYRA to NYRA, the record

is bereft of any evidence that NYRA had any obligations as to

spending such funds on capital works projects, as did Old NYRA.3

1 We find no support for respondent's apparent conclusion

that the De La Cruz test is satisfied upon a finding that an

entity could have acquired public funds to pay for a project or

that public funding for a project was contemplated – regardless

of whether the entity actually acquired and then used public

funds for a project – and therefore we do not assess the accuracy

of respondent's conclusions in that regard.

2 NYRA was formed near the conclusion of the chapter 11

bankruptcy of Old NYRA.

3 Although there is no actual explanation in the record as

to why Old NYRA transferred funds to NYRA, there is a provision

in the settlement agreement that contemplates Old NYRA

potentially transferring funds to NYRA pursuant to Old NYRA's
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More specifically, there is no evidence that the state had any

role in the $5 million transfer, that it had any expectations as

to that transfer or that the transferred funds were in any way

earmarked for NYRA's use for capital works projects. Therefore

there is no basis to conclude that the funds retained any public

characteristic (see generally Matter of New York Charter School

Assn., Inc. v DiNapoli, 13 NY3d 120, 133 [2009]). 

Moreover, even if we assumed that the funds could retain a

public characteristic after being transferred from Old NYRA to

NYRA absent any obligation on NYRA's part as to the use of the

funds, it is not a reasonable inference that the funds that NYRA

used for the project can be traced back to a public source, here

the $105 million the state transferred to Old NYRA. In 2008, the

year that NYRA received the $5 million transfer from Old NYRA,

NYRA expended $78,173,000 when including statutory commissions,

and it generated $65,110,000 in racing-related revenue. At the

end of that year, NYRA had $21,000,000 in cash or cash

equivalent. During 2009, the year in which the project was

commenced and completed, NYRA expended $276,179,000 when

including statutory commissions and earned approximately

$267,265,000 in racing-related revenues.4 Considering the

foregoing, the inference that the approximately $1.6 million in

funds that NYRA paid Schultz Construction for the project over

the course of July 2009 to February 2010 were derived from the

funds that the state transferred to Old NYRA in 2008 is not

obligations to sell certain specified ancillary properties. 

However, that provision mandates that any such transferred funds

would be used by NYRA for certain enumerated purposes, one of

which was "operating expenses." A capital works project was not

an enumerated purpose for which such funds were permitted to be

used.

4 Thus, NYRA's racing-related revenue in 2008 was

approximately 13 times greater than the funds transferred from

Old NYRA, and NYRA's racing-related revenue in 2009 was

approximately 53 times greater than the funds transferred from

Old NYRA. 
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reasonable. As the use of public funds for a project is a

prerequisite to the finding that a contract relates to a public

work subject to prevailing wage obligations (see De La Cruz v

Caddell Dry Dock & Repair Co., Inc., 21 NY3d at 538),

respondent's determination must be annulled. Given this

conclusion, petitioners' remaining contentions as to additional

reasons that the determination should be annulled are academic.

Garry, Lynch, Devine and Mulvey, JJ., concur.

ADJUDGED that the determination is annulled, without costs,

and petitions granted.

ENTER:

Robert D. Mayberger

Clerk of the Court