Court Opinion

ID: 5883710
Source: CourtListenerOpinion
Date Created: 2022-01-13 02:25:06.537225+00
Date Added: 2024-06-11T08:45:06.075027
License: Public Domain

Sandler, J. P. (concurring).
In this CPLR article 78 proceeding, petitioner-respondent, a joint venture, seeks annulment, and certain ancillary relief, of a determination that dedesignated it as developer of sites Nos. 5B and 5C in the Washington Street Urban Renewal Area (WSURA). Respondents-appellants, Anthony Gliedman, Commissioner of the New York City Department of Housing Preservation and Development (HPD), and the City of New York (City), appeal by permission of Special Term from an interlocutory order of the Supreme Court, New York County (Stanley S. Ostrau, J.), entered January 4, 1985, that granted the petition to the extent of directing a trial as to whether the challenged determination was arbitrary and capricious, and as to whether it represented a good-faith judgment.
The stated reason for de-designating petitioner-respondent as developer of the two sites was a governmental decision to change the land uses of the vacant city sites in question from those originally intended at the time petitioner-respondent was designated as a developer, and a further decision that the development of the areas in question in accordance with the revised land uses made desirable a different procedure for conveying the sites. We perceive no factual basis in the record for petitioner’s claim that these governmental decisions affecting the use of city-owned lands were arbitrary or capricious. Nor do we perceive any factual basis for the claim that these *172decisions did not represent a good-faith judgment reached by the responsible governmental officials in what they believed to be the best interests of the City.
The Washington Street Urban Renewal Area is comprised of 38.4 acres of city-owned land in the Tribeca section of downtown Manhattan. Site 5B comprises approximately 2.06 acres of land area, and is bounded on the north by Warren Street, on the east by Greenwich Street, on the south by Murray Street, and on the west by West Street. Site 5C comprises approximately 1.9 acres, and is bounded on the north by Chambers Street, on the east by Greenwich Street, on the south by Warren Street, and on the west by West Street.
In letters dated January 29 and February 1, 1982, respectively, after study of proposals submitted in response to requests for proposals (RFP) by HPD, HPD informed petitioner that it had been selected to negotiate exclusively with the City on the terms of disposition of sites Nos. 5B and 5C.
In accordance with the RFP for site No. 5C, the petitioner’s proposal contemplated new multifamily residential buildings, and obligated the developer to submit plans for obtaining rent subsidies under the Federal Section 8 Housing Assistance Program. In accordance with the RFP for site No. 5B, petitioner’s proposal provided in pertinent part for the construction of 1.1 million square feet of office space with associated retail space and parking. The letters of designation provided that the City could elect to renew the 90-day negotiating period in 30-day increments if, by the end of the initial 90-day period, the parties had not agreed on the terms of the land disposition agreement (LDA).
In letter agreements dated June 2, 1982, petitioner and HPD entered into new designation agreements with respect to the development of the sites. The agreement specified in considerable detail the responsibilities of the parties, and further provided that the terms and conditions set forth in the letter relative to the sale and development of the sites were to be merged into the LDAs.
As set forth in the letter agreements, during the exclusive negotiating period and any extensions of that period, the parties were to negotiate the terms and conditions in LDAs which were to contain all the terms, covenants and conditions relative to the sale and development of the sites. As here pertinent, petitioner was obligated under the agreement to *173post as assurance deposits two letters of credit in the sum of $100,000 for each site, and to "continue to develop, at your sole risk, cost and expense, building designs, marketing concepts, massing studies and financial projections.” Petitioner agreed that after the form and substance of the LDAs had been agreed upon, it would, at its sole cost and expense, fully and expeditiously cooperate with HPD in meeting the legal requirements for approval of the LDAs by the Board of Estimate, set forth in New York City Charter § 197-c (Uniform Land Use Review Procedure [ULURP]) and in the New York Urban Renewal Law (URL). In turn, HPD agreed to undertake and expeditiously complete all of its obligations in connection with the legal requirements, including the ULURP precertification process.
The petitioner alleges, and it is not disputed, that petitioner conscientiously and faithfully discharged the obligations it assumed under the agreements to bring to fruition the development of the two sites, expending time, money, effort and resources in that endeavor. Petitioner further alleges, and it is not disputed, that agreement was in fact reached on the terms of the LDAs.
In a letter dated November 29, 1983, HPD informed petitioner that its designation as developer of the two sites had been terminated, stating the reason for that action in the following words: "This action is being taken because of the City’s interest in retaining and attracting back office jobs in New York City. Given the difficulty and time needed to assemble large parcels in Manhattan, the City has decided it is in the best interest of the City to reserve the Washington Market Urban Renewal Sites 1, 5B and 5C for commercial development by back office users, many of whom wish to construct their own buildings.”
At a meeting on December 21, 1983 between representatives of the petitioner and Charles Reiss, Deputy Commissioner of HPD, the City restated the reasons originally given in the letter for the termination of petitioner’s designation, agreeing that no fault had been found with petitioner’s discharge of its obligations under the designation agreements. In a further meeting between petitioner’s representatives and Kenneth Lipper, then Deputy Mayor for Finance and Development of the City of New York, the details of which are not set forth in the record, it appears reasonable to infer that he restated the previously given reasons for the termination of petitioner’s designation.
*174In an affidavit submitted on behalf of respondents-appellants, Mr. Lipper detailed the considerations that had led to the governmental decisions here challenged. As set forth in his affidavit, he and other City officials had become apprehensive that the need of financial service companies with corporate headquarters in the City for millions of square feet of new back office space for clerical, communication and computer operations might result in the relocation of such companies to New Jersey, Delaware and Nassau County. In connection with this concern, he set forth a judgment that had been reached that such corporations with their own real estate development capabilities would prefer an opportunity to develop and own their facilities, independent real estate developers representing to them increased costs, and depriving them of varied benefits that accompany ownership. Accordingly, City agencies had been instructed to identify large vacant areas of city-owned land that could be offered for back office development directly to user-owners. It had been determined that for brokerage firms in particular, the WSURA sites were most suitable. For these reasons it was decided that although this land had been targeted for mixed commercial and residential use through a developer, it would be in the best interests of New York City to retain the WSURA sites for owner-users seeking cleared large building sites who might otherwise consider relocating outside New York City.
On January 17, 1984, Mr. Lipper executed on behalf of the City of New York, a memorandum of agreement with Shear-son/American Express, Inc. (Shearson) providing for the conveyance of site No. 1 of WSURA to Shearson, on condition that Shearson would construct a building for the exclusive, or substantially exclusive, use of Shearson or its affiliates, that would utilize a work force of approximately 900 to 1,400 employees. This memorandum of understanding further noted Shearson’s intention to construct thereafter a second building which, it was contemplated, would provide for an additional 2,200 jobs.
In an affidavit by Mayor Koch dated April 4, 1984, he stated that he had adopted the policy of "sole source negotiation” for certain parcels of city-owned land to retain and create jobs within the City after extensive discussions with Deputy Mayor Lipper, Commissioner Gliedman, Stephen Spinola of the Public Development Corporation and various businessmen. Annexed to the affidavit was a press release dated March 27, *1751984 announcing city-wide procedures for the sale of selected city-owned properties.
Pertinent to the issues raised in this proceeding, matters of public record although not part of the record as such, are two resolutions unanimously adopted by the Board of Estimate on June 28, 1984, after a public hearing. One resolution approved the disposition of site No. 1 to Shearson, essentially in accordance with the memorandum of agreement negotiated by Deputy Mayor Lipper.
The second resolution approved a sixth amended plan for WSURA which, as here pertinent, authorized the development of site No. 5C for commercial purposes, and assigned responsibility for review and approval of redevelopers’ site plans, outline specifications and the like for sites Nos. 1, 5B and 5C to the Public Development Corporation, an agency which reported to Deputy Mayor Lipper, and which had been associated with him in the policy change that had led to the dedesignation of petitioner.
The factual background was detailed in an opinion of Justice Stecher, written in a lawsuit challenging these actions of the Board of Estimate. (See, Tribeca Community Assn. v Board of Estimate, NYLJ, Nov. 14, 1984, p 5, col 3.) As set forth in that opinion, in late 1983 various agencies in the City, in contemplation of the sixth amendment, commenced studies leading to the preparation of an environmental impact statement. On February 9, 1984, the concerned agencies issued a notice of completion of the draft statement, and on February 10, 1984 the City Planning Commission certified the Uniform Land Use Review Procedure as completed. Following a public hearing on April 5, 1984, the City Planning Commission approved the proposed sixth amendment subject to several conditions, one placing the school in site No. 5C, as opposed to site No. 1, as originally planned, and another directing a site improvement of some 23,000 square feet to be designed and constructed by Shearson. It was in the form approved by the City Planning Commission that the Board of Estimate unanimously approved the sixth amendment and approved conveyance of site No. 1 to Shearson.
The termination of petitioner’s designation gave rise to two lawsuits, the article 78 proceeding with which we are presently concerned and an action against the City for alleged breach of contract based on essentially the same allegations that are set forth in the article 78 petition. Prior to the *176Special Term decision here appealed from, a motion to dismiss for legal insufficiency the action seeking damages for breach of contract was denied, a ruling that Special Term found controlling on it as a court of coordinate jurisdiction.
Subsequent to Special Term’s decision in the instant case, this court affirmed the order denying the motion to dismiss the contract action for legal insufficiency (Goodstein Constr. Corp. v City of New York, 111 AD2d 49). In essence, a majority of the court concluded (p 52) that the designation agreements "implied obligations of good faith, cooperation and fair dealing implicit in any contract”, and that the allegations of the complaint adequately alleged a violation of these obligations.
Preliminarily, it is important to distinguish clearly between the issues presented to this court in the contract action and those presented in this article 78 proceeding. Contrary to Special Term’s view, the issues are separate and distinct.
The principle is well established, and has been often reaffirmed, that violation by a governmental official or agency of a contractual obligation gives rise to a plenary action for violation of the contract, and not to an article 78 proceeding seeking nullification of the governmental decision. (See, e.g., Matter of Cromwell Towers Redevelopment Co. v Yonkers, 41 NY2d 1, 5; Matter of Oshinsky v Nicholson, 55 AD2d 619; Matter of Corbeau Constr. Corp. v Board of Educ., 32 AD2d 958.) The reason for this distinction is inherent in the very different nature of the issues presented in a contract action and in an article 78 proceeding. In the usual situation, a claim that a public official or governmental unit has violated a contract will be adjudicated in accordance with traditional rules of contract law. As here pertinent, a claim for article 78 relief necessarily rests upon the quite' separate issue as to whether the challenged 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”. (CPLR 7803 [3].) The standard for deciding a claim that a governmental action was arbitrary or capricious is "whether there is a rational basis” for the challenged action. (Matter of Colton v Berman, 21 NY2d 322, 329; see also, Matter of Pell v Board of Educ., 34 NY2d 222, 231.)
No doubt there are circumstances in which the same governmental action may constitute a violation of contract and also be of a character that would support a claim for article 78 relief. It clearly does not follow that a contractual violation *177by a governmental agency or official without more gives rise to such a claim. This contention, central to much of petitioner’s argument, in effect asserts that every governmental violation of a contract entitles the other party to specific performance, a manifestly untenable proposition and one that is contrary to the uniform body of authority in this area.
Similarly, it is clear that the issue of good faith presented in a contract action is distinct from the issue of good faith when it is sought to be raised in an article 78 proceeding. In its previous decision in the contract action, this court, relying primarily on Rochester Park v City of Rochester (38 Misc 2d 714, affd 19 AD2d 776) a contract action, and giving to the complaint the benefit of the favorable construction appropriate on a motion to dismiss, concluded that the complaint was legally sufficient to assert a violation by the city of implied obligations of good faith, cooperation and fair dealing. This court did not say, and the issue was not presented, that the governmental officials concerned in this matter did not act in accordance with an honest judgment as to that which would best serve the interests of the city, the only relevant issue in a challenge to the good faith of a governmental decision in an article 78 proceeding.
Turning directly to the issues here presented, the record discloses no factual basis for the claim that it was arbitrary or capricious for the government officials concerned to determine that the best interests of the City would be served by reserving the remaining city-owned vacant sites in WSURA to meet the back office needs of financial concerns in the downtown area, and that direct negotiations with potential owner-users was the preferable method for conveying the sites for such purposes. Indeed, it is difficult to discern in this record anything approaching a serious claim by the petitioners that there was not a rational basis for these governmental judgments, the essential principles of which were thereafter unanimously approved by the Board of Estimate, in part, directly and in part, implicitly. As was observed by the Court of Appeals in Matter of Abrams v New York City Tr. Auth. (39 NY2d 990, 992), in language peculiarly appropriate to the issues here raised: "Here questions of judgment, discretion, allocation of resources and priorities inappropriate for resolution in the judicial arena are lodged in a network of executive officials, administrative agencies and local legislative bodies.”
Also untenable is petitioner’s claim that the revocation of petitioner’s designation violated lawful procedure or was af*178fected by an error of law. The power to revoke the designation of a developer of an urban renewal project was squarely sustained by the Court of Appeals in Matter of Armere Holding Corp. v Bell (37 NY2d 925, 926). The Court of Appeals went on to say, in Matter of Armere, that the tentatively designated developer may not be subject to arbitrary action and is "entitled to the 'assurance, implemented by the right to a hearing which need consist of no more than an opportunity to deny or explain, that the [commissioner] has not acted arbitrarily or capriciously’ ” (at p 927). The record is clear that petitioner participated in two such hearings.
Similarly unpersuasive is petitioner’s claim that the decision to use "sole source negotiations” in disposing of the remaining vacant sites violated New York City Charter § 1105 (b) which requires that an opportunity be provided to interested persons to comment in writing before any rule or regulation may be adopted. Nothing in the record supports the notion that the varied and changing policies of HPD with regard to the disposition of vacant sites in urban renewal areas are rules and regulations of the kind contemplated in the City Charter section. The tenuous character of this claim is underlined by a statement by Charles Reiss, Deputy Commissioner of HPD, in an affidavit submitted in a prior litigation relating to the sites in question, an affidavit here submitted by petitioner. In that affidavit, dated October 8, 1982, presented in a lawsuit in which petitioner and HPD were joined together against a prior developer of the sites in question, Mr. Reiss said: "Whereas prior policy allowed entities * * * to become tentative sponsors and developers of urban renewal projects without the City’s having the benefit of other proposals, present policy favors (although it does not absolutely require) open competition through a request for proposal process.”
Turning finally to petitioner’s challenge to the good faith of the governmental decision to revoke its designation, it becomes immediately apparent from a study of petitioner’s papers that most of the allegations relied on are not addressed to the issue of good faith as we understand it to apply here, which, simply stated, is whether the challenged determination represented an honest judgment reached by the responsible public officials in what they believed to be the best interests of the City.
The only part of petitioner’s good-faith argument that has any discernible relevance to the issue of good faith as we have *179defined it rests upon the claim that in his capacity as finance chairman for Mayor Koch’s gubernatorial campaign, and prior to his appointment as Deputy Mayor, Mr. Lipper successfully solicited contributions, the amount not being specified, from persons associated with Shearson. Petitioner’s contention appears to be that it was de-designated as developer of sites Nos. 5B and 5C because Mr. Lipper was motivated in his recommendations and actions with regard to the City sites in question by a desire to confer a benefit on a firm whose principals had contributed to the Koch campaign. We are unable to find in petitioner’s papers a factual showing sufficient to give rise to a triable issue on this claim.
In substance, petitioner seeks a trial in which the fact finder would be required to make a speculative psychological judgment as to whether a participant in a governmental decision was influenced by a desire to discharge a personal obligation to a firm whose principals had contributed to a campaign whose fund raising efforts he headed, in recommending policies that a responsible public official in his position could reasonably have recommended on the merits, policies that were adopted by the administration in which he was an important official, and the essential principles of which were approved, after a public hearing, by the City Planning Commission, a body with special experience and competence in land use matters, and ultimately by the Board of Estimate. Our attention has been invited to no decision in which so nebulous an issue affecting the good faith of a governmental decision was found to justify a trial.
Mulligan v Lackey (33 AD2d 991) the principal authority relied upon by petitioner in this aspect of its argument, is clearly distinguishable. In Mulligan, a construction project contract had been annulled after it was ascertained that a member of the agency awarding the contract was an employee of the company to which the contract was awarded. Within a month after the contract was nullified, and after the agency member who had the conflict of interest resigned from it, the agency again awarded the contract to the same company. The conclusion of the court in Mulligan (at p 992) that under the circumstances "the purposes of the conflicts of interest statute will best be served by * * * relegating the parties to a trial of the issues forthwith” does not seem to us persuasive authority with regard to the issue here posed.
The tenuous character of the issue pressed by petitioner, and its inadequacy to give rise to a triable issue is underlined *180by three circumstances clearly established in the record, circumstances in large part presented in newspaper articles introduced by the petitioner as exhibits.
In one such newspaper article proffered by petitioner, apparently in part because it includes confirmation that Mr. Lipper had solicited funds from Shearson for the Koch gubernatorial campaign, the writer also reports, without any denial or disclaimer by petitioner, that one of petitioner’s principals had made a substantial contribution to the same campaign, and goes on to characterize a senior partner in the law firm that represented petitioner during the relevant period of time as "the Mayor’s chief real estate fundraiser.”
Second, in another newspaper article appended as an exhibit to petitioner’s papers, it is reported that during the summer of 1983, months before the Deputy Mayor had any discussions with Shearson with regard to any site in WSURA, he and the Public Development Corporation had participated in negotiations with Merrill Lynch & Company with regard to the possible conveyance of sites Nos. 5B and 5C to that company. The article was apparently introduced by petitioner in support of the claim that there had been a violation of its claimed contractual right to exclusively negotiate with HPD for the development of sites Nos. 5B and 5C. Whatever the relevance of the Merrill Lynch negotiations may be to petitioner’s contract action, the article introduced by petitioner clearly establishes that the Deputy Mayor had formed his judgment as to how the vacant sites in WSURA should be developed, and the appropriate method for negotiating the development of those sites, at a time when the motivation speculatively attributed to him could not possibly have affected that judgment.
Finally, petitioner’s papers wholly fail to disclose any connection between Deputy Mayor Lipper’s supposed improper motivation to be of assistance to Shearson and petitioner’s dedesignation as developer of sites Nos. 5B and 5C. The Deputy Mayor’s negotiations with Shearson, which had commenced in the fall of 1983 after he had learned that Shearson was considering space in New Jersey for its back office operations, resulted in a memorandum of agreement to convey site No. 1 to Shearson. Nothing in that memorandum of agreement would have been inconsistent with petitioner’s continuance as developer of sites Nos. 5B and 5C.
For the reasons set forth above, we are unable to discern in *181this record any factual allegations requiring a trial as to whether the determination to de-designate petitioner as a developer of sites Nos. 5B and 5C was arbitrary and capricious, was reached in bad faith and for improper purposes, or was affected by an error of law or defect in procedure. Accordingly, the order of the Supreme Court, New York County (Stanley S. Ostrau, J.), entered January 4, 1985, granting the petition in this article 78 proceeding to the extent of directing a trial as to whether a determination of HPD de-designating petitioner as developer of sites Nos. 5B and 5C was arbitrary and capricious, and as to whether it represented a good-faith judgment, should be reversed, on the law, without costs, to strike the direction for a trial and dismiss the petition.