Court Opinion

ID: 5883711
Source: CourtListenerOpinion
Date Created: 2022-01-13 02:25:06.545092+00
Date Added: 2024-06-11T08:45:06.081207
License: Public Domain

Fein, J. (concurring).
I concur that there is no basis for a trial and that the petition should be dismissed. This court has previously held, in an action brought by these petitioners against the City for breach of contract on the basis of essentially the same allegations as set forth in this CPLR article 78 proceeding, that a cause of action for damages was stated in that complaint, and that a motion to dismiss for legal insufficiency was properly denied (Goodstein Constr. Corp. v City of New York, 111 AD2d 49). It was there concluded (p 51): "The designation agreements obligated both parties to cooperate and exert their best effort in the creation and negotiation of a plan for the development of the sites. Clearly, the letter agreements by their nature did impose a covenant of fair dealing and good faith, an obligation implicit in all contracts.” It was held that the complaint adequately alleged a violation of these obligations, compensable by damages.
Thus, the only difference between that action and this article 78 proceeding is the relief sought. In reality petitioners here seek specific performance, albeit their proceeding is on its face brought under article 78 to overturn the de-designating determination as arbitrary, capricious and made in bad faith. The real objective of this proceeding, as petitioners concede, is to compel re-designation. They have conceded that if an article 78 proceeding is deemed inappropriate for the purpose they seek to achieve, the proceeding should be converted into an action for specific performance.
It is well settled that an article 78 proceeding may be converted into whatever form is proper to grant requisite relief if an appropriate case is made (CPLR 103 [c]; Matter of Phalen v Theatrical Protective Union No. 1, 22 NY2d 34, cert *182denied 393 US 1000; Matter of Oshinsky v Nicholson, 55 AD2d 619; Ammex Warehouse Co. v Procaccino, 85 Misc 2d 327, affd 55 AD2d 535). However, no such basis may here be found.
It is plain enough on this record that the appropriate City agencies have made a determination that the site areas involved are to be utilized for commercial enterprises plus a school, and not as contemplated at the time the petitioners were designated. It was then the intention that these sites should be utilized for combined residential and commercial purposes. Whether the court considers that such change of use is advisable or inadvisable, the court is without power to act if, as readily appears, there is a lawful basis for the determination. (Coalition Against Lincoln W. v City of New York, 94 AD2d 483, affd 60 NY2d 805; Town of Huntington v Park Shore Country Day Camp, 47 NY2d 61; see, Matter of Board of Educ. v City of New York, 41 NY2d 535; Bacon v Miller, 247 NY 311.)
A violation of duty by a governmental official or agency may well give rise to a plenary action for breach of the contract, but not to an article 78 proceeding seeking specific performance under guise of mandamus or certiorari (Matter of Corbeau Constr. Corp. v Board of Educ., 32 AD2d 958).
Whatever the personal motives of the City officials involved, there is nothing shown to demonstrate that the decision to change the site from a mixed residential and commercial use to an all commercial use was without a rational basis and not in the best interest of the City. If there was a breach of contract and damages were sustained by petitioners, the appropriate relief is available in the damage action in which the complaint has already been held by this court to be sufficient.
Moreover, the Board of Estimate’s approval of the changed use of these sites has been upheld as is plainly established in the thorough opinion of Justice Stecher with respect to the sixth amendment to the plan (Tribeca Community Assn. v Board of Estimate, NYLJ, Nov. 14, 1984, p 5, col 3).
Special Term, relying primarily on Rochester Park v City of Rochester (38 Misc 2d 714, affd 19 AD2d 776), a contract action, concluded that the case provided a sufficient basis for directing a trial in these proceedings. However, it is notable that although Special Term in that case sustained a complaint which alternatively sought specific performance or damages, the Appellate Division, in affirming, made no determination warranting specific performance. The Appellate Division *183noted, in affirming the denial of the city’s motion for summary judgment, that the limited issue was whether section 508 of the contract there in dispute required Federal Housing and Home Finance Agency (HHFA) approval, and whether the city had acted in bad faith in failing to obtain such approval and then in terminating the contract upon the ground that no such approval was forthcoming. There was no holding in that case that specific performance rather than damages was the appropriate remedy. The Appellate Division stated: "While section 508 ultimately might be found to be unambiguous, 'Even in the case of an integrated written contract, the meaning of the words may depend upon various surrounding circumstances that are in dispute; the circumstances must be found as a fact before interpretation can proceed.’ (3 Corbin, Contracts, § 554, p. 223.) We pass on no other questions. ” (19 AD2d 776, supra; emphasis supplied.)
It is plain enough that Rochester Park (supra) is not authority for concluding that specific performance could be granted against the city. Indeed, the grant of specific performance would, in effect, direct the city to undo that which has been accomplished by adopting the sixth amendment to the plan (Tribeca Community Assn. v Board of Estimate, supra).
The cases relied upon in the dissent do not speak to this issue. Thus, in Paese v Pilla (59 AD2d 701, mot to dismiss appeal granted 43 NY2d 835), the issue was whether the petitioner who was discharged as village engineer was entitled to a hearing as to whether his discharge had been made in good faith under guise of abolishing his civil service position. It is one thing to direct a hearing to determine whether the individual’s employment in a civil service position was terminated in bad faith, in violation of the Civil Service Law. It is quite another to direct a hearing to determine whether the Board of Estimate and the City Planning Commission had a rational basis for approving the change of the land use plan here involved.
Equally untenable as a basis for directing a trial is Mulligan v Lackey (33 AD2d 991). In that case the article 78 proceeding was brought to set aside the award of a construction project contract to a construction company, one of whose employees was a member of the governmental agency which authorized the contract. A prior contract awarding the project to the same company had been held void by reason of a conflict of interest. The employee then resigned from the agency, which then authorized readvertising. The petitioner *184and the former agency member’s company submitted bids and the contract was again awarded to the employee’s company. The court held that a square issue of conflict of interest pursuant to General Municipal Law § 801 was raised, and that a trial should be held upon that narrow issue. Thus, the sole issue tendered was whether the construction company which obtained the contract was barred because its employee had helped to draw the specifications for the contract as a member of the governmental agency. Again, this has nothing to do with whether the land use change here authorized was rational.
I have no quarrel with the holding in that case that even in an article 78 proceeding disputed issues of fact require a trial. Matter of Armere Holding Corp. v Bell (37 NY2d 925) is not to the contrary. That case holds only that a de-designated developer is entitled to an explanation of the reason at a hearing before the commissioner involved. It is not authority for the proposition that the de-designated developer is entitled to a judicial trial where the remedy sought is specific performance. Nor is it within the purview of the court to determine whether the change of land use policy is warranted. It is not the function of the court to substitute its judgment for that of the agency reviewed, if agency action can be supported on any reasonable basis (see, Matter of Eastway Constr. Corp. v Gliedman, 86 AD2d 575; Matter of Kayfield Constr. Corp. v Morris, 15 AD2d 373).
It is plain that the procedures required to re-designate the petitioner would run the full panoply of government action prescribed by the Uniform Land Use Review Procedure (ULURP), New York City Charter § 197-c.
The procedure required and not yet undertaken pursuant to ULURP would entail a series of public hearings before the Local Community Board, the City Planning Commission and the Board of Estimate after an environmental impact statement has been prepared. At the time of the de-designation of petitioner, ULURP had not even begun. Indeed, petitioners concede that at best they merely had the authority to "exclusively negotiate” with respondents. How such negotiations could proceed in face of a change in land use policy does not appear. The right of the public agencies to change land use policy in the perceived public interest is clear. Hence, if petitioners were to succeed, the entire process would have to be followed without any determination that there was lacking a rational basis for the change in policy.
*185There is no right to specific performance to change such policy determination (Orelli v Ambro, 41 NY2d 952; Citizens Committee for Faraday Wood v Lindsay, 507 F2d 1065, cert denied 421 US 948). Although we need not go so far, it is noted that in Faraday Wood, the court observed (at p 1072): "It seems to us that it is a proper exercise of discretion for HDA to terminate a project when it feels that the Board of Estimate is unlikely to approve it because of public protest and political considerations.”
Neither an article 78 proceeding by way of mandamus or certiorari to review, nor an action for specific performance, is warranted on this record. Whatever remedies are available are encompassed in the companion contract action for damages.
Ellerin, J. (dissenting). The issue before us in this CPLR article 78 proceeding is whether the allegations of wrongdoing in the record are sufficient to warrant the holding of a hearing, as directed by Special Term, to determine whether or not appellants, the City of New York and the Commissioner of the New York City Department of Housing Preservation and Development, acted in good faith when they summarily dedesignated the petitioner as the developer of sites Nos. 5B and 5C of the Washington Street Urban Renewal Area on November 29, 1983. It is acknowledged that at the time of the dedesignation petitioner had fully performed and discharged all of the obligations it had assumed under its agreements with appellants, including expenditures in excess of $800,000, and that appellants concededly had found no fault in any respect with petitioner’s performance. While appellants assert that the de-designation of petitioner was due to a "new policy” providing for "sole source” negotiations—that is, privately negotiating with individual potential owner-users of public property in distinction to the sale of such property by way of public bidding—announcement of the adoption of that new policy was first made on March 27, 1984, some four months after the de-designation here in issue.
A brief chronological recitation of the facts is helpful in placing the relevant issues in proper perspective.
In March 1981, the Department of Housing Preservation and Development (HPD), the municipal agency charged under the New York City Charter with sole responsibility for urban renewal planning and land disposition, issued a formal request for proposals (RFP) soliciting offers from those interested in *186formulating a plan for the redevelopment of site No. 5C of the Washington Street Urban Renewal Area (WSURA). The petitioner, a joint venture consisting of Goodstein Construction Corp., Dic-Underhill Industries and Milstein Properties (Good-stein) submitted a proposal which, consistent with the RPP, included provision for the development of a partially subsidized residential apartment building, for 30,000 square feet to be devoted to commercial use and associated parking, and for the continued operation and maintenance of the city-owned Washitigton Market Park. Petitioner’s proposal, and one other, were subsequently reported to be the "most appropriate and complementary to the community” by the Chairman of the Washington Street Committee of Manhattan Community Board No. 1.
In August 1981, HPD, in conjunction with the New York City Public Development Corp., made a similar request for proposals for the development of site No. 5B of the WSURA. Petitioner’s submission with respect to that site proposed the construction of 1.1 million square feet of office space with associated retail space and parking and also included the required provisions for development of a public plaza and the grant of a perpetual easement to the College of Insurance.
After review of the various submissions in response to the RFPs, HPD informed petitioner that it had been selected to exclusively negotiate with the City for the terms of disposition for both sites Nos. 5B and 5C. This was done by way of letter agreements from HPD to petitioner, dated January 29, 1982 with respect to site No. 5B and February 1, 1982 with respect to No. 5C. Each letter agreement stated that petitioner was selected to exclusively negotiate with the City for 90 days, commencing on February 8, 1982, for development of the specified site and further provided that if a plan for development had not fully been agreed upon at the end of the 90-day period, the City had the option to extend the exclusive negotiating period in 30-day increments. Each letter also contained a statement that the City expressly retained "the right to terminate negotiations at any time”.
Extensive negotiations followed during the ensuing months culminating in new designation letter agreements, dated June 2, 1982, superseding the original agreements. The agreements provided that petitioner had been selected to exclusively negotiate the terms and conditions of a land disposition agreement (LDA) with HPD for the development of each of the sites, and delineated the obligations of the parties in extensive detail. *187Petitioner’s obligations included the immediate submission of two letters of credit for $100,000 each as assurance deposits; the development of architectural plans, building designs, marketing concepts and financial projections; the furnishing of progress drawings including sketches of typical floors, plaza and landscaping layouts and the like; the preparation of the necessary materials for the Uniform Land Use Review Procedure (ULURP); the filing of Department of Housing and Urban Development mortgage insurance applications, and environmental review statements (not only as to these sites but also as to other sites of the WSURA); and, the long-term maintenance at petitioners’ expense of nearby Washington Market Park "for public use and access”.
While petitioner was obligated under the agreements to fully and expeditiously cooperate with HPD in meeting the legal requirements necessary for approval of the land disposition agreements, HPD expressly undertook to "expeditiously complete all of its obligations in connection with the legal requirements, including the ULURP pre-certification process”.
Significantly, the June 2, 1982 designating agreements eliminated the language found in the earlier January 29th and February 1st agreements that the City retained the right to terminate negotiations at any time.
During the year following these agreements it is conceded that petitioner fully and satisfactorily performed all of its obligations and that by mid-1983 the LDAs had been fully negotiated and agreed to by all parties.
With respect to site No. 5B, which was intended to further economic development within the WSURA and provide additional office space for clerical and professional jobs in lower Manhattan, petitioner in early 1983 had entered into negotiations with Shearson/American Express, Inc. (Shearson) for a 35-year lease. Those negotiations had reached a stage where detailed terms were memorialized in a letter dated May 9, 1983, sent to Shearson, at its request, by its broker. These terms provided for a building to be constructed for the exclusive use of Shearson and contemplated an equity interest for Shearson. As part of these negotiations, Goodstein undertook to attempt to obtain a tax abatement for Shearson. The City initially cooperated with Goodstein’s efforts in that regard. When first approached, City representatives indicated there would be no problem with respect to a tax abatement as other sites within the WSURA had been granted these abatements.
*188Such assurances, however, proved short-lived and petitioner asserts that it is at this juncture that the actions of the City took on a different character. It is claimed that then Deputy Mayor Kenneth Lipper, who had assumed that position in early 1983 and was fully aware of petitioner’s negotiations with Shearson for a building to be used for back office jobs, improperly interjected himself into the situation by directing that no tax abatements be granted to petitioner’s sites although other buildings in the area had been granted or promised such abatements and that the denial of such tax abatement frustrated finalization of the proposed "deal” between Shearson and petitioner. It is not denied that shortly thereafter, in the summer and fall of 1983, Lipper himself entered into negotiations with Shearson which ultimately resulted in an agreement between the City and Shearson whereby Shearson was to purchase other WSURA sites, located but two blocks away from petitioner’s site, and was to receive extremely generous tax abatements and other incentives. Allegations are made that the very favorable treatment extended to Shearson was not unrelated to campaign contributions which it made in response to Mr. Lipper’s political fund raising efforts during the 1982 gubernatorial campaign. Similar assertions of personal interest coloration are made with respect to Mr. Lipper’s negotiations with other large financial institutions for office space during this period.
It is further contended that Mr. Lipper’s intrusion into the situation during the summer of 1983, and thereafter, was the real reason for HPD’s subsequent refusal to fulfill its express obligation to take all necessary steps, including those relating to ULURP precertification, to administratively process for approval the plans which had been jointly developed by the parties during the preceding year.
HPD informed petitioner that its designation was terminated by letter, dated November 29, 1983. The official reason given for the de-designation in that letter was as follows: "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 petitioner’s subsequent meeting with HPD Deputy Commissioner Reiss, he acknowledged that petitioner had always *189been in good standing and that no fault was to be found in any respect with its performance, that the LDAs had been fully negotiated prior to de-designation, and that there was clear support in the Community Board and the Washington Market community at large for petitioner’s development plans.
On January 17, 1984, a memorandum of agreement was executed by Mr. Lipper on behalf of the City with Shearson providing for the conveyance of sites Nos. 1A and 1B of the WSURA.
The instant article 78 proceeding was commenced on January 30, 1984, Goodstein contending that the City arbitrarily and capriciously terminated its designation due to the improper actions of then Deputy Mayor Lipper and that the stated reason of the change in land use policy was without basis in fact.
The City generally denies allegations of wrongdoing and asserts that the de-designation was the result of a lawful change in City policy regarding land use of WSURA. In support of its position the City submitted the affidavit of former Deputy Mayor Lipper, dated March 21, 1985, which describes the change in policy which is asserted to be the reason for petitioner’s de-designation and the desirability of pursuing that policy of "sole source” or direct negotiations with large firms for back office space rather than dealing through developers such as petitioner. While reference is made to "studies done by consultants”, the specific "studies” themselves were not included. An affidavit by the Mayor was also submitted indicating that the City’s policy for "sole source negotiations” with private firms was formally announced by him on March 27, 1984.
Since petitioner was formally de-designated on November 29, 1983, it understandably asserts that the City’s change of policy to "sole source” negotiations, first adopted some four months later, is but a post hoc attempt to justify its wrongful termination of petitioner’s designation. In support of this position, attention is directed to the fact that petitioner’s negotiations with Shearson were designed to promote the retention of the back office type of jobs that are allegedly the raison d’etre of the new "sole source” negotiations policy and that had petitioner’s negotiations not been wrongfully interfered with, retention of those jobs would have been accomplished on terms more favorable to the City than was ultimately the case.
*190Special Term concluded that the allegations of the petition were sufficient to raise questions of fact requiring a hearing. I agree.
In this article 78 proceeding, the issue is whether the dedesignation of Goodstein was arbitrary and capricious or without rational basis. "The arbitrary and capricious test chiefly 'relates to whether a particular action should have been taken or is justified * * * and whether the administrative action is without foundation in fact.’ (1 N.Y. Jur., Administrative Law, § 184, p. 609).” (Matter of Pell v Board of Educ., 34 NY2d 222, 231; see also, 5 NY Jur 2d, Article 78 and Related Proceedings, § 32.) Significantly, governmental action which is not taken in good faith can be vitiated and a full hearing is the appropriate avenue for the making of such determination. (Paese v Pilla, 59 AD2d 701.)
Justice Sandler’s analysis and evaluation of the allegations and issues raised herein are perhaps the most persuasive demonstration of the need for a hearing. A summary determination is made that the possibility that a public official might be 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 to the City Planning Commission and Board of Estimate is too "nebulous an issue affecting the good faith of a governmental decision to justify a trial”. I find this conclusion as untenable as are the City’s repeated conclusory assertions that since the new policy of "sole source” negotiations is one in the "best interests of the City”, any allegations as to the motivation of self-interest of the then Deputy Mayor are irrelevant.
The City attempts to buttress its position by arguing that "[e]ven if petitioner’s allegations against the Deputy Mayor were correct, they are of no moment, because * * * the process of government overcame the acts of one individual”. In essence it asserts that since the City Planning Commission and the Board of Estimate some months later approved the City-Shearson agreement, the Deputy Mayor, as only a single "cog” in a larger wheel, could not have improperly influenced or "controlled” the governmental process. Completely ignored is the fact that the particular governmental official happened to be the Deputy Mayor who, by his own acknowledgement, was in charge of "supervising New York City’s budget and tax departments”, and was "responsible for the City’s Office of Economic Development and Public Development Corporation”, agencies which "establish government policy concerning busi*191ness, industry, commerce and real estate, which affect the City’s economic well being”, all of which would certainly place his actions, and motivation, in a category far different from that of an ordinary functionary.
While it is true that the City Planning Commission and the Board of Estimate are the final arbiters of a particular policy, they are entitled to have those decisions made on the basis of objectively submitted information and recommendations made by public officials solely on the merits and not colored by any conflicts of interest or personal considerations. Any recommendation can be cloaked with a patina of "best interests of the City” or other appropriate rhetoric. Neither the public interest nor the City’s best interests can, however, be said to be advanced when such recommendation, even in part, is predicated upon self-serving considerations which will result in the according of favored treatment. Instructive in that regard are the purposes of the laws requiring competitive bidding in the letting of public contracts which are " 'to guard against favoritism, improvidence, extravagance, fraud and corruption’ ”. (Matter of Conduit & Found. Corp. v Metropolitan Transp. Auth., 66 NY2d 144, 148; see, Orelli v Ambro, 41 NY2d 952.)
The intrusion of personal interest considerations into governmental activity is, of course, rarely overt or publicly acknowledged. As a rule, it lies silent and invidious unless unearthed by the glare of adversarial scrutiny, precisely the format of a full hearing.
Notwithstanding that the majority does not find the decision in Mulligan v Lackey (33 AD2d 991) "persuasive authority”, the holding there is particularly relevant to the instant case. While the facts as to the alleged conflict of interest in Mulligan are somewhat different than those here asserted, in each case it is allegations of wrongful conduct that serve as the underlying predicate for the article 78 proceeding to set aside specific governmental action. In that case, as here, affidavits were submitted, on the one hand alleging that the award was tainted by conflict of interest and, on the other contradicting some of the allegations of the petition. The court very aptly noted that: "Disputed factual issues should not be resolved upon affidavits (see Matter of Carucci v. Dulan, 24 A D 2d 529). If a triable issue of fact is raised in an article 78 proceeding, it shall be tried forthwith (CPLR 7804, subd. [h])” (id., p 991; emphasis added).
*192The allegations made by petitioner are very serious ones and would directly impact on the issue of whether the City acted here in good faith. It may well be that there is no merit whatsoever to the petitioner’s assertions and allegations, and, indeed, the former Deputy Mayor is a person whose talents and abilities are widely held in high esteem. If that is the case, a full hearing will certainly demonstrate the lack of merit to such charges of bad faith and it. is difficult to understand why the City is so resistant to going forward with a proceeding which would vindicate its position. (Cf. Paese v Pilla, 78 AD2d 677, affd 54 NY2d 675.) Alternatively, if a hearing discloses that the decisions in issue were motivated or tainted by some improper considerations, then clearly petitioner and all other interested parties including the appropriate governmental bodies, are entitled to know that such is the case.
While the function of our courts in reviewing the propriety of a particular governmental action in an article 78 proceeding is limited, and requires that the greatest of deference be extended to the judgment and discretion exercised by executive officials, that deference necessarily presupposes that such judgment and discretion have been lawfully exercised with the utmost honesty and in good faith. The majority appears to indicate that, once some showing of a rational basis for the executive judgment has been made, allegations impugning the good-faith nature of that showing can be summarily disposed of or relegated to the companion contract action. It may be noted that whatever its present posture, the defendant City itself, in that contract action, acknowledged that the instant action is the proper vehicle for addressing the issue as to whether the City acted in bad faith. (See, record on appeal, Goodstein Constr. Corp. v City of New York, appeal No. 22803, at 252, 253 [111 AD2d 49].) To ignore the serious allegations of "tainted judgment” and bad faith raised here, particularly in light of the sequence of events, would be to render meaningless the function of an article 78 proceeding as a safeguard against the unjustifiable excesses in the exercise of the awesome power of the executive.
Accordingly, I would affirm the order of the Supreme Court, New York County (Stanley S. Ostrau, J.), directing a trial on the issue of whether the determination de-designating petitioner was made in good faith.
Sandler, J. P., concurs in an opinion in which Ross, J., concurs; Fein, J., concurs in a separate opinion in which Ross, *193J., concurs; Ellerin, J., dissents in an opinion in which Kassal, J., concurs.
Interlocutory order, Supreme Court, New York County, entered on January 4, 1985, reversed, on the law, without costs and without disbursements, to strike the direction for a trial and dismiss the petition.