Court of Appeals January Session: Arguments of Interest for January 4, 2018

The Court of Appeals’ January Session continues on Thursday, January 4, 2018, with three cases on the calendar (the Court’s case summaries can be found here). The Court will hear arguments on the following issues: (1) when is a municipality an intended third-party beneficiary of a professional services contract between a professional and a property owner for the design and construction of a building for the municipality’s use, and when may the professional be held liable for breach of a tort duty independent of his contractual duties; and (2) when may a criminal defendant be held to have the “unlawful intent” to use a household knife, like a box cutter, as a weapon.

No. 8      Dormitory Authority of the State of New York v Samson Construction Co.

DASNY is the public authority that helps facilitate economic development projects for public agencies and private not-for-profits throughout the State.  It issues tax-free bonds and provides construction guidance to assist those projects, and often contracts with professionals and contractors to design and build the projects.  In this case, DASNY contracted with an architect to design and a contractor to excavate and pour the foundation of a $240 million, 15-story forensic laboratory for New York City. As the work was being done, however, the pile driving and other foundation work caused an adjacent building at Bellevue Hospital to settle, damaged the nearby streets and water and sewer infrastructure, and delayed the project by 18 months.

After DASNY and the City sued the architect and contractor, Supreme Court dismissed the City’s claims against the architect because it wasn’t a party to the professional services contract, but denied the architect’s motion to dismiss DASNY’s negligence claim as duplicative of its claim for breach of contract.

The Appellate Division, First Department modified, reinstating the City’s breach of contract claim because an issue of fact existed whether the City was the intended third party beneficiary of the professional services contract.  The First Department also agreed with Supreme Court that a professional could have an independent tort duty to perform its services “consistent with the generally accepted standard of professional care in its industry,” separate from its contractual duties, and a question of fact existed on that issue too.  One Justice dissented in part, and would have held DASNY’s tort claim to be duplicative of its claim for breach of contract, because DASNY was “essentially seeking enforcement of the bargain.”

My quick read is that I think the Appellate Division dissenter got it right. Where DASNY is really just a facilitator of the public project for the City and the City is the real beneficiary of the professional’s work, it seems to me that the City should be an intended third party beneficiary with rights to sue for breach of the contract. Similarly, I have a difficult time seeing the Court holding professionals to have a tort duty independent of its contractual duty in a case like this, where there really was no risk of “catastrophic harm,” as is generally required. We’ll see.

The Appellate Division, First Department’s order can be found here.

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