New York State Court of Claims

New York State Court of Claims

IMS ENGINEERS v. THE STATE OF NEW YORK, #2007-015-147, Claim No. 112628, Motion No. M-72301


State's pre-answer motion to dismiss claim for breach of a construction contract was granted. Claimant was not in privity of contract with the State nor was it an intended third-party beneficiary of the contracts between the design contractor and the State.

Case Information

Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):
Cross-motion number(s):

Claimant’s attorney:
Joseph A. Camardo, Jr., Esquire
Defendant’s attorney:
Honorable Andrew M. Cuomo, Attorney General
By: Cornelia Mogor, EsquireAssistant Attorney General
Third-party defendant’s attorney:

Signature date:
January 23, 2007
Saratoga Springs

Official citation:

Appellate results:

See also (multicaptioned case)


Defendant's pre-answer motion to dismiss the claim herein for lack of jurisdiction and failure to state a cause of action is granted.

Claimant, IMS Engineers-Architects, P.C., seeks $779,470.41 in damages allegedly arising from the breach of three separate contracts between the State of New York and Hayden-Wegman, Inc. (Hayden-Wegman). The contracts which are the subject of this claim were executed on November 13, 1984 (contract number D001852), January 10, 1986 (contract number D001908) and March 12, 1986 (contract number D001988). The 1984 contract addressed survey and design services for the improvement of two sections of highway in Jamestown, New York, referred to as the Jamestown East-West Arterial. The January 1986 contract pertained to survey and design services for bridge replacement or rehabilitation work in Niagara Falls, New York and the March 1986 contract was for survey and design services for the improvement of approximately 4.7 miles of Route 394 , Jamestown East-West Arterial in the Town of Busti, Village of Lakewood. Each of the contracts contemplated the performance of work by Hayden-Wegman as consultant and the claimant as sub-consultant and provided for a lump sum fee to both Hayden-Wegman and the claimant in addition to other remuneration set forth in the contracts (see Article 4, Item IV of the contracts annexed as defendant's Exhibit A, B, C). All three contracts provided that "[t]he STATE shall retain five percent from each CONSULTANT'S progress payment until a Maximum of Twenty Thousand dollars is retained" (see Article 5 of the contracts annexed as defendant's Exhibits A, B, and C).

In support of its dismissal motion, defendant argues that the claim fails to state a cause of action as there is no privity of contract between the claimant and the defendant and that, in any event, the Court lacks jurisdiction to hear the claim as it was untimely filed. Defendant also seeks dismissal on the ground that the claim fails to meet the pleading requirements of section 11(b) of the Court of Claims Act as the claim fails to specify an accrual date and the specific locations of the occurrences which form the basis of the claim.

The rule is well settled that "a subcontractor may not assert a cause of action which is contractual in nature against parties with whom it is not in privity" (Delta Elec. v Ingram & Greene, 123 AD2d 369 [1986]; see also, Sybelle Carpet and Linoleum of Southhampton, Inc. v East End Collaborative,167 AD2d 535 [1990]; Custer Bldrs. v Quaker Heritage, 41 AD2d 448 [1973]). While not disputing this general proposition, the claimant argues that it is an intended third-party beneficiary of the defendant's contracts with Hayden-Wegman thereby entitling it to recovery for breach of contract. "A party asserting rights as a third-party beneficiary must establish '(1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for his benefit and (3) that the benefit is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost'" (State of California Public Employees' Retirement System v Shearman & Sterling, 95 NY2d 427, 434-435 [2000], quoting Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314, 336 [1983]; see also Fourth Ocean Putnam Corp. v Interstate Wrecking Co., 66 NY2d 38, 44 [1985]). In Port Chester Electrical Construction Corp. v Atlas (40 NY2d 652) the Court of Appeals acknowledged that application of the intent to benefit test is problematic in construction contracts, stating at pages 655-656:
Difficulty may be encountered . . . in applying the intent to benefit test in construction contracts because of the multiple contractual relationships involved and because performance ultimately, if indirectly, runs to each party of the several contracts. Hence, interpretational difficulties prevalent in third-party beneficiary contracts are compounded as a result of the peculiar problems presented by construction contracts. 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.
The contracts at issue in this case do not expressly state that the intention of the contracting parties was to benefit a third-party. Indeed, the express terms of the agreements directly negate such an interpretation. With respect to any right of action by a third-party not privy to the contract, Article 9 of each of the three contracts provides the following:
Nothing in this Article or in this Agreement shall create or give

to third parties any claim or right of action against the CONSULTANT

or the STATE beyond such as may legally exist irrespective of this Article

or this Agreement.

(see Article 9 of defendant's Exhibits A, B, C).

"Where a provision in the contract expressly negates enforcement by third parties, that provision is controlling" (Edward B. Fitzpatrick, Jr. Constr. Corp. v County of Suffolk, 138 AD2d 446, 449-450 [1988], lv denied in part and dismissed in part 73NY2d 807 [1988]; see also, Matter of Baltia Air Lines, Inc. v CIBC Oppenheimer Corp. 273 AD2d 55 [2000], lv denied 95 NY2d 767 [2000]; Bordereaux v Salomon Smith Barney Holdings, Inc., 269 AD2d 217 [2000], lv denied 95 NY2d 754 [2000]; Nepco Forged Prods. v Consolidated Edison Co. of N.Y., 99 AD2d 508). Since the express terms of each of the subject contracts specifically negate an intention to benefit any third parties, the claimant, a subcontractor not a party to the agreements, may not recover directly from the defendant the unpaid balance of its subcontract with Hayden-Wegman.

Contrary to the claimant's contention, the fact that the claimant was named in the contract as the sub-consultant together with its projected costs does not warrant a finding that it was an intended third-party beneficiary of the contracts (see Harrison & Burrowes v State of New York, 87 Misc 2d 637 [Ct Cl 1976][absence of privity forecloses liability on breach of contract claim even where the State had knowledge of and consented to the subcontract]). The reasons for naming the sub-consultant in the contracts with Hayden-Wegman were explained by Mark Moody, Assistant Director of the Office of Contracts Management, in an affidavit submitted in support of the motion to dismiss:
IMS was named in the agreements solely because it was a sub-consultant to Hayden-Wegman. The naming of a known sub-consultant and the amount of expected actual costs to be billed through the consultant for the sub's services is a practice which is followed by the Department to date. This comports with federal and state accounting and auditing requirements.
Nor does claimant's heavy reliance on the multitude of correspondence between the claimant and the defendant establish its status as an intended third-party beneficiary, particularly in light of the contract language evidencing an intent not to benefit third parties. None of this correspondence establishes that the contracts at issue were intended for claimant's benefit. To the contrary, claimant concedes that at no time were payments made by the defendant directly to the claimant and the correspondence submitted does not otherwise evince an intent to permit enforcement of the contracts by the claimant (see Boyd v Hall, Ltd., 307 AD2d 624 [2003]; Binghamton Masonic Temple v City of Binghamton, 213 AD2d 742 [1995], lv denied 85 NY2d 811 [1995]; Area Masonry Ltd. v Dormitory Auth. of the State of New York, 91 Misc 2d 396 [1977]; cf. Finch, Pruyn & Co. v Wilson Control Servs., 239 AD2d 814 [1997]). In fact, the correspondence from Iqbal Singh, the President of IMS Engineers-Architects, P.C., reflects the claimant's understanding that its work was performed on behalf of Hayden-Wegman and that it was Hayden-Wegman- not the defendant- who owed it money for work performed under the contracts[1]. Thus, the evidence submitted is insufficient to establish that the claimant was an intended beneficiary of the contracts.

Claimant makes the additional argument that it was a third party beneficiary of the provision in each of the contracts between the defendant and Hayden-Wegman which required the retention of five percent from each consultant's progress payment. However, as the affidavit of Mr. Moody submitted in reply makes clear, the retainage was held for the benefit of the defendant, not the claimant, and compensation for the work performed by the claimant as sub-consultant was owed only to Hayden-Wegman (see Fehlhaber Corp. v Unicon Management Corp., 32 AD2d 367, 371 [1969], affd 27 NY2d 828 [1970] [provisions for retainer in principal construction contract were for the benefit of the City, not the plaintiff]). This is consistent with the statutory payment scheme embodied in State Finance Law § 139(1) and § 139-f(2). State Finance Law § 139(1) requires the insertion of a clause in contracts awarded by the state providing that the state shall retain five percent of the amount of each progress payment in accordance with § 139-f . State Finance Law § 139-f (2) makes specific provision for the payment by contractors to subcontractors and makes clear that such requirements confer no third-party beneficiary status upon a subcontractor, stating:
Nothing provided herein shall create any obligation on the part of the public owner to pay or to see to the payment of any moneys to any subcontractor or materialman from any contractor nor shall anything provided herein serve to create any relationship in contract or otherwise, implied or expressed, between the subcontractor or materialman and the public owner.
Claimant's argument that it may recover from the defendant on the theory of contracts implied in law or quasi contract must also fail. Significantly, " 'a quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved' " (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388-389, quoting Bradkin v Leverton, 26 NY2d 192, 196 [emphasis in original]; see also Servidone, Inc. v Bridge Technologies, 280 AD2d 827 [2001], lv denied 96 NY2d 712 [2001]; Conklin v City of Saratoga Springs, 267 AD2d 841). Here, there are three contracts which clearly cover the work performed by the claimant. Although the claimant argues that the use of Computer Aided Design and Drafting technology was not specified in the contract, the design work clearly was. Whatever additional compensation may have been due the claimant for using this technology should have been recovered from Hayden-Wegman, the prime consultant for the work.[2]

There is similarly no merit to the claim that the five-percent retainage held by the defendant is subject to an equitable lien. "The existence of an equitable lien requires an express or implied contract concerning specifically identified or identifiable property. If express, the agreement must clearly indicate an intent that the property described is to be held, given or transferred as security for the obligation" (Thorne Real Estate v Nezelek, 100 AD2d 651, 652 [1984]). However, an agreement to pay a debt out of a designated fund does not operate to create an equitable lien where it would be inconsistent with the express terms of the contract (id. at 652; see also Datlof v Turetsky, 111 AD2d 364 [1985]). The contracts at issue in this case contemplate direct payment to the consultant Hayden-Wegman, not the claimant as sub-consultant.[3] The imposition of an equitable lien on the five-percent retainage would thus be inconsistent with the express terms of the contracts. As a result, the Court finds no merit to the contention that the five-percent retainage is subject to an equitable lien.

The defendant's motion to dismiss this claim is granted. As a result of this determination, the court finds it unnecessary to address the remaining bases for defendant's dismissal motion.

January 23, 2007
Saratoga Springs, New York

Judge of the Court of Claims

The Court considered the following papers:
  1. Notice of motion dated September 20, 2006;
  2. Affidavit of Cornelia Mogor dated September 20, 2006 with exhibits;
  3. Affidavit of Mark Moody sworn to September 20, 2006 with exhibits;
  4. Memorandum of Law of Cornelia Mogor dated September 20, 2006;
  5. Affidavit of Iqbal Singh sworn to October 25, 2006 with exhibits;
  6. Memorandum of Law of Joseph A. Camardo dated October 25, 2006 with exhibits;
  7. Affidavit of Susan M. Kushner sworn to November 14, 2006;
  8. Affidavit of Mark Moody sworn to November 14, 2006 with exhibit;
  9. Affidavit of Geoffrey Begley sworn to November 14, 2006;
  10. Memorandum of Law of Cornelia Mogor dated November 14, 2006.

  1. [1]See, for example, letters from claimant annexed as part of the claimant's Exhibit C which are numbered 220, 252, 268, 269 and acknowledge that its work was performed for Hayden-Wegman and that it was Hayden-Wegman which owed it money.
  2. [2]Claimant has indicated that a judgment has been obtained against Hayden-Wegman, which is unenforceable.
  3. [3]It was not made clear in the motion papers whether or not the five-percent retainage has been paid to Hayden-Wegman.