New York State Court of Claims

New York State Court of Claims

TIGER SECURITY v. THE STATE OF NEW YORK, #2007-040-047, Claim No. 108685


Synopsis


Contract for security services at DMV. Terminated for cause. Court finds Claimant substantially performed contract and is entitled to payment for work done before termination. $159,087.09 awarded.

Case Information

UID:
2007-040-047
Claimant(s):
TIGER SECURITY GROUP, INC.
Claimant short name:
TIGER SECURITY
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
108685
Motion number(s):

Cross-motion number(s):

Judge:
CHRISTOPHER J. McCARTHY
Claimant’s attorney:
Kazlow and KazlowBy: Stuart L. Sanders, Esq.
Defendant’s attorney:
ANDREW M. CUOMO
Attorney General of the State of New YorkBy: Cornelia Mogor, Esq., AAG
Third-party defendant’s attorney:

Signature date:
September 25, 2007
City:
Albany
Comments:

Official citation:
17 Misc 3d 1129(A)
Appellate results:

See also (multicaptioned case)



Decision

In this Claim and Counterclaim relating to a contract dispute, Claimant has established its case by a preponderance of the credible evidence. The Court awards Claimant the sum of $159,087.09, plus interest from June 3, 2003, the date upon which Defendant tendered partial payment, as more particularly described below. Defendant has failed to establish that it should be reimbursed for amounts it already paid. The parties agree that they entered into a valid, written contract pursuant to which Claimant, Tiger Security Group, Inc. (Tiger), was to provide unarmed security guard services to Defendant, the State of New York, acting by and through the Department of Motor Vehicles (DMV). There is no dispute that Claimant provided guards during the period from May to September, 2002. Claimant asserts that it is entitled to be paid in full for such services, plus interest on unpaid amounts from June 3, 2003. Defendant argues that Claimant is not entitled to such amounts. In particular, Defendant alleges that some guards did not meet certain experience and registration qualifications required by the contract. Defendant also argues that it is entitled to the return of monies it previously paid Claimant with respect to other security guards. Defendant asserts that Claimant is not entitled to such amounts because Tiger failed to meet numerous material obligations under the contract, and because of its failure to adhere to other statutory and regulatory provisions. A unified trial of the Claim, addressing both liability and damages issues, was held on February 6-7, 2007 at the Court of Claims in Albany.

FACTS
Claimant responded to an Invitation to Bid (IFB) issued by DMV and was awarded the contract as the lowest responsible bidder. The contract, which was dated April 23, 2002 (Ex. 1, p. 12), was signed by Claimant’s president, Toyin Sobanke, that same day, but was not signed by DMV’s contract manager, Heather Rhoads, until October 17, 2002. A stamp indicates that the Attorney General’s Office also approved the contract on October 17, 2002. Another stamp indicates that the Office of the State Comptroller (OSC), by its department of audit and control, did not approve the contract until January 3, 2003. On direct examination, Mr. Sobanke agreed that Ms. Rhoads asked him to begin providing security guard services on May 1, 2002, but did not tell him that the contract had not been approved by the State yet (Tr., v. I, p. 63).[1] Appendix A to the contract provides, however, that the agreement would not be valid, effective or binding upon the State until it was approved by OSC in accordance with Section 112 of the State Finance Law (Ex. 1, p. 15).

Under the contract, Claimant agreed to provide unarmed security guard services each business day at various DMV and Traffic Violations Bureau offices in New York City, Westchester and Rockland Counties. Contemplated security guard duties included, but were not limited to, crowd control (both inside and outside the offices), security of premises, personnel, equipment and supplies, requesting that disorderly persons leave the premises as directed by DMV representatives and assisting DMV investigators watch over persons who were arrested in order to prevent their escape (Ex. 1, p. 3, ¶ 4[b]).

DMV agreed to compensate Claimant for such services at an initial rate of $10.70 per hour for services rendered at New York City offices and $7.25 per hour for duties performed at locations in Westchester or Rockland Counties (Ex. 1, pp. 5-6). In addition, compensation, at 1½ times the standard hourly rate (e.g. $16.05 in New York City and $10.88 in Westchester and Rockland Counties) was payable in any instance when a security guard worked more than forty hours in a given Sunday through Saturday period (Ex. 1, p. 3, ¶ 6). The contract included Claimant’s certification that its employees performing under the contract were employable in accordance with all applicable State and Federal laws and further provided that failure to comply with such laws continuously throughout the term of the agreement was sufficient grounds for its immediate termination (Ex. 1, p. 2).

The contract prescribed a number of requirements under the caption “Guard Qualifications and Duties” for security guards providing services. Those terms were adopted, virtually word for word, from the conditions set forth in the IFB (see Ex. 1, pp. 2-3, 26-28). Each guard “must have background and security clearance, including a criminal history check, on the basis of a fingerprint submission to the N[ew] Y[ork] S[tate] Division of Criminal Justice Services” (DCJS) (Ex. 1, pp. 2, 26, ¶ 1). Each guard must be in uniform, carry a picture-type identification card and be identified as Claimant’s employee (Ex. 1, pp. 2, 26, ¶ 2). “Guards must be trained to perform guard and security duties and have at least one year of experience in providing security services” (Ex. 1, pp. 2, 26, ¶ 2[a]). They must: be neat in appearance; be of good moral character; capable of sound judgment (Ex. 1, pp. 2, 26, ¶ 2[b]); follow directions from DMV supervisors (Ex.1, pp. 2, 26, ¶ 2[c]); and be able to deal with DMV customers and employees in a courteous and cooperative manner (Ex. 1, pp. 2, 26, ¶ 2[d]). “Each and every guard assigned to perform any services under this Agreement must be properly registered with the NYS Department of State” (DOS) (Ex. 1, pp. 2, 26, ¶ 2[e]). DMV was permitted, in its sole judgment, to request the removal of any guard that failed to meet the above-referenced requirements, or for non-performance of any duty (Ex. 1, pp. 2, 26, ¶ 2[f]).

In addition, the contract required (again, in accordance with the IFB) that Claimant provide various forms of insurance and indemnification to DMV (Ex. 1, pp. 4-5, 10, 29-31). Tiger also was required to “furnish, concurrent with the signing” of the contract, an irrevocable letter of credit in the amount of $300,000 for the benefit of DMV (Ex. 1, pp. 10, 34).

The stated term of the contract was to commence on May 1, 2002 and continue until April 30, 2007, unless terminated earlier (Ex. 1, p. 6). The IFB and the contract both contained DMV’s express reservation of the right to terminate the contract at any time upon its determination that Claimant was “insufficiently equipped or unqualified or otherwise unable to perform the terms and conditions of the Contract” (Ex. 1, pp. 6-7, 32). Notwithstanding the provisions for termination for cause, DMV also reserved the right to cancel the contract, in whole or in part, upon thirty days’ written notice to Claimant (Ex. 1, pp. 7, 33).

Under the contract, Claimant specifically agreed that it would keep and maintain books and records regarding performance of work for a period of six years following completion of such work and that DMV and OSC had the right to audit them (Ex. 1, pp. 10, 16).

Appendix A to the contract also provided that the State would have all of its “common law, equitable and statutory rights of set-off,” and that the State would exercise such rights “in accordance with normal State practices including, in cases of set-off pursuant to an audit, the finalization of such audit” by DMV or OSC (Ex. 1, p. 16).

Claimant provided security guard services to DMV during the months of May through September 2002. Tiger appears to have had difficulty, however, performing under the contract. DMV’s Ms. Rhoads wrote to Mr. Sobanke on July 26, 2002 (Ex. 8) that Tiger was “failing to meet the terms and conditions” of the contract and noted that “numerous offices have complained” that they had not received background checks for security guards, that there had been a “lack of continuity of service (lack of regular staffing),” that guards had reported for work without identification, and that Tiger had not replaced the $30,000 letter of credit (see Ex. 9) that was proffered with one in the amount of $300,000, as required by the contract. Ms. Rhoads warned Mr. Sobanke that “[f]ailure to provide complete and full remedy by August 2, 2002, will result in termination of this Agreement” (Ex. 8).

By letter dated July 31, 2002, Mr. Sobanke replied, expressing Tiger’s “continued desire and effort to address the outstanding issues” and his assurance that Tiger had undertaken a “massive restructure” in order to cure any lapses (Ex. 10). Those efforts apparently were not successful. Mr. Sobanke testified, for example, that Tiger had difficulty providing background checks for guards because “it took a while to get the results” of fingerprint and criminal reviews by the police department (Tr., v. I, p. 60). On cross-examination, he explained that the “massive restructure” meant that he and Tiger’s other supervisor checked on the guards at the different locations more frequently and adjusted schedules so that individual guards serviced one location instead of being moved around (Tr., v. I, pp. 151-152).

On September 9, 2002, Ms. Rhoads again wrote to Mr. Sobanke, this time to inform him that DMV was terminating the contract, effective close of business on September 13, 2002, pursuant to the termination clause contained in the agreement. Ms. Rhoads reiterated some of the same complaints cited before and stated, “[i]n sum, Tiger Security has failed to adhere to the terms and conditions of the contract since its inception and the Department is unwilling to provide any further remedial opportunity” (Ex. 11). Tiger submitted monthly invoices, as required by the contract (Ex.1, p. 6), for the security guard duties it performed. The total amount invoiced was $274,098.00 (see Exs. 3-7). DMV submitted a voucher to OSC on January 8, 2003 for payment of $274,007.04 to Tiger (Ex. J). The reason for the discrepancy between the amount invoiced and the amount vouchered was not explained at trial. On January 27, 2003, DMV returned the letter of credit to Tiger since it had been “released of all services to be provided in the original Agreement” (Ex. 12).

DMV and OSC had a number of meetings regarding the voucher during late 2002 and early 2003. The record is clear that the two agencies disagreed about how various contract requirements were to be interpreted and enforced (see Exs. 19, 20, 22).

By letter dated February 10, 2003, OSC’s John D. Brennan returned the Tiger voucher to DMV because OSC had determined that the voucher requested payment for the services of guards who did not meet the qualifications set forth in the contract. (Ex. L; see Ex. J). Mr. Brennan wrote that “[u]nder the Security Guard Act [General Business Law Art 7-A, § 89-e et seq.], people with applications pending at [DOS] may work as security guards. Under the Department’s contract with Tiger Security, only registered security guards could work at area offices” (Ex. L, p.2). He further stated that “[i]n some cases . . . the claimed experience [of security guards] was gained before the guard was registered with [DOS] . . . This calls into question the validity of the employment histories Tiger Security supplied since people aren’t able to work as security guards unless they’re registered with [DOS]” (id.). DMV was directed by OSC to undertake an audit of the voucher in order to review the qualifications of each guard. OSC’s Roslyn Watrobski testified at her deposition taken November 15, 2005 that, when OSC received the Tiger invoice, it was “spot checked” to determine the registration status of the guards. OSC did not conduct its own audit of the Tiger invoice, but rather, relied upon DMV’s audit (Tr., v. I, pp. 215-217).

DMV resubmitted the voucher on May 28, 2003 “based on the Comptroller’s Office interpretation of the contract specifications” (Ex. B, p. 5; see Ex. K). OSC’s Ms. Watrobski recommended payment of the adjusted voucher on June 2, 2003, based upon DMV’s audit. DMV’s David Goodall noted that it “appears OSC will pay Tiger as we proposed. Soon, we’ll see how much [T]iger protests” (Ex. 25).

On June 3, 2003, Tiger received one payment from the State in the amount of $104,820.61 (see Ex.15). By letter dated June 16, 2003, Warren E. Diefendorf, DMV’s Director of Expenditures Management, informed Claimant that DMV’s initial payment request for Tiger had been rejected by OSC. He wrote that “OSC determined that in order for the guard service to be qualified for payment under the Department’s contract, guards were required to be registered under the Security Guard Act with [DOS] prior to their working at our offices and that the guards were required to be properly registered during the time they gained the [one year] of experience providing security services required by the contract” (Ex.13, p. 1). Mr. Diefendorf explained that DMV reviewed the information provided by Tiger in light of the determinations made by OSC and concluded that only twenty-two of the fifty-nine guards that rendered services to DMV qualified for payment (Ex. 13, pp. 1, 4).

With respect to the security guards who were deemed unqualified for payment, the State’s objections fell into three categories. In the first group (Category I), twenty-one “guards were registered with DOS for less than [one year before they began working under the contract]. Although they had adequate experience listed on their job application[s], they would have been unable to obtain this [one year’s prior] experience as a registered security guard” (Ex. 13, p. 5; Ex. A, pp. 1, 7). The second group (Category II) contained fourteen people who were “not registered with [DOS] as [s]ecurity [g]uards prior to starting work at DMV, as required by the contract” (Ex. 13, p. 6; Ex. A, pp. 2, 8). Finally, “[e]mployment history discrepancies were noted on [two] of the job applications submitted for review” (Category III). “Each of these listed security companies in prior employment” but it was not clear what job title the applicants held (Ex. 13, p. 6; Ex. A, pp. 2, 8; Ex. D, pp. 32, 34).

Mr. Sobanke wrote to DMV on August 25, 2003 to acknowledge receipt of the partial payment and to express Tiger’s disagreement with OSC’s findings in disallowing the remainder of the bill (Ex. 14). On October 22, 2003, Tiger sent DMV a statement that the unpaid portion of the amount billed, in the amount of $169,277.39, was over ninety days past due (Ex. 15). On redirect examination, Mr. Sobanke confirmed that Tiger paid the guards while they worked on the DMV contract, including those whose payments were rejected by OSC (Tr., v. I, p. 164).

A Notice of Intention to File a Claim was served by Tiger on the Attorney General on November 28, 2003. The Claim was filed with the Clerk of the Court on December 24, 2003. Claimant argues that it is entitled to payment because the State received substantial performance from Tiger (Claimant’s Post-Trial Memorandum of Law, pp. 34-36 [Claimant’s Memorandum]). It also asserts that Defendant waived its defenses, or should be estopped from asserting them (id., at pp. 36-37).

The State’s Verified Amended Answer was filed with the Clerk of the Court on March 15, 2004 and generally denies Tiger’s Claim. In addition, the State asserts that it is contractually entitled to (1) set-off the entire amount billed by Tiger and (2) damages in the amount of the $104,820.61 it did pay Claimant because none of Tiger’s guards were properly registered, because some of them lacked adequate prior experience and because Tiger failed to provide DMV with a $300,000 letter of credit, as required by the contract. Defendant also asserts that Claimant should not prevail on its Claim and the amount the State “erroneously” paid to Claimant should be returned because Tiger failed to meet other “numerous material contractual obligations,” including failure to: comply with the terms of the Security Guard Act and related regulations; supply requested background checks to DMV; make and maintain records; comply with association requirements; and observe other aspects of due diligence (Defendant’s Post-Trial Memorandum of Law, pp. 11, 13 [Defendant’s Memorandum]).
LAW
This dispute chiefly concerns the interpretation of a contract for unarmed security guard services. The State has the power to contract and many occasions to do so (Danolds v State of New York, 89 NY 36, 44 [1882]). Whenever it does, and ligation ensues on such a contract, “the rights and obligations of the contracting parties must be adjusted upon the same principles as if both contracting parties were private persons. Both stand upon equality before the law, and the sovereign is merged in the dealer, contractor and suitor” (People v Stephens, 71 NY 527, 550 [1878, Allen, J., concurring]). “The rules of construction which apply between persons apply to the State” (Hydraulic Race Co. v Greene, 230 App Div 374, 375-376 [3rd Dept 1930], affd 257 NY 540 [1931]; Amadeus, Inc. v State of New York, 55 Misc 2d 27, 30-31 [Ct Cl 1967], mod 36 AD2d 873 [3rd Dept 1971], lv dismissed 29 NY2d 634 [1971], lv denied 29 NY2d 486 [1971]). Thus, government contracts are to be interpreted in the same manner as are agreements between individuals (Hollerbach v United States, 233 US 165, 171 [1914]; People ex rel. Graves v Sohmer, 207 NY 450, 458 [1913]). Likewise, the State “must be governed by the same rules of common honesty and justice which bind individuals” (Danolds v State of New York, supra). To permit the State to “exact performance of a contract while it was advantageous to it, and absolutely arrest performance and escape liability when performance became disadvantageous, would shock the public conscience” (id. at 45).
Contract Interpretation
The role of the courts in interpreting the language of a contract “is to ascertain the intention of the parties at the time they entered into the contract” (Evans v Famous Music Corp., 1 NY3d 452, 458 [2004]). That intent should be gleaned from the document as a whole in order to avoid excessive emphasis being placed upon particular words or phrases (South Rd. Assoc., LLC v International Bus. Machs. Corp., 4 NY3d 272, 277 [2005]; Empire Props. Corp. v Manufacturers Trust Co., 288 NY 242, 248 [1942]) and, “as between possible interpretations of an ambiguous term, that will be chosen which best accords with the sense of the remainder of the contract” (Rentways, Inc. v O’Neill Milk & Cream Co., 308 NY 342, 347 [1955]).

At the same time, “[e]vidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing” (W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]). “Parol evidence is admissible to resolve an ambiguity, not to create one” (Tramco Indus. v Broad Hollow Assoc., 30 AD2d 522, 522 [1st Dept 1968], affd 23 NY2d 841 [1969]). It is not what a party subjectively might have thought was meant or intended that controls, but rather what a reasonable person in that position would have thought was meant (Cutter v Peterson, 203 AD2d 812, 814 [3rd Dept 1994], lv denied 84 NY2d 806 [1994]). In other words, ambiguity does not exist simply because the parties urge different interpretations of a provision (Sipos v Fastrack Healthcare Systems, Inc., 12 Misc 3d 1170[A], 2006 WL 1642694 [Sup Ct, Nassau Co.], 2006 NY Slip Op 51124[U]) and the courts should not create a new contract for the parties “under the guise of interpreting the writing” (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004]; Heller v Pope, 250 NY 132, 135 [1928]).

Thus, where intent is complete, clear and unambiguous as evidenced by the plain meaning of the language the parties chose to employ in the contract, it should be enforced as written. There is no need to look further (Evans v Famous Music Corp., supra; Greenfield v Philles Records, 98 NY2d 562, 569 [2002]) and the rules of contract construction are not applied (Consolidated Gas Supply Corp. v Matula, 36 NY2d 790, 792 [1975, Jasen, J., dissenting]).

On the other hand, if the language of the contract is ambiguous, the court must look to extrinsic evidence for guidance in determining the intent of the parties and which interpretation should prevail (Evans v Famous Music Corp., supra at 459; Hartford Acc. & Indem. Co. v Wesolowski, 33 NY2d 169, 172 [1973]).

Whether or not a contract provision is ambiguous is a question of law to be resolved by a court (W.W.W. Assoc. v Giancontieri, supra; Van Wagner Adv. Corp. v S & M Enters., 67 NY2d 186, 191 [1986]) and “must be ascertained from the face of an agreement without regard to extrinsic evidence” (Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001], quoting Schmidt v Magnetic Head Corp., 97 AD2d 151, 157 [2nd Dept 1983]). “ The initial question, then, is whether the agreement on its face is reasonably susceptible of more than one interpretation” (Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]).
Substantial Performance
“The courts never say that one who makes a contract fills the measure of his [or her] duty by less than full performance” (Jacob & Youngs, Inc. v Kent, 230 NY 239, 241 [1921], rearg denied 230 NY 656 [1921]). At the same time, not every breach excuses the other party from performing. If the defaulting party has substantially performed, then the other party is not excused (Banks, New York Contract Law, § 17.14, pp. 637, 638 [2006]). Damages, rather than forfeiture may be the appropriate remedy since “[t]here will be no assumption of a purpose to visit venial faults with oppressive retribution” (Jacob & Youngs, Inc. v Kent, supra at 242). “The law continues to abhor a forfeiture” (Amadeus, Inc. v State of New York, 55 Misc 2d 27 at 31, supra).

The premise supporting recovery upon substantial performance is “that the parties are presumed to have impliedly agreed to do what was reasonable under all the circumstances with reference to the subject of performance” (Spence v Ham, 163 NY 220, 225 [1900]). It is based upon a theory that (1) the defects or omissions may be remedied or cured so that the work will then conform to the contract, or else, that the other party can be compensated monetarily for the slight damage done by the failure to fully perform and (2) “that it is unfair and unjust for the one party, who has reaped the benefit in nearly full measure of the other party’s labor, to refuse to pay for the work actually done in accordance with the contract” (Dickinson v Sheldon, 146 App Div 144, 149 [4th Dept 1911]).

A party has substantially performed under the contract when the breaches are minor in comparison to the performance tendered and the “primary purpose of the contract was fulfilled” (Anderson Clayton & Co. v Althanus Corp., 91 AD2d 985, 985 [2nd Dept 1983]) such that the other party “received that for which they bargained” (Pav-Co Asphalt v Heartland Rental Props. Partnership, 278 AD2d 395, 396 [2nd Dept 2000]).

In order to recover, a claimant “must establish that its failure to perform was inadvertent or unintentional”, that the defects were insubstantial, trivial or minor (Carefree Bldg. Prods. v Belina, 169 AD2d 956, 957 [3rd Dept 1991]), and the cost of correcting such defects, or if correction is not reasonable under the circumstances, the reduction that should be made in the value of the contract (Spence v Hamm, supra at 226; Pilgrim Homes & Garages v Fiore, 75 AD2d 846, 847 [2nd Dept 1980], lv dismissed 51 NY2d 702 [1980], lv dismissed 51 NY2d 768 [1980]).

Where to draw the line between the important and the trivial, is “wavering and blurred” and “cannot be settled by a formula” (Jacob & Youngs, Inc. v Kent, supra at 243). “Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract” (id.). By the same token, where substantial performance has been rendered, recovery cannot be defeated “based upon technical or unimportant omissions or defects in the performance by either party” (Porter v Traders’ Ins. Co., 164 NY 504, 509 [1900]). Such “[q]uestions of substantial performance turn on the facts of each case” (Merritt Meridian Constr. Corp. v Old Country Iron Works, 229 AD2d 661, 663 [3rd Dept 1996]).
Waiver, Estoppel and Voluntary Payment Doctrine
A party may waive a right if it dispenses with performance of something it had the right to demand or insist upon and does so “with both knowledge of its existence and an intention to relinquish it” (Greater Johnstown School Dist. v Frontier Ins. Co., 252 AD2d 615, 618 [3rd Dept 1998]; see 57 NY Jur2d Estoppel § 74). No rule of law precludes a waiver by the State (see Amadeus, Inc. v State of New York, 55 Misc 2d 27, 33, mod 36 AD2d 873, 874 [3rd Dept 1971], appeal dismissed 29 NY2d 634 [1971], lv denied 29 NY2d 486 [1971]). Waiver is a matter of intent that can be demonstrated by words or conduct (Madison Ave. Leasehold, LLC v Madison Bentley Assoc. LLC, 30 AD3d 1, 5 [1st Dept 2006], affd 8 NY3d 59 [2006], rearg denied 8 NY3d 867 [2007]). Estoppel, by contrast, is an equitable doctrine invoked when a party is induced to act to his or her detriment in reliance on conduct of the other party (57 NY Jur2d Estoppel § 75; Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 184 [1982]). “Generally, estoppel may not be applied against a governmental entity . . . Nevertheless, case law has recognized some rare and rigidly circumscribed exceptions to the general rule” (Francis v State of New York, 155 Misc 2d 1006, 1009, [Ct Cl 1992] [citations omitted]). Although it should not be invoked against a governmental agency absent “exceptional circumstances” (Landmark Colony at Oyster Bay v Board of Supervisors of County of Nassau, 113 AD2d 741, 744 [2nd Dept 1985]), a governmental agency may be subject to estoppel where a “manifest injustice” has resulted from actions it took in a proprietary or contractual capacity (Allen v Board of Educ. of Union Free School Dist. No. 20, 168 AD2d 403, 404 [2nd Dept 1990]).

The voluntary payment doctrine “bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law” (Dillon v U-A Columbia Cablevision of Westchester, 100 NY2d 525, 526 [2003]).
DISCUSSION
Upon consideration of all the evidence, including a review of the exhibits and listening to the witnesses testify and observing their demeanor as they did so, the Court finds that Claimant has met its burden, and established by a preponderance of the credible evidence that it should be paid for most of the services that it provided to DMV under the contract. Conversely, Defendant has failed to establish that it should be reimbursed for amounts it already paid.
Discrete Experience and Registration Requirements
With respect to the guard qualification requirements in paragraph 2 of the contract, the Court determines that the plain meaning of the structure and language of the contract evidences a complete, clear and unambiguous intent by the parties to enumerate individual, separate and discrete provisions governing the experience and registration requirements for security guards providing services under the contract. They are coordinate ideas, being equal in rank to one another (see Warriner’s English Grammar and Composition, chapter 11, pp.184, 220 [1957]). Paragraph 2(a) of the contract provides that “[g]uards must be trained to perform guard and security duties and have at least one year of experience in providing security services” (Ex. 1, pp. 2, 26, ¶ 2[a]). Paragraph 2(e) of the agreement states that “[e]ach and every guard assigned to perform any services under this Agreement must be properly registered with [DOS]” (Ex. 1, pp. 2, 26, ¶ 2[e]). Each is a discrete subparagraph, addressing an individual topic, expressing a separate idea, and imposing a different requirement.

The very structure of the paragraph belies Defendant’s contention that they should be melded. Paragraph 2(a) and paragraph 2(e) each deal with an important, though unrelated requirement. They are separated by three intervening subparagraphs that address equally distinct requirements.

The Court does not discern within the four corners of the contract any intent that subparagraphs be combined. Thus, by way of example, it would reject any contention that a guard’s experience would be vitiated unless it was obtained while he or she presented a neat appearance (combining paragraph 2[a] and paragraph 2[b]). Likewise, the Court would not countenance a suggestion that experience in providing security guard services would be a nullity unless the guard was courteous and cooperative with customers while he or she rendered such services (combining paragraph 2[a] and paragraph 2[d]). It finds no more persuasive Defendant’s contention that paragraph 2(a) and paragraph 2(e) express such an identity of purpose that they must be combined to create a new, hybrid qualification such that a guard was required to be properly registered during the time he or she gained the one year of experience providing security services.

At her deposition, Ms. Watrobski was asked whether anything in paragraph 2(a) of the contract indicates that a guard’s experience in providing security services had to have been obtained as a registered guard. She conceded “I would say that that didn’t say it explicitly” (Tr., v. I, p. 221). On cross-examination, Mary Kozlowski, who performed the audit of the Tiger voucher for DMV, replied to the same question that “[i]t doesn’t state that in that sentence, no” (Tr., v. II, p. 340).

Ms. Watrobski was questioned at her deposition about her training and background in interpreting contracts. She indicated that she had not been given a class, or instructions as to how contracts are interpreted, adding “I would say that I have gotten on-the-job training on interpreting contracts” mostly from colleagues at OSC and “[a]t times, people from Counsel’s office” (Tr., v. I, pp. 213-214). Ms. Watrobski later agreed that her interpretation was not based upon anything explicitly stated in the contract, but rather was “a conclusion that I drew” (Tr., v. I, p. 222). The Court determines that the conclusion is incorrect.

That the contract clearly and unambiguously creates two separate requirements in paragraph 2(a) and 2(e) can be illustrated further by an exercise. “In dealing with problems of contract interpretation, it is useful to state the issue in terms of the contract language”, which can be done by redrafting the language twice, “staying as faithful to the original as possible, so that it will clearly require a decision first for one party and then for the other” (Farnsworth, Contracts, §7.9, p. 483 [1982]).

In this exercise, Claimant’s argument would be that the contract provides that “[g]uards must be trained to perform guard and security duties and have at least one year of experience in providing security services” and “[e]ach and every guard assigned to perform any services under this Agreement must be properly registered with” DOS (language added from that of the contract in bold, italics). Claimant’s interpretation is arrived at easily by relying upon the clear, unambiguous words of the contract itself. Only one word needs to be added, the coordinating conjunction “and”, in order to establish that each is a coordinate provision of equal rank that is part of a longer laundry list of guard qualification requirements.

Defendant’s interpretation, on the other hand, requires a more significant revision of the express terms of the contract. The State’s position, summarized for purposes of this exercise, would be that “[g]uards must be trained to perform guard and security duties and have at least one year of experience in providing security services” and, during the period when they obtained such experience, “[e]ach and every guard assigned to perform any services under this Agreement must” have been then and now “be properly registered with” DOS (language added from that of the contract in bold, italics). Thus, the State’s interpretation requires the addition of a whole new phrase in order to fuse the two provisions so that the registration requirement can be made to relate back to the prior period during which the guard obtained his or her experience. Even the tense of paragraph 2(e) must be expanded to cover both past activities that predate the contract, as well as current services that are to be rendered pursuant to the contract itself.

Ms. Watrobski offered another rationale for Defendant’s position; that “[t]he State of New York doesn’t recognize people as security guard [sic] unless they are registered with the DOS. It is against the law for people to work as guards without being registered. Illegal experience isn’t acceptable” (Ex. 22, p. 2; see also Tr., v. I, p. 220, and Ex. L, p. 2). At trial, Defendant argued that the guards “were obviously working in violation of the law because they weren’t registered” (Tr., v. I, p. 33). Defendant’s Memorandum asserts, similarly, that “[s]ince a person is not legally able to work as a security guard without a proper registration, the one year of experience had to be experience gained as a properly registered security guard” (at p. 8). These statements are incorrect.

For example, the Security Guard Act does not include police officers in its definition of a security guard that is subject to the act, and “police officer” is an expansive term that includes sheriffs, park police, investigators, fire marshals, railroad police, and others (General Business Law §§ 89-f[6], 89-f[15]; Criminal Procedure Law § 1.20[34]; see also 19 NYCRR § 170.1[d][1]). Security guards that are subject to registration and training by the Federal government, as well as guards who provide their services on a voluntary basis, likewise, are not subject to the provisions of the Security Guard Act (General Business Law § 89-f[6]). In addition, people can and do provide security services in other jurisdictions. It also is possible that some people may have worked as security guards prior to the enactment of the Security Guard Act in 1992. There were over 100,000 people so employed in New York State at the time the act was adopted (L 1992, ch 336, § 1). In each of these cases, people could gain valuable and valid experience in providing security services without having to be registered under New York law.

Moreover, it does not matter whether any of the security guards eventually hired actually qualified under those exceptions. Both the IFB and the contract itself were drafted long before the identities of specific guards were known. Whether those individuals fall under one of the exemptions does not impact the Court’s effort to ascertain the intention of the parties when the contract was drafted. Defendant’s contention that the paragraphs must be read together because guards cannot legally work and gain experience without being registered is, quite simply, in error.

Moreover, a 2003 OSC report found that “guard companies provided unqualified and unregistered guards to State agencies” (Ex. 26, p. 5). As Claimant notes, “[a]s a result, there was a large pool of experienced security guards in New York, including several who had been working for years at DMV’s offices, who were either unregistered, or registered for less than one year as of the time that the [c]ontract was made” (Claimant’s Memorandum, p. 30).

In fact, Tiger’s immediate predecessor in providing security guard services to DMV, Paramount Security Bureau, Inc. (Paramount), was inspected on April 5, 2002 as part of the OSC report and found to have provided 37 unregistered guards to DMV (Ex. 26, pp. 13-14). Ms. Watrobski stated, in an interoffice memorandum, that 40 percent of Paramount’s guards at DMV sites were not registered with DOS (Ex. 19, p. 2).

Mr. Sobanke testified that Claimant received recommendations from the manager of DMV’s Herald Square District Office requesting that Tiger retain two guards who had been employed by Paramount (Tr., v. I, pp. 76-77; see also Ex. 16). OSC rejected payment for one of them, Joseph Omodele, because he was not registered with DOS prior to starting work at DMV (Tr., v. I, p. 78; see Ex. 13, p. 6). Mr. Sobanke further agreed that neither Ms. Rhoads nor anyone else at DMV told him not to hire employees of Paramount and that, if they had, he would not have hired them (Tr., v. I, pp. 78-79). Mr. Sobanke estimated that he retained most of Paramount’s employees that performed services at DMV (Tr., v. I, p. 79). In fact, ten of the twenty-two guards for whom Tiger was paid had prior work experience with Paramount (Tr., v. I, pp. 82-84; Ex. 13, p. 4; Exs. 17A, 17C, 17C1, 17D, 17F, 17I, 17J, 17K, 17P and 17Q). Fourteen of the twenty-one Category I guards that were rejected because OSC said they were registered with DOS for less than one year had previously worked for Paramount (Tr., v. I, pp. 84-85; Ex. 13, p. 5; Exs. 17V, 17W, 17Z, 17AA, 17CC, 17DD, 17EE, 17GG, 17II, 17JJ, 17KK, 17LL, 17NN and 17OO). Nine of the fourteen Category II guards whose service was rejected because they were not registered with DOS prior to starting work at DMV likewise referenced Paramount in their employment histories (Tr., v. I, pp. 85-87; Ex. 13, p. 6; Exs. 17PP, 17UU, 17VV, 17WW, 17YY, 17ZZ, 17AAA, 17BBB and 17CCC). Finally, one of the two Category III guards rejected on account of employment history discrepancies, Abdul Babata, also worked for Paramount (Tr., v.I, p.87; Ex.13, p.6; Ex. 17DDD). Claimant notes that many of these guards had already worked at DMV facilities; yet, under the State’s construction, they were deemed to lack sufficient experience to continue providing the very same services (Tr., v. II, pp. 385-386).

To be sure, the past registration status of guards raises questions as to whether or not the guards were in violation of the Security Guard Act when they did such work. Their registration status, however, is a different question than whether or not they acquired the requisite experience to satisfy paragraph 2(a) of the contract. That such guards may have gained experience under irregular circumstances, or even in violation of the Security Guard Act, does not diminish their status as seasoned security guards. The Court also notes, in passing, that such irregularities ultimately posed no barrier to the registration by DOS of each and every one of the security guards that provided services under the contract (see the columns contained in Ex. A, pp. 6-8, and Ex. 13, pp. 4-6, in each case under the headings “ID Term Began”).

Defendant, quite appropriately, required that guards that provided security services to the State under this contract had to be properly registered with DOS. That concern was stated clearly and unambiguously in paragraph 2(e) of the contract. Paragraph 2(e) did not clearly or unambiguously provide, however, that the requirement also applied retroactively to guards’ prior employment that was listed in satisfaction of paragraph 2(a).

The Court next considers the document as a whole to make sure that excessive emphasis has not been placed on particular words or phrases so as to distort the general purpose or intent of the contract. The Court finds nothing in the overall structure, syntax, purpose, or content of the contract that requires, or even suggests, any different finding and conclusion. The contract concerns unarmed security guard services to be provided at DMV facilities. It sets forth various provisions and requirements to govern the relationship between Tiger and the State, including the qualifications and duties of security guards that would perform services thereunder. That objective and the performance of the cumulative obligations created by the contract are in no way thwarted if Defendant’s idiosyncratic reading of paragraph 2(a) in conjunction with paragraph 2(e) is not adopted.

Defendant would have the Court create an ambiguity where none exists. It would conflate the terms of paragraph 2(a) and paragraph 2(e) in order to create a new, additional term that blends aspects of both. This, the Court declines to do. The parties were free to adopt a contract term that clearly and unambiguously expressed a requirement like the one Defendant now advocates. They did not do so. “[C]ourts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include” (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475, supra; quoting Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62, 72 [1978]; see Reiss v Financial Performance Corp., 97 NY2d 195, 199, supra). Moreover, Defendant was uniquely situated to secure such a provision if that is what it wanted. It drafted the language in the IFB and that text was incorporated virtually word for word in the contract. Under such circumstances, the Court finds no reason to deviate from the plain language of the contract.
Properly Registered Security Guards
Turning to the question of what paragraph 2(e) means when it requires that security guards “must be properly registered” with DOS, the Court concludes that the language of the contract, while ambiguous, means that the guards must be eligible to be employed under the Security Guard Act. To be eligible for employment, guards either: (1) must be registered with DOS; or (2) have an application pending with DOS; or (3) their prospective employer must have obtained approval to employ them from DOS’ security guard registry. Since the Court determines that the language is ambiguous, it must look to extrinsic evidence for guidance in determining the intent of the parties and how the provision should be interpreted. The phrase “properly registered” is neither defined, nor is it amplified upon, in the contract. It is not defined in the Security Guard Act.

The Security Guard Act provides that “only individuals registered by the Department of State, or those whose application is pending, may be employed as security guards” (1996 NY Op Atty Gen [Inf] 1086, 1996 WL 639886; General Business Law §89-g [1]). In addition, DOS’ Mr. Elmendorf testified that security guards cannot be hired until their prospective employer has performed due diligence, which includes a requirement that the employer call or contact DOS’ security guard registry to verify whether the applicant is registered and holds a valid registration card, has a valid application pending, or has had a previous application denied or a previous registration revoked, if such person is new to the security guard business. He explained that, at the end of the phone call, DOS provides the employer with a transaction number to memorialize the conversation. The employer is required to record the transaction number, along with the date of the call, on its personnel file for the employee (Tr., v. II, pp. 251-255; see General Business Law § 89-g[1], [2]; 19 NYCRR § 174.6).

At her deposition taken on November 16, 2005, Deborah Lynn Sebunia, cosupervisor of the security guard registry’s customer service phone bank that handles such employer inquiries, explained that the only information an employer can obtain is a “yes or no to hire” (Tr., v. I, pp. 198-199). Ms. Sebunia testified that the operator consults a computer database that searches for any derogatory information about a prospective employee, such as a criminal history, lapsed registration, or an incomplete application (Tr., v. I, pp. 199-201). She added that employers are permitted to employ guards right away if they receive an affirmative response from the call registry (Tr., v. I, p. 209).

Claimant argues that the contract phrase “properly registered” should be read to mean that pool of men and women whom the law permits to render such services (Claimant’s Memorandum, pp. 31-33). Defendant insists, however, that the phrase “properly registered” creates a more rigorous standard. In rejecting the Tiger voucher, OSC’s Mr. Brennan agreed that “[u]nder the Security Guard Act, people with applications pending at [DOS] may work as security guards” (Ex. L, p. 2). He maintained, however, that “[u]nder the Department’s contract with Tiger Security, only registered guards could work at area offices” (id.). OSC’s Ms. Watrobski, likewise, posited that the phrase “must be properly registered” with DOS did not permit guards with pending registrations to work at DMV facilities (Ex. 22, p. 2). No explanation was provided, however, that would support this contention, demonstrate how the language in the contract accomplishes that result, or illuminate why it should be so.

Sometimes the definitions of lexicographers can provide some guidance in resolving the meaning of an ambiguous word or phrase. In this case, definitions of the word “proper” include “1. [a]ppropriate: suitable ... 4. [m]eeting a required standard of validity or competence. 5a. [w]ithin the precise limitation of the term ... b. [r]igorously correct: EXACT” (Webster’s II New College Dictionary [3d ed 2005, p. 907]. The Court concludes that the definitions commend an interpretation that would deem those who have satisfied the statutory requirements to work as a security guard as “properly registered” for purposes of the contract. Under such a result, a properly registered security guard would be one who has met the precise and exact statutory standards of competency prescribed for someone wishing to engage in that line of work.

Another rubric is that parties are presumed to contract in reference to the law of this State (Kasen v Morrell, 6 AD2d 816, 817 [2nd Dept 1958]; Frye v State of New York, 192 Misc 260, 264 [Ct Cl 1948]). Without evidence that some other standard was intended, the Court concludes that this also speaks in favor of an interpretation that would harmonize the contractual provision with the legal requirement.

Another aid to interpreting a contract can be the conventions observed by the parties in that line of work. “A contract must be construed according to the custom and use prevailing in a particular trade” (Edison v Viva Intl., 70 AD2d 379, 383 [1st Dept 1979]). A related consideration is the surrounding circumstances that existed at the time the contract was entered into (Stamatopoulos v Karasik, 238 AD2d 688, 690 [3rd Dept 1997], lv denied 92 NY2d 844 [1998]).

The review of the Tiger payment voucher was conducted against the backdrop of the 2003 OSC report noted above (see Ex. 26). The report audited the utilization by State agencies of the Statewide security guard service contract established by the Office of General Services. It covered the period of January 1, 2001 through December 5, 2002 (Ex. 26, p. 3), which included the period during which Tiger provided services under the contract that is the subject of this Claim. DMV was among the agencies visited as part of the audit[2]. The report posed two questions. First, “[w]ere New York State’s security guards properly registered with the Department of State?” Second, “[d]id the security guard companies provide guards who met the contract specifications?” (Ex. 26, p. 4 [emphasis added]). OSC answered both questions in the negative (Ex. 26, p. 5). Thus, OSC’s own report reveals that a lax general custom and use prevailed within the security guard industry at that time, one that (at best) contemplated only that actors would comply with the minimum requirements of the Security Guard Act. The Court determines that Defendant’s contention that this ambiguous language was intended to impose a stricter standard is not credible.

With respect to guard registration, specifically, the report noted that the Security Guard Act requires that security guards be registered with DOS before they work in New York (Ex.26, p.12). In a footnote, the report further stated that, “[a]lternately, a guard company may file a registration application on behalf of the potential employee and the employee may work while the application is pending at [DOS]. For our audit, we considered guards with pending applications as registered guards” (id., note 2). Thus, the OSC report itself addressed the very question the Court must resolve here – were security guards properly registered – using the same phrase employed in the contract (Ex. 26, p. 4) and it deemed guards with pending applications to be properly registered. Among the list of “major contributors to this report” were Roslyn Watrobski and John D. Brennan (Ex. 26, p. 28), both of whom were significant participants in OSC’s review of the Tiger voucher. The report was dated June 16, 2003 (Ex. 26, p. 3), two weeks after Ms. Watrobski signed off on the adjusted Tiger voucher (Ex. 25).

Moreover, according to one of Ms. Watrobski’s interoffice memoranda, she was concerned by an assertion by Mr. Diefendorf that DMV should not have to provide evidence that Tiger’s guards were registered with DOS when they worked at DMV “because being registered is not a function of the guard job at DMV” (Ex. 19, p. 2). That attitude also undermines Defendant’s contention that paragraph 2(e) was intended and understood to have imposed a more exacting work eligibility requirement than that which is contained in the Security Guard Act.

Having looked to the foregoing extrinsic evidence for guidance, the Court determines that when the contract requires guards “must be properly registered” with DOS, it means that they either: (1) must be registered with DOS; or (2) have an application pending with DOS; or (3) their prospective employer must have obtained approval to employ them from DOS’ security guard registry, so that they are eligible to be employed under the Security Guard Act. It is the interpretation that best places the contractual provision in the context of everyday usage of the words, the requirements of the Security Guard Act, and the customs and usages of the parties and of the security guard business.

Finally, even assuming arguendo that the foregoing aids to construction failed to inform the Court’s interpretation of paragraph 2(e), the rule of contra proferentum would resolve the ambiguity in favor of Clamant’s position. Contra proferentum is used only as a rule of last resort when the intention of the parties cannot be otherwise determined (Banks, New York Contracts, § 10:19, p. 399). It is well settled that “[i]n cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it, and favorably to a party who had no voice in the selection of its language” (Jacobson v Sassower, 66 NY2d 991, 993 [1985]; see also Rentways, Inc. v O’Neill Milk & Cream Co., 308 NY 342, 348, supra; Wilson & English Constr. Co. v New York Cent. R.R. Co., 240 App Div 479, 483 [2nd Dept 1934]). In this Claim, “[t]he State prepared the entire contract herein on its own forms, and all reasonable doubts as to the meaning thereof are to be resolved against it, as it is responsible for the language used and the uncertainty thereby created” (Heating Maintenance Corp. of N.Y. v State of New York, 206 Misc 605, 609 [Ct Cl 1954]; see also Rentways, Inc. v O’Neill Milk & Cream Co., supra; D.W. Winkelman Co. v State of New York, 17 Misc 2d 418, 422 [Ct Cl 1959], mod 10 AD2d 894 [4th Dept 1960]).

Like the previous question concerning the interplay between paragraph 2(a) and paragraph 2(e), Defendant controlled the drafting process. It could have crafted language, both in the IFB and contract, that clearly and unambiguously imposed the more rigorous registration requirement it now says is embedded in paragraph 2(e). It did not. Thus, any element of ambiguity was caused solely by Defendant’s failure to articulate clearly and unambiguously the standards it wished to require from its vendors. Accordingly, Defendant fails to persuade when it now attempts to shoehorn those standards into a contract that it itself drafted.
Affirmative Defenses, Rights to Set-off and Counterclaims
Defendant bears the burden of proof on any affirmative defense, rights to set-off, or counterclaims asserted by it (Brignoli v Balch, Hardy & Scheinman, 178 AD2d 290 [1st Dept 1991]; American Oil Co. v Coughlin, 261 App Div 852 [3rd Dept 1941]). The Court determines that Defendant failed to meet that burden and its affirmative defenses, counterclaims and set-off rights are unavailing. In its Verified Amended Answer, Defendant asserted that Claimant breached the contract by its failure and/or refusal: (1) to furnish legally employable persons and to meet the legal and contractual requirements for security guard registration and experience; and (2) to provide the contractually required letter of credit (Verified Amended Answer, ¶¶ 6-18 and ¶¶ 19-25). As a result, Defendant contends that it has suffered damages in the amount it previously paid to Claimant ($104,820.61). It asserts a counterclaim for such amount, plus interest from June 3, 2003. It also asserts that it is entitled to set-off the entire amount invoiced to the State by Claimant ($274,098.00).

The Court concludes that Claimant furnished legally employable persons. As evidenced by the dates of their State-issued identification cards, all but one of Tiger’s security guards that worked at DMV were already registered with DOS, or became registered, during the period that services were rendered under the contract. The lone exception, Bonojo Mayowa-Olutola, was registered shortly after the contract was terminated, in November, 2002 (see Exs. A, 13). The remainder of the first affirmative defense, set-off and counterclaim, which subsumes within it the reasons stated by OSC in rejecting the Tiger voucher, fails to the extent Claimant’s guards met the contract’s experience and registration requirements. The Court has addressed the proper interpretation of those requirements above. It will address below the degree to which Tiger’s guards met those requirements and the damages awarded to Claimant in connection with those services.

The Court further determines that the second affirmative defense, set-off and counterclaim concerning Claimant’s failure to provide a letter of credit in the required amount of $300,000 is without merit. Defendant’s assertions that it was damaged by this breach of contract is not supported by the record.

The letter of credit that was tendered permitted DMV, as the stated beneficiary, to draw upon it in an amount not to exceed $30,000, upon its certification that the amount so drawn “represents any losses, expenses, or damages as Tiger Security Group, Inc, [sic] has failed to perform in accordance with the terms of the agreement” (Ex. 9, p. 2). Ms. Rhoads agreed, at her deposition taken on November 16, 2005, that the purpose of the letter of credit was to provide DMV with a source of funds against which it could draw in the event “of the contractor failing to perform and costing the State money.” She was unable, however, to address whether or not Tiger’s performance under the contract had, in fact, cost the State money (Tr., v. I, p. 194). No evidence of any such loss was adduced at trial.

Moreover, when asked at her deposition whether Tiger failed to comply with the contract when it was unable to provide a $300,000 letter of credit, Ms. Rhoads replied “I don’t believe that’s really the case” because DMV could exercise discretion with respect to the requirement (Tr., v. I, pp. 192-193). In any event, what is clear is that, on January 27, 2003, Ms. Rhoads wrote to Mr. Sobanke to return the letter of credit since Tiger had been “released of all services to be provided in the original Agreement” (Ex. 12). She further testified at her deposition that she would not have acted unilaterally in returning the letter of credit and that her supervisor, Mr. Diefendorf, would have authorized her to do so (Tr., v. I, pp. 196-197).

Tiger’s inability to procure a letter of credit in the proper amount was cited in Ms. Rhoads’ September 9, 2002 letter that terminated the contract (see Ex. 11). The Court concludes, however, that the letter of credit itself was relinquished after performance under the contract ended and it was determined by DMV that it was no longer needed. Defendant now alludes to its partial payment of the Tiger voucher, but the Court concludes that any such loss resulted from what Defendant now characterizes as its mistake in making partial payment to Tiger, rather than any losses, expenses, or damages resulting from Claimant’s failure to provide a $300,000 letter of credit.
Substantial Performance
In addition to the affirmative defenses, counterclaims and set-off rights raised in its Verified Amended Answer, Defendant now asserts that Claimant should not prevail on its Claim and the amount the State “erroneously” paid to Claimant should be returned because Tiger failed to meet other “numerous material contractual obligations,” including failure to: comply with the terms of the Security Guard Act and related regulations; conduct and supply requested background checks to DMV; make and maintain records; comply with association requirements; and observe other aspects of due diligence (Defendant’s Memorandum, pp. 11, 13). Claimant argues, to the contrary, that it substantially performed under the contract and that Defendant has waived any such defects and should be estopped from asserting them now. Claimant also posits that Defendant should not be able to recoup amounts already paid by virtue of the voluntary payment doctrine.

The Court notes the peculiar chronology of this contract. The contract was dated April 23, 2002 (Ex. 1). It was signed by Claimant that same day. Tiger began providing security guards at DMV facilities from May 1, 2002 and continued to do so until DMV terminated the agreement, effective the close of business on September 13, 2002 (Ex. 11). Yet, DMV did not execute the contract until October 17, 2002. The Attorney General’s Office also approved the contract on October 17, 2002. OSC did not approve the contract until January 3, 2003. Thus, Tiger rendered its services under the contract, and the contract itself was terminated by DMV, months before it ever became valid, effective or binding upon the State, which only occurred when OSC gave its approval. As a result, Defendant is left in the curious posture of arguing that Claimant should be denied payment because it did not fully satisfy terms in a contract that was not valid and binding at the time Tiger rendered, and DMV accepted, the security guard services (see Claimant’s Memorandum, p. 30, note 19).

The Court concludes that Claimant substantially performed during the four months it provided security guard services under the contract. The Court determines, especially under these peculiar circumstances, that it is reasonable for Defendant to pay for the guard services that it accepted and the benefit of which it enjoyed. Although Tiger rendered incomplete and defective performance in certain respects, the Court determines that, in the aggregate, these omissions were minor in comparison to the performance that was tendered. They were not so dominant or pervasive that they prevented Defendant from receiving the essence of what it bargained for; unarmed security guard services at DMV facilities during the period it accepted such services (see Pilgrim Homes & Garages, Inc. v Fiore, 75 AD2d 846, supra). The Court further concludes that Claimant’s failures were not intentional, deliberate, or negligent. It took a long time for Tiger to fulfill some of the agreement’s other requirements, but progress was being made, as evidenced by the fact that all but one of the guards already had a registration card, or secured one from DOS, during the four months that Tiger provided services to DMV.

As the Court has determined, Claimant provided experienced security guards who were properly registered with DOS. They rendered security guard services and DMV accepted such services over a period of four months. Mr. Sobanke testified that no one from DMV ever asked him to remove any guard that provided services under the contract because he or she had insufficient prior experience, because he or she was not registered with DOS, or for any other non-performance or failure to meet the requirements of the contract (Tr., v. I, pp. 87-88). Mr. Sobanke also indicated that neither Ms. Rhoads, nor anyone at DMV, told him not to hire the former Paramount guards and that, if they had, he would not have hired them (Tr., v. I, pp. 78-79). The Court concludes that DMV did not need to hire other guards during that period, nor did Defendant incur any additional expenses or losses for which it needs to be compensated in connection with the services that were rendered.

The Court further concludes that other defects in Tiger’s performance cited by Defendant were minor in comparison to the performance tendered and, since substantial performance was rendered, they are insufficient to defeat recovery.

With respect to background checks, Mr. Sobanke acknowledged that there were delays in scheduling the background checks (Tr., v. I, pp. 60, 140) and that Tiger was not able to provide them for every guard (Tr., v. I, pp. 141-142). As noted below, however, Mr. Sobanke also testified that he personally called the guards’ past employers to verify their employment history. Moreover, each and every guard ultimately received a registration card from DOS (see Exs. A, 13) and, as Mr. Elmendorf testified, this meant that DCJS criminal history results were conducted, since DOS reviewed them as part of its decision to issue registration cards (Tr., v. II, pp. 257-258, 260). Thus, each guard ultimately was the subject of a criminal-history check on the basis of fingerprints submitted to DCJS, even if, as Ms. Rhoads asserted, DMV offices may not have been able to obtain copies of some background checks, as contemplated by the contract.

Likewise, any breaches in recordkeeping were minor in comparison to the benefit obtained by DMV in having coverage during the four months that Tiger provided security guards at its facilities. On cross-examination, Mr. Sobanke testified that he was familiar with the contract requirement that each guard have at least one year of experience in providing security services. He personally called employers listed on each applicant’s employment history to verify that experience, though he did not make any notations on the applications to memorialize those calls (Tr., v. I, pp. 144-146). Mr. Sobanke also testified that he called the DOS security guard registry before Tiger hired each of the guards to verify that Tiger was permitted to do so, though he did not keep a record of those calls and could not recall if he was given a transaction or reference number by DOS. He said that he was not aware that the Security Guard Act required him to keep a record of such phone calls (Tr., v. I, pp. 94-95, 126-127, 132-133). The Court finds Mr. Sobanke’s testimony generally credible that he made due diligence calls to verify information with respect to the guards. It is bolstered, once again, by the fact that each and every guard ultimately received a registration card.

Concerning the association requirement, Mr. Sobanke conceded that he never notified DOS, as he was required to, that guards working at DMV were employed by Tiger (Tr., v. I, pp. 142; see General Business Law § 89-g[5]). Mr. Elmendorf testified that it is important to have the name of the employer because DOS receives subsequent arrest notifications and is statutorily required to notify employers if one of their employees is arrested or convicted, or his/her registration as a security guard is ever suspended or revoked. He further explained that security guards are not permitted to work independently without an authorized employer (Tr., v. II, pp. 259-260).

Mr. Elmendorf testified that DOS has conducted internal audits of approximately 872 security guard companies since June, 2002. Fines of about $6 million, in the aggregate, have been assessed on approximately 500-600 of the companies. Licenses have been revoked in fourteen or fifteen instances (Tr., v. II, pp. 294-296). Mr. Elmendorf further testified that Tiger was fined $3,500 in 2005 for having un-associated guards in 2004 (Tr., v. II, pp. 298-299, 304-305).

As noted above, all the guards eventually were registered. There is no evidence that any of their registrations were suspended or revoked on account of criminality during the four months in question, or that DOS imposed fines for such deficiencies. Thus, the Court concludes that any defect by Tiger in complying with the association requirements did not frustrate the primary purpose of securing security guard coverage at the DMV facilities, and similar transgressions were addressed on at least one other occasion as a regulatory enforcement issue by DOS. It does not provide Defendant with a pretext to withhold all payments for the services DMV accepted and received.

Finally, this Claim can be distinguished from construction contract cases in which the contractor’s failure to comply with building codes frustrated the primary purpose of the contract; a habitable structure (see Reale v Linder, 135 Misc 2d 317, 322 [Dist Ct, Nassau County 1987], affd as mod 143 Misc 2d 496 [Sup Ct, App Term 1988]; Bonagur v Purificato, 146 NYS 1070 [Sup Ct, App Term, 1st Dept 1914]). Likewise, in Dickinson v Sheldon (146 App Div 144, supra), blurred photographs were not “trivial or unimportant”, but rather rendered a printed catalogue “worthless” for its intended purpose as an advertising promotion (supra at 150). In this Claim, by contrast, the primary purpose was achieved. DMV obtained the unarmed security guard coverage it sought.

Defendant was within its rights to terminate the contract. Based upon the facts of this Claim, however, the Court determines that it would be oppressive, unfair and unjust to permit the State to reap the benefit of the security guard services that DMV accepted from Tiger over a period of four months without paying Tiger for those services.
Waiver, Estoppel and Voluntary Payment Doctrine
Moreover, the Court determines that Defendant waived the alleged defects in Claimant’s performance during those four months. DMV knew about the alleged failure to meet numerous material contractual obligations at the same time as it was utilizing Tiger’s security guard services (see Ex. 20). Indeed, they were factors in DMV’s decision to terminate the contract. Likewise, OSC was aware of alleged defects at the time it conducted its review and, thus, before it approved the contract and the revised payment voucher.

Yet, DMV exercised forbearance in accepting security guard services when it knew that the letter of credit was too small and that some guards were still in the process of getting background checks and securing registration cards. Ms. Rhoads explained that DMV was willing “to allow some reasonable period of remedy” both because the “[c]ontractor was thought to be sincere and the contract provided absolutely essential services to [twenty-one] downstate offices . . . [I]t is DMV’s practice to allow contractors some reasonable time to remedy shortcomings except in instances that are flagrantly egregious” (Ex. 20, p. 1).

Moreover, DMV’s Mr. Goodall was reported to have said that “DMV needed people in the regional offices merely for ‘crowd control’ and ‘supervision of people in line.’ ” Mr. Goodall further stated that “Tiger sent people to do this and that the people Tiger sent showed up and were able to provide the service that DMV was looking for and DMV was satisfied” (Ex. 23, p. 1). At her deposition taken on November 16, 2005, DMV’s Ms. Kozlowski also recalled Mr. Goodall making comments to that effect (Tr., v. I, p. 173). At another deposition taken on the same date, DMV’s Ms. Rhoads stated that the reason she signed the contract on October 17, 2002, even though Tiger already had been terminated a month earlier, was “[t]o be able to pay invoices to that vendor” (Tr., v. I, pp.188-189). OSC’s Ms. Watrobski reported that “[t]here were no reductions made to the invoices[,] implying that DMV was satisfied all services were delivered according to the terms and conditions of the contract” (Ex. 22, p. 1).

Ms. Rhoads also noted that “[t]he logistics of replacing service would take considerable time and would have left our offices with no security guards on site for weeks, an absolutely untenable situation” (Ex. 20, p.1). OSC’s Ms. Watrobski also notes in one of her memoranda that DMV’s area managers may have allowed Tiger’s guards into their facilities because DMV was trying to replace its prior vendor, Paramount Security, and needed to have coverage in place (Ex. 22, p. 3). When DMV decided that Tiger would be unable to perform satisfactorily, it did not terminate the contract until the close of business on the last business day before the earliest date upon which a temporary replacement security guard firm could begin performing duties (Ex. 20, p. 2).

As for OSC, it could have declined to approve the contract pursuant to section 112 of the State Finance Law, in which case there would have been no valid, binding agreement and Claimant would have been precluded from maintaining an action on it (see Parsa v State of New York, 64 NY2d 143, 147 [1984]). Instead, it elected to approve the contract on January 3, 2003. OSC rejected the original Tiger payment voucher, however, on the basis of its erroneous interpretation of the contract, as discussed above, although it later approved partial payment of the invoice.

The Court concludes that Mr. Sobanke was sincere, if imperfect, in his efforts to fulfill the terms of the contract, and that DMV provided him with remedial opportunities to do so. Since DMV was content to accept performance of the contract while it was advantageous for it to do so, it cannot now escape liability to pay for those services it utilized. “This work, having been performed, and the State having accepted the benefits thereof, claimant is entitled to recover the value of such work” (Amadeus, Inc. v State of New York, 36 AD2d 873, 875, supra).

Having determined that Claimant substantially performed by furnishing security guards to DMV and that Defendant waived its objections to certain defects in such performance when it accepted such guard services, it is not necessary to determine whether this is one of those rare and rigidly circumscribed circumstances that is excepted from the general rule that estoppel should not be invoked against a governmental agency. Finally, while it does not affect the Court’s disposition of this Claim, the Court notes that Claimant’s reliance on the voluntary payment doctrine is misplaced. That common-law doctrine has no application to municipalities or other public bodies on the theory that any such payment was not made voluntarily by the public entity, but rather, by an agent who acted in excess of his or her authority (People v Fields, 58 NY 491, 505 [1874]; County of Cayuga v State of New York, 112 Misc 517, 520 [Ct Cl 1920]).
DAMAGES
The Court awards Claimant the sum of $159,087.09, plus interest from June 3, 2003, the date upon which Defendant tendered partial payment. The award is described in more detail below with respect to each of the three categories of guards. The calculation of damages is a relatively straightforward exercise since the dispute in this Claim concerns whether or not Claimant was entitled to be paid; not whether or not Tiger’s security guards performed the services, or worked the number of hours which were billed. Mr. Sobanke testified that the weekly time sheets contained in Exhibits 3 through 7 that support his invoices were prepared and signed by DMV managers at the various locations where the guards worked (Tr., v. I, pp. 52-54). DMV’s Ms. Kozlowski testified that, in performing her audit, she also relied upon “the invoice numbers of the amount that was billed . . . for the number of hours, the time started and ended of the dates that they worked” (Tr., v. II, p. 327). No evidence was presented that would suggest that guards did not work the hours indicated by the weekly time sheets.

The Court compared the hours worked by each guard, as calculated by Claimant (see Ex. 27) and by Defendant, as evidenced by the DMV audit work papers (see Ex. E). Exhibit 27 was admitted, however, “purely for summary and informational purposes” and “not independent evidence of those amounts” set forth therein (Tr., v. I, p. 107). Therefore, the Court additionally verified all of the hours worked, as set forth in Exhibit 27 and Exhibit E, by comparing them to the actual hours listed in the weekly time sheets (see Exs. 3-7). The Court found that the exhibits are in broad agreement. Any minor discrepancies or computational errors between Exhibit 27 and Exhibit E were resolved by reference to, and reliance upon, the figures contained in the weekly time sheets. The Court then multiplied the hours worked by each guard by the applicable rate ($10.70 per regular hour worked in New York City [$16.05 per overtime hour] and $7.25 per regular hour worked in Westchester and Rockland Counties [$10.88 per overtime hour]).
Category I
The Court awards Claimant the sum of $98,076.61 for the Category I security guards (see Addendum A to the Court’s decision for the award made with respect to each guard). Category I consists of twenty-one guards who had adequate experience, but were rejected by Defendant because they were registered with DOS for less than one year before they began working under the contract. For the reasons set forth above, the Court rejects Defendant’s contention. The Category I guards had both the requisite experience and were properly registered. The following adjustments are made to the hours listed in Exhibit 27: Shakirat Gilbert’s overtime hours are reduced to 2.25 for the week ended June 14, 2002 (see Ex. 4, p. 14) and his regular hours are reduced to 40.0 for the week ended June 28, 2002 (see Ex. 4, p. 16); Oluwadamilare Ogunlade worked an additional 8.0 regular hours at DMV’s Coney Island Office during the week ended September 6, 2002 (see Ex. 7, p. 19); Adedoyin Olufeko’s regular hours are reduced to 14.25 for the week ended May 31, 2002 (see Ex. 3, p. 13).
Category II
The Court awards Claimant the sum of $49,022.46 for the Category II security guards (see Addendum A to the Court’s decision for the award made with respect to each guard). Category II includes fourteen people who were rejected by Defendant because they were not registered with DOS prior to starting work at DMV. For the reasons set forth above, the Court determines that they were properly registered and, thus, eligible to work under the contract, to the extent they were: (1) registered with DOS; (2) had an application pending with DOS; or (3) eligible to work on the basis of an approval obtained from the DOS security guard registry.

All but one of the Category II security guards became registered with DOS during the period that services were rendered under the contract (see, Exs. A, 13). Of course, each of them also had an application that was filed and, thus, pending, as of an earlier date (see Exs.18RR-18EEE). Moreover, Mr. Sobanke testified that he called the DOS security guard registry before hiring each of the guards. While the Court credits Mr. Sobanke’s testimony concerning his due diligence efforts, his failure to record the transaction numbers of the calls has repercussions. In his testimony, DMV’s Mr. Elmendorf agreed that DOS’ verbal permission to hire a guard has a limited life span unless additional steps are taken (Tr., v. II, p. 261). The Court will not award damages for hours worked during periods when proper registration cannot be verified. Therefore, the Court awards damages with respect to the Category II guards only for such periods as they had applications pending, or had a registration card. In addition, a number of discrepancies were identified at trial between the application dates used in the DMV audit and the actual application dates. Wherever possible, the Court has relied upon the date of receipt stamped by DOS on the applications themselves (see Exs. 18RR-18EEE).

In addition, the Court notes that DOS did not date-stamp Ololade Jokotoye’s application (see Ex. 18XX). Based upon a review of several other applications, including that of her husband, Sunday Jokotoye, whose application was stamped five days after it was signed (see Ex. 18YY), the Court awards damages with respect to hours accumulated by Ms. Jokotoye after June 14, 2002 (seven days after her application was executed).

Paul Pilgrim’s application was stamped on April 29, 2002 (Ex. 18CCC, p.2). Yet, his application date was listed as May 3, 2002, in the DMV audit (Tr., v. II, pp. 365, 367-368; Ex. A, p. 8). On redirect examination, however, DMV’s Ms. Kozlowski noted that DOS wrote to Mr. Pilgrim on May 3, 2002 to inform him that his application was not acceptable, that it could not be processed until additional information and an additional fee was provided, and that, until such time, he was “not eligible for registration as a security guard or employable as such” (Ex. 18CCC, p. 10; see Tr., v. II, pp. 364-365). Since no evidence was presented to establish when these additional matters were resolved, the Court awards damages only with respect to hours accumulated by Mr. Pilgrim on or after June 28, 2002, when he became registered (see Ex. A, p. 8).

Yolanda Rouse’s application was stamped on April 24, 2002 (Ex. 18DDD, p. 3). However, DOS wrote to Ms. Rouse on April 26, 2002 to inform her that her application would be rejected if additional information was not provided within fourteen days, in which case she would be required to reapply and pay a new fee (see Ex. 18DDD, p. 8). Since Ms. Rouse’s identification term began twenty-one days later, on May 17, 2002 (see Ex. A, p. 8), the Court determines that the additional information was provided and it awards damages with respect to hours accumulated by Ms. Rouse after April 24, 2002, when her application was stamped.

The following additional adjustments are made to the hours listed in Exhibit 27: Adeola Alli-Balogun’s overtime hours are increased to 0.25 for the week ended June 14, 2002 (see Ex. 4, p. 29); and Christiana Olayera’s regular hours are increased to 16.5 for the week ended June 14, 2002 (see Ex. 4, p. 65).
Category III
The Court awards Claimant the sum of $11,988.02 for the Category III security guards (see Addendum A to the Court’s decision for the award made with respect to each guard). Defendant rejected invoices in connection with the two guards because of perceived employment discrepancies on their job applications.

Mr. Sobanke testified that he interviewed Abdul Babata before hiring him, that Mr. Sobanke was familiar with the three security companies that Mr. Babata listed in his employment history (one of which was Paramount) and that Mr. Sobanke understood that Mr. Babata performed security guard services for those companies (Tr., v. I, pp. 88-89; see Ex. 17DDD, p. 1). Further, Mr. Babata’s identification term began on May 17, 2002, which was before July 24, 2002, the date he started working for Tiger on the DMV account (Ex. A, p. 8).

Likewise, Mr. Sobanke testified that Ade Aderemi would have had prior experience as a guard in order to hold the position of “account manager,” (Tr., v. I, p. 90). Further, Mr. Aderemi was registered with DOS since December 22, 2001, which was before the July 1, 2002, the date he started working for Tiger on the DMV account (Tr., v. I, pp. 92-93; Ex. A, p. 8). Ms. Kozlowski testified on cross-examination that she did not know what an account manager was in the security guard industry when she conducted the audit, and did not recall if she asked anybody what they did. She, likewise, could not recall if she contacted Mr. Aderemi’s former employers (Tr., v. II, p. 350).

The Court concludes that Defendant improperly rejected charges relating to these two guards, that each listed and possessed adequate prior employment history, that each was registered before rendering services to DMV under the contract and that Tiger should be paid for those services.

Based on the foregoing, the Court finds that Claimant has established its case by a preponderance of the credible evidence. Defendant has failed to meet its burden, and the affirmative defenses, counterclaims and set-off rights it asserts are hereby dismissed.

All motions upon which the Court reserved decision at trial are hereby denied.

Any objections upon which the Court reserved decision at trial are now overruled.

It is further directed that, to the extent that Claimant has paid a filing fee, it may be recovered pursuant to Court of Claims Act § 11-a(2).

The Chief Clerk is directed to enter judgment accordingly.


September 25, 2007
Albany, New York

HON. CHRISTOPHER J. MCCARTHY
Judge of the Court of Claims

ADDENDUM A
Totals Per Guard Category
Category I

Adeboye, Foluke F. $ 8,172.13

Adeoni, Oloyede H. $ 5,062.44

Adesoye, Bolaji S. $ 3,629.98

Aina, Ademola T. $ 4,230.51

Alebiosu, Gabriel O. $ 90.95

Amosu, Adiodun M. $ 2,527.88

Donkor, Benjamin $ 90.63

Elesho, Ibidapo O. $ 1,013.83

Ezekiel, Olumuyiwa O. $ 8,692.42

Gilbert, Shakirat S. $ 9,072.26

Mordi, Stella Obobikpe $ 4,634.44

Nwachukwu, Chidike $ 2,927.12

Ogunlade, Oluwadamilare $ 1,136.88

Okemeta, Olodrunfemi A. $ 8,321.93

Olaitan, Jelili O. $ 949.63

Olufeko, Adedoyin Abisola $ 7,511.40

Osagie, Tina I. $ 8,756.62

Saliu, Taiye $ 5,866.28

Shofola, Albasir Akanbi $ 5,218.93

Wifamoriyo, Folorunsho, Mat $ 90.95

Yusuff, Mathew O. $10,079.40

Total Guard Category I $98,076.61

Category II
Ajao, Bilikisy O. $ 1,032.55

Alli-Balogun, Adeola $ 2,913.08

Alli-Balogun, Ismail $ 7,887.24

Amuda, Adeola O. $ 0.00

Amuda, Gasali A. $ 0.00

Jinodu, Joseph M. $ 2,312.89

Jokotoye, Ololade O. $ 2,438.27

Jokotoye, Sunday Adetunji $ 2,335.48

Mayowa-Olutola, Bonojo $ 2,646.91

Olayera, Christiana O. $ 6,085.63

Omodele, Joseph Omotade $ 8,902.40

Pilgrim, Paul P., Jr. $ 3,057.53

Rouse, Yolanda Tokunbo $ 2,170.59

Yusuf, Maria Bukunoluwa $ 7,239.89

Total Guard Category II
$49,022.46

Category III

Babata, Abdul L. $ 3,468.14

Aderemi, Ade $ 8,519.88

Total Guard Category III
$11,988.02

Combined Total Due for All Listed Guards
Guard Category I Total $ 98,076.61

Guard Category II Total $ 49,022.46

Guard Category III Total $ 11,988.02

Combined Total Guard

Categories I, II and III
$159,087.09



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[1]
.All references and quotations taken from the trial transcript are indicated by reference to volume and page number.
[2]
. In fact, the report appeared to allude to DMV’s contract with Tiger when it stated that “[s]ubsequent to the end of our audit, [DMV] managers attempted to pay up to $274,000 to another security guard company for invoices they hadn’t determined were bona fide” (Ex.26, p.43, note 9).