R.A.C. Group, Inc. v. Board of Education

21 A.D.3d 243, 799 N.Y.S.2d 559, 2005 N.Y. App. Div. LEXIS 8073
CourtAppellate Division of the Supreme Court of the State of New York
DecidedJuly 25, 2005
StatusPublished
Cited by12 cases

This text of 21 A.D.3d 243 (R.A.C. Group, Inc. v. Board of Education) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
R.A.C. Group, Inc. v. Board of Education, 21 A.D.3d 243, 799 N.Y.S.2d 559, 2005 N.Y. App. Div. LEXIS 8073 (N.Y. Ct. App. 2005).

Opinion

OPINION OF THE COURT

Cozier, J.

The instant appeal presents an issue of first impression for this Court—whether a contract which violates New York City Charter § 2604 is unenforceable. At present, no trial or appellate court has addressed that issue. We find that under the circumstances presented, the subject contract is unenforceable for public policy reasons.

The plaintiff Robert Shahid is an architect who was employed by the defendant Board of Education of the City of New York (hereinafter the BOE) from 1985 until May 1994. Shahid was assigned to the BOE Department of Real Estate, Office of Lease Management, which oversaw the implementation of the leased-facility program. Under the leased-facility program, the BOE identified privately-owned buildings suitable for conversion into school facilities and leased them from landlords. The BOE expended capital funds for the construction work required to convert the buildings into school facilities (hereinafter the build-out), and the landlord selected the contractor to perform the build-out.

In early 1994 BOE architect Clarence Jackson visited the premises at 350 Gerard Avenue in the Bronx (hereinafter the subject property), and recommended against leasing that property for school use on the ground that construction costs would be “prohibitive.” The subject property was located in a manufacturing district next to the Major Deegan Expressway, and the use of that property as a school would have required, among other things, a zoning override to obtain approval for a certificate of occupancy.

However, in April 1994, Shahid visited the subject property at the alleged direction of his supervisor, overruled Jackson’s recommendation, and approved that property for BOE’s leased-facility program. During this time, Shahid was a senior project coordinator and supervised a staff of six architects, including Jackson. As senior project coordinator, Shahid reviewed proposed site selections for leased space and oversaw the design of build-outs.

[245]*245Sometime in April 1994, Shahid, in his capacity as senior project coordinator, received a letter, dated April 20, 1994, from David Holand, the purported president of the defendant Bruckner Lumber and Building Supply Co. (hereinafter Bruckner), confirming his interest in pursuing a lease agreement with the BOE regarding the subject property. Thereafter, on May 5, 1994, the BOE and nonparty 350 Gerard Avenue Corp. (hereinafter 350 Gerard Corp.), the purported owner of the subject property, entered into a 15-year lease for $12 million, with a provision for construction on the subject property for an additional sum of $12.14 million.

Shortly thereafter, on May 20, 1994, Shahid resigned from his $46,000-a-year position with the BOE, and on July 22, 1994, entered into a contract with Bruckner in his representative capacity as president of the plaintiff R.A.C. Group, Inc. (hereinafter RAC), to serve as the project manager for the build-out project on the subject property (hereinafter the July 1994 contract).

One of Shahid’s duties under the July 1994 contract was to recommend contractors as potential bidders for the subject build-out project, and to contact those contractors which Bruckner selected. Under the terms of the July 1994 contract, Bruckner, as owner, was required to pay RAC 3% of the total construction cost for the subject property (i.e. $364,200 of $12.14 million). Shahid is the owner, director, and sole stockholder of RAC.

After RAC commenced its work as project manager under the July 1994 contract, RAC received three checks (dated August 17, 1995, November 1, 1995, and November 29, 1995, respectively) totaling $72,786.78. Although Shahid cashed the first two checks totaling $46,062.33 without incident, the third check for the sum of $26,724.45 was dishonored when he attempted to cash it.

In December 1995 Bruckner terminated Shahid’s services as the project manager at the direction of the BOE and pursuant to an investigation by the Inspector General’s Office of the New York City School Construction Authority (hereinafter the I.G.), suggesting that Shahid violated New York City Charter § 2604 (d) (4), which prohibits former employees from ever receiving compensation at any time in relation to any particular matter with which they were personally and substantially involved in as a city employee. The I.G. also suggested that Shahid violated New York City Charter § 2604 (d) (2), which prohibits employ[246]*246ees from appearing before their former employer for one year after termination of city employment, except for ministerial matters.

The I.G. concluded, inter alia, that 350 Gerard Corp. was neither the owner of the subject property nor an existing entity at the time that the BOE negotiated the subject lease in May 1994 or when the BOE adopted a resolution in June 1994 to go forward with the lease and build-out of the subject property. According to the I.G., 350 Gerard Corp. was incorporated on July 6, 1994, and obtained legal title to the subject property on July 13, 1994. Particularly, the I.G. found that nonparty 350 Asset Corporation (hereinafter 350 Asset) acquired the $6 million note for the subject property, foreclosed on the subject property on June 29, 1994, for $400,000, and assigned its interest in that property to 350 Gerard Corp. In addition, the I.G. found, inter alia, that Holand and/or his family members controlled both 350 Asset and 350 Gerard Corp.

The I.G. also found that Bruckner awarded a contract to nonparty American Redevelopment Enterprises (hereinafter ARE) to serve as the general contractor based upon Shahid’s recommendation, and that the former principal of that entity was a convicted felon. According to the I.G., ARE and another nonparty, Creation Contracting Co. (hereinafter Creation), formed a joint venture to perform various construction projects, including the build-out project for the subject property. In fact, 350 Gerard Corp. advised the BOE officials that ARE would be the general contractor before ARE was selected as the contractor. It appeared that Creation was formed for the sole purpose of performing the build-out work for the subject property.

Further, the I.G. determined, inter alia, that Shahid similarly entered into contracts to provide project management services for two other leased-facility buildings (one in the Bronx, and one in Brooklyn), and that the aggregate value of such contracts, as well as the contract with Bruckner, was nearly $750,000. The I.G. advised the BOE, inter alia, that it could demand that the contract with Shahid be terminated, and that the BOE be reimbursed for any funds paid to 350 Gerard Corp. as part of project management services. The I.G. also informed the BOE that it referred Shahid to the Office of the Manhattan District Attorney for possible criminal prosecution.

350 Gerard Corp. subsequently retained a different contractor to complete the build-out project at the subject property,-and [247]*247received $24 million after completing that project in April or May 1996.

Shahid and RAC (hereinafter the plaintiffs) then commenced this action, inter alia, to recover damages for breach of contract against, among others, Bruckner and the BOB. The action against the BOB was dismissed for failure to timely serve a notice of claim.

A nonjury trial was held in Supreme Court, Kings County, and the court concluded that the plaintiffs were entitled to recover under the contract.

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Cite This Page — Counsel Stack

Bluebook (online)
21 A.D.3d 243, 799 N.Y.S.2d 559, 2005 N.Y. App. Div. LEXIS 8073, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rac-group-inc-v-board-of-education-nyappdiv-2005.