Court Interprets Statute to Mean that a Party Must File a Notice of Claim Before the Dispute Arises
December, 2005
In New York, when a party chooses to sue a governmental entity (i.e., a town or city), the party seeking to commence the lawsuit typically must file a “Notice of Claim.” A Notice of Claim is a procedural device which is intended to give the targeted governmental entity notice of the impending lawsuit. See New York General Municipal Law §50-E. Although it would seem that it is only appropriate to file a Notice of Claim when the need for a lawsuit is clear and apparent, a recent Court of Appeals decision has proven that assumption false. The New York Court of Appeals, the highest court in the State, recently ruled that a party may be required to file a Notice of Claim before a lawsuit is necessary or even contemplated.
In CSA Construction Co. v. The New York City Schools Construction Authority, 5 N.Y.3d 189, 800 N.Y.S.2d 123 (2005), Plaintiff, CSA, entered into a $1 million contract with Defendant, The New York City Schools Construction Authority (“NYCSCA”), to perform construction work at various New York City schools. The NYCSCA is a public benefit corporation established by New York City for the purpose of managing the renovation and construction of City schools. See McKinney’s Consolidated Laws of New York § 1726.
Plaintiff finished work under the subject contract in late 1993, and then promptly filed for payment from the NYCSCA. Id. The NYCSCA processed CSA’s invoice, and for several months failed to issue payment. Finally, after having reviewed the invoice for a substantial period of time, the NYCSCA disputed CSA’s entitlement to payment and informed CSA that it planned to deny payment under the contract. In June, 1994, CSA filed suit against NYCSCA to collect payment for the work CSA allegedly performed pursuant to contract. Id.
§ 1744(2) of the New York Administrative Code requires that in contract disputes against city agencies, such as the CSA case, the aggrieved party must file a Notice of Claim upon the affected City Agency within three months of the accrual of damages. Plaintiff CSA, indeed, brought this suit within three months of the time when it became apparent to CSA that the NYCSCA had denied payment under the terms of the contract. However, the parties vastly disagreed on the meaning of the terms “accrual of damages.” Id.
Upon receipt of CSA’s Complaint, the NYCSCA promptly moved the trial court to dismiss the action, alleging that CSA failed to file a timely Notice of Claim. NYCSCA based its argument on the theory that CSA was required to file a Notice of Claim within three months of the end of work. Id. CSA opposed NYCSCA’s motion by arguing that it could not have filed a Notice of Claim within three months of the close of work because NYCSCA did not deny payment until well after the initial three month period. Id.
The trial Court held that CSA’s service of the Notice of Claim in June, 1994, was indeed too late, and that CSA’s accrual of damages occurred upon the completion of work pursuant to that contract. Id. The appeal was taken and the Court of Appeals based its ruling on its decision of In Re: The Matter of Board of Education, 37 N.Y.2d 283, 372 N.Y.S.2d 45 (1975), in which it held that a contractor’s claim to damages is deemed to have accrued when work has been substantially completed. Id. The Court ruled that CSA’s entitlements, which in this case were payments under the contract, were ascertainable when the work was actually finished, id., not when it became apparent that NYCSCA would not issue payment. In essence, the Court held that CSA’s claim actually accrued before the dispute occurred, and well before CSA could have possibly known that it was headed to litigation with NYCSCA. Id. Thus, as soon as work was completed under the contract, the clock on the time within which CSA had to file a Notice of Claim against NYCSCA began ticking.
Learning Point:
A Notice of Claim must be served by would be litigants upon governmental entities before a claim can be made against that entity. It is intended to give these government entities advance notice of impending lawsuits. The New York Court of Appeals has long established that the time within which to file a Notice of Claim begins running upon accrual of damages. However, the New York Court of Appeals has recently held that accrual of damages is interpreted to mean “completion of work” under a contract, not the time at which damages are apparent. Under this interpretation, a contractor doing business with a governmental agency may be required to file a Notice of Claim before a dispute arises, even where non-dispute is contemplated. However, this is an issue worth watching, as similar requirements have been struck down in other legal arenas. The legislature recently amended a similar provision in the Education Law, stating affirmatively that the accrual of damages occurs upon denial of payment, rather than completion of work. It seems likely that the issue of damage accrual will be revisited by New York Courts, if for no other reason then to prevent the countless number of unnecessary Notices of Claim likely to be filed by careful practitioners representing the interests of contractors doing business with governmental agencies. •
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