In a complete, unanimous reversal of a Supreme Court, New York County decision, The Appellate Division, First Department ruled that a $1,471,761.33 judgment awarded to Defendant New York City Department of Education on summary judgment against Plaintiff Summit Restaurant Repairs & Sales, Inc. be vacated, and the matter be returned to the trial calendar.
In this action, Summit Restaurant Repairs & Sales, Inc. v. New York City Department of Education, Index No. 651845/2012 (Sup. Ct., N.Y. Co. ), the lower court failed to acknowledge that Defendant, New York City Department of Education (DOE), had already withheld funds due to Summit for work performed and also failed to review the over assessment of penalties against Summit. The Appellate Division held that “Supreme Court should have denied summary judgment in defendant’s favor on the liquidated damages counterclaim.” In addition, they held that “to the extent defendant has withheld payment from plaintiff for work performed to offset liquidated damages, the award of liquidated damages constitutes a double recovery”.
Defendant argued that Plaintiff’s only remedy was to bring the matter before the Dispute Resolution Officer (DRO) and thereafter commence an Article 78 action challenging the DRO decision if necessary. However, the DOE had asserted a counterclaim, completely ignoring the result of their own DRO. Moreover, the DOE ignored their own payment review process and unilaterally during litigation, altered, modified, and increased penalties on work orders which had been paid out and closed out years prior, to add additional penalties. The Appellate Division held that “by participating in this litigation, including discovery, for seven years, defendant waives its right to compel plaintiff to submit its claims to the dispute resolution process called for under the parties’ contract.