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TETRA TECHS. v. HARTER

June 15, 1993

TETRA TECHNOLOGIES, INC., Plaintiff,
v.
JOHN C. HARTER, MAYOR OF THE VILLAGE OF FLORIDA, NEW YORK, THE VILLAGE BOARD OF THE VILLAGE OF FLORIDA, NEW YORK and THE VILLAGE OF FLORIDA, NEW YORK, Defendants.



The opinion of the court was delivered by: VINCENT L. BRODERICK

 VINCENT L. BRODERICK, U.S.D.J.

 I

 This case involves a contract action brought by plaintiff Tetra Technologies, Inc., a Texas engineering firm (the "Texas company"), against the Village of Florida, New York (the "Village"). *fn1" It presents the question of whether New York professional licensing laws do - or consistently with the Constitution could - require that both contractors and those actually supervising the work be licensed by the State. I answer this question in the negative.

 Jurisdiction is based on diversity of citizenship under 28 USC § 1332. *fn2" Defendants have moved for summary judgment dismissing the complaint; plaintiff has moved for leave to amend the complaint. I deny defendants' motion and grant plaintiff's motion to amend.

 II

 Defendants' principal contention is that the Village need not pay the Texas company for engineering work done for the Village, despite the fact that the engineer actually supervising the work was licensed in New York under New York Education Law § 7202, because the Texas company did not have a New York engineering license.

 Education Law § 7202, like most other New York State licensing provisions, is silent with regard to any requirement that employers or contractors have separate licenses in addition to those held by implementing employees. Charlebois v. J.M. Weller Assoc., Inc., 72 N.Y.2d 587, 535 N.Y.S.2d 356, 531 N.E.2d 1288 (1988), albeit over a three-Justice dissent, indicates that where a professional licensed under an applicable state statute is to perform a contract, the signatory of the contract need not also be licensed. I follow Charlebois despite some arguably contrary decisions in lower state courts which need not be discussed here, because Charlebois is the latest pronouncement of the state's highest court, and because to do otherwise would violate federal constitutional requirements. *fn3"

 Charlebois accords with the objective of protecting the public by assuring that the person in charge of a licensed activity has the necessary knowledge to perform it properly. At the same time, the interpretation it provides avoids the cartel-like effect of raising barriers against entry into a field where there is no consumer benefit from doing so. Such barriers, reminiscent of those imposed by medieval guilds, *fn4" result in constricted availability of persons eligible to provide the service and in increased cost, both detrimental to rather than protective of the public. *fn5"

 New York's highest court, like the Supreme Court of the United States, utilizes purpose interpretation to assure that legal documents promote their intended purposes and do not boomerang to produce opposite results. See, e.g., Tedla v. Ellman, 280 N.Y. 124, 19 N.E.2d 987 (1939); United States v. Classic, 313 U.S. 299, 317-18, 85 L. Ed. 1368, 61 S. Ct. 1031 (1941).

 It would be inappropriate to assume that the New York legislature intended to act in a way which would overshoot and thus damage the very purpose for which Education Law § 7202 was enacted - benefitting and protecting the public. Should ambiguity exist, courts should honor the objectives of statutes as placed before the public, the ultimate supervisory body in a democratic Republic. Posner, "Economics, politics, and the Reading of Statutes and the Constitution," 49 U. Chi. L. Rev. 263, 273 (1982).

 While N.Y. Education Law professional licensing provisions do not contain explicit statements of purpose, unlike some New York State statutes (e.g., state Administrative Procedure Act § 206(1)), the purpose of the licensing requirements is clearly to protect the public safety. There is no suggestion in the New York Education Law that dual licensing of professionals, especially in transactions involving sophisticated institutional customers, would enhance public safety or would protect other legitimate public interests.

 III

 As pointed out by the Village, the practice of engineering without a license can constitute a felony. N.Y. Education Law § 6512. But the very existence of criminal sanctions counsels caution in adopting expansive interpretations of the scope of a legal requirement if that interpretation is not clear in advance to those required to comply. See Dunn v. United States, 442 U.S. 100, 112, 60 L. Ed. 2d 743, 99 S. Ct. 2190 (1979). Excessive ambiguity and lack of clear notice in a statute concerning activity prohibited by criminal law may raise serious questions of due process under the Fifth and Fourteenth Amendments, to be avoided where possible by construing the governing statute so that its objectives may be achieved without imposing undue risks of unintentional violations. Here, a potentially unconstitutional interpretation can readily be avoided if the statute is construed as requiring that engineering work be done under the watchful supervision of a licensed professional, but as not requiring that the contracting entity also be licensed.

 IV

 A sophisticated institutional customer such as a public sector agency having access to legal counsel is hardly in need of protection from unlicensed contractors where the job supervisor is licensed. An in-state institutional customer can be held to know of licensing requirements in its own state, to a greater extent than an out-of-state provider not doing other significant business in the state.

 The out-of-state contractor, not the institutional local customer, is the victim of surprise when a question based upon licensing or other state or local requirements is raised subsequent to performance. The New York courts have been at pains to prevent, and not to encourage, surprises sprung upon less knowledgeable contracting parties. See Charlebois, supra; Bier Pension Plan Trust v. Estate of Schneierson, 74 N.Y.2d 312, 546 N.Y.S.2d 824, 545 N.E.2d 1212 (1989); DeSantis v. Sears, Roebuck & Co., 148 A.D.2d 36, 543 N.Y.S.2d 228 (1989); State v. GMC, 120 Misc. 2d 371, 466 N.Y.S.2d 124 (Sup. Ct. 1983); Ryon v. John Wanamaker, 116 Misc. 91, 190 N.Y.S. 250 (Sup. Ct. 1921), aff'd 202 A.D. 848, 194 N.Y.S. 977 (1922), aff'd 235 N.Y. 545, 139 N.E. 728 (1923). A rational application of this approach would require a sophisticated New York State institutional customer to avoid unfair surprise to an out-of-state contractor by informing the contractor of any alleged need to obtain a separate license.

 In my role as interpreter of the state law applicable in this diversity suit, I have every confidence that the state's highest court would heed the admonition of Benjamin Cardozo in The Nature of the Judicial Process 41 (1921):

 
No man should profit from his own inequity or take advantage of his own wrong.

 To allow a knowledgeable buyer of goods or services to keep silent about an alleged dual licensing requirement, and thereafter, after the work has been done, to premise denial of payment upon failure to meet that requirement, would be to place a judicial stamp of approval upon a successful subversion of the law by permitting exploitation of an inherent 'potential for abuse,'" Indian Head, Inc. v. Allied Tube & Conduit Corp., 817 F.2d 938, 947 (2d Cir. 1987), aff'd 486 U.S. 492, 100 L. Ed. 2d 497, 108 S. Ct. 1931 (1988). This would give point to Theodore Roosevelt's rueful statement that "illegal transactions often occur under the forms of law." Fifth Annual Message, Dec. 5, 1905, 3 State of the Union Messages of the Presidents 2148 (1966).

 V

 The above observations may also be relevant to a last-minute hearsay assertion, made for the first time in the reply affidavit of the mayor of the Village, that the Texas company's licensed engineer possessed a license only for the later portions of the job and not at the time it was commenced. The problematic nature of hearsay statements made for the first time in the reply affidavit on behalf of the party moving for summary judgment is pointed up in this case, particularly when one considers the numerous concatenations of fact patterns which might exist on an all-facts-known basis. For example, the mayor in his reply affidavit does not indicate whether or not the engineer had an earlier identical or related New York license (or for that matter an equivalent license elsewhere) in addition to the one ...


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