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VAN-GO TRANSPORT CO. v. NEW YORK CITY RD. OF EDUC.

May 19, 1999

VAN-GO TRANSPORT CO., INC., STERLING COACH CORP., CELEBRITY TRANSIT CORP., PAUL DACHS AND C. ISAAC DACHS, PLAINTIFFS,
v.
NEW YORK CITY BOARD OF EDUCATION, NEW YORK CITY, KEVIN F. GILL, AND RICHARD W. SCARPA, DEFENDANTS.



The opinion of the court was delivered by: Trager, District Judge.

  MEMORANDUM AND ORDER

At its core, this case is about the clash between an employer's right, under federal law, to replace striking workers, and a local governmental policy, adopted allegedly for public safety reasons, that would effectively nullify that right. The precise issue is whether the state action at issue, refusing to conditionally certify workers who would act as strike replacements, was pre-empted by federal labor law.

Background

Plaintiffs, Paul and Isaac Dachs, are the principals of plaintiffs Van-Go, Sterling Coach and Celebrity Transit, corporations in the business of providing bus or van transportation services. In September 1988, Van-Go entered into a two year contract with the New York City Board of Education ("BOE" or "Board") that was later extended through June 30, 1996. Under the terms of that contract, Van-Go was to provide severely disabled students, who lived in buildings without elevators and who could not walk, with transportation services. The contract called for the students to be carried from their apartments by two escorts to a Van-Go van where a driver would be waiting to take them to school.

Van-Go Drivers and escorts were required to be "certified" pursuant to Articles 40 and 41 of the Van-Go/BOE contract. Langford Dep., at Exh.B. Before employees could be approved for certification, they were required to undergo a background check, mental fitness report, drug test, training course, and most relevant here, submit a "fingerprint record." Id. The term "fingerprint record" is not defined in the contract. The certification process often took three to six months to complete, primarily because of the length of time it took to obtain an FBI evaluation of a fingerprint record. See Angela Gill Dep., p. 93; Langford Dep., p. 335. Plaintiffs allege that, because of the length of time required by this last step in the certification process, BOE adopted a "uniform practice and policy" of conditionally certifying new employees. Compl., ¶ 18. Conditional certifications were approvals granted to employees who had satisfied all of the BOE's other certification requirements, but were awaiting the processing of their fingerprint reports by the FBI. The Van-Go/BOE contract also required Van-Go to supply "sufficient, qualified and approved personnel to enable the Contractor to dispatch substitute escorts promptly if, when and where necessary to ensure continuous, uninterrupted and punctual service in each and every instance." Extension and Second Amendment of Contract, § (D) at 10.*fn1

In March 1994, Van-Go learned that Local 1181 planned to initiate a strike against it in early April 1994, and notified BOE of the pending strike by letter dated March 16, 1994. At first, BOE conditionally certified potential replacement workers, but then, Kevin F. Gill, Director of the BOE Office of Pupil Transportation ("OPT"), on behalf of BOE informed Van-Go by letter dated April 7, 1994, that it would not conditionally approve employees "`to act as strike breakers.'" Pl.App. in Opp. to Mot. for Sum. J. ("Pl.App."), at Exh.40. Prior to the situation at issue, no request for consideration of conditional certifications had ever been refused. Nor was there any written policy then in effect purporting to limit the number or percentage of an OPT contractor's workers that could be conditionally certified. In July 1995, BOE enunciated by letter a policy limiting to 20% the percentage of an OPT contractor's workforce that could be conditionally certified. See Def. Rule 56.1 Statement, p. 34 n. 19. Richard Langford, Deputy Director for Contractual and Regulatory Affairs of the OPT, at his deposition testified that the 20% policy had been in effect prior to April 7, 1994. See Langford Dep., pp. 392-95. However, no such policy was mentioned in the April 7 Gill letter.

On June 27, 1994, Local 1181 initiated a strike against Van-Go. As a result of the strike, Van-Go was unable to perform its obligations under the contract and was defaulted by Gill on behalf of the BOE. The default was upheld following an administrative review. See Ltr. to Gill from Arthur H. Avedon, Administrator, dated 7/1/94.*fn2

Plaintiffs then brought suit on June 30, 1995, alleging five causes of action. Plaintiffs brought two counts under 42 U.S.C. § 1983, alleging violations of federal labor law and due process. Plaintiffs also alleged several violations of state law: breach of contract, breach of duty of good faith and fair dealing, and defamation. Plaintiffs sought damages, a declaratory judgment and a permanent injunction.

In 1995, defendants moved to dismiss portions of plaintiffs' complaint for failure to state a claim upon which relief can be granted on the grounds that: (1) the complainant fails to state a claim against defendant New York City and defendant Scarpa; (2) the claim for defamation fails to state a claim; and (3) damages in the form of lost profits and to compel the award of contracts are unavailable as a matter of law. At a motion hearing on April 16, 1996, defendants' motion was denied as to plaintiffs' claims against defendants Scarpa and New York City; plaintiffs' claims for contract and lost profits damages were limited to Van-Go, as a matter of law; and decision on defendants' motion for dismissal of the defamation claims was reserved.

Both parties subsequently submitted supplemental materials in support of and in opposition to defendants' motion to dismiss the defamation claims. Because both parties submitted materials beyond the complaint, the remaining part of the motion was converted into a motion for summary judgment. Upon notice to the parties of the conversion, and additional oral argument, this remaining portion of the motion was granted in part and denied in part on February 6, 1997. See Van-Go I, 971 F. Supp. 90 (E.D.N.Y. 1997). Following the completion of discovery, defendants moved for summary judgment on all of plaintiffs' remaining claims.

Discussion

(1)

BOE first argues that Van-Go's breach of contract and federal § 1983 claims are barred by a six-month contractual limitations provision contained in the Van-Go/BOE contract, and that, therefore, defendants' motion for summary judgment should be granted as to each of these claims.*fn3 Van-Go contends that the contractual limitations provision at issue bars neither its state nor its federal claims. That provision states:

  No action . . . shall be maintained by the Contractor
  [Van-Go], . . . against the Board on any claim arising
  out of this Contract . . . unless such action shall be
  commenced within six (6) months after the date of
  filing of the voucher for final payment hereunder or
  within six (6) months of the required completion date
  for the services performed hereunder, whichever is
  sooner.

Van-Go/BOE Contract, ¶ 22. A voucher is a BOE record created by BOE's Finance Department for each payment made to a vendor.

Plaintiffs argue that the breach of contract and § 1983 claims are not time barred by the contractual limitations period because the August 1994 payment of $161,937 did not constitute the "final payment" under the contract. Rather, Van-Go asserts that the "final payment" under the contract was a payment of $320,378 made by BOE to Van-Go in August 1995. Van-Go maintains that since the complaint in this action was filed in June 1995, three months before the August 1995 payment was made, its claims are not time barred by the contractual limitation period.

BOE does not dispute that an additional payment was made to Van-Go in August 1995, but rather contends that the 1995 payment was a "cost justification payment" and not a "final payment" within the meaning of the Van-Go/BOE contract. BOE asserts that the cost justification payment was a retroactive payment of monies owed to Van-Go due to an increase in Van-Go's operating costs from 1990 to 1994. BOE maintains that this retroactive payment does not extend the contractual limitations period and, as such, Van-Go's breach of contract and § 1983 claims are time barred.

As this recitation of the parties' contending positions makes evident, there exists at least a question of material fact as to what constitutes a "final payment" under the contractual limitations period set forth in the Van-Go/BOE employment contract. It seems more likely that the parties would have intended that the last payment received by Van-Go under the Van-Go/BOE contract would constitute the "final payment" under that contract. If BOE had intended otherwise, BOE, as drafter of the contract, should have clarified any ambiguity in the meaning of that term. It is well-settled that ambiguities in a contract should be construed against the drafter, especially when the provision being construed would cut off a party's right to obtain any remedy. See Uribe v. Merchants Bank of New York, 91 N.Y.2d 336, 341, 670 N.Y.S.2d 393, 396, 693 N.E.2d 740 (1998).

Accordingly, for the reason that the meaning of "final payment" under the Van-Go/BOE contract is ambiguous, that term will be construed against BOE, the drafter. "Final" means "[f]orming or occurring at the end: LAST." Webster's II: New Riverside University Dictionary 478 (The Riverside Publishing Company 1988). "Payment" means "[t]he act of paying or state of being paid." Id. at 864. BOE's last act of paying monies due under the Van-Go/BOE contract to Van-Go occurred, and was also "vouchered," in August 1995. Accordingly, Van-Go's action was timely brought.

Moreover, BOE's contention that Van-Go's § 1983 claims would have been bared by the contractual limitations provision is wholly without merit. As a general rule, contractual limitation provisions designed to shorten the three year statutory time limit must explicitly state such limitations. See Wright v. Universal Maritime Serv. Corp., 525 U.S. 70, ___, 119 S.Ct. 391, 396, 142 L.Ed.2d 361 (1998) (Supreme Court stated in context of Americans with Disabilities Act that "we will not infer from a general contractual provision that the parties intended to waive a statutorily protected right unless the undertaking is `explicitly stated.'") (quotation omitted). An agreement shortening the time period in which to bring an action will be upheld if it is reasonable and voluntarily agreed upon, but only if the intention to establish a shorter period is clearly set forth. See Chase v. Columbia Nat'l Corp., 832 F. Supp. 654, 660 (S.D.N.Y. 1993) (applying New York law).

Nowhere does the limitation provision in the BOE/Van-Go contract express plaintiff Van-Go's intention to waive statutorily protected federal rights. Instead, the provision merely states that "no action . . . shall be maintained by the Contractor . . . on any claim based upon or arising out of this contract." Van-Go/BOE Contract, ¶ 22. If the parties to a contract intend for a provision to act as a bar to claims brought under federal law, they must specifically refer to such federal claims, and clearly express the intent to limit the period in which a party could bring an action based upon federal claims. As the provision at issue makes no reference to federal statutory rights, much less an express waiver of such rights, it cannot bar Van-Go's § 1983 claims. Accordingly, defendant's motion for summary judgment on the basis of the contractual limitations provision is denied.

(2)

Turning to the merits, plaintiffs' strongest claim is that defendant BOE's policy of refusing to conditionally certify replacements for striking workers is in conflict with the, NLRA.*fn4 As the Supreme Court has approved and reaffirmed on numerous occasions, it is "undisputed that the NLRA preserves to employers the right to permanently replace economic strikers as an offset to the employees' right to strike." Chamber of Commerce of the United States v. Reich, 74 F.3d 1322, 1332 (D.C.Cir. 1996) (citing NLRB v. Mackay Radio & Tel. Co., 304 U.S. 333, 345-46, 58 S.Ct. 904, 910-11, 82 L.Ed. 1381 (1938)) (citations omitted). In this case, defendants' policy, announced at a time when it was known to all parties involved that a strike was imminent, effectively trumped plaintiff Van-Go's ability to hire replacement workers. Whether this policy also violated plaintiff's federal rights by regulating in an area pre-empted by Congress can be determined only after reviewing the extensive body of Supreme Court case law on the subject of NLRA preemption.

The Supreme Court has articulated two different types of NLRA pre-emption. See Golden State Transit Corp. v. City of Los Angeles, 475 U.S. 608, 613, 106 S.Ct. 1395, 1398, 89 L.Ed.2d 616 (1986) ("Golden State I") (citations omitted). The first has to do with the protection of legislatively articulated federal rights, while the second deals with Congress' express decision that generally no governmental regulation interfere with the balance of power in union-management relations. The first, the so-called Garmon pre-emption, "forbids state and local regulation of activities that are `protected by § 7 of the [NLRA], or constitute an unfair labor practice under § 8.'"*fn5 Building & Constr. Trades Council v. Associated Builders & Contractors of Mass./R.I., 507 U.S. 218, 224, 113 S.Ct. 1190, 1194, 122 L.Ed.2d 565 (1993) ("Boston Harbor") (quoting San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 244, 79 S.Ct. 773, 779, 3 L.Ed.2d 775 (1959)). The Supreme Court in Boston Harbor noted that "[t]his rule of pre-emption is designed to prevent conflict between, on the one hand, state and local regulation and, on the other, Congress' `integrated scheme of regulation.'" Boston Harbor, 507 U.S. at 225, 113 S.Ct. at 1194-95 (quoting Garmon, 359 U.S. at 247, 79 S.Ct. at 781). Prior to Boston Harbor, in Golden State I, the Supreme Court explained that "[t]he Garmon rule is intended to preclude state interference with the National Labor Relations Board's interpretation and active enforcement of the `integrated scheme of regulation' established by the NLRA." Golden State I, 475 U.S. at 613, 106 S.Ct. 1395 (quoting Garmon, 359 U.S. at 246, 79 S.Ct. 773).

In Garmon, the Supreme Court articulated two exceptions to the pre-emption doctrine enunciated therein: the so-called "local interests" exception, and the exception pertaining to "peripheral concerns." Garmon, 359 U.S. at 243-44, 79 S.Ct. at 779. The "local interests" exception allows States to "regulate[] conduct [that] touch[es] interests so deeply rooted in local feeling and responsibility that, in the absence of compelling congressional direction, we could not infer that Congress had deprived the States of the power to act." Id. at 244, 79 S.Ct. at 779. See, e.g., Youngdahl v. Rainfair, Inc., 355 U.S. 131, 78 S.Ct. 206, 2 L.Ed.2d 151 (1957) (state court not pre-empted by NLRA from issuing permanent injunction against persistent name-calling and verbal abuse by striking employees, where such acts were calculated to provoke violence and were likely to do so); United Automobile, Aircraft and Agricultural Implement Workers, etc. v. Wisconsin Employment Relations Bd., 351 U.S. 266, 76 S.Ct. 794, 100 L.Ed. 1162 (1956) (The general rule that a State may not "enjoin conduct which has been made an unfair labor practice under the federal statutes . . . does not take from the States power to prevent mass picketing, violence, and overt threats of violence. The dominant interest of the State in preventing violence and property damage cannot be questioned. It is a matter of genuine local concern.") (quotations and citations deleted). The second exception to Garmon pre-emption applies where "the activity regulated was a merely peripheral concern of the LMRA]." Garmon, 359 U.S. at 243, 79 S.Ct. at 779. See, e.g., Belknap v. Hale, 463 U.S. 491, 103 S.Ct. 3172, 77 L.Ed.2d 798 (1983) (employees' state law breach of contract and misrepresentation claims arising out of unfair labor practice strike not pre-empted by NLRA).

Garmon preemption does not, however, appear to govern the resolution of the pending dispute because Garmon applies only to governmental action that interferes with rights articulated by § 7 of the NLRA, or regulates conduct which constitutes an unfair labor practice under § 8, neither of which are at issue here. In any case, Van-Go relies solely on the second branch of NLRA pre-emption, the so-called Machinists pre-emption. See Lodge 76, Int'l Ass'n of Machinists & Aerospace Workers v. Wisconsin Employment Relations Comm'n, 427 U.S. 132, 96 S.Ct. 2548, 49 L.Ed.2d 396 (1976) ("Machinists"). Machinists pre-emption "prohibits regulation of areas that Congress intended to be left `unregulated and to be controlled by the free play of economic forces.'" Chamber of Commerce, 74 F.3d at 1334 (quoting Machinists, 427 U.S. at 144, 96 S.Ct. at 2555). In Machinists, members of a union had engaged in a concerted refusal to work overtime during negotiations for renewal of an expired collective-bargaining agreement. See Machinists, 427 U.S. at 134, 96 S.Ct. at 2550. The Wisconsin Employment Relations commission ("WERC") held that such refusal to work overtime, which was neither protected nor prohibited by the NLRA, was an unfair labor practice under state law. Id. at 135, 96 S.Ct. at 2551. The Supreme Court held that the union member employees' concerted refusal to work overtime did not constitute an. unfair labor practice under the NLRA. Id. at 158, 96 S.Ct. at 2557. Therefore, the Court concluded, WERC's decision to the contrary, based on state law, impermissibly favored employer rights over union rights, and frustrated Congress' intent to leave the area of employer-union relations unregulated by the States. Id. The Supreme Court explained that to "`sanction state regulation of such economic pressure'" would frustrate Congress' intent to create a balance "`between the uncontrolled power of management and labor to further their respective interests.'" Boston Harbor, 507 U.S. at 226, 113 S.Ct. at 1195; and Golden State I, 475 U.S. at 614, 106 S.Ct. at 1399 (quoting Machinists, 427 U.S. at 146, 150, 96 S.Ct. at 2556, 2558) (quotations omitted). Therefore, unless otherwise expressly contemplated by Congress, "States are [] prohibited from imposing additional restrictions on economic weapons of self-help, such as strikes or lockouts." Golden State I, 475 U.S. at 614-15, 106 S.Ct. at 1399. The Supreme Court reasoned that "[w]hether self-help economic activities are employed by employer or union, the crucial inquiry regarding pre-emption is the same: whether the exercise of plenary state authority to curtail or entirely prohibit self-help would frustrate effective implementation of the Act's processes." Id. at 615, 106 S.Ct. at 1399 (quotations omitted).

There is, however, at least one recognized limitation on the Machinists preemption doctrine, the so-called "market participant" exemption:

  A State does not regulate [] simply by acting within
  one of the[][] areas [protected by the NLRA]. When a
  State owns and manages property, for example, it must
  interact with private participants in the
  marketplace. In so doing, the State is not subject to
  pre-emption by the NLRA, because pre-emption doctrines
  apply only to state regulation.

Boston Harbor, 507 U.S. at 227, 113 S.Ct. at 1196. The decisions of the Supreme Court in this area support a distinction between the "government as regulator and government as proprietor." Id. The Court has "held consistently that the NLRA was intended to supplant state labor regulation, not all legitimate state activity that affects labor." Id. Drawing on this precedent, defendants contend that BOE acted in the proprietary capacity of a market participant, and not in a regulatory capacity.

In Golden State I, the City of Los Angeles, in an effort to favor striking workers over management, refused to renew the Golden State Transit Corporation's taxicab franchise until management settled a labor dispute. The Supreme Court "refused to permit the city's exercise of its regulatory power of license nonrenewal to restrict Golden State's right to use lawful economic weapons in its dispute with its union. Boston Harbor, 507 U.S. at 227, 113 S.Ct. at 1196 (citing Golden State I, 475 U.S. at 615-619, 106 S.Ct. at 1398-1401). However, as the Court pointed out in Boston Harbor, "a very different case would have been presented had the city of Los Angeles purchased taxi services from Golden State in order to transport city employees." Id.

Defendants attempt to anchor the case at bar within the safe haven provided by Boston Harbor, while plaintiffs argue that the BOE strike replacement worker policy at issue has no place in the harbor. See Def. Mem. of Law, pp. 14-17. In Boston Harbor, the Massachusetts Water Resources Authority ("MWRA"), an independent government agency, was directed by federal court order to clean up Boston Harbor. See Boston Harbor, 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993). MWRA selected Kaiser Engineers, Inc. ("Kaiser"), as its project manager. As project manager, Kaiser was to advise MWRA as to work site labor-relations policy. Kaiser suggested that it be permitted to enter into a collective bargaining agreement with the Building and Construction Trades Council ("BCTC"), and MWRA agreed. The agreement included, among other provisions, a requirement that all employees hired become union members within seven days of their employment and a ten year ...


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