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April 12, 2004.

NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, INC., Petitioner, -against- SPECTRUM MEDICAL LEASING, Division of IFC Credit Corporation Respondent

The opinion of the court was delivered by: ROBERT CARTER, Senior District Judge


In July 2003, Petitioner New York City Health and Hospitals Corporation ("HHC") petitioned filed a Petition to Stay Arbitration pursuant to New York Civil Practice Law and Rules ("CPLR") §§ 7502(a) and 7503(b). Respondent Spectrum Medical Leasing, Division of IFC Credit Corporation, filed a Cross-Motion to Compel Arbitration opposing the petitioner's motion. The court must now determine whether this dispute is properly before the court or should it be dismissed in favor of arbitration before the American Arbitration Association as provided for in the lease at issue.


  The petitioner New York City Health and Hospitals Corporation ("HHC"), which operates the Queen's Hospital entered into a three-year requirements contract with McGaw Leasing in 1997 whereby McGaw supplied the petitioner with 80 infusion pumps. The contract was procured through a competitive bidding process in accordance with HHC'S published procurement policies and operating procedures. All HHC-run facilities are required to purchase supplies, including infusion pumps, through requirements contracts.

  With this contract still in effect, Robert Rossdale, an Associate Director at Queens Hospital ("Hospital"), signed a modified lease in 1998 that would allow the hospital to add 25 new Infusion pumps to the 80 units the hospital was already financing under the prior lease. Nicolopoulos Aff. Ex. B. The financing terms of the 1998 lease were also adjusted, and the respondent alleges the terms of the 1998 lease were more favorable to Queen's Hospital than the 1997 lease. Id. The respondent Spectrum Medical Leasing ("Spectrum") acquired the contract at a later date through a secondary assignment from Old Kent Leasing. Nicolopoulos Aff. Ex. D.

  Upon assignment of the lease to Spectrum, the HHC notified Queen's Hospital that the lease was now held by Spectrum. The Hospital claims it was never notified of the assignment. In November 2001, McGaw informed the Queens Hospital that it owed McGaw over $60,000 in back payments for the 105 infusion pumps, and on November 23, 2001, Queens Hospital issued a check to McGaw for $60,444.84, which the hospital asserts was due under the original 1997 lease. McGaw accepted the payment for Queens Hospital's outstanding obligation, however no money was paid to the respondent. Throughout this time, Queen's Hospital maintained possession of the 105 infusion pumps. Spectrum attempted to enforce the arbitration provision included in the 1998 lease whereby all disputes-including questions of arbitrability-were to be settled by a licensed arbitrator and filed papers to begin arbitration proceedings in order to recoup the money they maintain is owed to them under the 1998 lease.


 Did the 1998 Lease comport with HHC contract procurement policies?

  HHC is administered by a board of directors which is vested with the powers, inter alia, to "adopt, altar, amend or repeal by-laws or rules and regulations for the organization, management, and regulation of its affairs" and the power "to make and execute contracts." Unconsolidated Laws §§ 7385(3) and (5) Sections 7384 and 9385 establish the procedure by which HHC is authorized to make contracts. HHC argues that the contract on which the respondent bases its authority to compel arbitration violated statutorily defined procedures that regulate how contracts are formed. The HHC has adopted the Operating Procedure 110-1, which governs the procurement of supplies, services, and equipment. The three methods by which an HHC facility may acquire supplies: 1) order from the central warehouse; 2) order via a purchasing order where an order is issued directly to a vendor with whom price, shipping time, and other related details have been previously established by contract; 3) order by acquisition of bids and issuance of a purchase vendor directly to the successful vendor, in accordance with operating procedures outlined in the state regulations. OP 110-1, Ex. 4; OP 110-6, Ex. 1 of Rothschild Supp. Decl.

  OP 110-1 § 3(B)(2) requires any purchase in excess of $5,000 to be procured through competitive bidding in accordance with OP 110-6. Both OP 110-1 and 110-6 require purchases in excess of $50,000 to be procured by "formal" bidding procedures, which include public solicitation of at least three written sealed bids. Id.

  The petitioner argues that the 1998 lease was actually a sole source contract not a competitively procured contract in violation of the HHC's operating guidelines. Rossdale signed the 1998 lease without any review or approval by the HHC Office of Materials Management as required by the HHC rules for procurement, no competitive bidding process took place as required by the statutory operating procedure. See Rossdale Aff. §§ 10, 14; Levy Aff., § 12. In addition to the petitioner's allegation that the contract is void because it was improperly procured, HHC contends that Rossdale was not authorized by the HHC to enter into the 1998 lease agreement. Id.

  Notwithstanding these regulations, the Queens Hospital's use of the additional pumps provided for under the contract formed in 1998 indicates that the hospital recognized the contract as legitimate. By accepting and continuing possession of the goods the lessor, Queen's Hospital, by implication accepted the terms of the new contract. The act of taking possession cured any inadequacies in the formation and adoption of the contract. In addition, the financing of the leased goods was governed by the 1998 Lease and the hospital paid under its terms. Nicolopoulos Aff. Ex. B.

 Did the 1998 Lease constitute an enforceable contract between the parties?

  The HHC is a corporation run for the public benefit. Section 50-k of the General Municipal Laws designates the HHC as an "agency" of the city for the purposes of legal representation and indemnification. The New York Court of Appeals has reiterated this limited categorization, stating "for purposes other than representation and indemnification [HHC] is not an ...

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