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
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
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
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
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 ...