522939 Matter of W.M. Schultz Construction, Inc. v. Musolino

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: February 23, 2017 522936
522939
_________________________________

In the Matter of W.M. SCHULTZ
CONSTRUCTION, INC., et al.,
Petitioners,
v MEMORANDUM AND JUDGMENT

MARIO J. MUSOLINO, as Acting
Commissioner of Labor,
Respondent.

(And Another Related Proceeding.)
_________________________________

Calendar Date: January 18, 2017

Before: McCarthy, J.P., Garry, Lynch, Devine and Mulvey, JJ.

__________

Ernstrom & Dreste, LLP, Rochester (John W. Dreste of
counsel), for W.M. Schultz Construction, Inc., petitioner.

Couch White, LLP, Albany (Harold D. Gordon of counsel), for
William M. Schultz, petitioner.

Eric T. Schneiderman, Attorney General, New York City (Seth
Kupferberg of counsel), for respondent.

Adams Bell Adams, PC, Rochester (Anthony J. Adams Jr. of
counsel), for Empire Chapter of Associated Builders and
Contractors, Inc., amicus curiae.

__________
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McCarthy, J.P.

Proceedings pursuant to CPLR article 78 (initiated in this
Court pursuant to Labor Law §§ 220 and 220-b) to review a
determination of respondent finding that petitioners failed to
pay prevailing wages and supplements.

The New York Racing Association (hereinafter NYRA) is a
not-for-profit corporation, incorporated September 12, 2008.
NYRA is both the lessee of state-owned racetracks and their
facilities, including Saratoga Race Course, and a franchisee
tasked with continuing racing and racing operations at those
racetracks. In April 2009, NYRA entered into a contract with
petitioner W.M. Schultz Construction, Inc. (hereinafter Schultz
Construction) requiring Schultz Construction to perform
construction relating to a concentrated animal feeding operation
in the stable area of the Saratoga Race Course (hereinafter the
project), which included constructing horse showers and a
drainage control system. In November 2009, at the conclusion of
the project, the Department of Labor issued a notice in response
to a labor union inquiry that construction, maintenance and
repair work at NYRA would be subject to the prevailing wage laws.
In October 2014, after receiving complaints that Schultz
Construction was violating the prevailing wage laws by
underpaying workers for the project, respondent commenced an
investigation of the matter and ultimately issued a notice of
hearing and scheduled enforcement proceedings. In lieu of live
hearing testimony, the parties agreed to proceed on stipulated
facts and that the hearing would address the applicability of
Labor Law article 8. In March 2016, a Hearing Officer issued a
report and recommendation, adopted by respondent, which found
that the contract between NYRA and Schultz Construction for the
project was subject to prevailing wage laws. Thereafter, Schultz
Construction and petitioner William M. Schultz separately
commenced CPLR article 78 proceedings in this Court (see Labor
Law §§ 220, 220-b) seeking to annul respondent's determination.

We annul. Labor Law § 220 provides that "[t]he wages to be
paid for a legal day's work . . . to laborers, work[ers] or
mechanics upon . . . public works, shall be not less than the
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prevailing rate of wages" (Labor Law 220 § [3] [a]), defined as
the rate paid to "workers, laborers or mechanics in the same
trade or occupation in the locality where the work is being
performed" (Labor Law § 220 [5]). The NY Constitution further
provides that "[n]o laborer, worker or mechanic, in the employ of
a contractor or sub-contractor engaged in the performance of any
public work, shall . . . be paid less than the rate of wages
prevailing in the same trade or occupation in the locality within
the state where such public work is to be situated, erected or
used" (NY Const, art I, § 17). The Court of Appeals has recently
clarified the meaning of a public work: "[f]irst, a public agency
must be a party to a contract involving the employment of
laborers, workers, or mechanics. Second, the contract must
concern a project that primarily involves construction-like labor
and is paid for by public funds. Third, the primary objective or
function of the work product must be the use or other benefit of
the general public" (De La Cruz v Caddell Dry Dock & Repair Co.,
Inc., 21 NY3d 530, 538 [2013]).

This Court's "review of an administrative determination
made after a hearing required by law, and at which evidence is
taken, is limited to whether that determination is supported by
substantial evidence" (Matter of Scuderi v Gardner, 103 AD3d 645,
646 [2013]; see e.g. Matter of Nash v New York State Dept. of
Labor, 34 AD3d 905, 906 [2006], lv denied 8 NY3d 803 [2007]).
"Substantial evidence 'means such relevant proof as a reasonable
mind may accept as adequate to support a conclusion or ultimate
fact'" (Matter of R.I., Inc. v New York State Dept. of Labor, 72
AD3d 1098, 1098 [2010], lv denied 17 NY3d 703 [2011], quoting 300
Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176,
179 [1978]).

Substantial evidence does not support the conclusion that
the project was paid for by public funds. As respondent conceded
in his determination, NYRA's financial statements establish that
they received no funds from the state prior to or during the term
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of the contract for the project.1 Moreover, the only evidence in
the record of the provision of funding by the state relates to a
transfer of funds from the state to NYRA's predecessor, also
known as the New York Racing Association, Inc. (hereinafter Old
NYRA), which, at the time of the project, no longer had an
interest in Saratoga Race Course and was not a party to the
contract for the project.2 The transfer of funds from the state
to Old NYRA was pursuant to a settlement agreement, dated
September 12, 2008, that had been entered into by Old NYRA, NYRA,
the state, the New York State Non-Profit Racing Association
Oversight Board and the New York State Division of the Lottery.
Under the settlement agreement and as between Old NYRA and the
state, Old NYRA conveyed to the state its title and interest in
three racetracks, including the Saratoga Race Course, as well as
all improvements and appurtenant physical assets. In return, the
state paid Old NYRA $105 million "for services and expenses
required relating to payments for capital works or purposes."
The record also establishes that, in November 2008, Old NYRA made
a $5 million transfer to NYRA. Notably, even assuming that the
$105 million transfer from the state was the source of the
subsequent $5 million transfer from Old NYRA to NYRA, the record
is bereft of any evidence that NYRA had any obligations as to
spending such funds on capital works projects, as did Old NYRA.3

1
We find no support for respondent's apparent conclusion
that the De La Cruz test is satisfied upon a finding that an
entity could have acquired public funds to pay for a project or
that public funding for a project was contemplated – regardless
of whether the entity actually acquired and then used public
funds for a project – and therefore we do not assess the accuracy
of respondent's conclusions in that regard.
2
NYRA was formed near the conclusion of the chapter 11
bankruptcy of Old NYRA.
3
Although there is no actual explanation in the record as
to why Old NYRA transferred funds to NYRA, there is a provision
in the settlement agreement that contemplates Old NYRA
potentially transferring funds to NYRA pursuant to Old NYRA's
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More specifically, there is no evidence that the state had any
role in the $5 million transfer, that it had any expectations as
to that transfer or that the transferred funds were in any way
earmarked for NYRA's use for capital works projects. Therefore
there is no basis to conclude that the funds retained any public
characteristic (see generally Matter of New York Charter School
Assn., Inc. v DiNapoli, 13 NY3d 120, 133 [2009]).

Moreover, even if we assumed that the funds could retain a
public characteristic after being transferred from Old NYRA to
NYRA absent any obligation on NYRA's part as to the use of the
funds, it is not a reasonable inference that the funds that NYRA
used for the project can be traced back to a public source, here
the $105 million the state transferred to Old NYRA. In 2008, the
year that NYRA received the $5 million transfer from Old NYRA,
NYRA expended $78,173,000 when including statutory commissions,
and it generated $65,110,000 in racing-related revenue. At the
end of that year, NYRA had $21,000,000 in cash or cash
equivalent. During 2009, the year in which the project was
commenced and completed, NYRA expended $276,179,000 when
including statutory commissions and earned approximately
$267,265,000 in racing-related revenues.4 Considering the
foregoing, the inference that the approximately $1.6 million in
funds that NYRA paid Schultz Construction for the project over
the course of July 2009 to February 2010 were derived from the
funds that the state transferred to Old NYRA in 2008 is not

obligations to sell certain specified ancillary properties.
However, that provision mandates that any such transferred funds
would be used by NYRA for certain enumerated purposes, one of
which was "operating expenses." A capital works project was not
an enumerated purpose for which such funds were permitted to be
used.
4
Thus, NYRA's racing-related revenue in 2008 was
approximately 13 times greater than the funds transferred from
Old NYRA, and NYRA's racing-related revenue in 2009 was
approximately 53 times greater than the funds transferred from
Old NYRA.
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reasonable. As the use of public funds for a project is a
prerequisite to the finding that a contract relates to a public
work subject to prevailing wage obligations (see De La Cruz v
Caddell Dry Dock & Repair Co., Inc., 21 NY3d at 538),
respondent's determination must be annulled. Given this
conclusion, petitioners' remaining contentions as to additional
reasons that the determination should be annulled are academic.

Garry, Lynch, Devine and Mulvey, JJ., concur.

ADJUDGED that the determination is annulled, without costs,
and petitions granted.

ENTER:

Robert D. Mayberger
Clerk of the Court