Opinion
650236/2017
10-29-2019
IKON BUSINESS GROUP, INC., Plaintiff, v. POLICE ATHLETIC LEAGUE, INC., Defendant/Third-Party Plaintiff. Police Athletic League, Inc., Defendant/Third-Party Plaintiff, Universal Service Administrative Co., Third-Party Defendant. Police Athletic League, Inc., Defendant/Third-Party Plaintiff, v. Universal Service Administrative Co., Third-Party Defendant.
Plaintiff: Ikon Business Group, Inc., Borg Law LLP, 370 Lexington Avenue, Suite 800, New York, NY 10017, By: Jonathan M. Borg, Esq. Defendant/Third-Party Plaintiff: Police Athletic League, Inc., Anderson Kill & Olick, P.C., 1251 Avenue of the Americas, 42nd Floor, New York, NY 10020, By: Elliot James Coz Esq., Jeffrey Elias Glen Esq. Third-Party Defendant: Universal Service Administrative Co., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111, By: Jennifer R. Budoff
Plaintiff: Ikon Business Group, Inc., Borg Law LLP, 370 Lexington Avenue, Suite 800, New York, NY 10017, By: Jonathan M. Borg, Esq.
Defendant/Third-Party Plaintiff: Police Athletic League, Inc., Anderson Kill & Olick, P.C., 1251 Avenue of the Americas, 42nd Floor, New York, NY 10020, By: Elliot James Coz Esq., Jeffrey Elias Glen Esq.
Third-Party Defendant: Universal Service Administrative Co., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111, By: Jennifer R. Budoff
Robert R. Reed, J.
Plaintiff Ikon Business Group, Inc. (IKON) commenced this breach of contract action to recover the sum of $176,015.50 for goods and services provided to defendant/third-party plaintiff, Police Athletic League, Inc. (PAL). PAL filed a third-party complaint against Universal Service Administrative Co. (USAC) seeking a court order enjoining USAC from 1) withdrawing previously approved funding from PAL; and 2) attempting to recover funds previously paid to PAL. USAC now moves, pursuant to CPLR 3211 (a) (2) (7) & (8), for an order dismissing the third-party complaint.
BACKGROUND
PAL is a not-for-profit organization that operates, among other things, diverse programs to promote children's development, such as Head Start, day care, Universal Pre-K programs, teen centers, and college readiness programs in the five burroughs of New York City. The Federal Communications Commission (FCC) has established rules to enhance and ensure the goal of the federal government in granting schools and libraries affordable access to modern communication systems where broadband and connectivity needs are critical. In furtherance of this goal, the FCC established the "E-rate Program," which provides eligible schools and libraries with discounts on certain telecommunications equipment and services, such as affordable internet (see 47 C.F.R. §§ 54.500 - 523 ). In compliance with the Telecommunications Act of 1996, the FCC established the Universal Service Fund (the Fund), a system of telecommunication subsidies and fees managed by the FCC (see , 47 C.F.R. § 54.706 ). E-rate Program funds are distributed from the Fund. The FCC appointed USAC, an independent corporation, as the designated administrator of the E-rate Program to manage the contribution of interstate revenue to, and distribution of, funding from the Fund.
Recognizing a need to upgrade its telecommunications systems, PAL solicited bids for the project. To support this effort, PAL applied to USAC for an E-rate Program grant to upgrade its telephone systems. PAL was approved for a grant up to $433,000.00, of which the Fund would pay $389,700.00. Pursuant to the grant, PAL was responsible for paying the USAC-approved provider ten percent ($43,300.00) of the cost of the project.
PAL alleges it received three bids and selected the lowest-cost service provider, Rate-Tech Services, LLC (Rate-Tech). Rate-Tech was authorized by USAC to supply and install the equipment for PAL. PAL argues that Rate-Tech's commencement of the upgrades was severely delayed due to circumstances outside of PAL's control. As a result, PAL ultimately deemed Rate-Tech unable to fulfill its obligations. Thereafter, USAC approved the substitution of IKON, an information technology firm, in place of Rate-Tech, as the supplier and installer of the equipment. IKON then purchased the phone system, installed the equipment at multiple PAL facilities and submitted invoices directly to USAC for reimbursement.
IKON argues that PAL's obligation to pay for the services and products was not contingent upon PAL's receipt of any grants and/or other funding. PAL disputes this allegation and claims the IKON contract was, in fact, conditioned on the payment by USAC of the grant funds. PAL alleges that the payment arrangements with USAC provided that PAL was responsible for paying IKON 10% and that IKON would submit bills for the outstanding balance directly to USAC.
Despite USAC's issuance of a funding commitment in the sum of approximately $389,700.00, USAC only provided PAL with $56,700.00 in actual funding. Subsequently, on May 15, 2017, USAC issued PAL a notification of commitment adjustment letter, which retroactively rescinded the funding authorization and demanded repayment of the $56,700.00. PAL asserts that USAC cancelled the grant because PAL allegedly failed to select the most cost effective service or equipment offering.
On July 11, 2017, PAL appealed to USAC regarding the rescission letter, arguing the decision of USAC to rescind the grant was arbitrary, capricious, contrary to law and irrational. On July 26, 2017, PAL's appeal was denied by USAC. On August 8, 2017, PAL filed a discretionary administrative appeal with the FCC. To date, no decision has been rendered by the Wireline Competition Bureau (WCB). PAL argues that, based upon WCB's failure to either render a decision within ninety days or extend the period of time to take action, any requirement that PAL exhaust its administrative remedies is inapplicable. Moreover, PAL argues, this court has jurisdiction over the within action because no final order has been issued by the WCB or FCC.
IKON claims it provided PAL with the agreed-upon services and products for the sum of price of $280,700.00, and that it sent PAL invoices which reflected PAL's partial payment in the sum of $42,684.50. IKON further claims that PAL failed to pay the outstanding balance of $176,015.50, despite IKON having demanded the same. When PAL did not receive the funding from USAC, however, it maintains, the contract became impossible to perform. As a consequence, in PAL's view, it has no obligation to pay IKON under the contract.
IKON commenced the instant lawsuit on January 13, 2017, asserting four causes of action for breach of contract, quantum meruit/quantum valebant, unjust enrichment, and account stated. PAL defaulted in answering, and, on March 23, 2017, IKON obtained a default judgment in the amount of $176,015.50 on its account stated cause of action. As a result of a levy placed on PAL's bank account, IKON received the sum of $140,896.03. The default judgment was later vacated and IKON was directed to return the funds to PAL. On June 18, 2018, PAL served and filed an answer. PAL amended its answer and filed a third-party complaint against USAC seeking a court order enjoining USAC from 1) withdrawing previously approved funding; and 2) attempting to recover funds previously paid to PAL.
USAC moves, pursuant to CPLR 3211 (a) (2) (7) & (8), for an order dismissing the third-party complaint. The motion is decided as follows.
DISCUSSION
On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction ( CPLR 3026 ). The court must "accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Leon v. Martinez , 84 NY2d 83, 87—88 [1994] ).
While USAC presents alternative arguments in support of its motion to dismiss, the court finds the matter of exhaustion of administrative remedies and subject matter jurisdiction to be dispositive, and therefore, only these issues will be addressed.
New York's Supreme Court is a court of general jurisdiction, and it is competent to entertain all causes of actions unless its jurisdiction has been specifically proscribed (N.Y.Const., art. VI; Thrasher v. U. S. Liab. Ins. Co. , 19 NY2d 159, 166 [1967] ). A party may move for an order dismissing all causes of action where the court lacks subject matter jurisdiction ( CPLR 3211[a] [2] ).
In the case at bar, USAC argues that its administration of the E-rate Program falls under the guidance of the FCC and involves issues of federal law subject to the Administrative Procedure Act. To begin with, 47 C.F.R. § 54.719, entitled "Parties permitted to seek review of Administrator decision," reads as follows:
(a)Any party aggrieved by an action taken by the Administrator, as defined in § 54.701, § 54.703, or § 54.705, must first seek review from the Administrator.
(b)Any party aggrieved by an action taken by the Administrator, after seeking review from the Administrator, may then seek review from the Federal Communications Commission, as set forth in § 54.722.
(c)Parties seeking waivers of the Commission's rules shall seek relief directly from the Commission.
Additionally, 47 C.F.R. § 54.722, entitled "Review by the Wireline Competition Bureau or the Commission," states as follows:
(a)Requests for review of Administrator decisions that are submitted to the Federal Communications Commission shall be considered and acted upon by the Wireline Competition Bureau; provided, however, that requests for review that raise novel questions of fact, law or policy shall be considered by the full Commission.
(b)An affected party may seek review of a decision issued under delegated authority by the Common Carrier Bureau pursuant to the rules set forth in part 1 of this chapter.
Finally, 47 C.F.R § 54.724, entitled "Time periods for Commission approval of Administrator decisions," provides as follows:
(a)The Wireline Competition Bureau shall, within ninety (90) days, take action in response to a request for review of an Administrator decision that is properly before it. The Wireline Competition Bureau may extend the time period for taking action on a request for review of an Administrator decision for a period of up to ninety days. The Commission may also, at any time, extend the time period for taking action of a request for review of an Administrator decision pending before the Wireline Competition Bureau.
(b)The Commission shall issue a written decision in response to a request for review of an Administrator decision that involves novel questions of fact, law, or policy within ninety (90) days. The Commission may extend the time period for taking action on the request for review of an Administrator decision. The Wireline Competition Bureau also may extend action on a request for review of an Administrator decision for a period of up to ninety days.
It is undisputed that PAL has filed an administrative appeal of the USAC's actions. PAL contends the exhaustion requirement should be excused because the WCB and the FCC have failed to comply with 47 C.F.R. § 54.724 by not timely deciding the appeal. Specifically, PAL contends that the administrative agencies' failure to act has left them with no adequate remedy.
New York law mandates that a litigant who seeks to challenge a determination of an administrative agency must exhaust all possibilities of obtaining relief through administrative channels before appealing to the courts ( CPLR 7801 [1] ; Watergate II Apts. v. Buffalo Sewer Auth. , 46 NY2d 52 [1978] ; Young Men's Christian Assn. v. Rochester Pure Waters Dist. , 37 NY2d 371 [1975] ). The doctrine of administrative exhaustion ensures that the agency with the most expertise in a particular field is accorded proper deference ( Davis v. Waterside Hous. Co. 274 AD2d 318 [1st Dept. 2000] ). The administrative exhaustion doctrine, of course, applies in the federal administrative context as well. Indeed, the Supreme Court of the United States described the purposes of the exhaustion requirement thusly:
The doctrine of exhaustion of administrative remedies is well established in the jurisprudence of administrative law. The doctrine provides that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted. Exhaustion of administrative remedies serves two main purposes. First, exhaustion protects administrative agency authority. Exhaustion gives an agency an opportunity to correct its own mistakes with respect to the programs it administers before it is haled into federal court, and it discourages disregard of the agency's procedures. Second, exhaustion promotes efficiency. Claims generally can be resolved much more quickly and economically in proceedings before an agency than in litigation in federal court. In some cases, claims are settled at the administrative level, and in others, the proceedings before the agency convince the losing party not to pursue the matter in federal court. And even where a controversy survives administrative review, exhaustion of the administrative procedure may produce a useful record for subsequent judicial consideration.
( Woodford v. Ngo , 548 US 81, 88-89 [2006] [internal citations and quotation marks omitted] ).
PAL has not alleged here that it sought a waiver of the FCC's rules to seek judicial review despite the lack of a final decision on appeal under 47 C.F.R. § 54.719 (c). Thus, administrative remedies were not exhausted at the time this proceeding was commenced, and dismissal of the third party complaint is required ( Matter of Parent Teacher Assn. of P.S. 124M v. Board of Educ. of City School Dist. Of City of NY , 138 AD2d 108 [1st Dept 1998] ).
Furthermore, once the FCC does issue a final order, it is undeniable that the United States Court of Appeals will have exclusive jurisdiction to review such determination ( FCC v. ITT World Commc'ns, Inc. , 466 U.S. 463, 468 [1984] ) ("Exclusive jurisdiction for review of final FCC orders, such as the FCC's denial of respondents' rulemaking petition, lies in the U.S. Court of Appeals."). Therefore, this court, even assuming administrative exhaustion, ultimately, lacks subject matter jurisdiction to adjudicate third-party plaintiff's claim.
Accordingly, that branch of USAC's motion for an order dismissing PAL's third-party complaint for lack of subject matter jurisdiction is granted and the remaining branches of USAC's motion to dismiss on personal jurisdiction grounds and the failure to state a cause of action are rendered academic.
CONCLUSION AND ORDER
For the foregoing reasons, it is hereby
ORDERED that the part of third-party defendant USAC's motion, pursuant to CPLR 3211 (a) (2), for an order dismissing PAL's third-party complaint for lack of subject matter jurisdiction granted; and it is further
ORDERED that the part of third-party defendant USAC's motion, pursuant to CPLR 3211 (a) (8), for an order dismissing PAL's third-party complaint for lack of personal jurisdiction is rendered academic and hereby denied; and it is further
ORDERED that the part of third-party defendant USAC's motion, pursuant to CPLR 3211 (a) (7), for an order dismissing PAL's third-party complaint for failure to state a cause of action is rendered academic and hereby denied; and it is further
ORDERED that PAL's third-party complaint is dismissed, and the Clerk is respectfully directed to mark his files accordingly; and it is further
ORDERED that counsel for plaintiff and defendant shall appear for a preliminary conference in Part 43, Room 412, at 60 Centre Street, New York, New York on Thursday, December 5, 2019 at 9:30 a.m.
The foregoing constitutes the Decision and Order of the Court.