Supreme Court, Kings County, December 10, 2021

Leonard W. Stewart, Brooklyn, for petitioner.

Georgia M. Pestana, Corporation Counsel, New York City, for respondent.

This CPLR article 78 proceeding raises the issue of whether the New York City Department of Education can be estopped from rescinding a qualified offer to renew a contract to petitioner Modern Organization & Human Development Center (petitioner, Edwards or MOHDC) to operate a universal pre[*2]kindergarten center (UPK).

Petitioner had a contract with the New York City Department of Education (DOE) to provide UPK services at 4718 Farragut Road, in Brooklyn. The original contract term ran from July 1, 2015, to June 30, 2018, with the possibility of renewal for up to two years until June 30, 2020. Article 1 (b) of the contract provided: "The Board, at its sole option, may extend the Term of this Agreement for up to a total of two (2) individual years. Such Term extension shall, at the Board's sole option, either be for two (2) one-year periods or one (1) period of two (2) years." The DOE extended the Farragut contract for another two-year term from July 1, 2018, through June 30, 2020.

By letter dated February 4, 2020, the DOE informed Edwards that his contract would expire on June 30, 2020, and that the DOE may, at its "sole option," extend the contract for an additional year. However, due to concerns found in a review by the Department of Health and Mental Hygiene (DOHMH){**74 Misc 3d at 292} of the site's "health and safety violations," the DOE would not make a final decision on contract extension until the spring of 2020. If the Division of Early Childhood Education (DECE) found that his program was "meeting programmatic and operational expectations at that time" it would offer a contract extension for the 2020-2021 school year, and MOHDC could recruit and preregister students in spring 2020 after the intent to extend was signed. This statement was reiterated in a follow-up email of that same date.

By email dated April 29, 2020, Christopher Minott, Contract Specialist for Early Childhood Procurement for the DOE, informed Edwards that as per the attached letter his contract for Pre-K would expire and that the letter was "notifying [him] of [his] contract extension" and that his program would be added to "My School" and would be available for families in mid-May. The email noted that a response was needed by May 5th in order for him to continue his services in the 2021 school year. By email of the same date, Edwards thanked Minott for the contract renewal and advised him that he intended to extend his contract for the 2021 school year.

In the accompanying letter dated April 29, 2020, which referred solely to the contract for services at "SITE ID: KBGP," Ibrahim Rehawi of the DOE's Division of Contracts and Purchasing notified petitioner that DOE was extending its contract for an additional period of up to one year. The letter further stated that such an extension is granted to "vendors who are currently meeting key instructional and operational quality expectations." The second paragraph requested that Edwards sign and notarize that he agrees to continue providing services in accordance with the same terms and conditions of the current contract, and that said notarized document must be received by May 5th or his current contract would expire on June 30, 2020. However, the fourth paragraph of the letter contained a contingency clause: "Please note that this extension is contingent upon the satisfactory completion of the following: health and safety check; background check; availability of funding; and any other required approvals."

By email dated June 3, 2020, the DOE Pre-K Operations Analyst, Flora B. Ernest, requested that Edwards complete and submit a budget for his Pre-K program by June 10th. On June 11, petitioner submitted his 2020-2021 Pre-K budget. Yet, by letter dated June 5, 2020, the DOE, through Mr. Rehawi, reiterated to petitioner that the contract extension was{**74 Misc 3d at 293} contingent upon the satisfactory completion of the four factors, that the DOE had sole discretion regarding extensions, and that "based upon the review of all relevant factors, the DOE is declining to [*3]exercise its sole right to extend your contract."

Then, by email dated June 5, 2020, Audrey Brown, Instructional Coordinator of DECE, thanked petitioner for his team's "flexibility, passion and commitment to serve our children and families" and said that she looked forward to speaking with him on June 8th to discuss school year 2020-2021. By email dated June 9, 2020, Flora Ernest of DOE wrote to "Chris" (the last name is unknown) of DOE that she was "very concerned and troubled about the recent occurrences regarding Mr. Edwards' program" and was "mystified as to why they took this action against Mr. Edwards' program." She also wrote that petitioner's program is one of the best equipped and better run programs in District 18, and inquired as to why Enrollment called Edwards to inquire whether he had adequate/sufficient space in his schools to accommodate more students.

By letter dated June 10, 2020, Edwards requested that Rehawi confirm the basis for the decision to rescind the contract extension since the June 5th letter did not clearly articulate a reason for the same. Edwards contended that the contract was extended to him by letter dated April 29th, which stated that "this extension is offered to vendors who are currently meeting key instructional and operational quality expectations," that he immediately complied with all the necessary follow-up documentation and that he was "shocked" to receive the June 5th letter rescinding the contract extension. He also asked whether this was a final determination or whether there was an administrative appeal in place. Having received no response, petitioner filed the instant article 78 proceeding claiming that respondent had failed to follow its own Procurement Policy and Procedures which provided for an appeal or dispute resolution process to address contract concerns.

This court refused to issue a temporary restraining order enjoining the Board from enforcing its rescission of the contract and directing that petitioner be permitted to operate its Pre-K during the 2020-2021 school year. Rather, by decision dated September 3, 2020, this court ordered that the parties immediately initiate the administrative review process contained in section 4-10, "Resolution of Disputes Arising Out Of Contract Administration," of the DOE Procurement Policy and Procedures as it related to the Farragut Center UPK contract. The court further directed that after the administrative review, the{**74 Misc 3d at 294}

"DOE must set forth the reasons and basis for its alleged rescission on June 5, 2020 of its previous decision, by letter dated 4/29/2020, to renew the Farragut Center UPK contract for the 2020/2021 school year and indicate whether any violations occurred in the 2019/2020 school year which caused the rescission."

By letter dated September 16, 2020, David E. James, Dispute Resolution Officer of the DOE's Division of Contracts and Purchasing, first noted that the DOE's April 29th letter indicating its intent to renew the contract was "contingent upon their satisfactory completion of specific conditions including health and safety check; background check; availability of funding; and any other required approvals." James then summarized the dispute letter submitted by petitioner—that the April 29th notice of intent letter was written by the DOE after it "apparently [found] that the program met the programmatic and operational quality expectations." Furthermore, the dispute letter stated that the DOE had admitted that in issuing the notice of intent letter that it had taken into account MOHDC's performance under its contracts in conformance with Education Law § 3602-ee (9). Finally, the dispute letter asserted that petitioner had "fully and adequately performed under the contract" and thus merited an [*4]extension of the contract.

James first found that "DOE made evident" in its April 29th letter that "there were conditions precedent to the extension," and that until said conditions were met or excused, DOE would be under no duty to extend the contract. By letter dated June 5, 2020, DOE notified MOHDC that it was not going to "exercise [its] sole option to extend the Contract." James pointed to article 1 (b) of the contract which provided that "[t]he Board, at its sole option, may extend the Term of this Agreement for up to a total of two (2) individual years," and that such extension of either one or two years was solely within the Board's discretion.

James then addressed the second item in the dispute letter—that a reasonable basis for rescission could not be based upon a history of violations. James refuted this contention by pointing to Education Law § 3602-ee (9) which requires that during the contract process, the DOE "shall take into account any record of violations of health and safety codes and/or{**74 Misc 3d at 295} licensure or registration requirements." Therefore, the Education Law did not restrict DOE to only take into account new records of violations in deciding whether to extend a contract.

James then contradicted MOHDC's assertion that it has operated the Farragut Center "satisfactorily" since 2017 and has not had any other findings of non-responsibility. He found that the

"MOHDC incurred six health code violations across four Department of Mental Health and Hygiene ('DOHMH') inspections . . . since July 1, 2018, with the two most recent violations occurring during the 2019-2020 school year. . . . The safety violation issues included, but were not limited to, lack of qualified trained staff, failure to maintain adequate supervision of students, and the program exceeding classroom limits."

In addition, DOE declared the MOHDC non-responsible in a letter dated December 3, 2019, for failure to correct violations in another site.^[FN1]

The court independently accessed the violations issued to the Farragut Road site on the web.^[FN2] The "latest inspection results" state that as a result of an initial annual inspection dated May 20, 2021, the DOE found that a "critical; violation" existed requiring correction within two weeks and a reinspection—exits and other egress areas not provided with required signage in violation of New York City Health Code (24 RCNY) § 47.59 (a). The violation was subsequently corrected. The Performance Summary stated that over the past three years this program had 100% of annual inspections with violations in contrast with a citywide average of 24%. By inspection dated January 28, 2020, the DOE found the following "minor" violation—"Staff failed to obtain proof of immunization . . . required staff immunizations were not submitted to child care service"; the violation was corrected.

By inspection dated October 2, 2019, the DOE found the following minor violation: "Child care service staff identified/acting as group teachers do not meet the required qualifications of the position." By inspection dated August 6, 2019, the {**74 Misc 3d at 296}DOB noted that all [*5]violations had been corrected. During the Initial Annual Inspection dated April 2, 2019, the DOE found two Public Health Hazards violations requiring immediate correction and one critical violation requiring correction within two weeks. The two Public Health Hazards violations were "[c]onstant and competent supervision provided by adequate staff for children," and "[t]eacher to child ratios maintained in Group Child Care program." The critical violation was that child care service failed to maintain a minimum of 30 square feet per person. Reinspection was required and fines were pending. The inspection dated December 20, 2018, denoted "Reinspection Required; Fines Pending," based on the DOE's finding of a critical violation requiring correction within two weeks—"Qualified Group Teacher Not designated to cover for Education Director. Permittee failed to Notify Department of separation from service." This violation was also subsequently corrected.

In response to other matters raised in the dispute letter, James wrote that communications sent to MOHDC regarding its requests for proposals contained "numerous express conditions precedent to the award of a contract." He found the dispute letter's "strongest indictment of DOE's rescission decision"—the uncontroverted email of Operations Analyst Flora Ernest, who oversaw the Farragut Road UPK program and who wrote that DOE's "decision to rescind the extension letter was a mistake"—to be "neither persuasive nor relevant to the matter at hand." Flora's email neither addressed or rectified DOHMH violations.

In sum, Education Law § 3602-ee (9) required DOE to "take into account any record" of violations of health and safety codes and/or licensure or registration requirements in the contract process (emphasis added). MOHDC had accrued "numerous DOHMH violations over the years" and six violations at the subject site after the last extension. Despite being given ample opportunity to address said violations, Edwards failed to do so. The DOE individuals (Ernest and McKay) who praised MOHDC had no authority to make an award or vendor responsibility determination. Based upon the above, James found that DOE demonstrated it had a rational basis not to extend MOHDC's contract. Finally, article 1 (b) of the contract granted DOE sole discretion re: extensions and hence the contractual right to not extend the contract per its June 5th letter.{**74 Misc 3d at 297}

Petitioner claims that the April 29 letter constituted a binding promise to extend the terms of its existing contract to provide UPK services for the 2020-2021 year, that it detrimentally relied upon the letter in expending money to prepare for that school year, and that the DOE's decision was arbitrary and capricious. Petitioner sought an order reversing the DOE's June 5, 2020 "rescission" decision and directing that the contract be extended to the 2020-2021 school year. It also argued that it had corrected all existing violations at the time its request for renewal was being considered, and that the DOE was barred from considering any past violations which it had corrected and resulted in the DOE extending its contract for two years from 2018-2019.

In reviewing DOE's determination, the court must ascertain whether it was "arbitrary and capricious," and made "without sound basis in reason or regard to the facts." (Matter of Murphy v New York State Div. of Hous. & Community Renewal, 21 NY3d 649, 652 [2013]; Matter of King-Rubie v Wambua, 141 AD3d 589, 589-590 [2d Dept 2016].) The standard of judicial review in an article 78 proceeding is "whether the determination was made in violation of lawful procedure, [*6]was affected by an error of law, or was arbitrary and capricious or an abuse of discretion." (Matter of Wilson v New York City Dept. of Hous. Preserv. & Dev., 145 AD3d 905, 907 [2d Dept 2016].) Courts must "examine whether the action taken by the agency has a rational basis, and will overturn that action only where it is taken without sound basis in reason or regard to the facts." (Matter of JP & Assoc. Corp. v New York State Div. of Hous. & Community Renewal, 122 AD3d 739, 739 [2d Dept 2014] [internal quotation marks omitted].)

"[A]n administrative agency's construction and interpretation of its own regulations and of the statute under which it functions is entitled to the greatest weight." (Matter of Tommy & Tina, Inc. v Department of Consumer Affairs of City of N.Y., 95 AD2d 724, 724 [1st Dept 1983].) Its interpretation of the regulations it administers is "entitled to deference, and must be upheld if reasonable." (Matter of Wilson, 145 AD3d at 907; Matter of AAC Auto Serv. v New York State Dept. of Motor Vehs., 2016 NY Slip Op 30238[U], *3-4 [Sup Ct, Bronx County 2016].) The courts should defer to the agency "[a]bsent an arbitrary and capricious regulation or interpretation of said regulations." (Matter of Tommy & Tina, Inc. v Department of Consumer Affairs {**74 Misc 3d at 298}of City of N.Y., 95 AD2d at 724; see Lamar Adv. of Penn, LLC v City of New York, 2020 NY Slip Op 34064[U] [Sup Ct, NY County 2020].) A court can only ask whether the determination is rational and not an abuse of discretion, or a violation of the agency's legal duty. (Matter of Hilbertz v City of New York, 64 Misc 3d 697, 727 [Sup Ct, Kings County 2019].)

Where an initial decision by an agency official is reviewed by an administrative appeal unit within the agency, its interpretation of the regulations under which the agency operates will be upheld by the courts, "so long as the interpretation is neither irrational, unreasonable nor inconsistent with the governing statute." (Matter of Peyton v New York City Bd. of Stds. & Appeals, 36 NY3d 271, 280 [2020]; Matter of Toys "R" Us v Silva, 89 NY2d 411, 418-419 [1996] [The BSA, comprised of five experts in land use and planning, is the ultimate administrative authority charged with enforcing the Zoning Resolution (see NY City Charter §§ 659, 666)].) Its interpretation of the statute's terms must be "given great weight and judicial deference." (Matter of Toys "R" Us v Silva, 89 NY2d at 418; see Matter of Kreslein v Perales, 204 AD2d 942, 943 [3d Dept 1994].)

An agency's determination is deemed arbitrary and capricious if it has evaluated the facts using a standard that deviates from that which is expressly set forth in the statutes and regulations, as such a deviation betrays a lack of "sound basis in reason" for the determination. (James v Been, 55 Misc 3d 631, 633 [Sup Ct, Kings County 2017]; see Matter of ACME Bus Corp. v Orange County, 28 NY3d 417, 425 [2016] [award of city contract under General Municipal Law § 104-b is arbitrary and capricious if municipality evaluates a proposal using a standard which deviates from a standard expressly set forth in the request for proposal].) A court may overturn an administrative action where it is "taken without sound basis in reason" or "regard to the facts." (Matter of Hilbertz, 64 Misc 3d at 727, citing Matter of Wooley v New York State Dept. of Correctional Servs., 15 NY3d 275, 280 [2010].) However, where the petitioner has not shown that the municipal agency in any way deviated from the standards set forth in the statutes and regulations, its determination may not be deemed "arbitrary and capricious." (James, 55 Misc 3d at 635.)

Pursuant to Education Law § 3602-ee (7), UPK contracts shall only be awarded to programs that comply with the rules and requirements as set forth in Education Law § 3602-e. Under the UPK law, as set forth in Education Law § 3602-ee {**74 Misc 3d at 299}(2), all Pre-K providers must demonstrate quality on eight factors: (a) curriculum; (b) learning environment, materials and [*7]supplies; (c) family engagement; (d) staffing patterns; (e) teacher education and experience; (f) facility quality; (g) physical well-being, health and nutrition; and (h) partnerships with nonprofit, community and educational institutions. (Matter of DeVera v Elia, 32 NY3d 423, 429 [2018].) Pursuant to Education Law § 3602-ee (9), the renewal process for UPK contracts must take into account "any record of violations of health and safety codes and/or licensure or registration requirements." When used in a statute, the word "any" means "all" or "every" and "imports no limitation." (People v Silburn, 31 NY3d 144, 155 [2018]; Kimmel v State of New York, 29 NY3d 386, 393 [2017].) Accordingly, the DOE was authorized to consider past violations, with no time limitation, in determining whether to renew a UPK contract.

In deciding not to renew the UPK contract in the instant matter, the DOE adhered to its statutory duty, set forth in Education Law § 3602-ee (9), to take into account "any record of violations of health and safety codes and/or licensure or registration requirements." The DOE's dispute resolution letter of September 16, 2020, explained that "MOHDC incurred six health code violations across four Department of Mental Health and Hygiene ('DOHMH') inspections at its Farragut road location since July 1, 2018, with the two most recent violations occurring during the 2019-2020 school year." In addition, said letter explained that petitioner had a history of safety violations, including "lack of qualified trained staff, failure to maintain adequate supervision of students, and the program exceeding classroom limits." The DOE's adherence to Education Law § 3602-ee (9) was ipso facto reasonable.

The court acknowledges that different divisions of the DOE sent out conflicting messages to petitioner on April 29th since the email appeared to unequivocally extend the contract and led Edwards to accept the offer, whereas the April 29, 2020 letter contained a contingency clause. However, even the email referred to the accompanying letter, thus putting Edwards on notice that the renewal of his contract for the 2021 school year was subject to the following condition contained in paragraph four: "Please note that this extension is contingent upon the satisfactory completion of the following: health and safety check; background check; availability of funding; and any other required approvals." As such, petitioner's claim that the April {**74 Misc 3d at 300}29th letter constituted a binding extension contract to provide UPK services for the 2020-2021 year is without merit because a conditional commitment does not create a binding contract where the conditions are not satisfied. (Munson v Germerican Assoc., 224 AD2d 670, 671 [2d Dept 1996]; see also Lindenbaum v Royco Prop. Corp., 165 AD2d 254, 258 [1st Dept 1991] [a "conditional commitment" is an "oxymoron to the extent that the failure of the condition renders the obligation voidable and, therefore, nonbinding"].)

To the extent that petitioner argues that it detrimentally relied on the April 29 letter as a commitment to renew, such reliance was unreasonable since the letter specifically set forth the conditions for renewal which petitioner did not satisfy, namely, health and safety checks, of which petitioner had knowledge. Furthermore, petitioner's claim that the principle of promissory estoppel bars the DOE from discontinuing the contract is without merit because the elements of a cause of action based upon promissory estoppel are not satisfied, i.e., a clear and unambiguous promise and reasonable and foreseeable reliance by the party to whom the promise is made. (Zuley v Elizabeth Wende Breast Care, LLC, 126 AD3d 1460, 1461 [4th Dept 2015]; AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 20-21 [2d Dept 2008].)

Petitioner alternatively argues that respondent should be equitably estopped from refusing [*8]to renew the contract because petitioner's decision to spend money on preparing for the upcoming school year was based upon the misleading information contained in the April 29 letter. However, the doctrine of equitable estoppel generally can only be invoked against a governmental agency in the "rarest of cases." (Matter of New York State Med. Transporters Assn. v Perales, 77 NY2d 126, 130 [1990]; Wilson v Neighborhood Restore Hous., 129 AD3d 948, 949 [2d Dept 2015].) "Exceptional circumstances" include "wrongful or negligent conduct" or "misleading nonfeasance," which "induces a party relying thereon to change his position to his detriment resulting in manifest injustice." (Laws Constr. Corp. v Town of Patterson, 135 AD3d 830, 831 [2d Dept 2016] [internal quotation marks omitted]; see also Matter of B & V Contr. Enters., Inc. [Commissioner of Labor], 148 AD3d 1479, 1482 [3d Dept 2017]; Matter of Regan v DiNapoli, 135 AD3d 1225, 1228 [3d Dept 2016] [showing of fraud, misrepresentation, deception, or similar affirmative misconduct, along with reasonable reliance thereon, gives rise to an exception].){**74 Misc 3d at 301}

It is well established that "erroneous advice by a governmental employee" or agency does not give rise to an exception against the general rule that equitable estoppel may not be invoked. (Wilson, 129 AD3d at 949; Matter of Village of Fleischmanns [Delaware Natl. Bank of Delhi], 77 AD3d 1146, 1148 [3d Dept 2010].) Even were the court to accept petitioner's argument that DOE assured him that his contract would be renewed, mistaken information transmitted by an agency to an applicant does not give rise to an exception, as it does not rise above the level of "erroneous advice." (Wilson, 129 AD3d at 949; see Barrett Japaning, Inc. v Bialobroda, 190 AD3d 544, 545 [1st Dept 2021] [an agency's adherence to its procedural rules that reconsideration applications must be filed by mail or hand delivery is rational, and the agency is not bound by any "administrative error" on the part of its staff in its acceptance of Barrett's noncompliant filings].) In Matter of Beck v Walker (286 AD2d 996, 996 [4th Dept 2001]), the Court rejected petitioner's argument that he was no longer a probationary employee, but rather a tenured employee at the time of his termination and that his termination therefore violated Civil Service Law § 75. The Department of Correctional Services letter of January 1997 informing petitioner that his probationary period expired in March was in error because it failed to comply with directive No. 2219, which required that the probationary period be extended one workday for every workday he missed, thus extending his probationary period to June. Although the Department of Correctional Services never informed petitioner of the extension of his probation, it was not bound by its erroneous calculation of probation because it was based upon an administrative error, and there was not evidence that it engaged in affirmative "misleading conduct" which would support a finding of equitable estoppel.

Here, any administrative mistake by DOE was much less prejudicial or serious to petitioner than the actions taken by the Department of Correctional Services in Beck, as the DOE immediately notified petitioner on the same day—April 29th—that the extension of his contract was contingent upon compliance with the rules and regulations. Petitioner was well aware that he had incurred violations between 2018-2020. Furthermore, as opposed to Beck, where the governmental agency never cured its mistake by writing a follow-up notice, here, the DOE explicitly informed Edwards by letter dated June 5, 2020, that the contract extension was contingent upon the satisfactory{**74 Misc 3d at 302} completion of the four factors, that the DOE had sole discretion regarding extensions, and that "based upon the review of all relevant factors, the DOE is declining to exercise its sole right to extend your contract."

Based upon the above, the DOE is not estopped from rescinding its qualified offer to [*9]renew petitioner's contract to MOHDC to operate a UPK. Hearing Officer James' determination, upon administrative review, that Education Law § 3602-ee (9) required DOE to "take into account any record" of violations of health and safety codes and/or licensure or registration requirements in the contract process (emphasis added), and that MOHDC had accrued "numerous DOHMH violations over the years" and six violations at the subject site after the last extension, was supported by the record. His determination that DOE demonstrated it had a rational basis not to extend MOHDC's contract was not arbitrary or capricious and is upheld by this court.