Gramercy Group, Inc

Gramercy Group, Inc. v. Dep’t of Housing Preservation & Development OATH Index No. 637/09, mem. dec. (Nov. 12, 2008)

Petitioner, appealing revocation of prequalified vendor status, failed to demonstrate that agency’s actions were arbitrary or capricious, where it was undisputed that petitioner contracted with consultant who was under criminal investigation. ______

NEW YORK CITY OFFICE OF ADMINISTRATIVE TRIALS AND HEARINGS

In the Matter of GRAMERCY GROUP, INC. Petitioner - against - DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT Respondent ______

MEMORANDUM DECISION JOHN B. SPOONER, Administrative Law Judge Petitioner, Gramercy Group, Inc. (“Gramercy”), appeals from a determination made by respondent, the Department of Housing Preservation and Development (“Department”), revoking its prequalified vendor status. The appeal is brought pursuant to section 324(b) of the New York City Charter, section 3-10(m)(5) of the rules of the Policy and Procurement Board (PPB), and section 2-01 of the Office of Administrative Trials and Hearings rules of practice. The Department revoked petitioner’s pre-qualified vendor status by letter dated May 14, 2008. On May 29, 2008, petitioner appealed the revocation to the Department’s Deputy Commissioner, who affirmed the revocation on July 29, 2008. For the reasons stated below, I find that petitioner has failed to meet its burden of demonstrating that the Department’s actions were arbitrary or capricious. Thus, the revocation is affirmed and the appeal is denied. 2

ANALYSIS The only issue on this appeal is whether the Department’s decision to revoke petitioner’s prequalified vendor status was “arbitrary and capricious.” 9 RCNY § 3-10(m)(5); 48 RCNY § 2- 06 (Lexis 2008); Norway Electric Corp. v. Dep’t of Housing Preservation & Development, OATH Index No. 203/06, mem. dec. (Nov. 28, 2005); Rod Knox Architect v. Dep’t of General Services, OATH Index No. 304/93, mem. dec. (Dec. 10, 1992). Petitioner has the burden of proving that the Department’s decision lacked a rational basis. Sullivan County Harness Racing Assoc., Inc. v. Glasser, 30 N.Y.2d 269, 277-78, 332 N.Y.S.2d 622, 627 (1972). Petitioner has not met that burden. It is undisputed that the Department revoked Gramercy’s prequalified vendor status after learning that Gramercy had engaged the services of Mitchell Alvo, a former executive and project manager of the John Galt Corporation (“Galt”). Galt was the demolition and asbestos subcontractor for the condemned Deutsche Bank building, where a fire occurred on August 18, 2007, killing two New York City firefighters. Following the fire, the Manhattan District Attorney initiated a criminal investigation targeting Galt’s conduct, alleging possible criminally negligent homicide. According to the petition, in December 2007, subsequent to the August 2007 fire, Alvo approached Gramercy regarding asbestos remediation consultation services that his company, Deconco Corporation (“Deconco”), could provide. Gramercy entered into the consulting agreement, whereby Deconco would estimate calculations and cost control pertaining to asbestos work on a number of Gramercy’s projects, based upon Alvo’s “considerable experience and tenure in the industry.” At the same time, Gramercy admits in the petition that it was aware when it entered into the contract that Alvo had worked for Galt during the Deutsche Bank building project and that there were media reports at the time alleging that Galt, along with the City of New York and the general contractor Bovis Lend Lease Corporation, was being investigated for the circumstances surrounding the August 2007 fire (Petition, ¶ III B; Reply in Further Support of Petition, ¶ II C). Gramercy maintains that it was not aware of any criminal investigation concerning Alvo personally, nor of any administrative agency advisory or caution relating to the hiring of Alvo. 3

On May 14, 2008, the Department revoked Gramercy’s prequalified vendor status because the Department learned that Gramercy had been employing Alvo up until shortly before the date of the letter (Pet. Ex. A; Resp. Ex. A). Making note of a continuing “widely publicized” criminal investigation by the Manhattan District Attorney’s Office of Alvo and Galt in regards to the Deutsche Bank building fire, the Department asserted that Gramercy “knew or should have known of this investigation when it retained Mr. Alvo as an Asbestos Supervisor subsequent to the fire.” As such, it is the Department’s position that “Gramercy’s retention of Mr. Alvo demonstrate[d] a lack of responsibility on the part of Gramercy.” Gramercy appealed the Department’s decision to its Deputy Commissioner, Kimberly Hardy, by letter dated May 29, 2008 (Pet. Ex. B; Resp. Ex. B). Gramercy explained in the letter that it had retained Alvo as an independent contractor, not as an asbestos supervisor, for the limited purpose of providing estimating and cost control services with respect to the preparation of bids for asbestos projects, and that he had no supervisory responsibilities. The consulting arrangement lasted fifteen weeks, from December 2007 through April 9, 2008, at which time Gramercy terminated the agreement after being notified by the City that Alvo was the target of a criminal investigation (Pet. Ex. D). Gramercy contended it had no knowledge of the criminal investigation prior to that time. The Deputy Commissioner denied the appeal, explaining: Regardless of his title and the length of employment, the mere fact that Gramercy would hire Mr. Alvo, a key principal of Galt, a company that is under criminal investigation, demonstrates a total lack of business responsibility by Gramercy. Nor does any alleged corrective action Gramercy may have taken alter such a finding (Pet. Ex. C; Resp. Ex. C).

The Procurement Policy Board rules provide that prequalified vendor status may be revoked on the basis of “changed circumstance, conditions, or status of the vendor or its staff, or additional information acquired by the agency, or further analysis of the information upon which the original prequalification determination was made where the new information or further analysis indicates that the vendor does not meet the established criteria for prequalification.” 9 RCNY § 3-10(l)(1). The issue raised in this case is whether, at the time Gramercy contracted with Alvo, it should have had reason to question his integrity based upon his role in the Deutsch Bank fire. The record here demonstrates that, immediately after the Deutsch Bank fire, Galt’s name became linked with the governmental investigation of mismanagement in a series of newspaper 4 articles. These articles present a disturbing account of Galt’s involvement in the fire and responsibility for the death of two New York City firefighters. The Occupational Safety and Health Administration issued Galt citations for 3 willful and 22 serious violations, including workers’ consumption of alcoholic beverages, smoking, use of exposed electrical wires, and failure to protect flammable materials. See William K. Rashbaum & Charles V. Bagli, Bank Contractors Accused of 44 Violations, N.Y. Times, Sec. B, p. 3 (Feb. 20, 2008). The articles further allege that Galt removed a “crucial section of standpipe” making the building’s sprinkler system inoperable, and that the Manhattan District Attorney, with the assistance of the Department of Investigation, had already launched an investigation of Galt “that could result in charges of criminally negligent homicide.” See William K. Rashbaum & Charles V. Bagli, Workers Cut Standpipe, Inquiry Finds, N.Y. Times, Sec. B, p. 1 (Sept. 27, 2007); Leonard Greene, Cursed – New Deutsche Disaster Hurts 2 More Bravest; Another Deutsche Nightmare, N.Y. Post, p. 1 (Aug. 24, 2007). At least two articles specifically tied Alvo to the Deutsche Bank building as a Galt executive and the site’s project manager, whose supervision may have been partly responsible for the fire. See Rashbaum & Bagli, Workers Cut Standpipe, Inquiry Finds, N.Y. Times (“Among the Galt supervisors who approved [removal of a crucial section of standpipe] was Mitchell Alvo, who was a project manager for the Galt company”); Murray Weiss & Leonard Greene, Inferno Eyed as Homicide – Contractors Could Be Charged – Standpipe Was Missing a Part, N.Y. Post, p. 5 (Aug. 21, 2007) (“Mitch Alvo, an executive with Galt, declined to comment.”). Thus, in addition to the ongoing criminal investigation involving Galt, the numerous safety violations and the evidence that Galt was responsible for dismantling the standpipe provided further evidence to suggest that Galt and also Alvo were at fault for the fire. It is notable that, while Gramercy insists that it had no reason to believe that these newspaper articles were reliable, it fails to identify any inaccuracies in the facts as reported in the articles. Gramercy’s efforts to marginalize the import of these public revelations about Galt and Alvo is unpersuasive. While admitting that it was aware of much of this information at the time it retained Alvo, Gramercy nonetheless argues that it had no legal duty to read these newspaper articles, and, if it had read them, it had no reason to rely upon them. In support, Gramercy cites several cases for the proposition that newspaper articles are hearsay. See, e.g., Smith v. Saget, 258 A.D.2d 641, 685 N.Y.S.2d 793 (2d Dep’t 1999); Young v. Fleary, 226 A.D.2d 454, 640 5

N.Y.S.2d 593 (2d Dep’t 1996); Borough Hall-Oxford Tobacco Corp. v. Central Office Alarm Co., 35 A.D.2d 523, 313 N.Y.S.2d 431 (2d Dep’t 1970). In fact, these cases provide no legal support for the proposition that Gramercy had no obligation to be cognizant of the publicity surrounding Galt’s inadequate supervision of the Deutsch Bank work site and the suspected involvement of Alvo. It may be true, as argued by Gramercy, that in many prior cases agencies have revoked prequalified vendor status where misconduct was committed by a principal or other high level employee of a vendor. See, e.g., DeFoe Corp. v. New York City Dep’t of Transportation, 87 N.Y.2d 754, 763, 642 N.Y.S.2d 588, 593 (1996). DeFoe, however, does not limit prequalified vendor status revocation to only situations where high level employees have committed wrongdoing and, perhaps more significantly, expressly notes that a criminal investigation may form the basis for a finding of non-responsibility. It may also be true that Gramercy’s limited consulting contract with Alvo created fewer risks for the Department than would employing Alvo as a worksite supervisor. See Sharinn & Lipshie v. New York City Health & Hospitals Corp., Index No. 119155/00, at 4 (Sup. Ct. N.Y. Co. May 21, 2001) (“acts of the employees of a company reflect on its integrity particularly where there is evidence of lax supervision of the employees”). The fact that the risks could have been higher, however, does not establish that Gramercy’s retention of Alvo showed sound judgment. To the contrary, Gramercy admits having knowledge of the critical reasons underlying the Department’s decision to revoke Gramercy’s prequalification: that Galt was under criminal investigation and that Alvo supervised the Deutsch Bank project for Galt. This admission serves as grounds enough upon which Gramercy’s prequalified vendor status may be revoked, since the companies or individuals a vendor associates itself with through consulting contracts reflect upon the integrity of the vendor. I have also considered Gramercy’s additional arguments and find them to be without merit. Gramercy’s assertion that the termination of its contract with Alvo immediately upon learning of the criminal investigation was a remedial action absolving it of any potential transgression fails to account for its poor judgment in retaining Alvo’s services in the first place. Nor has Gramercy presented authority that would have required the Department to put out a public bulletin informing those in the asbestos abatement community about the questionable 6 nature of Alvo’s involvement in the Deutsche Bank building project before it could revoke the prequalification status of a vendor contracting with Alvo. Finally, Gramercy’s argument that its prequalified vendor status cannot be revoked for contracting with Alvo because there has not yet been a determination that Alvo has committed a criminal act is expressly contradicted by case law. See Konski Engineers, P.C. v. Levitt, 69 A.D.2d 940, 415 N.Y.S.2d 509 (3d Dep’t 1979) (state comptroller’s refusal to approve contract with engineering corporation where corporation had already performed part of work at its own expense was not arbitrary or capricious because corporation was under grand jury investigation); DeFoe Corp., 87 N.Y.2d at 763, 642 N.Y.S.2d at 593. Accordingly, based upon the evidence presented, Gramercy has failed to meet its burden of proving the Department’s decision was arbitrary or capricious and the appeal is denied.

John B. Spooner Administrative Law Judge November 12, 2008

APPEARANCES:

GOLDBERG & CONNOLLY Attorneys for Petitioners BY: HENRY L. GOLDBERG, ESQ.

MICHAEL A. CARDOZO, ESQ. Attorney for Respondent BY: ELAINE WINDHOLZ, ESQ.