Generally, a direct contractual relationship – privity – is required between a plaintiff and a defendant in order to maintain a lawsuit for breach of contract. However, is a relationship in which one party deals directly with another and exercises control over the other sufficient to allege the functional equivalent of privity such that a breach of contract lawsuit could be maintained? A recent New York appellate court decision provided a resounding answer – No.
In the case of Tutor Perini Building Corp. v. Port Authority of New York and New Jersey, 191 A.D.3d 569, 143 N.Y.S.3d 12 (1st Dept. 2021), Tutor Perini (hereinafter “GC”) contracted with George Washington Bridge Bus Station Development Venture LLC (the “Developer”), the lessee of the George Washington Bridge Bus Station in Manhattan, to perform construction and renovation work. The Developer had previously contracted with The Port Authority of New York and New Jersey, as the Owner of the property (“Owner”). After not being paid for its work, the GC commenced a lawsuit directly against the Owner, alleging breach of contract and unjust enrichment. The GC based its breach of contract claim on the theory that the relationship between the GC and the Owner was the “functional equivalent” of privity based on the repeated interactions between the parties and the Owner’s “almost total control” over the project. The functional equivalent of privity doctrine is generally utilized to enable third-party beneficiaries to assert breach of contract claims directly against parties to a contract to which they are not signatories.
In the present case, the court rejected the attempt to apply the functional equivalent of privity doctrine because it found that the GC’s allegations of direct dealing and the exercise of some control were insufficient as the functional equivalent of privity doctrine (in the context of a breach of contract action) requires the plaintiff to be a third party beneficiary to the contract. The court further held that the application of the functional equivalent of privity doctrine, as applied by the GC, would essentially eliminate the need for privity to bring a breach of contract action. Additionally, it would lead to a significant increase in potential litigation and would unnecessarily complicate future commercial relationships.
In addition to the functional equivalent of privity doctrine argument, the GC also claimed that the Owner and the Developer were essentially a joint venture. However, the court quickly dismissed this argument stating that the GC failed to allege the requisite acts which manifest the intent by the Owner and the Developer to be associated as joint venturers. Further, the lease agreement between the Owner and the Developer explicitly stated that no such joint venture relationship was created. For these reasons, the court also dismissed the GC’s breach of contract claim.
While the court ultimately dismissed the breach of contract claim, it did maintain the GC’s unjust enrichment claim, which was plead in the alternative to the breach of contract claim. This claim stated that the Owner was enriched by the GC’s work at the project and thus the GC should be compensated for the value of work performed. As this claim does not require privity and is based on the court’s ability to provide equitable relief , it was allowed to proceed. The takeaway here should be that when commencing a lawsuit, one should include all potential theories of recovery – particularly where, as here, the right to assert a particular claim against another party is not certain.