In motion sequence 001, defendants Metropolitan Transportation Authority (the "MTA") and the New York City Transit (the "NYCTA") (collectively the "Public Authorities") bring this motion to dismiss plaintiff WageWorks, Inc.'s complaint for breach of contract against defendants on the following grounds: (a) plaintiff's failure, as a condition precedent to filing an action, to submit to the mandatory dispute resolution process set forth in the Vendor Agreement; and (b) in the alternative, plaintiff's failure to show the existence of any contract upon which plaintiff's claims can be based.

Plaintiff is an employee benefits administration corporation registered in Delaware with a principal place of business in California. On behalf of certain contracted-with third-party employers, WageWorks administers programs such as Flexible Spending Accounts, Health Reimbursement Arrangements, Health Saving Accounts, and Qualified Transportation Benefits. Each month, plaintiff purchases large quantities of MetroCards from defendants and delivers them to employees enrolled in its clients' Qualified Transportation Fringe Benefit programs.

MTA is a New York State public authority and public benefit corporation. NYCTA is a New York State public authority and public benefit corporation. According to defendants, the MTA through its subsidiaries and affiliates provide more than two billion trips each year to passengers, carry more than 300 million vehicles a year and serve a population of nearly 15 million people. The NYCTA's subway lines carry over 4.5 million passengers on an average weekday, about 1.4 billion passengers a year.

In 2004, WageWorks commenced an action in the United States District Court for the Southern District of New York, entitled WageWorks, Inv. v TransitCenter, Inc. and the MTA, No. 1:04-cv-4498, (the "federal action"), alleging that the MTA granted TransitCenter, one of WageWorks' competitors, preferential pricing and exclusive access fare in violation of federal and state antitrust laws.

In January 2005, plaintiff and the MTA entered into a settlement agreement discontinuing WageWorks' federal antitrust action. Pursuant to the Agreement, the MTA committed itself to providing plaintiff WageWorks with access to all its products and services on terms no less favorable than those provided to TransitCenter or any other vendor. Further, the Settlement Agreement did not have any admission of liability or misconduct on behalf of the MTA, and the parties exonerated NYCTA from any unlawful practices alleged in the federal action. The Settlement Agreement does not contain an alternative dispute resolution provision. Finally, the Agreement provided that the parties would negotiate a memorandum of understanding which would set the terms of the parties' future dealings.

Thereafter, the MTA and plaintiff negotiated the terms of a Vendor Agreement. The Vendor Agreement provides that it does not supercede the Settlement Agreement and sets forth financial requirements whereby providers of vouchers must "submit to the MTA an audited [*2]financial statement, with an unqualified financial opinion by a CPA firm, in a form satisfactory to the MTA" in order to purchase tax free media.

Under the Vendor Agreement, WageWorks is entitled to thirty days after the MetroCard order is shipped for payment of these purchases. WageWorks retains 2.5% of the face value of MetroCards it purchased as a commission from the MTA.

The Vendor Agreement also provides a mandatory dispute resolution provision as follows:

[A] dispute concerning a question of fact arising under this Agreement [...] shall be decided by the MTA, through the MTA Director of Policy, or his/her designee, who shall reduce his/her decision to writing and mail or otherwise furnish a copy thereof to Merchant. The decision of the MTA shall be final and conclusive unless, within ten (10) days from receipt of such copy, Merchant mails or otherwise furnishes to the MTA a written appeal addressed to the MTA Deputy Director, Administration. In connection with any appeal proceeding under this clause, Merchant shall be afforded soon an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, Merchant shall proceed diligently with the performance of this Agreement and in accordance with the existing MTA decision. The decision of the MTA Deputy Director, Administration, for the determination of such appeals shall be final and conclusive. Notwithstanding the above, Merchant may thereafter proceed in any appropriate court of the State of New York by plenary action to contests such decision on the grounds that the determination was arbitrary.

Plaintiff executed and delivered the Vendor Agreement with an effective date of March 1, 2006. On March 8, 2006, plaintiff submitted to the MTA an audited financial statement for the year 2004, with an audit opinion from KPMG LLP, a CPA firm, dated October 5, 2005. The MTA objected to the submitted statement and opinion, and continued its numerous requests for plaintiff's 2005 financial statement and opinion. The MTA alleges that it did not execute the Vendor Agreement already executed by plaintiff. WageWorks asserts that the MTA never had a problem collecting payments from plaintiff in four years of business until this event.

In June 2006, the MTA did not allow thirty days of credit to plaintiff to pay for the MetroCards. Plaintiff served a complaint in this action on August 2, 2006 claiming that the denial of the thirty days credit was a breach of the Vendor Agreement, and therefore a breach of the Settlement Agreement.

In a letter by plaintiff's counsel dated August 11, 2006, plaintiff states that there are no disputes of fact and thus would not submit to the dispute resolution process.

Defendants continue to raise objections as to the form of the audited financial statements and audit opinion which allegedly did not comply to the terms of the Vendor Agreement. Defendants further claim that a factual dispute over the substance of such documentation exists rather than simply a conflict on the documents' paper color or typeface font and thus the MTA did not breach any duty owed to plaintiff.

Plaintiff argues that (1) defendants dispute the validity of the Vendor Agreement itself, and therefore cannot invoke the alternative dispute resolution provision of that agreement; (2) the Settlement Agreement contains no provision requiring WageWorks to submit disputes concerning the Settlement Agreement to the MTA Director of policy for determination; (3) this dispute concerns issues of law and thus does not necessitate the dispute resolution mechanism required under the Vendor Agreement; and (4) that the MTA unreasonably, without good cause, and in bad faith objected to the form of its audited financial statements and unqualified opinion letter from a CPA firm.

The Vendor Agreement provides that voucher buyers must "submit to the MTA an [*3]audited financial statement, with an unqualified financial opinion by a CPA firm, in a form satisfactory to the MTA" in order to purchase tax free media. The term "satisfactory" is a subjective standard which authorizes the party with such authority to make a personal final determination. Wynkoop Hallenback Crawford Co. v Western Union Tel. Co., 268 NY 108, 112-113 (1935)(The term satisfactory is to be read literally as meaning satisfactory to the defendant personally).

While this Courts must defer to the MTA's judgement, no matter whether the final determination is based on the documents' form or substance, the MTA must make its decision in good faith. Boston Road Shopping Center, Inc v Teachers Ins & Annuity Assoc., 13 AD2d 106, 109 (1st Dep't ,1961) (form "satisfactory" allows at least reasonable rejection on terms).

Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion. The duty of good faith and fair dealing, however, is not without limits, and no obligation can be implied that would be inconsistent with other terms of the contractual relationship'. (Citations omitted), Dalton v Educational Testing Serv., 87 NY2d 384, 389 (1995).

Contrary to plaintiff's assertion, this Court's inquiry is limited to whether the MTA rejected the disputed documentation in good faith pursuant to the discretion granted to them by the Agreement, not whether WageWorks has met the financial requirements to purchase MetroCards.

Additionally, the Vendor Agreement requires that providers go through a dispute resolution process, or otherwise submit their claim to the MTA's Director of Policy when a factual dispute arises. As a good faith determination is a question of fact for the jury, Harter v People's Bank of Buffalo, 221 AD 122, 125 (4th Dep't, 1917), plaintiff must submit its claims to the dispute resolution process set fourth in the Vendor's Agreement prior to litigating its claims.

Plaintiff argues that WageWorks' fourth and fifth causes of action are for breach of the Settlement Agreement, which does not contain any alternative dispute resolution mechanism and thus, no such pre-litigation requirement must be met. This Court disagrees. The fourth and fifth causes of action state that "[the] MTA's demand for additional financial information and satisfaction of unstated, vague and subjective criteria beyond what is called for in the Vendor Agreement is being made upon WageWorks." These causes of action explicitly refer to the Vendor's Agreement. Thus, no cause of action can be addressed without resolving the aforementioned factual issues outstanding from the Vendor Agreement first.

This Court need not consider the other grounds asserted in this motion.

Accordingly, it is

ORDERED that defendant's motion to dismiss the complaint is granted; the parties must undergo the dispute resolution process set forth in the Vendor Agreement; and it further

ORDERED that the Clerk is directed to enter the judgment accordingly.

Dated: January 4, 2007

_________________________

J.S.C.

Counsel are hereby directed to obtain an accurate copy of this Court's opinion from the record room and not to rely on decisions obtained from the internet which have been altered in the scanning process.