Background
The City of Olean provided sewer services to the Village of Allegany under a long-standing agreement that fixed the rate. When Olean unilaterally announced a substantially higher rate, the Village commenced a hybrid CPLR Article 78 proceeding and declaratory judgment action to annul the rate determination. The City answered and asserted six counterclaims, ranging from a declaration that the agreement had expired, to breach of contract, quantum meruit, and unjust enrichment.
The Village moved to dismiss all six counterclaims on the ground that the City’s prior notice of claim under CPLR 9802 — the notice-of-claim statute governing actions against villages — rested exclusively on a breach-of-contract theory, while several counterclaims advanced theories not mentioned in that notice. Supreme Court granted the motion as to two counterclaims but denied it as to four. Both sides cross-appealed.
The Court’s Holding
The Fourth Department unanimously modified the order by dismissing all six counterclaims. First, CPLR 9802’s notice-of-claim requirement applies equally to parties asserting counterclaims against a village — a party cannot evade the requirement by recasting a claim as a counterclaim, citing Incorporated Village of Freeport v Freeport Plaza W., LLC (206 AD3d 703 [2d Dept 2022]).
Second, applying Gonzalez v Povoski (149 AD3d 1472 [4th Dept 2017]), a claimant “may not raise in the [pleading] causes of action or legal theories that were not directly or indirectly mentioned in the notice of claim and that change the nature of the earlier claim or assert a new one.” The City’s notice was premised solely on breach of the agreement. Its counterclaims asserting contract expiration, quantum meruit, and unjust enrichment rested on theories that would negate the very contract the notice assumed was in force. The court also confirmed that CPLR 9802 applies to declaratory-relief claims, not just money-damages claims.
Key Takeaways
- CPLR 9802’s notice-of-claim requirement applies equally to counterclaims against villages, not just to original complaints or petitions.
- The notice of claim must fairly encompass every legal theory the claimant intends to pursue; theories that “change the nature of the earlier claim or assert a new one” will be dismissed.
- CPLR 9802 applies to claims for declaratory relief, not solely to money-damages claims.
Why It Matters
Municipal counsel and practitioners litigating inter-governmental disputes need to treat this decision as a practical checklist requirement. Any party planning to assert counterclaims against a village must ensure its pre-litigation notice of claim covers every legal theory it intends to advance, not just the primary contract theory that initially prompted the controversy.
The City of Olean’s attempt to raise contract-expiration, quantum meruit, and unjust-enrichment theories without a supporting notice resulted in a complete procedural loss. Parties navigating complex municipal disputes should file a notice broad enough to encompass all plausible theories from the outset.