Court of Appeals October Session: Arguments of Interest for October 17, 2017

The Court of Appeals begins its second week of arguments for the October session on Tuesday, October 17th with three cases on its calendar (the Court’s case summaries can be found here).

First up is a criminal case asking whether a criminal defendant should have been entitled to a cross-racial identification jury charge at his trial for robbery because the two victims of the crimes were white and he is black. Next, the Court will hear arguments on an important family law case, which asks whether a child who has been removed from a parent’s care based upon an allegation of neglect must be returned immediately to the parent once Family Court dismisses the neglect petition as unsubstantiated, or whether Family Court retains jurisdiction to hold a permanency hearing to determine with whom the child should be placed even after dismissal of the neglect petition. Finally, the Court will take up two certified questions from the Second Circuit in a revived World Trade Center cleanup litigation concerning the capacity of a public benefit corporation to challenge the constitutionality of a state law reviving otherwise time-barred personal injury claims.

No. 119     In re: World Trade Center Lower Manhattan Disaster Site Litigation (Faltynowicz et al v Battery Park City Authority and two others)

Matter of World Trade Center Lower Manhattan Disaster Site Litigation involves the personal injury claims brought against the Battery Park City Authority, a New York public benefit corporation, arising out of the cleanup work done by responders after the September 11th terrorist attacks. The plaintiffs in the World Trade Center case are eight individuals who worked at the World Trade Center site cleaning up toxic dust in buildings on land owned by the BCPA. They allege that BCPA is liable for negligence and violations of NY Labor Law §§ 200 and 241(6) for failing to provide a safe workplace.

The plaintiffs’ claims were dismissed on July 29, 2009, however, for failure to timely serve a notice of claim pursuant to the Public Authorities Law. Afterwards, the New York Legislature enacted “Jimmy Nolan’s Law,” which revived the time-barred claims against the BPCA and provided the plaintiffs with an additional year to serve the notices of claim. The eight plaintiffs then took advantage of the new law and sued BPCA again. BPCA moved for summary judgment dismissing the claims and challenging the constitutionality of Jimmy Nolan’s Law on due process grounds. The State then intervened in defense of the statute and argued that BPCA, as a public benefit corporation, lacks capacity to challenge the constitutionality of the state statute.

New York generally follows the traditional rule that municipalities and other arms of the State lack capacity to challenge the acts of the State as their creator, including state legislation. In City of New York v State of New York (86 NY2d 286 [1995]), the Court of Appeals explicitly recognized four exceptions, under New York case law, to the general rule that a municipality lacks capacity to seek to invalidate state legislation or challenge state action on state constitutional grounds (see 86 NY2d at 291-292). The Court of Appeals held:

The only exceptions to the general rule barring local governmental challenges to State legislation which have been identified in the case law are: (1) an express statutory authorization to bring such a suit; (2) where the State legislation adversely affects a municipality’s proprietary interest in a specific fund of moneys; (3) where the State statute impinges upon “Home Rule” powers of a municipality constitutionally guaranteed under article IX of the State Constitution; and (4) where “the municipal challengers assert that if they are obliged to comply with the State statute they will by that very compliance be forced to violate a constitutional proscription”

(id. at 291-292 [citations omitted], quoting Matter of Jeter v Ellenville Cent. School Dist., 41 NY2d 283, 287 [1977]).

Public benefit corporations, however, are not necessarily viewed as arms of the State in every instance. Instead, in Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. (70 NY2d 382, 387 [1987]), the Court of Appeals held that “a particularized inquiry is necessary to determine whether—for the specific purpose at issue—the public benefit corporation should be treated like the State.”

In Clark-Fitzpatrick, for example, the Court of Appeals assessed whether the public benefit corporation should be immune from liability for punitive damages, and concluded that because the LIRR served an essential public function in providing commuter transportation and much of its funding came from the State, it should be treated like the State and be immune from punitive damages.

In contrast, the Court of Appeals has held that the New York State Thruway Authority should not be treated like the State for purposes of public bidding because “the statute creating the Thruway Authority is replete with provisions which emphasize its separate and independent existence and serve to distinguish it sharply from the type of State board or department which would be subject to the requirements of the State Finance Law with respect to bidding” (Matter of Plumbing, Heating, Piping & A.C. Contrs. Assn. v New York State Thruway Auth., 5 NY2d 420, 423-424 [1959]).

After intervening, the State argued that the Clark-Fitzpatrick particularized inquiry test does not apply when a public benefit corporation attempts to raise a constitutional challenge to a state statute. The State’s position is that public benefit corporations should be treated like municipalities that only have capacity to sue the State if they fall within one of the four City of New York exceptions.

The District Court (SDNY) held that the BPCA is an entity independent of the State because it “was created to be independent of the State in performing primarily private functions, funded primarily by private means,” through issuance of bonds (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 66 F Supp 3d 466, 472 [SDNY 2014]). The District Court also noted that

the Legislature has acted to expose BPCA, and its general fund, to a liability that, without the legislation, would not have existed. Plaintiffs’ claims had been extinguished by limitations; the purported revival of those claims by legislative act burdens BPCA’s general fund and its ability to repay bond obligations, for which it is solely and independently responsible

(id. at 473). The District Court then held that Jimmy Nolan’s Law violated the BPCA’s due process rights under the New York Constitution (see id. at 476).

On appeal, the Second Circuit did not find New York law on whether a public benefit corporation has capacity to challenge a state statute on constitutional grounds to be so clear. Instead, the Second Circuit held, it is “unclear whether New York courts have applied the [Clark-Fitzpatrick] particularized-inquiry test in the present context—that is, to determine whether a public benefit corporation should be treated like the State for the purpose of having the capacity to raise a constitutional challenge to a State statute” (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 846 F3d 58, 64 [2d Cir 2017]).

So, the Second Circuit certified two questions to the Court of Appeals:

(1) Before New York State’s capacity-to-sue doctrine may be applied to determine whether a State-created public benefit corporation has the capacity to challenge a State statute, must it first be determined whether the public benefit corporation “should be treated like the State,” see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., [70 N.Y.2d 382, 521 N.Y.S.2d 653] 516 N.E.2d 190, 192 ([ ]1987), based on a “particularized inquiry into the nature of the instrumentality and the statute claimed to be applicable to it,” see John Grace & Co. v. State Univ. Constr. Fund, [44 N.Y.2d 84, 404 N.Y.S.2d 316] 375 N.E.2d 377, 379 ([ ]1978), and if so, what considerations are relevant to that inquiry?; and

(2) Does the “serious injustice” standard articulated in Gallewski v. H. Hentz & Co., [301 N.Y. 164] 93 N.E.2d 620 ([ ]1950), or the less stringent “reasonableness” standard articulated in Robinson v. Robins Dry Dock & Repair Co., [238 N.Y. 271] 144 N.E. 579 ([ ]1924), govern the merits of a due process challenge under the New York State Constitution to a claim-revival statute?

As the Second Circuit noted,

If the particularized-inquiry test applies, and if BPCA is judged to be sufficiently independent from the State, then the traditional capacity-to-sue rule will not attach and BPCA will be free to raise its constitutional challenge. However, if the particularized-inquiry test does not apply, or if it applies but BPCA is deemed to be indistinguishable from the State for the purpose of challenging a State statute, then BPCA will be subject to the traditional capacity-to-sue rule and—unless it can prove that it falls within one of the rule’s four limited exceptions—BPCA’s constitutional challenge will be dismissed.

(World Trade Ctr., 846 F3d at 70).

On appeal, the State argues that public benefit corporations are “subject to the Legislature’s plenary control,” which gives them no right to challenge the Legislature’s enactments. Particularly, the State argues,

because public corporations are purely creatures of state law, the Legislature has plenary authority over their powers and responsibilities. And that authority precludes any attempt by such entities to thwart the Legislature’s decision to withhold, grant or withdraw [their] powers and privileges, as it sees fit

(State Brf, at 27 [internal quotation marks omitted]). The State thus equates public benefit corporations to municipalities, a government-created entity that has no rights vis a vis the State. Public benefit corporations’ sole purpose, the State argues, “is to serve the Legislature’s ends, not to thwart the Legislature’s ability to accomplish those ends. Dictating the terms on which such public entities may be sued—and the immunities they may raise in defense—is an important means by which the Legislature ensures that the entities it creates will serve the public interest. The ability to modify those terms over time is no less important a tool of government to ensure that the public interest continues to be served” (State Brf, at 31-32).

The State also argues that the Clark-Fitzpatrick particularized inquiry test does not apply to claims against the State. Instead, “[t]hat test determines only the relationship between third parties and public benefit corporations—specifically, whether such corporations should be treated as the State in matters affecting third parties” (State Brf, at 32). Without application of the particularized inquiry test, the State argues, public benefit corporations can only raise constitutional challenges to state legislation if they fall within one of the four City of New York capacity exceptions (State Brf, at 34 n 5).

The Court of Appeals will now hear arguments and decide. How the Court of Appeals decides the capacity issue could have a tremendous impact on how public benefit corporations can protect their proprietary rights that exist independent of State control. If the Court sides with the State, public benefit corporations will be equated to municipal corporations and will lack capacity to raise any constitutional challenge to state statutes affecting their proprietary rights, notwithstanding that they have independent governance and are created to be independent of the State. Application of the Clark-Fitzpatrick particularized inquiry test, in contrast, will allow the courts to resolve capacity on a case-by-case basis because not all public benefit corporations have the same levels of independence. Adoption of the latter rule could be of great benefit to public benefit corporations in protecting their rights.