to be argued by: christopher e. buckey, esq. 20 minutes ... · nirav r. shah, as commissioner of...

To be argued by: Christopher E. Buckey, Esq. 20 minutes requested

Court of Zippeat5 of the

tate of Rai pork

In the Matter of the Application of COUNTY OF ST, LAWRENCE,

Petitioner-Plaintiff Respondent,

-against-

APL-20I5-00089 NIRAV R. SHAH, AS COMMISSIONER OF THE

NEW YORK STATE DEPARTMENT OF HEALTH AND THE NEW YORK STATE DEPARTMENT OF HEALTH,

Respondents-Defendants-Appellants.

Appellate Division, Third Department Case Nos.: 1518097, 518220, 518221 St. Lawrence County Index Nos.: 2013-140712, 2013-0140998, 2013-0141656

In the Matter of the Application of COUNTY OF CHEMUNG,

Petitioner-PlaintiffiRespondent,

-against- APL-2015-00088

NIRAV R. SHAH, AS COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF HEALTH AND THE NEW YORK STATE DEPARTMENT OF HEALTH,

Respondents-Defendants-Appellants.

Appellate Division, Third Department Case No.: 518222 Chemung County Index No.: 2013-1849

Continued on Next Page

In the Matter of the Application of COUNTY OF CHAUTAUQUA,

Petitioner-Plaintiff-Appellant,



Respondents-Defendants-Respondents.

Appellate Division, Fourth Department Docket No.: CA14-00923 Chautauqua County Index No.: K1-2013-1266

In the Matter of the Application of COUNTY OF JEFFERSON,

Petitioner-PlaintiffAppellant,




Appellate Division, Fourth Department Docket No.: CA 14-00926 Jefferson County Index No.: 2013-1956

In the Matter of the Application of COUNTY OF ONEIDA,

P etitioner-Plaintff:Appellant,




Appellate Division, Fourth Department Docket No.: CA 14-010405 Oneida County Index No.: 2013-1788


In the Matter of the Application of COUNTY OF GENESEE,

Petitioner-PlaintiffAppellant,




Appellate Division, Fourth Department Docket No.: CA14-01041 Genesee County Index No.: 2013-63493

In the Matter of the Application of COUNTY OF CAYUGA,





Appellate Division, Fourth Department Docket No,: 14-01886 Cayuga County Index No,: 2013-0000261

In the Matter of the Application of COUNTY OF MONROE,




Respondent-Defendants-Respondents.

Appellate Division, Fourth Department Docket No.: CA14-01888 Monroe County Index No.: 2014-3162


BRIEF OF RESPONDENTS COUNTY OF ST. LAWRENCE AND COUNTY OF CHEMUNG AND APPELLANTS COUNTY OF CHAUTAUQUA, COUNTY OF JEFFERSON, COUNTY OF ONEIDA, COUNTY OF GENESEE,

COUNTY OF CAYUGA, AND COUNTY OF MONROE

Dated: September 15, 2015 WHITEMAN OSTERMAN & HANNA LLP Christopher E. Buckey, Esq., Of Counsel Robert S. Rosborough IV, Esq., Of Counsel One Commerce Plaza Albany, New York 12260 (518) 487-7600 (518) 487-7777 (facsimile)

NANCY ROSE STOR1V1ER, P.C. Nancy Rose Stormer, Esq., Of Counsel Michael Bagge, Esq., Of Counsel 1325 Belle Avenue Utica, New York 13501 (315) 797-0110

Attorneys for County of St.Lawrence, County of Chemung, County of Chautauqua, County of Jefferson, County of Oneida, County of Genesee, County of Cayuga, and County of Monroe

BOND SCHOENECK & KING, PLLC Raymond A. Meier, Esq., Of Counsel Co-Counsel for P etitioners-Plaintiffs-Appellants County of Oneida and County of Monroe 501 Main Street Utica, New York 13501 (315) 738-1223

TABLE OF CONTENTS

TABLE OF AUTHORITIES iv

JURISDICTIONAL STATEMENT xvi

QUESTIONS PRESENTED

PRELIMINARY STATEMENT 4

STATEMENT OF FACTS AND PROCEDURAL HISTORY 8

The Medicaid Cap Statute 11

Related Prior Litigation 12

Section 61 of the 2012 Executive Budget Law 16

Recent Overburden Claims Submitted 17

The Supreme Court Judgments 18

The Third Department's Order in St. Lawrence III 19

The Fourth Department's Order in County of Chautauqua 23

POINT I THE THIRD DEPARTMENT PROPERLY CONSTRUED SECTION 61 AS IMPOSING A FINAL LIMITATIONS PERIOD FOR THE SUBMISSION OF OVERBURDEN REIMBURSEMENT CLAIMS 26

A. Section 61 May Only be Construed as Imposing a Limitation Period for the Final Submission of Overburden Reimbursement Claims 28

B. The Third Department Properly Imposed a Six Month Grace Period for the Final Submission of Overburden Reimbursement Claims 36

POINT II THIS COURT SHOULD REVIEW THE MERITS OF THE ERRONEOUS FOURTH DEPARTMENT ORDERS 41

POINT III PETITIONERS MAY CHALLENGE SECTION 61 UNDER THE DUE PROCESS CLAUSE OF THE NEW YORK CONSTITUTION 50

A. The Federal Rule Regarding a Municipality's Ability to Assert Claims Against the State Only Applies to Federal Constitutional Claims 51

B. New York Treats a Municipality's Ability to Challenge a State Statute under the New York Constitution as an Issue of Capacity. 53

C. Municipalities are "Persons" under the Due Process Clause of the New York Constitution. 63

POINT IV IF THIS COURT ADOPTS THE FOURTH DEPARTMENT'S CONSTRUCTION OF SECTION 61, IT UNCONSTITUTIONALLY IMPAIRS PETITIONERS' VESTED RIGHTS TO REIMBURSEMENT 68

A. Section 61 Unconstitutionally Deprives Petitioners of their Vested Property Rights to Reimbursement. 69

B. Petitioners' Vested Rights to Overburden Reimbursement Are Not Subject to Retroactive Impairment 72

1. Section 61 is Manifestly Unfair 73

2. Petitioners Properly Relied on Their Clear Entitlement to Overburden Reimbursements Under Social Services Law § 368-a. 78

3. The Extent of Section 61's Retroactivity is Excessive 80

4. The Public Interest Requires Reimbursement of the Improperly Retained Overburden Payments to Petitioners. 85

POINT V PETITIONERS ARE ENTITLED TO MANDAMUS TO COMPEL RESPONDENTS TO SATISFY THEIR REIMBURSEMENT DUTY PURSUANT TO SOCIAL SERVICES LAW § 368-A 86

ii

POINT VI RESPONDENTS ARE LIABLE FOR CONVERSION AND UNJUST ENRICHMENT AND THIS COURT SHOULD IMPOSE A CONSTRUCTIVE TRUST OVER THE UNPAID OVERBURDEN REIMBURSEMENT FUNDS 91

A. Respondents are Liable for Conversion. 93

B. Respondents are Unjustly Enriched at Petitioners' Expense. 95

C. The Fourth Department Erroneously Declined to Impose a Constructive Trust Over the Overburden Reimbursement Funds Owed to Petitioners.. 96

D. The Court of Claims Lacks Jurisdiction Over Petitioners' Tort Claims.... 99

CONCLUSION 105

iii

TABLE OF AUTHORITIES

State Cases

230 Park Ave. Assoc. v State of New York, 165 Misc 2d 920 (Ct Cl June 21, 1995) 92

Alliance of Am. Insurers v Chu, 77 NY2d 573 (1991) passim

Alweis v Evans, 69 NY2d 199 (1987) 28, 30, 32

Andon v 302-304 Mott St. Assoc., 94 NY2d 740 (2000) 45

Ball v State of New York, 41 NY2d 617 (1977) 29

Beatty v Guggenheim Exploration Co., 225 NY 380 (1919) 97

Blue Cross of Cent. N.Y. v Wheeler, 93 AD2d 995 (4th Dept 1983) 95

Board of Coop. Educ. Servs. for Sole Supervisory Dist. of Rockland County v

State of New York, 171 Misc 2d 585 (Sup Ct, Albany County 1996) 56, 65, 68

Board of Educ. of Cent. School Dist. No. I v Allen, 20 NY2d 109 (1967), affd 392 US 236 (1968) 55

Board of Educ., Levittown Union Free School Dist. v Nyquist, 57 NY2d 27

(1982) passim

Boltja v Southside Hosp., 186 AD2d 774 (2d Dept 1992) 83

Brady v Ottaway Newspapers, 63 NY2d 1031 (1984) 45

Brennan's Bus Serv. v Brennan, 107 AD2d 858 (3d Dept 1985) 93

Brothers v Florence, 95 NY2d 290 (2000) passim

iv

Brown v City of New York, 60 NY2d 893 (1983) 45

Cass v State of New York, 58 NY2d 460 (1983) 103

Cimo v State of New York, 306 NY 143 (1953) 30

Cinquemani v Lazio, 37 AD3d 882 (3d Dept 2007) 97, 98

City of New York v State of New York, 86 NY2d 286 (1995) passim

City of New York v State of New York, 46 AD3d 1168 (3d Dept 2007), lv denied 10 NY3d 705 (2008) 100, 101, 102

Colavito v New York Organ Donor Network, Inc., 8 NY3d 43 (2006) 93

Commercial Bank v Sherwood, 162 NY 310 (1900) 41

Community Bd. 7 of Borough of Manhattan v Schaffer, 84 NY2d 148 (1994) 53

Cooper v Morin, 49 NY2d 69 (1979) 48, 53

County of Nassau v Canavan, 1 NY3d 134 (2003) 41

County of Orange v Public Serv. Commn. of State of N. Y, 39 AD2d 311 (2d Dept 1972), affd 31 NY2d 843 (1972) 67

County of Rensselaer v Regan, 173 AD2d 37 (3d Dept 1991), affd 80 NY2d 988 (1992) passim

Dorfman v Leidner, 76 NY2d 956 (1990) 81

Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340 (1982) 30

Empire State Ch. of Associated Bldrs. & Contrs., Inc. v Smith, 21 NY3d 309 (2013) 66

Enzien v Enzien, 96 AD3d 1136 (3d Dept 2012) 97

Feinberg v Saks & Co., 56 NY2d 206 (1982) 45

Financial Indus. Regulatory Auth., Inc. v Fiero, 10 NY3d 12 (2008) 46

Ford Motor Credit Co. v State of New York, 219 AD2d 202 (3d Dept 1996), lv denied 88 NY2d 813 (1996) 92

Forti v New York State Ethics Commn., 147 AD2d 269 (3d Dept 1989), affd 75 NY2d 596 (1990) 49

Franza v Olin, 73 AD3d 44 (4th Dept 2010) 70

Fry v Village of Tarrytown, 89 NY2d 714 (1997) 43, 46

Feuer v State of New York, 101 AD3d 1550 (3d Dept 2012) 100

Gilbert v Ackerman, 159 NY 118 (1899) 38, 77

Gulotta v State of New York, 228 AD2d 555 (2d Dept 1996), lv dismissed 88 NY2d 1053 (1996), lv denied 89 NY2d 811(1997) 56

H Kauffman & Sons Saddlery Co. v Miller, 298 NY 38 (1948) 36

Hastings v H. M Byllesby & Co., 293 NY 413 (1944) 38

Hecker v State of New York, 20 NY3d 1087 (2013) 49

Henness v Hunt, 272 AD2d 756 (3d Dept 2000) 97

Hernandez v Robles, 7 NY3d 338 (2006) 52

Herzog v Board of Educ. of Lawrence Union Free School Dist.,

171 Misc 2d 22 (Sup Ct, Nassau County 1996) 57

Hoffman v State of New York, 42 AD3d 641 (3d Dept 2007) 101

vi

James Sq. Assoc. LP v Mullen, 21 NY3d 233 (2013) 69, 72, 85

Kagen v Kagen, 21 NY2d 532 (1968) 104

Key Bank ofN.Y. v Grossi, 227 AD2d 841 (3d Dept 1996) 93

Klostermann v Cuomo, 61 NY2d 525 (1984) 86, 88

Land Man Realty, Inc. v Weichert, Inc., 94 AD3d 1221 (3d Dept 2012) 95

Lemle v Lemle, 92 AD3d 494 (1st Dept 2012) 94

Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143 (1983) 36

Madura v State of New York, 12 AD3d 759 (3d Dept 2004), lv denied 4 NY3d 704 (2005) 100

Matter of Albany Law School v New York State Off of

Mental Retardation & Dev. Disabilities, 19 NY3d 106 (2012) 28

Matter of Bethpage Water Dist. v Daines, 67 AD3d 1088 (3d Dept 2009), lv denied 14 NY3d 707 (2010) 54, 57

Matter of Board of Educ. of Union-Endicott Cent. School Dist. v New York State Pub. Empl. Relations Bd., 233 AD2d 602 (3d Dept 1996) 66

Matter of Brusco v Braun, 84 NY2d 674 (1994) 90

Matter of Buttonow, 23 NY2d 385 (1968) 30

Matter of Chrysler Props. v Morris, 23 NY2d 515 (1969) 69

Matter of City of New York v Lawton, 128 AD2d 202 (3d Dept 1987) 59, 60, 62

Matter of Consolidated Edison Co. of N.Y. v Department of Envtl. Conservation, 71 NY2d 186 (1988) 29

vii

Matter of Couch v Perales, 78 NY2d 595 (1991) 48

Matter of County of Broome v Shah, 130 AD3d 1347 (3d Dept 2015) 22

Matter of County of Cayuga v Shah, 129 AD3d 1503 (4th Dept 2015), appeal and lv PU 26

Matter of County of Chautauqua v Shah, 126 AD3d 1317 (4th Dept 2015), appeal and lv PU passim

Matter of County of Chemung v Shah, 124 AD3d 963 (3d Dept 2015), lv granted 25 NY3d 903 (2015), appeal PU 22, 24

Matter of County of Erie v Daines, 83 AD3d 1506 (4th Dept 2011) 15

Matter of County of Erie v Daines, 96 AD3d 1432 (4th Dept 2012) 15

Matter of County of Fulton v State of New York, 76 NY2d 675 (1990) 91

Matter of County of Genesee v Shah, 128 AD3d 1380 (4th Dept 2015), appeal and lv PU 26

Matter of County of Herkimer v Daines, 60 AD3d 1456 (4th Dept 2009), lv denied 63 AD3d 1672 (4th Dept 2009), lv denied 13 NY3d 707 (2009) passim

Matter of County of Herkimer v Daines, 83 AD3d 1510 (4th Dept 2011) 15

Matter of County of Jefferson v Shah, 126 AD3d 1322 (4th Dept 2015), appeal and lv PU 25

Matter of County of Monroe v Shah, 129 AD3d 1505 (4th Dept 2015), appeal and lv PU 26

Matter of County of Nassau v State of New York, 100 AD3d 1052 (3d Dept 2012), lv dismissed 20 NY3d 1092 (2013) 55

'OH

Matter of County of Niagara v Daines, 60 AD3d 1460 (4th Dept 2009) 15

Matter of County ofNiagara v Daines, 79 AD3d 1702 (4th Dept 2010), lv denied 82 AD3d 1719 (4th Dept 2011), lv denied 17 NY3d 703 (2011) 13, 15

Matter of County ofNiagara v Daines, 91 AD3d 1288 (4th Dept 2012), lv denied 94 AD3d 1481 (4th Dept 2012) 15, 34, 78

Matter of County ofNiagara v Shah, 122 AD3d 1240 (4th Dept 2014) 34

Matter of County of Oneida v Shah, 128 AD3d 1381 (4th Dept 2015), appeal and iv PU 26

Matter of County of Oswego v Travis, 16 AD3d 733 (3d Dept 2005) 58

Matter of County of St. Lawrence v Daines, 81 AD3d 212 (3d Dept 2011) , lv denied 17 NY3d 703 (2011) passim

Matter of County of St. Lawrence v Shah, 95 AD3d 1548 (3d Dept 2012) passim

Matter of County of St. Lawrence v Shah, 124 AD3d 88 (3d Dept 2014), lv denied AD3d (3d Dept Jan 23, 2015), lv granted 25 NY3d 903 (2015), appeal PU passim

Matter of Crespo, 123 Misc 2d 862 (Sup Ct, New York County 1984) 65

Matter of Graziano v County of Albany, 3 NY3d 475 (2004) 42, 54

Matter of Gross v Perales, 72 NY2d 231 (1988) 99, 100, 104, 105

Matter of Hodes v Axelrod, 70 NY2d 364 (1987) 70, 72

Matter of Island Waste Servs., Ltd. v Tax Appeals Trib. of State of N.Y, 77 AD3d 1080 (3d Dept 2010), lv denied 16 NY3d 712 (2011) 83

ix

Matter of Jeter v Ellenville Cent, School Dist., 41 NY2d 283 (1977) 25, 55, 56, 63

Matter of Krauskopf v Perales , 139 AD2d 147 (3d Dept 1988), affd 74 NY2d 730 (1989) 26, 50, 62

Matter of Lopez v Evans, 25 NY3d 199 (2015) 41

Matter of Lower Manhattan Loft Tenants v New York City Loft Bd., 66 NY2d 298 (1985) 30

Matter of Markham v Comstock, 272 AD2d 971 (4th Dept 2000), appeal dismissed 95 NY2d 886 (2000), cent denied 531 US 1079 (2001) 104

Matter of Monroe County Pub. School Dists. v Zyra, 51 AD3d 125 (4th Dept 2008), lv denied 52 AD3d 1293 (4th Dept 2008) 34

Matter of Natural Resources Defense Council v New York City Dept. of Sanitation, 83 NY2d 215 (1994) 29

Matter of Paver & Wildfoerster (Catholic High School Assn), 38 NY2d 669 (1976) 33

Matter of Roosevelt Raceway v Monaghan, 9 NY2d 293 (1961) 83

Matter of Scherbyn v Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 NY2d 753 (1991) 101

Matter of Seitelman v Lavine, 36 NY2d 165 (1975) 49

Matter of Thomas v Bethlehem Steel Corp., 63 NY2d 150 (1984) 39, 82

Matter of Tiffany, 179 NY 455 (1904) 29

Matter of Town of Brookhaven v New York State Bd. of Equalization & Assessment, 88 NY2d 354 (1996) 28

Matter of Town of Middletown v State Bd. of Real Prop. Servs., 272 AD2d 657 (3d Dept 2000) 66

Matter of Town of Moreau v County of Saratoga, 142 AD2d 864 (3d Dept 1988) 59, 60

Matter of Town of Wallkill v New York State Bd. of Real Prop. Servs., 274 AD2d 856 (3d Dept 2000) 66

Matter of Von Bulow, 63 NY2d 221 (1984) 45

Meese v Miller, 79 AD2d 237 (4th Dept 1981) 94

Moak v Raynor, 28 AD3d 900 (3d Dept 2006) 97

Nastasi v Nastasi, 26 AD3d 32 (2d Dept 2005) 97

New York Blue Line Council, Inc. v Adirondack Park Agency,

86 AD3d 756 (3d Dept 2011), appeal dismissed 17 NY3d 947 (2011), lv denied 18 NY3d 806 (2012) 54

O'Neil v State of New York, 223 NY 40 (1918) 79

Ozanam Hall of Queens Nursing Home v State of New York, 241 AD2d 670 (3d Dept 1997) 100

Parsa v State of New York, 64 NY2d 143 (1984) 92

People ex rel. Francis v Common Council of City of Troy, 78 NY 33 (1879) 89

People ex rel. Rodgers v Coler, 166 NY 1 (1901) 65, 89

People v Ahearn, 196 NY 221 (1909) 41

People v Cohen, 245 NY 419 (1927) 38

People v Ingersoll, 58 NY 1 29 (1874) 65

xi

People v Santorelli, 80 NY2d 875 (1992)

Pines v State of New York, 115 AD3d 80 (2d Dept 2014),

30

appeal dismissed 23 NY3d 982 (2014) 29, 30

Purcell v Regan, 126 AD2d 849 (3d Dept 1987), lv denied 69 NY2d 613 (1987) 60, 61

Robert R. Gibbs, Inc. v State of New York, 70 AD2d 750 (3d Dept 1979) 92

Roman Catholic Diocese of Albany, NY. v New York State Workers' Compensation Bd., 96 AD3d 1288 (3d Dept 2012) 37

Safety Group No. 194 v State of New York, Claim No. 101826, 2001 WL 939747 (Ct Cl Apr. 11, 2001), affd sub nom. Safety Group No. 194--New York State Sheet Metal Roofing & A.C. Contractors Assn. v State of New York, 298 AD2d 785 (3d Dept 2002) 101

Sharp v Kosmalski, 40 NY2d 119 (1976) 96

Simonds v Simonds, 45 NY2d 233 (1978) 96, 97, 103

Small v Lorillard Tobacco Co., 94 NY2d 43 (1999) 45

Spahn v Julian Messner, 1983 McKinney's Session Laws of NY at 2808 35 Inc., 21 NY2d 124 (1967) 31

State of New York v International Asset Recovery Corp., 56 AD3d 849 (3d Dept 2008) 95

State of New York v Seventh Regiment Fund, Inc., 98 NY2d 249 (2002) 93

Thomas v Thomas, 70 AD3d 588 (1st Dept 2010) 97

Thrasher v United States Liab. Ins. Co., 19 NY2d 159 (1967) 104

xii

Thyroff v Nationwide Mut. Ins. Co., 8 NY3d 283 (2007) 93

Thys v Fortis Securities LLC, 74 AD3d 546 (1st Dept 2010) 94

Town of Black Brook v State of New York, 41 NY2d 486 (1977) 55, 66

Town of Delhi v Telian, 119 AD3d 1049 (3d Dept 2014) 58, 59

Town of Newburgh v Chumard, 271 AD2d 597 (2d Dept 2000), appeal dismissed 95 NY2d 850 (2000) 67

Town of Oyster Bay v Kirkland, 81 AD3d 812 (2d Dept 2011), affd 19 NY3d 1035 (2012) 66

Town of Walton v Adair, 96 App Div 75 (3d Dept 1904) 67

Federal Cases

City of E. St. Louis v Circuit Ct. for Twentieth Jud. Circuit, St. Clair County, 986 F2d 1142 (7th Cir 1993) 43, 52

City of New Rochelle v Town of Mamaroneck, 111 F Supp 2d 353 (SD NY 2000) 43

City of Newark v State of New Jersey, 262 US 192 (1923) 51

City of S. Lake Tahoe v California Tahoe Regional Planning Agency, 625 F2d 231 (9th Cir 1980), cent denied 449 US 1039 (1980) 44, 52

City of Trenton v State of New Jersey, 262 US 182 (1923) 51

Hunter v City of Pittsburgh, 207 US 161 (1907) 51

In re Gucci, 126 F3d 380 (2d Cir 1997) 44

Obergefell v Hodges, 135 5 Ct 2584 (June 26, 2015) 52

Rhem v Malcolm, 507 F2d 333 (2d Cir 1974)

Terry v Anderson, 95 US 628 (1877)

Williams v Mayor & City Council of Baltimore, 289 US 36 (1933) 51,

79

36

52, 53

Statutes

CPLR 3211(a)(3), (e) 57

CPLR 5501(b) 41, 49

CPLR 5601(b)(1) 26

L 2005, eh 58, part C, § 1 11

L 2005, ch 58, part C, § 1(b)-(d) 11

L 2005, ch 58, part C, § 1(c) 81

L 2010, ch 109, part B, § 24 14

L 2012, ch 56, part D, § 65(k) 33, 34

McKinney's Cons Laws of NY, Book 1, Statutes § 150 31

Social Services Law § 368-a(1)(h) 2, 15, 20

Social Services Law § 368-a(1)(h)(i) passim

xiv

Regulations

18 NYCRR § 635.1(b) 98

Constitutional Provisions

New York Constitution, Article I, § 6 41

New York Constitution, Article IX, §§ 1, 2 68

Treatises

2A Carmody-Wait 2d § 13:11

67

Other Authorities

Citizens Budget Commission, A Poor Way for Medicaid: Why New York Should Eliminate Local Funding for Medicaid at 5 [Dec. 2011], available at

http ://www.ebeny org/sites/default/files/REPORT___Medicaid_12122012 .pdf ... 11

Governor's Mem approving L 1983, ch 816, 1983 McKinney's Session Laws of NY at 2808 35

Merriam-Webster's Collegiate Dictionary, at 228 (11th ed 2004) 81

XV

JURISDICTIONAL STATEMENT

By notices of appeal served on April 17, 2015, May 18, 2015, May 28, 2015,

and July 16, 2015, Petitioners-Plaintiffs-Appellants County of Chautauqua, County

of Jefferson, County of Oneida, County of Genesee, County of Cayuga, and

County of Monroe appealed to this Court, pursuant to CPLR 5601(b)(1), from the

orders of the Appellate Division, Fourth Department entered March 20, 2015, May

1, 2015, and June 12, 2015. The Appellate Division orders finally determine the

proceedings and directly involve the construction of the New York Constitution.

This Court therefore has jurisdiction over these appeals under CPLR 5601(b)(1).

The issues presented are preserved. Petitioners-Plaintiffs-Appellants

asserted in Supreme Court and in its Appellate Division briefs that Section 61 of

part D of chapter 56 of the Laws of 2012 retroactively extinguished Petitioners'

vested rights to overburden reimbursement in violation of the Due Process Clause

of the New York Constitution and that Petitioners have capacity to challenge

Section 61 on due process grounds (County of Chautauqua R 51-54; County of

Chautauqua App Div Brf, at 13-33). These are pure questions of law that are

reviewable by this Court (see Point II, infra).

xvi

QUESTIONS PRESENTED

1. May Section 61 of chapter 56 of part D of the Laws of 2012 ("Section

61") be construed to avoid the unconstitutional impairment of Petitioners' vested

rights to overburden reimbursement?

The Appellate Division, Third Department held that Section 61 should be

construed as imposing a statute of limitations for the final submission of

overburden reimbursement claims in order to preserve its constitutionality. The

Appellate Division, Fourth Department did not address whether Section 61 may be

construed to avoid the retroactive impairment of Petitioners' vested rights to

overburden reimbursement.

2. May a New York court consider Petitioners' challenge to the

constitutionality of Section 61 under the Due Process Clause of the New York

Constitution?

Yes. Respondents waived their defense that Petitioners lack capacity to

challenge the Constitutionality of Section 61 by failing to raise it in their answer or

by motion before the trial courts. Further, even absent Respondents' waiver,

Petitioners' claims fall within the proprietary interest exception to the lack of

capacity doctrine under this Court's decision in City of New York v State of New

York (86 NY2d 286 [1995]). The Appellate Division, Third Department held that

1

Petitioners may challenge the constitutionality of Section 61 under the Due Process

Clause of the New York Constitution because Respondents waived the defense that

Petitioners lack capacity to challenge Section 61. The Appellate Division, Fourth

Department held that, although Respondents waived the defense that Petitioners

lack capacity to challenge Section 61 on due process grounds, Petitioners are not

"persons" under the Due Process Clause of the New York Constitution and

therefore cannot challenge Section 61.

3. If Section 61 is not construed as a statute of limitations, as the

Appellate Division, Third Department held, does Section 61 unconstitutionally

impair Petitioners' vested rights to overburden reimbursement?

The trial courts held that Section 61 retroactively extinguishes Petitioners'

vested rights to overburden reimbursement, and should be declared

unconstitutional and void. The Appellate Division, Third and Fourth Departments

did not reach this question.

4. May Respondents be compelled to satisfy their unambiguous statutory

duty under Social Services Law § 368-41)(h) to reimburse Petitioners for 100

percent of the overburden local share payments taken prior to January 1, 2006?

2

The Appellate Division, Third Department held the Section 61 did not repeal

Respondents' mandatory and ministerial reimbursement duty under Social Services

Law § 368-a(1)(h)(i) and, thus, Petitioners were entitled to mandamus compelling

Respondents to satisfy their reimbursement duty. The Appellate Division, Fourth

Department held that Section 61 implicitly repealed Respondents' mandatory

reimbursement duty under Social Services Law § 368-a and, thus, mandamus did

not lie to compel Respondents to identify and pay Petitioners the total outstanding

overburden reimbursement liability.

5. Are Respondents subject to liability for conversion, unjust

enrichment, and/or constructive trust claims by counties where Respondents

misappropriate funds that they are statutorily obligated to reimburse to the

counties?

The Appellate Division, Fourth Department, relying on the decision of

Supreme Court, Jefferson County, held that Respondents are not subject to liability

for conversion, unjust enrichment, and/or constructive trust claims.

3

PRELIMINARY STATEMENT

Petitioners-Plaintiffs County of St. Lawrence, County of Chemung, County

of Chautauqua, County of Jefferson, County of Genesee, County of Oneida,

County of Cayuga, and County of Monroe (collectively, "Petitioners") respectfully

submit this brief (1) in support of their appeals from the orders of the Appellate

Division, Fourth Department, dated March 20, 2015, May 1, 2015, and June 12,

2015, and (2) in opposition to the appeals of Respondents-Defendants Nirav R.

Shah, M.D., M.P.H., as Commissioner of the New York State Department of

Health, and the New York State Department of Health (collectively,

"Respondents").

New York is unique. It is the only State in the country that obligates its

counties to bear a significant portion of the State's overwhelming Medicaid

burden. The Medicaid burden borne by the counties expanded as a result of the

statewide deinstitutionalization in the 1970's. Recognizing the catastrophic impact

of this burden on the counties, the Legislature adopted measures to hold the

counties harmless from the expenses incurred in treating the deinstitutionalized

patients. Thus, since 1984, the State has been required to reimburse the counties,

under Social Services Law § 368-a, for the Medicaid local share payments that

were taken by Respondents for the care of certain mentally disabled indigents,

commonly known as "overburden" reimbursement.

4

Respondents admit that it was solely their obligation to calculate the

overburden reimbursements owed to the counties and reimburse the funds, without

the counties taking any action and that Respondents controlled the databases in

which records of the overburden patients were maintained. Yet, for at least the last

twenty years, Respondents have patently failed or simply refused to calculate and

pay the total reimbursement liability, which consists solely of county tax revenues,

in accordance with the clear statutory direction. Instead, Respondents have

ignored their statutory hold harmless obligation and repeatedly sought to forestall

payment of their reimbursement liability, relying on misconstructions of legislative

amendments to the Medicaid scheme and forcing the counties to seek to collect the

reimbursements through dozens of collection actions. In each case, Respondents'

attempts to avoid their unambiguous reimbursement obligation failed, and the

courts compelled Respondents to pay.

When all else failed, Respondents drafted and convinced the Legislature to

enact Section 61, a statute that purports to extinguish Respondents' reimbursement

obligations immediately upon its effective date, and then began to deny the

counties' reimbursement claims based solely on Section 61. As the Third

Department held in Matter of County of St. Lawrence v Shah (124 AD3d 88 [3d

Dept 2014] ["St. Lawrence MTh lv denied AD3d [3d Dept Jan 23, 2015], lv

granted 25 NY3d 903 [2015], appeal PU), however, Section 61 cannot be read to

5

extinguish the counties' entitlement to reimbursement under Social Services Law

§ 368-a without first providing the counties a short limitations period after the

effective date of Section 61 for the final submission of reimbursement claims. As

a matter of statutory interpretation, these cases are straightforward and were

properly resolved by the Third Department below.

The State, however, has turned these simple collection actions into a

watershed event for New York municipalities. Once again without a defense to

avoid their overburden reimbursement obligation, Respondents sought to use these

proceedings to upset New York's longstanding rule that municipalities, like all

other litigants, are persons entitled to protection under the Due Process Clause of

the New York Constitution, Indeed, Respondents ignore this Court's dispositive

decisions in City of New York v State of New York (86 NY2d 286 [1995]) and

Board of Educ., Levittown Union Free School Dist. v Nyquist (57 NY2d 27

[1982]), where this Court made clear that municipalities are in fact "persons"

capable of challenging state legislation on due process grounds when they fit

within one of the limited common law exceptions to the general rule of municipal

incapacity.

Nevertheless, the Fourth Department, relying exclusively on inapplicable

federal precedent and an unsupported interpretation of this Court's holdings,

adopted Respondents' argument and held, for the first time under New York law,

6

that a municipality is not a "person" under the Due Process Clause of the New

York Constitution. Although the federal courts have held that municipalities may

not assert due process rights under the Fourteenth Amendment to the United States

Constitution, the United States Supreme Court has made clear that matters of state

constitutional law are reserved to the states.

As this Court recognized in City of New York, and contrary to the Fourth

Department's holding, New York has departed from this federal rule with respect

to municipal due process and equal protection claims under the New York

Constitution. New York is indeed unique; under New York law, courts treat a

municipality's right to assert due process claims under the New York Constitution

as a matter of capacity that can be waived if not raised by answer or motion.

Because Respondents waived their capacity defense by failing to raise it at nisi

prius, and the counties are "persons" that may assert due process claims under the

New York Constitution, the Fourth Department's holdings cannot stand.

The Fourth Department's decisions have not only overruled decades of New

York precedent preserving municipal rights under the New York Constitution, but

have fundamentally altered the relationship between the State and its subdivisions.

Under the Fourth Department's rationale that municipalities are not "persons,"

municipalities are nothing more than agents of the State subject to the State's

intervention in all local matters. The New York Constitution does not countenance

7

such a result. Therefore, as demonstrated fully below, the Third Department orders

should be affirmed and the Fourth Department orders reversed.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

New York's Medical Assistance program makes Petitioners, and other

counties throughout the state, responsible for providing Medical Assistance to

eligible patients within their counties (Record on Appeal in County of Chautauqua

v Shah ["R"} 37-38).1 New York originally required the counties to pay fifty

percent of all Medical Assistance costs not covered by federal payments,

commonly known as the counties' "local share" (R 38-39). However, in the 1980s,

the Legislature recognized the significant burden that this policy imposed on the

counties as a result of the widespread deinstitutionalization of individuals who had

previously been residents of State-run institutions (id.; see R 485). To mitigate this

burden, the Legislature eliminated the counties' obligation to pay a local share for

1 As the records involved in these appeals are very similar, unless otherwise noted, all record citations are to the Record on Appeal in County of Chautauqua v Shah. Citations to the Records on Appeal in County of St. Lawrence v Shah are referred to as "St. Lawrence Rl" (for Appellate Division case number 518097, Supreme Court index number 140712), "St. Lawrence R2" (for Appellate Division case number 518220, Supreme Court index number 140998), and "St. Lawrence R3" (for Appellate Division case number 518221, Supreme Court index number 141656). Citations to the Record on Appeal in County of Chemung v Shah are referred to as "Chemung R." Citations to the Record on Appeal in County of Oneida v Shah are referred to as "Oneida R." Citations to the Record on Appeal in County of Jefferson v Shah are referred to as "Jefferson R." Citations to the Record on Appeal in County of Cayuga v Shah are referred to as "Cayuga R." Citations to the Record on Appeal in County of Monroe v Shah are referred to as "Monroe R." Citations to the Record on Appeal in County of Genesee v Shah are referred to as "Genesee R."

8

Medical Assistance provided to certain indigent, mentally disabled persons (R 39).

The Legislature amended Social Services Law § 368-a to add subdivision (1)(h),

which provides counties with full reimbursement for their local shares for this

category of Medical Assistance recipients, known as "overburden" recipients (id.;

see R 485-486).

Following the amendment, Respondents continued to automatically collect

full local shares from Petitioners on a weekly basis, and deposited the shares into a

special bank account maintained by the State Comptroller (R 436). Respondents

were then solely responsible for determining the portion of the counties' local

share that was attributable to medical expenses the counties paid on behalf of

overburden eligible individuals, and for reimbursing those funds to the counties on

a quarterly basis (see R 437-438, 449, 495, 499-502, 506-507). Respondents relied

on a State-owned computer system to identify and code the overburden-eligible

individuals (R 437-438).

In the mid-1990s, Respondents improperly changed the codes on the State-

owned computer system for certain overburden recipients (R 488-503). As a

result, Petitioners were incorrectly charged for overburden-related expenses (id.;

see Matter of County of St. Lawrence v Daines, 81 AD3d 212, 217 [3d Dept 2011]

["St. Lawrence 1"], lv denied 17 NY3d 703 [2011]). Respondents provided no

notice to Petitioners that certain individuals either had not been properly coded or

9

had been decoded (R 438-441, 458, 499-501). Respondents also destroyed records

that would have assisted in identifying the uncoded overburden recipients (R 503),

and abjectly refused to turn over other relevant documents (R 135-190, 503-

504). Absent notice from Respondents or disclosure of records regarding the

improper coding, it was impossible for Petitioners and the counties to identify the

unpaid overburden reimbursements they were owed (R 499-500).

In April 2005, Respondents took yet another step to avoid their

unambiguous overburden reimbursement obligation. Without any notice to the

counties, Respondents summarily ordered the Office of Temporary and Disability

Assistance ("OTDA") to suspend any and all processing or payment of overburden

reimbursements to the counties (R 41, 490). Thus, even if Petitioners and the other

counties knew of the unpaid overburden reimbursement (which they did not) and

could have identified any of the unpaid overburden reimbursement (which they

could not), there would have been no means for them to recover the unpaid

overburden reimbursement from Respondents. In sum, Respondents have refused

to voluntarily pay a single overburden reimbursement claim to any county since at

least March 2005, if not earlier (as suggested by Respondents' litigation history

and the record evidence) (R 490-492, 511-513, 842-845).

10

The Medicaid Cap Statute

In 2005, the Legislature adopted a "cap" methodology to limit, in subsequent

calendar years, the total amount of Medical Assistance expenses that the counties

were required to pay to Medical Assistance-eligible patients in the first instance

(see L 2005, ch 58, part C, § 1 [hereinafter, the "Medicaid Cap Statute"]). The

basic principle of this cap methodology was to use 2005 as a base year for a

county's total Medical Assistance expenditures, and to then guarantee that future

expenditures did not increase unreasonably above that amount (see id. § l[b]-[d]).

The long overdue reform of the Medicaid methodology has done little to

ease the crushing burden of Medicaid spending on the counties. In 2012, for

example, New York's counties were projected to contribute more than 7.1 billion

to the state's Medicaid spending (Citizens Budget Commission, A Poor Way for

Medicaid: Why New York Should Eliminate Local Funding for Medicaid at 5

[Dec. 2011], available at

http : //www. cbcny org/sites/de fault/fi le s/REPMedicaid_ 12122012 .pdf). The

burden borne by New York's counties is unique of the 27 other states that require

any local funding for Medicaid spending, the vast majority limit the local shares to

administrative expenses (id. at 10). Overall, the proportionate local share

contribution required by New York, even after implementation of the Medicaid

Cap, dwarfs the local share contributions required by any other state (id). In 2008,

11

New York required counties to contribute $6.5 billion to Medicaid spending, which

was approximately 16% of the total Medicaid spending in New York (id.).

California, the state witia the second largest local share contribution in 2008,

required $1 billion in local share contributions to Medicaid spending, or roughly

2.5% of the state's total Medicaid spending (id.).

Notably, the Medicaid Cap Statute incorporated the overburden

reimbursement obligation prospectively, effective January 1, 2006, while leaving

Respondents' obligation to reimburse for pre-2006 local share payments

unchanged retrospectively (R 70-72; see St. Lawrence I, 81 AD3d at 214-215;

Matter of County of Herkimer v Daines, 60 AD3d 1456, 1457 [4th Dept 2009], lv

denied 63 AD3d 1672 [4th Dept 2009], lv denied 13 1\-Y3d 707 [2009]). As such,

after adoption of the Medicaid Cap, Respondents remained liable to reimburse the

counties 100% of their local shares paid prior to January 1, 2006 on behalf of

overburden-qualifying mentally disabled persons (R 70).

Related Prior Litigation

In 2006, counties submitted claims for overburden reimbursement, which

were arbitrarily denied by Respondents, forcing those counties to challenge

Respondents' denial of reimbursement in a series of expensive lawsuits (R 71-73).

In those litigations, Respondents initially argued that the counties' claims for

overburden reimbursement were barred by the Medicaid Cap Statute (R 71). The

12

Fourth Department properly rejected that argument, holding that the Legislature

"did not intend [the Medicaid Cap Statute] to be retroactively applied" (County of

Herkimer v Dairies, 60 AD3d at 1457). Within days of the Fourth Department's

decision, Respondents began denying claims on timeliness grounds, and also

attempted to supplement their prior denials to include the timeliness argument (see

Matter of County of Niagara v Dairies, 79 AD3d 1702, 1703-1705 [4th Dept

2010], lv denied 82 AD3d 1719 [4th Dept 2011], lv denied 17 NY3d 703 [2011];

St. Lawrence I, 81 AD3d at 216). The Third and Fourth Departments rejected both

of these arguments, holding that the Medicaid Cap Statute only applies

prospectively, and that the claims were not untimely (St. Lawrence I, 81 AD3d at

216-217; see also County of Niagara v Dairies, 79 AD3d at 1703, 1705). Notably,

in St. Lawrence I, Respondents made, and the Third Department rejected, the

identical argument referenced by Respondents in this appeal; namely, Petitioners

should have submitted the otherwise "stale" reimbursement claims earlier based

upon the limited pro forma statistical reports allegedly provided by Respondents

(compare R 1021-1023 with R 439-441).

In 2010, while these first two rounds of litigation were pending, the

Legislature amended the Medicaid Cap Statute to provide that "the state/local

social services district relative percentages of the non-federal share of medical

assistance expenditures incurred prior to January 1, 2006 shall not be subject to

13

adjustment on and after July 1, 2006" (L 2010, ch 109, part B, § 24). In effect, this

amendment locked in a county's percentage share for the cost of Medicaid services

at the figure calculated under the cap (R 73). In or around 2010, the counties again

submitted overburden reimbursement claims to Respondents (R 73-74).

Respondents denied those reimbursement claims, this time on the basis that the

2010 Amendment extinguished the counties' right to reimbursement (id.).

As a result, the counties were forced to commence litigation to compel

Respondents to make the reimbursements. After many courts throughout the state

once again rejected Respondents' arguments, the Third Department in St.

Lawrence II rejected Respondents' reliance on the 2010 Amendment (see Matter of

County of St. Lawrence v Shah, 95 AD3d 1548, 1553-1554 [3d Dept 2012] ["St.

Lawrence ITT. In its decision, the Third Department cogently explained why

Respondents could not retroactively avoid their statutory reimbursement obligation

to the counties under Social Services Law § 368-a:

[I]t has been the state's statutory obligation to pay the county share for Medicaid expenditures incurred in providing medical services to certain mentally disabled individuals. While the state, and not the county, has been obligated to pay for these medical services, it has continued to charge petitioner for these expenses and used these funds to satisfy its obligations under this statute. Since the state was never entitled to these funds, the 2010 amendment, even if found to apply to overburden expenditures, cannot serve to transform these county funds into state property and relieve the state of the legal obligation to return them. . . This Court has previously held that "prior to 2006, upon payment to DOH for services provided to overburdened patients for which no local share was owing, petitioner's right to

14

reimbursement for such expenditures accrued" (Matter of St. Lawrence County v. Daines, 81 A.D,3d at 216, 917 N.Y.S.2d 330). Thus, the 2010 amendment, even if it was intended by the Legislature to repeal Social Services Law § 368—a (1)(h), cannot serve to relieve the state of its obligation to refund the counties for these expenditures made prior to January 1, 2006

(id. [emphasis added]). The Fourth Department similarly rejected Respondents'

arguments (see Matter of County of Niagara v Daines, 91 AD3d 1288, 1289 [4th

Dept 2012], lv denied 94 AD3d 1481 [4th Dept 2012]). Nevertheless, Respondents

continued to reject claims on the basis of the 2010 Amendment until after the Third

Department issued its decision in St. Lawrence II (95 AD3d 1548 [3d Dept May

17, 2012]) (R 504-505, 512-514, 843-844).

The refusal by Respondents to reimburse the counties from 2006 to 2012

resulted in nine appellate decisions compelling Respondents to honor their

statutory duty (see Matter of County of St. Lawrence v Shah, 95 AD3d 1548 [3d

Dept 2012]; Matter of County of Niagara v Daines, 91 AD3d 1288 [4th Dept

2012]; Matter of County of Erie v Daines, 96 AD3d 1432 [4th Dept 2012]; Matter

of County of Herkimer v Daines, 83 AD3d 1510 [4th Dept 2011]; Matter of County

of Erie v Daines, 83 AD3d 1506 [4th Dept 2011]; Matter of County of St.

Lawrence v Daines, 81 AD3d 212 [3d Dept 2011]; Matter of County of Niagara v

Daines, 79 AD3d 1702 [4th Dept 2010]; Matter of County of Herkimer v Daines,

60 AD3d 1456 [4th Dept 2009]; Matter of County of Niagara v Daines, 60 AD3d

1460 [4th Dept 2009]). As here, in the nine prior appellate cases, Respondents did

15

not dispute that the State had failed to reimburse the counties for overburden local

share payments improperly taken prior to 2006. Notably, despite these decisions

directing Respondents to reimburse the counties for certain overburden recipients,

Respondents have, to date, abjectly failed to correct the coding for these recipients,

in apparent defiance of a number of court orders (R 495-502). Respondents'

intentional refusal to properly code individuals to date has allowed and will

continue to allow them to reap enormous windfalls (beyond the admitted windfall

of refusing to reimburse for pre-2006 payments at issue in this and prior litigations)

at the expense of Petitioners and the other counties (R 506-509) by artificially

inflating the counties' Medicaid caps from 2005 to date.

Section 61 of the 2012 Executive Budget Law

After all of Respondents' prior legal arguments to avoid the State's

undisputed debt to the counties failed, Respondents resorted to a new tactic—

asking the Legislature to pass a retroactive statute to permanently extinguish the

counties' vested rights to reimbursement, despite the Third Department's express

warning in St. Lawrence II that Respondents could not do so (R 43-45). Section 61

expressly provides that "[notwithstanding the provisions of section 368-a of the

social services law or any other contrary provision of law, no reimbursement shall

be made for social services districts' claims submitted on and after tie effective

16

date of this paragraph, for district expenditures incurred prior to January 1, 2006"

(R 299).

Section 61 was introduced to the Legislature on January 17, 2012 and

became effective upon its enactment on April 1, 2012 (Resps' App Div Brf in

County of Chautauqua ["Resps' Br." 1, at 9-10;2 see also R 299, 447). At the time

Section 61 was introduced, therefore, Respondents still were rejecting overburden

claims based upon the 2010 Amendment (R 447, 844-845). No grace or

limitations period was afforded to the counties to allow them to identify and seek

unpaid overburden reimbursement (R 45, 299).

Recent Overburden Claims Submitted

Between October 2012 and March 2014, Petitioners submitted claims for

overburden reimbursement to Respondents (St. Lawrence R1 36; St. Lawrence R2

30; St. Lawrence R3 42; Chemung R 67; Oneida R 318-328; Jefferson R 104;

Chautauqua R 327-336; Cayuga R 197-202; Monroe R 1015-1016; Genesee R 41,

202-206). By nearly identical form letters, Respondents denied all of Petitioners'

claims in their entirety, based solely on the retroactive application of Section 61

(St. Lawrence R1 37; St. Lawrence R2 30; St. Lawrence R3 42; Chemung R 67-68;

Oneida R 330-331; Jefferson R 104; Chautauqua R 339-340; Cayuga R 203-204;

2 Respondents submitted very similar briefs to the Appellate Division in each of these appeals. As a result, unless otherwise noted, all citations to Respondents' Appellate Division brief are to Respondents' brief in County of Chautauqua v Shah.

17

Monroe R 229-232, 1016; Genesee R 207-208). Thus, Respondents' actions once

again left Petitioners with no alternative but to challenge the deprivation of their

reimbursement rights in the courts.

The Supreme Court Judgments

From July 31, 2013 to June 24, 2014, the Supreme Courts below in St.

Lawrence, Chemung, Oneida, Jefferson, Chautauqua, Cayuga, Monroe, and

Genesee Counties held that Section 61 unconstitutionally extinguished Petitioners'

vested rights to overburden reimbursement, and granted Petitioners orders

annulling Respondents' denials of their claims for overburden reimbursements (see

R 20-27; St. Lawrence R1 13; St. Lawrence R2 8-9; St. Lawrence R3 11; Chemung

R 9-11; Jefferson R 51-52; Oneida R 11-16; Genesee R 9-19; Cayuga R 8-16;

Monroe R 18-21). Many of these courts also granted Petitioners orders in the

nature of mandamus directing Respondents to review, verify, and pay any

remaining overburden reimbursements due to those Petitioners under Social

Services Law § 368-a (see R 20-27; St. Lawrence R3 11; Chemung R 11; Jefferson

R 51-52; Oneida R 11-16; Genesee R 9-19). Supreme Court, Jefferson County, in

dicta, denied Petitioner Jefferson County's claims for unjust enrichment,

conversion, and constructive trust on the sole ground that those claims could not be

maintained against "the State of New York or a State agency" (Jefferson R 80-83).

18

Respondents appealed from the Supreme Court orders (St. Lawrence R1 4;

St. Lawrence R2 4; St. Lawrence R3 4; R 4-7; Chemung 4-5; Jefferson R 5-8;

Oneida R 5-7; Genesee R 4-5; Cayuga R 4-6; Monroe R 4-5). Petitioners

Chautauqua County, Jefferson County, and Monroe County also cross-appealed

from the Supreme Court orders (R 4-7; Jefferson R 5-8; Monroe R 9-10).

The Third Department's Order in St Lawrence III

In related appeals before the Appellate Division, Third Department

concerning the counties' vested rights to overburden reimbursement, the Third

Department (Lahtinen, J.P., McCarthy, Rose, Lynch and Clark, JJ.), on November

26, 2014, declared Section 61 constitutional "with a grace period of six months

from the date of this Court's decision for social services districts to submit claims

to respondent Department of Health for reimbursement of overburden expenditures

incurred prior to 2006" (St. Lawrence III, 124 AD3d at 94). The Third

Department's imposition of a due process grace period for the final submission of

overburden reimbursement claims applies to all counties throughout the State,

including Petitioners, and sets an end date by which the State's unpaid overburden

liability will be certain (see id. at 93).

The Court rejected Respondents' attempt to argue, for the first time on

appeal, that Petitioner St. Lawrence County could not assert a due process

challenge to Section 61 merely because it is a subdivision of the State (see id. at

19

91). The Court held that Respondents' "assertion that petitioner, as a political

subdivision of the state, can have no due process claim against its creator, [was]

essentially a challenge to petitioner's capacity," and that the "argument was

waived by respondents' failure to raise it as a defense in their answer or a pre-

answer motion to dismiss" (id. [citation omitted]).

Turning to the merits, the Third Department held that Section 61 did not

impliedly repeal Social Services Law § 368-41)(h) and "retroactively extinguish

petitioner's vested right to reimbursement" because both provisions can be read

together to achieve the legislative purposes of each (id. at 91). Specifically, the

Court held,

This Court has already held that, under Social Services Law § 368-a (1) (h), petitioner's right to reimbursement of overburden expenditures accrued when petitioner made payment to the state for those expenses for which no local share was owed, i.e., prior to January 1, 2006 (see Matter of County of St. Lawrence v Shah, 95 AD3d at 1554; Matter of County of St. Lawrence v Daines, 81 AD3d at 216). The 2012 amendment did not specifically repeal any part of Social Services Law § 368-a, or affect the counties' inherent right to reimbursement. Rather, the amendment simply imposed a statute of limitations for the payment of claims for such reimbursement. A statute of limitations does not impair an underlying substantive right, but may deprive a litigant of any remedy. In April 2012, the Legislature could have reasonably decided that, to promote finality of claims and effectuate accurate budgeting, reimbursements from more than six years earlier could be barred

(id. at 92 [some citations omitted]). Thus, the Court held that Section 61, as so

construed, is not unconstitutional (see id.).

20

The Third Department held, however, that where, as here, "a 'limitations

period is statutorily shortened, or created where none existed before,' due process

requires a reasonable grace period before the time bar takes effect" (id. at 93,

quoting Brothers v Florence, 95 NY2d 290, 300 [2000]). Noting that "the

Legislature did not expressly set a grace period in [Section 61]," the Third

Department, in an exercise of its considerable discretion, imposed a six-month due

process grace period running from the date of its decision during which "any social

services district [may] file a claim for reimbursement of any pre-2006 overburden

expenditures, with [Section 61] barring as untimely any claims submitted

thereafter" (St. Lawrence III, 124 AD3d at 93). In choosing the grace period, the

Third Department considered "petitioner's arguments that respondents have

improperly withheld records that are necessary for reimbursement, or even to

determine whether such a claim exists," and acknowledged that Petitioners and the

other counties could have reasonably relied on the trial courts' declarations that

Section 61 was unconstitutional as establishing their continuing right to submit

claims for overburden reimbursement under Social Services Law § 368-a(1)(h)(i)

(id. at 93 n 1). The Court reasoned that a single grace period for all counties was

appropriate because "the case-by-case approach results in uneven application and

does not provide clear guidance to potential claimants" (id.). Thus, under the

21

Third Department's decision, any overburden reimbursement claims submitted by

any county after May 26, 2015 are barred.

Finally, the Third Department held that "Supreme Court did not err in

directing DOH to identify, verify and pay the total unpaid overburden expenditures

that petitioner incurred prior to 2006" (id. at 94). Specifically, the Court held,

Petitioner asserts that it was entitled to a writ of mandamus to compel DOH to comply with the mandate of Social Services Law § 368-a (1), which states that DOH "shall" reimburse petitioner for, among other things, overburden expenditures; the statute does not include any requirement that petitioner make a claim for those payments. Thus, DOH was required to pay those reimbursements even without any claims being made, and should have done so by 2006. This Court has already determined that the state cannot be relieved of its obligation to refund the counties for overburden expenditures made prior to January 1, 2006 (see Matter of County of St. Lawrence v Shah, 95 AD3d at 1554). As DOH's statutory obligation to make reimbursement for these expenditures is mandatory and ministerial and does not involve any discretion, petitioner was entitled to a writ of mandamus requiring DOH to review its records to identify any individuals who may not have been properly coded as overburden patients, and all medical services that were provided to individuals who were or were not properly coded as overburden patients, then process all pre-2006 overburden expenditure reimbursements to petitioner

(id. [emphasis added]).

The Third Department reaffirmed its St. Lawrence III holding in County of

Chemung and County of Broome (see Matter of County of Broome v Shah, 130

AD3d 1347 [3d Dept 2015]; Matter of County of Chemung v Shah, 124 AD3d 963,

964 [3d Dept 2015], lv granted 25 NY3d 903 [2015], appeal PU). Respondents

moved for leave to appeal from the Third Department orders in St. Lawrence III,

22

County of Chemung, and County of Broome. This Court granted leave to appeal in

St. Lawrence III and County of Chemung (see Matter of County of Chemung v

Shah, lv granted 25 NY3d 903 [2015]; Matter of County of St. Lawrence v Shah, lv

granted 25 NY3d 903 [2015]). Respondents' motion for leave to appeal in County

of Broome remains pending.

The Fourth Department's Order in County of Chautauqua

in a Memorandum and Order dated and entered March 20, 2015, almost four

months after the Third Department's decision in St. Lawrence III, the Appellate

Division, Fourth Department (Smith, J.P., Cami, Lindley, and Valentino, JJ.)

reached an entirely different conclusion from the Third Department. The Fourth

Department modified the Supreme Court, Chautauqua County judgment by

"denying the petition-complaint in its entirety" and granted judgment to

Respondents, declaring that Section 61 has not been shown to be unconstitutional,

solely on the ground that Petitioner Chautauqua County, as a subdivision of the

state, cannot challenge the deprivation of its vested rights to overburden

reimbursement occasioned by Section 61 on due process grounds because it is not

a "person" within the meaning of the Due Process Clause of the New York

Constitution (see Matter of County of Chautauqua v Shah, 126 AD3d 1317, 1317,

1320 [4th Dept 2015], appeal and lv PU).

23

Ignoring this Court's comprehensive discussion of the municipal capacity

issue in City of New York, and the Third Department's resolution of the same issue

in St. Lawrence III and Chemung, the Fourth Department applied a two-part test

that finds no support in New York law: first, whether Petitioner Chautauqua

County had capacity to bring a claim to court and, second, whether Petitioner

Chautauqua County had a substantive right to assert a claim under the Constitution

(see id. at 1320-1321). Although the Fourth Department properly held that

Respondents had waived any capacity defense by failing to raise it before Supreme

Court, the Court nonetheless held that Petitioner, as a municipality, could not assert

due process rights against the State (see id. at 1320). Ultimately, the Court held

that Petitioner Chautauqua County did not have a substantive right to challenge

Section 61 on due process grounds because it is not a "person[] within the meaning

of the constitutional due process provisions," and thus may not raise a due process

argument against the State (id.),

Remarkably, notwithstanding that Petitioner Chautauqua County pled due

process claims only under the New York Constitution (R 51-54), the Fourth

Department's analysis relies almost exclusively on federal law, from which this

Court, in City of New York, held New York has departed (see County of

Chautauqua, 126 AD3d at 1321). In fact, the Fourth Department cited only one

New York case in support of its conclusion that municipalities can never assert due

24

process rights against the State, Matter of Jeter v Ellenville Cent. School Dist. (41

NY2d 283 [1977]), and significantly misstated this Court's holding in Jeter in

doing so (see County of Chautauqua, 126 AD3d at 1321).

Notably, the Fourth Department's decision makes no mention of the Third

Department's contrary holdings in St. Lawrence 111 and Cheinung, which were

decided months earlier, and makes no attempt to distinguish them (see id. at 1320--

1321), Because the Fourth Department decided the case solely on the

constitutional ground that Petitioner Chautauqua County can never assert due

process rights against the State, the Court did not reach the question of the proper

interpretation of Section 61 decided by the Third Department. Additionally,

because the Fourth Department determined that Section 61 implicitly repealed

Respondents' overburden reimbursement obligation under Social Services Law

§ 368-a, the Court held that mandamus to compel Respondents to satisfy that duty

did not lie (see id. at 1322). Finally, the Fourth Department also held that

Respondents are not subject to tort liability to municipalities "for the reasons stated

in the decision at Supreme Court, Jefferson County" (id.).

Following its decision in County of Chautauqua, the Fourth Department

reached the same conclusions in County of Jefferson, County of Genesee, County

of Oneida, County of Cayuga, and County of Monroe (see Matter of County of

Jefferson v Shah, 126 AD3d 1322 [4th Dept 2015], appeal and lv PU; Matter of

25

County of Genesee v Shah, 128 AD3d 1380 [4th Dept 2015], appeal and lv PU;

Matter of County of Oneida v Shah, 128 AD3d 1381 [4th Dept 2015], appeal and

lv PU; Matter of County of Cayuga v Shah, 129 AD3d 1503 [4th Dept 2015],

appeal and lv PU; Matter of County of Monroe v Shah, 129 AD3d 1505 [4th Dept

2015], appeal and lv PU). Petitioners appealed the Fourth Department orders as of

right, pursuant to CPLR 5601(b)(1), on the ground that a substantial constitutional

question was directly involved, and moved for leave to appeal to the extent this

Court determines that an appeal as of right does not lie. In a letter dated June 24,

2015, this Court indicated that it would hold Petitioners' motions for leave to

appeal in abeyance pending the determination of Petitioners' appeals as of right.

POINT I

THE THIRD DEPARTMENT PROPERLY CONSTRUED SECTION 61 AS IMPOSING A FINAL LIMITATIONS PERIOD FOR THE

SUBMISSION OF OVERBURDEN REIMBURSEMENT CLAIMS

As more fully discussed infra (see Point III[B], [C]), under this Court's

decisions in City of New York, Levittown, County of Rensselaer v Regan (173

AD2d 37 [3d Dept 1991], affd 80 NY2d 988 [1992]), and Matter of Krauskopf v

Perales (139 AD2d 147 [3d Dept 1988], affd 74 NY2d 730 [1989]), Petitioners

have capacity to sue the State to vindicate their proprietary interest in a specific

fund and may do so through a due process challenge to Section 61. In light of this

Court's clear precedent, and recognizing that the language of Section 61, on its

26

face, purports to retroactively extinguish Petitioners' vested rights to overburden

reimbursement in violation of the Due Process Clause of the New York

Constitution (see Point IV, infra), the Third Department had no choice but to

construe Section 61 in the only manner in which its constitutionality could be

preserved—as imposing a final limitations period for the submission of overburden

reimbursement claims. Indeed, settled principles of statutory interpretation

mandate that Section 61 must be construed to avoid the impairment of Petitioners'

vested rights to overburden reimbursement. Therefore, laying aside for the

moment the Fourth Department's failure to follow this Court's clear teachings in

City of New York and Levittown, this case turns on the proper interpretation of

Section 61.

In St, Lawrence III, the Third Department held that Social Services Law

§ 368-a and Section 61 may be read together and applied harmoniously to

effectuate the purposes of each (see St. Lawrence III, 124 AD3d at 91-92). As the

Third Department held, the only way that Section 61 may be construed to preserve

its constitutionality is as imposing a limitations period for the final submission of

overburden reimbursement claims (see id.). As so construed, Petitioners' vested

rights to overburden reimbursement are preserved, and Section 61 accomplishes its

legislative intent to foreclose further claims and provide the State with the fiscal

certainty it so desired.

27

In contrast, the Fourth Department's interpretation of Section 61, as

implicitly repealing Social Services Law § 368-a(1)(h)(i) and retroactively

extinguishing Petitioners' vested rights to overburden reimbursement not only

conflicts with the settled principles of statutory construction, but would also render

the provision unconstitutional and void, a result that must be avoided (see County

of Chautauqua, 126 AD3d at 1319, 1322). Therefore, because only the Third

Department's interpretation of Section 61 as a statute of limitations extinguishing

Petitioners' remedy to enforce their vested rights when it runs, but preserving their

underlying reimbursement rights, permits Section 61 to be sustained, the Third

Department orders should be affirmed and the Fourth Department orders reversed.

A. Section 61 May Only be Construed as Imposing a Limitation Period for the Final Submission of Overburden Reimbursement Claims.

It is well settled that where, as here, two statutory provisions relate to the

same subject matter, they must be construed together to effectuate the statutory

purposes of each (see Alweis v Evans, 69 NY2d 199, 204 [1987]; see also Matter

of Albany Law School v New York State Off of Mental Retardation & Dev.

Disabilities, 19 NY3d 106, 121 [2012] ["Statutes that relate to the same subject are

in pari materia and should be construed together unless a contrary intent is clearly

expressed by the Legislature." (internal quotation marks and citation omitted)];

Matter of Town of Brookhaven v New York State Bd. of Equalization &

Assessment, 88 NY2d 354, 361 [1996] ["Given the absence of an explicit statement

28

by the Legislature to the contrary, settled jurisprudence requires us to read the

statutes, if possible, in a manner which gives effect to both"]; St. Lawrence II, 95

AD3d at 1552). Indeed, "[t]he repeal of a statute by implication is not favored by

law, for when the legislature intends to repeal an act it usually says so expressly"

(Pines v State of New York, 115 AD3d 80, 97-98 [2d Dept 2014], appeal dismissed

23 NY3d 982 [2014], quoting Matter of Tiffany, 179 NY 455, 457 [1904]; see also

Matter of Natural Resources Defense Council v New York City Dept. of Sanitation,

83 NY2d 215, 222-223 [1994] [`It is well settled that [r]epeal or modification of

legislation by implication is not favored in the law, and that the doctrine will be

resorted to only in the clearest of cases. Put another way, a repeal by implication

will not be discovered unless the conclusion is unavoidable, as when repugnancy

between the two statutes is plain" (internal quotation marks and citations omitted)];

Matter of Consolidated Edison Co. of N.Y. v Department of Envtl. Conservation,

71 NY2d 186, 195 [1988] ["Repeal or modification of legislation by implication is

not favored in the law. Absent an express manifestation of intent by the

Legislature—either in the statute or the legislative history—the courts should not

presume that the Legislature has modified an earlier statutory grant of power to an

agency."]; Ball v State of New York, 41 NY2d 617, 622 [1977]).

"The absence of an express provision in a later statute, for repeal of an

earlier one, gives rise to a presumption that repeal was not intended" (Cimo v State

29

of New York, 306 NY 143, 148-49 [1953]). "'If by any fair construction, both

statutes can be given operation, implied repeal will not be declared' (Pines, 115

AD3d at 98, quoting Cimo, 306 NY at 149). Thus, a statute cannot be "deemed

impliedly modified by a later enactment unless the two are in such conflict that

both cannot be given effect. If by any fair construction, a reasonable field of

operation can be found for [both] statutes, that construction should be adopted"

(Consolidated Edison Co. of N.Y. , 71 NY2d at 195 [internal citation and quotation

marks omitted]; see also Alweis, 69 NY2d at 204). Most importantly, when this

Court is faced with two differing interpretations of a statute, only one of which

would avoid a violation of the New York Constitution, the Court is obligated to

construe the provision in order to preserve its constitutionality (see People v

Santorelli, 80 NY2d 875, 876 [1992] [holding that the Court "must construe a

statute . . . to uphold its constitutionality if a rational basis can be found to do so"];

Matter of Lower Manhattan Loft Tenants v New York City Loft Bd., 66 NY2d 298,

306 [1985] ["a statute is to be construed so as to sustain its constitutionality"];

Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340, 346 [1982]

["[a] statute . . . should be construed in such a manner as to uphold its

constitutionality"]; Matter of Buttonow, 23 NY2d 385, 393 [1968] [reading

requirement for a hearing into statute to preserve its constitutionality]; Spahn v

30

Julian Messner, Inc., 21 NY2d 124, 127 [1967]; McKinney's Cons Laws of NY,

Book 1, Statutes § 150).

As the Third Department held in St. Lawrence III, Social Services Law

§ 368-a and Section 61 may be read together and applied harmoniously to

effectuate the purposes of each. Social Services Law § 368-a unambiguously

entitles Petitioners to 100 percent reimbursement for all overburden local share

payments made prior to January 1, 2006 (see Social Services Law § 368-a[1][h][i]

["There shall be paid to each such district . . . Beginning January first, nineteen

hundred eighty-four, one hundred per centum of the amount expended for medical

assistance for those individuals who are eligible pursuant to section three hundred

sixty-six of this article as a result of a mental disability . . . after first deducting

therefrom any federal funds properly received or to be received on account

thereof." (emphasis added)]). Petitioners' right to reimbursement vested when

Petitioners paid their overburden local share to the State prior to January 1, 2006

(see St. Lawrence II, 95 AD3d at 1553-1554 ["Since the state was never entitled to

these funds, the 2010 amendment, even if found to apply to overburden

expenditures, [could not] serve to transform these county funds into state property

and relieve the state of the legal obligation to return them" (emphasis added)]; St.

Lawrence I, 81 AD3d at 216 ["petitioner's right to reimbursement for [Medical

Assistance] expenditures accrued" "prior to 2006, upon payment to DOH for

31

services provided to overburden patients for which no local share was owing"

(emphasis added)]).

Section 61 does not explicitly or implicitly repeal any part of Social Services

Law § 368-a. Had the Legislature intended to eliminate Respondents'

reimbursement obligation entirely, it would have repealed that provision, or used

language that expressly eliminated all overburden reimbursement (see Alweis, 69

NY2d at 204 ["Obviously, the judiciary should not lightly infer that the Legislature

has repealed one of its own enactments when it has failed to do so expressly; the

Legislature is hardly reticent to repeal statutes when it means to do so."]). It chose

not to do so, however. Instead, as the Third Department held, the intent of Section

61 was to provide the State with financial certainty by imposing a statute of

limitations on the payment of Petitioners' claims for overburden reimbursement

(see St. Lawrence III, 124 AD3d at 92 ["The 2012 amendment did not specifically

repeal any part of Social Services Law § 368—a or affect the counties' inherent

right to reimbursement. Rather, the amendment simply imposed a statute of

limitations for the payment of claims for such reimbursement."]).

Notably, the Third Department credited Respondents' argument that the

intent of Section 61 was to provide the State with financial certainty and, in fact,

Respondents essentially conceded below that a statute of limitations for

reimbursement claims was intended (Resps' Br., at 21-22 [arguing that the

32

Legislature provided a grace period for the final submission of overburden

reimbursement claims before the effective date of Section 61, quoting Brothers, 95

1\--Y2d at 301, as follows: "if the Legislature shortens a statute of limitations period

but sets a reasonable grace period, 'its determination of what constitutes a

reasonable time is entitled to deference in the absence of some 'palpable error”"]).

Indeed, Social Services Law § 368-a does not require or otherwise address

submission of claims for reimbursement. The claim procedure was informally

implemented after the enactment of that statute as a remedy for obtaining the

reimbursement.

As so construed, Section 61 does not impair Petitioners' unquestionably

vested right under Social Services Law § 368-a, but only extinguishes a remedy

through which Petitioners may enforce that right (see Matter of Paver &

Wildfoerster [Catholic High School Assn.] , 38 NY2d 669, 676 [1976] ["it has been

said long ago and many times since that the Statute of Limitations only bars the

remedy; it does not impair the underlying right"]). Thus, the Third Department's

interpretation of Section 61 is consistent with the construction expressly intended

by the Legislature—that it "shall not be construed to alter, change, affect, impair or

defeat any rights, obligations, duties or interests accrued, incurred or conferred

prior to the effective date of this act" (L 2012, ch 56, part D, § 65[k]; see also

General Construction Law § 93 ["The repeal of a statute or part thereof shall not

33

affect or impair any . . . right accruing, accrued or acquired . . . prior to the time

such repeal takes effect"]; St. Lawrence II, 95 AD3d at 1553-1554; St. Lawrence I,

81 AD3d at 216; County of Herkimer v Daines, 60 AD3d at 1457).

In contrast, the Fourth Department's interpretation conflicts not only with

the construction intended by the Legislature to preserve vested rights, but also with

its own prior decision in Matter of County of Niagara v Daines, where the Fourth

Department rejected Respondents' construction of the 2010 Amendment to

"defeat[ ] their preexisting duty to reimburse petitioner for the overburden

expenditures," because language in the 2010 Amendment that was identical to

L 2012, ch 56, part D, § 65(k) unambiguously preserved Petitioners' preexisting

rights (County of Niagara v Daines, 91 AD3d at 1289; see also Matter of Monroe

County Pub. School Dists. v Zyra, 51 AD3d 125, 131 [4th Dept 2008] ["the rules

of statutory construction require that we avoid rendering statutory language

superfluous"], lv denied 52 AD3d 1293 [4th Dept 2008]). In fact, the Fourth

Department's interpretation of Section 61 in County of Chautauqua even arguably

conflicts with its prior decision in Matter of County of Niagara v Shah (122 AD3d

1240 [4th Dept 2014]), where the Court held that "section 61 has retroactively

changed the law" by extinguishing "petitioner's right to submit claims for

reimbursement of overburden expenditures made prior to 2006"—i.e., the remedy

34

through which Petitioners could recover the reimbursement owed pursuant to

Social Services Law § 368-a (id. at 1242 [emphasis added]).

Construed as a statute of limitations eliminating Petitioners' remedy for

recovery of overburden reimbursements, Section 61 can be given its intended

effect to close the books on pre-2006 overburden reimbursement claims, while also

preserving the legislative intent of Social Services Law § 368-a to provide 100

percent reimbursement to Petitioners and the other counties (see Governor's Mem

approving L 1983, ch 816, 1983 McKinney's Session Laws of NY at 2808 ["The

bill further continues State reimbursement of local governments for 100% of the

cost of providing medical assistance to mentally disabled, as begun by the Human

Services Overburden Aid program. The legislation represents a major initiative to

achieve a fundamental restructuring of the way in which Medicaid is financed by

the State and its local governments. Such a restructuring has been one of my

highest priorities and, while I supported a more comprehensive takeover of local

Medicaid costs, this legislation provides reliable relief to local governments which

they can budget with certainty,"]). Construed otherwise, Section 61 can only be

read to extinguish Petitioners' vested rights to overburden reimbursement

retroactively, contrary to the intent of the Legislature and in violation of the

Constitution.

35

Thus, it is this Court's duty to construe Section 61 in the only manner that

will preserve its constitutionality, as imposing a final limitations period for the

recovery of the overburden reimbursement unambiguously provided under Social

Services Law § 368-a (see Loretto v Teleprompter Manhattan CATV Corp., 58

NY2d 143, 149 [1983] ["the section is to be construed so as to sustain its

constitutionality . . . if possible"]; H. Kauffman & Sons Saddlery Co. v Miller, 298

NY 38, 44 [1948] ["Where the language of a statute is susceptible of two

constructions, the courts will adopt that which avoids injustice, hardship,

constitutional doubts or other objectionable results."]). Indeed, if the Third

Department had not construed Section 61 as imposing a final limitations period for

the submission of reimbursement claims, it necessarily would have been compelled

to declare the statute unconstitutional as retroactively impairing Petitioners' vested

rights to overburden reimbursement (see Point IV, infra).

B. The Third Department Properly Imposed a Six Month Grace Period for the Final Submission of Overburden Reimbursement Claims.

When, as here, the Legislature imposes a limitations period where one did

not previously exist, "Due Process requires that potential litigants be afforded 'a

reasonable time . . . for the commencement of an action before the bar takes

effect' (Brothers v Florence, 95 NY2d 290, 300 [2000], quoting Terry v

Anderson, 95 US 628, 632-633 [1877]). Thus, in order to provide constitutionally

adequate due process before a retroactive deprivation of Petitioners' remedy to

36

enforce their vested rights to overburden reimbursement, Section 61 was required,

at the very least, to provide a reasonable grace or limitations period for submission

of claims after it became effective (see Brothers, 95 NY2d at 301 ["Where, as here,

however, there is no legislatively prescribed grace period, a court may uphold the

constitutional validity of the retrospective application of the new statute by

interpreting it as authorizing suits upon otherwise time-barred claims within a

reasonable time after the statute's effective date" (emphasis added)]; Roman

Catholic Diocese of Albany, NY. v New York State Workers' Compensation Bd.,

96 AD3d 1288, 1290 [3d Dept 2012] ["With respect to legislation that is

retroactive in the sense that it shortens a limitations period for claims that accrued

prior to the statute's effective date, due process is satisfied when the Legislature

expressly sets a reasonable grace period" (internal quotation marks and citation

omitted)]).

Section 61 did no such thing. Instead, it purported to bar Petitioners' claims

for reimbursement immediately when it became effective, without any grace period

at all (see St. Lawrence III, 124 AD3d at 93). Because Section 61 did not provide

a grace period for the final submission of overburden reimbursement claims, the

Third Department exercised its discretion and determined that a six-month

limitations period running from the date of its decision — November 26, 2014 — was

warranted in order to preserve the statute's constitutionality (see Brothers, 95

37

NY2d at 301 ["Where, as here, however, there is no legislatively prescribed grace

period, a court may uphold the constitutional validity of the retrospective

application of the new statute by interpreting it as authorizing suits upon otherwise

time-barred claims within a reasonable time after the statute's effective date."]).

The Third Department properly rejected Respondents' argument that the

limitations period imposed ran for the two and a half-month period from the date

that Section 61 was introduced to its effective date. Indeed, this Court has already

rejected Respondents' exact argument, holding that the time period between

legislation's passage and effective date cannot serve as a grace period to satisfy the

strictures of due process (see Gilbert v Ackerman, 159 NY 118, 123-124 [1899];

see also Hastings v H M Byllesby & Co., 293 NY 413, 420 [1944] ["`the fact that

[an] act affords a reasonable interval between its passage, or becoming a law, and

its taking effect is not enough' to remove doubts as to the validity of a statute if

applied to causes of action which would be barred at the moment the statute takes

effect"], quoting People v Cohen, 245 NY 419, 422 [1927]).

Instead, in choosing the grace period, the Third Department properly

considered "the importance of the 'subject matter' of the claims being curtailed by

the new Statute of Limitations" and "reconcile[d the] legislative goals with

constitutional restraints and fairness to litigants" (Brothers, 95 NY2d at 303

[citation and internal quotation marks omitted]). Specifically, in determining that

38

the six-month due process grace period should be run from the date of its decision

on November 26, 2014, the Third Department noted that Petitioners and the other

counties could have reasonably relied on the trial courts' declarations that Section

61 was unconstitutional as establishing their continuing right to submit claims for

overburden reimbursement under Social Services Law § 368-a(1)(h)(i) (see St.

Lawrence III, 124 AD3d at 93). The Third Department also considered

"petitioner's arguments that respondents have improperly withheld records that are

necessary for reimbursement, or even to determine whether such a claim exists"

and "that petitioner and other similarly situated social services districts have had

more than eight years to obtain such documentation and submit claims for pre-

2006 reimbursement, including many years during that time when they were aware

of respondents' errors and failure to pay some reimbursements that were owing"

(id. at 93 n 1; see also e.g. Matter of Thomas v Bethlehem Steel Corp., 63 NY2d

150, 155 [1984] ["We read the six-month 'grace' period for employees whose

disablement and knowledge of disablement occurred prior to October 1, 1980 as a

transitional measure for those with viable claims at October 1, 1980, who could by

virtue of the amendment otherwise have had their remaining time to file claims

reduced even below three months."]).

Balancing all of these considerations, including the State's interest in

obtaining fiscal certainty, the Third Department properly determined that a final

39

six-month grace period running from the date of its decision gave Petitioners and

all of the other counties the process they were due under the New York

Constitution. Demonstrating its concern for establishing a final and predictable

reimbursement claim period for both the counties and the State, the Third

Department also determined that the grace period must apply to all counties across

the state in order to avoid what would otherwise be an unpredictable scheme of

different periods running for each county (see St. Lawrence III, 124 AD3d at 93

["This Court can either make an individualized assessment on a case-by-case basis

to determine whether the delay in interposing the claim was reasonable under the

particular facts, or we can set a generally-applicable period that would afford a

reasonable opportunity for anyone to file a claim. Because the case-by-case

approach results in uneven application and does not provide clear guidance to

potential claimants, we deem a flat grace period to be preferable." [citation

omitted]).

The Third Department's decision provides substantial justice for Petitioners

and the other counties, providing them with a portion of the 100 percent

reimbursement that was guaranteed under Social Services Law § 368-a(1)(h)(i). It

also gives the State the financial certainty sought through Section 61 by virtue of a

truncated grace period, Because the Third Department's balancing of the interests

in fashioning relief to avoid declaring Section 61 unconstitutional was not an abuse

40

of its considerable discretion, and the Third Department's limitations period has

now expired, the Third Department orders should be affirmed.

POINT II

THIS COURT SHOULD REVIEW THE MERITS OF THE ERRONEOUS FOURTH DEPARTMENT ORDERS

Under the New York Constitution, this Court's jurisdiction is "limited to the

review of questions of law" (NY Const, art VI, § 3; see also CPLR 5501[b];

Commercial Bank v Sherwood, 162 NY 310, 317 [1900] ["the allowance of the

appeal by the Appellate Division brings before us for determination every question

of law that arose upon the trial which we are not forbidden by the Constitution to

review"]). The construction of Article I, § 6 of the New York Constitution at

issue, and whether the Fourth Department erred in denying the Counties' petitions-

complaints in their entirety, are issues of law that are reviewable by this Court (see

e.g. Matter of Lopez v Evans, 25 NY3d 199, 205-207 [2015]; County of Nassau v

Canavan, 1 NY3d 134, 141-145 [2003]; see also People v Ahearn, 196 NY 221,

242 [1909] [Bartlett, J., concurring] [noting that the "construction of the language

of the Constitution" is "a question of law"]).

First, the Fourth Department clearly understood and intended that it was

resolving Respondents' appeal as an issue of law. The decretal paragraph of the

Fourth Department's decision expressly provides that in so many words: "It is

hereby ORDERED that the judgment so appealed from is unanimously modified

41

on the law by denying the petition-complaint in its entirety" (County of

Chautauqua, 126 AD3d at 1317 [emphasis added]).

Second, the Fourth Department's decision explicitly rejects Petitioners'

argument that Respondents' objection that Petitioners have no due process rights is

nothing but an unpreserved lack of capacity to sue defense. The Court expressly

recognized that any lack of capacity to sue defense was waived, and clearly

resolved the appeal in Respondents' favor without exercising its discretion to

unwaive Respondents' waiver:

Here, it is clear that Respondents did not raise the defense of capacity in their answer or a pre-answer motion, and thus it is waived. Nevertheless, Respondents' waiver of their capacity defense does not afford petitioners the right to relief sought. In other words, the issue of "capacity concerns [petitioners'] power to appear and bring [their] grievance before the court," but petitioners must then establish their constitutional claim

(id. at 1320 [citation omitted], quoting Matter of Graziano v County of Albany, 3

NY3d 475, 478-479 [2004]).

Instead, the Court dismissed Petitioners' due process claims based upon its

conclusion (erroneous as a matter of law) that, as non-persons, Petitioners lack

standing to bring any cognizable due process claims against the State (see id. ["We

agree with respondents that petitioners are not persons within the meaning of the

state and federal constitutions and thus may not raise a due process argument

against the State."]), which is a question of the Court's jurisdiction and, thus,

42

reviewable at any stage without preservation (see id. ["We agree with Petitioners,

however, that the issue of lack of capacity to sue does not go to the jurisdiction of

the court, as in the case when the Petitioners lack standing" (internal quotation

marks omitted)]; see also Fry v Village of Tarrytown, 89 NY2d 714, 718 [1997]).

That the Fourth Department viewed Petitioners' non-person status as a fatal

jurisdictional defect is further demonstrated by the Court's reliance upon federal

case law explicitly taking that position. For example, the Fourth Department relied

on City of E. St. Louis v Circuit Ct. for Twentieth Jud. Circuit, St. Clair County, Ill.

(986 F2d 1142 [7th Cir 1993]), where the Seventh Circuit stated:

The City's claim for injunctive relief has also foundered on the standing requirement. Municipalities cannot challenge state action on federal constitutional grounds because they are not "persons" within the meaning of the Due Process Clause. Because East St. Louis is not a "person," it cannot invoke the protection of the Fifth or Fourteenth Amendments, and therefore cannot bring a section 1983 claim. Thus, the district court lacked jurisdiction to hear this claim

(id. at 1144 [citation omitted and emphasis added]).

The Fourth Department also relied upon City of New Rochelle v Town of

Mamaroneck (111 F Supp 2d 353 [SD NY 2000]), where the Court dismissed a

municipality's Fourteenth Amendment claim on the basis of lack of standing, even

though the issue was "not addressed by the parties" (id. at 364). Notably, the

Court in City of New Rochelle quoted from another federal decision emphasizing

that "whether a claimant has standing is the threshold of every federal case,

43

determining the power of the court to entertain the suit" (id. at 358 [internal

quotation marks omitted], quoting In re Gucci, 126 F3d 380, 387-388 [2d Cir

1997]). Similarly, the Fourth Department cited to City of S. Lake Tahoe v

California Tahoe Regional Planning Agency (625 F2d 231 [9th Cir 1980], cert

denied 449 US 1039 119801), where the Ninth Circuit dismissed a city's due

process claim against the State on jurisdictional grounds because "[s]tanding is a

necessary element of federal-court jurisdiction" (id. at 233, 239 ["Neither the

City's nor the councilmembers' claims supply a sufficient basis for standing to

bring this action . . . their claims do not support federal-court jurisdiction."]).

Because the Fourth Department based its dismissal of these proceedings on

the purely legal conclusion that the Court lacked subject matter jurisdiction to

entertain their due process claims for lack of standing, it is readily apparent that the

issues here are reviewable. This is not a case where this Court should disregard the

Appellate Division's dispositional statement that modification by dismissal was

"on the law" but conclude instead that the Appellate Division exercised its non-

reviewable discretion or fact-finding powers. Indeed, there appear to be only two

classes of cases where this Court has disregarded an Appellate Division's

characterization of its disposition as "on the law" and dismissed an appeal as non-

reviewable: (1) where examination of the Appellate Division's decision reflects

that it necessarily entailed either the exercise of discretion or fact-finding authority

44

(see Andon v 302-304 Mott St. Assoc., 94 NY2d 740 745-746 [2000] [Appellate

Division decision to deny discovery request reflected a discretionary balancing of

interest]; Small v Lorillard Tobacco Co., 94 NY2d 43, 53 [1999] [Appellate

Division decision to deny class action status necessarily entailed exercise of

discretion in determining that the statutory criteria were not satisfied by the facts];

Brady v Ottaway Newspapers, 63 NY2d 1031, 1033 [1984] [Appellate Division

discovery ruling involved exercise of discretion]; Matter of Von Bulow, 63 NY2d

221, 225 n * [1984] [Appellate Division's determination whether or not to appoint

a third co-committee for incompetent was necessarily a judgment upon the facts

and lies in the Court's discretion]) and (2) where examination of the Appellate

Division's decision demonstrates that the disposition of the appeal could not under

any circumstances have been reached without the exercise of the Court's discretion

(see Brown v City of New York, 60 NY2d 893, 894 [1983] [Appellate Division

reversed jury verdict for plaintiff on malicious prosecution claim based on

inconsistency with verdict for city on false arrest claim, despite city's lack of

timely objection to the inconsistent verdicts]; Feinberg v Saks & Co., 56 NY2d

206, 210-211 [1982] [same]).

Here, the Fourth Department's determination that Petitioners' lack of

standing as non-persons to assert due process claims against the State required

dismissal of these proceedings on jurisdictional grounds, irrespective of

45

Respondents' failure to object at nisi Arius, did not entail any exercise of the

Court's discretion because lack of jurisdiction can be raised, as a matter of law, at

any time (see Fry, 89 NY2d at 718 ["a court's lack of subject matter jurisdiction is

not waivable, but may be [raised] at any stage of the action, and the court may, ex

mero motu [on its own motion], at any time, when its attention is called to the

facts, refuse to proceed further and dismiss the action" (internal quotation marks

omitted)]; see also Financial Indus. Regulatory Auth., Inc. v Fiero, 10 NY3d 12,

17 [2008]).

The Fourth Department's treatment of Petitioners' ability to assert due

process claims as a jurisdictional standing issue, however, was legal error, because

the Fourth Department disregarded this Court's teachings in City of New York and

Levittown. First, under Levittown and City of New York, a municipality's general

inability to assert any legally cognizable claim, due process, equal protection, or

otherwise, against the State is not treated as a fatal jurisdictional defect, which can

be raised at any stage of the litigation, but as a waivable lack of capacity to sue

defense. Thus, as this Court explained in City of New York, the Levittown Court

entertained a school district's equal protection claim on the merits without sua

sponte dismissing the action on jurisdictional grounds for lack of standing, and did

not address a lack of capacity to sue defense because the State had waived it by not

appealing on that issue, explaining:

46

As the municipal plaintiffs have virtually conceded, however, when Levittown reached the Court of Appeals, the State did not appeal on the capacity to sue issue. The issue of lack of capacity to sue does not go to the jurisdiction of the court, as is the case when the plaintiffs lack standing. Rather, lack of capacity to sue is a ground for dismissal which must be raised by motion and is otherwise waived. It follows, then, that if the defense of lack of capacity to sue can be waived by merely failing to raise it, it may also be abandoned on appeal and, in fact, was abandoned by the State when its appeal in Levittown reached our Court

(City of New York, 86 NY2d at 292 [citation omitted:). In Levittown, had this

Court considered the municipal school districts to be non-persons for purposes of

the Due Process or the Equal Protection Clauses of the New York Constitution, it

would not have addressed the merits of their equal protection claims because it

would have lacked jurisdiction to adjudicate them, irrespective of any failure of the

State to raise the issue on appeal (see Levittown, 57 NY2d at 42-47).

Second, City of New York also clearly establishes that although

municipalities generally lack capacity to challenge state action on constitutional

grounds, common law exceptions to the rule exist, one of which is directly

applicable here: "where the state legislation adversely affects a municipality's

proprietary interest in a specific fund of moneys" (City of New York, 86 NY2d at

291-292). Under the Fourth Department's rationale, however, the actual basis for

its decision was that the Court lacked jurisdiction to consider Petitioners' due

process claims for lack of standing, an issue that the State would not have been

47

required to preserve, unlike a capacity defense. It is only because the Fourth

Department erroneously construed the capacity issue under City of New York as a

non-waivable jurisdictional standing issue—a pure error of law—that the Court

would have had to exercise any discretion to unwaive Respondents' waiver of its

lack of capacity defense. Therefore, the Fourth Department's failure to follow this

Court's controlling precedent in City of New York and Levittown is a pure error of

law reviewable by this Court, not a non-reviewable exercise of discretion or

interests of justice jurisdiction.

Further, this Court can review questions of constitutional dimension such as

those presented here when those issues are presented to the courts below by the

pleadings or are specifically raised by the parties (see e.g. Matter of Couch v

Perales, 78 NY2d 595, 605 n 5 [1991] ["the constitutional claim was properly

raised in the trial court and thus, may be considered in this Court"]; Cooper v

Morin, 49 NY2d 69, 78 [1979] ["While neither the Trial Judge nor the Appellate

Division considered State constitutional claims, the complaint clearly presents

them and they may, therefore, be reached by us."]). Although Respondents failed

to raise their argument that municipalities cannot assert due process rights against

the State before the trial courts, and therefore waived their capacity defense, the

underlying constitutional issue was indisputably presented below by Petitioners'

assertion of constitutional due process claims challenging the validity of Section

48

61, and was decided at every stage of judicial review (R 51-54; see St. Lawrence

R1 40-43; St. Lawrence R2 47-51; St. Lawrence R3 33-38; Chemung R 39-43;

Oneida R 44-48; Jefferson R 110-113; Cayuga R 47-50; Monroe R 50-53; Genesee

R 47-53). The trial courts below could not have declared Section 61

unconstitutional if they did not first decide, albeit implicitly, that Petitioners are

"persons" that have and can exercise substantive and procedural due process rights

to challenge Respondents' denial of their overburden reimbursement claims on

constitutional grounds (see e.g. Forti v New York State Ethics Commn., 147 AD2d

269, 273-274 [3d Dept 1989], affd 75 NY2d 596 [1990]). Therefore, because the

constitutional due process issue was presented and necessarily decided at all stages

of these cases, and the Fourth Department resolved the appeals below on the law,

this Court may review the merits of the issue (see Matter of Seitelman v Lavine, 36

NY2d 165, 170 n 2 [1975]).3

3 Should this Court disagree that the Fourth Department's error was on a pure question of law, and conclude instead that the Fourth Department necessarily exercised its interests of justice jurisdiction to consider the due process issue, this Court should still consider the constitutional question on the merits. As Judge Robert Smith aptly explained in his concurrence in Hecker v State of New York (20 NY3d 1087 [2013]), the "Appellate Division's unreviewable, discretionary choice to reach the [unpreserved] issue does not make the issue itself any less one of law. Nor can I imagine any common sense reason why, if the Appellate Division erred in deciding that issue, we should be powerless to correct the error" (id. at 1088-1089 [R.S. Smith, J., concurring]; see also NY Const, art VI, § 3; CPLR 5501[11). Indeed, as Judge Smith noted, to hold otherwise produces a "bizarre result" where the party that failed to preserve the issue for appellate review—Respondents here—prevails solely as a result of its own failure (see Hecker, 20 NY3d at 1089 [Smith, R.S., concurring] ["And now in this Court, claimant loses the case—whether he is right or wrong on the merits—because of defendant's neglect."]). The result is even more startling here where Respondents' failure to raise the due process issue until on appeal

49

POINT HI

PETITIONERS MAY CHALLENGE SECTION 61 UNDER THE DUE PROCESS CLAUSE OF THE NEW YORK CONSTITUTION

This Court's holdings in City of New York, Levittown, County of Rensselaer,

and Krauskopf recognize three core principles of New York law. First, New York

law treats Petitioners' ability to assert due process claims challenging Section 61 as

an issue of municipal capacity, and not a jurisdictional issue, as the Fourth

Department erroneously held. Second, four substantive exceptions exist to the

general rule of municipal incapacity, one of which directly applies in these cases.

Third, even if no exceptions applied, Respondents' lack of capacity defense must

be timely raised or it is waived.

Ignoring this Court's dispositive decisions in City of New York and

Levittown, the Fourth Department below held, for the first time under New York

law, that a municipality may never challenge state legislation on due process

grounds under the New York Constitution because it is not a "person" under the

federal or state constitution. Although the federal courts have held that

municipalities may not assert due process rights under the Fourteenth Amendment

to the United States Constitution, as this Court recognized in City of New York,

would permit them to retain an undue windfall of tens of millions of county taxpayer dollars, and would reward them for refusing to perform their statutorily mandated overburden reimbursement duty for over 30 years and then retroactively extinguishing the debt when they no longer desired to pay. Respondents should not be allowed to profit from their own neglect, to the substantial prejudice of all county taxpayers across this State.

50

New York has departed from this federal rule with respect to municipal due

process and equal protection claims under the New York Constitution. The Fourth

Department's mistaken analysis, relying almost exclusively on inapposite federal

law, effectively re-writes this Court's comprehensive and well-reasoned

jurisprudence on municipal capacity to challenge the state legislation, and cannot

stand.

A. The Federal Rule Regarding a Municipality's Ability to Assert Claims Against the State Only Applies to Federal Constitutional Claims.

Federal courts have routinely held that a "[a] municipal corporation, created

by a state for the better ordering of government, has no privileges or immunities

under the Federal Constitution which it may invoke in opposition to the will of its

creator" (Williams v Mayor & City Council of Baltimore, 289 US 36, 40 [1933]

[emphasis added]). Based on this general rule under the United States

Constitution, federal courts have held that a municipality "cannot invoke the

protection of the Fourteenth Amendment against the state" (City of Newark v. State

of New Jersey, 262 US 192, 196 [1923] [emphasis added]; see also City of Trenton

v State of New Jersey, 262 US 182, 189-190 [1923]; Hunter v City of Pittsburgh,

207 US 161, 178-179 [1907]).

Importantly, however, the United States Supreme Court has recognized that

the ability of a municipal corporation "to complain of a violation of the

Constitution of the state . . at least in the state courts, is a question of state

51

practice" (Williams, 289 US at 47-48). This Court is "the final authority as to the

meaning of the New York Constitution" (Hernandez v Robles, 7 NY3d 338, 361

[2006], abrogated on other grounds by Obergefell v Hodges, 135 S Ct 2584 [June

26, 2015]), and has already pronounced, in City of New York, that New York treats

a municipality's right to sue the state under the New York Constitution differently

than federal courts treat this issue under the United States Constitution — namely,

as an issue of the municipality's capacity to sue the State, with certain exceptions

that apply in four limited instances (see City of New York, 86 NY2d at 291-292).

Erroneously relying almost exclusively on federal precedent limited to

claims under the Fourteenth Amendment (see e.g. City of E. St. Louis, 986 F2d at

1144 ["Municipalities cannot challenge state action on federal constitutional

grounds because they are not 'persons' within the meaning of the Due Process

Clause. Because East St. Louis is not a 'person,' it cannot invoke the protection of

the Fifth or Fourteenth Amendments" (emphasis added)]; City of S. Lake Tahoe,

625 F2d at 233 ["(p)olitical subdivisions of a state may not challenge the validity

of a state statute under the Fourteenth Amendment" (emphasis added)]), and

ignoring New York law on the issue, the Fourth Department held for the first time

under New York law that municipalities lack a substantive right to challenge state

legislation under any circumstances (see County of Chautauqua, 126 AD3d at

1320-1321).

52

The Fourth Department's reliance on federal law to inform its analysis of

Petitioners' constitutional rights under the New York Constitution, however, is

inapposite, because Petitioners' due process claims were pled solely under the New

York Constitution (R 51-54; see St. Lawrence R1 40-43; St. Lawrence R2 47-51;

St. Lawrence R3 33-38. Chemung R 39-43; Oneida R 44-48; Jefferson R 110-113;

Cayuga R 47-50; Monroe R 50-53; Genesee R 47-53), and because New York has

departed from the general rule relied on by the federal courts under the United

States Constitution (see City of New York, 86 NY2d at 291-292).

Because New York has departed from the federal rule, the Fourth

Department's reliance on federal law under the Fourteenth Amendment to support

its conclusion that Petitioners cannot challenge Section 61 on state constitutional

grounds was error (see Williams, 289 US at 47-48; Cooper, 49 NY2d at 79).

B. New York Treats a Municipality's Ability to Challenge a State Statute under the New York Constitution as an Issue of Capacity.

Contrary to the Fourth Department's holding, this Court has consistently

treated a municipality's ability to sue the State to challenge a state statute under the

New York Constitution as affecting the municipality's capacity to sue, not the

municipality's substantive rights under the New York Constitution (see City of

New York, 86 NY2d at 289; see also Community Bd. 7 of Borough of Manhattan v

Schaffer, 84 NY2d 148, 155-156 [1994] ["Governmental entities created by

legislative enactment present similar capacity problems. Being artificial creatures

53

of statute, such entities have neither an inherent nor a common-law right to sue.

Rather, their right to sue, if it exists at all, must be derived from the relevant

enabling legislation or some other concrete statutory predicate. The principle is a

well-known one, originating in the more general canon that a creature of the State

. . has no power other than that given it by the Legislature, either explicitly or by

necessary implication." (citations and internal quotation marks omitted; emphasis

added)]). Municipal capacity is a threshold issue that "concerns a litigant's power

to appear and bring its grievance before the court" (New York Blue Line Council,

Inc. v Adirondack Park Agency, 86 AD3d 756, 758 [3d Dept 2011], appeal

dismissed 17 NY3d 947 [2011], lv denied 18 NY3d 806 [2012], quoting Graziano,

3 NY3d at 478-479 [internal quotation marks and citation omitted]; see also Matter

of Bethpage Water Dist. v DaMes, 67 AD3d 1088, 1091 [3d Dept 2009], lv denied

14 NY3d 707 [2010]), and does not speak to the merits of the underlying claim

(see St. Lawrence III, 124 AD3d at 91, citing City of New York, 86 NY2d at 291-

292).

In City of New York, this Court 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 City of New York, 86 NY2d at 291-292). This Court held:

The only exceptions to the general rule barring local governmental challenges to State legislation which have been identified in the case

54

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 .Teter, 41 NY2d at 287; see also Matter

of County of Nassau v State of New York, 100 AD3d 1052, 1055 [3d Dept 2012]

["municipalities and other local government entities lack capacity to attack actions

by the State and the Legislature on constitutional grounds unless they properly

invoke one of the four recognized exceptions to the rule"], lv dismissed 20 NY3d

1092 [2013]).

Notably, two of these exceptions are specifically designed to allow

municipalities to challenge the constitutionality of state statutes under the New

York Constitution under certain circumstances (see e.g. Town of Black Brook v

State of New York, 41 NY2d 486, 488 [1977] [municipality has capacity where

state statute "undermine[s] home rule protection afforded local governments in

article IX of the Constitution"]; Board of Educ. of Cent. School Dist. No. 1 v Allen,

20 NY2d 109, 118 [1967] [municipality has capacity to sue when it asserts that

compliance with state legislation would force it to violate a provision of the state

constitution], affd 392 US 236 [1968]). The very existence of these exceptions to

55

the general municipal incapacity rule demonstrates that the capacity exceptions

recognized by this Court in City of New York apply to constitutional claims.

Following City of New York, the courts of this State, including the Third

Department in St. Lawrence III, Chemung, and Broome, have consistently treated

this issue as one of capacity to sue (see City of New York, 86 NY2d at 291-292).

Notably, this includes decisions specifically addressing a municipality's right to

bring a due process claim against the State seeking to invalidate an act of the

Legislature (see Board of Coop. Educ. Servs. for Sole Supervisory Dist. of

Rockland County v State of New York, 171 Misc 2d 585, 591 [Sup Ct, Albany

County 1996] [considering merits of due process claims of school districts, towns

and taxpayers, after finding that municipalities had capacity to sue under the

exception that applies 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," quoting Jeter, 41 NY2d at 287],

affd 236 AD2d 84 [3d Dept 1997], appeal dismissed 91 NY2d 921 [1998], lv

denied 92 NY2d 802 [1998]; Gulotta v State of New York, 228 AD2d 555, 556 [2d

Dept 1996] [holding that municipalities lacked capacity to assert due process and

equal protection claims because none of the four exceptions to the general rule

applied], lv dismissed 88 NY2d 1053 [1996], lv denied 89 NY2d 811 [1997], citing

Jeter, 41 NY2d at 287; Herzog v Board of Educ. of Lawrence Union Free School

56

Dist., 171 Misc 2d 22, 26-27 [Sup Ct, Nassau County 1996] [holding that

municipality lacked capacity to bring a due process claim]).

Therefore, the Fourth Department's holding that municipalities may never,

as a matter of substance, assert due process rights to challenge a state statute on

state constitutional grounds merely because they are subdivisions of the State flies

in the face of this Court's controlling decision in City of New York, which

comprehensively outlined the municipal capacity rule as it applies under New York

law (see City of New York, 86 NY2d at 289-292). Instead, as this Court held in

City of New York and the Third Department properly recognized below, New York

law treats Respondents' argument as one implicating only municipal capacity to

sue, which may be waived by the failure to interpose it before the trial courts (see

id: at 292-293; St. Lawrence III, 124 AD3d at 91 ["despite respondents' argument

to the contrary, their assertion that petitioner, as a political subdivision of the state,

can have no due process claim against its creator, is essentially a challenge to

petitioner's capacity"]).

This Court expressly held in City of New York that, "[t]he issue of lack of

capacity to sue does not go to the jurisdiction of the court," but is instead a "ground

for dismissal which must be raised by motion and is otherwise waived" (City of

New York, 86 NY2d at 292, citing CPLR 3211[a][3], [e]; see Bethpage Water

Dist., 67 AD3d at 1091 [because "it is not a jurisdictional defect, unless

57

[municipal] capacity is raised as a defense, . . it will not prevent a court from

reaching the merits"]; see also Town of Delhi v Telian, 119 AD3d 1049, 1050 [3d

Dept 2014]; Matter of County of Oswego v Travis, 16 AD3d 733, 735 [3d Dept

2005] [finding that the New York State Association of Counties lacked capacity to

sue the State to challenge a state statute on behalf of its member counties, because

it failed to assert that one of the recognized exceptions applied, but reaching the

merits of the same challenge by other municipal petitioners, because the state

"respondents d[id] not contest on appeal [the petitioners'] legal capacity to bring

th[e] proceeding"]). Thus, this Court explained that "the defense of lack of

capacity to sue can be waived by merely failing to raise it, [and] may also be

abandoned on appeal" (City of New York, 86 NY2d at 292). In fact, as explained in

City of New York, this Court has previously addressed the merits of a

municipality's equal protection claims where the State "did not appeal on the

capacity to sue issue," and, as a result, "abandoned" the capacity issue when it

reached this Court (Levittown, 57 NY2d at 40).

Because Respondents failed to plead lack of capacity in their Verified

Answers (R 364; see St. Lawrence R1 160; St. Lawrence R2 199; St. Lawrence R3

191; Chemung R 235; Oneida R 334;. Jefferson R 404; Cayuga R 286; Monroe R

314-315; Genesee R 325-326), or otherwise raise lack of capacity by motion, they

waived the argument that Petitioners lack capacity to challenge Section 61 on state

58

due process grounds (see St. Lawrence III, 124 AD3d at 91 [municipal incapacity

"argument was waived by respondents' failure to raise it as a defense in their

answer or a pre-answer motion to dismiss"]; see also Town of Delhi, 119 AD3d at

1050 ["inasmuch as defendant can no longer raise the issue of plaintiff's capacity

to sue in this action (due to waiver), plaintiff's arguments regarding its capacity

have been rendered academic, and we decline to address them"]).

Even in the absence of Respondents' waiver, it is clear that Petitioners fall

within the proprietary interest exception to the general rule of municipal incapacity

and, thus, may maintain these claims challenging Section 61 on state constitutional

due process grounds. Here, Respondents admit that Section 61 "adversely affects

[Petitioner's] proprietary interest in a specific fund of moneys" (City of New York,

86 NY2d at 291-292, citing County of Rensselaer, 173 AD2d at 40; Matter of

Town of Moreau v County of Saratoga, 142 AD2d 864, 865 [3d Dept 1988])—

namely, Petitioners' vested entitlement, pursuant to Social Services Law § 368-

a(1)(h)(i), to reimbursement of the overburden local share payments taken by

Respondents and held in the Comptroller's "special bank account" (R 436). As a

result, Petitioners may bring a state constitutional claim challenging Section 61's

deprivation of their proprietary interest in those funds (see County of Rensselaer,

173 AD2d at 40; Matter of City of New York v Lawton, 128 AD2d 202, 206 [3d

Dept 1987]; Purcell v Regan, 126 AD2d 849, 850 [3d Dept 1987], lv denied 69

59

NY2d 613 [1987]).4 Indeed, the key factor in determining the existence of a

proprietary interest in a specific fund for purposes of this exception is whether the

municipalities are entitled to receive monies that have already been collected by

the State (see County of Rensselaer, 173 AD2d at 40). Thus, under this limited

exception to the general rule of municipal incapacity, municipalities in New York

are permitted to challenge state legislation or the acts of the state on state

constitutional grounds only where they can assert a proprietary interest in a

specific fund of moneys.

In County of Rensselaer, for example, the Legislature enacted Article 43-a of

the Vehicle and Traffic Law to encourage counties to establish a new STOP-DWI

program to combat driving while intoxicated, and provided an incentive to the

counties to do so "by providing that all fines, penalties and forfeitures imposed by

the various courts of the county in intoxicant-related offense prosecutions would be

diverted from State revenues to the county where the offense was committed and

deposited in a special account to fund the local program" (id. at 38-39). All of the

counties elected to participate in the STOP-DWI program, and received the

statutorily guaranteed funds for approximately 10 years (see id. at 39). In the

4 Although Purcell and Lawton characterize the issue as one of "standing," this Court, in City of New York, subsequently clarified that these cases are actually dealing with the issue of capacity, by citing two cases that rely on Purcell and Lawton — County of Rensselaer (173 AD2d at 40) and Town of Moreau (142 AD2d at 865) — as the basis for the general municipal incapacity rule's proprietary interest exception (see City of New York, 86 NY2d at 291-292).

60

1990-91 budget bill, however, a provision directed the State Comptroller to

withhold up to two percent of the STOP-DWI funds collected from DWI offense

proceedings and deposit the withheld funds in the state's general fund (see id.).

After five participating counties challenged the appropriations provision on state

constitutional grounds, the Third Department notably held that because the

counties' "right to share in the STOP-DWI funds here was unconditional and

absolute under Vehicle and Traffic Law § 1197," they were "asserting a

proprietary claim of entitlement to a specific fund, namely, their entitlement to

receive all of the fines, forfeitures and penalties collected by the courts in

proceedings on the offenses specified in the STOP-DWI legislation" (id. at 40

[emphasis added]). Therefore, the Court held, the counties had capacity to

challenge the deprivation of their vested right to receive the STOP-DWI funds.

Similarly, in Purcell, Nassau County challenged a provision of the Public

Authorities Law which authorized the State Comptroller to withhold certain per

capita assistance appropriated to the county by the Legislature in order to satisfy an

unpaid debt for MTA station maintenance (see Purcell, 126 AD2d at 849). The

Third Department held that the county had capacity to challenge the statutory

provision on state constitutional grounds because the county was "entitled to

possession of the fund, which is in possession of another" and the statute did not

affect one of the county's governmental powers or duties (see id. at 850).

61

Likewise, in Lawton, the Third Department held that a municipality had capacity to

assert a state constitutional claim against the State because it claimed, as does

Petitioners here, "entitlement to a specific fund" and, therefore, was asserting its

proprietary, as opposed to governmental, rights (Lawton, 128 AD2d at 206).

Petitioners here are seeking redress to recover the local share payments that

Respondents erroneously took and failed to reimburse as required under Social

Services Law § 368-a(1)(h)(i). In fact, Petitioners' proprietary interest here is even

more concrete because Respondents admit that DOH took Petitioners ' funds (the

overburden local share payments) and placed those funds into "a special bank

account maintained by the State Comptroller" (R 436). It is that specific fund in

which Petitioners have a proprietary interest, and from which Petitioners'

overburden reimbursement should have been paid. Thus, Respondents' admission

alone is dispositive of Petitioners' capacity to challenge the retroactive deprivation

of Petitioners' vested overburden reimbursement rights.

Indeed, the Third Department has held, in a decision affirmed by this Court,

that municipalities have a property interest in the overburden funds collected by

the State. Specifically, in Matter of Krauskopf v Perales (139 AD2d 147 [3d Dept

1988], affd 74 NY2d 730 [1989]), the Third Department held that the overburden

local shares paid by social services districts and held by Respondents constitute a

specific fund within the meaning of the exception to the general incapacity rule (id.

62

at 153). The Third Department's decision addressing a local social services

district's proprietary interest in the State's specific fund for overburden

reimbursement is directly on point here, and conclusively demonstrates that

Petitioners have the right to maintain a due process challenge to Section 61.

C. Municipalities are "Persons" under the Due Process Clause of the New York Constitution.

In an attempt to avoid the waiver of Respondents' capacity defense, the

Fourth Department conjured a second step to the municipal capacity test never

before applied in New York. The Fourth Department, relying exclusively on a

misconstruction of this Court's decision in Jeter, held that even if a municipality

can establish that it has capacity to challenge State legislation on constitutional

grounds, it must then establish a "substantive right" to raise a due process claim

under the New York Constitution (County of Chautauqua, 126 AD3d at 1321,

quoting Jeter, 41 NY2d at 287). This Court's reference in Jeter to a municipality's

"substantive right" to raise a due process challenge, when viewed in context,

however, is a precise reference to the general rule of municipal incapacity under

New York law. No legal basis exists to transform this Court's holding in Jeter into

a novel pillar of New York constitutional law that a municipality may never assert

due process rights vis-a-vis the State merely because it is a political subdivision;

indeed, to do so would be to ignore this Court's teachings in Levittown, which was

decided five years after Jeter. Had this Court intended Jeter to deprive

63

municipalities of personhood status under the New York Constitution, it clearly

would have so held in Levittown (see Levittown, 57 NY2d at 42-47).

In Jeter, three municipal entities—the New York City Board of Education

and Department of Social Services and the Board of Education of the City of

Yonkers sought to challenge a state statute on state and federal constitutional due

process and equal protection grounds, among others (see Jeter, 41 NY2d at 287).

In rejecting those challenges, this Court held

[w]hile these units of municipal government have procedural standing to participate in the present litigation (and thus to be heard, for instance, on questions of statutory interpretation), they do not have the substantive right to raise these constitutional challenges. This is not an instance in which 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. [citations omitted]). Although this Court's use of the term "substantive right"

apparently confused the Fourth Department as to the breadth of this Court's

holding, the statement—in the subsequent sentence—that the municipalities did

not have the "substantive" right to challenge the state statute because none of the

recognized exceptions to the general rule of municipal incapacity applied makes

clear that this Court's holding was limited to the municipal capacity doctrine.

This Court's holding in Jeter in no way suggests that municipalities may

never assert due process rights under the New York Constitution. Indeed, this

Court specifically cited Jeter in City of New York as supporting the fourth

64

exception to the general municipal incapacity rule (City of New York, 86 NY2d at

292, citing Jeter, 41 NY2d at 287), and has never construed Jeter as precedent

supporting Respondents' contention that municipalities are not "persons" under the

New York Due Process and Equal Protection Clauses (see e.g. Levittown, 57 NY2d

at 42-47). To the contrary, this Court's precedent establishes that a municipal

corporation is in fact a "person" entitled to protection under the Due Process

Clause of the New York Constitution (see People ex rel. Rodgers v Coler, 166 NY

1 [1901]) ["The city is a corporation possessing all the powers of corporations

generally and cannot be deprived of its property without its consent or due process

of law any more than a private corporation can"]; People v Ingersoll, 58 NY 1, 29-

30 [1874]; see also Matter of Crespo, 123 Misc 2d 862, 866 [Sup Ct, New York.

County 1984] ["The three putative defendants are municipal and public benefit

corporations, As such, each is a person, like any other litigant, entitled to due

process of law."]).

Subsequent to Jeter, courts have considered municipal claims against the

State and its agencies under the Due Process and Equal Protection Clauses of the

New York Constitution on the merits, thus acknowledging that municipalities are

"persons" under these constitutional provisions (see e.g. Levittown, 57 NY2d at 40;

Board of Coop. Educ. Servs. for Sole Supervisory Dist. of Rockland County, 171

Misc 2d at 588 [considering a school district's due process challenge to a state

65

statute on the merits because the claim fell within one of the capacity exceptions];

see also Empire State Ch. of Associated Bldrs. & Contrs., Inc. v Smith, 21 NY3d

309, 315, 322-323 [2013] [considering the merits of a county's challenge to a state

statute as unconstitutional in an action against the New York State Department of

Labor, including on equal protection and due process grounds, where the county

had standing/capacity to challenge the statute on Home Rule grounds, citing Town

of Black Brook, 41 NY2d 486]; Town of Oyster Bay v Kirkland, 81 AD3d 812, 817

[2d Dept 2011] [considering merits of cause of action by town against the New

York State Division of Human Rights challenging a state statute as

unconstitutional for depriving the town of due process rights], affd 19 NY3 d 1035

[2012]; Matter of Town of Wallkill v New York State Bd. of Real Prop. Servs., 274

AD2d 856, 858 [3d Dept 2000] [considering merits of Town's constitutional due

process claim]; Matter of Town of Middletown v State Bd. of Real Prop. Servs., 272

AD2d 657, 658 [3d Dept 2000] [in action by town against New York State Board

of Real Property Services, considering merits of an argument that the Board failed

to afford the town a full, meaningful adjudicatory hearing, in violation of due

process]; Matter of Board of Educ. of Union-Endicott Cent. School Dist. v New

York State Pub. Empl. Relations Bd., 233 AD2d. 602, 604 [3d Dept 1996]

[considering on the merits argument by school district that New York State Public

Employees Relations Board deprived the school district of due process]; County of

66

Orange v Public Serv. Commn. of State of N. Y, 39 AD2d 311, 316 [2d Dept 1972]

[addressing on the merits a claim by county and towns against the New York State

Public Service Commission that a state statute unconstitutionally deprived property

owners of adequate notice and an opportunity to be heard, in violation of their due

process rights], affd 31 NY2d 843 [1972]).

Importantly, New York courts have also expressly recognized that

municipalities are entitled to procedural due process when the legislature

retroactively shortens a time period to enforce a municipality's existing cause of

action (see Town of Newburgh v Chumard, 271 AD2d 597, 598 [2d Dept 2000]

[holding that "the plaintiff, a municipal corporation, [was] entitled to the same

reasonable time to interpose its claim as is afforded a private litigant" under

principles of procedural due process], appeal dismissed 95 NY2d 850 [2000];

Town of Walton v Adair, 96 App Div 75, 80-81 [3d Dept 1904] ["[a] cause of

action is property which can only be taken from . . . a town by due process of

law"]; see also 2A Carmody-Wait 2d § 13:11 ["[i]n retroactively extending or

shortening the period of time for enforcing an existing cause of action, a

reasonable time must be allowed after the effective date of the amended or new

statute for the enforcement of the available remedy, and this is true whether the

litigant seeking to enforce the remedy is a municipal corporation or a private

litigant," citing Town of Newburgh 271 AD2d at 598]). The Fourth Department,

67

however, did not address or consider whether, even if a municipality is not entitled

to substantive due process protection, a municipality is entitled to a grace period

afforded all other litigants when a limitations period is shortened. Its failure to do

so was reversible error.

If the Fourth Department's holding is permitted to stand, municipalities

would be deprived of any due process or equal protection rights under the New

York Constitution, regardless of whether the State is a party to the litigation. Such

a rule runs contrary not only to New York precedent (see e.g. Levittown, 57 NY2d

at 40; Town of Newburgh, 271 AD2d at 598; Rockland County BOCES, 171 Misc

2d at 588), but also to the overwhelming intent of the New York Constitution to

safeguard municipal rights (see New York Constitution, Article IX, §§ 1, 2). Thus,

contrary to the Fourth Department's holding, it is clear that municipalities,

including Petitioners, have and can assert due process rights under the New York

Constitution. The Fourth Department orders should be reversed.

POINT IV

IF THIS COURT ADOPTS THE FOURTH DEPARTMENT'S CONSTRUCTION OF SECTION 61, IT UNCONSTITUTIONALLY

IMPAIRS PETITIONERS' VESTED RIGHTS TO REIMBURSEMENT

Unlike the Third Department's interpretation of Section 61 to preserve its

constitutionality, the Fourth Department's holding that Section 61 implicitly

repealed Respondents' mandatory statutory overburden reimbursement duty under

68

Social Services Law § 368-a, for overburden local share payments that were taken

from Petitioners prior to January 1, 2006, retroactively deprives Petitioners of

vested rights in contravention of the New York Constitution, and cannot stand.

Indeed, as the Third Department expressly cautioned in St. Lawrence II,

Petitioners' vested rights to overburden reimbursement cannot be abrogated

retroactively, even if legislation does so expressly (see St. Lawrence II, 95 AD3 d at

1553-1554). Therefore, should this Court adopt the Fourth Department's

interpretation of Section 61, the statute must be declared unconstitutional and void.

A. Section 61 Unconstitutionally Deprives Petitioners of their Vested Property Rights to Reimbursement.

Section 61 expressly provides that "[n]otwithstanding the provisions of

section 368-a of the social services law or any other contrary provision of law, no

reimbursement shall be made for social services districts' claims submitted on and

after the effective date of this paragraph, for district expenditures incurred prior to

January 1, 2006" (R 299). Because Section 61 purports to divest Petitioners of the

right to reimbursement that accrued long before Section 61 was enacted, it is an

unambiguously retroactive law, and should be viewed with skepticism (see e.g.

Matter of Chrysler Props. v Morris, 23 NY2d 515, 521 [1969]).

As this Court has aptly noted, "[fl or centuries our law has harbored a

singular distrust of retroactive statutes" (James Sq. Assoc. LP v Mullen, 21 NY3d

233, 246 [2013] [internal quotation marks and citation omitted]). The Legislature's

69

authority to enact retroactive laws is substantially constrained (see Alliance of Am.

Insurers v Chu, 77 NY2d 573, 585-586 [1991]). Where, as here, a statute

retroactively impairs vested rights, a rational basis for the law simply is not enough

to sustain it (id. at 586; see Matter of Hodes v Axelrod, 70 NY2d 364, 369-370

[1987]; Franza v Olin, 73 AD3d 44, 46 [4th Dept 2010]). "This doctrine reflects

the deeply rooted principles that persons should be able to rely on the law as it

exists and plan their conduct accordingly and that the legal rights and obligations

that attach to completed transactions should not be disturbed" (Alliance, 77 NY2d

at 586). Indeed, " [t]he integrity of the State government, upon which the public is

entitled to rely, requires, at the very least, that the State keep its lawfully enacted

promises" (id. at 577). Instead, where, as here, a statute retroactively impairs

vested rights, "the courts must balance a number of factors, including [1] 'fairness

to the parties, [2] reliance on pre-existing law, [3] the extent of retroactivity and [4]

the nature of the public interest to be served by the law' to determine whether the

rights affected are subject to alteration by the Legislature" (id. at 586, quoting

Hodes, 70 NY2d at 369-370).

The Appellate Divisions have consistently concluded that Petitioners' right

to reimbursement for overburden local share payments is a vested right. In St.

Lawrence I, for example, the Third Department explained that "petitioner's right to

reimbursement for (Medical Assistance) expenditures accrued" "prior to 2006,

70

upon payment to DOH for services provided to overburden patients for which no

local share was owing" (St. Lawrence I, 81 AD3d at 216 [emphasis added]; see

also St. Lawrence II, 95 AD3d at 1553).

Social Services Law § 368-a(1)(h) provides Petitioners with an immediate

property interest in the reimbursement owed by Respondents. Section 61 now

purports to retroactively deprive Petitioners of these reimbursements. Just as the

Third and Fourth Departments held with respect to the 2010 Amendment, however,

Section 61 cannot now "transform these county funds into state property and

relieve the state of the legal obligation to return them," because the State "was

never entitled to these funds" in the first place (St. Lawrence II, 95 AD3d at 1553

[emphasis added]). Accordingly, Respondents' reliance on Section 61 to deprive

Petitioners retroactively of its vested right to reimbursement must fail (see id.).

Additionally, New York courts consistently uphold vested rights against

retroactive abrogation in circumstances similar to this case. For example, in

Alliance, this Court invalidated an amendment to the Insurance Law because the

amendment retroactively deprived the plaintiffs—a number of insurance

companies, trade associations, and individual insurance policy holders of their

constitutionally protected "property rights" in the earnings of a statutorily-created

Property and Liability Insurance Security Fund to which they had previously

contributed (Alliance, 77 NY2d at 577-578). Specifically, the Court held that, with

71

respect to "contributions already made," the State could not extinguish the

contributors' property rights by "repealing the provision which [gave] rise to

[them]" (id. at 585). Respondents concede that that is precisely what Section 61

purports to accomplish, and thus it too must fail (see James Square Associates LP,

21 NY3d at 250).

B. Petitioners' Vested Rights to Overburden Reimbursement Are Not Subject to Retroactive Impairment.

To avoid the clear retroactive deprivation of Petitioners' vested rights,

Respondents argued below that the balancing test articulated by this Court in

Alliance (77 NY2d at 578) and Hodes (70 NY2d at 369-370) weighs in favor of

Section 61's constitutionality, because (1) Petitioners should have calculated and

submitted reimbursement claims (notwithstanding Respondents' admission that

Petitioners were not required to do so); (2) Petitioners received post-2006 benefits

under the Medicaid Cap Statute (notwithstanding that these benefits are entirely

separate from the pre-2006 overburden reimbursements that Respondents

unlawfully withheld from Petitioners for approximately three decades); (3)

Petitioners misinterpreted the law regarding its statutory right to reimbursement

(notwithstanding that numerous courts, including both the Third and Fourth

Departments, repeatedly confirmed Petitioners' interpretation and rejected

Respondents' attempts to avoid the State's longstanding and undisputed

reimbursement debt); and (4) Petitioners' vested right to reimbursement is

72

outweighed by the State's interest in fiscal certainty—that is, allowing the State to

extinguish its outstanding debts by legislative fiat whenever it no longer desires to

pay (notwithstanding that this Court has held that the State's budgetary concern is

not a "valid public purpose" for retroactive application of a statute) (Resps' Br., at

18-31). Contrary to Respondents' assertions below, the balance of the factors

articulated in Alliance clearly supports Petitioners' position that Section 61 cannot

be retroactively applied to extinguish Petitioners' vested rights to reimbursement.

1. Section 61 is Manifestly Unfair.

The fairness factor significantly favors Petitioners. Petitioners have been

deprived of reimbursements that they were statutorily entitled to receive, solely

due to Respondents' actions in (1) refusing to calculate and pay Petitioners'

statutorily-mandated reimbursements, (2) utilizing dilatory tactics, including

relying on baseless legal arguments, to avoid paying Petitioners' claims,

(3) withholding critical documents to permit Petitioners to identify overburden-

eligible individuals for whom reimbursement was not paid, and (4) at the same

time, fervently advocating for an amendment to the law to intentionally eradicate

Petitioners' entitlement to reimbursement. Inasmuch as the State has absolutely no

authority to impair its own debts after-the-fact merely because it no longer desires

to pay the total reimbursement liability that is owed, Respondents' actions were

fundamentally unjust.

73

Had Respondents calculated and paid the reimbursements to Petitioners in a

timely fashion, as they were required to do all along, Petitioners would not have

been aggrieved at the time that Section 61 was adopted. It was only due to

Respondents' own failures that Petitioners' rights were impacted by Section

61. As an agency with (1) a 54 billion budget, (2) a workforce of highly skilled

workers who understand the Medical Assistance program, and (3) a sophisticated

computer system that houses all of the documents needed to calculate the

reimbursement payments owed, Respondents were entirely capable of satisfying

their statutory duty and calculating and paying the total reimbursements to

Petitioners (see R 488-490, 510). In fact, DOH was the only one in a position to

make the calculation. As a result, to apply Section 61 to deprive Petitioners of

their vested rights would be inequitable, and would establish a dangerous

precedent for the State to avoid its lawfully incurred obligations by legislating

away its debts whenever it unilaterally decides that full payment is no longer in its

own interests.

Below, Respondents argued that Section 61 was fair by pointing to benefits

that Petitioners have received since 2006 under the Medicaid Cap Statute. These

post-2006 benefits, however, are entirely irrelevant to the reimbursements

Respondents owe Petitioners under Social Services Law § 368-a for pre-2006

overburden payments that Petitioners made on Respondents' behalf. As explained

74

more fully below, the Medicaid Cap Statute, which did not become effective until

January 2006, is a prospective statute that affects only the manner in which

Respondents' post-2006 obligations to Petitioners are paid (see Point IV[111[3],

infra). Respondents' pre-2006 obligations to Petitioners remain governed by

Social Services Law § 368-a—a statute that was adopted in 1984 and has not been

repealed. Therefore, the Medicaid Cap Statute only impacts Petitioners' ability to

submit claims to recoup overburden local share payments made after January 1,

2006, when the Medicaid Cap Statute became effective (see St. Lawrence I, 81

AD3d at 214-216).

Respondents' reliance on the purported benefit of the Medicaid Cap Statute

also is misplaced since there is no dispute that they failed to include the unpaid

overburden reimbursement in Petitioners' 2005 base year Medicaid Cap

calculation. This means that, from the implementation of the Medicaid Cap in

2006 to date, Petitioners have paid significantly more than they should have in

Medical Assistance expenses each year and will continue to do so unless and until

the cap is properly recalculated (R 501-503, 507-508). Respondents will continue

to receive the annual benefit of the miscalculation regardless of this Court's

decision regarding the pre-2006 reimbursement. Respondents have further

benefitted, at Petitioners' expense, by failing to credit Petitioners and the counties

with an enormous sum of overburden reimbursement accruing each year to date.

75

Again, both of these windfalls could have been remedied by a simple program to

identify and properly code overburden recipients. Respondents, however, chose

not to fix that problem.

Respondents' contention below that Petitioners purportedly receive certain

protections under the Cap Statute that render Section 61 "fair" is entirely

irrelevant. For example, Respondents asserted that the Cap "shields" Petitioners

from contributing to judgments rendered in favor of providers (Resps' Br., at 23).

Respondents fail to cite any authority in support of this statement which, in any

event, is a completely speculative benefit that could not possibly compensate

Petitioners and the counties for the millions that Respondents have unlawfully

withheld.

Respondents' further suggestion below that the legislative process leading

up to the enactment of Section 61 was all the process due to Petitioners is simply

incredible. First, there is absolutely no proof in the record to support Respondents'

contention below that Petitioners and other counties "lobbied vigorously against

the 2012 amendment" (Resps' Br., at 24). Second, Respondents' contention below

that, in a two and a half-month period between introduction and enactment,

Petitioners and the other counties could have somehow identified all overburden-

eligible individuals for whom they were not reimbursed and used this information

to submit unnecessary claims to DOH (Resps' Br., at 27), wholly ignores

76

Respondents' (1) own contention that these reimbursements are purportedly

"unknown and unknowable" (R 433); (2) repeated complaints regarding the

burdens of calculating these amounts (R 449); (3) failure to accomplish this task

despite having approximately thirty years to do so; and (4) vigorous denial of all

such reimbursement claims during that two-and-a-half-month period. Indeed, this

Court has specifically rejected Respondents' argument that the period between a

statute's introduction and effective date can suffice as a constitutionally adequate

grace period (see Gilbert, 159 NY at 123-124).

Respondents' unsupported claim below that due process has been satisfied

because Petitioners purportedly have been able to submit the allegedly "stale"

claims for reimbursement since the 1990s (Resps' Sr., at 20-21), similarly should

be rejected. Respondents again attempt to improperly shift their clear statutory

burden of reimbursement onto Petitioners. As the Third Department expressly

recognized in St. Lawrence III and St. Lawrence I, Petitioners had no obligation to

submit claims for reimbursement, and have only been compelled to do so due to

the State's failures (see St. Lawrence III, 124 AD3d at 94 r"DOli was required to

pay those reimbursements even without any claims being made, and should have

done so by 2006.1; St. Lawrence I, 81 AD3d at 218 n 2). Moreover, Respondents

have delayed for decades in calculating and paying the reimbursement indisputably

owed to Petitioners, and were the only ones capable of actually identifying the

77

dropped codes, uncoded recipients, and unpaid reimbursement in the first place (R

479-480, 499-500, 894-895). Thus, absent identification by Respondents of the

uncoded individuals and disclosure of the relevant records, it was impossible for

Petitioners and the counties to identify all the unpaid overburden reimbursement.

2. Petitioners Properly Relied on Their Clear Entitlement to Overburden Reimbursements Under Social Services Law § 368-a.

The reliance factor similarly weighs heavily in Petitioners' favor. Reliance

is analyzed at the time the local share payments were made by Petitioners to

Respondents. Prior to 2006, it was entirely reasonable for Petitioners to rely on the

plain language of Social Services Law § 368-a, which expressly states that

Respondents shall reimburse Petitioners for all overburden local share payments

(see Social Services Law § 368-a[1][h][i]). Petitioners' interpretation of the law

was repeatedly confirmed by the Third and Fourth Departments (see St. Lawrence

II, 95 AD3d at 1553; County of Niagara v Daines, 91 AD3d at 1289; St. Lawrence

I, 81 AD3d at 216; County of Herkimer v Dailies, 60 AD3d at 1457). Thus,

Respondents' contention below that Petitioners had "ample forewarning that [their]

claims might be extinguished" (Resps' Br., at 25) is meritless.

In any event, it would not have been reasonable at any time for Petitioners to

expect that the State, after taking the overburden local share payments, would

simply refuse to pay its creditors. The State lacks the authority to simply abrogate

its own debts whenever it determines it no longer desires to pay them, especially

78

when doing so deprives Petitioners of their vested rights to reimbursement (see e.g.

O'Neil v State of New York, 223 NY 40, 43-44 [1918]; see also Rhern v Malcolm,

507 F2d 333, 341 n 20 [2d Cir 1974]). Respondents cannot justify this unabashed

attempt to extinguish their prior debts to Petitioners by citing their own erroneous

interpretations of the Medicaid Cap Statute and 2010 Amendment, which were

properly rejected by all courts that have considered them.

Respondents' suggestion below that, to avoid Respondents' own baseless

attempts to eradicate the State's overburden reimbursement liability, Petitioners

should have submitted reimbursement claims simply defies logic. As the Third

Department explicitly recognized, Petitioners had no obligation to submit claims,

or to take "any action to receive reimbursement for overburden expenses" from

DOH (see St. Lawrence I, 81 AD3d at 214 [emphasis added]). In fact, DOH' s

Deputy Director for Administration admits that Petitioners have no obligation to

submit reimbursement claims (R 449). Respondents admit, instead, that it was

Respondents' responsibility to "identif[y] those Medicaid recipients who were

mentally disabled under the applicable overburden criteria" (R 437; see R 449,

465). Respondents have failed to satisfy this responsibility for decades and, in

fact, still have no intention of doing so, to the further expense of Petitioners and the

counties (see R 449-451). Even if it was Petitioners' duty to calculate the

reimbursements and submit claims (which it is not), Petitioners were never

79

provided with all the information they would need from DOH in order to make

these calculations and, due to Respondents' suspension of claim processing in

April 2005, Petitioners were denied the opportunity to submit reimbursement

claims (R 41, 490, 503-504).

Simply stated, Petitioners' actions or inactions since 2006 are irrelevant.

Since 2005, there has not been a single instance when Respondents paid an

overburden reimbursement claim without being compelled to do so through

litigation, including during the two and a half months between Section 61's

proposal and effective date that Respondents tout as a "grace period." Thus,

Petitioners' reliance on the express reimbursement obligation contained in Social

Services Law § 368-a, which still has not been repealed to date, when paying the

overburden local share payments to Respondents prior to 2006 was entirely

reasonable.

3. The Extent of Section 61's Retroactivity is Excessive.

The retroactivity factor also tips in Petitioners' favor. Section 61 is

expressly and intentionally retroactive. Respondents have persistently argued that

Section 61 is and was intended to be expressly retroactive, and seeks to deprive

Petitioners and other counties, in 2012, of reimbursement for payments taken and

concealed by Respondents as far back as 1984 (R 447, 450). Inasmuch as

80

Respondents argue that Section 61 extinguishes over 30 years of overburden

reimbursement liability, it is unquestionably significantly retroactive.

Below, Respondents sought to avoid the expressly retroactive language of

Section 61 by claiming that it merely "clarifies" that the Medicaid Cap—a wholly

separate statute, which first went into effect on January 1, 2006—retroactively

extinguishes Petitioners' vested rights to reimbursement for overburden payments

taken by Respondents prior to January 1, 2006 (Resps' Br., at 27-29). To "clarify,"

however, means to make plain something that already exists, but is ambiguous (see

Merriam-Webster's Collegiate Dictionary, at 228 [11th ed 2004] [defining

"clarify" as "to free of confusion" or "to make understandable"]). The Legislature

cannot "clarify" that, contrary to the holdings of the Third and Fourth

Departments, the Medicaid Cap Statute is retroactive when the statute was not

made retroactive in the first instance.

By its very terms, the Medicaid Cap Statute is effective as of January 1,

2006 and, therefore, applies only to expenditures incurred from January 1, 2006

forward (see Dorfman v Leidner, 76 NY2d 956, 959 [1990]). The statute contains

no language, much less a clear expression of intent, indicating that it should be

applied retroactively, nor does it even mention the overburden obligation. In fact,

the Medicaid Cap Statute is loaded with prospective terms indicating that it can

only be applied going forward (see e.g. L 2005, ch 58, part C, § 1 [c]

81

"[c]ommeneing with the calendar year beginning January 1, 2006, calendar year

social services district medical assistance expenditure amounts for each social

services district shall be calculated by multiplying the results of the [cap]

calculations" [emphasis added]). Further, in the prior overburden litigations, the

Third and Fourth Departments extensively analyzed this language and the

legislative history underlying the Medicaid Cap Statute, and each time concluded,

contrary to Respondents' suggestion, that the prior enactment was not intended to

retroactively deprive Petitioners of their vested rights to reimbursement (see St.

Lawrence I, 81 AD3d at 215; County of Herkimer v Daines, 60 AD3d at 1457). In

fact, all of the courts that have considered the language and legislative history of

the Medicaid Cap Statute have reached the same conclusion: the Medicaid Cap

Statute did not supplant the provisions of Social Services Law § 368-a as it

pertains to overburden payments made prior to 2006.

Respondents do not, and cannot, point to any language or legislative history

of the Medicaid Cap Statute that supports their argument that a retroactive

impairment of Petitioners' vested rights to reimbursement was intended all along

(see Thomas, 63 NY2d at 154-155 [after reviewing the legislative history, and

finding an "absence of clear legislative indication that the statute be applied

retrospectively," determining that statute should not be given retroactive

82

application]). Instead, Respondents solely rely on the legislative history of Section

61, a separate statute, to support their interpretation.

Respondents suggest that the Legislature's Memorandum in Support of

Section 61 indicates that the intent of Section 61 was to "clarify" that the

Legislature previously extinguished Petitioners' statutory right to reimbursement.

The Legislature's purported "clarification," however, is entirely inconsistent with

the intended prospective application of the Medicaid Cap Statute; as such, Section

61 cannot have merely "clarified" the Legislature's original intent. A "'clarifying'

amendment . cannot retroactively declare a different legislative intent contrary to

the plain meaning of the earlier law" (Boltja v Southside Hosp., 186 AD2d 774,

775 [2d Dept 1992]; see also Matter of Roosevelt Raceway v Monaghan, 9 NY2d

293, 304 [1961]; Matter of Island Waste Servs., Ltd. v Tax Appeals Trib. of State of

N.Y., 77 AD3d 1080, 1083 n 2 [3d Dept 2010], lv denied 16 NY3d 712 [2011]).

Thus, the Legislature's belated pronouncement of its purported prior intent in

support of Section 61 is wholly ineffective to change the plain, unambiguous

language of the Medicaid Cap Statute (see Roosevelt Raceway, 9 NY2d at 304

["(t)he Legislature has no power to declare, retroactively, that an existing statute

shall receive a given construction when such a construction is contrary to that

which the statute would ordinarily have received"]; Boltja, 186 AD2d at 775;

Island Waste Servs., 77 AD3d at 1083 n 2).

83

Moreover, even assuming, arguendo, that Respondents were correct that

Section 61 is a clarifying amendment (which, again, it is not), Section 61 would

overturn the precedent of numerous courts across the state, merely to clarify that

the Medicaid Cap Statute unconstitutionally deprives Petitioners of their

preexisting rights to reimbursement under Social Services Law § 368-a. Notably,

Respondents do not, and cannot, point to any case where an amendment clarifying

that a prior statute was intended to abrogate a preexisting right has been upheld as

constitutional. Under Respondents' construction, the Medicaid Cap Statute fares

no better than Section 61, because the Medicaid Cap, which went into effect on

January 1, 2006, also would retroactively impair Petitioners' vested rights to

reimbursement for overburden payments. As the Third and Fourth Departments

have held, at the time that the Medicaid Cap went into effect, Petitioners' right to

reimbursement under Social Services Law § 368-a had already vested (see St.

Lawrence I, 81 AD3d at 216; County of Herkimer v Daines, 60 AD3d at 1457).

Therefore, even if Section 61 merely clarifies that the Medicaid Cap Statute

unconstitutionally impairs Petitioners' vested rights to reimbursement for

overburden payments, Section 61 cannot have a rational basis and should be

invalidated by this Court.

84

The Public Interest Requires Reimbursement of the Improperly Retained Overburden Payments to Petitioners.

Respondents claim that the purported public interest served by the law is to

provide the State with certainty that it can avoid its overdue debts (see Resps' Br.,

at 30-31). There is no authority in support of this purported interest because it is

not the type of overriding public interest that is compelling enough to deprive

Petitioners of their constitutionally protected property rights. To the contrary, this

Court recently held that the State's budgetary concern is not a "valid public

purpose" for retroactive application of a statute (James Sq. Assoc., 21 NY3d at

249-250). This Court similarly rejected the State's "enhancement of [its] general

revenues" as a basis for retroactive application of a statute — stating that it was

"self-evident that this [interest] cannot justify the State's actions" (Alliance, 77

NY2d at 589 [emphasis added]). Furthermore, here, permitting Respondents to

avoid their clear statutory obligation to reimburse Petitioners would disserve the

public interest, because it would encourage DOH and other agencies to (1) avoid

timely compliance with their statutory obligations; (2) engage in dilatory tactics,

including interminable litigation, to frustrate these obligations; and (3) lobby the

Legislature to retroactively change any statutes with which they do not wish to

comply, without providing any notice to those affected, in hopes that the agencies

could ultimately avoid their obligations entirely.

85

In order to serve the true public interest here, Respondents must be

compelled to reimburse Petitioners' overburden payments to the county taxpayers

from whom they were improperly taken. Thus, inasmuch as the balance of the

factors set forth in Alliance weighs heavily in favor of preserving Petitioners'

vested rights against Section 61's attempt at retroactive extinguishment, this Court

should declare Section 61 unconstitutional to the extent necessary.

POINT V

PETITIONERS ARE ENTITLED TO MANDAMUS TO COMPEL RESPONDENTS TO SATISFY THEIR REIMBURSEMENT DUTY PURSUANT TO SOCIAL SERVICES LAW 4 368-A

Mandamus "lies to compel the performance of a purely ministerial act where

there is a clear legal right to the relief sought" (Klostermann v Cuomo, 61 NY2d

525, 539 [1984]). Under Social Services Law § 368-a, Petitioners have a "clear

legal right" to reimbursement for "one hundred per centum of the amount

expended for medical assistance for those individuals who are eligible" (Social

Services Law § 368-a[1][h][i] [emphasis added]). It cannot be disputed that

Respondents have unreasonably withheld these reimbursements from Petitioners in

derogation of Petitioners' statutory rights.

Respondents argued below that they were barred from performing their

mandatory reimbursement duty under Social Services Law § 368-a because

Section 61 provided a clear mandate to DOH forbidding the payment of

86

overburden reimbursement. Whether this Court adopts the Third Department's

interpretation of Section 61 as a statute of limitations or the Fourth Department's

interpretation and declares Section 61 unconstitutional, no barrier to Respondents'

mandatory reimbursement duty exists. Indeed, as the Third Department held in St.

Lawrence III, "DOH's statutory obligation to make reimbursement for these

expenditures is mandatory and ministerial and does not involve any discretion" (St.

Lawrence III, 124 AD3d at 94 [citation omitted]). Therefore, because Social

Services Law § 368-a has not been repealed, and Section 61 may only be construed

as a statute of limitations extinguishing a remedy to recover overburden

reimbursement, but not the underlying statutory right (see id. at 92 ["we have

herewith determined that the amendment did not extinguish petitioner's substantive

right to reimbursement; the amendment only prevents petitioner from obtaining

any remedy in relation to that right after a certain date" j), Petitioners are entitled to

mandamus relief compelling Respondents to identify, verify, and pay the total

unpaid overburden expenditures that Petitioners incurred prior to 2006.

Respondents alternatively argued below that mandamus relief does not lie

because DOH has the discretion to review and deny overburden reimbursement

claims that do not meet the set reimbursement criteria. This Court in Klostermann,

however, rejected this precise argument. In Klostermann, the plaintiffs sought

mandamus relief compelling the State to comply with its mandatory duty under

87

Mental Hygiene Law § 29.15 to prepare a "written service plan" for each patient

being released from a State psychiatric institution (Klostermann, 61 NY2d at 532-

533). As here, the State opposed that relief arguing that mandamus did not lie

because executing its statutory duty to prepare the written service plans was an

activity "replete with decisions involving the exercise of judgment or discretion"

(id. at 539). Although this Court agreed that preparing the actual plans inarguably

involved discretion, that fact was insufficient to deny mandamus relief compelling

the State to prepare the plans in the first place as mandated by the Mental Hygiene

Law (see id. at 539-541). Specifically, this Court held:

Defendants argue that preparing written service plans and creating follow-up programs are activities replete with decisions involving the exercise of judgment or discretion. This is inarguably true. What must be distinguished, however, are those acts the exercise of which is discretionary from those acts which are mandatory but are executed through means that are discretionary . , .

What has been somewhat lost from view is this function of mandamus to compel acts that officials are duty-bound to perform, regardless of whether they may exercise their discretion in doing so. "[T]lie writ of mandamus . . may also be addressed to subordinate judicial tribunals, to compel them to exercise their functions, but never to require them to decide in a particular manner . . This principle applies to every case where the duty, performance of which is sought to be compelled, is in its nature judicial, or involves the exercise of judicial power or discretion, irrespective of the general character of the officer or body to which the writ is addressed. A subordinate body can be directed to act, but not how to act, in a manner as to which it has the right to exercise its judgment. The character of the duty, and not that of the body or officer, determines how far performance of the duty may be enforced by mandamus. Where a subordinate body is vested with power to determine a question of fact, the duty is judicial, and though

88

it can be compelled by mandamus to determine the fact, it cannot be directed to decide in a particular way, however clearly it be made to appear what the decision ought to be"

(id. at 539-540 [emphasis in original], quoting People ex rel. Francis v Common

Council of City of Troy, 78 NY 33, 39 [1879]).

As in Klostermann, Petitioners here sought mandamus relief compelling

Respondents to satisfy their mandatory duty under Social Services Law § 368-a to

calculate and pay Petitioners the total remaining overburden reimbursement

outstanding. Although DOH' s act of initially setting the criteria under which an

individual was deemed overburden-eligible may have involved discretion,

Respondents' obligation to reimburse Petitioners upon determining that an

individual for whom Petitioners paid a local share satisfies that eligibility criteria is

in no way discretionary. In fact, according to DOW s own Medicaid Reference

Guide Manual, Respondents must find that an individual is overburden-eligible if

he or she meets one of the following factual criteria:

(I) resides in a Residential Treatment Facility certified by the New York State Office of Mental Health or in an Intermediate Care Facility for the Developmentally Disabled certified by the New York State Office for People with Developmental Disabilities;

(2) was discharged from a New York State Office of Mental Health Psychiatric Center or New York State Office for People with Developmental Disabilities Developmental Center from April 1, 1971 to December 31, 1982 and has 90 or more cumulative days of inpatient treatment;

(3) resides in a community-based facility as certified by the New

89

York State Office of Mental Health or the New York State Office for People with Developmental Disabilities. This includes AIRS who:

have received services in certified Community Residences (CR) or Individual Residential Alternatives (IRA);

are residents of schools certified by the New York State Office for People with Developmental Disabilities;

are inpatients in Terrance Cardinal Cook (Flower Hospital); or

(4) receives a minimum of 45 visits in any calendar quarter of day or continuing day treatment programs (including Subchapter A day treatment)

(R 953).

The overburden eligibility criteria afford Respondents absolutely no

discretion to determine that a certain individual is not overburden-eligible where

the factual circumstances surrounding that individual's medical care satisfy the

criteria. Simply put, once the factual predicate for overburden eligibility is

established as provided under the Medicaid Reference Guide Manual,

reimbursement is necessary under Social Services Law § 368-a(1)(h)(i) and

Respondents have absolutely no discretion to avoid it (see e.g. Matter of Brusco v

Braun, 84 NY2d 674, 680 [1994] [granting mandamus to compel where the two

factual predicates of the statutory duty had been satisfied and holding that, in that

case, "respondent has no discretion; judgment in favor of petitioner must be

90

granted and mandamus lies to compel respondent to do that which the statute

requires"]; Matter of County of Fulton v State of New York, 76 NY2d 675, 678

[1990] [granting mandamus to compel payment of assessments where statute

expressly provided that assessments "shall be paid by the river regulating

district"]).

Petitioners do not seek reimbursement for any individual that does not

satisfy DOH' s set overburden criteria. Petitioners also do not seek to compel

Respondents to undertake any specific method for satisfying their statutory

reimbursement obligation, establish a particular amount owed to Petitioners, or

reach a specific conclusion. Petitioners merely seek to require Respondents to

forgo any further dilatory tactics, fulfill their statutory duty, and resolve the

outstanding overburden reimbursement liability to Petitioners once and for all.

Petitioners are therefore entitled to mandamus compelling Respondents to calculate

and pay Petitioners the total remaining overburden reimbursements owed in

accordance with Social Services Law § 368-a.

POINT VI

RESPONDENTS ARE LIABLE FOR CONVERSION AND UNJUST ENRICHMENT AND THIS COURT SHOULD

IMPOSE A CONSTRUCTIVE TRUST OVER THE UNPAID OVERBURDEN REIMBURSEMENT FUNDS

Finally, should this Court hold that Petitioners are not entitled to mandamus

relief, an independent tort basis exists upon which Petitioners may still be granted

91

the overburden reimbursements owed. The Fourth Department erroneously

affirmed the dismissal of Petitioners' conversion, unjust enrichment, and

constructive trust claims "for reasons stated in the decision at Supreme Court,

Jefferson County" (County of Chautauqua, 126 AD3d at 1322). The only

reasoning provided by Supreme Court, Jefferson County for denying Petitioners'

tort claims was that, although the causes of action were "innovative," they could

not "be applied against the State of New York or a State agency" (Jefferson R 43-

46). Thus, the only justification provided by the Fourth Department for denying

Petitioners' tort claims was that tort claims cannot be maintained against the State

or its agencies (id.). Respondents, however, are not immune from liability for

conversion, unjust enrichment, and constructive trust claims (see e.g. Parsa v State

of New York, 64 NY2d 143, 148 [1984] [collecting cases]; Ford Motor Credit Co.

v State of New York, 219 AD2d 202, 204 [3d Dept 1996] [constructive trust], lv

denied 88 NY2d 813 [1996] ; Robert R. Gibbs, Inc. v State of New York, 70 AD2d

750, 750 [3d Dept 1979] [conversion]; 230 Park Ave. Assoc. v State of New York,

165 Mist 2d 920, 923, 926 [Ct Cl June 21, 1995] [unjust enrichment]). As

demonstrated below, Petitioners satisfied each of the elements of these claims

based on Respondents' refusal to reimburse Petitioners for the overburden local

share payments drawn from county funds that Respondents unlawfully retained for

their own use. As a result, this Court should reverse the Fourth Department orders.

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A. Respondents are Liable for Conversion.

Respondents' unlawful retention of Petitioners' reimbursements is a

textbook case of conversion. Instead of reimbursing the funds to Petitioners,

which were raised through county property and sales taxes, Respondents retained

the overburden local share payments for their own benefit, contrary to the express

dictates of Social Services Law § 368-a. Respondents are therefore liable for

conversion.

As this Court has held, conversion is "the 'unauthorized assumption and

exercise of the right of ownership over goods belonging to another to the exclusion

of the owner's rights' (Thyroff v Nationwide Mut. Ins. Co., 8 NY3d 283, 288-289

[2007], quoting State of New York v Seventh Regiment Fund, Inc., 98 NY2d 249,

259 [2002]). The key elements of conversion are: "(1) plaintiff's possessory right

or interest in the property and (2) defendant's dominion over the property, or

interference with it, in derogation of plaintiff's rights" (Colavito v New York Organ

Donor Network, Inc., 8 NY3d 43, 50 [2006] [citations omitted and emphasis

added]). A conversion claim may be based on money, so long as the money is

specifically identifiable and there is an obligation to return it or treat it in a

particular manner (see Key Bank of N.Y. v Grossi, 227 AD2d 841, 843 [3d Dept

1996]; Brennan's Bus Serv. v Brennan, 107 AD2d 858, 860 [3d Dept 1985]).

Further, when funds are provided for a particular purpose, the use of those funds

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for an unauthorized purpose may constitute conversion (see Lemle v Lemle, 92

AD3d 494, 497 [1st Dept 2012]; Thys v Fortis Securities LLC, 74 AD3d 546, 547

[1st Dept 2010]; Meese v Miller, 79 AD2d 237, 243 [4th Dept 1981]).

Petitioners have a clear possessory right to the overburden local share

reimbursements under Social Services Law § 368-a(1)(h)(i). Respondents have

withheld and retained the funds that should have been used to reimburse

Petitioners, and are presently interfering with Petitioners' possessory right to the

specifically identifiable overburden reimbursement funds by unlawfully denying

all of Petitioners' claims for reimbursement (R 90-91). Moreover, as the Third

Department has explicitly found, Respondents have used the county tax funds

collected from Petitioners for purposes other than reimbursing Petitioners—

namely, to satisfy their own obligations under the Social Services Law (see St.

Lawrence II, 95 AD3d at 1553 ["(S)ince 1982, it has been the state's statutory

obligation to pay the county share for Medicaid expenditures incurred in providing

medical services to certain mentally disabled individuals. While the state, and not

the county, has been obligated to pay for these medical services, it has continued to

charge petitioner for these expenses and used these funds to satisfy its obligations

under this statute."]). Accordingly, Respondents are liable for conversion of

Petitioners' property by unlawfully detaining, interfering with, and improperly

using the overburden local share funds that must be paid to Petitioners as

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reimbursement, in accordance with Social Services Law § 368-a(1)(h)(i).

B. Respondents are Unjustly Enriched at Petitioners' Expense.

Under well-established New York law, "[a] person who has been unjustly

enriched at the expense of another is required to make restitution to the other"

(Blue Cross of Cent. N.Y. v Wheeler, 93 AD2d 995, 996 [4th Dept 1983] [internal

quotation marks omitted]). To establish unjust enrichment, Petitioners need only

show that (1) Respondents were enriched (2) at Petitioners' expense, and (3) that

permitting Respondents to retain what Petitioners seeks to recover would be

"against equity and good conscience" (Land Man Realty, Inc. v Weichert, Inc., 94

AD3d 1221, 1222-1223 [3d Dept 2012]; State of New York v International AsSet

Recovery Corp., 56 AD3d 849, 852 [3d Dept 2008]).

Here, each of the elements of unjust enrichment are easily satisfied.

Respondents were enriched by unlawfully retaining the overburden reimbursement

that they were statutorily required to pay to Petitioners. By depriving Petitioners

of the reimbursement funds to which they are entitled, Respondents' enrichment

was certainly at Petitioners' expense. Petitioners have yet to receive the

outstanding reimbursements, and have suffered economically as a result.

Moreover, permitting Respondents to retain the reimbursements would be

"against equity and good conscience," because it would permit the State to

abrogate its undisputed debts to Petitioners unilaterally, years after the overburden

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local share payments were made in reliance on the 100 percent reimbursement

obligation contained in Social Services Law § 368-a(1)(h)(i), without any legal

justification whatsoever. Indeed, notwithstanding the clear language of Social

Services Law § 368-a, Respondents have repeatedly refused to acknowledge their

liability for the overburden reimbursements, and engaged in several tactics to avoid

the payments (R 91-92). Even after numerous court decisions reaffirmed their

statutory obligations, Respondents continued to assert meritless defenses while

concealing the amount of their liability (id.). Throughout this time period,

Respondents have enjoyed the benefit of retaining the county reimbursement funds

solely at Petitioners', the other counties', and the county taxpayers' expense (R

92). To allow Respondents—after years of unjustifiably withholding the payments

and years of concealing their liability—to now wholly avoid the obligation, based

on a retroactive statute intentionally designed to abrogate the State's longstanding

and undisputed debt, would be fundamentally unfair. Thus, Respondents are

similarly liable to Petitioners for unjust enrichment.

C. The Fourth Department Erroneously Declined to Impose a Constructive Trust Over the Overburden Reimbursement Funds Owed to Petitioners.

A constructive trust is an equitable device used to prevent unjust enrichment

(see Simonds v Simonds, 45 NY2d 233, 242 [1978]; Sharp v Kosmalski, 40 NY2d

119, 121 [19761). Specifically, it is "'the formula through which the conscience of

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equity finds expression. When property has been acquired in such circumstances

that the holder of the legal title may not in good conscience retain the beneficial

interest, equity converts him into a trustee"' for the rightful owner (Simonds, 45

NY2d at 241, quoting Beatty v Guggenheim Exploration Co., 225 NY 380, 386

[1919] [Cardozo, Indeed, "[t]he doctrine of constructive trust is . . given

broad scope to flex in response to all human implications of the transaction, to

remedy whatever knavery ingenious wrongdoers can invent, to give expression to

the conscience of equity, and to satisfy the demands of justice" (Nastasi v Nastasi,

26 AD3d 32, 38 [2d Dept 2005]).

This Court has set forth four factors to establish entitlement to a constructive

trust (see Simonds, 45 1\ Y2d at 241). These factors include: (1) a confidential or

fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4)

unjust enrichment (Cinquemani v Lazio, 37 AD3d 882, 882 [3d Dept 2007];

Henness v Hunt, 272 AD2d 756, 757 [3d Dept 2000]). Although these factors are

useful in many cases, they are simply flexible guidelines, and are not rigidly

applied (Simonds, 45 NY2d at 241; see Enzien v Enzien, 96 AD3d 1136, 1137 [3d

Dept 2012]; Thomas v Thomas, 70 AD3d 588, 591 [1st Dept 2010] [stating that

courts "have not applied a rigid standard when identifying relationships that can be

the predicate for imposition of a constructive trust"]; Moak v Raynor, 28 AD3d

900, 902 [3d Dept 2006]). Instead, "[a]s an equitable remedy, a constructive trust

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may be imposed whenever necessary to satisfy the demands of justice"

(Cinquemani, 37 AD3d at 882 [emphasis added]), including against Respondents.

Petitioners and Respondents are in a confidential or fiduciary relationship in

jointly administering the Medical Assistance program that ensures that certain

mentally disabled individuals receive the medical care that they need (R 92). As a

result of this relationship, Respondents have an array of fiduciary obligations to

local social services districts, such as Petitioners, that include duties of full

disclosure, fair dealing, and the provision of instruction and training on all aspects

of Medical Assistance laws, regulations, practices, and procedures (id).

Under Social Services Law § 368-a, Respondents unequivocally promised to

reimburse Petitioners for all Medical Assistance payments that it made on DOH's

behalf (Social Services Law § 368-a[1][h][1] ["There shall be paid to each such

district . . . Beginning January first, nineteen hundred eighty-four, one hundred per

centum of the amount expended for medical assistance for those individuals who

are eligible pursuant to section three hundred sixty-six of this article as a result of a

mental disability . . . after first deducting therefrom any federal funds properly

received or to be received on account thereof." (emphasis added)]; see also 18

NYCRR § 635.1[b]). Petitioners reasonably relied on this unambiguous statutory

promise of reimbursement in making the overburden local share payments. Yet,

Respondents have failed to ensure that proper overburden reimbursement payments

98

were identified and paid to Petitioners, knowingly denied their liabilities, and

failed to competently discharge their duties to Petitioners. By failing and refusing

to reimburse Petitioners for the overburden local share payments made on behalf of

DOH, in accordance with the unambiguous mandate of section 368-a, Respondents

have unlawfully detained and have been unjustly enriched at Petitioners' expense

by the total amount of overburden reimbursement owed to Petitioners.

Accordingly, this Court should impose a constructive trust over the funds

unlawfully retained by Respondents.

D. The Court of Claims Lacks Jurisdiction Over Petitioners' Tort Claims.

Respondents argued below, for the first time on appeal, that the Court of

Claims has exclusive jurisdiction over Petitioners' claims for conversion, unjust

enrichment, and constructive trust because the claims seek damages incidental to

the equitable relief sought by Petitioners in these proceedings. However,

Respondents' surface analysis of Supreme Court's jurisdiction over Petitioners'

claims cannot withstand scrutiny.

Although the Court of Claims generally has exclusive jurisdiction over

actions for money damages against the State (see Matter of Gross v Perales, 72

NY2d 231, 235-236 [1988]), an analysis of Court of Claims jurisdiction is not as

simple as Respondents would make it seem. Indeed, because the Court of Claims

has "no jurisdiction to grant strictly equitable relief," and may only grant incidental

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equitable relief so long as the primary claim seeks to recover money damages in

appropriation, contract, or tort cases (City of New York v State of New York, 46

AD3d 1168, 1169 [3d Dept 2007], lv denied 10 NY3d 705 [2008] [citation and

quotation marks omitted]; see Feuer v State of New York, 101 AD3d 1550, 1551

[3d Dept 2012]; Ozanam Hall of Queens Nursing Home v State of New York, 241

AD2d 670, 671 [3d Dept 1997]), the threshold question to determine Court of

Claims jurisdiction is "`[w]hether the essential nature of the claim is to recover

money, or whether the monetary relief is incidental to the primary claim'

(Madura v State of New York, 12 AD3d 759, 760 [3d Dept 2004], lv denied 4

NY3d 704 [2005], quoting Gross, 72 NY2d at 236). As the Court of Claims has

held,

(1) A money claim is incidental to relief sought in an Article 78 proceeding if a natural or automatic result of a favorable determination on the issues would be reimbursement, restitution or payment of the sums in question, without the necessity of a separate judicial order or direction, and (2) a money damage claim is incidental to relief sought in an Article 78 proceeding when, in order to award the money judgment, the court must engage in the type of inquiry and analysis that is appropriate to such a proceeding and inappropriate to an action at law

(Safety Group No. 194 v State of New York, Claim No. 101826, 2001 WL 939747

[Ct CI Apr. 11, 2001], affd sub nom. Safety Group No. 194---New York State Sheet

Metal Roofing & A.C. Contractors Assn. v State of New York, 298 AD2d 785 [3d

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Dept 2002]). Court of Claims jurisdiction, thus, is "dependent upon the facts and

issues presented in a particular case" (Gross, 72 NY2d at 236).

The second inquiry to determine jurisdiction, regardless of how a claimant

categorizes a claim, is whether the claim would require review of an administrative

agency's determination (see id.). The Court of Claims lacks subject matter

jurisdiction to entertain such claims, which are properly brought only in Supreme

Court in a CPLR Article 78 proceeding (see Matter of Scherbyn v Wayne-Finger

Lakes Bd. of Coop. Educ. Servs., 77 NY2d 753, 757 [1991]; see e.g. Hoffman v

State of New York, 42 AD3d 641, 642 [3d Dept 2007] ["although claimant

contends that her claim is for breach of contract, our review of the record indicates

that she primarily is seeking to annul the Comptroller's administrative decision to

issue a check that deducted the amount of unemployment insurance benefits from

her back pay. Plainly, any monetary recovery would be incidental to that

determination. Inasmuch as [t]his is a quintessential example of a dispute

governed under CPLR article 78 and the Court of Claims has no subject matter

jurisdiction over this type of dispute, we find that the claim was properly

dismissed" [internal quotation marks and citations omitted]).

For example, in City of New York, the Third Department held that the Court

of Claims did not have jurisdiction to hear the City of New York's statutory

damages, implied contract, and unjust enrichment claims, seeking state

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reimbursements for expenses incurred by school districts hosting disabled students

residing in the state from the Office of Mental Retardation and Developmental

Disabilities (see City of New York, 46 AD3d at 1168-1169). The Court held that,

although the claims were "couched only in terms that [sought] recovery of

monetary damages, the real challenge [was] to the [Department of Education's]

administrative determinations that these claims were not timely filed and that

claimants' request for a waiver of the time limitations was also untimely" (id. at

1169). Accordingly, the Court held that "the statutory cause of action, the implied

contract cause of action and the unjust enrichment cause of action were all properly

dismissed by the Court of Claims for lack of subject matter jurisdiction as they

[were] directly dependent upon the Department's determination that the claims

[were] not timely and that the waiver request was also untimely" (id. [emphasis

added]).

As in City of New York, Petitioners' claims for conversion and unjust

enrichment are merely incidental to Petitioners' requests to annul Respondents'

administrative determinations denying their claims for overburden reimbursement,

for mandamus relief compelling Respondents to satisfy their unambiguous

statutory duty to calculate and pay Petitioners all reimbursement outstanding, and

for a declaration that Section 61 unconstitutionally deprives Petitioners of their

vested rights to reimbursement for the overburden expenses incurred on

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Respondents' behalf prior to January 1, 2006 (R 48-61). Indeed, the natural and

necessary consequence of Supreme Court's declaration that Section 61 cannot

retroactively impair Petitioners' vested right to overburden reimbursement, and is

thus invalid, is payment of the overburden reimbursement sought, alternatively,

under Petitioners' conversion and unjust enrichment claims. Moreover,

Petitioners' claim seeking to impose a constructive trust over the reimbursements

that remain unpaid is, by definition, a claim for equitable relief over which the

Court of Claims cannot assert jurisdiction (see Simonds v Simonds, 45 NY2d 233,

241-242 [1978]).

Simply stated, Respondents cannot dispute that the Court of Claims lacks

jurisdiction over Petitioners' primary CPLR Article 78 and declaratory judgment

claims (see Cass v State of New York, 58 NY2d 460, 463 [1983] ["Claims against

the State primarily seeking money damages should, of course, be brought in the

Court of Claims. It is settled, however, that a declaratory judgment action in the

Supreme Court is an appropriate vehicle for challenging the constitutionality of a

statute . . . Thus the motion to dismiss the complaint against the State for lack of

jurisdiction should have been denied." (citations omitted)]; Matter of Markham v

Comstock, 272 AD2d 971, 972 [4th Dept 2000] ["the Court of Claims is not the

appropriate forum for litigating a constitutional challenge to the STAR

exemption"], appeal dismissed 95 NY2d 886 [2000], cent denied 531 US 1079

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[2001]; Safety Group No. 194, 2001 WL 939747 ["The Court of Claims does not

have jurisdiction over challenges to the constitutionality of statutes, even if such

determination is necessary to resolve a claim for money damages against the State.

Such challenges should be brought by an action for declaratory judgment, which

must be brought in Supreme Court." (citations omitted)]). Thus, contrary to

Respondents' argument, the Court of Claims similarly lacks jurisdiction over

Petitioners' incidental claims for conversion, unjust enrichment, and constructive

trust.

Nor can it be seriously disputed that the Supreme Court, in contrast, as a

court of general original jurisdiction, has jurisdiction over Petitioners' conversion,

unjust enrichment, and constructive trust claims, notwithstanding that they are

maintained against Respondents as an agency of the State and its commissioner

(see NY Const, art VI, § 7[a]; Kagen v Kagen, 21 NY2d 532, 537 [1968]; Thrasher

v United States Liab. Ins. Co., 19 NY2d 159, 166 [1967]; see e.g. Gross, 72 NY2d

at 236). Indeed, this Court, in Gross, faced the precise issue that Respondents seek

to raise in defense of the dismissal of Petitioners' conversion, unjust enrichment,

and constructive trust claims—"whether a municipality may challenge a

determination by a State administrative agency, and at the same time recover

wrongfully withheld money from the State, within the context of an article 78

proceeding in Supreme Court, or whether such a lawsuit must be commenced in

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whole or in part in the Court of Claims" (Gross, 72 NY2d at 233-234). In soundly

rejecting Respondents' argument for exclusive Court of Claims jurisdiction, this

Court held:

Only if it was found that the NYSDSS acted arbitrarily and capriciously could its determination, and the concomitant administrative penalty, be annulled. This accomplished, the City was then entitled to the withheld reimbursements under the Social Services Law. This is true whether or not the court directed payment, since upon nullification of the underlying administrative action, the State had a statutory duty to reimburse the City. Consequently, in ordering payment to the City, the court merely directed the State to fulfill its statutory duty. Had the City only petitioned for judicial review of the audit procedures employed and annulment of the penalty, without additionally requesting the court to direct payment, the State would still have been obligated to reimburse the City. Thus, the demand for monetary relief was unquestionably incidental to the facts and issues presented

,(id. at 236 [citations omitted1). This Court's decision in Gross controls here.

Therefore, the Fourth Department erroneously held that Petitioners could not

maintain their conversion, unjust enrichment, and constructive trust claims against

Respondents.

CONCLUSION

For the foregoing reasons, Petitioners respectfully request that this Court

affirm the orders of the Appellate Division, Third Department in County of St.

Lawrence and County of Cheinung, reverse the orders of the Appellate Division,

Fourth Department in County of Chautauqua, County of Jefferson, County of

Genesee, County of Oneida, County of Cayuga, and County of Monroe, declare

105

Section 61 unconstitutional and void to the extent the Court deems necessary in the

alternative, and award Petitioners such other relief as this Court shall deem just,

proper or equitable.

Dated: September 15, 2015 WHITEMAN OSTERMAN & HANNA LLP Albany, New York

By: Christopher E. Buckey, Esq. Robert S. Rosborough IV, Esq. Attorneys for Petitioners-Plaintiffs-Appellants One Commerce Plaza Albany, New York 12260 (518) 487-7600

NANCY ROSE STORMER, P.C. Nancy Rose Stormer, Esq. Michael Bagge, Esq. Attorneys for Petitioners-Plaintiffs-Appellants 1325 Belle Avenue Utica, New York 13501 (315) 797-0110

BOND SCHOENECK & KING, PLLC Raymond A. Meier, Esq. Co-Counsel for Petitioners-Plaintiffs-Appellants County of Monroe, County of Oneida 501 Main Street Utica, New York 13501 (315) 738-1223

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to be argued by: christopher e. buckey, esq. 20 minutes ... · nirav r. shah, as commissioner of...

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