Hodes v. Axelrod

• Decision Date: 22 October 1987
• Citation: 70 N.Y.2d 364,515 N.E.2d 612,520 N.Y.S.2d 933
• Court: New York Court of Appeals Court of Appeals
• Parties: , 515 N.E.2d 612, Medicare & Medicaid Guide P 36,746 In the Matter of Louis HODES et al., Respondents, v. David AXELROD, as Commissioner of Health of the State of New York, Appellant.

Page 933

520 N.Y.S.2d 933

70 N.Y.2d 364, 515 N.E.2d 612,

Medicare & Medicaid Guide P 36,746

In the Matter of Louis HODES et al., Respondents, v. David AXELROD, as Commissioner of Health of the State of New

York, Appellant.

Court of Appeals of New York.

Oct. 22, 1987.

Robert Abrams, Atty. Gen. (Clifford A. Royael, O. Peter Sherwood and Peter H. Schiff, Albany, of counsel), for appellant.

Thomas F. Gleason and Cornelius D. Murray, Albany, for respondents.

OPINION OF THE COURT

KAYE, Judge.

The question raised by this appeal is whether the doctrine of vested rights or res judicata bars a second administrative proceeding--where the first has failed--for automatic revocation of petitioners' nursing home operating certificate owing to their industry-related felony convictions.

On April 4, 1979, petitioners Louis Hodes and Herman Surkis, owners and operators of Franklin Park Nursing Home (a licensed residential care facility), each entered a plea of guilty to grand larceny in the third degree, based on fictitious invoices and unearned Medicaid reimbursements. ¹ Petitioners were sentenced on October 25, 1979 and several months later received certificates of relief from disabilities (Correction Law art. 23). ² For the next eight years--while petitioners continued operating their facility--the Department of Health, the Legislature and the courts have grappled with the issue whether, in such circumstances, nursing home operating certificates may be revoked automatically upon industry-related felony convictions of the persons who control them. Petitioners contend that the issue was forever resolved in their favor by a final judgment in the first administrative proceeding denying automatic revocation, and that this judgment cannot be impaired by subsequent amended legislation requiring revocation of their license. We hold, however, that in the present circumstances neither the vested rights doctrine nor res judicata forecloses a second revocation proceeding under the amended statute.

Central to this appeal is Public Health Law § 2806(5) as it existed at the time of petitioners' convictions in 1979, and as thereafter twice amended--once in 1981 and a second time in 1983.

In 1979, Public Health Law § 2806(5) permitted the Commissioner after a hearing to revoke a nursing home operating certificate if the person controlling the facility was convicted of an industry-related felony (L.1977, ch. 896). Upon petitioners' convictions they were advised that a hearing would be held by the Department of Health to determine whether their operating certificate should be revoked, suspended, limited or annulled by reason of their convictions. The Administrative Law Judge before whom the hearing took place found that petitioners' felony convictions were sufficient to warrant revocation of their operating certificate and so recommended. By order dated February 24, 1981 the Department of Health revoked petitioners' operating certificate pursuant to Public Health Law § 2806(5), finding that they each had been convicted of a felony in connection with an activity or program subject to the regulations of the State Department of Health. Petitioners' article 78 proceeding challenging the revocation was dismissed by the Appellate Division, and the administrative determination confirmed (see, Matter of Hodes v. Axelrod, 84 A.D.2d 895, 444 N.Y.S.2d 769).

In July 1981 Public Health Law § 2806(5) was amended, effective immediately, to make revocation of operating certificates mandatory upon a controlling person's convicti for an industry-related felony (L.1981, ch. 607). The accompanying executive memorandum made clear that these amendments addressed a concern that convicted felons were taking advantage of prolonged administrative and judicial revocation proceedings, while continuing to operate facilities that cared for the aged and infirm (1981 McKinney's Session Laws of N.Y., at 2604).

On petitioners' appeal to this court, we reversed the Appellate Division judgment, concluding that the Public Health Law as it existed at the time of our decision--which is the applicable law (see, Strauss v. University of State of N.Y., 2 N.Y.2d 464, 467, 161 N.Y.S.2d 97, 141 N.E.2d 595, appeal dismissed 355 U.S. 394, 78 S.Ct. 382, 2 L.Ed.2d 355)--was impermissibly at odds with Correction Law § 701, barring automatic revocation of petitioners' operating certificate (56 N.Y.2d 930, 453 N.Y.S.2d 607, 439 N.E.2d 323, rearg. denied 57 N.Y.2d 775, 454 N.Y.S.2d 1033, 440 N.E.2d 1343). We recognized that an "unfortunate result" was produced by the interrelationship of Public Health Law § 2806(5) and Correction Law § 701, but that amelioration was properly for the Legislature (id., at 932, 453 N.Y.S.2d 607, 439 N.E.2d 323).

Within weeks the Legislature responded by amending both Public Health Law § 2806(5) and Correction Law § 701(2) specifically to require revocation of nursing home operating certificates upon a controlling person's industry-related felony conviction, despite a certificate of relief from disabilities (L.1983, ch. 584). The amendments were to take effect immediately and "apply to all existing operating certificates even though the felony conviction may have been entered and the certificate of relief from disabilities granted prior to the effective date hereof." (L.1983, ch. 584, § 3.) The sponsoring agency's memorandum, referring to the nursing home scandals of the mid 1970's, again took note of the serious situation created by convicted felons continuing to operate health care facilities as review proceedings dragged on. While the 1981 amendments intended to rid the industry of such persons, and to do so expeditiously, several nonetheless continued operating nursing homes. The memorandum further described the result in Hodes v. Axelrod (supra), as well as its impact, concluding that the new bill would resolve the "dilemma" by excepting the automatic revocation provisions of the Public Health Law from the bar to automatic relief contained in the Correction Law: "This limitation on the scope of the certificate of relief would resurrect the revocations previously imposed. This will assist in the Department's continuing efforts to remove convicted felons from the operation and provision of health care services." (Mem. of State Department of Health, 1983 McKinney's Session Laws of N.Y., at 2631; see also, 1983 NY Legis Ann, at 254-255.)

Armed with the amended legislation, in 1984 the Commissioner of Health commenced the present proceeding against petitioners under Public Health Law § 2806(5) to revoke their operating certificate upon a finding that they had been convicted of industry-related felonies. The proceeding was, however, enjoined by Special Term on the ground that petitioners enjoy the protection of "the res judicata effect of the favorable Court of Appeals determination." A divided Appellate Division affirmed, 116 A.D.2d 75, 500 N.Y.S.2d 379, the majority concluding both that petitioners have a vested property right in the judgment on the merits in their favor, and that the new proceeding is barred by the doctrine of res judicata. In this posture the case comes before us.

As the starting point for our analysis, we agree with the Appellate Division dissenter that the 1983 amendments to Public Health Law § 2806(5)--explicitly made retroactive by the Legislature--were intended to apply to all licensed operators, even those like petitioners who had litigated the automatic revocation issue to a final judgment in their favor under preexisting law. While clear expression of such purpose is unquestionably necessary (see, e.g., Gleason v. Gleason, 26 N.Y.2d 28, 36, 308 N.Y.S.2d 347, 256 N.E.2d 513), that requirement is satisfied both by the literal words of the 1983 amendment and by its history.

The question is whether realization of that legislative objective is precluded either by a vested right petitioners acquired in the judgment or by the doctrine of res judicata. We conclude that neither is a bar to the present revocation proceeding.

The Vested Rights Doctrine

Although a statute is not invalid merely because it reaches back to establish the legal significance of events occurring before its enactment, a traditional principle applied in determining the constitutionality of such legislation is that the Legislature is not free to impair vested or property rights (United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92; 2 Rotunda, Nowak & Young, Constitutional Law § 15.9). The vested rights doctrine recognizes that a "judgment, after it becomes final, may not be affected by subsequent legislation." (McKinney's Cons.Laws of N.Y., Book 1, Statutes § 58.) Once all avenues of appeal have been exhausted, under this doctrine a judgment becomes an inviolable property right which thereafter may not constitutionally be abridged by subsequent legislation (id.).

Germania Sav. Bank v. Village of Suspension Bridge, 159 N.Y. 362, 54 N.E. 33--decided in 1899--is a representative application of the traditional principle of "vested rights". In that case, this court had initially denied a motion for leave to appeal in an action on coupon bonds because the statute then in effect did not allow such an appeal absent permission of the General Term when the complaint demanded less than $500; the statute was thereafter amended to remove the monetary limitation. In dismissing a second motion for leave, we held that applying the statute retrospectively in such circumstances would unconstitutionally deprive the defendant of a vested property right: "A judgment is a contract which is subject to interference by the courts so long as the right of appeal therefrom exists, but when the time within which an appeal may be brought has expired, it ripens into an unchangeable contract and becomes property, which can be disposed of or affected only by the act of the owner, or through the power of eminent domain. It is, then, beyond the reach of legisl...