City of New York v. Blum

• Citation: 414 N.Y.S.2d 960,98 Misc.2d 373
• Parties: Application of The CITY OF NEW YORK, Blanche Bernstein, Administrator/Commissioner of the Human Resources Administration of the City of New York, and Harry S. Tishelman, Commissioner of the New York City Finance Administration, Petitioners, for a Judgment pursuant to Article 78 of the Civil Practice Law and Rules v. Barbara BLUM, Commissioner of Social Services of the State of New York and Arthur Levitt, Comptroller of the State of New York, Respondents.
• Decision Date: 27 February 1979
• Court: United States State Supreme Court (New York)

Page 960

414 N.Y.S.2d 960

98 Misc.2d 373

Application of The CITY OF NEW YORK, Blanche Bernstein Administrator/Commissioner of the Human Resources Administration of the City of New York, and Harry S Tishelman, Commissioner of the New York City Finance Administration, Petitioners, for a Judgment pursuant to Article 78 of the Civil Practice Law and Rules v. Barbara BLUM, Commissioner of Social Services of the State of New York and Arthur Levitt, Comptroller of the State of New York, Respondents.

Supreme Court, Albany County.

Feb. 27, 1979.

Allen G. Schwartz, Corp. Counsel, New York City, for petitioners

Robert Abrams, Atty. Gen., Albany, for respondents.

LEONARD A. WEISS, Justice.

I. Introductory Questions and Background

Is a CPLR Article 78 proceeding brought by the City of New York and officials representing the Human Resource Administration and Finance Administration of that City, (herein "City" or "Petitioners") against the New York State Comptroller (herein "State" or "Respondents") the proper legal proceeding by which to:

(A ) challenge the New York State Department of Social Services Regulation, 18 NYCRR 381.9 as invalid;

(B ) order the State to restore in full to the City two disallowances from State welfare reimbursement checks to the City in the approximate sums of twenty-two million and eleven million dollars representing State overpayments to the City for ADC claims paid by the City between March 1973 and February 1976;

(C ) order the State, pursuant to Social Services Law § 153: (1) to pass on to the City the sum of 33.7 million dollars of federal funds, received, or to be received, by the State from the federal government for reimbursement of City, vendor/restricted welfare payments to families with dependent children (AFDC) during the period from July 1975 to December 1976; (2) to pay the City the sum of 16.85 million dollars of State funds as the mandated State 25% Reimbursement share of these AFDC payments; (3) to pay to the City the sum of 13.85 million dollars in State funds as the mandated State 50% Reimbursement share of City vendor/restricted welfare payments on behalf of recipients of aid to families with dependent children during the period from March 1973 to February 1976 for which there was no federal financial participation?

Petitioners, the City of New York, Blanche Bernstein (Administrator/Commissioner, Human Resources Administration of the City of New York) and Harry S. Tishelman (New York City Finance Administration Commissioner) commenced this CPLR Article 78 proceeding on October 13, 1978. The proceeding arises from the City's claim for reimbursement from the State for monies petitioners paid under the ADC program to eligible recipients in New York City between February 1973 and February 1976 (P 24 of an affidavit by New York State Director of Social Services Finance signed December 14, 1978). Between these dates the City alleges it made claim to the State for reimbursement of $95,080,201 in vendor/restricted AFDC payments, and the State claims that in the same period petitioners claimed reimbursement from the State for $99,412,549.73 in vendor/restricted payments.

The dispute arises because following a State audit report published in 1975, the State determined that the City had improperly submitted claims to the State for reimbursement limits set forth in State Social Services Department regulations and directives. The State alleges that the technique employed by the City was to "rollover" claims for wholly non-reimbursable vendor/restricted payments in excess of the reimbursement limits set by the State for each month into a claim for federal nonparticipatory (but State participatory) reimbursement. The State also alleges that improper

claims submitted by the City resulted in the City's receiving excess reimbursement from the State for AFDC payments. The State began recouping the amount which it believed had been overpaid, by deducting these sums from a series of welfare advance checks it issues to the City. The City initiated this proceeding to stop the State recoupment process initiated by challenging: (1) State Social Services Department regulation 18 NYCRR 381.9 which purports to limit the share of AFDC payments reimbursable by the State; (2) the State's conclusion that the excess vendor/restricted payments made by the City are not 50% Reimbursable by the State under the AFDC or Home Relief Program; (3) the method the State used to calculate the alleged excess reimbursement it paid the City (i) sums of money ¹ the State has received or is entitled to receive from the federal government for reimbursement of City AFDC payments (the State refuses to make claim for these federal funds until the City refunds to the State those sums the State believes it overpaid the City improperly as reimbursement for vendor/restricted payments made by the City.)

II. Parties Contentions

A. Petitioner/City

The City contends (1) State Social Services Department regulation 18 NYCRR 381.9 is invalid because it purports to limit what the City believes is an absolute requirement that the State reimburse the City 50% For all non-federally financed vendor/restricted AFDC payments imposed by Social Services Law (SSL) § 153 subd. 1; (2) the State Social Services Department proceeded and threatens to proceed in excess of its statutory authority by disallowing $21,909,701, and threatening to disallow what the City calculates as the $14,631,028 balance the State believes the City improperly claimed by deducting these sums from State reimbursement payments presently due the City. The threatened State disallowances are viewed by the City as "penalties" which are not authorized by Social Services Law § 131a(7); (3) if the State is permitted to deny AFDC reimbursement, then the City is entitled to "Home Relief" reimbursement under Social Services Law §§ 157 et seq. and 18 NYCRR 610.1; (4) if contentions (1)-(3) are not accepted by the Court, the City then urges that the State has made an arbitrary and capricious choice of the formula it used to calculate excess vendor/restricted payments; and (5) the State has acted arbitrarily, capriciously, and illegally in failing to (a) claim and/or pass on to the City 33.7 million dollars of federal funds the State has received or is entitled to receive under the 1977 federal forgiveness legislation described in this decision at footnote "1,", Supra, p. 964.

B. Respondents/State

The State interposes the following affirmative defenses: (1) the Court lacks subject matter jurisdiction because (a) the State has not, by express statute, waived its immunity to suit by the City and this proceeding against State officials is equivalent to an action against the State itself (maintainable only in the Court of Claims), and (b) CPLR § 7806 prevents this Court from awarding the City the money damages it seeks in its statement "Any restitution or damages granted to the petitioner Must be incidental to the primary relief sought by the petitioner, and Must be such as he might otherwise recover on the same set of facts in a separate action or proceeding suable in the supreme court against the same body or officer in its or his official capacity." (emphasis added). Respondents urge that the money damages sought by petitioners are the primary relief bringing these proceedings within the prohibition of CPLR § 7806; (2) there is another action pending involving the same parties and the subject matter ² in the Court of Claims evidenced

by petitioners' Notice of Intentions to File Claim dated December 13, 1978 and filed pursuant to Court of Claims Act § 10(4) (Exhibit "H" to respondents' amended answer sworn to on January 10, 1979)

III. Decision

A. Standing and Jurisdiction

(1) Jurisdiction to Rule on the validity of a Regulation

The Attorney General of New York State offers a variety of cases from 1893 (Stone v. State, 138 N.Y. 124, 130, 33 N.E. 733, 734-735) to 1961 (Mathewson v. New York State Thruway Authority, 9 N.Y.2d 788, 215 N.Y.S.2d 86, 174 N.E.2d 754) suggesting that this Court does Not have jurisdiction to entertain a suit by a municipality challenging the validity of a State administrative agency's regulation as inconsistent with a statute.

The Court has jurisdiction to entertain this action under CPLR § 3001 or § 7803(3), see e. g., Erie Co. v. Whalen, 44 N.Y.2d 817, 406 N.Y.S.2d 453, 377 N.E.2d 984 (1978) (where by a vote of 6 to 1 the Court of Appeals affirmed an Appellate Division, Third Department 3 to 2 decision, 57 A.D.2d 281, 394 N.Y.S.2d 747, which held that Special Term in a CPLR Article 78 proceeding has CPLR 3001 jurisdiction to declare an administrative regulation (10 NYCRR 40.11(1) issued by the New York State Health Department Commissioner invalid because the regulation is not in harmony with a statute (Public Health Law § 605)); Matter of Harbolic v. Berger, 43 N.Y.2d 102, 400 N.Y.S.2d 780, 371 N.E.2d 499 (1977) (where the Court of Appeals in a unanimous decision reversed the Appellate Division Second Department and held State Social Services Department regulation 18 NYCRR 352.19 invalid as inconsistent with Social Services Law § 131-i); Matter of Bernstein v. Toia, 43 N.Y.2d 437, 402 N.Y.S.2d 342, 373 N.E.2d 238 (1977) (where in a 5 to 2 decision the Court upheld State Social Services Department regulation 18 NYCRR 352.3(a) as consistent with Social Services Law § 131-a); and Matter of Jones v. Berman, 37 N.Y.2d 42 at 51, 371 N.Y.S.2d 422 at 427-428, 332 N.E.2d 303 at 307 (1975) (where by a unanimous decision the Court of Appeals modified the Appellate Division Third Department decision of Domine v. Schreck, 44 A.D.2d 98, 353 N.Y.S.2d 821 (1974) (an Article 78 proceeding, and held New York State Social Services Department Regulation 18 NYCRR 372.2 invalid because it conflicted with Social Services Law § 350-j).

The Court disagrees with the State's contentions. In passing, the Court observes (1) that CPLR § 103(c) provides that the Court may...