Council of City of New York v. Giuliani

• Decision Date: 30 March 1999
• Citation: 93 N.Y.2d 60,710 N.E.2d 255,687 N.Y.S.2d 609
• Parties: , 710 N.E.2d 255, 1999 N.Y. Slip Op. 2634 COUNCIL OF the CITY OF NEW YORK et al., Respondents-Appellants, v. Rudolph W. GIULIANI, as Mayor of the City of New York, et al., Appellants-Respondents. Campaign To Save Our Public Hospitals--Queens Coalition, by Its Member, William Malloy, et al., Respondents-Appellants, v. Rudolph W. Giuliani, as Mayor of the City of New York, et al., Appellants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 609

687 N.Y.S.2d 609

93 N.Y.2d 60, 710 N.E.2d 255, 1999 N.Y. Slip Op. 2634

COUNCIL OF the CITY OF NEW YORK et al., Respondents-Appellants, v. Rudolph W. GIULIANI, as Mayor of the City of New York, et al., Appellants-Respondents.

Campaign To Save Our Public Hospitals--Queens Coalition, by Its Member, William Malloy, et al., Respondents-Appellants, v. Rudolph W. Giuliani, as Mayor of the City of New York, et al., Appellants-Respondents.

Court of Appeals of New York.

March 30, 1999.

Michael D. Hess, Corporation Counsel of New York City (Elizabeth Dvorkin, Jeffrey D. Friedlander and Stephen Louis of counsel), for appellants-respondents in the first and second above-entitled actions.

Tenzer Greenblatt, L.L.P., New York City (Ira A. Finkelstein, Edward L. Sadowsky and Gail R. Zweig of counsel), and Richard M. Weinberg for respondents-appellants in the first above-entitled action.

Barbara J. Olshansky, New York City, Robert T. Perry, Elaine R. Jones, Norman J. Chachkin and Olatunde C.A. Johnson for respondents-appellants in the second above-entitled action.

Sipser, Weinstock, Harper & Dorn, L.L.P., New York City (Richard Dorn and I. Philip Sipser of counsel) and Richard Ferreri for District Council 37, AFSCME, AFL-CIO and others, amici curiae.

Arnold S. Cohen, Long Island City, Arthur A. Baer, Allison Busch, Lourdes I. Reyes, New York City, and Raymond Brescia for Progressive Rainbow Independents for Developing Empowerment (PRIDE) and others, amici curiae.

Juan Cartagena, New York City, Arlene Kohn Gilbert and Harry Franklin for Community Service Society of New York and others, amici curiae.

Dorsey & Whitney, L.L.P., New York City (John J. Lee of counsel), for Fernando Ferrer and others, amici curiae.

OPINION OF THE COURT

WESLEY, J.

These related appeals challenge the validity of a sublease of a hospital operated by the New York City Health and Hospitals Corporation (HHC) to a for-profit entity pursuant to the Health and Hospitals Corporation Act (Act). Although several issues are raised, the threshold question is: does the Act permit the City to sublease Coney Island Hospital and turn over its operations and service obligations to PHS New York, Inc., a private entity? Like the courts below, we conclude that the statute precludes the proposed transaction.

Historical Context

In 1929 New York City established a municipal Hospitals Department to provide health care to all residents who were unable to obtain care from private providers because of poverty, location or discrimination. This Department, which administered the municipal health system, operated fairly well during the Great Depression and the years preceding World War II.

The decades following World War II, however, witnessed a steady decline in the municipal health system, and by the 1960s it was in chronic crisis. This crisis was born of bureaucratic sclerosis, archaic management practices, inefficiency and a shortage of funds. New York City hospitals suffered from obsolete facilities, long clinic waits and little or no primary care. The hospitals were under public attack for making second-class citizens of those New Yorkers who were dependent on them for their care (see generally, Commission on the Delivery of Personal Health Services, Comprehensive Community Health Services for New York City [Dec.1967] ).

In 1969 the Legislature enacted the New York City Health and Hospitals Corporation Act, establishing HHC (McKinney's Uncons.Laws of N.Y. § 7381 et seq. [HHC Act § 1 et seq.]; L.1969, ch. 1016, as amended). HHC was the perceived antidote for the ills that plagued the City's health care system. The Act authorizes HHC to manage and operate the City's municipal hospital system (McKinney's Uncons.Laws of N.Y. § 7386[a] [HHC Act § 6(1)(a) ] ). The mission of HHC is to provide efficient, comprehensive health and medical resources to protect and promote the safety and welfare of New York City residents (McKinney's Uncons.Laws of N.Y. § 7382 [HHC Act § 2] ). According to the Act, the provision of health and medical services and "the exercise by such corporation of the functions, powers and duties as hereinafter provided constitutes the performance of an essential public and governmental function" (McKinney's Uncons.Laws of N.Y. § 7382).

In conjunction with providing quality care to those in need, HHC was established to permit independent financing of municipal hospital construction and improvements and to facilitate professional management of the hospital system. It was intended to overcome the "myriad * * * complex and often deleterious constraints" which inhibited the provision of care by the City in its own operation of the municipal health system (McKinney's Uncons.Laws of N.Y. § 7382). The Act authorized the City to lease the City-owned hospitals to HHC to fulfill its corporate purposes, "for so long as [HHC] shall be in existence" (McKinney's Uncons.Laws of N.Y. § 7387 [HHC Act § 7(1) ] ). The property, plant and equipment associated with these facilities are owned by the City and leased to HHC for an annual rent of $1 in accordance with these provisions.

HHC has evolved into the largest municipal hospital system in the country, handling more than 6.5 million patient visits and 230,000 admissions per year. The municipal health care system consists of 11 acute care facilities (including major teaching facilities), five certified home health care agencies, five long-term care facilities, six diagnostic and treatment centers, a network of more than 20 satellite clinics and a prepaid health plan.

The Contemporary Context and Present Litigation

Today New York City is experiencing a deja vu regarding the provision of health care to the needy. Although different forces are at work in the contemporary health care industry, once again spiraling costs and a shortage of funds are the hallmarks of New York City's health care system (see, Report of State Comptroller H. Carl McCall, Challenges Facing New York City's Public Hospital System, at 4-99 [Aug. 5, 1998] ). The current administration, like its predecessor 30 years ago, began considering various ways to revive and redefine the provision of health care services to the needy.

In 1994 the City explored the possibility of transferring the operation of three public hospitals under the auspices of HHC--Coney Island Hospital, Elmhurst Hospital Center and Queens Hospital Center--to private entities. In October 1995, the City, through the New York City Economic Development Corporation, and HHC issued an Offering Memorandum requesting proposals from health care providers for the operation and management of Coney Island Hospital under a long-term sublease of the hospital.

In an effort to obtain broader public review of the privatization plan, the City Council in March 1996 commenced this declaratory judgment action against the Mayor and HHC. The City Council alleged that the privatization of the target hospitals by means of subleases with private entities required City Council approval and was subject to the Uniform Land Use Review Procedure ( [ULURP] N.Y. City Charter § 197-c). A second declaratory judgment action, raising the same issues, was commenced in May 1996 by two unincorporated associations whose members live and work in the communities served by Coney Island Hospital and the targeted hospitals in Queens (see, Campaign To Save Our Pub. Hosps.--Queens Coalition v. Giuliani, 242 A.D.2d 518, 662 N.Y.S.2d 265). All parties moved for summary judgment.

While the motions and cross motions were pending, the City and PHS New York, Inc. (PHS-NY), a private entity, executed a letter of intent on June 26, 1996 calling for negotiations to achieve a long-term sublease of the property, plant and equipment of Coney Island Hospital to PHS-NY. A contract for PHS-NY to operate Coney Island Hospital as a community-based, acute care inpatient hospital during the term of the sublease was executed as well.

Following a public hearing, on November 8, 1996 the HHC Board of Directors authorized and approved the sublease of Coney Island Hospital to PHS-NY for an initial term of 99 years, with a renewal option for an additional 99 years. The sublease requires PHS-NY, as the tenant under the proposed sublease of Coney Island Hospital, to make a commitment to HHC, as the landlord, to operate Coney Island Hospital as an acute care inpatient hospital during the term of the sublease and to provide a range of inpatient, outpatient and emergency health care services to the Coney Island community, including indigent members of that community. Thus, the proposed sublease would obligate PHS-NY to provide specified essential health care services "to substantially the same degree" as Coney Island Hospital currently provides. The sublease further provides that the City and HHC would enter into a separate agreement with PHS-NY in which they would agree not to compete with PHS-NY by operating a hospital within the "catchment area" of Coney Island Hospital.

The sublease also includes several significant terms that would benefit the City and the communities served by the hospital. For example, there is a "charity care" provision in the sublease, providing that for the life of the lease PHS-NY would offer care without regard to ability to pay, up to a level 115% greater than the charity care expense currently carried by Coney Island Hospital. ^* Another provision requires PHS-NY to spend at least $25 million in the first five years of the sublease on capital projects, in addition to assuming all routine maintenance costs. PHS-NY also is obligated to assume the outstanding HHC and City bonds associated with Coney Island Hospital and all liability for using and operating the hospital.

The plaintiffs in both actions amended their complaints to allege that the sublease of Coney Island Hospital constituted an ultra vires act; the motion papers were amended to address this issue. Supreme Court granted summary judgment to plaintiffs and...