Wein v. Carey

• Decision Date: 31 March 1977
• Parties: , 362 N.E.2d 587 Leon E. WEIN, Appellant, v. Hugh L. CAREY, as Governor of the State of New York, et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 955

393 N.Y.S.2d 955

41 N.Y.2d 498, 362 N.E.2d 587

Leon E. WEIN, Appellant, v. Hugh L. CAREY, as Governor of the State of New York, et al.,

Respondents.

Court of Appeals of New York.

March 31, 1977.

Leon Edward Wein, pro se, and William J. Quirk, Brooklyn, for Leon E. Wein, appellant.

Louis J. Lefkowitz, Atty. Gen. (Shirley Adelson Siegel and Samuel A. Hirshowitz, New York City, of counsel), for respondents.

Edwin B. Mishkin, Stephen L. Dinces, Evan A. Davis, Victor I. Lewkow and Edmund H. Kerr, New York City, for Solomon Brothers and others, amici curiae.

BREITEL, Chief Judge.

Plaintiff, as a taxpayer, seeks a declaratory judgment that some unspecified portion of State tax and revenue anticipation notes issued in the aggregate amount of $3.72 billion in the spring months of 1976 was, as a matter of law under the State Constitution, void. He seeks too an injunction barring the State from issuing further tax and revenue ancitipation notes until it achieves a 'balanced budget'. At stake, therefore, is also the prospective issuance by the State of almost $4 billion of similar notes in the spring 1977 financing of the State budget plan for fiscal year 1977--1978 which financing starts on the heels of the decision by this court.

The complaint stands dismissed on summary judgment under CPLR 3212. The Appellate Division by a divided vote affirmed the dismissal at Special Term.

The critical question is whether, with respect to the State

's 1976--1977 fiscal year, there were issued anticipation notes by the State's officials with knowledge, actual or constructive, that there was no authentic balance between expenditures and moneys from all sources in the State's budget plan. If so, there was no constitutional authority to issue the anticipation notes (N.Y.Const. art. VII, § 9). There are subsidiary questions: upon whom falls the burden of proof to establish that there is, or is not, the balanced budget required by the Constitution (art. VII, § 2; Wein v. State of New York, 39 N.Y.2d 136, 141--142, 383 N.Y.S.2d 225, 226--227, 347 N.E.2d 586, 587--588), and whether that burden of proof has been sustained. There are also peripheral questions with respect to plaintiff's standing as a taxpayer to raise the questions, the State's sovereign immunity from suit without its consent, the validity of notes issued in violation of the Constitution, and the enforceability of such notes in the hands of bona fide holders for value without notice of defects.

Before considering the ultimate merits of the appeal, the peripheral questions, because they are of recurring prime significance, must be treated.

Plaintiff has standing and State officials such as defendants, at least in the case of the Comptroller, possess none of the sovereign immunity of the State. None may read the majority opinion in Boryszewski v. Brydges, 37 N.Y.2d 361, 362--364, 372 N.Y.S.2d 623, 624--625, 334 N.E.2d 579, 580--581 without concluding that a citizen or taxpayer has the right to challenge in the courts, as unconstitutional, acts of government--'the classical means for effective scrutiny of legislative and executive action' (p. 364, 372 N.Y.S.2d p. 626, 334 N.E.2d p. 581). The right of a taxpayer or citizen to sue has since been recognized by the Legislature (State Finance Law, art. 7--A (as added by L.1975, ch. 827)). This is not to say that there may or may not be limits. It is enough that this appeal does not exceed possible limits and follows naturally in the wake of Wein v. State of New York, 39 N.Y.2d 136, 383 N.Y.S.2d 225, 347 N.E.2d 586, Supra, a case upon which all the parties rely.

On the showing in this case, even if the anticipation notes had been issued in violation of the Constitution and are therefore invalid and unenforceable between the issuer and purchasers who took with notice or without value, purchasers in good faith for value would not necessarily be without remedy. There is patent authority in the Constitution and the statutes to issue them upon the findings and certifications of the appropriate authorities (N.Y.Const., art. VII, § 9; State Finance Law, § 55).

Bonds and notes issued by the State and its municipal subdivisions, as least when there is explicit constitutional authority, are prima facie invulnerable and the investor may rely on such patent authority (cf. Citizens' Sav. Bank v. Town of Greenburgh, 173 N.Y. 215, 222--226, 65 N.E. 978, 980--981; Van Dolsen v. Board of Educ., 162 N.Y. 446, 451--452, 56 N.E. 990, 991--992; Hoag v. Town of Greenwich, 133 N.Y. 152, 163, 30 N.E. 842, 845; Brownell v. Town of Greenwich, 114 N.Y. 518, 528--529, 22 N.E. 24, 26--27; Town of Solon v. Williamsburgh Sav. Bank, 114 N.Y. 122, 133--134, 137--139, 21 N.E. 168, 169--170, 171--172; Cagwin v. Town of Hancock, 84 N.Y. 532, 541--542; but cf. Alvord v. Syracuse Sav. Bank, 98 N.Y. 599, 604; see, generally, 64 Am.Jur.2d, Public Securities and Obligations, §§ 308--323, and cases cited, indicating that a distinction must be made between lack of patent authority to issue securities, by reason of which securities may be wholly void, and latent infirmities, such as lack of underlying preconditions, whether of substance or form, which may render public securities subject only to remedies not enforceable against bona fide holders for value; see, also, Uniform Commercial Code, § 8--202, subd. (2), including Official Comments, esp. Comment 6, which, because subject to constitutional limitations, is not determinative but is, nevertheless, instructive).

On this last view, the complaint in seeking without qualification a declaration of 'voidness' of the anticipation notes may not be sustained. When the alleged infirmities, as here, relate to procedures, findings, accounts, and nonpublicized documents, never readily available to investors, security analysts, and financial institutions, the purchasers of the governmental obligations may rely on the patent, meaning explicit, authority of the issuers to do as they have done.

The principle last discussed rests not only in reason but in necessity. Otherwise, even long-term public bonds, issued directly by the State or governmental entities apparently by express authority of the Constitution, would always, until payment or even afterward, remain vulnerable to constitutional attack. Vulnerability of that sort would make bonds speculative rather than the prime investment securities they are, issuable at comparatively low rates of interest. The Legislature has recognized this concern (State Finance Law, § 123--b, subd. 1, which statute, of course, is also subject to constitutional limitations).

The ultimate issues on this appeal are of a different order and quite easily and definitively resolved. This case is a sequal to the Wein case (supra), in the opinions of which the background and relevant constitutional issues implicated in State finance, and particularly the mechanisms involved in the use of anticipation notes, are detailed. Reference is made to those opinions in order to keep the compass of the present discussion reasonably limited.

In the spring of 1976 the State by action of the Governor and the Legislature adopted a purportedly balanced budget plan, implemented by statutes providing for revenue raised by taxes to supplement other revenues and moneys, and appropriations for the operation of the State government, including various forms of local assistance. The budget plan as implemented balanced at $10.9 billion (Exhibit D, Official Statement of April 15, 1976, p. 22). Included in the plan was provision for the redemption of anticipation notes, shortly to mature, in the sum of $382 million, the product of a deficit resulting from the 1975--1976 fiscal year. As required by the Constitution and the State Finance Law these deficit notes were to be and were paid in the 1976--1977 fiscal year from certain revenues impounded by the Comptroller (N.Y.C.onst. art. VII, § 9; State Finance Law, § 55, subd. 1, par. (b)).

Plaintiff emphasizes that the $382 million deficit was then but the last of a series of deficits which the State had experienced successively during prior years.

In the budget plan for 1977--1978, there is a 'new' remainder of deficit anticipation notes from the 1976--1977 fiscal year in the sum of $158 million. These too are to be paid out of certain revenues impounded by the Comptroller.

Beyond the amounts of deficit anticipation notes running over from one fiscal year to another, the State in each of the last two fiscal years has experienced a deficit in the once balanced budget plans of revenues and expenditures....