Wein v. City of New York

• Decision Date: 27 May 1975
• Citation: 331 N.E.2d 514,36 N.Y.2d 610,370 N.Y.S.2d 550
• Parties: , 331 N.E.2d 514 Leon E. WEIN, Respondent-Appellant, v. CITY OF NEW YORK et al., Appellants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 550

370 N.Y.S.2d 550

36 N.Y.2d 610, 331 N.E.2d 514

Leon E. WEIN, Respondent-Appellant, v. CITY OF NEW YORK et al., Appellants-Respondents.

Court of Appeals of New York.

May 27, 1975.

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

W. Bernard Richland, Corp. Counsel, New York City (Stanley Buchsbaum, New York City, and Kenneth F. Hartman, Riverdale, of counsel), for appellants-respondents.

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

Orison S. Marden, Willis McDonald, IV, Marion Jay Epley, III, Robert L. Clare, III and Evan A. Davis, New York City, for the Financial Community Liaison Group, amicus curiae.

GABRIELLI, Judge.

Plaintiff brings this taxpayer's action seeking a judgment declaring the New York City Stabilization Reserve Corporation Act (L.1974, ch. 594) invalid claiming, essentially, that the act is violative of the provisions of article VIII (§ 4, subd. (c)) of the State Constitution in that the act sets up a framework and procedure which illegally permits the city to obtain additional operating revenues thorugh the sale of bonds by the corporation, created by the Legislature, without extending its debt obligations beyond the permissible limit of 10% Of the valuation of real estate, the outside limit provided by the Constitution (art. VIII, § 4, subd. (c)).

Title 26 of the Public Authorities Law, McKinney's Consol.Laws, c. 43--A, comprising 20 sections (§§ 2530--2549) created the Stabilization Reserve Corporation (SRC), a 'corporate governmental agency constituting a public benefit corporation' (§ 2532, subd. (a)) and, in detail, provided for its operation and method of obtaining funds by the sale of bonds without a pledge of the full faith and credit of either the City or State of New York.

It is important to here note that the enactments to be construed are statutes adopted and promulgated by the State Legislature, and not enactments by the City of New York.

Section 2533 sets forth the legislative purpose as one to meet the city's unprecedented fiscal crisis by settng up a corporation to assist the city in providing essential services during the fiscal years 1973--1974 and 1974--1975. The SRC is denominated a public service corporation (§ 2532, subd. (a)) to which the Mayor is authorized to certify 150 million dollars for the 1973--1974 fiscal year and 370 million dollars for 1974--1975 (§ 2538). Upon such certification the SRC is authorized to sell up to 520 million dollars of its own bonds and notes and pay the proceeds to the City Comptroller to be used in the city's general fund. The act further provides that the bonds are to mature in 10 years or less, and the principal and interest thereon are repayable in equal annual or semiannual installments (§ 2536).

The bonds and notes thus sold are the obligations solely of the SRC and, indeed, it is specified that '(t)he notes, bonds or other obligations of the corporation shall not be a debt of either the state or the city, and neither the state nor the city shall be liable thereon, nor shall they be payable out of any funds other than those of the corporation; and such notes and bonds shall contain on the face thereof a statement to such effect' (§ 2542).

It is further provided that principal on notes would be paid out of bond proceeds, and interest and principal on bonds would be paid out of an SRC Capital Reserve Fund which would be replenished annually for purposes of paying principal and interest on outstanding bonds during the current fiscal year (§ 2537).

Section 2537 (subd. 1, par. (c)) provides that: '(c) To assure the continued operation and solvency of the corporation for the carrying out of its corporate purpose, provision is made in paragraph (a) of this subdivision for the accumulation in the capital reserve fund of an amount equal to the capital reserve fund requirement. In order further to assure such maintenance of the capital reserve fund, there shall be paid by the city to the corporation for deposit in the capital reserve fund on or before the first day of December, in each year, such amount, if any, needed for the purpose of maintaining the capital reserve fund at the capital reserve fund requirement as shall be certified by the chairman of the corporation to the mayor and the director of the budget on or before the fifteenth day of February next preceding; provided that any such amount shall have been first appropriated by or on behalf of the city for such purpose or shall have been otherwise made available.'

If the city fails to make such yearly appropriations, then the SRC chairman may certify to the State Comptroller the amount needed to maintain the fund at a proper level whereupon the comptroller will pay the first moneys available for the next succeeding payments to the city from the Stock Transfer Tax Fund and, if there remains a shortage the first moneys available for the next succeeding payments of State per capita or other aid payable to the city from the State (§ 2540). The SRC is also authorized to accept gifts, grants or loans from the Federal Government or any of its agencies (§ 2535, subd. (14)).

Plaintiff's suit was commenced on February 5, 1975. He requested the declarato and injunctive relief already mentioned, alleging his taxpayer status and that the SRC Act was unconstitutional upon the additional ground that it violates section 2 of article VIII of the Constitution since the city would be contracting indebtedness without pledging its full faith and credit for repayment; that it violates section 1 of article VIII which prohibits the city from giving or loaning its credit in aid of any public or private corporation; and that section 5 of article X prohibited the city from becoming liable for payment of any obligations of a public corporation.

Defendant city submitted no answer, but interposed a motion under CPLR 3211 (subd. (a), pars. 3, 7) to dismiss the complaint on the grounds (1) plaintiff had no legal capacity to sue and (2) that the pleading failed to state a cause of action. Special Term overruled all of plaintiff's contentions and granted summary judgment in defendant's favor, apparently under the provisions of CPLR 3211 (subd. (c)) permitting him to treat defendant's motion as one for summary judgment, and directly declared the act constitutional. Special Term found plaintiff's contentions all based upon the argument that the city would be a debtor on the bonds and construed the statute literally to the effect that the city was specifically exempted from such status. This ruling, in turn, obviated plaintiff's arguments that the city was pledging its credit in aid of a public corporation and that it would be incurring indebtedness without pledging its full faith and credit. Plaintiff's contention concerning article X was not dealt with, but that would fall also upon the decision that the city in no way was obligated. The Appellate Division affirmed.

The case of Comereski v. City of Elmira, 308 N.Y. 248, 125 N.E.2d 241 was relied upon by both Special Term and the Appellate Division. Justice kupferman, in his brief dissent at the Appellate Division, said that 47 A.D.2d 367, 374, 366 N.Y.S.2d 885, 892 '(t)he case of Comereski * * * is easily distinguished. The parking meter authority there had an ostensible purpose and was not merely a conduit for circumvention'. Defendant city claims that Comereski is dispositive of all of plaintiff's contentions. In that case, the Elmira Parking Authority was created, authorized to sell bonds and to run the municipal parking lots. By amendment to the city charter, the city was authorized to contract with the authority to pay any yearly deficits incurred by the authority up to $25,000. Such money was to come from parking meter revenues collected by the city. The constitutional argument raised against this arrangement was that section 1 of article VIII was being violated in that the city was pleading its credit in aid of a public corporation. On this point the court held that the city did not contract to pledge its credit, but, rather, contracted to make a gift of up to $25,000 a year, if needed, which was in no way violative of the Constitution which only bars gifts to individuals or private groups. While that part of the Comereski decision is dispositive in the instant case insofar as it disposes of plaintiff's section 1 of article VIII argument, it does not Directly apply to his other constitutional arguments, although it obviously necessarily follows that if yearly deficit payments such as this are permissible gifts, then they are not debt obligations, this latter point going to the heart of plaintiff's remaining arguments.

On the facts, Comereski differs, of course, in that the parking authority could generate its own income by renting parking spaces whereas the SRC has no visible means of financial support except for what it can derive from the city, State or Federal governments. This apparently is what the dissenter below was driving at in that portion of his dissent I have quoted. This factual distinction, however, while it may raise questions concerning the fiscal wisdom of the SRC operation (with which we need not concern ourselves), does not affect the constitutional points. The city here is no more obligated than was the City of Elmira to pay off the parking authority obligations. Even if it be conceded that the SRC is a mere 'conduit', such labeling does not necessarily violate the various aspects of the Constitution raised by plaintiff, all of which, as pointed out by Special Term, rest on the assertion that the city has become indebted or obligated. The very terms of the statute clearly preclude such indebtedness. The city May, for the two years in question, make payments of up to $520 million. It is not bound to. If such payments are not made and the SRC goes under because it is unable to collect...