Opinion
Argued November 13, 1979
Decided December 17, 1979
Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, HENDERSON W. MORRISON, J.
Gerald Walpin, Eric M. Rosenberg and Edward Labaton for appellants. Charles J. Hynes, Deputy Attorney-General (Arthur Weinstein, T. James Bryan and Richard D. Carruthers of counsel), for respondent.
On this appeal, appellants challenge the authority of respondent Deputy Attorney-General Hynes to investigate possible Medicaid fraud and criminal conduct within hospitals and to issue Grand Jury subpoenas duces tecum in furtherance of his office's duty to prosecute such activity. To resolve the issue whether respondent possesses the requisite authority for this investigation, our inquiry focuses necessarily upon the language of subdivision 3 of section 63 of the Executive Law — the statute which respondent claims provides a sufficient basis to authorize his investigation of hospitals.
By separate letters dated September 30, 1977, the Commissioners of Health and Social Services requested the Attorney-General's office to investigate the alleged commission of any indictable offense or offenses in violation of either the Public Health Law or Social Services Law by hospitals which are subject to the provisions of such laws. This request to probe into the activities of hospitals was joined by the Superintendent of Insurance who, by letter dated September 20, 1978, petitioned the Attorney-General to "investigate the alleged commission of any indictable offense or offenses in violation of the Insurance Law." In addition, on April 27, 1978, the Commissioners of Health and Social Services requested the Attorney-General to investigate all criminal offenses connected with the provision of medical assistance to needy persons under the Medicaid program, thereby supplementing many of the prior requests. Pursuant to each one of these requests, respondent Hynes was designated by the Attorney-General to act as his deputy and was empowered "to perform all the functions and to exercise all the powers conferred upon the Attorney General."
The full text of the letter sent by the Commissioner of Health reads as follows: "Pursuant to Section 63(3) of the Executive Law, I hereby request that your office investigate the alleged commission of any indictable offense or offenses in violation of the Public Health Law or in relation to any matters connected with the New York State Department of Health by hospitals subject to the provisions of Article 28 of the Public Health Law, their principals, agents, suppliers or other persons connected or involved therewith; and that you prosecute the person or persons believed to have committed the same or any crime or offense arising out of your investigation or prosecution or both."
The letter authored by the Acting Commissioner of Social Services provided: "Pursuant to Section 63(3) of the Executive Law, I hereby request that your office investigate the alleged commission of any indictable offense or offenses in violation of the Social Services Law or in relation to any matters connected with the New York State Department of Social Services by hospitals subject to the provisions of the Social Services Law, their principals, agents, suppliers or other persons connected or involved therewith, and that you prosecute the person or persons believed to have committed the same or any crime or offense arising out of your investigation or prosecution or both."
This letter read as follows: "Pursuant to Section 63(3) of the Executive Law, I hereby request that your office investigate the alleged commission of any indictable offense or offenses in violation of the Insurance Law or in relation to any matters connected with the New York State Department of Insurance by hospitals which receive payment for services in accordance with rates approved by me under Article IX-C of the Insurance Law and Section 2807 of the Public Health Law, their principles [sic], agents, suppliers or other persons connected or involved therewith, and that you prosecute the person or persons believed to have committed the same or any crime or offense arising out of your investigation or prosecution or both."
It should be noted that the many forms of waste by the hospital industry in the expenditure of public funds did not escape the attention of the Governor. On June 5, 1978, the Governor issued Executive Order No. 72 (9 N.Y.CRR 3.72) directing the Attorney-General, pursuant to subdivision 8 of section 63 of the Executive Law, to "inquire into matters concerning the public peace, public safety and public justice with respect to the operation, management and funding of hospitals, and any principal, operator, agent, supplier or other person connected therewith." This civil investigation was initiated by the Governor so that he could take appropriate executive action to cure the cited problems.
Grand Jury proceedings were commenced in May of 1978, due to serious allegations of wrongdoing which were made against appellant Dr. Neuman. In October of that year, respondent Hynes issued a Grand Jury subpoena duces tecum to appellant Mann Judd Landau, a firm of certified public accountants which was the independent auditor for Continued Care Facilities, Inc., a publicly held Delaware corporation of which appellant Dr. Neuman is a principal beneficial shareholder and officer. This subpoena sought "all workpapers prepared in connection with Continued Care Facilities, Inc. and subsidiaries, to include permanent and correspondence files for the period January 1, 1973, through December 31, 1977."
In December of 1978, the Special Prosecutor served two Grand Jury subpoenas duces tecum on Dr. Neuman, doing business as Lydia E. Hall Hospital, and on Dr. Neuman, doing business as Syosset Hospital, demanding, in essence, all the business records of these hospitals for the five-year period from January 1, 1973 to December 31, 1977. In addition, a subpoena duces tecum was served on appellant Jay S. Zimmet, a certified public accountant, in February of 1979. Zimmet audited both Lydia Hall Hospital and Syosset Hospital and other proprietorships or corporations owned by Dr. Neuman. The subpoena called for the production of all workpapers, correspondence files and reports prepared in connection with these businesses for the period from January 1, 1972 through December 31, 1978.
The recipients of these Grand Jury subpoenas duces tecum and those businesses affected thereby, all appellants herein, moved to quash the respective subpoenas. County Court, after consolidating the three proceedings for disposition, denied the requested relief. A unanimous Appellate Division affirmed the order of County Court. Leave to appeal from the order of the Appellate Division was granted by this court. There should be an affirmance.
The main thrust of appellants' contentions is that Deputy Attorney-General Hynes lacked the authority to investigate instances of fraud and criminal conduct within the hospital industry. Specifically, appellants argue that absent a legislative directive, the letters sent by the various commissioners to the Attorney-General, pursuant to subdivision 3 of section 63 of the Executive Law, were insufficient to authorize such investigation. Further, appellants contend that such requests are defective because they failed to specify the indictable offenses sought to be investigated.
The first prong of appellants' argument — that the requests are insufficient to authorize an investigation of the hospital industry — derives its vitality from our recent decision in Matter of Friedman v Hi-Li Manor Home for Adults ( 42 N.Y.2d 408). In Friedman, although we held unequivocally "that the Deputy Attorney-General had authority by the issuance of an office subpoena duces tecum under subdivision 8 of section 63 of the Executive Law to compel the production of books and records of private proprietary homes for adults" (id., at pp 411-412), the majority, in dictum, suggested that the preferable approach for "State-wide investigations of this sort would be the enactment of specific, ad hoc legislative authority for particular inquiries" (id., at p 414). The majority further noted that our holding in Friedman "should not be understood as viewing subdivision 8 of section 63 as any reservoir of latent authority for investigations, however desirable they may be thought to be, into other areas of legitimate governmental concern or responsibility." (Id., at p 415.)
Appellants, seizing upon this language, now argue that respondent Hynes should not be allowed to expand his ongoing investigations of the nursing home industry and private proprietary homes for adults to include hospitals, absent an express legislative directive to do so. In short, appellants argue that the Attorney-General should not now be allowed to claim such authority under subdivision 3 of section 63 of the Executive Law inasmuch as we intimated in dictum in the Friedman case (supra) that he could not obtain such authority from subdivision 8. We do not agree.
Subdivision 3 of section 63 of the Executive Law provides that the Attorney-General shall "[u]pon request of the governor * * * or the head of any other department, authority, division or agency of the state, investigate the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department, and to prosecute the person or persons believed to have committed the same and any crime or offense arising out of such investigation or prosecution or both, including but not limited to appearing before and presenting all such matters to a grand jury." It has been stated that this provision should not be construed strictly, but, rather, should be read in "a sense to accomplish the purpose intended." (People v Yonkers Contr. Co., 24 A.D.2d 641, mod on other grounds 17 N.Y.2d 322.)
While there is little case law delineating the powers conferred upon the Attorney-General by employment of subdivision 3 of section 63 of the Executive Law, it appears that the courts of this State have uniformly construed this section as bestowing upon the Attorney-General the broadest of powers. Although the apparent first attempt to use this authority was rejected in People v Tru-Sport Pub. Co. ( 160 Misc. 628), that court predicated its decision upon the ground that the Department of State's jurisdiction and duties were too far attenuated from the subject matter sought to be investigated — the advertising by persons who falsely claimed that they could predict the outcome of horse races — to support the Secretary of State's request.
Here, in marked contrast, appellants do not claim, nor could they, that the crimes sought to be investigated do not concern matters within the jurisdiction of the heads of the departments who requested the investigations. Indeed, the letters of request themselves limit the inquiries to those matters connected with the respective departments.
In People v Zara ( 44 Misc.2d 698), the court held that the Attorney-General, by his assistants, acted properly in impaneling a Grand Jury and conducting proceedings before it when requested by the State Superintendent of Public Works to prosecute any persons who may have violated the law by removing topsoil belonging to the State. The court, in so holding, reasoned as follows: "Although they may have become latent since the office of District Attorney was created * * * the common-law powers of the Attorney-General have never been abrogated by any constitutional provision or legislative enactment. When activated by the request of a proper State officer to prosecute pursuant to subdivision 3 of section 63 of the Executive Law, these latent powers are revived." (Id., at p 701.) While this is not to say that the Attorney-General's historic authority to prosecute all crimes occurring anywhere in the State is resurrected in toto, it does mean that the Attorney-General's latent authority is revived with respect to those classes of crimes properly requested to be investigated. (See People v Tomasello, 21 N.Y.2d 143, 151.)
Perhaps the most compelling authority to support respondent Hynes' position that his office possesses the authority to investigate possible Medicaid fraud and criminal conduct within the hospital industry can be found in our opinion in Matter of Sigety v Hynes ( 38 N.Y.2d 260). In the Sigety case, we held that letters — almost indistinguishable from those here at issue — sent by the Commissioners of the Departments of Health and Social Services to the Attorney-General authorized the latter to initiate an investigation into the nursing home industry. (See, also, Matter of Agnello v Armer, 56 A.D.2d 712, 713; Matter of L S Hosp. Institutional Supplies v Lefkowitz, 54 A.D.2d 734; Matter of L S Hosp. Institutional Supplies Co. v Hynes, 51 A.D.2d 515, affg 84 Misc.2d 431.)
Further, it should be noted that this is not the first time the Attorney-General's authority to investigate the hospital industry pursuant to subdivision 3 of section 63 of the Executive Law has been tested in the courts. In Matter of Goldstein v Hynes ( 64 A.D.2d 1032, mot for lv to app den 45 N.Y.2d 712), petitioners sought to quash certain subpoenas ad testificandum issued to them, claiming, as do appellants herein, that the letters sent to the Attorney-General by the Commissioners of Health and Social Services do not confer upon the former power to initiate a broad investigation of the hospital industry. This argument was rejected by the courts in that case, and we find no compelling reason to deviate from that holding in the present case.
There also exists a fundamental distinction between an office subpoena duces tecum which was the subject of our inquiry in Matter of Friedman v Hi-Li Manor Home for Adults ( 42 N.Y.2d 408, supra) and a Grand Jury subpoena duces tecum as issued in this case, inasmuch as the latter is subject to direct judicial supervision and there is less chance of abuse. (See Matter of Sussman v New York State Organized Crime Task Force, 39 N.Y.2d 227, 231-232.) As perceptively noted by County Court, "the exercise of § 63(3) powers, as opposed to § 63(8) powers, involves a significant difference in the degree of protection afforded a witness or a target of an investigation." This is an additional reason not to transform those concerns outlined in the Friedman case (supra) into the rationale to restrict the Attorney-General's authority to investigate the hospital industry.
Thus, we conclude that the letters sent to the Attorney-General by the respective department heads empowered the Attorney-General, by his duly appointed deputy, to conduct an investigation into the hospital industry. Our holding today is in accord with the plain language of subdivision 3 of section 63 of the Executive Law itself, which provides the Attorney-General or his deputy with broad investigative and prosecutorial powers whenever an investigation is requested by a head of a department. Nowhere in the Friedman case (supra) did we suggest a contrary result.
Nor is our holding today altered by the fact that the department heads failed to designate specifically in their letters of request the indictable offenses and persons or businesses sought to be investigated. Suffice it to say that a fair reading of subdivision 3 of section 63 of the Executive Law reveals that it imposes no such requirement, and this court would be remiss in reading this statutory provision in a hypertechnical manner which would defeat its purpose. The wording of the statute itself by providing the Attorney-General with authority "to prosecute the person or persons believed to have committed [offenses in violation of the law which the officer making the request is required to execute] and any crime or offense arising out of such investigation or prosecution or both" evinces the intent of the Legislature to permit both the investigation of unspecified crimes and the prosecution of unnamed persons. (Emphasis added.) Indeed, this statute has been accorded such construction previously by courts of this State. (See Matter of Goldstein v Hynes, 64 A.D.2d 1032, supra; Matter of L S Hosp. Institutional Supplies Co. v Hynes, 84 Misc.2d 431, 435, supra; People v Zara, 44 Misc.2d 698, 702, supra.)
As a practical matter, it would be virtually impossible for the department heads to set forth specifically the crimes sought to be investigated. Such information would become available only after the investigation has been undertaken, especially where, as here, the investigation encompasses a most complex field and requires painstaking efforts to disentangle the financial web of the hospital industry.
One remaining issue requires comment. Appellants also mount an attack upon the Grand Jury subpoenas duces tecum claiming that they are overbroad and unduly burdensome. Both courts below have decided this primarily factual issue to the contrary, however, and we cannot say, as a matter of law, that their conclusions were erroneous in view of the purpose of the inquiry. (See Matter of Friedman v Hi-Li Manor Home for Adults, 42 N.Y.2d 408, 416-417, supra.)
We have examined appellants' remaining contentions, and have found them to be wholly without merit.
Accordingly, for the reasons stated herein, the order of the Appellate Division should be affirmed.
I am persuaded that the activating letters from the Commissioners of Health and Social Services to the Attorney-General lacked the specificity contemplated by subdivision 3 of section 63 of the Executive Law and accordingly that Deputy Attorney-General Hynes did not have authority to issue the Grand Jury subpoenas which are sought to be quashed in this proceeding.
Subdivision 3, one of the subdivisions of that section under which the Attorney-General may be authorized to investigate and to prosecute, provides:
"The attorney-general shall:
* * *
"3. Upon request of the governor, comptroller, secretary of state, commissioner of transportation, superintendent of insurance, superintendent of banks, commissioner of taxation and finance or commissioner of motor vehicles, or the head of any other department, authority, division or agency of the state, investigate the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department, and to prosecute the person or persons believed to have committed the same and any crime or offense arising out of such investigation or prosecution or both, including but not limited to appearing before and presenting all such matters to a grand jury." (Emphasis added.)
The disposition of this appeal turns on the proper meaning to be ascribed to the italicized words.
The letters from the commissioners were couched in identical terminology — requests to "investigate the alleged commission of any indictable offense or offenses in violation of the Public Health [Social Services] Law or in relation to any matters connected with the New York State Department of Health [Social Services] by hospitals subject to the provisions of Article 28 of the Public Health Law [Social Services Law], their principals, agents, suppliers or other persons connected or involved therewith." The only focus of the requested investigation was any indictable offense in violation of the Social Services Law or article 28 of the Public Health Law committed by hospitals or their associates. Few brushes could paint a broader or less specific agenda for investigation of the hospital industry in New York State. I cannot conclude that this is what the Legislature contemplated as required to invoke the authority vested in the Attorney-General under subdivision 3 of section 63; nor have we previously approved any such blunderbuss.
What the statute requires before the Attorney-General, and through his delegation his Special Prosecutor, may presume to act, is a request that the former investigate "the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department". The majority construes these words as requiring no more than a parroting of the statutory verbiage on the duly signed letterhead of one of the listed department heads to set the office of the Attorney-General in motion. Such a construction is too broad and saps the statute of any meaningful limitation, casting on the Attorney-General at one time both the authority and the responsibility for an unbounded and undefined investigation of criminal activity within a sweeping subject area. Bearing in mind that the duty of investigation and prosecution of indictable offenses rests normally with the several District Attorneys of the State, who are the officers chosen by popular vote to perform that function, the conferral of special authority on the State Attorney-General to perform the same duty is fittingly circumscribed by subdivision 3 of section 63 of the Executive Law. The reference to "the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department" contemplates some identifiable criminal activity within the knowledge or suspicion of the department head to which he specifically invites the attention of the Attorney-General. It is by no means inappropriate for the Legislature to have required that the nature of the crimes or criminal activity suspected be describable and be described in the department head's request which galvanizes the State's legal officer to act in an area otherwise reserved to local District Attorneys. That specific misconduct is contemplated is underscored by the prosecutorial power which descends on the Attorney-General — power "to prosecute the person or persons believed to have committed the same". The inclusion of some definitive specification in the request which sets in motion the office of the Attorney-General serves a real purpose, not only in confining the scope of authority of that office but also in making possible a meaningful judicial review of the exercise thereof, which must always be contained within the limits of the authority conferred (Matter of A'Hearn v Committee on Unlawful Practice of Law of N.Y. County Lawyers' Assn., 23 N.Y.2d 916, cert den 395 U.S. 959).
The attention devoted by both parties to our recent decision in Matter of Friedman v Hi-Li Manor Home for Adults ( 42 N.Y.2d 408) is not warranted. That case does not address the issue posed by this appeal. The authority of the Deputy Attorney-General there was predicated on an executive order issued by the Governor under subdivision 8 of section 63, not on authority derived from subdivision 3. The two subdivisions have a completely different legislative history and envisage wholly different activating prerequisites. As we noted in Friedman, the predecessor of subdivision 8 was enacted during World War I, when the Legislature recognized that a war emergency might create a need for such authority. Continued thereafter, the provision has been viewed as requiring some demonstration of urgent if not emergent circumstances. The critical consideration under subdivision 8 is the existence of such an activating prerequisite; this necessary predicate was found to have been met in Friedman and the three prior instances cited therein. The source of authority under subdivision 8 is not dependent on the specified scope of the language employed in the enabling executive order. The authority derives from the underlying circumstances and occasion for the issuance of the executive order, and the scope of the delegated authority to investigate and to prosecute will necessarily be principally defined by the dimensions and character of these underlying circumstances.
The existence of authority under subdivision 3 depends on a quite different predicate, calls for no such imperative prerequisite, but does require some particularization of the suspected criminal activity. Present subdivision 3 of section 63 of the Executive Law was enacted by chapter 790 of the Laws of 1965 to replace a prior subdivision derived from section 62 of the Executive Law of 1909 which in turn had been derived from section 52 of the Executive Law of 1892. The statutes in effect from 1892 to the time of the 1965 replacement had authorized the Attorney-General on request of one of several designated State officers to prosecute a person "charged [by the officer] with the commission of an indictable offense in violation of the laws, which such officer is especially required to execute, or in relation to matters connected with his department." Thus, the Attorney-General's authority, extending only to prosecution, clearly related both to an identified crime and to an identified suspect.
Unlike instances in which reliance is placed on subdivision 8, there was no requirement that there be some demonstration of special occasion for resort to prosecution under subdivision 3. While it might be inferred that recourse to this provision would not necessarily be the normal course of events, nothing in the statute or its legislative history suggests that the decision when to call on the Attorney-General rested other than in the nonreviewable discretion of the particular State officer.
In 1965 the present subdivision 3 of section 63, adding investigative authority, was enacted as a part of the program of the Attorney-General. The memorandum of the State Department of Law accompanying the legislation states that, in addition to adding the Commissioner of Motor Vehicles to the included public officers, "the provisions of the present section are also expanded by the amendment to clarify the power of the Attorney General because of inconsistent interpretations of the statute by trial courts within the last year". (1965 McKinney's Session Laws of NY, p 2086.) While the Attorney-General was thus explicitly clothed with authority to investigate as well as to prosecute criminal activity relative to a State agency or department when requested to do so by the department head, nothing in the 1965 material suggests that there was any intention to convert what had theretofore been a focused attention on identified wrongdoing to a roving examination of all activities relative to a particular State department simply in the expectation of uncovering crimes, if any there be, without any particularization of suspected illegality by the requesting department head.
The group of public officers entitled to call on the Attorney-General under subdivision 3 has been expanded by amendments enacted by chapter 420 of the Laws of 1968 and by chapter 814 of the Laws of 1969.
Until now our court has not had occasion to consider what degree of particularization, if any, is required to activate authority under subdivision 3. In Matter of Sigety v Hynes ( 38 N.Y.2d 260), while subdivision 3 requests had preceded the Governor's executive order under subdivision 8, we upheld the issuance of the subpoenas as authorized under subdivision 8. In People v Tomasello ( 21 N.Y.2d 143) no challenge was raised to the authority of the Attorney-General to conduct the State-wide investigation there involved on the ground that the underlying requests lacked the requisite specificity. In Matter of Goldstein v Hynes ( 45 N.Y.2d 712) we denied leave to appeal from an order of the Appellate Division ( 64 A.D.2d 1032) which had upheld the issuance of subpoenas predicated on the same requests from the Commissioners of Health and Social Services as are involved in the case now before us. The contention advanced in that case was that to trigger the authority of subdivision 3 the implementing requests must specifically enumerate the alleged indictable offenses. To the extent that appellants in the case now before us urge the same contention as a ground for reversal it should similarly be rejected. While identification of the particular offenses charged might have been required when subdivision 3 authority was limited to prosecutions, after the 1965 amendment, which added authority to investigate as well as to prosecute, it would be unrealistically restrictive and defy common sense to require enumeration of specified offenses for investigation. This is not, however, to say that all requirements for focus and direction were thereby discarded.
As to the significance of a denial of leave to appeal, see, e.g., Panico v Young ( 46 N.Y.2d 847).
In the lower courts, there has been relatively little attention given to subdivision 3. The first attempt to invoke its provisions, when the scope of the subdivision was still limited to prosecution only, was rejected in People v Tru-Sport Pub. Co. ( 160 Misc. 628), inter alia, on the ground that the activating request of the Secretary of State was "insufficiently complete and definite as to the subject-matter of the requested prosecution and, as well, to its compass in time, place and manner" (at p 633). In People v Yonkers Contr. Co. ( 24 A.D.2d 641, mod 17 N.Y.2d 322) the underlying request from the Superintendent of Public Works concerned alleged irregularities on the part of a named corporation and named individuals with respect to a described contract. In People v Zara ( 44 Misc.2d 698) the court upheld the authority of the Attorney-General based on a request by the Superintendent of Public Works for prosecution of persons who might have violated the law by removing topsoil belonging to the State.
As is noted in the majority opinion (p 136) broad, general requests of the Commissioners of Health and Social Services have been held sufficient at the Appellate Division to support investigation and prosecution of indictable offenses in the nursing home industry (Matter of Agnello v Armer, 56 A.D.2d 712; Matter of L S Hosp. Institutional Supplies v Lefkowitz, 54 A.D.2d 734; Matter of L S Hosp. Institutional Supplies Co. v Hynes, 51 A.D.2d 515).
In principle, undergirded by history, I am persuaded that the thrust of subdivision 3 of section 63 is more properly to be analogized to that of subdivision 2, the historical superseder subdivision, than to the differently oriented purpose of subdivision 8. If there is to be a wide-ranging investigation of an entire industry or any broad segment of it, the authority should come under subdivision 8, if the extraordinary circumstances prerequisite to reliance on that subdivision exist, or preferably, as we indicated in Friedman, from a specific individualized grant from the Legislature. Subdivision 3 exists to enable the designated heads of State departments to enlist the aid and assistance of the Attorney-General in the investigation and prosecution of identified criminal activities, known or suspected by the department head to be occurring.
For a similar view see People v Tru-Sport Pub. Co. ( 160 Misc. 628, 633, supra).
Because there has not been that degree of particularization in this instance, I would reverse the order of the Appellate Division and grant the application to quash the subpoenas.
Chief Judge COOKE and Judges GABRIELLI and MEYER concur with Judge JASEN; Judge JONES dissents and votes to reverse in a separate opinion in which Judges WACHTLER and FUCHSBERG concur.
Order affirmed, with costs.