In the Matter of County of Genesee, Appellant,v.Nirav R. Shah,, et al., Respondents.BriefN.Y.September 7, 2016APL-2015-00089 To be argued by: VICTOR PALADINO Time Requested: 20 minutes St. Lawrence Co. Index Nos. 140712, 140998, & 141656 Court of Appeals of the State of New York In the Matter of the Application of COUNTY OF ST. LAWRENCE, Respondent, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Appelants. (And two other related proceedings) (Captions of connected cases continued on folowing pages) BRIEF FOR APPELLANTS BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General VICTOR PALADINO Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Appelants The Capitol Albany, New York 12224 (518) 776-2012 (518) 915-7724 (facsimile) Dated: September 15, 2015 Captions of connected appeals: In the Matter of the Application of COUNTY OF CHEMUNG, Respondent, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Appelants. APL-2015-00088 Chemung Co. Index No. 2013-1849 In the Matter of the Application of COUNTY OF CHAUTAUQUA, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00115 Chautauqua Co. Index No. CV-2013-1266 In the Matter of the Application of COUNTY OF JEFFERSON, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00116 Jeferson Co. Index No. CV-2013-1956 Captions of connected appeals (continued): In the Matter of the Application of COUNTY OF ONEIDA, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00140 Oneida Co. Index No. 2013-1788 In the Matter of the Application of COUNTY OF GENESEE, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00141 Genesee Co. Index No. 63493 In the Matter of the Application of COUNTY OF CAYUGA, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00195 Cayuga Co. Index No. 2014-00000261 Captions of connected appeals (continued): In the Matter of the Application of COUNTY OF MONROE, Appelant, -against- NIRAV R. SHAH, as Commissioner of the New York State Department of Health and the NEW YORK STATE DEPARTMENT OF HEALTH, Respondents. APL-2015-00196 Monroe Co. Index No. 14-3162 i TABLE OF CONTENTS PAGE Table of Authorities ............................................... i Preliminary Statement .............................................1 Questions Presented ...............................................4 Jurisdictional Statement ...........................................5 Statement of the Case .............................................6 A. Pre-2006 Statutory and Regulatory Background Regarding Overburden Claims ..................................... 6 B. The Medicaid Cap Statute ................................ 9 C. Prior Litigation Involving the Cap Statute ................. 12 D. The 2012 Amendment to the Medicaid Cap Statute .......... 14 E. Statement of Facts ..................................... 15 F. These Proceedings ..................................... 16 G. The Conflicting Appelate Division Orders ................. 17 ARGUMENT POINT I The 2012 Amendment Extinguished The State’s Obligation To Pay Pre-2006 Overburden Reimbursement To Counties ...... 20 POINT II The 2012 Amendment Is Constitutional ................... 28 A. The Counties’ Due Process Claim Fails On The Merits Because The Counties Are Not “Persons” For Due Process Purposes. ............................................ 29 1. Political subdivisions are not “persons” under New York’s due process clause. .......................... 29 i Table of Contents (cont'd) Page Argument, Point II, A (cont'd) 2. The Counties’ substantive due process claim fails for lack of merit, not for lack of capacity. ................. 37 3. The Court should decide the question whether counties have substantive due process rights. .......... 41 B. The 2012 Amendment Is Constitutional Under A Due Process Vested Rights Analysis. .......................... 46 1. The 2012 Amendment Is Fair. ...................... 47 2. The Counties Had At Most A Minimal Reliance Interest Based On Prior Law. ....................... 54 3. The Extent Of Retroactivity Is Not Excessive. ......... 56 4. The 2012 Amendment serves an important public interest. ........................................ 58 Point III In any event, the Counties Lack A Clear Legal Right To Mandamus Relief ...................................... 60 Conclusion ..................................................... 62 Addendum to Brief (“A.”): L. 2005, ch. 58, Part C, § 1, as amended by L. 2006, ch. 57, Part A, § 60 ... A1 L. 2012, ch. 56, Part D, § 61 ....................................... A5 L. 2010, ch. 109, Part B § 24 ...................................... A8 L. 2012, ch. 56, Part D, § 65 ....................................... A9 Excerpts from State’s summary-judgment memorandum of law in County of St. Lawrence v. Shah .............................. A12 Letter dated May 8, 2015 to Hon. John P. Asielo, Deputy Clerk, from Christopher E. Buckey, Esq. ..................................... A26 Excerpts from Atty. Gen.’s Brief in Black Riv. Reg. Dist. v. Adirondack League Club .............................................. A29 ii TABLE OF AUTHORITIES Cases Page Alliance of American Insurers v. Chu, 77 N.Y.2d 573 (1991) ........................................ 47,58 Avon Lake City Sch. Dist. v. Limbach, 518 N.E.2d 1190 (Ohio 1988) .................................... 32 Bingham v. N.Y.C. Transit Authority, 99 N.Y.2d 355 (2003) ........................................... 44 Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475 (1954), appeal dismissed, 351 U.S. 922 (1956) ...... 33,34,35 Brothers v. Florence, 95 N.Y.2d 290 (2000) ........................................... 27 Brusco, Matter of v. Braun, 84 N.Y.2d 674 (194) ........................................... 61 Carl v. Bd. of Regents, 577 P.2d 912 (Okla. 1978) .................................... 31,32 Chrysler Properties, Matter of v. Morris, 23 N.Y.2d 515 (1969) ........................................... 47 City of Colorado Springs v. Bd. of Cnty. Commissioners, 895 P.2d 1105 (Col. Ct. App. 1994) .............................. 32n City of E. St. Louis v. Cir. Ct. for the Twentieth Jud. Cir., St. Clair Cnty., Il., 986 F.2d 1142 (7th Cir. 1993) .................................... 31 City of Mountlake Terrace v. Wilson, 549 P.2d 497 (Wash. Ap. 1976) ................................... 31 City of New York v. Patrolmen’s Benevolent Ass’n, 89 N.Y.2d 380 (1996) ........................................... 35 City of New York v. Richardson, 473 F.2d 923 (2d Cir.), cert. denied, 412 U.S. 950 (1973) ............ 31,35 iv TABLE OF AUTHORITIES (cont’d) Cases (cont’d) Page City of New York v. State of New York, 86 N.Y.2d 286 (1995) ...................................... 40,41,59 City of New York v. State of New York, 94 N.Y.2d 577 (2000) ........................................... 39 City of Safe Harbor v. Birchfield, 529 F.2d 1251 (5th Cir. 1976) .................................... 31 Correa-Ruiz v. Fortuno, 573 F.3d 1 (1st Cir. 2009) ....................................... 53 County of Broome, Matter of v. Shah, 130 A.D.3d 1347 (3d Dep’t 2015), motion for lv. pending ...........19-20 County of Cayuga, Matter of v. Shah, 129 A.D.3d 1503 (4th Dep’t 2015), appeal and motion for lv. pending .. 18 County of Chautauqua, Matter of v. Shah, 126 A.D.3d 1317 (4th Dep’t 2015), appeal and motion for lv. pending ........................................ 18,35,37,38 County of Chemung, Matter of v. Shah, 124 A.D.3d 963 (3d Dep’t 2015), lv. granted, 25 N.Y.3d 903 (2015) ...... 19 County of Genesee, Matter of v. Shah, 128 A.D.3d 1380 (4th Dep’t 2015), appeal and motion for lv. pending ... 18 County of Herkimer, Matter of v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009) ........ 12,13 County of Jeferson, Matter of v. Shah, 126 A.D.3d 1322 (4th Dep’t 2015), appeal and motion for lv. pending ... 18 County of Monroe, Matter of v. Shah, 129 A.D.3d 1505 (4th Dep’t 2015) ................................ 18 County of Niagara, Matter of v. Daines, 60 A.D.3d 1460 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009) ........ 12,13 v TABLE OF AUTHORITIES (cont’d) Cases (cont’d) Page County of Niagara, Matter of v. Daines, 91 A.D.3d 1288 (4th Dep’t 2012) ...............................13-14 County of Niagara, Matter of v. Shah, 122 A.D.3d 1240 (4th Dep’t 2014) ............................ passim County of Oneida, Matter of v. Shah, 128 A.D.3d 1381 (4th Dep’t 2015), appeal and motion for lv. pending ... 18 County of St. Lawrence, Matter of v. Daines, 81 A.D.3d 212 (3d Dep’t), lv. denied, 17 N.Y.3d 703 (2011) ..........12-13 County of St. Lawrence, Matter of v. Shah, 95 A.D.3d 1548 (3d Dep’t 2012) .................................. 13 County of St. Lawrence, Matter of v. Shah, 124 A.D.3d 88 (3d Dep’t 2014), lv. granted, 25 N.Y.3d 903 (2015) .... 18,37 Dalton v. Pataki, 5 N.Y.3d 243, cert. denied, 546 U.S. 1032 (2005) .................... 28 Dep’t of Community Afairs v. Holmes County, 668 So. 2d 1096 (Fla. Dist. Ct. App. 1st Dist. 1996) ................... 32 E.S., Matter of v. P.D., 8 N.Y.3d 150 (2007) ............................................ 28 E. Williamson Roofing and Sheet Metal Co., Inc. v. Town of Parrish, 139 A.D.2d 97 (4th Dep’t 1988) .................................. 44 Gattis v. Gravett, 806 F.2d 778 (8th Cir. 1986) ..................................... 53 Held v. State of New York Workers’ Compensation Bd., 85 A.D.3d 35 (3d Dep’t), appeal dismissed, lv. denied, 17 N.Y.3d 837 (2011) ........................................... 57 Hernandez v. Robles, 7 N.Y.3d 338 (2006) ............................................ 33 vi TABLE OF AUTHORITIES (cont’d) Cases (cont’d) Page Hodes, Matter of v. Axelrod, 70 N.Y.2d 364 (1987) ........................................... 47 Ideal Mutual Insurance Co., Matter of v. Superintendent of Insurance, 82 A.D.3d 518 (1st Dep’t 2011) ................................... 56 Ivey v. State, 80 N.Y.2d 474 (1992) ........................................ 23,24 Jeter, Matter of v. Ellenville Central School District, 41 N.Y.2 283 (1977) .................................... 34,35,38,39 Kenai Peninsula Borough v. Department of Community & Regional Afairs, 751 P.2d 14 (Alaska 1988) .................................... 31,32 Krauskopf, Matter of v. Perales, 139 A.D.2d 147 (3d Dep’t 1988), aff’d, 74 N.Y.2d 730 (1989) ............ 7 La. Assessors’ Ret. Fund v. City of New Orleans, 849 So. 2d 1227 (La. 2003) .................................... 32,33 Neverett v. O’Connel & Aronowitz, P.C., 263 A.D.2d 838 (3d Dep’t 1999) .................................. 11 OnBank & Trust Co., Matter of, 90 N.Y.2d 725 (1997) ........................................... 57 People ex rel. Roides v. Smith, 67 N.Y.2d 899 (1986) ........................................... 44 Richardson v. Fiedler Roofing, Inc., 67 N.Y.2d 246 (1986) ........................................... 44 Riley v. Stack, 18 P.2d 110 (Ca. App. 1932) ..................................... 32 Rogers v. Brockette, 588 F.2d 1057 (5th Cir.), cert. denied, 444 U.S. 827 (1979) ............ 40 vi TABLE OF AUTHORITIES (cont’d) Cases (cont’d) Page Schropp Indus. v. Wash. Cnty. Att. Office, 794 N.W.2d 685 (Neb. 2011) ..................................... 32 Shirk v. Lancaster City, 313 Pa. 158, 169 A. 557 (Pa. 1933) .............................. 32n Silver v. Pataki, 96 N.Y.2d 532 (2001) ........................................... 38 South Carolina v. Katzenbach, 383 U.S. 301 (1966) ............................................ 30 South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500 (6th Cir. 1986) ..................................... 39 Spano, Matter of v. Novello, 13 A.D.3d 1006 (3d Dep’t 2004), lv. denied, 4 N.Y.3d 819 (2005) ............................................ 49 State ex rel. Brentwood School Dist. v. State Tax Comm’n, 589 S.W.2d 613 (Mo. 1979) ...................................... 31 State ex rel. New Mexico State Highway Comm’n v. Taira, 430 P.2d 773 (N.M. 1967) ....................................... 31 Telaro v. Telaro, 25 N.Y.2d 433 (1969) ........................................... 44 Texas Antiquities Committee v. Dallas County Community Colege Dist., 554 S.W.2d 924 (Tex. 1977) .................................... 32n Trenton v. New Jersey, 262 U.S. 182 (1923) ......................................... 30,35 Village of Riverwoods v. Dep’t of Transp., 395 N.E.2d 555 (Il. 1979) ....................................... 31 Wambat Realty Corp. v. State, 41 N.Y.2d 490 (1977) ........................................... 39 vii TABLE OF AUTHORITIES (cont’d) Cases (cont’d) Page Williams v. Mayor, 289 U.S. 36 (1933) ........................................30,34-35 Yonkers Comm’n on Human Rights v. The City of Yonkers, 654 F. Supp. 544 (S.D.N.Y. 1987) ................................. 39 Ysursa v. Pocatelo Educ. Ass’n, 555 U.S. 353 (2009) ......................................... 30,59 New York Constitution Article I, § 6 ........................................... 4,16,28,35 Article IX .................................................... 35 Article IX, § 2 ................................................ 35 State Statutes C.P.L.R. article 78 ................................................... 5,12 § 5602(a)(1)(i) ................................................. 5 L. 2005, ch. 58, Part C, §1 .......................................... 9,14 L. 2006, ch. 57, Part A, § 60 ........................................... 9 L. 2010, ch. 109, Part B § 22 ..................................................... 50n § 24 ....................................................... 13 L. 2012, ch. 56 Part D, § 61.............................................. 1,14,21 Part D, § 65.................................................. 15 Part F, § 1 ................................................... 10 Part F, § 2 .................................................. 10n ix TABLE OF AUTHORITIES (cont’d) State Statutes (cont’d) Page Social Services Law § 368-a...................................................... 36 § 368-a(1)(a) .................................................. 11 § 368-a(1)(b) .................................................. 11 § 368-a(1)(c) .................................................. 10 § 368-a(1)(d) ................................................... 7 § 368-a(1)(f)................................................ 10,50 § 368-a(1)(g)(ii) ............................................... 11 § 368-a(1)(h).............................................. passim State Rules and Regulations 18 N.Y.C.R.R. Part 601 ...................................................... 8 § 601.3 ...................................................... 13 § 601.3(c) .................................................... 13 § 601.4 ................................................. 25,52,61 Part 635 .............................................. 8,25,52,61 United States Constitution Fifth Amendment .................................................. 30 Fourteenth Amendment .......................................32n,35,40 PRELIMINARY STATEMENT The Court has before it ten appeals presenting a sharp conflict between decisions of the Third and Fourth Departments regarding the interpretation and validity of a 2012 Medicaid amendment. In six cases, the Fourth Department correctly found that the Legislature unambiguously extinguished the counties’ pre-2006 Medicaid overburden claims as of April 1, 2012. See L. 2012, ch. 56, Part D, § 61. (It is undisputed that the Legislature previously extinguished overburden for periods after 2005 when it adopted the 2005 Medicaid Cap Statute.) In addition, the Fourth Department correctly held that, in eliminating the counties’ pre-2006 overburden claims, the Legislature did not violate the counties’ vested rights under the Due Process Clause because counties are not “persons” having rights under that clause. The Fourth Department correctly dismissed the counties’ complaints seeking further overburden reimbursement from the State. By contrast, in the four cases addressed by this brief, the Third Department purported to uphold the 2012 amendment’s constitutionality, but did so by misconstruing the 2012 amendment as a mere statute of limitations on the counties’ submission of pre-2006 2 overburden claims. The court fashioned a six-month grace period, found nowhere in the statute, for the continued submission of such claims. And then, reasoning that the 2012 amendment left intact the State’s obligation to pay overburden reimbursements to counties even if they never submitted any claims for reimbursement, the Third Department ordered the Department to identify, calculate, and pay al pre-2006 overburden reimbursement owed to the counties. This Court should adopt the reasoning and holdings of the Fourth Department in ful. The Counties’ petitions/complaints in these four Third Department cases should be dismissed in their entirety. The 2012 amendment is correctly construed as extinguishing the State’s pre-2006 overburden reimbursement obligation, and so construed the 2012 amendment is constitutional. Courts nationwide, including the United States Supreme Court and this Court, have long recognized that counties are not “persons” entitled to due process from the states that created them and whose interests they serve. Consequently, the Fourth Department correctly held that the Legislature may, even retroactively, adjust the State’s and counties’ fiscal responsibility for Medicaid expenditures without violating any vested rights of the counties. 3 The Third Department’s contrary interpretation is a wholesale rewriting of the 2012 amendment. The court’s decision conflicts with the statute’s plain language and ignores its legislative history, both of which make plain that State payments to counties for pre-2006 overburden were terminated. And the Third Department mistakenly characterized the State’s argument that the counties are not persons for due process purposes as a threshold claim of lack of capacity, when in fact it is an argument that the counties’ due process chalenge fails on the merits. Even if counties were entitled to due process protection, the 2012 amendment would be constitutional because the counties have not been unfairly deprived of any vested rights. The Cap Statute shields the counties from pre-2006 Medicaid liabilities, and saves counties bilions of dolars in Medicaid expenses going forward. In return for these savings, the Cap Statute requires counties to pay their ful cap amounts. But counties receiving pre-2006 overburden reimbursement do not pay their ful cap amounts and, therefore, do not fulfil their end of the statutory bargain. Accordingly, the Legislature reasonably 4 determined that it was fair in 2012 to extinguish the counties’ pre-2006 overburden claims, some of which are now as much as 30 years old. Finaly, if this Court were to afirm the Third Department’s orders concerning the interpretation and constitutionality of the 2012 amendment, it should nevertheless reverse that court’s orders directing the Department of Health to undertake an enormously burdensome 30- year retrospective project to identify, calculate, and pay counties al outstanding overburden reimbursement without the counties’ submission of further claims. Even without the 2012 amendment, nothing in the Social Services Law or the governing regulations imposes such an extraordinary obligation. QUESTIONS PRESENTED 1. Does the 2012 amendment to the Medicaid Cap Statute extinguish the State’s obligation under Social Services Law § 368-a(1)(h) to pay pre-2006 overburden reimbursement to counties? 2. Have the Counties failed to demonstrate beyond a reasonable doubt that the 2012 amendment deprives them of property without due process of law in violation of article I, § 6 of the New York Constitution? 5 3. Alternatively, even if this Court resolves Questions 1 or 2 against the State, did the Third Department nevertheless err in granting the Counties mandamus relief ordering the Department of Health to unilateraly identify, calculate, and pay al outstanding pre- 2006 overburden reimbursement owed to the Counties? JURISDICTIONAL STATEMENT By orders entered April 7, 2015, this Court granted the State leave to appeal from the Third Department’s orders in these four cases – three brought by St. Lawrence County and one by Chemung County (R. 604; Chemung R. 724).1 These combined article 78 proceedings and declaratory judgment actions each originated in the Supreme Court. The Third Department’s orders finaly determine the proceedings and are not appealable as of right. This Court therefore has jurisdiction over these appeals under C.P.L.R. 5602(a)(1)(i). 1 Unless otherwise noted, record citations (“R.”) are to the record in County of St. Lawrence v. Shah, Index No. 140712. Citations to “II R.” are to the record in County of St. Lawrence, Index No. 140998; citations to “III R.” are the record in County of St. Lawrence, Index No. 141656; and citations to “Chemung R.” are to the record in County of Chemung v. Shah. 6 The issues presented are preserved. The Department of Health asserted in Supreme Court (R. 165-166, 177-183) and in its Appelate Division brief (pp. 1, 3, 14-31, 42-47) and reply brief (pp. 3-7, 11-14) that the 2012 amendment extinguished the State’s obligation to reimburse counties for overburden reimbursement and that the 2012 amendment comports with due process. These are pure questions of law. STATEMENT OF THE CASE The 2012 amendment at issue in these cases is the culmination of a long-standing dispute between the Health Department and many counties. This dispute resulted in litigation and legislative enactments, including the 2012 amendment at issue here. These developments are summarized below. A. Pre-2006 Statutory and Regulatory Background Regarding Overburden Claims The Department of Health administers New York’s Medicaid program through local social services districts, including petitioners St. Lawrence County and Chemung County (“the Counties”). New York’s Social Services Law sets forth the respective financial responsibilities of the State and local governments regarding medical 7 assistance. Before 2006, in general, after deducting any actual or anticipated federal funding, the State and the counties each paid roughly 50 percent of total annual Medicaid expenditures. See Social Services Law (“SSL”) § 368-a(1)(d). There was no cap on annual dolar increases in the counties’ liability for their share of Medicaid expenditures. And counties were responsible for paying their share of federal disalowances of Medicaid expenditures and adverse court judgments directing increased reimbursement for health care providers (R. 175, ¶ 41). Certain exceptions to this cost-sharing arrangement applied. From the early 1980s through 2005, counties were not responsible for paying any part of the cost of medical services provided to certain mentaly disabled Medicaid recipients eligible for “overburden reimbursement” under SSL § 368-a(1)(h) (R. 190-195). The cost of Medicaid services provided to mentaly disabled recipients qualified for overburden reimbursement when the recipients met certain eligibility criteria. See SSL § 368-a(1)(h); Matter of Krauskopf v. Perales, 139 A.D.2d 147, 149-150 (3d Dep’t 1988) (upholding standards for 8 determining whether individuals are mentaly disabled for overburden reimbursement purposes), af’d 74 N.Y.2d 730 (1989). The counties’ claims for overburden reimbursement arose because counties initialy paid their ful local shares of total Medicaid expenditures for al covered services provided to Medicaid recipients, including services provided to overburden patients for which no local share was owing (R. 169-170). The Department of Health then met its overburden reimbursement obligations in two ways. First, the Department identified the recipients who were overburden patients and reimbursed the counties each quarter (R. 169-170). Second, the Department furnished counties with certain reports from which they could ascertain if the State had failed to reimburse them for any overburden-eligible individuals (R. 170-171). If a county believed that the Department had omitted recipients who met the overburden criteria, it could submit a letter with supporting information to the Department (R. 171-172, 191, 196), or it could submit claims for any additional overburden reimbursement under 18 N.Y.C.R.R. Parts 601 and 635. 9 The State’s overburden reimbursement system largely accomplished its objectives. Over the 22-year period from 1984 through 2005, the Department reimbursed counties for bilions of dolars in overburden expenditures. But due to the large number of Medicaid recipients and the complexity of identifying overburden-eligible patients, the Department’s quarterly review process sometimes did not capture al overburden reimbursements owed to counties. Although the Department made available a claims process by which counties could recover any missed overburden payments, many counties did not avail themselves of this process until after 2005, when the Legislature enacted the Medicaid Cap Statute to alter the Medicaid cost-sharing system in the counties’ favor. B. The Medicaid Cap Statute In 2005, in response to concerns about rapidly increasing Medicaid costs and local property taxes, the Legislature enacted the Medicaid expenditure cap statute to limit counties’ financial exposure for Medicaid expenditures. See L. 2005, ch. 58, Part C, § 1, as amended by L. 2006, ch. 57, Part A, § 60 (“Cap Statute”) (reproduced in addendum to 10 this brief, A.1-6). Efective January 1, 2006, the Cap Statute replaced the old cost-sharing system. The Cap Statute relieved counties of their responsibility for a fixed percentage of Medicaid expenses, which had resulted in open- ended and unpredictable increases in their financial exposure. Instead, a county’s local share of Medicaid expenditures is now fixed at a dolar amount that is determined each year under the formula in the Cap Statute. Each county’s cap is based on its total net Medicaid expenditures in 2005, increased by an inflation or “trend” factor. See Cap Statute § 1(c). In 2012, the Legislature eliminated the inflation factors, thereby freezing at 2014 levels the cap amounts that counties are required to pay. See L. 2012, ch. 56, Part F, § 1. The Cap Statute is a two-way street. While a county cannot be required to pay more than its cap amount, it must pay its cap amount in ful.2 See Cap Statute § 1(f). The statute requires that a county’s cap 2 Before April 1, 2015, a County would pay less than its cap amount for a given fiscal year only if the Department determined in a reconciliation process that the County would have paid less under the old cost-sharing system. Because counties invariably paid less under the new system, in 2012 the Cap Statute was amended to eliminate the reconciliation process after the 2014-2015 fiscal year. See L. 2012, ch. 56, Part F, § 2. 11 amount “shal be alotted to each [county] during the fiscal year and paid to the department in equal weekly amounts.” Id. Of particular relevance here, the Cap Statute mandates a “cash- based” as opposed to an “accrual-based” accounting system (III R. 472). See Cap Statute §§ 1(b) (requiring that base year net expenditures be determined on a cash basis) & 1(g)(ii) (requiring that the former annual reconciliation be determined on a cash basis). “Under the cash basis of accounting, income is recognized when it is received and expenses are recognized when they are paid.” Neverett v. O’Connel & Aronowitz, P.C., 263 A.D.2d 838, 839 n.2 (3d Dep’t 1999). The cap’s cash-based methodology now governs the Department’s reimbursement of counties for Medicaid expenses “notwithstanding the provisions of section 368-a of the social services law,” the statute that includes the overburden reimbursement provisions. Cap Statute § 1(a). As a result, after the Cap Statute went into efect on January 1, 2006, the Department determined that the Cap Statute forbid it from continuing to reimburse counties for overburden payments formerly authorized by SSL § 368-a(1)(h), even if the county incurred its local share of the overburden expenditure before 2006. This is because 12 payment of these old claims would alow counties to pay less than their mandated cap amounts in the years that the counties received the overburden payments. For instance, suppose a county’s cap amount for the 2015-2016 fiscal year is $10 milion. If the county paid that amount but then received $2 milion in pre-2006 overburden payments, the county’s net Medicaid expenditures in the 2015-2016 fiscal year would be $8 milion, less than its mandated cap amount. C. Prior Litigation Involving the Cap Statute After the Medicaid Cap Statute went into efect, Niagara, Herkimer, and St. Lawrence counties continued to submit overburden claims to the Department that accrued before the Medicaid Cap Statute’s efective date. The Department denied their claims as barred by the Cap Statute, prompting them to bring article 78 proceedings to chalenge the denials. Both the Fourth and Third Departments concluded that the Department had impermissibly applied the Cap Statute retroactively to deny the counties’ pre-2006 overburden claims. Matter of County of Herkimer v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009); Matter of County of Niagara v. Daines, 60 A.D.3d 1460 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009); Matter of 13 County of St. Lawrence v. Daines, 81 A.D.3d 212, 214-16 (3d Dep’t), lv. denied, 17 N.Y.3d 703 (2011). These courts also held that the time limit for filing claims, contained in 18 N.Y.C.R.R. § 601.3(c), did not bar the counties from submitting overburden claims. Matter of County of St. Lawrence v. Daines, 81 A.D.3d at 217-218; Matter of County of Niagara v. Daines, 79 A.D.3d 1702 (4th Dep’t 2010), lv. denied, 17 N.Y.3d 703 (2011). The Department then promptly paid the overburden claims at issue in those cases, and in al other pending cases in which the only defenses were the Cap Statute and § 601.3’s time limit. In response, in 2010 the Legislature enacted an amendment that the Department interpreted as barring current reimbursement of county overburden expenditures incurred in the past. See L. 2010, ch. 109, Part B, § 24. But both the Third and Fourth Departments again annuled the Department’s denials of overburden claims, concluding that the 2010 amendment did not clearly and unambiguously extinguish the State’s obligation to pay pre-2006 overburden claims. Matter of County of St. Lawrence v. Shah, 95 A.D.3d 1548, 1552 (3d Dep’t 2012); Matter of County of Niagara v. Daines, 91 A.D.3d 1288, 14 1290 (4th Dep’t 2012). And again, folowing the litigation the Department paid the overburden claims at issue in those proceedings. As a result of al prior overburden litigation to date involving the Cap Statute, the State has paid counties more than $17 milion (R. 177, ¶ 48). D. The 2012 Amendment to the Medicaid Cap Statute In response to the court rulings that the 2010 amendment did not eliminate state reimbursement for pre-2006 overburden claims, in 2012 the Governor proposed, and the Legislature enacted, another amendment to the Medicaid Cap Statute to clarify that overburden reimbursement, without question, was barred. The 2012 amendment provides that: notwithstanding the provisions of section 368-a of the social services law or any other contrary provision of law, no reimbursement shal be made for social services districts’ claims submitted on and after the efective date of this paragraph, for district expenditures incurred prior to January 1, 2006, including, but not limited to, expenditures for services provided to individuals who were eligible for medical assistance pursuant to section [366] of the social services law as a result of a mental disability, formerly referred to as human services overburden aid to counties. L. 2012, ch. 56, Part D, § 61 (amending L. 2005, ch. 58, Part C, § 1) (reproduced at R. 141 and in the appendix to this brief, A.9). The 2012 15 amendment was efective on April 1, 2012. Id. § 65 (reproduced in the appendix to this brief, A.10). Unlike the 2010 amendment, which lacked any legislative history, the Governor’s memorandum in support of the 2012 amendment clearly states the intent to end the State’s financial responsibility for overburden reimbursement, clarifying that “local governments cannot claim for overburden expenses incurred prior to January 1, 2006 when the ‘local cap’ statute that limited local contributions to Medicaid expenditures took efect” (R. 199). The Legislature also declared that it enacted the 2012 amendment in response to “adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute” (R. 199). E. Statement of Facts Within weeks after the introduction of the bil that became the 2012 amendment, the Counties submitted a flurry of additional claims for overburden reimbursement to the Department (R. 178, ¶ 54; Chemung R. 253, ¶ 54). As required by pre-existing adverse judgments, 16 the Department paid al claims that the Counties and other counties submitted before April 1, 2012 (R. 178 fn. 23). After the 2012 amendment went into efect on April 1, 2012, the Counties continued to submit overburden claims (R. 179; II R. 209; III R. 220; Chemung R. 253). The Department denied these claims based on the 2012 amendment (R. 179; II R. 209; III R. 220; Chemung R. 254). F. These Proceedings Thereafter, the Counties and other counties throughout the state sued the Department of Health and its Commissioner, seeking to annul the Department’s determinations denying their overburden claims and to obtain a declaration that the 2012 amendment is unconstitutional. The Counties chalenged the 2012 amendment on many grounds, including that: (1) it deprives them of vested property rights in violation of article I, § 6 of the New York Constitution and (2) the Department should be estopped under the special facts exception from invoking the 2012 amendment to deny pre-2006 overburden claims. The trial courts ruled in favor of the Counties. The judgments annuled the Department’s determinations and directed it to pay the overburden reimbursement claims at issue (R. 13; II R. 9; III R. 11; 17 Chemung R. 11). In addition, in some of these proceedings, Supreme Court granted sweeping mandamus relief ordering the Department to identify, calculate, and pay the Counties any unpaid pre-2006 overburden reimbursements, even if the Counties had not submitted claims for those reimbursements (III R. 11). G. The Conflicting Appellate Division Orders In Matter of County of Niagara v. Shah, 122 A.D.3d 1240 (4th Dep’t 2014), the Fourth Department held that the 2012 amendment unequivocaly extinguished the State’s obligation to pay pre-2006 overburden claims. The court rejected Niagara County’s reading of the statute as continuing to require the State to “search out al prior possible instances of unreimbursed overburden expenditures and submit payment for them to petitioner notwithstanding” the 2012 amendment. The court found that this interpretation would render the amendment a nulity and thus could not have been intended by the Legislature. Accordingly, it reversed the grant of mandamus relief directing the Department to identify, calculate, and pay al outstanding overburden reimbursement owed to Niagara County. The court further 18 held that the county could not invoke the special facts exception to preclude the Department from relying on the 2012 amendment. Subsequently, in Matter of County of Chautauqua v. Shah, 126 A.D.3d 1317, 1320-21 (4th Dep’t 2015), appeal and motion for lv. pending, the Fourth Department upheld the 2012 amendment, holding that counties are not persons entitled to due process protection from State laws. The court held that the counties failed to “establish their constitutional claim,” which doomed their case despite the State’s waiver of its capacity defense. Id. at 1320-1321. See also Matter of County of Jeferson v. Shah, 126 A.D.3d 1322 (4th Dep’t 2015), appeal and motion for lv. pending; Matter of County of Oneida v. Shah, 128 A.D.3d 1381 (4th Dep’t 2015), appeal and motion for lv. pending; Matter of County of Genesee v. Shah, 128 A.D.3d 1380 (4th Dep’t 2015), appeal and motion for lv. pending; Matter of County of Monroe v. Shah, 129 A.D.3d 1505 (4th Dep’t 2015); Matter of County of Cayuga v. Shah, 129 A.D.3d 1503 (4th Dep’t 2015), appeal and motion for lv. pending. In contrast, in Matter of County of St. Lawrence v. Shah, 124 A.D.3d 88 (3d Dep’t 2014), lv. granted, 25 N.Y.3d 903 (2015), the Third Department concluded that the 2012 amendment was constitutional, 19 but it did so by treating the amendment as a statute of limitations on counties’ submission of overburden reimbursement claims. To avoid what it perceived to be due process concerns, the Third Department fashioned a six-month grace period from the date of its decision for the continued submission of such claims (R. 613). The court ruled that the State’s argument that the county was not a person for due process purposes was a capacity defense that the State waived by not including it in its first responsive pleading. Id. at 91. Despite rejecting the county’s special-facts argument (R. 614), the Third Department concluded that the 2012 amendment did not extinguish the county’s right to reimbursement for its pre-2006 overburden claims under SSL § 368-a(1)(h). Accordingly, the Third Department afirmed the grant of mandamus relief directing the Department to identify, calculate, and pay al outstanding overburden reimbursement owed St. Lawrence County (R. 614-615), thus negating any need for the county ever to avail itself of the court’s six-month grace period. See also Matter of County of Chemung v. Shah, 124 A.D.3d 963 (3d Dep’t 2015), lv. granted, 25 N.Y.3d 903 (2015); Matter of County of 20 Broome v. Shah, 130 A.D.3d 1347 (3d Dep’t 2015), motion for lv. pending. ARGUMENT POINT I THE 2012 AMENDMENT EXTINGUISHED THE STATE’S OBLIGATION TO PAY PRE-2006 OVERBURDEN REIMBURSEMENT TO COUNTIES The Fourth Department correctly held that the 2012 amendment to the Cap Statute extinguished the State’s obligation under SSL § 368- a(1)(h) to reimburse counties for overburden expenditures incurred before 2006. Matter of County of Niagara v. Shah, 122 A.D.3d 1240, 1242 (4th Dep’t 2014). This conclusion naturaly folows from the statute’s unambiguous language and is confirmed by the legislative history. This Court should reject the Third Department’s contrary interpretation because it not only conflicts with the statute’s text and history but also strips the amendment of meaning and makes it a nulity. The 2012 amendment is unambiguous. It says that “no reimbursement shal be made for social services districts’ claims submitted on or after [April 1, 2012], for district expenditures incurred 21 prior to January 1, 2006, including but not limited to expenditures for services provided to” overburden-eligible individuals. L. 2012, ch. 56, Part D, § 61 (reproduced at R. 141). This prohibition applies “notwithstanding the provisions of section 368-a of the social services law,”—in other words, the statute creating the reimbursement obligation—“or any other contrary provision of law.” Id. The amendment provides that the expenditures to which it applies are “referred to as human services overburden aid to counties.” Id. “Thus, the unequivocal wording of section 61 retroactively extinguishes [counties’] right to submit claims for reimbursement of overburden expenditures made prior to 2006.” Matter of County of Niagara v. Shah, 122 A.D.3d at 1242. The legislative history of the 2012 amendment confirms this conclusion. The memorandum in support of the 2012-2013 executive budget makes clear that the Cap Statute had ended the State’s financial responsibility for pre-2006 overburden reimbursement. The amendment’s purpose was to “clarify that local governments cannot claim for overburden expenses incurred prior to January 1, 2006 when the ‘local cap’ statute that limited local contributions to Medicaid 22 expenditures took efect” (R. 199). Indeed, the 2012 amendment was a response to “adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute” (R. 199). The Third Department’s conflicting construction is flawed as a matter of both plain textual interpretation and legislative intent. The court wrongly construed the 2012 amendment as imposing a statute of limitations on the counties’ submission of overburden claims rather than extinguishing them (R. 612-613). The court then fashioned a six- month grace period, or exception to its newly-minted statute of limitations, for the continued submission of such claims, even though no such grace period could be inferred from the statutory text, in order to avoid the court’s perceived due process concerns (R. 613). Next, the Third Department reasoned that the 2012 amendment did not extinguish the State’s obligation under SSL § 368-a(1)(h) to identify, calculate, and pay overburden reimbursements to counties. Rather, the court concluded, this obligation continued without the counties having to submit claims for overburden reimbursement (R. 614-615). Based on its mistaken reasoning, the court concluded that the Counties were 23 properly granted mandamus relief directing the Department to unilateraly calculate and pay them al outstanding pre-2006 overburden reimbursement, even where no claims had been submitted and without regard to the court’s grace period (R. 615). The Third Department’s interpretation impermissibly rewrites the statute and renders the 2012 amendment meaningless, in derogation of settled principles of statutory construction. See Ivey v. State, 80 N.Y.2d 474, 480-81 (1992) (“every part of a statute is to be given efect and meaning, and no word may be excised by the courts in such a way as to deprive it of meaning and efect”). The Third Department’s reasoning defies the 2012 amendment’s purpose, leading to a regime where the amendment only eliminates the State’s obligation to pay pre-2006 overburden claims submitted by counties after the court’s grace period, while stil subjecting the State to the much more burdensome obligation of identifying, calculating, and paying al outstanding overburden reimbursements dating as far back as 1984— without any claims for such amounts submitted by the counties. Such a regime makes no sense. 24 The Legislature did not enact such a contradictory law. As the Fourth Department aptly observed, if the Department “must forthwith search out al prior possible instances of unreimbursed overburden expenditures and submit payment for them to [the counties] notwithstanding [the 2012 amendment], then there is no situation in which a claim for such payment wil be submitted. Thus, there wil be no situation in which [the 2012 amendment] wil apply, rendering it a nulity.” Matter of County of Niagara v. Shah, 122 A.D.3d at 1243. Because the Third Department’s interpretation violates canons of statutory construction and also “clash[es] with the underlying purpose of the statute,” this Court should reject it. Ivey, 80 N.Y.2d at 481. The Third Department based its strained interpretation on the 2012 amendment’s reference to “claims submitted” by social services districts on or after April 1, 2012. But the Legislature carefuly chose this language in light of how the former overburden reimbursement system operated. Before the enactment of the Medicaid Cap Statute, the Department met its overburden reimbursement obligations in two ways. First, when counties incurred overburden expenditures from 1984 through 2005, the Department identified overburden-eligible recipients 25 and reimbursed the counties on a quarterly basis (R. 169-171). Second, recognizing that this process might not capture al overburden-eligible expenditures, the Department made available a process by which counties could submit reimbursement claims for overburden recipients overlooked in the quarterly payments (R. 171-172). See 18 N.Y.C.R.R. § 601.4 & Part 635 (Medical Assistance Reimbursement Claiming). In other words, the claims process was the only legaly mandated process that was available for counties to obtain overburden reimbursement not captured in the Department’s quarterly reviews. Consequently, in clarifying that the State wil not pay overburden reimbursement claims submitted on or after April 1, 2012, the Legislature terminated pre-2006 overburden reimbursement, because it put an end to the only way these claims would have been paid. The Counties implicitly conceded this point in prior litigation. Consistent with the way overburden reimbursement has worked since its inception, judgments in prior litigation—drafted by counsel for the Counties—specificaly directed the Department to “examine and determine al subsequent claims for overburden reimbursement in accordance with the procedures and time limits set forth in 26 18 N.Y.C.R.R. § 601.4” (see, e.g., R. 589 [emphasis added]). But now that the Legislature unambiguously terminated pre-2006 reimbursement in the 2012 amendment, the Counties argue that they have no obligation to even submit such claims, and that the Department has a nondiscretionary duty to afirmatively undertake a 30-year project to identify and pay al outstanding overburden reimbursement. This conclusion is deeply flawed, as the Fourth Department found in County of Niagara. As that court held, the 2012 amendment ended pre-2006 overburden reimbursement, and with it any legal right on the Counties’ part to overburden payments from the State, whether claimed or unclaimed. Thus, the Fourth Department correctly reversed the grant of mandamus relief against the State in that case, while the Third Department mistakenly afirmed this relief. The Third Department compounded its error by fashioning a six- month grace period for the submission of additional claims. Although the court did so in the mistaken view that a grace period was required to preserve the constitutionality of the statute (see Point II, infra), it then deprived the grace period of any meaning or utility by holding that the State was obligated to compute and pay al outstanding overburden 27 to the Counties even if no claims were submitted. Thus, the Third Department’s interpretation is incoherent, because it makes the court’s newly-minted grace period a nulity. In any case, the decision to provide a grace period, if any, is generaly a matter entrusted to the Legislature. See Brothers v. Florence, 95 N.Y.2d 290, 301 (2000) (court wil impute a grace period only when necessary to preserve a statute’s constitutionality). There is no basis in the 2012 amendment or its legislative history for a grace period, and a grace period is not necessary to preserve the 2012 amendment’s constitutionality. As explained in Point II(A), the counties are not persons and thus are not entitled to due process protection from acts of the Legislature. And, as explained in Point II(B), even if the counties did have vested due process rights in the stale pre-2006 overburden claims, the Legislature’s judgment to extinguish those claims is reasonable and treats counties fairly. In adopting the 2012 amendment, the Legislature unequivocaly terminated reimbursement of pre-2006 overburden claims efective April 1, 2012. The Third Department wrongly held that the State remains liable for those claims. This Court should adopt the Fourth 28 Department’s interpretation of the 2012 amendment, which efectuates the statute’s plain meaning and legislative purpose. POINT II THE 2012 AMENDMENT IS CONSTITUTIONAL Properly read as what it is—the end of the State’s obligation to pay pre-2006 overburden claims—the 2012 amendment is constitutional. As a statute duly enacted by the Legislature and signed by the Governor, the 2012 amendment enjoys a strong presumption of constitutionality, see Dalton v. Pataki, 5 N.Y.3d 243, 255, cert. denied, 546 U.S. 1032 (2005), and may not be annuled except upon a showing that it is unconstitutional “beyond a reasonable doubt.” Matter of E.S. v. P.D., 8 N.Y.3d 150, 158 (2007). The Counties have failed to carry that heavy burden. The Counties contend that the 2012 amendment deprives them of “vested rights” to reimbursement for overburden expenses. They rely on article I, § 6 of the New York Constitution, which provides in relevant part that “[n]o person shal be deprived of life, liberty or property without due process of law.” Their contention fails for two reasons. First, under settled law, a county, as a political subdivision of the State, 29 is not a “person” under New York’s due process clause. Consequently, there is no merit to Counties’ vested rights chalenge to the 2012 amendment, which realocates how the State and its political subdivisions share the cost of a governmental program. Second, even if the Counties could properly claim a due process right based on the statutory alocation of Medicaid costs between the State and its political subdivisions, the 2012 amendment is constitutional under the balancing test this Court applies in vested rights cases. A. The Counties’ Due Process Claim Fails On The Merits Because The Counties Are Not “Persons” For Due Process Purposes. 1. Political subdivisions are not “persons” under New York’s due process clause. The Counties’ due process arguments rest on a mistaken analogy. The Counties liken themselves to creditors and the State to a debtor. They have repeatedly characterized the overburden litigation as “a simple colection action.” (R. 327, ¶ 2). Based on this erroneous premise, the Counties contend that the Legislature, through the 2012 amendment, has unconstitutionaly purported to extinguish a debt owed to the Counties, thereby depriving them of vested property rights. 30 This analogy is fundamentaly flawed. The State’s alocation or realocation of the costs of government between itself and its political subdivisions creates no vested rights that a county may invoke against the State. Unlike a private creditor, a county is a political subdivision, “a subordinate unit of government created by the State to carry out delegated governmental functions.” Ysursa v. Pocatelo Educ. Ass’n, 555 U.S. 353, 363 (2009). Courts have long recognized that a county has “no privileges or immunities under the federal constitution which it may invoke in opposition to the wil of its creator.” Wiliams v. Mayor, 289 U.S. 36, 40 (1933) (Cardozo, J.); see also Trenton v. New Jersey, 262 U.S. 182, 186-87 (1923) (federal constitution does not bar a state from taking municipal property without compensation). Just as states are not persons within the meaning of the Fifth Amendment’s Due Process Clause, South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966), so too are political subdivisions not persons entitled to federal due process protection from the states that created them. City of New York v. Richardson, 473 F.2d 923, 929 (2d Cir.) (“[p]olitical subdivisions of a state may not chalenge the validity of a state statute under the Fourteenth Amendment”), cert. denied, 412 U.S. 31 950 (1973); City of E. St. Louis v. Cir. Ct. for the Twentieth Jud. Cir., St. Clair Cnty, Il., 986 F.2d 1142, 1144 (7th Cir. 1993) (municipalities are not persons for due process purposes); City of Safety Harbor v. Birchfield, 529 F.2d 1251, 1254 (5th Cir. 1976) (“political subdivisions of states do not possess constitutional rights” and are not persons entitled to protection from state laws under the federal Civil Rights Act). Accordingly, the Counties make no claim under the federal due process clause. The vast majority of state courts have folowed the federal rule when interpreting their state constitutions, holding that political subdivisions are not persons entitled to due process protection from duly enacted state laws. See, e.g., Kenai Peninsula Borough v. Department of Community & Regional Afairs, 751 P.2d 14, 18 (Alaska 1988); Vilage of Riverwoods v. Dep’t of Transp., 395 N.E.2d 555, 558 (Il. 1979); State ex rel. Brentwood School Dist. v. State Tax Comm’n, 589 S.W.2d 613, 615 (Mo. 1979) (en banc); State ex rel. New Mexico State Highway Comm’n v. Taira, 430 P.2d 773, 778 (N.M. 1967); Carl v. Bd. of Regents, 577 P.2d 912, 915 (Okla. 1978); City of Mountlake Terrace v. Wilson, 549 P.2d 497, 498 (Wash. App. 1976); Schropp Indus. 32 v. Wash. Cnty. Att. Ofice, 794 N.W.2d 685, 696 (Neb. 2011); Avon Lake City Sch. Dist. v. Limbach, 518 N.E.2d 1190, 1192-93 (Ohio 1988); Riley v. Stack, 18 P.2d 110, 112 (Ca. App. 1932); Dep’t of Community Afairs v. Holmes County, 668 So. 2d 1096, 1102 (Fla. Dist. Ct. App. 1st Dist. 1996); La. Assessors’ Ret. Fund v. City of New Orleans, 849 So. 2d 1227, 1229 (La. 2003).3 These courts have reasoned that the due process clause exists “to protect people from abuses of government, not to protect political subdivisions of the state from the actions of other units of state government.” Kenai Peninsula Borough v. Department of Community & Regional Afairs, 751 P.2d at 18-19; see Carl v. Bd. of Regents, 577 P.2d 3 A smal minority of states difer. An evenly divided Texas Supreme Court reached the opposite conclusion, over a powerful dissent. See Texas Antiquities Committee v. Dalas County Community Colege Dist., 554 S.W.2d 924, 930 (Tex. 1977) (plurality opn.); id. at 932-933 (dis. opn.). The Supreme Court of Pennsylvania concluded that a municipality’s private revenues from its water or other utility works are funds protected under the Fourteenth Amendment, a holding at odds with federal authority. Shirk v. Lancaster City, 313 Pa. 158, 169 A. 557 (Pa. 1933). And Colorado courts, interpreting the Fourteenth Amendment, have concluded that municipalities lack standing to assert substantive due process claims but are not barred from asserting procedural due process claims, a distinction unsupported by federal case law. City of Colorado Springs v. Bd. of Cnty. Commissioners, 895 P.2d 1105, 1119 (Col. Ct. App. 1994). 33 at 915 (same); La. Assessors’ Ret. Fund v. City of New Orleans, 849 So. 2d at 1229 (same with regard to the Louisiana equal protection clause). There is no merit to the Counties’ contention that New York is among the few States that grant political subdivisions due process rights. This Court’s precedents are in accord with the federal rule. Although this Court has sometimes construed the New York constitution’s due process clause more expansively than the Supreme Court has construed the federal clause, Hernandez v. Robles, 7 N.Y.3d 338, 361-62 (2006), New York has folowed federal decisions holding that political subdivisions cannot chalenge state statutes on due process and similar constitutional grounds. See Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475, 487 (1954), appeal dismissed, 351 U.S. 922 (1956). In Black River, after a river regulating district approved a construction project, the Legislature enacted a law that retroactively barred the project. The district brought suit, claiming that the law unconstitutionaly impaired its contractual obligations and deprived it of vested property rights under the New York and federal constitutions. See Atty. Gen.’s Brief in Black Riv. Reg. Dist. v. 34 Adirondack League Club, at 3-4 (summarizing the district’s contentions), excerpts attached in addendum (A.30-31). Rejecting the district’s due process claims, this Court explained that because the district was not a person but a governmental entity, the Legislature’s alteration, impairment or destruction of its powers did not implicate the due process clause. Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. at 487. In holding that the regulating district could not prevail on a due process claim, this Court declared that “political power conferred by the Legislature confers no vested right as against the government itself.” Id. at 488. This Court reached a similar conclusion in Matter of Jeter v. Elenville Central School District, 41 N.Y.2d 283, 287 (1977). In Jeter, a city board of education and a city department of social services aleged that a state law imposing certain educational costs on them violated their due process and equal protection rights under the New York and federal constitutions. This Court held that while these municipal entities had “procedural standing” to chalenge the law, they lacked the “substantive right” to mount these constitutional chalenges. Id. In so concluding, this Court cited federal authorities, including Wiliams v. 35 Mayor, 289 U.S. 36; Trenton v. New Jersey, 262 U.S. 182; and City of New York v. Richardson, 473 F.2d at 929, the seminal cases holding that political subdivisions of a state have no due process right on which they may chalenge the validity of a state statute under the Fourteenth Amendment. Based on Black River and Jeter, the Fourth Department correctly held that under article I, § 6 of the New York Constitution, counties are not persons who may raise a substantive due process chalenge to state legislation. Matter of County of Chautauqua v. Shah, 126 A.D.3d 1317, 1321 (4th Dep’t 2015). In contrast, the Third Department failed to cite or discuss Black River and Jeter or the federal precedents on which they rest. This argument does not mean that the Legislature enjoys unfettered power over political subdivisions. Other provisions in the New York Constitution, including the Home Rule article, limit the Legislature’s authority over purely local afairs. See N.Y. Const. art. IX; City of New York v. Patrolmen’s Benevolent Ass’n, 89 N.Y.2d 380, 388 (1996) (declaring unconstitutional a state law enacted in violation of Home Rule requirements of article IX, § 2). But the Due Process Clause 36 itself does not limit the exercise of the State’s power over its political subdivisions. Because the Counties can have no due process rights against the State, Social Services Law § 368-a, the statute on which the Counties base their due process claim, created no property “rights” in receiving reimbursement for the overburden expenses that they paid before 2006. Rather, the statute merely alocated the financial responsibilities of the State and local social services districts (the counties) with respect to Medicaid expenditures before 2006. Although before enactment of the 2012 amendment, counties could obtain judicial relief if the Department did not comply with its statutory obligations under Social Services Law § 368-a, the Due Process Clause does not limit the Legislature’s ultimate authority to change the alocation of the State’s and the counties’ fiscal responsibilities for Medicaid expenditures, even after the expenditures are incurred. When the Legislature extinguished the counties’ statutory reimbursement claims, it did not impair any vested property right. Accordingly, the Counties’ substantive due process chalenge to the 2012 amendment must be dismissed. 37 2. The Counties’ substantive due process claim fails for lack of merit, not for lack of capacity. Unable to establish that they have substantive due process rights, the Counties have mischaracterized the Department’s position, contending that the Department is actualy arguing that the Counties lacked “capacity” to chalenge the 2012 amendment. The Fourth Department correctly rejected the counties’ mischaracterization, finding that, although the State did not preserve the capacity defense because it failed to raise it in its first responsive pleading, the counties nevertheless failed to establish their due process claims on the merits because they “are not persons who may raise a due process chalenge to state legislation.” County of Chautauqua, 126 A.D.3d at 1320-1321. The Third Department incorrectly adopted the Counties’ mischaracterization, holding that any argument that the County lacked capacity had been waived because the Department did not raise this argument in its first responsive pleading (R. 611). County of St. Lawrence, 124 A.D.3d at 91. The Third Department’s recasting of the State’s argument is in error. Although there is some overlap in the rationales for the two doctrines, the State’s argument that a County is not a person entitled to 38 protection under New York’s due process clause is distinct from the afirmative defense that the County lacks capacity to sue for relief. See Matter of County of Chautauqua v. Shah 126 A.D.3d at 1320-21. Capacity is a threshold issue, and concerns a litigant’s power to appear and bring its grievance before the court. Silver v. Pataki, 96 N.Y.2d 532, 537 (2001). Even if the Department waived any objection to the Counties’ capacity, the Counties stil bore the burden to “establish their constitutional claim” on the merits. Matter of County of Chautauqua v. Shah 126 A.D.3d at 1320-21. Because a political subdivision is not a person endowed with substantive rights under New York’s due process clause, the Counties lack the “substantive right” necessary to establish a vested rights chalenge to a state statute under the Due Process Clause. Id.; Jeter, 41 N.Y.2d at 287. The Third Department failed to recognize the critical distinction between a county’s authority to sue (capacity) and its entitlement to protection under the due process clause (the merits). For instance, a county could chalenge a state law as violating its Home Rule powers, and would have capacity to bring this claim. However, if the law furthered substantial state interests, the county’s claim would fail on 39 the merits. See City of New York v. State of New York, 94 N.Y.2d 577, 590 (2000); Wambat Realty Corp. v. State, 41 N.Y.2d 490, 497 (1977). So too here: if a county’s capacity to sue was not timely chalenged it may assert the claim, but the claim nonetheless fails on the merits. This distinction between capacity to sue and a substantive due process right has been recognized by several courts analyzing due process chalenges to state laws mounted by political subdivisions. For instance, in Yonkers Comm’n on Human Rights v. The City of Yonkers, 654 F. Supp. 544, 551-553 (S.D.N.Y. 1987), the court first held that the Commission lacked capacity because its enabling statute did not empower it to initiate a lawsuit in any court. Id. at 552. The court then separately analyzed the merits, observing that, under federal precedent and this Court’s decision in Jeter, “Constitutional due process rights do not inhere in municipal corporations as against the state of their creation.” Id. at 553 (discussing Jeter). The Sixth Circuit drew the same distinction in South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500, 504-505 (6th Cir. 1986). The court observed that although there may be occasions when a political subdivision has the capacity to chalenge the 40 constitutionality of state legislation on grounds other than the Fourteenth Amendment, a political subdivision may not chalenge state legislation on equal protection or due process grounds. Id. at 504-505. Finaly, the Fifth Circuit drew this distinction in analyzing Supreme Court precedent rejecting political subdivisions’ constitutional chalenges to state laws. See Rogers v. Brockette, 588 F.2d 1057, 1067- 1071 (5th Cir), cert. denied, 444 U.S. 827 (1979). The court acknowledged that although older precedent speaks in terms of a municipality’s lack of “standing,” courts used that term to mean “only that, on the merits, the municipality had no rights under the particular constitutional provisions it invoked.” Id. at 1070. In other words, Supreme Court precedent rejecting municipalities’ due process and equal protection chalenges to state laws are properly understood as “substantive interpretations of the constitutional provisions involved,” and do not necessarily preclude chalenges based on other provisions of federal law. Id. at 1068. The only authority on which the Third Department relied, City of New York v. State of New York, 86 N.Y.2d 286 (1995), does not support its conclusion. City of New York addressed only the doctrine of capacity 41 and did not suggest—let alone hold—that a party with capacity wil necessarily succeed on the merits. This Court in City of New York concluded that the municipality lacked capacity to mount constitutional claims—which did not include a due process chalenge to a state statute. Consequently, this Court in City of New York had no occasion to address the merits of any due process claim. Here the Counties’ due process claims fail on the merits. 3. The Court should decide the question whether the counties have due process rights. The State’s argument that the Counties are not persons within the meaning of the Due Process Clause was briefed, argued and addressed in both Appelate Divisions but was not explicitly raised or considered in Supreme Court, and thus there is a question whether this Court may consider the argument now. The parties appear to agree that this Court can do so. Whether the personhood argument is properly treated as preserved because it is inherent in the Counties’ claim of right, or whether the Court can consider the argument in any event because it is a pure question of law that could not have been countered below by any factual showing or legal counter steps, this Court may and should reach 42 it now to resolve the Appelate Division conflict and to settle once and for al the dozens of identical cases now pending in the lower courts. In opposing the State’s motions for leave to appeal, the Counties asserted that the State’s argument that political subdivisions are not persons is unpreserved because it was raised for the first time in the Appelate Division. But subsequently, in response to this Court’s jurisdictional inquiry regarding Chautauqua and Jeferson Counties’ purported appeals as of right from the Fourth Department’s decisions, those counties, represented by the same counsel who handled the Third Department appeals, asserted that the issue whether a political subdivision “may assert a constitutional chalenge to State legislation on due process grounds was raised before the trial court by [the County’s] assertion of such claims chalenging the constitutionality of [the 2012 amendment]” (Letter dated May 8, 2015 to Hon. John P. Asielo, Deputy Clerk, from Christopher E. Buckey, Esq., at p.3, attached in addendum at A.28). “In other words,” the Counties argued, “in order to declare [the 2012 amendment] unconstitutional, Supreme Court . . . was required to first determine, albeit implicitly, that [the County] could assert vested rights under the Due Process Clause” (id.). 43 The State agrees with the counties’ latter contention. It is undisputed that in Supreme Court the Counties sought a declaration that the 2012 amendment violates their vested due process rights (R. 40-42). The State defended the statute on the merits, arguing that the 2012 amendment was constitutional under a vested rights analysis (see State’s summary-judgment memorandum of law in County of St. Lawrence v. Shah, at 28-38, excerpts attached in addendum at A.15-25). That is suficient to preserve the personhood argument, which is not a distinct issue but simply a diferent line of reasoning why the 2012 amendment does not violate the Due Process Clause. Having asserted a substantive due process chalenge to a state law, the Counties bore the burden of establishing al of the elements of such a claim. In order to find in the Counties’ favor, Supreme Court necessarily had to resolve the threshold legal issue—inherent in al due process claims—that the plaintifs are entitled to protection under New York's due process clause. The Counties’ failure to plead or prove an essential element of a cause of action is not an afirmative defense, is not waivable, and may be considered for the first time on appeal. See 44 E. Wiliamson Roofing and Sheet Metal Co., Inc. v. Town of Parrish, 139 A.D.2d 97, 106 (4th Dep’t 1988) (compliance with notice requirement of General Municipal Law was essential element of cause of action, and failure to alege compliance was not an afirmative defense and could be considered for the first time on appeal). And this Court may decide the personhood question even if it was not preserved because it is a pure question of law that the Counties could not have countered by a factual showing or legal counter steps if it had been explicitly raised in Supreme Court. See People ex rel. Roides v. Smith, 67 N.Y.2d 899, 901 (1986) (Court annuled administrative rules as unfiled, even though the claim was raised for the first time on appeal, because the claim was a pure legal question that could not have been countered by appelant); see also Richardson v. Fiedler Roofing, Inc., 67 N.Y.2d 246, 250 (1986); Telaro v. Telaro, 25 N.Y.2d 433, 439 (1969); Bingham v. N.Y.C. Transit Authority, 99 N.Y.2d 355, 359 (2003). If as a matter of law counties are not persons entitled to due process protection from state laws, then the 2012 amendment should be upheld regardless of whether it would survive a vested rights analysis. As a duly enacted statute, the 2012 amendment should not be annuled 45 simply because the State did not raise in Supreme Court the purely legal personhood argument that establishes the statute’s constitutionality. Finaly, the personhood issue was thoroughly briefed and argued in both the Third and Fourth Departments, and both courts addressed it. This Court’s failure to decide now whether the counties have due process rights could have the anomalous result that the 2012 amendment is constitutional in the Fourth Department but not the Third Department if the Court finds that the amendment terminated the State’s overburden liability but violated the counties’ due process rights. This would prolong, rather than resolve, the already protracted overburden litigation between the State and many counties and result in lower court judgments awarding counties large sums to which they are not entitled. For al these reasons, this Court can and should decide now that the Counties are not persons entitled to the protections of the Due Process Clause. In sum, the Counties’ due process claim fails on the merits because they have no “substantive right,” against deprivation of property by the Legislature that created them. The New York 46 Constitution’s Due Process Clause does not restrict the Legislature’s authority to realocate the Medicaid cost-sharing arrangement between the State and its counties, even after the expenses were incurred. Once the Legislature unambiguously extinguished the Counties’ statutory right to overburden reimbursement, the Counties, as political subdivisions of the State, could have no due process right to further overburden payments. Consequently, this Court should reject the Counties’ constitutional claim. B. The 2012 Amendment Is Constitutional Under A Due Process Vested Rights Analysis. The conclusion that the Counties are not persons entitled to the protections of the Due Process Clause as against the State sufices to dispose of the Counties’ constitutional claim. But even if the Counties had a due process claim against the State, the 2012 amendment would not violate the Counties’ vested rights. Although SSL § 368-a(1)(h) required overburden reimbursement before 2006, nothing in New York’s due process clause requires that that obligation continue in perpetuity. The Legislature’s decision to terminate the Counties’ entitlement to 47 such reimbursement is reasonable and consistent with substantive due process. Although older cases evinced an aversion to retroactive legislation generaly, “the modern cases reflect a less rigid view of the Legislature’s right to pass such legislation and more candid consideration—on a case- by-case basis—of the various policy considerations upon which the constitutionality of retroactive legislation depends.” Matter of Hodes v. Axelrod, 70 N.Y.2d 364, 371 (1987). Determination of whether legislation impermissibly impairs vested property rights entails a balancing of “a number of factors, including fairness to the parties, reliance on pre-existing law, the extent of retroactivity, and the nature of the public interest to be served by the law.” Aliance of American Insurers v. Chu, 77 N.Y.2d 573, 586 (1991) (internal quotations omitted); see Hodes, 70 N.Y.2d at 370; Matter of Chrysler Properties v. Morris, 23 N.Y.2d 515, 518 (1969). The balance of these factors in this case tips decisively in favor of the 2012 amendment. 1. The 2012 Amendment Is Fair. The Legislature’s judgment to extinguish pre-2006 overburden treats the counties fairly. The Cap Statute, as clarified in the 2012 48 amendment, reflects trade-ofs that, on balance, are very financialy advantageous to counties. The fairness of the 2012 amendment is properly evaluated by considering the amendment together with the Cap Statute that it amended and clarified. In adopting the amendment, the Legislature explained that the amendment was necessary to correct adverse court decisions and to clarify that under the Cap Statute’s new cost-sharing regime, the State’s obligation to reimburse counties for pre- 2006 overburden was ended (R. 199). Although the Cap Statute terminated the ability of counties to submit claims for pre-2006 overburden reimbursement, in exchange it gave them a new cost-sharing system from which they reap substantial financial benefits, including protection from past Medicaid liabilities and bilions of dolars in future savings. Under the new system, counties must pay no more and no less than their ful cap amounts, which historicaly have been substantialy less then what they paid under the old system even after receiving overburden reimbursement. If on top of that reduction the Department had to continue to pay old overburden claims, counties would reap the benefits of the new system without fulfiling their end of the bargain, i.e., paying their ful cap 49 amount. Accordingly, the 2012 amendment reflects the Legislature’s judgment that it was time to close the books on these stale overburden claims. The benefits counties receive under the new cost-sharing system are substantial. In fact, for the five-year period between the 2005-2006 fiscal year and the 2009-2010 fiscal year, counties saved approximately $6.4 bilion “as a result of the Medicaid cap and an additional $2.5 bilion as a result of the State takeover of Family Health Plus,” a Medicaid expansion program (III R. 477). The cap statute also protects counties from pre-2006 Medicaid liabilities (R. 175). Under the former cost-sharing system, counties were responsible for paying their share of federal disalowances of Medicaid expenditures and judgments awarding health care providers increased Medicaid reimbursement. See Matter of Spano v. Novelo, 13 A.D.3d 1006, 1008 (3d Dep’t 2004) (upholding State’s recovery of a county’s share of a federal disalowance), lv. denied, 4 N.Y.3d 819 (2005). These liabilities were often unanticipated and may have accrued many years earlier. The Cap Statute shields counties from such unanticipated liabilities (R. 175-176). This is so because under the cash-based 50 accounting system, payment of the liability would count as an expenditure in the year of payment, even though the liability accrued before 2006. Consequently, any such payment would cause the county’s net expenditures to exceed its cap amount—a result the cap statute generaly forbids.4 But the Cap Statute is a two-way street. The trade-of for these financial savings is that counties must pay their cap amounts in ful each fiscal year. A county’s cap is not simply a ceiling on how much a county must pay toward Medicaid expenditures. Rather, the cap represents a fixed amount that a county must pay each fiscal year. Although a county may not be required to pay more than its cap amount, it must pay its cap amount each fiscal year (Cap Statute § 1[f]). Counties that continue to receive pre-2006 overburden reimbursement are not paying their mandated cap amounts in ful and, therefore, they do not fulfil their end of the bargain. For instance, if a 4 There is a limited exception to this general rule. Counties may be required to contribute to a federal disalowance when the Commissioner of Health determines that the federal disalowance was caused by the county’s own failure to properly administer, supervise, or operate the Medicaid program. See L. 2010, ch. 109, Part B § 22. 51 county with a $10 milion cap obligation pays $10 milion this fiscal year toward Medicaid expenditures, but in the same year receives $2 milion in pre-2006 overburden reimbursement, then its net expenditures are $8 milion, less than its cap obligation. In other words, under the Cap Statute's cash-based accounting system, the State’s payment to the county of pre-2006 overburden reimbursement would count as revenue in the year it is received and thus would cause the county’s net expenditures to fal below its mandated cap amount. This result is inconsistent with the cost-sharing system embodied in the Medicaid Cap Statute. But here the Counties seek the benefits of both cost-sharing systems and the burdens of neither: they now enjoy substantial savings from the Medicaid cap and protection from pre-2006 liabilities, yet at the same time they demand reimbursement for state overburden claims payable only under the old regime. The Legislature, in enacting the Cap Statute and the clarifying 2012 amendment, made the reasonable policy decision that the substantial financial benefits counties receive under the new regime more than compensated for the extinguishment of pre-2006 overburden claims. 52 In the face of this trade-of, the Counties nonetheless argue that termination of any remaining pre-2006 overburden liabilities is unfair because the failure to pay them is solely the State’s fault, and because the State has declined to undertake a project to calculate and pay the total overburden reimbursement owed counties dating back to 1984. But the Legislature, with ful knowledge of unpaid overburden liabilities for prior years, made a policy judgment to change the system of alocating costs. In other words, the Legislature determined that the failure to pay the counties—regardless of fault—was ofset by the savings the counties would receive under the new cost-sharing system. The Legislature also determined that the time has come to close the books on these old claims. By any measure, the Counties’ claims are stale, in some cases dating back decades. Long before the Cap Statute took efect, the State made available a process by which counties could have submitted claims for overburden reimbursement not captured in the Department’s quarterly reviews (R. 171-171, 191, 196). See 18 N.Y.C.R.R. § 601.4 and Part 635. The Counties were wel aware of this process, yet neglected to fuly avail themselves of this process until after the Cap Statute went into efect in 2006. By the time the 53 Legislature passed the 2012 amendment, overburden claims were between seven and twenty-eight years old. Governmental operations, especialy fiscal planning, are compromised by such stale reimbursement claims of indeterminate amounts. It was therefore reasonable for the Legislature to extinguish the claims without any further grace period for their submission. Due process does not permit courts to overrule the Legislature’s policy judgment simply because they disagree with that judgment. The Counties had an opportunity to be heard during the Legislature’s deliberations in 2012. As courts have recognized under similar circumstances, “[w]hile the legislative alteration or elimination of a previously conferred property interest may be a ‘deprivation,’ the legislative process itself provides citizens with al of the ‘process’ they are ‘due.’” Gattis v. Gravett, 806 F.2d 778, 781 (8th Cir. 1986); see Correa-Ruiz v. Fortuno, 573 F.3d 1, 15 (1st Cir. 2009) (same). Counties hardly lack political power. They enjoy substantial influence in the Legislature. Counties could lobby against the 2012 amendment and in favor of requiring the Department to undertake a project to identify, calculate, and pay al outstanding pre-2006 overburden reimbursement. 54 Having lost this political battle, the Counties now ask the Court to order continued reimbursement of old overburden claims. This Court should reject that invitation. Under al the relevant circumstances, the 2012 amendment is fair and reasonable. 2. The Counties Had At Most A Minimal Reliance Interest Based On Prior Law. Although the pre-2006 regime gave Counties reason to expect that they would be reimbursed for overburden expenditures, they could not reasonably expect that reimbursement for pre-2006 overburden expenses would continue indefinitely. Counties had no reason to believe that a subsequent law might not alter or even extinguish their claims. After 2005, the Counties did not rely on prior law to incur any new reimbursable expenditures or take other afirmative detrimental actions. The initial 2005 Cap Statute indisputably extinguished the State’s responsibility for overburden reimbursement prospectively for periods after 2005—the Counties’ claims al pertain to periods before 2006. Yet the Counties waited over seven more years before pursuing the claims at issue here. Wel before 2012, the Counties had ample forewarning that any further claims might be extinguished. Although the Counties might 55 have hoped that they would continue to be reimbursed for pre-2006 claims despite the Cap Statute, the ensuing litigation concerning the Department’s interpretation of the Cap Statute put the Counties on notice that they could not indefinitely postpone the submission of overburden claims. In addition, the Legislature’s enactment of the 2010 amendment, and the Department’s application of that law, gave the Counties stil further notice that they should act promptly to submit their stale reimbursement claims. Thus, the Counties had ample reason to be aware that their pre-2006 claims were on borrowed time. Consequently, to the extent the Counties relied on pre-2006 law to justify their unreasonable delay in submitting claims, their reliance is unwarranted. This conclusion is bolstered by the more than two-month period between the January introduction of the 2012 amendment and its April efective date. Once the amendment had been introduced by the Governor, counties were on notice that further delay would result in termination of their claims. Counties submitted a flurry of claims during this period, and the Department paid them in June 2012 (R. 178, ¶ 54; Chemung R. 258, ¶ 54). Consequently, any reliance interest in 56 overburden reimbursement that Counties may have had by the time of the enactment of the 2012 amendment was minimal, and the Legislature adequately accommodated it here. 3. The Extent Of Retroactivity Is Not Excessive. The 2012 amendment is not excessively retroactive. To the contrary, the amendment extinguishes only pre-2006 claims submitted after it went into efect. In compliance with prior court judgments, the Department paid al claims that were submitted before April 1, 2012 (R. 178 n.23). The 2012 amendment is a response to those prior court judgments. It is a “remedial statute,” that was intended to clarify that reimbursement for pre-2006 overburden claims was no longer available after the cap statute changed the cost-sharing regime. See Matter of Ideal Mutual Insurance Co. v. Superintendent of Insurance, 82 A.D.3d 518, 519-20 (1st Dep’t 2011) (no vested right in the statutory distribution scheme for liquidation of insurance companies, which is “subject to change at the discretion of the Legislature”). This clarification goal is reflected in the 2012 amendment’s legislative history. The Legislature intended to “clarify that local governments 57 cannot claim for overburden expenses incurred prior to January 1, 2006, when the ‘local cap’ statute that limited local contributions to Medicaid expenditures took efect” (R. 199). Legislative history detailing the purpose of clarifying legislation is probative in interpreting the prior law that is the subject of the clarification. See Held v. State of New York Workers’ Compensation Bd., 85 A.D.3d 35, 41 (3d Dep’t) (2008 clarifying amendments to the Workers’ Compensation Law confirmed that Board was authorized under pre-existing law to impose assessments with respect to individual and group self-insurers), appeal dismissed, lv. denied, 17 N.Y.3d 837 (2011); see also Matter of OnBank & Trust Co., 90 N.Y.2d 725, 731 (1997). Given the 2012 amendment’s undeniably curative purpose, it is appropriately retroactive to the extent that it ended reimbursement of pre-2006 overburden claims submitted after April 1, 2012. Despite this history, the Counties argued below that the 2012 amendment is not actualy a clarifying amendment. The Counties point to the Third and Fourth Department’s holding that the original Cap Statute did not extinguish pre-2006 overburden liabilities. The Counties miss the point. It is precisely in response to “adverse court decisions 58 that have resulted in State costs paid to local districts for pre-cap periods,” that the Legislature acted to clarify that those holdings “conflict with the original intent of the local cap statute” and adopted an amendment to efectuate that intent unequivocaly (R. 199). Moreover, the Legislature did not seek to overturn the efect of the Appelate Divisions’ decisions regarding claims submitted between 2006 and April 1, 2012. The Legislature instead struck a balance between the State’s and Counties’ competing interests by precluding payment of only those overburden claims submitted after April 1, 2012. In so doing, the Legislature clarified, on a prospective basis, the correct alocation of fiscal responsibility between counties and the State under the Cap Statute. Therefore, the limited retroactive efect of the 2012 amendment is consistent with due process. 4. The 2012 Amendment serves an important public interest. By foreclosing payment of stale overburden liabilities accruing as much as 30 years ago, the 2012 amendment provides the State with needed closure and repose, especialy during the extreme fiscal crisis that then existed. Unlike Aliance of American Insurers v. Chu, 77 N.Y.2d at 586, where the chalenged statute afected the rights of 59 private corporations—which are deemed persons who “enjoy constitutional protections,” Ysursa v. Pocatelo Educ. Ass’n, 555 U.S. at 363—here the State has amended its statutory reimbursement obligations to its political subdivisions, which it created to assist in the provision of public services. See City of New York v. State of New York, 86 N.Y.2d at 290. In this regard, the Counties miss the mark in arguing that the State has converted county funds. The overburden funds that have not been paid to the counties have been used for other governmental purposes, not to enrich private individuals. What the Counties characterize as county funds are monies derived from property and sales taxes—revenues colected pursuant to authorization from the State Legislature. In sum, in the 2012 amendment to the Medicaid cap statute, the Legislature properly clarified the realocation of fiscal responsibility between the State and its political subdivisions for Medicaid expenditures. The realocation set forth in the Cap Statute, as amended by the 2012 amendment, reflects trade-ofs that, on balance, are substantialy in the Counties’ favor. Even if a due process/vested rights 60 analysis were appropriate here, and it is not, the 2012 amendment would be constitutional. This Court should so declare and dismiss the complaints in their entirety. POINT III IN ANY EVENT, THE COUNTIES LACK A CLEAR LEGAL RIGHT TO MANDAMUS RELIEF Finaly, we explained in Point I that, because the 2012 amendment extinguished the State’s overburden reimbursement obligation, the Third Department erred in afirming the award of mandamus relief directing the Department of Health to unilateraly identify, calculate, and pay al outstanding overburden reimbursement owed the Counties. Alternatively, the mandamus relief would stil be unwarranted, and should be reversed, even if this Court otherwise afirms the Third Department’s orders. The mandamus relief, if permitted to stand, would require the Department to undertake a massive, retrospective project to review bilions of Medicaid expenditures spanning a 30-year time period. Mandamus to compel is an extraordinary remedy, available only if the petitioner establishes both a clear right to relief and that the act to be 61 compeled is purely ministerial. Matter of Brusco v. Braun, 84 N.Y.2d 674, 679 (1994). Neither requirement is met here. First, the Counties lack a clear legal right to such a massive, retrospective project. Nothing in Social Services Law § 368-a(1)(h) specified the method by which the Department makes payment. Rather, the statute left the payment method to the Department’s judgment and discretion. Exercising that discretion, the Department established two processes: the quarterly review process and the claiming process under 18 N.Y.C.R.R. § 601.4 and Part 635. The claiming process, established under regulations having the force and efect of law, is the only legaly mandated process for obtaining overburden reimbursement not captured by the quarterly reviews. A project of the enormity afirmed by the Third Department would be warranted only if the duty to undertake it was specificaly mandated by the Legislature or the Department in regulations—here it was not. Second, the determination that the court has ordered is far from purely ministerial. Given the complexity of the undertaking and the extreme age of many of the claims, stretching back over three decades, making these determinations wil inevitably involve the exercise of a 62 great deal of judgment and discretion. Thus, even if the 2012 amendment were properly construed as the Third Department did (and it was not), that court would stil have erred in ordering the Department of Health to undertake this massive 30-year retrospective project. Accordingly, the Third Department’s orders afirming the grant of such mandamus relief should be reversed. APPENDIX 2005 REGULAR SESSION Ch. 58, Pt. C, § 1 on an emergency basis any regulation he or she or such council determines necessary to implement any provision of this act on its efective date; 8. The provisions of this act shal become efective notwithstanding the failure of the commissioner of health or the superintendent of insurance or any council to adopt or amend or promulgate regulations implementing this act; 9. The amendments to subdivision 4 of section 2511 of the public health law made by section seventy of this act shal not affect the expiration of such subdivisions and shal be deemed to expire therewith; 10. The amendments to section 2807-j of the public health law made by sections forty-one, forty-three, fifty-three, and sixty-two of this act shal not affect the expiration of such section and shal be deemed to expire therewith; 11. The amendments to section 2807-s of the public health law made by sections thirty- one, thirty-two, thirty-three, thirty-four, thirty-five, thirty-nine, sixty-three and ninety-nine of this act shal not affect the expiration of such section and shal be deemed to expire therewith; 12. The amendments to section 2807-t of the public health law made by sections forty-five and one hundred of this act shal not affect the expiration of such section and shal be deemed to expire therewith; 13. The amendments to paragraph (i-1) of subdivision 1 of section 2807-v of the public health law made by section three of this act shal not affect the repeal of such paragraph and shal be deemed to be repealed therewith; and 14. The amendments to section 4403-f of the public health law made by sections eighty- three and eighty-four of this act shal not affect the repeal of such section and shal be deemed to be repealed therewith. End of Part B PART C § 1. (a) Notwithstanding the provisions of section 368-a of the social services law, or any other provision of law, the department of health shal provide reimbursement for expenditures made by or on behalf of social services districts for medical assistance for needy persons, and the administration thereof, in accordance with the provisions of this section; provided, however, that this section shal not apply to amounts expended for health care services under section 369-ee of the social services law, which amounts shal be reimbursed in accordance with paragraph (t) of subdivision 1 of section 368-a of such law and shal be excluded from al calculations made pursuant to this section. (b) Commencing with the period April 1, 2005 though March 31, 2006, a social services district's yearly net share of medical assistance expenditures shal be calculated in relation to a reimbursement base year which, for purposes of this section, is defined as January 1, 2005 through December 31, 2005. The final base year expenditure calculation for each social services district shal be made by the commissioner of health, and approved by the director of the division of the budget, no later than June 30, 2006. Such calculations shal be based on actual expenditures made by or on behalf of social services districts, and revenues received by social services districts, during the base year and shal be made without regard to expendi- tures made, and revenues received, outside the base year that are related to services provided during, or prior to, the base year. Such base year calculations shal be based on the social se1-vices district medical assistance shares provisions in effect on January 1, 2005. (c) Commencing with the calendar year beginning January 1, 2006, calendar year social services district medical assistance expenditure amounts for each social services district shal be calculated by multiplying the results of the calculations performed pursuant to paragraph (b) of this section by a non-compounded trend factor, as folows: (i) 2006 (January 1, 2006 through December 31, 2006): 3.5%; (i) 2007 (January 1, 2007 through December 31, 2007): 6.75% (3.25% plus the prior year's 3.5%); Additions are indicated by underline; deletions by strik&out; vetoes by shading A1 315 Ch. 58, Pt. C, § 1 LAWS OF NEW YORK (ii) 2008 (January 1, 2008 through December 31, 2008): 9.75% (8% plus the prior year's 6.75%); (iv) 2009 (January 1, 2009 through December 81, 2009), and each succeeding calendar year: prior year's trend factor percentage plus 8%. (cl) The base year expenditure amounts calculated pursuant to paragraph (b) of this section and the calendar year social services district expenditure amounts calculated pursuant to paragTaph (c) of this section shal be converted into state fiscal year social services district expenditure cap amounts for each social services district such that each such state fiscal year amount is proportional to the portions of the two calendar yearn within each fiscal year, as folows: (i) fiscal year 2005-2006 (April 1, 2005 through March 81, 2006): 75% of the base year amount plus 25% of the 2006 calendar year amount; (i) fiscal year 2006-2007 (April 1, 2006 through March 81, 2007): 75% of the 2006 year calendar amount plus 25% of the 2007 calendar year amount; (ii) each succeeding fo;cal year: 75% of the first calendar year within that fiscal year's amount plus 25% of the second calendar year within that fiscal year's amount. (e) No later than April 1, 2007, the commissioner of health shal certify the 2006-2007 fiscal year social services district expenditure cap amounts for each social services district calculat- ed pursuant to subparagraph (i) of paragraph (cl) of this section and shal communicate such amounts to the commissioner of taxation and finance. (f) Subject to paragraph (g) of this section, the state fiscal year social services district expenditure cap amount calculated for each social services district pursuant to paragraph (cl) of this section shal be aloted to each district during that fiscal year and paid to the department in eqnal weekly amounts in a manner to be determined by the commissioner and communicated to such districts and shal represent each district's maximum respon:oibility for medical assistance expenditures governed by this section. Commencing January 1, 2008, al such amounts :,;hal be deposited into the general fund of the state treaRury to the credit of the state purposes account therein. (g) (i) No alotment pursuant to paragraph (f) of this section shal be applied against a social services district during the period April 1, 2005 through December 81, 2005. Social services district medical aRsistance shares shal be determined for such period pursuant to shares provisions in effect on January 1, 2005. (i) For the period January 1, 2006 through June 80, 2006, the commissioner is authorized to alot against each district an amount based on the commissioner's best estimate of the final base year expenditure calculation required by paragraph (b) of this section. Upon completion of such calculation, the commissioner shal, no later than December 31, 2006, reconcile such estimated alotments with the fiscal year social services district expenditure cap amounts calculated pursuant to subparagraphs (i) and (i) of paragraph (d) of this section. (ii) During each state fiscal year subject to the provisions of this section, the commissioner shal maintain an accounting, for each social services district, of the net amounts that would have been expended by, or on behalf of, ~mch district had the social services district medical assistance shares provisions in effect on January 1, 2005 been applied to such district. As soon as practicable after the conclusion of each such fiscal year, but in no event later than six months after the conclusion of each such fiscal year, the commissioner shal reconcile such net amounts with such fiscal year's social services district expenditure cap amount. Such reconciliation shal be based on actual expenditures made by or on behalf of social services districts, and revenues received by social services districts, during such fiscal year and shal be made without regard to expenditures made, and revenues received, outside ,;uch fiscal year that are related to services provided during, or prior to, such fiscal year. The commissioner shal pay to each social services district the amount, if any, by which such district's expenditure cap amount exceeds such net amount. § 2. (a) Commencing January 1, 2008, at the option of a social services rlistrict, such option to be exercised as described in paragraph (b) of this section, and notwithstanding any other provision of law, the department of health shal provide reimbursement for the ful amount of expenditures made by such district for medical assistance for needy persons, and the administration thereof, in accordance with the provisions of this section. 316 Additions are indicated by underline; deletions by ~; vetoes by A2 shading " ' I l 2005 REGULAR SESSION Ch. 58, Pt. C, § 6 (b) Notwithstanding any provisions of state or local law, ordinance or resolution to the contrary: (i) A social services district shal exercise the option described in this section through the adoption of a resolution by its local legislative body, in the form set forth in subparagraph (i) of this paragraph, to elect the medical assistance reimbursement methodology set forth in paragraph (a) of this section and to elect the tax intercept methodology set forth in subdivision (f) of section 1261 of the tax law or subdivision (g) of section 1261 and subdivision (h) of section 1313 of the tax law, as applicable. A social services district, acting through its local legislative body, is hereby authorized to adopt such a resolution. Such a resolution shal be effective only if it is adopted exactly as set forth in subparagraph (i) of this paragTaph no later than September 30, 2007, 'and a certified copy of such resolution is mailed to the commissioner of health by certified mail by such date. The commissioner of health shal, no later than October 31, 2007, certify to the commissioner of taxation and finance a list of those social services districts which have elected the option described in this section. A social services district shal have no authority to rescind the exercise of the option described in this section. (i) Form of resolution. Be it enacted by the (county or city) of (insert locality's name) as folows: § one. The (county or city) of (insert locality's name) hereby elects the medical assistance reimbursement option and revenue intercept for Medicaid purposes described in section 2 of chapter (fil in chapter number) of the laws of 2005. § 2. This resolution shal take effect immediately. § 3. The commissioner of health shal examine social services district expenditures during calendar year 2005 for the purpose of assuring that local administrative or other actions were not taken for the purpose of artificialy diminishing medical assistance expenditures during the base year established under paragraph (b) of section one of this act. The commissioner shal examine paterns of such expenditures that appear to be atypical when compared with historical expenditure paterns and trends ·within the district. If the commissioner deter- mines that such actions were taken, the commissioner is authorized to adjust the base year medical assistance calculation in the amount necessary to account for the impact of such actions. § 4. Notwithstanding the provisions of sections one and two of this act, the director of the division of the budget may, at his or her sole discretion, decrease a fiscal year social services district expenditure cap amount calculated pursuant to paragraph (d) of section one of this act or a tax revenue intercept amount calculated pursuant to subdivision (f) or (g) of section 1261 of the tax law to account for any increases in the New York state federal medical assistance percentage amount established pursuant to the federal social security act. § 5. Notwithstanding the provisions of any law to the contrary, the commissioner of health is authorized to approve social services district demonstration programs for the purposes of demonstrating innovative methods of improving the delivery of quality health care services in a cost efective manner. The commissioner should evaluate the results of any such programs, including any savings, resulting therefrom. Any such savings, after certifica- tion by the director of the division of the budget, shal be shared equaly with the applicable social services district in a manner to be determined jointly by the commissioner of health and the director of the division of the budget. § 6. Local district accountability in medical assistance administration. 1. The commis- sioner of health shal establish requirements and guidelines to help ensure that, in the context of the state's assumption of local Medicaid expenditure growth, local districts exercise due diligence with respect to their statutory and regulatory functions in the administration, supervision and operation of the medical assistance program in their locality. 2. Such requirements and guidelines shal include but not be limited to the obligation of local districts in conjunction with the commissioner of health to regularly monitor enrolment, utilization, provider service and expenditure paterns, including paterns suggestive of fraud and abuse. (a) If, pursuant to such monitoring, a local district detects a patern or paterns which the district believes may require investigation, including a patern or paterns of fraud and abuse, Additions are indicated by underline; deletions by smkewt; vetoes by shading A3 317 Ch. 58, Pt. C, § 6 LAWS OF NEW YORK the district shal promptly notify the commissioner of health and consult with such commis- sioner on the appropriate action, and shal refer suspected instances or paterns of fraud and abuse to the atorney general and other appropriate state authorities. (b) If, pursuant to such monitoring, the commissioner of health finds that a patern or paterns emerge which suggests that a local district may not be in compliance with the requirements or guidelines for clue diligence, including fraud and abuse, then such commis- sioner shal promptly notify such district of such finding. Upon such notice, the district shal examine such patern or paterns and report the results of such examination to such commissioner. 3. The commissioner of health shal review 'With the district the report of its examination and shal take such fmther steps as may be warranted and permited under this act, including but not limited to: (a) the provision of technical assistance to the district to assist the district in achieving compliance; (b) requiring a plan of action by the district to achieve compliance; and/or (c) imposing a penalty upon such district in accordance with subdivision four of this section. 4. If the commissioner of health finds that a district has either substantialy failed to demonstrate due diligence, including due diligence with respect to the identification and reporting of fraud and abuse, according to the prescribed requirements and guidelines or continues to fail to comply with 1mch requirements then such commissioner may impose such sanctions and penalties as are permited under the public health law and the social services law. 5. Any action under this section shal be an action that is otherwise authorized by a provision of the public health law, the social services law or this act. ~ 7. Section 1261 of the tax law is amended by adding two new subdivisions (f) and (g) to read as folows: (f) Notwithstanding any provision of state or local law, ordinance or resolution to the contrary, if the commissioner of health timely certifies to the commissioner that a county which imposes sales and compensating use taxes pursuant to the authority of section twelve hundred ten, twelve hundred ten-A, twelve hundred ten-B or twelve hundred ten-C of this article properly exercised its option by September thirtieth, two thousand seven, pursuant to section two of the chapter of the laws of two thousand five which added this subdivision, that such county be reimbursed for medical assistance expenditures as provided in such section two of such chapter, then the commissioner shal calculate the Medicaid amount of each such county. The amount due each month to each such county provided for in subdivision (c) of this section shal be reduced by the monthly Medicaid amount; and such monthly Medicaid amount of each such county shal instead be paid into the general fund of the state treasury to the credit of the state purposes account therein. The calculation of each such county's Medicaid amount and monthly Medicaid amounts and the procedures governing the payment of such amounts shal he as folows: (1) The commissioner of health shal furnish the commissioner with the amount of every county's "two thousand six-two thousand seven fiscal year social services district expenditure cap amount," as provided in paragraph (e) of section one of a chapter of the laws of two thousand five which added this subdivision; as soon as practicable but no later than April first, two thousand seven. (2) The commissioner shal calculate the "Medicaid factor" for every county as folows and shal notify each county's chief fiscal officer of the results of such calculation by April thirtieth, two thousand seven, to help each county determine whether to exercise such option: (A) for a county in which no city exercises any prior right to impose sales or compensating use taxes authorized by section twelve hundred ten of this article, first, divide the total amount of sales and compensating use tax distributions to such county during state fiscal year two thousand six-two thousand :;even by the county's general rate of such taxes during such period, and then divide the county's "two thousand six-two thousand seven fiscal year social services district expenditure cap amount" by the quotient of the first division; 318 Additions are indicated by underline; deletions by strik8911t; vetoes by A4 shading 2006 REGULAR SESSION Ch. 57, Pt. A) § 60 CHAPTER COl\TA/1\'8 VETOED PROVISIOl\'8 (1) are physicaly disabled, according to the focleral ,;upplemental securitv income progTarn criteria, including bnt not li1nited JcC!._ercent ;hare shal b(; ap:pQrtion~ to each__::listri~l_!!!__tlw _same ratio __ ~l_" the numbm· of 'ful-benefit dual eligible individuals,"_ as that term _is defined in sec:t0_l1 1935(c)(til of such act, for whom such district ha.'; fisc_:!I_ responsibilJ___r.ursuant to sectionJti5 of the social services lavv. relates to the total of such individuals for whom districts have fiscal responsibility._ As soon -a.s practicable afkr the conclusion of each such fi-;:cal yeaGbutin-11(, event lat!r than six months after the conclusion of each such fiscal veai" the commis:oione1· shal reconcile such net amounts with such fiscal .vear's social services district expenditure (':t]l amount. Such reconciliation sh:dl be based on aetmd Pxpenditrn·r~: m;idf! by or on behalf uf social services districts, anrl revenuef' received hy social services districts, during such fisc:Jl year and shal be made without regard to expcnclitun~s maclP, and revemH:'o' received, outsicfo such fiscal year that are related to servi('ei; prnvi.etion 36k-a of the social services law, or any other prov1s1on of law, the department of health shal provide reimbursement for expenditmes ~ade by .o~· on ~ehalf of socia~ se1yices district~ for medical .a~sistan~e f~r need? persons'. and h e ad1111mstrat1011 thereof, m accordancP ~1th the prov1s10ns of tJm; sect10n: prov1ded. ow~ver, that this section shal not apply to amount;.; expended for health care serYices urnler s~~~on 369-ee of the social sPrvices law, which amounts shal be reimbm·spd in acconlanc:e :1 1 paragraph (t) of subdivision 1 of s0ction 3fl8-a of such law and shal be PxcludPd from al ~~~lati01,1s. made pursuant to thi~ .section; and pro:ided f~rther that ~m?tmts _p~id to thi:' am c ho8p1tals pursuant to subcl1v1s1011 14 f of sect10n 2801 c of the pubhr health law and se ~.tints expended pursuant to: subdivision 12 of section 2808 of the public health law; e lons 211 and 212 of chapter 474 of the laws of 199G, as amended; and sections 11 through Additions are indicated by underline; deletions by stmeoot; vetoes by shading A5 137 Ch. 57, Pt. A, § 60 LAWS OF NEW YORK CHAPTER CONT.4/NS VETOED PROVISIONS 1 ! of part A and sections 13 and 14 of part B of chapter 1 of the laws of 2002, ,.;hal be excluded from al calenlations made pursuant to this section. § 61. Any payments made on and after January 1, 2006: (i) hy the department of health to a social services district for the purpose of providing such district with reimbursement for medical assi:itance district share overpayments caused by miscateg01·ization of pel'Sons described in suhdivision 5 of section 365 of the social senices law, or (i) by a social sen ices district to the depai1:ment of health for the purpose of pro\·iding the departnwnt with reimbursement for medical assistance district share underpayments caused by mi:;categoriza- tion of such persons, shal not be governed by the provisions of section 1 of Part C of chapter 58 of the laws of 2005; provided, however, that any portion of such payments that are made on u1· before .June l, 2006 and that are atributable to shares adjustments for expt>nditm·es made in calendar year 200!'i shal be included in the base year calculation required by sHbdivi,.;ion (b) of SLLCh section 1. :~ 1)2. Par;:tgrnph re-1) of "ubdivision 12 of section 2808 of the public health law, as added liy "edion :rn of pai·t C of chapter 58 of the laws uf ~005, is am< . nded to rc•acl as fol<)WS: (P-1) Nut\1ith:;tanding any inconsistent provision of law or regulation, the commio,sioner shril provide, in addition to payments established pursuant to this article prior to application nf this c:el'tion, additional payments Lrnder the medical as:;istance program pnrnuant to title elewn of article five of the social services law for non-,;tate operated public t'<•sidential lwalth (':u·e faeilitit . 1', including public i·esidential hPalth care facilities located in the C'ion, provided, however, that patient days shal be utilized for such computation reflecting actual reported data for two thousand thl'ee and each representa- tive ,;ucceeding year as applicable. '.~ 6:i. Intentionaly omited. ~ 64. Intentionaly omited. § 65. Section 364-j of the social services law is amended by adding a new subdivision 23 to read as folows: 2:3. (a) As a means of protecting the health, safetv and welfare of recipients, in addition to any other sanctions that may be imposed, the commissioner shal appoint temporary manage- ment of a managed care provider upon determining that the managed care provider has repeatedly failed to meet the substantive requirements of sections 1903(m) and 19:32 of the federal Social Security Act and regulations. A hearing shal not be required prior to the appointment of temporary management. (bJ The commissioner and/or his or her designees, which may be individuals within the ~~Lrtment or other individuals or entities with appropriate knowledge and ex~rien~e, may \_l_~puinted as tempot'ar,v management. The commissioner may appoint the supt~ri_i::itendent Cl[ insurance and/or his or her designees as temporary management of any managed care provider which is subjeet to rehabilitation pursuant to article seventy-four of the insurance law. (c) The responsibilities of temporary management shal include oversight of the 111anaged eare _fl!:QVicler for the purpose of removing the eauses and conditions which led to the determination i·equiring temporary management, the imposition of improvements to n~~nedy \'iolations and, where necessary, the orderly reorganization, termination or liguiclat~licJ rctroJctively. and no \,.:,kJ 1 igl1ts analysis must he unJertaken. Upon cum.:luJing that Section 61 is in actuality <.1 clarifying amendment. the Coun 111L1:>t apply a rational basis test in analyzing the legislation for constitutionality. Ncbbia v. New York, 291 U.S. 502, 525 (1934). Under this standard petitioner bears the heavy burden of negating "every conceivable basis which might support [the law] whether or not the basis has a foundation in the record." Affronti v. Crosson, 95 N.Y.2d 713, 719 (2001). As demonstrated, supra, the Legislature had a sound and rational basis for enacting Section 61. In sum, the basis was to clarify ambiguity in the Cap Statute which has resulted in adverse decisions misinterpreting the Cap as permiting reimbursement of tens of milions of dolars in overburden claims that were meant to be waled off by the Cap. LoCicero Aff. Ex. F, LoCicero Aff. ilil 52-58. Section 61 provides the State with critical economic certainty in its administration of the Medicaid program, promoting the State's important interest in closing its books on undisclosed old liabilities, some dating as far back as thirty (30) years. Id. il 63. Without question the Legislature had a rational basis for passing Section 61. Section 61 is not an impermissibly retroactive law but rather a clarifying amendment to the Medicaid Cap statute, which may be applied retroactively. In light of its clear clarificatory nature of the law it is wholy constitutional as rationaly related to many important State interests. In light thereof, respondents are entitled to summary dismissal of petitioner's declaratory judgment claims seeking to invalidate Section 61 as unconstitutional. C. Even if Viewed as a Retroactive Infringement of Vested Rights, Section 61 is Constitutional Under the Balancing Test Applied by the Court of Appeals Alternatively, even if this Court disregards the clarifying nature of Section 61 and Printed [Reproduced] on Recycled Paper 28 A15 \ 1 • considers it to be a retroactive amendment. the k~isl:itinn must he deemed constitutional unckr \'el troJJcu Cvu1 l vf ,\ppcals precedent. As al i1.iciul 1.u.1:,iJ-.:ration. while petitioner\ i1.IJ:, d, .. Lt:rm 'rt:Lroactive' as if iL \vt:rt: a Jirly won.I. a11J claims inarguable enlitlemt:nl unJer Lile vesteJ rights Juctrinc, such is simply nut tli-.: 1.LllCll :.,[~1k of the law. To the ausvlul.: cu11t1·~1r;.' the Court of Appeals has recognized "that the vested rights patently unfair to the State and it~ ta.~payers. In petitioner's world the counties enjoy al of the benefits of the Cap set forth above, while also being free to submit unknown amounts of antiquated overburden claims. 11. "Reliance on Pre-Existing Law" Analysis of this aspect of the balancing test is straight forward. This prong looks at the parties' reliance on the law as it existed prior to the amendatory, retroactive codification. Hodes, supra at 371. As in Hodes, any claim by petitioner that it relied upon the pre-existing law to its detriment must be discounted by the fact that its reliance was based upon a misinterpretation of the law, under which it enjoyed a windfal. Id. As set forth in detail both supra and in the LoCicero Affidavit, the Cap Statute's intent was to wal off post-Cap reimbursement for pre-Cap overburden claims. LoCicero Aff. Ex. F. The fact that this was not accomplished due to either ambiguity of the statute itself or misinterpretation of the appropriate statutory language by the reviewing courts has resulted in petitioner's receipt of a windfal --enjoying more than $31 milion in benefits from the Cap, plus credit of almost $3.4 milion for overburden reimbursement in its 2005 base year, while simultaneously receiving nearly $2 milion in pre- Cap overburden reimbursements. LoCicero Aff. ~~ 31-45. Such receipt of a windfal based upon the unintended interpretation of the law does not move the balancing test in petitioner's favor. See Hodes supra at 371 ("Any reliance by petitioners on the judgment thus would have been the product of a legislatively unintended windfal which was, immediately upon Printed [Reproduced] on Recycled Paper 31 A18 115 1dcnt1t1cntion. eliminated"). 111. "Extent ofRetroadivil):" Thi~ ek1m:ll of Lhe HoJes balancing. Le:.l i~ ubu ~traiglll lurnard. The relroaclivity of Section 6 l is undercut U) th.: facts th:it: (1) Petitioner li<.1:, Liccl un nuticc ,)f the respondent.'>' interprl.'.tatiun of the Cap Statute as prohibiting o>crburden reimbursements since appro.\.imately 2009, when DOH first rejected its claims and asserted the Cap as a defense; (2) Petitioner could have and should have submited its claims for reimbursement long ago using the reports and data that DOH made available to petitioner and other districts regarding overburden reimbursement (LoCicero Aff. , 22-24, 58-59), (3) Any retroactive effect of Section 61 is meant to cut off petitioner's windfal, and; ( 4) Section 61 provided ample notice to the petitioner to submit its pre- Cap overburden claims by April 2012 or forfeit reimbursement. See Section 61; LoCicero Aff. , 55. Consequently, before the effective date of Section 61 petitioner submited and was reimbursed for nearly $1 milion in claims. Id. , 55. Thus, petitioner's assertion of the crippling affect of the retroactivity of Section 61 is grossly over-stated. Petitioner has been on notice of the respondents' interpretation of the Cap Statute for years and had the means to seek reimbursement of its claims for potentialy decades, but chose not to do so in a timely manner. Al of these factors mitigate against a finding of extreme retroactivity and tip the balance further in respondents' favor. iv. "Public Interest to be Served by the Law" On balance the public interest to be served by Section 61 tips decidedly in favor of respondents and the State taxpayer. As set forth above the county social service districts enjoy a myriad of benefits under the Cap Statute. LoCicero Aff. , 31-45. Petitioner's construction of the Cap Statute results in an enormous windfal for the counties to the detriment of the State's Printed [Reproduced] on Recycled Paper A19 32 orderly administration othe Medicaid program. _w. Should S1.:diul GI L>c stricken as unconstitutiu11.il: rd1 u.idi v-:. or under any other uf i-Jc:Liliu11er's 111a11y claims. the resulting aflt:cL cuulJ be d.:vasl;.Hing to li.: Sldt:'.> aJ111i11i:ilraliun uf tl1.: ,\kJi-.1id µtu:,;r;:rn . .'.1S a whole. LoCic.:ru ,\ff.~;~ G3 .(.). OOH estimates ib µuk11li.d li.1bilit) to .'.1l social services districts for past overburden reimburscrncnts cuulJ c.,ceed $180 milion. Id. i)63. Payment of this staggering figure to the county social service districts could implicate the global MeJicaither Consicleratit~ns to the Hodes Kalancin<:>: lest Coun ut A.ppcab in HuJes there are other consiJcrntiu11s. al ka:,L \ onh nule here. l11itiaily. Statute is :>iknt \ ith respect to perhaps the most salient aspect of those prior decisions. \'lile petitioner uses the Third and Fourth Department decisions to decry the validity of Section 61. in reality those courts both actualy contemplated the viability of Section 61, going so far as to issue a legislative roadmap for the implementation of the law, in dicta. See County of Niagara v. Daines, 91AD3d1288 (4 1 h Dept. 2012). In reviewing and ultimately denying the legitimacy of the 2010 Amendment, the Fourth Department clearly contemplated the possibility that reimbursement of overburden claims could ultimately be stopped by legislation. To this end, the Fourth Department stated that: Thus, that duty [to reimburse social service districts for overburden expenditures] continues unless it was extinguished by the 2010 Amendment. . The plain language of the 2010 Amendment does not address overburden expenditures or respondents' duty to pay them .. Consequently, inasmuch as the plain language of the 2010 Amendment does not mention overburden expenditures or respondents preexisting duty to reimburse petitioner for such expenses incurred prior to 2006, that duty is not extinguished by the amendment .. There is nothing in the legislative history indicating that the Legislature acted in response to the prior judicial decisions concerning the Medicaid Cap Statute". Id. (emphasis added) Folowing suit, the Third Department utilized similar language in its rejection of the 2010 Amendment, finding that the 2010 Amendment's "legislative history -make[s] no reference to the state's obligation to reimburse counties for overburden expenditures .. or the court decisions declaring that this obligation was not altered or affected by the Medicaid Cap Statute". County of St. Lawrence v. Shah, 95 AD3d at 1551. Printed [Reproduced] on Recycled Paper A21 34 .\ppclbtc Courts' L11 .. li1.I-,!1.il l.:gislation extinguishing th.: .<:;,_.,,';:, 111.r.:.:i\ cd rcspnnsihility tu 1 t:imuursc uverburJen elaims unJt:r the Cap Statute is possible. alllwu~ii 11uL prupcd: atai11t:d thruugl1 t:1.: :.OIO .\11\l.:1:dmcnt. In essence. tli.:s.: cuurt:; Lcld th:1t \hik the 2UIU r\1111.t1clt11.:11t was not itself properly construckJ, kgislation that achieves its statcJ gu'11 could be viable if crafted properly. Then the courts go on to detail some of the components that would be necessary to achieve proper statutory construction, i.e. a roadmap of sorts. This time, with respect to Section 61, the Legislature applied the teachings of the Appelate Courts, folowed the roadmap, and codified Section 61. Specificaly, Section 61 by its plain language addresses overburden expenditu~es and the State's obligation to pay them, as discussed by both the Third and Fourth Departments. See Section 61. The Section states, with pertinent part to this discussion emphasized: Notwithstanding the prov1s1ons of section 368-a of the social services law or any other contrary provision of law, no reimbursement shal be made for social services districts' claims submited on and after the effective date of this paragraph, for district expenditures incurred prior to January l, 2006, including, but not limited to, expenditures for services provided to individuals who were eligible for medical assistance pursuant to section three hundred sixty-six of the social services law as a result of a mental disability, formerly referred to as human services overburden aid to counties. Id. Similarly, the legislative history of Section 61 clearly indicates that the Legislature "acted in response to the prior judicial decisions concerning the Medicaid Cap Statute", as noted by both appelate courts. Supra Niagara County 91 AD3d 1288 and St. Lawrence County 95 AD3d at 1551. Section 61 .. is necessary to address adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods. which conflict with the original intent of the local cap Printed [Reproduced] on Recycled Paper A22 3 5 ~ti_tute. See Lolicero .\f. Ex F . Memorandum in Suppl)rt. .2Ul.2· 13 New York State Executive Budget. Health and Mental Hygiene , \ni.:lc Vil Lcgisktion. at iJ· l S (1.1111Jltasi:; added). LegislaL1ve h1~tu1y Lhus cu11JiLiu11s the legislatiun's aJherem:e Lu Lile guidance µruv idt:d b) LilL" ,\ppclbtc Divisions. In its mcmurandum of law petitioner relies hcav ily on the Court of Appeals dccisiun in Ali:mce Insurers (77 NY ~d 573 ( 1991)) to purportedly establish the impermissible rctroactivity of Section 61. Pet's MOL at 15-18. However, the facts in Aliance Insurers are readily distinguishable from those presented here. In Aliance the Court looked at various amendments of State Insurance Law which affected funds set aside in the statutorily created Property and Liability Insurance Security Fund (the "Fund"). Id. at 573. In essence, the amendments took income from the Fund and diverted income producing assets away from the Fund. Id. at 584. Prior to the amendments in question, the earnings of the Fund were payable to plaintiff insurance companies. Id. There are three primary distinctions between Aliance Insurance and the instant mater which render the decision inapposite here. First, and foremost, in Aliance Insurance, the State was unable to articulate a justification for the amendments in question and as such could not show a public interest in its actions. Id. at 588-589. Here, however, respondents have set forth a comprehensive list of justifications and public policy concerns that support the clarifying steps of Section 61. See supra Point II(C)(iv). Second, a major sticking point for the court in Aliance Insurance was the fact that the plaintiff insurance companies would be forced to make further contributions to the Fund upon its depletion due to the amendments. Id. at 589. Such is simply not the case here, where the petitioner's 2005 base year already reflects a $3.4 milion reduction for overburden expenditures. Printed [Reproduced] on Recycled Paper A23 36 Lol'1cero At. ~;~: 33 ._q. Finaly. the k:gi.:>l<.!liu11 .i j;,.;u..: in .\liancc Insuranc..: Ji:.lu1 lJ1.cl ,l Ji;,linc:t :md definable pul uf 111unt:y readil_y available \vili11 th.: Fuml. :.u that plaintiffs claim:. lu th.: 111011..:1 11..:r..: easily iJ..:11Lili.1uk a.; b,bc:d c)n an income analy:.i:. .i11J 11uLtld result in no windtal tu Lli..:111. 1:1. .lt 587-588. As set forth throughout this rn..:morandum and the Affidavit of Rukrt LoCicero, al of these factors differ here. See generaly LoCicero Aff. Even if the Court holds Section 61 to be a retroactive enactment, application of the Hodes balancing test factors demonstrates that Section 61 is a constitutionaly permissible retroactive enactment. As such, respondents are entitled to summary judgment on petitioner's declaratory judgment claims. D. Section 61 Does Not Violate Petitioner's Due Process Rights As an alternative to its retroactivity argument, petitioner also claims that Section 61 violates its due process rights to notice and a hearing. Pet's MOL at 18-19. Petitioner's argument on this score is somewhat ambiguous by its own terms. At once it seems to argue that it was entitled to notice and a hearing before the Legislature "enacted" Section 61, while also asserting a due process right before the agency applied the legislation against it. Id. Under either argument the due process chalenge necessarily fails. Initialy, as set forth above, Section 61 is, by its own terms and its clear legislative history, a clarifying amendment to the Cap Statute. See supra Point II(B); see also Section 61; LoCicero Aff Ex. F. Pursuant to U.S. Supreme Court precedent, a retroactive statute that is clarifying in nature satisfies constitutional due process concerns "simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose". U.S. v. Carlton, 512 U.S. 26, 30-31 (1994), quoting Pension Benefit Guaranty Corp. v. RA. Gray and Printed [Reproduced] on Recycled Paper A24 37 Co . -~67 U.S. 717. 733 ( i l)8.f). As such. cl:lritying st~tutes "are less lkdy w t:il \ i~11111 tn <111,• pro.:c:.:. 1.l1.ilk11:,1..:i" . \s :;ct forth in dct~iil ,Lv•1. (."•tJid Point l(B) ~t pg. 28-2(>). :;"'"';, . (,1 easily smislies the raLiu111.d bu:i:i Lest. as Lile Leg.isiaLure iaJ allple basis Lo clarit.\ ambiguiL\ 111 the Cap St~tute. incluJing. i11t-.:1 .ili,1, tl1c tcib lf milions of dolar:, in i11prvpc1 , '. -:1h1rdc11 reimbursements alrc.iJ) paid and the $180 milion in claims potentialy outstanding. Petitioner's due process claim fails for another reason, as wel. Petitioner c !aims that it was not provided with a reasonable opportunity to submit its claims prior to enforcement of Section 61. Pet's MOL at 19. As the record evidence demonstrates, this contention is plainly false for two reasons. First, petitioner submited and was reimbursed for nearly $1 milion in overburden reimbursements between the time Section 61 was introduced and became effective. LoCicero Af. ~55, FN 23. Second, far from lacking notice _and opportunity, petitioner has actualy had since the 1990s, at least, a ful opportunity to submit its antiquated overburden reimbursement claims. Locicero Af. ~~ 59-60. Petitioner was provided with ample information regarding overburden claims by DOH in the 1990s and 2000s. Id. ~~ 21-24. It could have reviewed this data upon receipt, determined if it inadvertently omited any recipients and submited its claims. Id. ~ 60. Inexplicably, petitioner chose not to do so and now wishes to foist its own unreasonable delay on DOH and claim a lack of notice and opportunity. If anything the doctrine of !aches should apply to bar these antiquated claims as a mater of equity in light of petitioner's own inaction and the consequent prejudice to the State. Mater of Jakubowicz v. A.C. Green Electrical Contr . Inc., 25 AD3d 146, 151 (1st Dept 2005) (Laches appropriate where party "inexcusably slept on its rights"). Printed [Reproduced] on Recycled Paper A25 38 WHITEMAN OSTERMAN 0 HANNALLP One Commerce Plaza Albany, New York 12260 518.487.7600 phone 518.487.7777 fax Atorneys at Law www.woli.com Via Hand Delivery Hon. John P. Asielo Deputy Clerk of the Court Court of Appeals 20 Eagle Street Albany, New York 12207-1095 May 8, 2015 Chrislopher E. Buckey Parlner .Sll.487.7795 phone cbucl!ey@wo/1.com Re: Mater of County of Chautauqua v. Nirav R. Shah, M.D., M.P.H. et al. Court of Appeals Mot No. 2015-492 Appelate Division Fourth Department Case No.: CA 14-00923 Chautauqua County Index No.: CV-2013-1266 Dear Mr. Asielo: Our firm represents Petitioner-Plaintiff-Appelant County of Chautauqua (the "Appelant") in the above-referenced appeal. I am in receipt of your leter, dated May 1, 2015, inquiring whether a substantial constitutional question is directly involved in the Appelate Division order from which Appelant has appealed as of right. A direct appeal under CPLR 5601(b)(l) lies here. As Karger notes, a constitutional question is directly involved when it is "decisive of the Appelate Division determination, in the sense that such determination could not be independently supported on some other ground of a nonconstitutional nature if that court's decision of the constitutional question was erroneous" (Karger, Powers of the New York Court of Appeals§ 7:8, at 230 [3d ed 2005]). In this case, the Appelate Division squarely held that Appelant, as a subdivision of the State, is not a "person" under the Due Process Clause (Article I, § 6) of the New York Constitution and, thus, cannot assert, in its proprietary capacity, a claim chalenging the constitutionality of state legislation that retroactively deprives it of vested rights (see Mater of County of Chautauqua v Shah, 126 AD3d 1317, 2015 NY Slip Op 02245, *3 [4th Dept Mar. 20, 2015]). That is the sole basis of the Appelate Division's dismissal of Appelant's claims chalenging the constitutionality of Section 61 of part D of chapter 56 of the Laws of 2012 ("Section 61") and Respondents' failure to comply with their mandatory statutory reimbursement duty pursuant to Social Services Law § 368-a(l)(h)(i) (see id.). The Appelate Division's dismissal of the verified petition and complaint was not based on any nonconstitutional ground, and cannot be supported in the absence of A26 the Court's Hon. John P. Asielo May 8, 2015 Page -2- constitutional holding. Therefore, the constitutional question presented on this appeal is directly involved. Moreover, this appeal easily satisfies the threshold issue of the substantiality of the constitutional question. The standard of substantiality cannot, of course, be defined with mechanical precision. Whether a particular constitutional issue is sufficiently substantial to warrant an appeal as_ of right is, generaly speaking, rather a mater of judgment, to be determined on the facts of the individual case. The test, in the words of the United States Supreme Court, is whether the contention raised is "so clearly not debatable and uterly lacking iri merit as to require a dismissal for want of substance" (Karger, supra, § 7:5, at 226, quoting Hamilton v Regents of Univ. of Calif., 293 US 245, 258 [1934]). Here, the constitutional question whether a municipality may assert, in its proprietary capacity, a claim chalenging the constitutionality of state legislation that retroactively deprives it of vested rights under the Due Process Clause of the New York Constitution has merit. Indeed, a finding that municipalities may in fact chalenge state legislation on due process grounds is compeled by this Court's decision in City of New York v State of New York (86 NY2d 286 [1995]). In City of New York, notably faced with a municipality asserting a claim as a "person" under the Equal Protection Clause of the New York State Constitution, this Court set forth the general rule in New York that "municipalities and other local governmental corporate entities and their officers lack capacity to mount constitutional chalenges to acts of the State and State legislation" (id. at 289 [emphasis added]). This Court also acknowledged, however, that four limited exceptions exist to the general rule, including where, as here, the State legislation adversely affects a municipality's proprietary interest in a specific fund of moneys (id. at 291- 292). Although the City of New York was unable to satisfy any of the exceptions to the general incapacity rule, this Court made it quite clear in City of New York that New York treats assertions that a municipality cannot chalenge the legislative acts of its creating state solely as a mater of capacity and has departed from the strict federal rule on which the Fourth Department's decision is based (see id. at 289-292). If, as here, one of the four articulated exceptions to the general municipal incapacity rule applies, a New York municipality has capacity to chalenge state legislation on constitutional grounds, including under the Due Process Clause. The Appelate Division's resolution of this critical constitutional question to the contrary vitiates the exception to the general municipal incapacity rule for a municipality chalenging State legislation that adversely afects its proprietary interest in a specific fund of moneys, and thus is substantial. Indeed, this case presents the Court with a unique opportunity to reaffirm its treatment of municipal constitutional rights vis-a-vis the State in City of New York A27 to provide express guidance for al municipalities going forward. Hon. John P. Asielo May 8, 2015 Page -3- Finaly, although it cannot be disputed that Respondents did not preserve their contention that Appelant is not a "person" under the Due Process Clause of the New York Constitution before the trial court, but only raised it for the first time before the Appelate Division, it is clear that the issue whether Appelant, as a subdivision of the State, may assert a constitutional chalenge to State legislation on due process grounds was raised before the trial court by Appelant's assertion of such claims chalenging the constitutionality of Section 61. In other words, in order to declare Section 61 unconstitutional, Supreme Court, Chautauqua County was required first to determine, albeit implicitly, that Appelant could assert vested rights under the Due Proces's Clause. Accordingly, notwithstanding Respondents' failure to preserve their legal argument, the substantial constitutional question directly involved in the Appelate Division order appealed from was raised before the trial court. Accordingly, Appelant respectfuly requests that this Court retain subject mater jurisdiction over its appeal from the Appelate Division order. Thank you for your consideration. Respectfuly submited, Christopher E. Buckey cc: Victor Paladino, A28 Esq. Nancy Rose Stormer, Esq. To be argued by EDWARD L. RYAN Q.tnurt nf i\pprula STATE OF NEW YORK ---0--- BLACK RIVER REGULATING DISTRICT and WILLIAM R. ADAMS, HENRY E. SMITH and ALFRED H. STILES, JR., individualy and as the Board of Black River Regulating District, Plain.ti f s-Respondents, against ADIRONDACK LEAGUE CLUB, Defendant-Appelant. ---o--- BRIEF [ON BEHALF'] OF THE ATTORNEY GENERAL PURSUANT' TO SECTION 71 OF' THE EXECUTIVE LAW IN SUPPORT OF THE CONSTITUTIONALITY OF CHAPTER 803 OF THE LAWS OF 1950. Statement This appeal is taken by permission of the Ap- pelate Division, Fourth Judicial Department, on seven certified questions of law ( fols. 256-263) from an order of that Court (fols. 244-248) and the judgment entered thereon ( fols. 250-255) which unanimously reversed an order made at a Special Term (Bastow, J). of the Supreme Court (fols. 196-207) and the judgment entered A29 thereon 3 the Supreme Court, Oneida County. It was grant- ed on the motion of the plaintiffs and under the provisions of section 71 of the Executive Law which requires the Atorney Genera.! to support the constitutionality of a statute in any litigation atacking it. Pursuant to the order, the Atorney General a ppearetl and argued at Special Term and in the Appelate Division. He has been served with the Notice of Appeal (fols. 235-243) to this Court. The Pleadings So far as pertinent to the Atorney General's position in relation to the issue of constitutionali- ty, the complaint (par. 21) aleges: "21. That plaintiffs assert that such amendment is not effective to prevent the completion of Panther Mountain R·eservoir, and that such amendment would be and is un- constitutional and void under the Constitu- tions of the United States and of the State of New York, if construed as preventing the completion of Panther Mountain Reservoir.' ( fols. 23, 24). To meet criticism at Special Term of the con- clusory character of this alegation, the plaintiffs submited to that Court and to counsel in memo- randum form (fols. 124-134) a list of particular instances in which they claimed the Stokes Act violates the Constitutions of the United States and of the State of New York. They may be sum- marized as urging: 1. The Act violates Article I, section 10, of the Federal Constitution in that it impairs contractual obligations and A30 rights. 4 2. The .Act violates the 14th .Amendment to the Constitution of the United States and .Article I, section 6, of the Constitution of the State of New York in that it impairs prop- erty rights and obligations without due pro- cess of law. 3. The .Act is not a general law and therefore offends .Article XIV, section 2, and .Article IX, section 1 (b) of the Constitution of the State of New York, pertaining respectively to the power of the Legislature to provide by general laws for the use of forest pre- serve lands for reservoir purposes, and to the restrictions against the enactment of special or local laws in respect to counties . .A further alegation is~ to be found in para- graph (g) of the "supplement to complaint" (fols. 83, 84) to the effect that the· Stokes .Act is unconstitutional as impairing the obligation of contract arising from the issuance of outstand- ing, due and unpaid certificates of indebtedness. The defendant denies the alegations (fols. 91- 93). The defendant's answer, as a third afirma- tive defense, ·aleges the lack of power, authority or standing of the· plaintiffs to question the con- stitutionality of the Stokes .Act (fols. 41, 42). Proceedings Below .At the time he granted the order hringing in the .Atorney General, Mr. Justice Bastow had before him a motion ( fols. 46-51) brought by the defendant for an order, pursuant to Rule 112 of the Rules of Civil Practice, for judgment on the pleadings or, in the alternative, an order, pur- suant to Rule 113, dismissing the complaint and for summary judgment. One of the grounds stated in the Notice of Motion is that A31 the plain-