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, Appellants. (And two other related proceedings) (Captions of connected cases continued on following pages) REPLY 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 Appellants The Capitol Albany, New York 12224 (518) 776-2012 (518) 915-7724 (facsimile) Dated: October 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, Appellants. APL-2015-00088 Chemung Co. Index No. 2013-1849 In the Matter of the Application of COUNTY OF CHAUTAUQUA, Appellant, -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, Appellant, -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 Jefferson Co. Index No. CV-2013-1956 Captions of connected appeals (continued): In the Matter of the Application of COUNTY OF ONEIDA, Appellant, -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, Appellant, -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, Appellant, -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, Appellant, -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 ...................................................................... ii PRELIMINARY STATEMENT ................................................................. 1 ARGUMENT ........................................................................................... 3 POINT I The 2012 Amendment Extinguished The State’s Obligation To Pay Pre-2006 Overburden Reimbursement To Counties ................................................ 3 POINT II The 2012 Amendment Is Constitutional .............................. 8 A. The Counties’ Due Process Claim Fails On The Merits Because The Counties Are Not “Persons” For Due Process Purposes. .................................................................. 8 1. Political subdivisions are not “persons” having due process vested rights against state legislation under New York’s Due Process Clause. ......................... 8 2. The Counties’ substantive due process claim fails for lack of merit, not for lack of capacity. .................... 19 3. The Court should decide the question whether the counties have due process rights. .......................... 22 B. The 2012 Amendment Is Constitutional Under A Due Process Vested Rights Analysis. ........................................ 23 POINT III The Counties’ Causes Of Action Sounding In Conversion And Unjust Enrichment, And Its Request For A Constructive Trust, Were Properly Dismissed ....... 33 CONCLUSION ........................................................................................ 36 ii TABLE OF AUTHORITIES Cases Page Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475 (1954), appeal dismissed, 351 U.S. 922 (1956) ................................................................ passim Bd. of Coop. Ed. Servs. for Sole Supervisory Dist. of Rockland Co. v. State of New York, 171 Misc. 2d 585 (Sup. Ct. Alb. Co. 1996), aff’d, 236 A.D.2d 84 (3d Dep’t), appeal dismissed, 91 N.Y.2d 921 (1997), lv. denied, 92 N.Y.2d802 (1998) ................. 20 Bd. of Ed., Levittown Union Free School District v. Nyquist, 57 N.Y.2d 27 (1982) ........................................................................ 15 Cayuga-Onondaga Counties Bd. of Coop. Educ. Servs. v. Sweeny, 89 N.Y.2d 395 (1996) .................................................................... 14n City of New York v. State of New York, 86 N.Y.2d 286 (1995) ................................................................. 20,21 Community Board 7 of the Borough of Manhattan v. Schaffer, 84 N.Y.2d 148 (1994) ........................................................................ 9 County of Chautauqua, Matter of v. Shah, 126 A.D.3d 1317 (4th Dep’t 2015), appeal and motion for lv. pending ................................................................................. 22 County of Niagara, Matter of v. Shah, 122 A.D.3d 1240 (4th Dep’t 2014) .................................................... 6 iii Table of Authorities (cont’d) Cases (cont’d) Page County of Orange v. Public Service Commission, 39 A.D.2d 311 (2d Dep’t), aff’d, 31 N.Y.2D 843 (1972) ................................................................ 17-18 County of Rensselaer v. Regan, 80 N.Y.2d 988 (1992) ...................................................................... 16 Empire State Chapter of Associated Builders and Contractors v. Smith, 98 A.D.3d 335 (4th Dep’t 2012), modified, 21 N.Y.3d 309 (2013) ................................................................. 15-16 Esposito v. State of New York, 35 Misc. 3d 1216(A) (Ct. Cl. 2011), aff’d, 112 A.D.3d 1006 (3d Dep’t 2013) ................................................... 35 Ford Motor Credit Co. v. State of New York, 219 A.D.2d 202 (3d Dep’t), lv. denied, 88 N.Y.2d 813 (1996) ...................................................................... 35 Giglio v. Dunn, 732 F.2d 1133 (2d Cir. 1984) .......................................................... 32 Graziano, Matter of v. County of Albany, 3 N.Y.3d 475 (2004) ........................................................................ 10 iv Table of Authorities (cont’d) Cases (cont’d) Page Gulotta v. State of New York, 228 A.D.2d 555 (2d Dep’t), appeal dismissed, 88 N.Y.2d 1053 (1996), lv. denied, 89 N.Y.2d 911 (1997) .............. 20 Jeter, Matter of v. Ellenville Central School District, 41 N.Y.2 283 (1977) ................................................................ passim Kenai Peninsula Borough v. Department of Community & Regional Affairs, 751 P.2d 14 (Alaska 1988) .............................................................. 19 Krauskopf, Matter of v. Perales, 139 A.D.2d 147 (3d Dep’t 1988), aff’d, 74 N.Y.2d 730 (1989) ...................................................................... 21 Monreal v. State of New York, 38 A.D.3d 1118 (3d Dep’t 2007) ..................................................... 34 Morell v. Balasubramanian, 70 N.Y.2d 297 (1987) ...................................................................... 34 Parsa v. State of New York, 64 N.Y.2d 143 (1984) ...................................................................... 35 People v. Correa, 15 N.Y.3d 213 (2010) ...................................................................... 34 People v. Ingersoll, 58 N.Y. 1 (1874) .............................................................................. 14 People ex rel. Rogers v. Coler, 166 N.Y. 1 (1901) ....................................................................... 13,14 v Table of Authorities (cont’d) Cases (cont’d) Page Robert R. Gibbs, Inc. v. State of New York, 70 A.D.2d 750 (1979) ...................................................................... 35 Schoenfeld v. State of New York, 25 N.Y.3d 22 (2015) .......................................................................... 4 Shirk v. Lancaster City, 313 Pa. 158, 169 A. 557 (Pa. 1933) ................................................ 11 South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500 (6th Cir. 1986) .......................................................... 12 Town of Middletown, Matter of v. State Bd. of Real Property Services, 272 A.D.2d 657 (3d Dep’t 2000) ..................................................... 17 Town of Oyster Bay v. Kirkland, 81 A.D.3d 812 (2d Dep’t 2011), aff’d, 19 N.Y.3d 1035 (2012) .................................................................... 17 Town of Wallkill, Matter of v. N.Y.S. Bd. of Real Property Services, 274 A.D.2d 856 (3d Dep’t 2000) ..................................................... 17 230 Park Ave. Assoc. v. State of New York, 165 Misc. 2d 920 (Ct. Cl. 1995) ...................................................... 35 New York Constitution Article V, § 1 ................................................................................... 16 Article IX ........................................................................................ 11 Article VI, § 9.................................................................................. 34 vi Table of Authorities (cont’d) State Statutes Page C.P.L.R. article 78 .................................................................................... 31,35 Court of Claims Act § 8 ............................................................................................... 34 Real Property Tax Law article 9 ........................................................................................... 12 State Administrative Procedure Act, § 102(6) ........................................................................................... 18 §§ 301-307 ....................................................................................... 18 Tax Law article 29 ......................................................................................... 12 L. 2005, ch. 58, Part C, § 1(b) ............................................................................................... 31 § 2(a) ............................................................................................... 31 § 2(b) ............................................................................................... 31 L. 2012, ch. 56 Part D, § 61 ....................................................................................... 6 Social Services Law § 368-a ....................................................................................... 25,26 § 368-a(1)(h) ................................................................................... 3,4 United States Constitution Fourteenth Amendment .......................................................................... 11 Miscellaneous Understanding the New York State/County Paradigm: The 2005 New York State Medicaid Cap Legislation .................... 25 PRELIMINARY STATEMENT The New York State Department of Health and its Commissioner submit this combined responding/reply brief (1) in support of affirmance of the Fourth Department’s orders upholding the constitutionality of the 2012 amendment to the Medicaid Cap Statute, and (2) in further support of their appeal from the Third Department’s orders that erroneously interpreted the 2012 amendment. The facts, procedural history, and our primary arguments are set forth in the Department’s opening brief addressing the four appeals involving St. Lawrence and Chemung counties, and they apply equally to the six Fourth Department appeals involving Chautauqua, Jefferson, Oneida, Genesee, Cayuga, and Monroe counties. This reply brief responds to certain arguments in the Counties’ opening brief (“Br.”). First, the Counties’ defense of the Third Department’s ruling wrongly presumes that the amendment would be unconstitutional absent a saving construction. The amendment is constitutional, so no saving construction is necessary. And like the Third Department’s ruling, the Counties’ interpretation of the 2012 amendment is at odds with its plain language extinguishing the State’s obligation to pay 2 pre-2006 overburden reimbursement and with the amendment’s legislative history. The Counties’ argument relies on a grace period that the Third Department fashioned out of whole cloth for the submission of claims by the Counties and then promptly deprived of all meaning by ordering the State to pay the Counties without the submission of any claims. Second, the 2012 amendment, properly construed as terminating the State’s obligation to reimburse the Counties for their pre-2006 overburden, does not violate the Counties’ due process rights. The Counties, as political subdivisions of the State created by the State for governmental purposes, have no due process vested rights that they can invoke to invalidate a state statute that alters the statutory scheme governing how the costs of Medicaid are allocated between the State and the Counties. And in any event, the 2012 amendment is fair to the Counties, and thus would be constitutional under a due process vested rights analysis, because it is part of the new Medicaid cap cost-sharing regime that has saved counties billions of dollars in Medicaid costs and protects them from pre-2006 Medicaid liabilities. 3 Third, the Fourth Department properly dismissed the Counties’ tort causes of action because they have no merit and because Supreme Court would in any event have no jurisdiction over them. ARGUMENT POINT I THE 2012 AMENDMENT EXTINGUISHED THE STATE’S OBLIGATION TO PAY PRE-2006 OVERBURDEN REIMBURSEMENT TO COUNTIES We explained in our opening brief (at 20-28) that the 2012 amendment extinguished the State’s obligation under Social Services Law (“SSL”) § 368-a(1)(h) to reimburse counties for overburden expenditures incurred before 2006. The Counties do not dispute that the 2012 amendment, “on its face,” terminates the State’s obligation to pay pre-2006 overburden reimbursement claims (Br. at 26-27). Instead, the Counties argue that the Court should not give effect to the statute’s plain language. According to the Counties, if the 2012 amendment terminates pre-2006 overburden reimbursement, then it violates their substantive due process rights (Br. at 27), and so it must be given a saving construction. To preserve the statute’s constitutionality, the Counties argue that the Court should “harmonize” 4 the 2012 amendment with SSL § 368-a(1)(h). This harmony, the Counties argue, may be achieved by (1) holding that the 2012 amendment does not terminate the State’s obligation under SSL § 368-a(1)(h) but merely imposes a statute of limitations on the submission of overburden reimbursement claims, and (2) imputing a six-month grace period for further submission of such claims. The Counties and the Third Department, which adopted this argument, are mistaken. First, as we explain in Point II of our opening brief and Point II below, the 2012 amendment is constitutional when interpreted in accord with its plain meaning and legislative intent, so no saving construction is necessary. Moreover, the Counties are asking this Court to alter the 2012 amendment rather than construe it. As the Court recently held, the doctrine of constitutional avoidance does not permit courts to rewrite a statute when its language is clear. Schoenefeld v. State of New York, 25 N.Y.3d 22, 27-28 (2015). In Schoenefeld, this Court construed a state statute in accordance with its terms as requiring nonresident attorneys to maintain a physical office in New York, notwithstanding the argument that as so construed the statute might be unconstitutional. 5 The narrower interpretation offered by defendants, this Court held, found no support in the wording of the statute and would require the court to “take the impermissible step of rewriting the statute.” Id. at 28. Similarly here, the Legislature’s intent to end pre-2006 overburden reimbursement through the 2012 amendment is clear from the amendment’s plain language and its legislative history. The 2012 amendment is manifestly not a statute of limitations, and the Third Department erred in construing it as one and in making up a grace period from whole cloth. The Counties’ arguments in support of this construction are unavailing. The Counties argue that repeal by implication is disfavored, and they cite language in chapter 56 of part D of the 2012 budget bill that provides that the act should not be construed to alter or impair rights, duties or interests accrued before the effective date of the act (Br. at 29, 33). But this rule of construction does not trump the plain terms of the 2012 amendment, which extinguish the State’s obligation to pay counties’ pre-2006 overburden claims submitted to the Department after April 1, 2012. The bar on overburden reimbursement is express, not implied: it applies “notwithstanding the provisions of 6 section 368-a of the social services law,” which created the overburden reimbursement obligation. L. 2012, ch. 56, Part D, § 61. Accordingly, the general rule of construction in the budget bill does not limit the specific and unambiguous language of the 2012 amendment that, consistent with its legislative history, extinguished entirely the State’s overburden reimbursement obligation. Moreover, the Counties make no attempt to show that their construction of the 2012 amendment gives it meaning and effectuates its purpose. On the contrary, if, as the Counties urge (Br. at 86-91), the State is obligated to unilaterally identify, calculate, and pay all outstanding overburden liabilities dating back to 1984, then there would be no reason for counties ever to submit overburden claims and there would be nothing for the 2012 amendment to apply to. If this Court adopted the Counties’ argument, the 2012 amendment and the Third Department’s self-minted “final limitations period” (Br. at 36) for the submission of claims would be meaningless. The Fourth Department correctly rejected the Counties’ argument because it would render the 2012 amendment a nullity. Matter of County of Niagara v. Shah, 122 A.D.3d 1240, 1243-44 (4th Dep’t 2014). 7 The Counties argue (Br. at 27, 32) that the Third Department’s interpretation gives the State fiscal “certainty.” But the only certainty provided by the Third Department is the certainty that the State will have to pay pre-2006 overburden reimbursement, following a monumental project requiring review of billions of Medicaid expenditures dating back to 1984. This is not the fiscal certainty the Legislature sought to achieve in the 2012 amendment, which clarified that the original Medicaid Cap statute ended the State’s liability for overburden reimbursement and substituted a new cost-sharing system that saves counties billions of dollars. This Court should interpret the 2012 amendment in accordance with its plain meaning to accomplish this legislative intent. 8 POINT II THE 2012 AMENDMENT IS CONSTITUTIONAL 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” having due process vested rights against state legislation under New York’s Due Process Clause. Contrary to the Counties’ assertions (Br. at 63-68), New York follows the federal rule that municipalities are not “persons” for purposes of asserting due process challenges to state laws enacted by their creator. See Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475, 488 (1954), appeal dismissed, 351 U.S. 922 (1956) (“[t]he courts of this State from very early times have consistently applied the Federal rule in holding that political power conferred by the Legislature confers no vested right as against the government itself”); Matter of Jeter v. Ellenville Central School District, 41 N.Y.2d 283, 287 (1977) (citing federal cases, among others). In their brief, the Counties do not cite or discuss Black River and they mischaracterize the holding in Jeter. In Black River, 307 N.Y. at 488, the Court held that the district had no vested right: “[t]he inclusion 9 of Panther Mountain Reservoir in the official plan did not vest in [the district] a contractual interest, either in the proposed site or in the construction of a reservoir, which could not be impaired by legislative action” (emphasis added). In Jeter, in rejecting the municipalities’ due process and equal protection challenges to a state law, this Court similarly held that although “these units of municipal government have procedural standing to participate in the present litigation (and thus to be heard, for instance, on questions of statutory interpretation), they do not have the substantive right to raise these constitutional challenges.” Jeter, 41 N.Y.2d at 287 (emphasis added). This Court then cited the seminal federal authorities establishing the federal rule – citations the Counties omit from their block quotation (Br. at 64 [quoting Jeter]). The holding in Jeter that the municipalities had “procedural standing” is a holding that the municipalities had capacity to challenge the state law. This Court has recognized that in older cases like Jeter “the concept of capacity is often confused with the concept of standing.” Community Board 7 of the Borough of Manhattan v. Schaffer, 84 N.Y.2d 148, 154 (1994). As the Appellate Division opinion in Jeter makes clear, 10 the threshold procedural issue was actually that of capacity, although the court used the term “standing”: the Appellate Division majority concluded that the Jeter municipal plaintiffs had “standing” because they interposed “arguments in a proprietary capacity to protect their own funds” – one of the recognized exceptions to the no-capacity rule. Matter of Jeter v. Ellenville Central School District, 50 A.D.2d 366, 373 (3d Dep’t 1975), aff’d, 41 N.Y.2d 283 (1977). Although the Jeter plaintiffs had capacity, this Court held that they lacked the “substantive right” to raise their due process and equal protection challenges to the state law – a clear reference to the lack of the claims’ merits. The Counties’ suggestion that “substantive right” refers to capacity is untenable (Br. at 63). Capacity is not a substantive right under any particular constitutional or statutory provision, but rather is the authority to sue. Matter of Graziano v. County of Albany, 3 N.Y.3d 475, 478-79 (2004). This Court’s decisions in Black River and Jeter and the federal cases on which they rely establish that in New York, counties, as political subdivisions of the State created by the State for state purposes, have no claim of due process vested right that they can invoke 11 to invalidate a state statute. This does not mean, as the Counties suggest (Br. at 7, 52), that they have no constitutional rights at all. On the contrary, the Home Rule provisions in Article IX of the Constitution protect the interests of local governments, and, provided that they have capacity and standing, they may also bring claims under other provisions of the Constitution and laws. But the Counties have no constitutional right to invalidate a legislative decision to alter the allocation of Medicaid costs between the State and the Counties. Although a Pennsylvania court has concluded that a municipality should be treated as a person for due process purposes when it acts in a private or proprietary capacity, that analysis, even if correct, has no application here. See Shirk v. Lancaster City, 169 A. 557, 560 (Pa. 1933) (concluding that revenues collected by a municipality in a water works project is property protected under the Fourteenth Amendment).1 Overburden reimbursement concerns the State and counties’ 1 The Counties similarly argue that they may maintain their claims because they are asserting a “proprietary interest in a specific fund of moneys” (Br. at 59-63), but the cases they cite for that proposition are cases about capacity to sue. Their argument thus misses the point: even if they have capacity to sue under New York law, the do not have the substantive due process rights they assert because they are not “persons” for that purpose. 12 cost-sharing obligations under the Medicaid program – a governmental program that funds medical care for the needy. Activities supported by taxes or fees are inherently governmental activities. South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500, 506 (6th Cir. 1986). The overburden reimbursements the Counties seek to recover here were initially funded by “county property and sales taxes” (Br. at 93) that the Counties were authorized to collect only because the State empowered them to do so. See, e.g., Tax Law article 29 (cities, counties and school districts authorized to collect sales taxes); Real Property Tax Law article 9 (levy and collection of real property taxes). In other words, the money that the Counties now claim was derived by them for governmental purposes including the Medicaid program through taxation, which the State alone can authorize. Now that the Legislature has changed the State’s law governing Medicaid cost sharing to eliminate the Counties’ former statutory right to any unpaid pre-2006 overburden reimbursement, the Counties can have no due process complaint arising from the fact that they are no longer entitled to payment. 13 The Counties cite numerous New York cases in their attempt to show that municipalities are persons entitled to due process protection from state laws (Br. At 65-67), but their cases do not actually support that proposition. In People ex rel. Rogers v. Coler, 166 N.Y. 1 (1901), New York City had refused to pay a contractor for work performed under a public works project because the contractor had failed to pay workers prevailing wages as required by the Labor Law. In a suit by the contractor seeking to compel payment under the contract, this Court concluded that the statute voiding the contract in such circumstances was unconstitutional because it impermissibly confiscated the contractor’s property and interfered with the city’s and contractor’s freedom to contract on a matter of purely local concern. 166 N.Y. at 13, 22. The holding in Coler thus rests on the Home Rule powers of local governments (not implicated here), on the rights of the individual contractor, and on now-discredited Lochner-era restrictions on governmental authority to regulate the economy. In dictum, this Court in Coler observed that the Legislature could not deprive the city of property without due process any more than it could deprive a private corporation. 166 N.Y. at 20. But this dictum 14 provides no support for the Counties’ argument here for at least two reasons. First, it was not necessary to the Court’s holding and therefore is not binding precedent; the Court in Coler had no occasion to decide whether municipalities are persons entitled to due process protection from laws enacted by their creator. Second, the dictum was subsequently rejected by this Court in Black River and Jeter, which squarely rejected the argument that a municipality has due process rights against state legislation.2 Likewise inapposite is the Counties’ reliance (Br. at 65) on People v. Ingersoll, 58 N.Y. 1 (1874), another case that long predates Black River and Jeter. There the State sued private parties to recover funds that belonged to a county, received by the defendants through fraud. This Court held that the action was not maintainable by the State through the Attorney General because the money sued for belonged to the county, not the State, and the County was fully capable of suing to recover its own funds. The County was not seeking to invalidate a state law, and the Court therefore had no reason to consider whether local 2 In addition, the Constitution was promptly amended after Coler to authorize prevailing wage legislation. Cayuga-Onondaga Counties Bd. of Coop. Educ. Servs. v. Sweeney, 89 N.Y.2d 395, 401 (1996). 15 governments are protected by New York’s due process clause from laws enacted by the State Legislature. Nor was the personhood issue raised or considered in Bd. of Ed., Levittown Union Free School District v. Nyquist, 57 N.Y.2d 27 (1982), a case repeatedly cited by the Counties (Br. at 63-65, 68). In Levittown, several boards of education, students of public schools, taxpayers and parent-teacher organizations challenged New York’s statutory scheme for state aid to local school districts, claiming that the system violated the equal protection clauses of the federal and New York constitutions and New York’s education article. This Court rejected these claims on the merits, holding that the state aid statutory scheme was constitutional. 57 N.Y.2d at 37-38. The issue whether boards of education are persons within the meaning of New York’s equal protection clause was not decided in Levittown. Indeed, because the plaintiffs and interveners in Levittown included students, taxpayers, teachers, and parents of students – all of whom are persons – it was not necessary for the Court to consider the issue. Similarly misplaced is the Counties’ reliance (Br. at 66) on Empire State Chapter of Associated Builders and Contractors v. Smith, 16 21 N.Y.3d 309, 322-23 (2013), where this Court concluded that certain due process and equal protection challenges to a state law failed to state a cause of action. Although one of the many plaintiffs was a county, the question of whether the county was a person was neither raised nor decided; because the plaintiffs included numerous natural persons and private corporations, the issue would have been academic in any event. See Empire State Chapter of Associated Builders and Contractors v. Smith, 98 A.D.3d 335, 339 (4th Dep’t 2012) (describing the plaintiffs as including women and minority-owned businesses and various construction corporations and professional organizations), modified, 21 N.Y.3d 309 (2013). Nor is the Counties’ position in this case supported by County of Rensselaer v. Regan, 80 N.Y.2d 988 (1992) (Br. at 60-61), because there the county did not allege – and the Court did not decide – that their due process rights were violated. Instead, the counties alleged that the Comptroller lacked the authority under article V, § 1 of the New York Constitution to withhold a portion of the fines collected by courts in each county for alcohol-related driving offenses. Indeed, that case tends to undermine rather than support the Counties’ position here, because 17 in Rensselaer the counties conceded that the Legislature, “which has ultimate authority over the disposition of fines collected in this State, may reduce or even eliminate their share of the revenues.” Id. at 991. Finally, the Counties also mistakenly rely on cases where courts have reviewed the merits of procedural due process claims by municipalities in their capacity as litigants in administrative proceedings (Br. at 66-67). See, e.g., Town of Oyster Bay v. Kirkland, 81 A.D.3d 812, 817 (2d Dep’t 2011) (the combination of investigative and adjudicative functions in the State Division of Human Rights was not a denial of due process), aff’d, 19 N.Y.3d 1035 (2012); Matter of Town of Wallkill v. N.Y.S. Bd. of Real Property Services, 274 A.D.2d 856, 858 (3d Dep’t 2000) (quasi-judicial hearing furnished town with adequate opportunity to assert objections to final equalization rate); Matter of Town of Middletown v. State Bd. of Real Property Services, 272 A.D.2d 657, 658 (3d Dep’t 2000) (codification of substantial evidence standard comports with due process); County of Orange v. Public Service Commission, 39 A.D.2d 311, 320 (2d Dep’t) (discussing the rights of “property owners” and noting that the municipal petitioners “are not property owners whose land may later be taken for this 18 transmission line”), aff’d, 31 N.Y.2d 843 (1972). In none of these cases was the question whether the municipality was a person for due process explicitly raised or addressed. Unlike the present cases, these cases did not involve municipal claims that state statutes violated due process by depriving the municipalities of their vested property rights. When a municipality is a party to an administrative proceeding affecting its interests, its procedural rights are indistinguishable from those of a private party in any meaningful respect. Accordingly, for that purpose the State Administrative Procedure Act (SAPA) draws no distinction between public and private parties. See, e.g., SAPA § 102(6) (definition of “person” includes a public organization “of any character,” except the agency engaged in the action or adjudication), §§ 301-307 (adjudicatory proceedings). It would be arbitrary and capricious for an administrative agency to deny procedural due process to a municipality that is a party to proceedings before the agency. There is simply no inconsistency between recognizing that municipalities as litigants are entitled to procedural due process, while reaffirming the settled principle that 19 municipalities are not persons entitled to assert substantive due process rights against the State. A municipality’s status as a political subdivision does matter when it mounts a substantive due process challenge to a state law enacted by its creator. Such a lawsuit implicates not only the municipality’s authority to sue (capacity) but also its entitlement to substantive protection from the will of the Legislature. The purpose of New York’s due process clause, like its federal counterpart, is “to protect persons from the 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 Affairs, 751 P.2d 14, 18-19 (Alaska 1988). This Court should hold that the Counties have no substantive right to invalidate the 2012 amendment on due process grounds. 2. The Counties’ substantive due process claim fails for lack of merit, not for lack of capacity. Because New York follows the federal rule that political subdivisions are not persons entitled to due process protection from state laws enacted by their creator, there is no merit to the Counties’ assertion (Br. at 50-62) that their ability to challenge the 2012 20 amendment is solely a question of capacity. Not one of the cases cited by the Counties stands for the proposition that capacity and personhood are the same thing. Although these cases address a municipality’s capacity, in none of them was the personhood issue raised or discussed. See City of New York v. State of New York, 86 N.Y.2d 286 (1995) (municipality lacked capacity to mount constitutional claims); Bd. of Coop. Ed. Servs. for Sole Supervisory Dist. of Rockland Co. v. State of New York, 171 Misc. 2d 585 (Sup. Ct. Alb. Co. 1996) (school district and town had capacity to challenge state law as forcing them to violate the no-gift provision of the New York Constitution), aff’d, 236 A.D.2d 84 (3d Dep’t), appeal dismissed, 91 N.Y.2d 921 (1997), lv. denied, 92 N.Y.2d 802 (1998); Gulotta v. State of New York, 228 A.D.2d 555 (2d Dep’t) (municipalities lack capacity to assert due process and equal protection claims), appeal dismissed, 88 N.Y.2d 1053 (1996), lv. denied, 89 N.Y.2d 811 (1997). In City of New York, 86 N.Y.2d at 290-91, this Court relied on its earlier decision in Black River and the federal authorities there cited in support of its holding that the municipalities lacked capacity to sue the State. But the Court did not suggest that the Black River rule was 21 limited to capacity only. Indeed, the broad language of Black River does not support such a narrow reading. Black River, 307 N.Y. at 487-88. And the Court’s citation of Jeter in support of the fourth exception to the general rule of municipal non-capacity in City of New York, 86 N.Y.2d at 292, does not limit Jeter’s broad holding that, although the municipalities there might have the right to be heard “on questions of statutory interpretation,” they lacked the “substantive right” to raise their due process claims. Jeter, 41 N.Y.2d at 287. In short, neither City of New York nor the other capacity cases cited by the Counties addressed or resolved the question presented here. The Counties’ heavy reliance on Matter of Krauskopf v. Perales, 139 A.D.2d 147 (3d Dep’t 1988), aff’d, 74 N.Y.2d 730 (1989), is also misplaced. In Krauskopf, the Appellate Division concluded, id. at 153, that the Commissioner of a social services district had capacity (which the court described as standing) to challenge a state agency’s definition and standards for determining whether individuals were eligible for overburden reimbursement. But Krauskopf did not involve a municipality’s due process challenge to a state law. Rather, it merely involved a municipality’s challenge to the State’s administrative 22 determination defining the class of individuals covered by the overburden statute. As a result, the personhood issue was not implicated or addressed. The Counties’ claims fail for lack of substantive merit, not lack of capacity. 3. The Court should decide the question whether the counties have due process rights. The State agrees with the Counties (Br. at 41-49) that this Court may (and should) review the personhood issue, but disagrees with the Counties’ primary rationale, which rests on a mischaracterization of the Fourth Department’s decision. Contrary to the Counties’ suggestions (Br. at 42-45) the Fourth Department did not hold that political subdivisions lack standing to assert claims under New York’s due process clause, a concept closely aligned with capacity. Rather, based on Jeter, Black River, and the United States Supreme Court precedents, the Fourth Department correctly held that the Counties were unable to establish their constitutional claim because as political subdivisions they lack substantive rights under the due process clause. Matter of County of Chautauqua v. Shah, 126 A.D.3d 1317, 1320-21 (4th Dep’t 2015). 23 Thus, as we explained in our opening brief, at 41-45, the personhood issue is preserved in both the Third and Fourth Department appeals because the personhood issue is an essential element of the Counties’ due process cause of action and, in any event, this Court can and should decide the issue because it is a pure question of law. B. The 2012 Amendment Is Constitutional Under A Due Process Vested Rights Analysis. The State’s opening brief demonstrates (at 46-60) that the 2012 amendment is constitutional under a due process vested rights analysis. In particular, the Legislature’s decision to terminate pre-2006 overburden reimbursement treats counties fairly. In exchange for billions of dollars in Medicaid savings going forward and protection from pre-2006 Medicaid liabilities, the Cap Statute requires counties to pay their full cap amounts. Counties receiving pre-2006 overburden reimbursement, however, do not pay their full cap amounts and, therefore, do not fulfill their end of the statutory bargain. The 2012 amendment, in clarifying that pre-2006 overburden reimbursement is not available under the Cap Statute, restores the bargain originally struck by the new cost-sharing system. 24 The new cost-sharing system favors the Counties in several ways. The Counties do not dispute that under the old cost-sharing system they were responsible for their proportionate share of any federal disallowance of Medicaid funds and adverse court judgments granting health care providers increased reimbursement. Nor did they dispute that the Cap Statute generally now shields them from such pre-2006 liabilities that may have to be paid today. Yet the Counties dismiss this protection as “irrelevant” and “speculative” and summarily contend that these savings could not possibly compensate them for the pre-2006 overburden reimbursement to which they are entitled (Br. at 76). In fact, the protection counties now enjoy from old liabilities is both substantial and supported by the record. To date, the Cap Statute has shielded counties from having to pay approximately $89 million in federal disallowances that accrued before 2006 (R. 175-176, ¶ 42), 25 roughly half the estimated total unpaid pre-2006 overburden reimbursement of $180 million (R. 180, ¶ 62).3 The Counties also dismiss as irrelevant the billions of dollars in Medicaid cost savings they have realized since the new cost-sharing system took effect in 2006. According to the Counties, the Cap Statute applies prospectively to Medicaid expenditures that accrue as of January 2006, whereas SSL § 368-a applies to Medicaid expenditures that accrued before January 2006 (Br. at 75). This argument reflects a fundamental misunderstanding of the new cost-sharing system. As demonstrated in the State’s opening brief (p. 11), the Cap Statute operates on a cash-based accounting system, not on the accrual-based system that the Counties’ argument presumes. See Understanding the New State/County Paradigm: The 2005 New York State Medicaid Cap Legislation at p. 10 (reproduced at III R. 472). Under the cap system, a county must pay its full cap amount each year 3 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. 26 on a cash basis. Consequently, an expenditure that the county pays this fiscal year is credited toward the county’s cap amount, even if the expenditure satisfies a liability that accrued before 2006. Conversely, Medicaid revenue (such as pre-2006 overburden reimbursement) that the county receives this fiscal year reduces a county’s net expenditures for this year, even if the revenue accrued before 2006. If the county’s net expenditures (its Medicaid cash payments to the State reduced by its Medicaid cash receipts from the State) for this year are reduced below the cap amount for this year because the county receives pre-2006 overburden reimbursement from the State in this year, then the county has not paid its full cap amount for this year as required by the Cap Statute. Indeed, if the Counties’ position were accepted, then the Cap Statute would not protect them from pre-2006 liabilities, because those liabilities “accrued” before 2006, when SSL § 368-a was in effect. So the Counties are trying to have it both ways. They want a cash-based accounting system for Medicaid expenditures (which would protect them from having now to pay old liabilities) and an accrual-based accounting system for Medicaid revenues (which would allow them to receive 27 pre-2006 overburden reimbursement without the reimbursement counting as revenue in the year in which they received the payments). The Counties’ one-sided “heads I win tails you lose” accounting system is unfair to the State, because it would result in counties paying less than their mandated cap amounts. It was precisely for this reason that the Legislature enacted the 2012 amendment to clarify that pre-2006 overburden reimbursement is not available under the new cost-sharing regime. The 2012 amendment treats counties fairly even disregarding the substantial protections counties receive from old liabilities and the billions of dollars in future savings they realize under the new cost-sharing system. The staleness of overburden claims – which were between 7 and 22 years old when the 2012 amendment was enacted – by itself justifies the Legislature’s decision to terminate pre-2006 overburden reimbursement. Arguing that the 2012 amendment is unfair, the Counties make unsubstantiated allegations that unnamed state employees intentionally altered computer codes in order to deprive counties of overburden reimbursement (Br. at 9, 73). The only basis for this 28 accusation is an attorney’s affirmation from co-counsel for the counties, who alleged that, based on her experience in representing counties in Medical-related litigation, she has “come to the conclusion” that the coding errors were the product of intentional misconduct by State employees (R. 335, ¶ 25). The Department affirmatively denies this baseless accusation (R. 181, ¶¶ 66-69). Likewise meritless are the counties’ assertions that the State has engaged in dilatory tactics and withheld documentation relating to overburden claims. What the Counties characterize as the State’s bad faith consists of the State defending itself against the Counties’ barrage of litigation seeking pre-2006 overburden reimbursement to which they are not entitled under the new cost-sharing system. The record does not support the Counties’ overarching point that the 2012 amendment is unfair because the State has ignored its overburden reimbursement responsibilities. As detailed in the State’s opening brief, the State met its overburden responsibilities in two ways through (1) quarterly payments and (2) a claims process for recovery of overburden claims not captured in the quarterly reviews. Although the Counties’ claims are substantial when viewed in isolation, they 29 represent only a small portion of the billions of dollars of overburden payments that the State made to all counties between 1984 and 2005. The small order of magnitude of the total missed payments is confirmed by a back of the envelope approximation using data from the record. The only evidence in the record regarding the statewide total amount of the unpaid overburden claims in the 22 years between 1894 and 2005 is the State’s estimate of $180 million (R. 180, ¶ 62). With respect to the eight counties who are parties to these appeals, the Department credited them with a total of $56 million in overburden reimbursement payments accrued during 2005 in computing their 2005 base year expenditures, an average of $7 million per county.4 Extrapolating this amount over 58 social services districts statewide for the 22 years from 1984 through 2005 yields total overburden 4 County 2005 overburden credit Record Citation St. Lawrence $3.4 million R. 173, ¶ 33 Chemung $4 million Chemung R. 248, ¶ 34 Monroe $29 million Monroe R. 331, ¶ 34 Chautauqua $6.4 million Chautauqua R. 442, ¶ 34 Jefferson $2.8 million Jefferson R. 419, ¶ 34 Oneida $6.6 million Oneida R. 349, ¶ 34 Genesee $1.9 million Genesee R. 340, ¶ 34 Cayuga $1.9 million Cayuga R. 300, ¶ 34 Total: $56 million 30 reimbursement during that period of $8.932 billion. This yields an error rate of approximately 2%, meaning that the Department’s reimbursement system captured approximately 98% of the overburden reimbursements.5 Even if the $8.932 billion figure is substantially less, the resulting error rate is still small. For example, reducing the figure for the total overburden paid by one-third to allow for inflation and other factors still gives an error rate of only 3%, which means that the State properly paid 97% of the overburden due to the Counties. Thus, the Counties’ assertions that the Department, through malice or neglect, failed to comply with its responsibilities under the law are unfounded. In the 2012 amendment, the Legislature reasonably determined that it was equitable to close the books on these old claims, given that counties are saving billions of dollars in Medicaid costs going forward under the new cost-sharing regime. The Counties assert that their cap amounts under the new system are inflated because, having been based on each County’s share of Medicaid payments for the base year 2005, they include unreimbursed 2005 overburden expenditures (Br. at 75). This argument is speculative 5 180 million divided by 8.932 billion equals approximately 0.02. 31 and overlooks that the Department’s calculation of each county’s 2005 base year expenditures was finalized as of June 30, 2006. See L. 2005, ch. 58, Part C, § 1(b). If the Counties believed that their 2005 base year expenditures were calculated inaccurately, they could have sought article 78 review of the Department’s final determination. Having failed to do so, the Counties should not be heard to complain years later that the 2012 amendment is unfair because their cap amounts allegedly are overstated. And the Counties overlook that the Legislature gave counties the option to use an alternative “tax intercept methodology” for determining and paying their local shares if they deemed it financially advantageous compared to the cap methodology. See L. 2005, ch. 58, Part C, §§ 2(a) & (b). All of the arguments the Counties advance here about the alleged unfairness of terminating pre-2006 overburden reimbursement could have been presented to the Legislature when it was considering the 2012 amendment. Yet the Legislature enacted the 2012 amendment, making the policy judgment that the time had come to close the books on stale overburden claims stretching as far back as 1984. 32 In this regard, the Counties argue that there is no record evidence that they lobbied against the 2012 amendment (Br. at 76), although they do not deny having done so.6 The Counties miss the point. The legislative process itself was the counties’ opportunity to be heard, a form of procedural due process, concerning the 2012 amendment. When a State gives a party “a meaningful opportunity to challenge” the State’s action, “he [is] not deprived of due process simply because he failed to avail himself of the opportunity.” Giglio v. Dunn, 732 F.2d 1133, 1135 (2d Cir. 1984). Finally, the Counties’ assertion that the “public interest” requires reimbursement of all unpaid overburden claims (Br. at 85) is nothing more than a policy argument. The policy-making branches of government, the Legislature and the Governor, have determined otherwise, concluding that the public interest requires extinguishment of stale overburden claims. That determination is entitled to deference. Accordingly, for the reasons explained above and in our opening brief, 6 The suggestion that counties were unaware of the bill that became the 2012 amendment is belied by the flurry of overburden claims that counties submitted to the Department after the bill was proposed (see, e.g., R. 178, ¶ 54; Chemung R. 253, ¶ 54). 33 even if a due process vested rights analysis applied, the 2012 amendment would be constitutional. POINT III THE COUNTIES’ CAUSES OF ACTION SOUNDING IN CONVERSION AND UNJUST ENRICHMENT, AND ITS REQUEST FOR A CONSTRUCTIVE TRUST, WERE PROPERLY DISMISSED The Fourth Department correctly dismissed the Counties’ causes of action sounding in conversion and unjust enrichment and their requests for a constructive trust over any remaining unpaid overburden reimbursements. As the Counties concede (Br. at 91), these causes of action seek to impose “tort liability” on the State. These claims were properly dismissed, for two reasons. First, the Counties’ tort causes of action all rest on a false premise: that it is unjust for the State to cease reimbursing counties for pre-2006 overburden expenditures. But the Legislature has reached the opposite conclusion, a conclusion that comports with substantive due process. It would be improper for a court to substitute its judgment for that of the Legislature as to whether it is proper to terminate these stale claims. Thus, these claims should be dismissed because they fail to state a cause of action. 34 Second, Supreme Court lacks subject matter jurisdiction over the Counties’ tort claims against the State because the State has not waived its sovereign immunity from tort claims in Supreme Court. The Court of Claims has exclusive jurisdiction over actions for money damages against the state, including damages claims sounding in tort. See N.Y. Const., art. VI, § 9; Court of Claims Act § 8; People v. Correa, 15 N.Y.3d 213, 227-28 (2010) (“in preserving the State’s historical sovereign immunity from suit, Supreme Court cannot exercise jurisdiction over claims for money damages brought against the State, which must be initiated and tried in the Court of Claims”); Morell v. Balasubramanian, 70 N.Y.2d 297, 300 (1987) (the State is subject to suit for damages, “but only in the Court of Claims”). The Commissioner of Health in his official capacity and the Department of Health are alter egos of the State “and, as such, the state is the real party in interest.” Monreal v. State of New York, 38 A.D.3d 1118, 1119 (3d Dep’t 2007). Any tort claims seeking money damages against the State of New York must be brought in the Court of Claims. Indeed, all of the cases the Counties cite on page 92 of their brief for the proposition that causes of action for conversion, unjust enrichment, and a constructive 35 trust may be brought against the State are cases that were commenced in the Court of Claims. See Parsa v. State of New York, 64 N.Y.2d 143 (1984); Ford Motor Credit Co. v. State of New York, 219 A.D.2d 202 (3d Dep’t), lv. denied, 88 N.Y.2d 813 (1996); Robert R. Gibbs, Inc. v. State of New York, 70 A.D.2d 750 (3d Dep’t 1979); Esposito v. State of New York, 35 Misc. 3d 1216(A) (Ct. Cl. 2011), aff’d, 112 A.D.3d 1006 (3d Dep’t 2013); 230 Park Ave. Assoc. v. State of New York, 165 Misc. 2d 920 (Ct. Cl. 1995). Contrary to the Counties’ argument (Br. at 99-105), the tort damages they seek are not incidental to relief that may be obtained in an article 78 proceeding. Thus, Supreme Court lacked subject matter jurisdiction over these tort causes of action and they were properly dismissed. Finally, for the reasons explained in our opening brief (at 60-62), the Counties lack a clear right to mandamus relief. This Court should uphold the 2012 amendment and dismiss the petitions/complaints in their entirety. CONCLUSION This Court should (1) declare that the 2012 amendment does not violate the Due Process Clause; (2) affirm the Fourth Department's orders; (3) reverse the Third Department's orders to the extent they are inconsistent with the Fourth Department's orders; and (4) dismiss the petitions/complaints in their entirety. Alternatively, and only if the Court otherwise affirms the Third Department's orders, the Court should reverse so much thereof as granted mandamus relief and dismiss the petitions/complaints to that extent. Dated: Albany, New York October 15, 2015 BARBARA D. UNDERWOOD Solicitor General ANDREW D. BING Deputy Solicitor General VICTOR PALADINO Assistant Solicitor General of Counsel Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New Yorh By~t Cs VICTOR PALADINO Assistant Solicitor General Office of the Attorney General The Capitol Albany, New York 12224-0341 (518) 776-2012 Reproduced on Recycled Paper 36