Brightonian Nursing Home, et al., Respondents,v.Richard F. Daines, M.D., Commissioner of Health, State of New York, et al., Appellants.

Brief

N.Y.September 11, 2013

To be argued by: VICTOR PALADINO Time Requested: 20 minutes Supreme Court, Monroe County – Index No. 13213-09 Court of Appeals of the State of New York THE BRIGHTONIAN NURSING HOME, BAYBERRY NURSING HOME, MAPLEWOOD NURSING AND REHABILITATION CENTER, LEROY VILLAGE GREEN, ELDERWOOD HEALTH CARE AT BIRCHWOOD AND NEW YORK STATE HEALTH FACILITIES ASSOCIATION, INDIVIDUALLY AND ON BEHALF OF ITS RESIDENTIAL HEALTH CARE FACILITY MEMBERS IN NEW YORK STATE, Respondents, -against- RICHARD F. DAINES, M.D. AS COMMISSIONER OF HEALTH OF THE STATE OF NEW YORK, AND DAVID A. PATERSON AS GOVERNOR OF THE STATE OF NEW YORK, Appellants. 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 12224-0341 (518) 473-4321 Dated: January 17, 2013 Reproduced on Recycled Paper i TABLE OF CONTENTS PAGE Table of Authorities ...................................................................................................... iii Preliminary statement .................................................................................................. 1 Jurisdictional Statement............................................................................................... 3 Questions presented ...................................................................................................... 5 Statement of the case .................................................................................................... 6 A. Statutory and regulatory background..................................................... 6 1. History of statutory restrictions on equity withdrawals ............. 8 2. Regulatory provisions governing equity withdrawals ............... 12 B. Statement of facts................................................................................... 13 1. The Department’s review of equity withdrawal requests for all facilities ............................................................................. 13 2. Equity withdrawal requests by the named plaintiffs ................ 15 C. This action .............................................................................................. 16 Decision of Supreme Court.......................................................................................... 18 Decision of the Appellate Division .............................................................................. 19 Argument PHL § 2808(5)(c) is constitutional .................................................................... 20 Point I Plaintiffs’ challenge is a facial one and they failed to satisfy the stringent requirements for a facial challenge................................. 21 Point II PHL § 2808(5)(c) is a constitutional delegation of authority to the commissioner and is not void for vagueness ......................................... 23 A. The statute does not improperly delegate legislative authority to DOH....................................................... 24 B. The statute is not void for vagueness ......................................... 32 ii Table of Contents (cont’d) Page Argument, Point II (cont’d) C. If the “such other factors” clause renders PHL § 2808(5)(c) unconstitutional, it should be severed from the remainder of the statute.............................................................. 33 Point III The statute does not deprive plaintiffs of substantive due process.............................................................................................. 35 A. The prior approval requirement furthers legitimate state interests .............................................................................. 36 B. The 3% threshold is rational and does not violate substantive due process............................................................... 39 C. The approval process does not evaluate the reasonableness of the personal spending choices of nursing home operators........................................................... 42 Conclusion ...................................................................................................... 46 iii TABLE OF AUTHORITIES PAGE CASES Big Apple Food Vendors Assn., Matter of v. Street Vendor Review Panel, 90 N.Y.2d 402 (1997)......................................................................................... 25 Binkowski v. State, 322 N.J. Super. 359, 731 A.2d 64 (1999) .......................................................... 31 Boreali v. Axelrod, 71 N.Y.2d 1 (1987)............................................................................................. 24 Bower Assoc. v. Town of Pleasant Valley, 2 N.Y.3d 617 (2004)........................................................................................... 35 Brightonian Nursing Home v. Daines, 26 Misc. 3d 735 (Sup. Ct. Monroe Co. 2009) .................................................... 17 Brightonian Nursing Home v. Daines, 93 A.D.3d 1355 (4th Dep’t 2012) ................................................................... 2,19 Burke v. Crosson, 85 N.Y.2d 10 (1995).......................................................................................... 4-5 Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) ........................................................................................... 28 Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for So. Cal., 508 U.S. 602 (1993) ...................................................................................... 36,40 CWM Chem. Servs., LLC v. Roth, 6 N.Y.3d 410 (2006)........................................................................................... 34 Dunlea v. Anderson, 66 N.Y.2d 265 (1985)......................................................................................... 20 E.S., Matter of v. P.D., 8 N.Y.3d 150 (2007)........................................................................................... 20 iv Table of Authorities (cont’d) PAGE CASES Federal Maritime Commission v. Seatrain Lines, Inc., 411 U.S. 726 (1973) ........................................................................................... 28 Ferran v. Town of Nassau, 471 F.3d 363 (2d Cir. 2006) .............................................................................. 36 Foss v. City of Rochester, 65 N.Y.2d 247 (1985)......................................................................................... 32 Kaur, Matter of v. New York State Urban Development Corp., 15 N.Y.3d 235 (2010)......................................................................................... 32 Lavalle v. Hayden, 98 N.Y.2d 155 (2002).................................................................................... 20,26 Levine v. Whalen, 39 N.Y.2d 510 (1976)......................................................................................... 25 Louisville Gas Co. v. Coleman, 277 U.S. 32 (1928) ............................................................................................. 41 Manhattan Pizza Hut, Inc. v. New York State Human Rights Appeal Bd., 51 N.Y.2d 506 (1980)......................................................................................... 27 Miranda v. Norstar Bldg. Corporation, 79 A.D.3d 42 (3d Dep’t 2010) ....................................................................... 26-27 Montgomery v. Daniels, 38 N.Y.2d 41 (1975)....................................................................................passim Moran Towing Corp., Matter of v. Urbach, 99 N.Y.2d 443 (2003)......................................................................................... 21 People v. Gates, 41 Cal.App.3d 590, 116 Cal Rptr. 172 (Cal. App. First Dist. 1974).......................................................................... 30,31 v Table of Authorities (cont’d) PAGE CASES People v. Illardo, 48 N.Y.2d 408 (1979)......................................................................................... 27 People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N.Y. 48 (1920)........................................................................................ 33-34 Pharmaceutical Manufacturers Association v. Whalen, 54 N.Y.2d 486 (1981)......................................................................................... 39 Raynor v. Landmark Chrysler, 18 N.Y.3d 48 (2011)...................................................................................... 35-36 Rochester Gas & Electric Corp. v. Public Serv. Comm’n, 71 N.Y.2d 313 (1988)......................................................................................... 35 State of New Jersey v. Hoffman, 149 N.J. 564, 695 A.2d 236 (1997).................................................................... 31 United States v. Jackson, 390 U.S. 570 (1968) ........................................................................................... 34 Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976) ............................................................................................... 36 STATE STATUTES CPLR article 78 ................................................................................................. 18,44 2103(b)(2) ........................................................................................................ 4 5501(a)(1) ........................................................................................................ 5 5513(a) ..................................................................................................... 4,5 5601(d) ........................................................................................................ 3 PHL § 2801-a ........................................................................................................ 7 § 2801-a(3) ........................................................................................................ 7 § 2802 ........................................................................................................ 7 § 2805 ........................................................................................................ 7 § 2806 ..................................................................................................... 7-8 vi Table of Authorities (cont’d) PAGE STATE STATUTES PHL (cont’d) § 2808(5) (former) (McKinney’s 1977) ................................................................ 9 § 2808(5)(a) ................................................................................................. 37,39 § 2808(5)(b) ............................................................................................ 10,37,39 § 2808(5)(c) ...............................................................................................passim L. 1977, ch. 521, § 1 ....................................................................................................... 9 L. 1984, ch. 969, § 6 ..................................................................................................... 10 L. 2008, ch. 57, Part OO, § 12 ..................................................................................... 10 L. 2008, ch. 58, Part C, § 72 ........................................................................................ 10 L. 2009, ch. 58, Part D, § 11 ........................................................................................ 11 L. 2010, ch. 109, Part B, § 36 ................................................................................. 11,17 STATE RULES AND REGULATIONS 10 NYCRR § 86-2.7 ........................................................................................................ 8 § 400.19 ...................................................................................................... 12 § 400.19(a)(1) ....................................................................................................... 8 § 400.19(a)(3) ....................................................................................................... 8 § 400.19(c)(3) ................................................................................................ 12,27 § 400.19(c)(3)(i).................................................................................................. 44 § 414.16(h) (former)........................................................................................... 12 § 600.1(b)(3) ........................................................................................................ 7 § 600.5(a)(4) ........................................................................................................ 7 § 730.3(g) ...................................................................................................... 12 18 NYCRR § 517.3 ........................................................................................................ 8 UNITED STATES CONSTITUTION First Amendment ...................................................................................................... 18 vii Table of Authorities PAGE FEDERAL STATUTES 42 U.S.C. § 1988 ................................................................................................ 4,5,17 MISCELLANEOUS L. 1977, ch. 521, Bill Jacket, Budget Report on Bills................................................... 9 L. 1984, ch. 969, Bill Jacket at 22, letter dated July 16, 1984 from Sen. Tarky Lombardi, Jr. to Gerald C. Crotty, Counsel to the Governor ................................................................................................... 9-10 McKinney’s Consol. Laws of N.Y., Book 1, Statutes § 239(b) .................................... 27 2A N. Singer, Sutherland on Statutes and Statutory Construction § 47.17 (1991) .................................................................................................... 28 PRELIMINARY STATEMENT Public Health Law (“PHL”) § 2808(5)(c) requires nursing home operators to obtain the Commissioner of Health’s approval before withdrawing equity from their facilities where the equity withdrawal would exceed 3% of the facility’s total revenues. The Legislature enacted the statute in the exercise of its police powers to safeguard the finances of nursing homes and ensure that they have the necessary resources to provide adequate care to their elderly and infirm residents. Consequently, § 2808(5)(c) provides that in reviewing requests to withdraw equity from a nursing home, the Commissioner “shall consider the facility’s overall financial condition, any indications of financial distress, whether the facility is delinquent in any payment owed to the [Department of Health], whether the facility has been cited for immediate jeopardy or substandard quality of care, and such other factors as the [C]ommissioner deems appropriate.” Plaintiff nursing homes brought this action challenging the constitutionality of PHL § 2808(5)(c) and Supreme Court declared it unconstitutional under both the New York State and United States constitutions (Record [“R.”] 9). The Appellate Division affirmed (R. 906- 2 911). Brightonian Nursing Home v. Daines, 93 A.D.3d 1355 (4th Dep’t 2012). The Appellate Division concluded that the clause authorizing the Commissioner to consider “such other factors” as he or she “deems appropriate” was an unconstitutional delegation of legislative authority and also was void for vagueness. In addition, the court held that § 2808(5)(c) deprived plaintiffs of substantive due process because the prior approval requirement was not reasonably related to the statutory purposes of ensuring the viability of nursing homes and protecting the welfare of nursing home residents. This Court should reverse. First, plaintiffs did not attempt to show that the statute was unconstitutionally applied to them in any particular instance, and they failed to carry their heavy burden of demonstrating that the statute is unconstitutional on its face. In addition, the clause authorizing the Commissioner to consider other appropriate factors in addition to the financial and quality of care factors specified in the statute is neither an unconstitutional delegation nor void for vagueness. Instead, under well established principles of statutory construction, the clause merely authorizes the Commissioner 3 to consider unenumerated factors of the same general kind or class as those specifically mentioned. Similarly, § 2808(5)(c) satisfies the rationality requirement of substantive due process. By requiring that the Commissioner pre- approve all equity withdrawals in excess of 3 % of the facility’s revenues, the statute rationally furthers the goals of ensuring the facility’s continued financial viability and quality of care by mandating that the Commissioner review and approve significant withdrawals of assets from the business. Accordingly, the Court should reverse the Appellate Division’s order, as well as the final judgment awarding attorney’s fees, and declare that PHL § 2808(5)(c) is constitutional. But if the Court concludes that any part of the statute is unconstitutional, it should sever that part and uphold the remainder of the statute. JURISDICTIONAL STATEMENT This Court has jurisdiction over this appeal under CPLR 5601(d). Defendants have appealed from the stipulation and judgment of Supreme Court, entered July 19, 2012, which finally determines the 4 action. The Appellate Division made an order on a prior appeal which necessarily affects the judgment, and there is directly involved the construction of the Constitution of this State or of the United States. By order and judgment entered in Monroe County on November 10, 2010, Supreme Court declared PHL § 2808(5)(c) unconstitutional and denied defendants’ application to dismiss the amended complaint (R. 7-9 [judgment], 10-14 [decision]). The November 2010 judgment did not dispose of plaintiffs’ request for attorney’s fees under 42 U.S.C. § 1988. On November 10, 2010, plaintiffs served appellants by regular mail with a copy of the November 2010 judgment, together with notice of entry (R. 6). Appellants timely filed and served a notice of appeal on December 14, 2010, within thirty-five days of service of notice of entry (R. 3-4). See CPLR 5513(a),(d); 2103(b)(2). By memorandum and order entered March 23, 2012, the Appellate Division affirmed Supreme Court’s judgment declaring PHL § 2808(5)(c) unconstitutional (R. 906-911). Because the Appellate Division’s order did not resolve plaintiffs’ request for attorney’s fees under 42 U.S.C. § 1988, the order was nonfinal. See Burke v. Crosson, 85 N.Y.2d 10, 17- 5 18 (1995). On July 16, 2012, the parties executed, and Supreme Court so-ordered, a stipulation and judgment awarding plaintiffs $170,000 in attorney’s fees under 42 U.S.C. § 1988 (R. 901-905). On August 6, 2012, defendants timely filed and served a notice of appeal, appealing to this Court from the stipulation and judgment, bringing up for review under CPLR 5501(a)(1) the Appellate Division’s prior non-final order declaring PHL § 2808(5)(c) unconstitutional (R. 898-890). See CPLR 5513(a). The issues presented – all of which concern the constitutionality of PHL § 2808(5)(c) – are preserved. They were raised in the amended complaint (R. 697-700), the cross-motions for summary judgment (R. 780-794, 807-812), and in the parties’ Appellate Division briefs. The constitutionality of the statute at issue is a pure question of law. QUESTIONS PRESENTED 1. Whether PHL § 2808(5)(c) as properly construed provides objective standards to guide the Commissioner of Health’s exercise of discretion in reviewing nursing home applications to withdraw equity, and therefore is a proper delegation of legislative authority and is not void for vagueness? 6 2. If this Court finds that the “such other factors” clause in PHL § 2808(5)(c) is an unconstitutional delegation of legislative authority or void for vagueness, whether that clause may properly be severed from the remainder of the statute in order to fulfill the Legislature’s purpose in adopting the prior approval requirement? 3. Whether PHL § 2808(5)(c) is rationally related to the legitimate legislative goal of ensuring that nursing homes remain financially viable and able to provide adequate patient care, and therefore comports with substantive due process? STATEMENT OF THE CASE A. Statutory and Regulatory Background This action challenges the constitutionality of the latest of a series of enactments by the Legislature regulating the ability of nursing home operators to withdraw equity from their facilities. The nursing home industry is pervasively regulated, not only because nursing homes care for the elderly and infirm, but also because in most cases they receive the bulk of their revenue from taxpayer-funded Medicaid payments. 7 Consequently, nearly every aspect of nursing home finances and operation is intensively regulated and overseen by New York State. Nursing homes may not be established without the approval of the Public Health and Health Planning Council and may not operate without an operating certificate issued by the Commissioner of Health. See PHL §§ 2801-a, 2805. Expansions and renovations of the facility also require the Commissioner’s approval. See PHL § 2802. Determination of whether to permit the establishment or construction of a nursing home entails consideration, among other things, of the financial resources of the facility. See PHL § 2801-a(3); 10 NYCRR § 600.1(b)(3). The Commissioner can revoke approval to establish a nursing home upon a finding that the institution has changed its financial condition so as to render unsatisfactory the financial resources of the proposed institution. See 10 NYCRR § 600.5(a)(4). The State also carefully monitors patient care and tightly controls Medicaid reimbursement. Nursing homes are subject to periodic surveys and complaint investigations to determine compliance with minimum standards of care, and their operating certificates are subject to revocation, suspension, or limitation for noncompliance. See PHL 8 § 2806. And a comprehensive rate-setting process determines the reimbursement they will receive from the Medicaid program (R. 809, ¶ 44). To ensure that reimbursement rates are accurate, the Department of Health routinely audits nursing homes’ financial records and cost reports. See 10 NYCRR § 86-2.7; 18 NYCRR § 517.3. Thus, the statutory requirement to obtain the Commissioner’s approval before making significant equity withdrawals is just one aspect of the comprehensive oversight to which New York nursing homes are subject. 1. History of statutory restrictions on equity withdrawals. In general terms, “equity” refers to the amount by which the assets of a nursing home exceed its liabilities, and thus it is a measure of the facility’s solvency. See 10 NYCRR § 400.19(a)(1). An equity withdrawal includes “any transfer of a facility’s cash or other assets directly or indirectly to or for the benefit of its operator.” 10 NYCRR § 400.19(a)(3). Over the years, the Legislature has imposed restrictions on the ability of nursing home operators to withdraw equity from their facilities. These laws arose from a concern that some nursing home 9 operators, by withdrawing too much equity, were endangering their facilities’ financial solvency and ability to provide adequate patient care. The first restriction on equity withdrawals, enacted in 1977, required any nursing home operator to obtain the prior approval of the Commissioner when withdrawing “equity from a facility so as to create or increase a negative net worth, calculated without regard to any surplus created by revaluation of assets.” L. 1977, ch. 521, § 1; PHL former § 2808(5) (McKinney’s 1977). The purpose of this legislation was to “make it more difficult – if not impossible – for unscrupulous or incompetent owners to place their facilities in a financially unsound position by withdrawing excessive amounts of working capital . . . by placing strict controls on . . . owner equity withdrawals.” See L. 1977, ch. 521, Bill Jacket, Budget Report on Bills. The 1977 legislation, however, was ineffective. Nursing home owners routinely ignored the prior approval requirements, and the Legislature found that the existing sanctions provisions were insufficient to deter abuses. See L. 1984, ch. 969, Bill Jacket at 22, letter dated July 16, 1984 from Sen. Tarky Lombardi, Jr. to Gerald C. 10 Crotty, Counsel to the Governor. Consequently, in 1984 the Legislature authorized the Commissioner to require replacement of the withdrawn equity or assets and to impose penalties for violations of the prior approval requirements. L. 1984, ch. 969, § 6. The 1984 amendments also required the Commissioner to make final determinations on requests to withdraw equity or transfer assets within 60 days of receipt of the request. Id. In 2008, the Legislature added PHL § 2808(5)(b) to provide that no nursing home may withdraw equity or transfer assets which in the aggregate exceed 3% of total annual Medicaid revenue in any calendar year “without prior written notification to the commissioner.” See L. 2008, ch. 58, Part C, § 72, as amended by L. 2008, ch. 57, Part OO, § 12. Unlike the prior amendments, which imposed prior approval requirements, the 2008 amendments simply required prior written notification to the Commissioner before a nursing home could withdraw equity in excess of 3% of total annual Medicaid revenues. In 2009, as part of the Long Term Care Reform Act, the Legislature expanded the equity withdrawal requirement to require the Commissioner’s prior approval for equity withdrawals or asset transfers 11 exceeding 3% of total annual Medicaid revenues. See L. 2009, ch. 58, Part D, § 11 (reproduced at R. 833); PHL § 2808(5)(c). Plaintiffs then commenced this action and, in November 2009, Supreme Court issued a preliminary injunction enjoining the Commissioner from enforcing the prior approval requirement of PHL § 2808(5)(c) (R. 688). In response, in 2010 the Legislature amended § 2808(5)(c) to change the threshold for seeking prior approval from 3% of total annual Medicaid revenues to 3% of total revenues. L. 2010, ch. 109, Part B, § 36 (reproduced at R. 852). This is the statute at issue here. In its current form, PHL § 2808(5)(c) specifies explicit criteria to be considered by the Commissioner in reviewing a request to withdraw equity or assets in excess of the 3 % threshold, specifically “the facility’s overall financial condition, any indications of financial distress, whether the facility is delinquent in any payment owed to the department, [and] whether the facility has been cited for immediate jeopardy or substandard quality of care.” The authorization to consider “such other factors as the commissioner deems appropriate” gives the Commissioner the ability to consider other factors of the same type or kind as the first four factors, i.e., factors relating to the financial 12 condition of or quality of care provided by the nursing home. The Department does not interpret this clause to allow the Commissioner to consider factors that are irrelevant to the request or the purpose of the prior approval requirement (R. 808, ¶ 40). 2. Regulatory provisions governing equity withdrawals. In 1977 and again in 1989, the Department of Health promulgated regulations regarding equity withdrawals to implement the existing statutory restrictions on equity withdrawals. 10 NYCRR former §§ 414.16(h) and 730.3(g); 10 NYCRR § 400.19. The regulations set forth criteria for reviewing requests for prior approval to withdraw equity, including: (i) the necessity for the withdrawal; (ii) whether such withdrawal would impair the facility’s ability to render quality care; (iii) any expense which such withdrawal would generate; and (iv) the financial condition of the facility in general. 10 NYCRR § 400.19(c)(3). 13 B. Statement of Facts 1. The Department’s review of equity withdrawal requests for all facilities. As of November 19, 2009, when Supreme Court preliminarily enjoined the prior approval requirement, the Department of Health had received 88 requests under PHL § 2808(5)(c) for approval of equity withdrawals. Of those, 40 requests were in review or awaiting additional information from the nursing home operator (R. 803, ¶ 23). The Department acted upon 48, granting 45 of them in whole or in part. The Department deemed one request withdrawn for failure to respond to two instructions that the application be submitted on the proper forms (R. 803, ¶ 23). The Department denied only two requests. The first denial concerned a facility which was out of compliance with minimum quality of care standards and which had been found to pose immediate jeopardy to the facility’s residents (R. 805, ¶ 29). The second denial involved a request to withdraw $1 million in equity from a facility that already had a negative equity position exceeding $2.4 million (R. 805, ¶ 29). 14 The Department reviewed each withdrawal request to determine if the statutory criteria were met. The threshold question was whether the facility had adequate equity investment or whether there was low or negative equity. In making this determination, the Department excluded equity attributable to “goodwill,” which is not readily available to meet financial needs, and it excluded amounts pledged or used as collateral to guarantee loans or other business interests, as those assets are already encumbered by those obligations (R. 804). The Department does not treat certain types of withdrawals or transfers of assets as equity withdrawals. In evaluating equity withdrawal requests, the Department determines whether the proposed equity withdrawal will be used for nursing home operations. Funds expended for operations, construction, renovation, expansion, purchases of equipment for the facility, or to pay off loans or other financial obligations related to the operation of the facility, are not treated as equity withdrawals (R. 804). Many requests to withdraw equity are made to pay taxes. Where the facility directly pays its own taxes, the Department does not consider the payment an equity withdrawal. But where the nursing 15 home is a partnership or subchapter-S corporation, the nursing home’s income taxes are reported and paid by the operator. In reviewing these requests, the Department, without regard to the facility’s equity, has approved withdrawals to make tax payments to the extent the taxes were attributable to the nursing home and were not attributable to the operator’s other income unrelated to the nursing home. Equity withdrawals such as these account for many of the partial approvals (R. 804, ¶ 27). Where facilities met all the statutory criteria, requests were approved in full. Nineteen of the approved requests exceeded $1 million with the two largest being $4.5 million and $3.72 million (R. 805). 2. Equity withdrawal requests by the named plaintiffs. With respect to requests by the named plaintiffs to withdraw equity, the Department had either approved the requests in whole or in part, requested additional information, or was reviewing the applications when the preliminary injunction was entered in November 2009 enjoining the prior approval requirement (R. 805-807, 853-861, 863-868, 870-871). These requests predated the 2010 amendments to 16 PHL § 2808(5)(c), which have significantly increased the threshold at which prior approval of equity withdrawals is required (i.e., higher amounts may be withdrawn without the Commissioner’s prior approval) (R. 803): Old Threshold- New Threshold- 3% of 2008 3% of 2008 Total Medicaid Revenue Revenue The Brightonian Nursing Home $ 58,210 $ 159,292 Bayberry Nursing Home $ 57,895 $ 173,359 Maplewood Nursing & Rehabilitation $ 32,985 $ 285,775 Leroy Village $ 126,104 $ 302,337 Elderwood Healthcare at Birchwood $ 132,282 $ 491,286. C. This Action In September 2009, plaintiffs – five for-profit nursing homes and the New York State Health Facilities Association – commenced this action in Supreme Court, Monroe County, to challenge the constitutionality of the 2009 version of PHL § 2808(5)(c) (R. 17-32). In November 2009, Supreme Court issued a preliminary injunction enjoining defendants, the Commissioner of Health and the Governor, from enforcing the prior approval requirement in § 2808(5)(c). 17 Brightonian Nursing Home v. Daines, 26 Misc. 3d 735 (Sup. Ct. Monroe Co. 2009). After the Legislature amended § 2808(5)(c) in 2010 to change the threshold for seeking prior approval from 3% of total annual Medicaid revenues to 3% of total revenues (L. 2010, ch. 109, Part B, § 36), plaintiffs served an amended complaint to challenge the most recent version of the statute (R. 690-701). The amended complaint alleges that the statute as amended in 2010 violates the New York and U.S. constitutions, both on its face and as applied, because it contains an improper delegation of legislative authority, is void for vagueness, deprives plaintiffs of due process and equal protection, and impairs plaintiffs’ pre-existing contractual obligations (R. 698-699). Plaintiffs request declaratory and injunctive relief and an award of attorney’s fees under 42 U.S.C. § 1988 (R. 699-700). Defendants answered the amended complaint, and the parties cross-moved for summary judgment. Defendants also moved to vacate the preliminary injunction (R. 771). 18 DECISION OF SUPREME COURT Supreme Court granted plaintiffs summary judgment on three grounds. First, the court concluded that the statute’s provision authorizing the Commissioner to consider “such other factors as the Commissioner deems appropriate” was so broad as to have no limits (R. 12-13). Accordingly, the court held that this provision was an improper delegation of legislative authority and was void for vagueness (R. 13). Second, Supreme Court found that the statute violated plaintiffs’ substantive due process rights. In the court’s view, there was no rational relationship between the 3% threshold and the financial viability of a nursing home (R. 14). While defendants asserted that plaintiffs can bring an article 78 proceeding to challenge a denial of a request to withdraw equity, the court considered this remedy to be “a burden” that unduly impaired plaintiffs’ ability to meet their financial obligations (R. 14). Third, the court found that the statute violated plaintiffs’ First Amendment rights. According to the court, the statute “leaves the possibility open” that it would have a chilling effect on plaintiffs’ ability 19 to challenge decisions of the Commissioner or to support political activities that may be contrary to the Commissioner’s positions (R. 14). DECISION OF THE APPELLATE DIVISION The Appellate Division affirmed Supreme Court’s order declaring the statute unconstitutional. 93 A.D.3d 1355 (4th Dep’t 2012). The court agreed with Supreme Court that the statute’s “such other factors” provision was an unconstitutional delegation of legislative authority and was void for vagueness (R. 907-908). The Appellate Division did not address defendants’ argument that this provision should be severed if it was found unconstitutional, because in the court’s view the statute in its entirety violated plaintiffs’ right to substantive due process (R. 908-910). While Supreme Court had concluded that the 3% threshold for seeking prior approval was arbitrary, the Appellate Division did not reach this issue. Instead, it concluded that the prior approval requirement in section 2808(5)(c) did not bear a reasonable relationship to the objective of safeguarding a nursing home’s finances for the protection of its residents (R. 909-910). In light of this ruling, 20 the Appellate Division did not address plaintiffs’ other constitutional arguments. ARGUMENT PHL § 2808(5)(C) IS CONSTITUTIONAL PHL § 2808(5)(c) enjoys a strong presumption of constitutionality, grounded in part on “an awareness of the respect due the legislative branch.” Dunlea v. Anderson, 66 N.Y.2d 265, 267 (1985). And “courts must avoid, if possible, interpreting a presumptively valid statute in a way that will needlessly render it unconstitutional.” Lavalle v. Hayden, 98 N.Y.2d 155, 161 (2002). To prevail here, plaintiffs bear the heavy burden of establishing the statute’s unconstitutionality “beyond a reasonable doubt.” Matter of E.S. v. P.D., 8 N.Y.3d 150, 158 (2007) (internal quotation and citation omitted). Contrary to the Appellate Division’s conclusion, plaintiffs have failed to carry that burden. 21 POINT I PLAINTIFFS' CHALLENGE IS A FACIAL ONE AND THEY FAILED TO SATISFY THE STRINGENT REQUIREMENTS FOR A FACIAL CHALLENGE Although plaintiffs allege they are challenging the statute both on its face and as applied (R. 699, ¶ 48), in the lower courts they did not attempt to show that the statute had been unconstitutionally applied to them in any particular instance. Their arguments rest not on any actual denial of a request to withdraw equity but on speculative and hypothetical assertions about how the Commissioner might conceivably deny requests to withdraw equity in an arbitrary or retaliatory manner. Accordingly, their challenge to the statute is solely a facial challenge. This dooms their case, for “[a] party mounting a facial constitutional challenge bears the substantial burden of demonstrating that in any degree and in every conceivable application, the law suffers wholesale constitutional impairment.” Matter of Moran Towing Corp. v. Urbach, 99 N.Y.2d 443, 448 (2003) (internal quotes omitted). Although the Appellate Division recognized that this is a facial challenge, it erred in concluding that PHL § 2808(5)(c) is unconstitutional in any degree and in every conceivable application. 22 The Commissioner submitted uncontroverted evidence below that the Department had consistently applied the statute reasonably. Specifically, as of November 19, 2009, when Supreme Court enjoined the operation of the statute, DOH had received 88 requests under section 2808(5)(c) for approval of equity withdrawals (R. 803, ¶ 23). Of those, DOH had acted upon 48, granting 45 of them in whole or in part. One request was deemed withdrawn for failure to submit the application on the proper forms. DOH denied only two applications, one of which concerned a facility that was out of compliance with minimum quality of care standards and which had been found to pose immediate jeopardy to the health and safety of the facility’s residents (R. 570-571; 805, ¶ 29). The other denial involved a request to withdraw $1 million in equity from a facility which already had a negative equity position exceeding $2.4 million (R. 594; 805, ¶ 29). Plaintiffs did not contend below that these two denials – neither of which involved any of the named plaintiffs – were arbitrary or unreasonable. While the Appellate Division found the “such other factors” clause an improper delegation of legislative authority and unduly vague, it 23 overlooked that the Commissioner did not invoke this clause even once in deciding the 48 applications before the issuance of the preliminary injunction (R. 808-809, ¶ 42). Inasmuch as this is a facial challenge, plaintiffs cannot prevail by simply suggesting that the Commissioner might one day invoke the “such other factors” provision to deny an equity withdrawal for an improper reason. Thus, plaintiffs did not show that § 2808(5)(c) is unconstitutional in every conceivable application, and as a result, plaintiffs failed to establish that the statute is unconstitutional on its face. For this reason alone, this Court should reject plaintiffs’ constitutional challenges to § 2808(5)(c). In addition, as we explain at Points II and III below, the statute is not an improper delegation or void for vagueness and it comports with substantive due process. POINT II PHL § 2808(5)(C) IS A CONSTITUTIONAL DELEGATION OF AUTHORITY TO THE COMMISSIONER AND IS NOT VOID FOR VAGUENESS The Appellate Division erred in finding that PHL § 2808(5)(c) was an invalid delegation of the Legislature’s authority to the Commissioner and was also void for vagueness. Both findings rested on the court’s 24 mistaken interpretation of the statute’s “such other factors” provision, which, in addition to the four specific criteria regarding the facility’s financial condition and the quality of its care, directs the Commissioner to consider “such other factors as [he] deems appropriate.” As we explain below, the Appellate Division erred in construing that clause as delegating unlimited discretion to the Commissioner. The Commissioner’s authority in this provision is rooted in, and thus limited by, considerations similar to the four specific criteria regarding facility finances and patient care. Properly construed, the “such other factors” provision is not an improper delegation or void for vagueness. A. The Statute Does Not Improperly Delegate Legislative Authority To DOH. Contrary to the Appellate Division’s finding, § 2808(5)(c) is a valid delegation because it contains sufficiently objective standards to limit the Commissioner’s discretion within constitutional bounds. “Derived from the separation of powers doctrine, the principle that the legislative branch may not delegate all its lawmaking powers to the executive branch has been applied with the utmost reluctance.” Boreali v. Axelrod, 71 N.Y.2d 1, 9 (1987). Although the Legislature cannot 25 permissibly delegate all of its law-making functions to other bodies, “there is no constitutional prohibition against the delegation of power, with reasonable safeguards and standards, to an agency or commission to administer the law as enacted by the Legislature.” Levine v. Whalen, 39 N.Y.2d 510, 515 (1976). Indeed, the Legislature “has considerable latitude in determining the reasonable and practicable point of generality in adopting a standard for administrative action and, thus, ‘a reasonable amount of discretion may be delegated to the administrative officials.’” Matter of Big Apple Food Vendors Assn. v. Street Vendor Review Panel, 90 N.Y.2d 402, 407 (1997) (quoting Levine v. Whalen, 39 N.Y.2d at 515-16). The Legislature did not exceed its considerable latitude here. The statute provides that, in reviewing applications to withdraw equity, the Commissioner shall consider the following factors: 1. the facility’s overall financial condition, 2. any indications of financial distress, 3. whether the facility is delinquent in any payment owed to the Department, 4. whether the facility has been cited for immediate jeopardy or substandard quality of care, and 5. such other factors as the Commissioner deems appropriate. 26 PHL § 2808(5)(c). The Appellate Division expressed no concern with the first four factors, all of which are objective and rationally related to the statutory purpose of ensuring the financial viability of nursing homes and the quality of the care they provide. The court took issue only with the last provision, which permits consideration of “such other factors as the Commissioner deems appropriate,” finding that it gave the Commissioner unbridled discretion to deny a request to withdraw equity (R. 907-908). The Appellate Division erred in interpreting this provision so broadly. It ignored this Court’s admonition in Lavalle not to construe “a presumptively valid statute in a way that will needlessly render it unconstitutional.” Lavalle, 98 N.Y.2d at 161. In addition, the Appellate Division deviated from another fundamental canon of statutory interpretation, ejusdem generis, which counseled a narrow construction of the clause: where statutory language “is a general catchall term that follows a list of more specific words, . . . the words constituting general language . . . are not to be given the most expansive meaning possible, but are held to apply only to the same general kind or class as those specifically mentioned.” Miranda v. Norstar Bldg. Corporation, 79 27 A.D.3d 42, 47 (3d Dep’t 2010) (internal quotation and citation omitted); see also Manhattan Pizza Hut, Inc. v. New York State Human Rights Appeal Bd., 51 N.Y.2d 506, 512 (1980) (“general phraseology will be taken to have been ‘limited… by the specific words which precede it’” (quoting People v. Illardo, 48 N.Y.2d 408, 416 (1979)); McKinney’s Consol. Laws of N.Y., Book 1, Statutes § 239(b). Applying this limiting principle here, the Appellate Division should have construed the “such other factors” provision not as conferring unlimited discretion, but as authorizing the Commissioner to consider other factors of the same type or kind as the first four factors, i.e., factors relating to the financial condition of or quality of care provided by the nursing home. Examples of these other relevant factors are found in the Commissioner’s regulations promulgated before the enactment of the 2010 version of the statute challenged here, specifically 10 NYCRR § 400.19(c)(3) governing equity withdrawals. This regulation provides for consideration of criteria similar to the criteria in the statute, including “the necessity for the withdrawal”; “whether such withdrawal would impair the facility’s ability to render quality care”; and “any expense which such withdrawal would 28 generate.” These additional criteria are of the same type or kind as those listed in the statute and are not unduly subjective but are capable of objective evaluation and meaningful judicial review. The Appellate Division’s reasons for not construing the statute in this manner are unpersuasive. According to the court, the ejusdem generis canon of construction does not apply here because the enumerated factors preceding the “such other factors” phrase are general in nature and not all of the same kind or type (R. 908). But this canon is not restricted to statutory enumerations of a single kind or type. To the contrary, this maxim provides that “‘where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.’” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 114-15 (2001) (quoting 2A N. Singer, Sutherland on Statutes and Statutory Construction § 47.17 [1991]) (emphasis added). Under this canon, similar clauses “are to be read as bringing within a statute categories similar in type to those [categories] specifically enumerated.” Federal Maritime Commission v. Seatrain Lines, Inc., 411 U.S. 726, 734 (1973). Thus, here the canon applies to 29 limit the statutory language to factors of the same kind or class as the enumerated factors pertaining to facility financial condition or quality of care. Similarly incorrect is the Appellate Division’s conclusion that the enumerated factors preceding the “such other factors” phrase are all “general in nature” and not susceptible to being categorized into common types or classes. The first three enumerated factors – the facility’s overall financial condition, any indications of financial distress, and whether the facility is delinquent in any payment owed to the Department – all relate to the financial condition of the facility. And the fourth factor – whether the facility has been cited for immediate jeopardy or substandard quality of care – relates to the quality of care provided by the nursing home. All four factors are of the same type: they all reflect the overriding legislative purpose of ensuring that the equity withdrawal does not jeopardize the nursing home’s ability to operate consistent with quality of care standards. Thus, in authorizing consideration of “such other factors as the commissioner deems appropriate,” it is apparent that the Legislature intended to allow consideration of other factors relating 30 only to the financial condition of or quality of care provided by the nursing home. Two brief examples support this proposition. Suppose a nursing home owner was recently convicted of Medicaid fraud and requested permission to make a substantial equity withdrawal. This conviction would not fall squarely under the specifically enumerated factors, but the Commissioner could properly take it into account under the “such other factors” provision because it is relevant to the facility’s financial condition. Or suppose that the Medicaid Inspector General issued a draft audit report finding substantial Medicaid overpayments. Such a preliminary finding, though not covered by the specifically enumerated factors, would be relevant in determining if a request to withdraw substantial equity would imperil the facility’s financial viability and ability to provide adequate care. In fact, courts throughout the country have invoked the ejusdem generis canon in upholding the constitutionality of similar provisions. In People v. Gates, 41 Cal.App.3d 590, 116 Cal Rptr. 172 (Cal. App. First Dist. 1974), a zoning ordinance authorized a planning commission to recommend the termination of a property owner’s nonconforming use 31 after considering certain specific factors, such as the adaptability of the land to a conforming use, and “other related factors.” The property owner argued that the ordinance deprived him of due process because the term “other related factors” was unduly vague and indefinite. 116 Cal Rptr. at 176. Rejecting this contention, the court cited the ejusdem generis canon and held that the provision authorized the planning commission to consider only factors of a similar type or kind as the specifically enumerated factors. Id. Like the statute at issue here, the specifically enumerated factors in the ordinance at issue in Gates were not all of the same type or kind. See also Binkowski v. State, 322 N.J. Super. 359, 731 A.2d 64 (1999) (invoking the ejusdem generis canon to reject constitutional challenge to similar provision in hunter harassment statute); State of New Jersey v. Hoffman, 149 N.J. 564, 695 A.2d 236, 245-46 (1997) (invoking the ejusdem generis canon to reject constitutional challenge to “any other manner” provision of anti- harassment statute). Thus, the Appellate Division erred in interpreting PHL § 2808(5)(c) as conferring unfettered discretion on the Commissioner to deny equity withdrawals for any reason at all. Instead, the court 32 should have interpreted the statute as providing adequate standards to limit the exercise of discretion in carrying out the statute’s legitimate purposes as the Legislature contemplated. Accordingly, this Court should declare that PHL § 2808(5)(c) is a permissible delegation of legislative authority. B. The Statute Is Not Void For Vagueness. For similar reasons, the Appellate Division erred in ruling that PHL § 2808(5)(c) is void for vagueness. A statute withstands attack for vagueness if it contains sufficient standards to safeguard against arbitrary enforcement so that a person of ordinary intelligence is not forced to guess at its meaning. Matter of Kaur v. New York State Urban Development Corp., 15 N.Y.3d 235, 256 (2010); see also Foss v. City of Rochester, 65 N.Y.2d 247, 253 (1985); Montgomery v. Daniels, 38 N.Y.2d 41, 58 (1975). The statute at issue here contains sufficient standards to withstand a vagueness attack. For the reasons explained above, as properly construed, PHL § 2808(5)(c) and the Commissioner’s regulations contain standards that all relate to the financial condition 33 of the nursing home and its ability to provide quality care. These standards are sufficiently clear to notify the facility operators of the criteria that the Commissioner will apply and to safeguard against arbitrary denials of requests to withdraw equity. The statute is therefore not void for vagueness. C. If The “Such Other Factors” Clause Renders PHL § 2808(5)(c) Unconstitutional, It Should Be Severed From The Remainder Of The Statute. PHL § 2808(5)(c) is a valid legislative delegation of authority to the Commissioner and is not unconstitutionally vague. But if this Court disagrees and concludes that the “such other factors” clause renders the statute unconstitutional for any reason, then the Court should not strike down the entire enactment as the Appellate Division did. Instead, the Court should sever the clause from the rest of the statute. When part of an enactment is found unconstitutional, the question becomes “whether the legislature, if partial invalidity had been foreseen, would have wished the statute to be enforced with the invalid part exscinded, or rejected altogether.” People ex rel. Alpha Portland 34 Cement Co. v. Knapp, 230 N.Y. 48, 59 (1920); see CWM Chem. Servs., LLC v. Roth, 6 N.Y.3d 410, 423 (2006). This is a question of legislative intent. Although the statute here does not contain a severability clause, “the ultimate determination of severability will rarely turn on the presence or absence of such a clause.” United States v. Jackson, 390 U.S. 570, 585 n. 27 (1968). Plaintiffs have not demonstrated that the Legislature considered the “such other factors” provision to be essential to the operation of the statute. On the contrary, the legislative history of PHL § 2808(5)(c) establishes just the opposite. The Legislature was concerned that equity withdrawals not impair the facility’s financial position and quality of care. And, as mentioned above, the Commissioner did not once invoke the clause in deciding 48 applications before the issuance of the preliminary injunction (R. 803-804; 808-809, ¶ 42). In contrast to the situation in CWM, 6 N.Y.3d at 423-25, severance here would not upset any legislative balance of competing interests and would effectuate rather than undermine the statutory objective. If necessary to preserve the statute, PHL § 2808(5)(c) could accomplish its salutary purposes without the “such other factors” clause. Accordingly, if the 35 Court concludes that the clause renders the statute unconstitutional, it should sever it and uphold the remainder of the statute. POINT III THE STATUTE DOES NOT DEPRIVE PLAINTIFFS OF SUBSTANTIVE DUE PROCESS The Appellate Division also erred in concluding that the statute deprives plaintiffs of substantive due process by restricting the ability of nursing home owners to freely withdraw equity from their facilities. This Court has explained that “modern substantive due process principles require that the judiciary give great deference to the Legislature” regarding “economic legislation” such as that involved here, and further that “[w]hen reviewing such legislation, the courts may not concern themselves with its ultimate wisdom; the legislation must be sustained if it has any reasonable relation to the State’s legitimate interests.” Rochester Gas & Electric Corp. v. Public Serv. Comm’n, 71 N.Y.2d 313, 320 (1988). A substantive due process violation occurs only when “the governmental action was wholly without legal justification.” Bower Assoc. v. Town of Pleasant Valley, 2 N.Y.3d 617, 627 (2004); see Raynor 36 v. Landmark Chrysler, 18 N.Y.3d 48, 59 (2011). To be arbitrary in the constitutional sense, the government’s actions must be conscience- shocking or outrageously oppressive, and “not merely incorrect or ill- advised.” Ferran v. Town of Nassau, 471 F.3d 363, 370 (2d Cir. 2006) (internal quote omitted); see also Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for So. Cal., 508 U.S. 602, 636-37 (1993). This deferential standard of review is especially appropriate when considering “legislative [a]cts adjusting the burdens and benefits of economic life.” Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976). The prior approval requirement of PHL § 2808(5)(c) is well within the wide range of economic regulation permitted by the due process clause. A. The Prior Approval Requirement Furthers Legitimate State Interests. Here, the State exercised its police power to ensure the welfare of its most vulnerable citizens, the elderly and the infirm. The Legislature did so by requiring that nursing home operators – participants in a business every aspect of which is already pervasively regulated – must obtain the Commissioner’s approval before withdrawing significant 37 assets from the nursing homes. The prior approval requirement seeks to preserve the financial viability of nursing homes in order to safeguard the health and welfare of the nursing homes’ residents and protect the public fisc. The Legislature could rationally conclude that allowing the Commissioner to review significant equity withdrawals only after they occur would insufficiently protect these legitimate state interests, because the harms that the statute seeks to avoid could already have happened and be irreparable. Thus, the prior approval requirement does not violate plaintiffs’ substantive due process rights. The Appellate Division was mistaken in concluding that the prior approval requirement in § 2808(5)(c) is unnecessary and unreasonable. According to the Appellate Division, it is unreasonable to require prior approval where the equity withdrawal exceeds 3% of total revenues because (1) prior notification is required in such circumstances under § 2808(5)(b) and (2) prior approval is required under § 2808(5)(a) if the withdrawal will create or increase a negative net worth (R. 909-910). In the court’s view, “those subdivisions sufficiently protect nursing home residents and the public from excessive withdrawals of equity that may endanger a nursing home’s financial health” (R. 910). 38 The Appellate Division erred because it substituted its judgment for that of the Legislature as to the need for and wisdom of the prior approval requirement in § 2808(5)(c). See Montgomery v. Daniels, 38 N.Y.2d at 56. Implicit in the court’s reasoning is the view that the Legislature has no business restricting the ability of nursing home owners to withdraw equity from their facilities if they have positive equity (assets in excess of liabilities) and the withdrawal will not create negative equity. But the Legislature could rationally conclude that prior approval is warranted in these circumstances. Significant equity withdrawals, even if they do not create negative equity, could so reduce the facility’s assets as to impair its ability to operate and provide adequate care. For example, suppose a nursing home owner makes a substantial equity withdrawal that drains the business of nearly all of its cash. The facility may still have positive equity after the withdrawal (e.g., the value of the real property, equipment, and the building may exceed its total liabilities), but its lack of cash may imperil its ability to operate and provide adequate care. In such a circumstance, the pre-existing provisions plainly would be inadequate: prior approval under 39 § 2808(5)(a) would not be required, and prior notification under § 2808(5)(b) would not prevent the harm before it occurred. Under the substantive due process principles applicable to economic regulatory legislation such as § 2808(5)(c), the Legislature’s judgment as to the necessity of the prior approval requirement is entitled to deference and the Court should uphold it. B. The 3% Threshold Is Rational And Does Not Violate Substantive Due Process. Although the Appellate Division did not reach the issue, Supreme Court erred in concluding that the 3% threshold was irrational. “Where a police power enactment is challenged on due process grounds, the test is whether there is ‘some fair, just and reasonable connection between it and the promotion of the health, comfort, safety and welfare of society.’” Pharmaceutical Manufacturers Association v. Whalen, 54 N.Y.2d 486, 493 (1981) (quoting Montgomery v. Daniels, 38 N.Y.2d at 54). Plaintiffs did not dispute that insuring the solvency of nursing homes was a legitimate state interest, but Supreme Court concluded that the 3% threshold was not reasonably related to that interest. 40 Because they attack the rational connection between the means and the ends chosen by the Legislature, plaintiffs’ burden is especially heavy. To sustain the challenged law, this Court need not conclude that the 3% threshold “represents the only or necessarily the wisest” means to accomplish the objective sought. Montgomery v. Daniels, 38 N.Y.2d at 56. Even if there were other effective ways to accomplish the legislative goal, the Court should not substitute its judgment for that of the Legislature “in determining the particular method to meet a given need.” Id. “[U]nder the deferential standard of review applied in substantive due process challenges to economic legislation there is no need for mathematical precision in the fit between justification and means.” Concrete Pipe, 508 U.S. at 639. Here, the 3% threshold survives rational basis review. It is not a cap or strict limit on the amount of equity that a nursing home operator may withdraw from the business. Thus, the Appellate Division mistakenly characterized the 3% threshold as a “freeze” (R. 909). To the contrary, it is merely a threshold for determining when a nursing home operator must apply for the Commissioner’s approval to withdraw equity. The evident purpose of the 3% threshold is to exclude many 41 small equity withdrawals in a given year from the requirement for prior approval. With respect to the named plaintiffs, depending on the facility, the 3% threshold allowed them to withdraw substantial amounts without triggering the pre-approval requirement: in 2010, between $159,292 (Brightonian Nursing Home) and $491,286 (Elderwood Healthcare) in a calendar year (R. 803). As this Court recognized in upholding the $500 monetary threshold for a serious injury in the no-fault insurance context, any threshold or line-drawing, viewed in isolation, might appear to be arbitrary. Montgomery v. Daniels, 38 N.Y.2d at 65. “‘But when it is seen that a line or point there must be, and that there is no mathematical or logical way of fixing it precisely, the decision of the legislature must be accepted unless we can say that it is very wide of any reasonable mark.’” Montgomery v. Daniels, 38 N.Y.2d at 65 (quoting Louisville Gas Co. v. Coleman, 277 U.S. 32, 41 [1928] (Holmes, J., dissenting)). The current threshold, requiring an application for equity withdrawals exceeding 3% of the facility’s revenue, is itself a modification of the initially enacted threshold, which required an 42 application when the equity withdrawal exceeded 3% of the facility’s Medicaid revenue. The Legislature enacted this change in 2010 in response to plaintiffs’ objections at an earlier stage of this action that there was no relationship between a facility’s percentage of Medicaid revenue and its financial viability. Plaintiffs did not even suggest an alternative threshold or method for determining when an application must be submitted, and there is no readily available and mathematically precise formula for determining when an application to withdraw equity should be submitted for prior approval. And the argument that “there is no rational connection between a facility’s total revenue and a facility’s financial health” (R. 13) is wholly devoid of merit. Accordingly, the 3% of revenue threshold chosen by the Legislature should be upheld as rational. C. The Approval Process Does Not Evaluate The Reasonableness Of The Personal Spending Choices Of Nursing Home Operators. Nor is there merit to plaintiffs’ argument that the statute violates substantive due process because it allows the Commissioner to evaluate the reasonableness of the personal spending choices of nursing home 43 operators. The statute does no such thing. To the contrary, the statute authorizes the Commissioner to determine, without regard to the private purpose of the withdrawal, what its consequences would be, namely, if the equity withdrawal would imperil the ability of the nursing home to operate and provide adequate care. This distinction is evident from the information requested in the application form that nursing homes must submit to withdraw equity or transfer assets (R. 623-624). The form asks if any part of the withdrawal or asset transfer will be used in furtherance of nursing home operations; if the answer is “yes,” the form asks for additional information (R. 623 [question 2], 624 [question 2]). This information is requested because transfers for capital improvements do not require prior approval, and the Department must determine if this exception applies (R. 624). But if the answer is “no,” meaning that the withdrawal or asset transfer is unrelated to facility operations, the form does not require the nursing home to provide any information regarding the private purpose of the expenditure. The private purpose of the withdrawal or transfer – whether it be to pay college tuition, to make home improvements, or to make a campaign contribution – is 44 irrelevant. The only inquiry is the effect that the requested withdrawal or asset transfer will have on facility operations and the ability to provide patient care. Attempting to show otherwise, plaintiffs argued below that Department regulations authorize it to consider the “necessity for the withdrawal.” See 10 NYCRR § 400.19(c)(3)(i). But the regulation contemplates consideration of the business necessity, not the private need, for the withdrawal. In any event, plaintiffs’ objection in this regard is directed not at the statute but at the regulation. If the Department were to deny a request to withdraw equity because it did not approve of the private purpose of the withdrawal – and there is no showing that it ever has actually done so – that action would be subject to judicial review in an article 78 proceeding; the hypothetical possibility that the agency might abuse its discretion in a particular case does not establish that the statute is facially unconstitutional. Finally, plaintiffs’ characterization of their spending choices as “personal” has less force regarding the pervasively regulated business-- for profit nursing homes--in which they have voluntarily chosen to engage. The nursing homes’ equity accounts are properly the subject of 45 the Commissioner’s oversight and are not equivalent to plaintiffs’ private bank accounts. Consequently, the limited degree of supervision that PHL § 2808(5)(c) requires of the Commissioner, prior approval of nursing home equity withdrawals in excess of 3% of total revenue, is rational and reasonable and does not contravene substantive due process principles. In sum, the statute does not unreasonably and unnecessarily interfere with the private spending choices of nursing home operators. For all these reasons, PHL § 2808(5)(c) is constitutional and should be upheld. 46 CONCLUSION The Court should reverse the stipulation and judgment as well as the Appellate Division’s order, and declare that PHL § 2808(5)(c) is constitutional. In the alternative, if the Court finds that the ”such other factors” clause is unconstitutional, it should sever that provision and declare the remainder of the statute constitutional. Dated: Albany, New York January 17, 2013 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 York Attorney for Appellants By: _____________________________ VICTOR PALADINO Assistant Solicitor General Office of the Attorney General The Capitol Albany, New York 12224 Telephone (518) 473-4321 Reproduced on Recycled Paper