In the Matter of County of Broome, Respondent,v.Nirav R. Shah,, et al., Appellants.

Brief

N.Y.February 14, 2017

519909 To be argued by: VICTOR PALADINO 10 minutes requested Supreme Court, Broome County – Index No. 2014-0090 Supreme Court of the State of New York Appellate Division – Third Department IN THE MATTER OF THE APPLICATION OF COUNTY OF BROOME, Respondent, -against- NIRAV R. SHAH, AS COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF HEALTH AND THE NEW YORK STATE DEPARTMENT OF HEALTH, Appellants. BRIEF FOR APPELLANTS 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) 776-2012 OAG No. 14-174532 Dated: January 8, 2015 Reproduced on Recycled Paper Table of Contents Page Table of Authorities ............................................................................................ iii Preliminary Statement .........................................................................................1 Questions Presented .............................................................................................3 Statement of the Case ..........................................................................................3 A. Pre-2006 Statutory and Regulatory Background Regarding Overburden Claims ........................................................3 B. The Medicaid Cap Statute ................................................................5 C. Prior Litigation Involving the Cap Statute .....................................7 D. The 2012 amendment to the Medicaid Cap Statute .......................8 E. This Court’s decision in County of St. Lawrence v. Shah and the Fourth Department’s decision in County of Niagara v. Shah interpreting the 2012 amendment ................................................ 10 F. Statement of Facts ......................................................................... 11 G. This proceeding .............................................................................. 12 Argument POINT I THE 2012 AMENDMENT IS CONSTITUTIONAL ................................. 13 A. The County has no due process clause claim against the State regarding the 2012 Amendment ................................... 15 B. The 2012 amendment is constitutional under a due process vested rights analysis .................................................................... 21 1. The 2012 Amendment is not unfair .................................... 23 ii Table of Contents (cont’d) Page ARGUMENT, POINT I, B (cont’d) 2. The County had at most a minimal reliance interest based on prior law ................................................................ 27 3. The extent of retroactivity is not excessive ........................ 29 4. The 2012 Amendment serves an important public interest ................................................................................. 31 POINT II THE COUNTY LACKS A CLEAR LEGAL RIGHT TO MANDAMUS RELIEF DIRECTING THE DEPARTMENT OF HEALTH TO CALCULATE AND DETERMINE ALL OUTSTANDING OVERBURDEN LIABILITIES ..................................................................................... 32 Conclusion ............................................................................................... 34 Addendum ............................................................................................... A1 iii Table of Authorities Cases Page Alliance of American Insurers v. Chu, 77 N.Y.2d 573 (1991) .................................................................................... 22,31 Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475 (1954), appeal dismissed, 351 U.S. 922 (1956) .......................... 18 Brothers v. Florence, 95 N.Y.2d 290 (2000) ......................................................................................... 24 Chrysler Properties, Matter of v. Morris, 23 N.Y.2d 515 (1969) ......................................................................................... 22 City of E. St. Louis v. Cir. Ct. for the Twentieth Jud. Cir., St. Clair Cnty, Ill., 986 F.2d 1142 (7th Cir. 1993) ........................................................................... 17 City of New York v. Richardson, 473 F.2d 923 (2d Cir.), cert. denied, 412 U.S. 950 (1973) ................................ 17 City of New York v. State of New York, 86 N.Y.2d 286 (1995) ............................................................................... 17,20,31 Correa-Ruiz v. Fortuno, 573 F.3d 1 (1st Cir. 2009) ................................................................................. 26 County of Chemung, Matter of v. Shah, __ A.D.3d __ (Jan. 8, 2015) ....................................................................... 2,11,13 County of Herkimer, Matter of v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 707 (2009) ........................... 7 County of Niagara, Matter of v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009) ........................... 7 County of Niagara, Matter of v. Daines, 79 A.D.3d 1702 (4th Dep’t 2010), lv. denied, 17 N.Y.3d 703 (2011) ............... 7,8 County of Niagara, Matter of v. Daines, 91 A.D.3d 1288 (4th Dep’t 2012) ........................................................................ 8 County of Niagara, Matter of v. Shah, 2014 N.Y. App. Div. LEXIS 7738 (4th Dep’t Nov. 14, 2014) .............. 2,11,32,33 iv Table of Authorities (cont’d) Cases (cont’d) Page County of St. Lawrence, Matter of v. Daines, 81 A.D.3d 212 (3d Dep’t), lv. denied, 17 N.Y.3d 703 (2011) ............................ 7,8 County of St. Lawrence, Matter of v. Shah, 95 A.D.3d 1548 (3d Dep’t 2012) ........................................................................... 8 County of St. Lawrence, Matter of v. Shah, 2014 N.Y. App. Div. LEXIS 8230 (3d Dep’t November 26, 2014), motion for lv. pending ................................................................................ passim Dalton v. Pataki, 5 N.Y.3d 243, cert. denied, 546 U.S. 1032 (2005) ............................................... 14 E.S., Matter of v. P.D., 8 N.Y.3d 150 (2007) ........................................................................................... 15 Gattis v. Gravett, 806 F.2d 778 (8th Cir. 1986) ............................................................................... 26 Held v. State of New York Workers’ Compensation Board, 85 A.D.3d 35 (3d Dep’t), appeal dismissed, lv. denied, 17 N.Y.3d 837 (2011) .......................................................................................... 30 Hernandez v. Robles, 7 N.Y.3d 338 (2006) ........................................................................................... 18 Hodes, Matter of v. Axelrod, 70 N.Y.2d 364 (1987) .................................................................................... 21,22 Ideal Mutual Insurance Co., Matter of v. Superintendent of Insurance, 82 A.D.3d 518 (1st Dep’t 2011) ......................................................................... 29 In Re Real Est. Title & Settlement Servs. Antitrust Litig., 869 F.2d 760 (3d Cir. 1989) .............................................................................. 18 Jeter, Matter of v. Ellenville Central School District, 41 N.Y.2d 283 (1977) .................................................................................... 19,20 Krauskopf, Matter of v. Perales, 139 A.D.2d 147 (3d Dep’t 1988), aff’d, 74 N.Y.2d 730 (1989) .......................... 20 v Table of Authorities (cont’d) Cases (cont’d) Page Krauskopf, Matter of v. Perales, 74 N.Y.2d 730 (1989) ........................................................................................... 4 OnBank & Trust Co., Matter of, 90 N.Y.2d 725 (1997) ......................................................................................... 30 Roman Catholic Diocese of Albany, N.Y. v. New York State Workers’ Compensation Board,23 96 A.D.3d 1288 (3d Dep’t 2012) ........................................................................ 24 Silver v. Pataki, 96 N.Y.2d 532 (2001) ......................................................................................... 20 South Carolina v. Katzenbach, 383 U.S. 301 (1966) ........................................................................................... 17 South Dakota v. United States DOI, 665 F.3d 986 (8th Cir. 2012) ............................................................................. 18 South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500 (6th Cir. 1986) ............................................................................. 20 Trenton v. New Jersey, 262 U.S. 182 (1923) ........................................................................................... 17 United States v. Locke, 471 U.S. 84 (1985) ............................................................................................. 26 Williams v. Mayor, 289 U.S. 36 (1933) ............................................................................................. 17 New York State Constitution article I, § 6 .............................................................................................. 3,12,15 State Statutes C.P.L.R. article 78 ......................................................................................................... 7,12 vi Table of Authorities (cont’d) State Statutes (cont’d) Page S.S.L. § 368-a ....................................................................................................... 6,12,16 § 368-a(1)(d) ......................................................................................................... 4 § 368-a(1)(h) .............................................................................................. 2,4,6,11 L. 2005, ch. 58, Part C, § 1 ................................................................................................................ 6,9 § 1(a) ................................................................................................................... 6 § 1(f) ................................................................................................................... 6 L. 2006, ch. 57, Part A, § 60 ................................................................................................................... 6 L. 2010, ch. 109, Part B § 24 ................................................................................................................... 8 L. 2012, ch. 56, Part D article VII ............................................................................................................ 9 § 61 ................................................................................................................... 9 § 61(h) .................................................................................................................. 9 § 65 ................................................................................................................... 9 State Rules and Regulations 18 N.Y.C.R.R. Part 601 ............................................................................................................... 5 § 601.3 .................................................................................................................. 8 § 601.3(c) .............................................................................................................. 7 § 601.4 ................................................................................................................ 23 Part 635 .......................................................................................................... 5,23 United States Constitution Fifth Amendment......................................................................................................... 17 Fourteenth Amendment .................................................................................... 17,19,20 PRELIMINARY STATEMENT In 2012, the Legislature enacted an amendment unambiguously providing that as of April 1, 2012, the Department of Health would no longer reimburse counties for pre-2006 Medicaid overburden claims. The legislative history explains that the purpose of this amendment was to clarify that the State was no longer responsible for pre-2006 overburden costs following the enactment of the 2005 Medicaid Cap Statute. In this proceeding involving petitioner Broome County, Supreme Court, Broome County (Tait, J.) declared that the 2012 amendment was unconstitutional and annulled the Department’s denial of the overburden reimbursement claims that the County submitted after April 1, 2012 (Record [“R.”] 13-14). The court ordered the State to pay the County for these statutorily barred claims, and awarded sweeping prospective mandamus relief (R. 18). The court directed the State to calculate and pay all additional overburden reimbursement owed the County for which the County has yet to submit any claims (and which claims would be barred by the 2012 amendment in any event) (R. 14). After the Department took this appeal, this Court decided Matter of County of St. Lawrence v. Shah, 2014 N.Y. App. Div. LEXIS 8230 (3d Dep’t Nov. 26, 2014), motion for lv. to appeal pending. There, this Court held that the 2012 amendment was constitutional by construing the 2012 amendment 2 as merely imposing a statute of limitations on the counties’ submission of overburden claims, and imputing a six-month grace period from the date of the court’s decision for the continued submission of such claims. And this Court reasoned that the 2012 amendment did not repeal SSL § 368-a(1)(h) or extinguish the State’s obligation to identify, calculate, and pay overburden reimbursements to counties, even apart from any overburden claims the counties might submit. Based on this reading of the 2012 amendment, this Court affirmed Supreme Court’s directive that the Department identify, verify, and pay the total unpaid overburden expenditures that the county incurred before 2006. 2014 N.Y. Slip Op 08278 at *8-*9; accord Matter of County of Chemung v. Shah, ___ A.D.3d ___ (Jan. 8, 2015). The Department of Health agrees that the 2012 amendment is constitutional, but respectfully disagrees with this Court's interpretation of the 2012 amendment, which conflicts with the Fourth Department's interpretation in Matter of County of Niagara v. Shah, 2014 N.Y. App. Div. LEXIS 7738 (4th Dep’t Nov. 14, 2014). Based on this conflict, the Department of Health has moved for leave to appeal this Court's decision in County of St. Lawrence, but acknowledges that that decision is controlling here. Accordingly, this brief will explain the Department's arguments to preserve them in the event of further appellate review. 3 QUESTIONS PRESENTED 1. Whether the County failed to demonstrate beyond a reasonable doubt that the 2012 amendment deprives it of property without due process of law in violation of article I, § 6 of the New York Constitution. 2. Whether Supreme Court erred in directing the Department of Health identify, verify and determine the total overburden expenses the County incurred before January 2006, and to calculate and pay all outstanding overburden liabilities owed to the County, without requiring the County to submit any claims. STATEMENT OF THE CASE The 2012 amendment at issue in these cases is the culmination of a lengthy dispute between the Department of Health and several counties including petitioner Broome County. To place the present case in context, the background of the dispute and the prior litigation it engendered are briefly summarized below. A. Pre-2006 Statutory and Regulatory Background Regarding Overburden Claims The Department of Health administers New York’s Medicaid program through local social services districts, including petitioner Broome County. New York’s Social Services Law sets forth the financial responsibilities of the State and local governments regarding medical assistance. Before 2006, in 4 general, after deducting any actual or anticipated federal funding, the State and counties each paid roughly 25 percent of total annual Medicaid expenditures. See Social Services Law (“SSL”) § 368-a(1)(d). There was no cap on annual dollar increases in the counties’ liability for their share of Medicaid expenditures. Certain exceptions to this cost-sharing arrangement applied. From the early 1980s through 2005, counties were not responsible for paying any part of the cost of medical services relating to certain “state charges,” including the cost of medical services for certain mentally disabled Medicaid recipients eligible for “overburden reimbursement” under SSL § 368-a(1)(h) (R. 255- 256). The cost of Medicaid services provided to mentally disabled recipients qualified for overburden reimbursement where the recipients met certain criteria. See SSL § 368-a(1)(h); Matter of Krauskopf v. Perales, 74 N.Y.2d 730 (1989). The counties’ claims for overburden reimbursement arose because counties initially paid their full local shares of total Medicaid expenditures for all covered services provided to Medicaid recipients, including services provided to overburden patients for which no local share was owing (R. 257). The Department then identified the recipients who were overburden patients and reimbursed the counties each quarter (R. 257-258). The Department furnished counties with certain reports from which they could ascertain if the 5 State had failed to reimburse them for any overburden-eligible individuals (R. 257-258). If a county believed that the Department had omitted recipients who met the overburden criteria, it could submit a letter with supporting information to the Department (R. 258-259, 289), or it could submit claims for any additional overburden reimbursement under 18 N.Y.C.R.R. Parts 601 and 635. The State’s overburden reimbursement system largely accomplished its objectives. Over the 22-year period from 1984 through 2005, the Department reimbursed counties for billions of dollars in overburden expenditures. But due to the large number of Medicaid recipients and the complexity of identifying those who were overburden-eligible, the Department’s quarterly review process did not capture all overburden reimbursements owed to counties. Although the Department made available a claiming process by which counties could recover any missed overburden payments, many counties, including Broome County, did not avail themselves of this process until after 2005, when the Legislature radically altered the Medicaid cost- sharing system through the enactment of the Medicaid Cap Statute. B. The Medicaid Cap Statute In 2005, in response to concerns about rapidly increasing Medicaid costs and local property taxes, the Legislature enacted the Medicaid expenditure cap statute to limit counties’ financial responsibility for Medicaid 6 expenditures. See L. 2005, ch. 58, Part C, § 1, as amended by L. 2006, ch. 57, Part A, § 60 (“Cap Statute”) (reproduced in addendum to this brief). As of January 1, 2006, the Cap Statute replaced the old cost-sharing system under which counties were generally responsible for 25 percent of New York’s Medicaid expenses, without any cap or ceiling limitation. Under the Cap Statute, counties are no longer responsible for a fixed percentage of Medicaid expenses, which had resulted in open-ended and thus unpredictable increases in the counties’ financial exposure. Instead, a county’s local share of Medicaid expenditures is capped at a dollar amount that is fixed each year pursuant to the formula in the Cap Statute. But the Cap Statute is a two-way street. While a county cannot be required to pay more than its cap amount, it generally must pay its full cap amount. See Cap Statute § 1(f). The cap methodology now governs the Department’s reimbursement of counties for Medicaid expenses “notwithstanding the provisions of section 368-a of the social services law,” which includes the overburden reimbursement provisions. Cap Statute § 1(a). As a result, after the law went into effect on January 1, 2006, the Department determined that it was precluded from reimbursing counties for overburden payments formerly authorized by SSL § 368-a(1)(h), even if the county incurred its local share of the Medicaid expenditure before 2006, because that would result in the 7 county paying less than its full cap amount for the year in which it received the payment. C. Prior Litigation Involving the Cap Statute In 2007 and 2008, Niagara and Herkimer counties submitted overburden claims to the Department that accrued before the Medicaid Cap Statute’s effective date. The Department denied the claims on the ground that they were barred by the Cap Statute, prompting the counties to bring article 78 proceedings to challenge the denials. In 2009, the Fourth Department concluded that the Department had impermissibly applied the cap statute retroactively to the counties’ pre-2006 overburden claims. Matter of County of Herkimer v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 707 (2009); Matter of County of Niagara v. Daines, 60 A.D.3d 1456 (4th Dep’t), lv. denied, 13 N.Y.3d 708 (2009). This Court subsequently agreed that the Department had impermissibly applied the Medicaid Cap retroactively to pre-2006 overburden claims. Matter of County of St. Lawrence v. Daines, 81 A.D.3d 212, 214-16 (3d Dep’t), lv. denied, 17 N.Y.3d 703 (2011). This Court and the Fourth Department also held that the time limit in 18 N.Y.C.R.R. § 601.3(c) did not bar the county’s submission of overburden claims. Id. at 217-18; accord Matter of County of Niagara v. Daines, 79 A.D.3d 1702 (4th Dep’t 2010), lv. denied, 17 N.Y.3d 703 (2011). 8 After the Court of Appeals denied the State’s motions for leave to appeal in St. Lawrence I and in Niagara II in June 2011, the Department promptly paid the overburden claims at issue in those cases, and in all other pending cases in which the only defenses were the Medicaid Cap and the time limit in § 601.3. These payments totaled more than $17 million (R. 265, ¶ 47). In 2010, while this litigation was pending, the Legislature enacted an amendment that the Department interpreted as barring current reimbursement of county overburden expenditures incurred in the past. See L. 2010, ch. 109, Part B, § 24. But both the Fourth Department and this Court annulled the Health Department’s denials of overburden claims based on the 2010 amendment, concluding that the 2010 amendment did not clearly and unambiguously extinguish the State’s obligation to pay pre-2006 overburden claims. Matter of County of Niagara v. Daines, 91 A.D.3d 1288, 1290 (4th Dep’t 2012); Matter of County of St. Lawrence v. Shah, 95 A.D.3d 1548, 1552 (3d Dep’t 2012); The Health Department then promptly paid the overburden claims at issue in those proceedings. D. The 2012 amendment to the Medicaid Cap Statute In response to the court rulings that the 2010 amendment did not eliminate state reimbursement for pre-2006 overburden claims, in 2012 the Governor proposed, and the Legislature enacted, another amendment to the 9 Medicaid Cap Statute to clarify that overburden reimbursement was not available under the Medicaid Cap. The Governor included this amendment in the Executive’s article VII budget bill, which was submitted to the Legislature on January 17, 2012 (R. 267). The Legislature adopted the Governor’s proposed bill as section 61 of Part D of chapter 56 of the laws of 2012, adding a new subdivision (h) to the Medicaid Cap Statute (“the 2012 amendment”). The 2012 amendment unambiguously ended overburden reimbursement: notwithstanding the provisions of section 368-a of the social services law or any other contrary provision of law, no reimbursement shall be made for social services districts’ claims submitted on and after the effective date of this paragraph, for district expenditures incurred prior to January 1, 2006, including, but not limited to, expenditures for services provided to individuals who were eligible for medical assistance pursuant to section [366] of the social services law as a result of a mental disability, formally referred to as human services overburden aid to counties. L. 2012, ch. 56, Part D, § 61 (amending L. 2005, ch. 58, Part C, § 1) (reproduced at R. 290). The 2012 amendment was made effective prospectively on April 1, 2012. See L. 2012, ch. 56, Part D, § 65 (reproduced in addendum to this brief). Unlike the 2010 amendment, which lacked any legislative history, the 2012 amendment’s legislative purpose to end the State’s financial responsibility for the counties’ pre-2006 overburden expenses was clearly 10 stated in the memorandum in support. The amendment’s purpose was to “clarify that local governments cannot claim for overburden expenses incurred prior to January 1, 2006 when the ‘local cap’ statute that limited local contributions to Medicaid expenditures took effect” (R. 292). The 2012 amendment was a response to “adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute” (R. 292). E. This Court’s decision in County of St. Lawrence v. Shah and the Fourth Department’s decision in County of Niagara v. Shah interpreting the 2012 amendment Counties throughout the state have challenged the 2012 amendment on many grounds, claiming that it is unconstitutional and that the Department should be estopped under the special facts exception from invoking the 2012 amendment to deny pre-2006 overburden claims. In Matter of County of St. Lawrence v. Shah, 2014 N.Y. App. LEXIS 8230 (3d Dep’t Nov. 26, 2014), this Court concluded that the 2012 amendment was constitutional, interpreting the statute as imposing a statute of limitations on counties’ submission of overburden reimbursement claims and imputing a six-month grace period for the continued submission of such claims. And although this Court held that the special facts exception did not apply, it concluded that the 2012 amendment did not retroactively extinguish counties’ right to 11 reimbursement under SSL § 368-a(1)(h). Accordingly, this Court affirmed the grant of mandamus relief directing the Department to identify, calculate, and pay all outstanding overburden reimbursement owed St. Lawrence County. See also Matter of County of Chemung v. Shah, ___ A.D.3d ___ (Jan. 8, 2015). The Fourth Department reached a contrary interpretation of the 2012 amendment. In Matter of County of Niagara v. Shah, 2014 N.Y. App. LEXIS 7738, 2014 N.Y. Slip Op 07781 (4th Dep’t Nov. 14, 2014), that court held that the special facts exception was unavailable to preclude the Department from invoking the 2012 amendment. And that court further held that the 2012 amendment retroactively extinguished any obligation on the part of the State to pay pre-2006 overburden claims, and according reversed the grant of mandamus relief directing the Department to identify, calculate, and pay all outstanding overburden reimbursement owed Niagara County. The Fourth Department did not decide whether the 2012 amendment was constitutional. Instead, it remitted the matter to Supreme Court to decide the constitutional issue in the first instance. F. Statement of Facts Within weeks after the introduction of the bill that became the 2012 amendment, many social services districts (i.e. counties) submitted a flurry of additional claims for overburden reimbursement totaling several million 12 dollars to the Department. In June 2012, the Department paid all these claims that had been submitted before April 1, 2012 (R. 267 n.23). In September, October, and November 2013, long after the April 1, 2012 effective date of the 2012 amendment, Broome County submitted overburden claims to the Department totaling $1,170,022 (R. 267, ¶ 53). The Department denied these claims based on the 2012 amendment (R. 267, ¶ 54; 294-295). G. This proceeding Thereafter, Broome County commenced this combined article 78 proceeding and declaratory judgment action against the Department and its Commissioner. In its amended petition/complaint, the County alleges, among other things, that the 2012 amendment does not relieve the State of its reimbursement obligation under Social Services Law § 368-a and that the 2012 amendment deprives it of its vested right to reimbursement for overburden expenses without due process of law in violation of article I, § 6 of the New York Constitution and therefore should be declared null and void (R. 42-55). Respondents answered the petition/complaint and moved for summary judgment. Supreme Court (Tait, J.) declared the 2012 amendment unconstitutional, annulled the Department’s determination, and directed it to pay Broome County’s overburden reimbursement claims at issue here, with 13 interest (R. 14). In addition, the court directed the State to calculate and pay all additional overburden reimbursement owed the County for which the County has yet to submit any claims (and which claims would be barred by the 2012 amendment in any event) (R. 14). The Department appealed (R. 5). ARGUMENT POINT I THE 2012 AMENDMENT IS CONSTITUTIONAL After the Department took this appeal, this Court decided Matter of County of St. Lawrence v. Shah, 2014 N.Y. App. Div. LEXIS 8230 (3d Dep’t Nov. 26, 2014), motion for lv. to appeal pending. There, this Court held that the 2012 amendment was constitutional, but it did so by construing the 2012 amendment as merely imposing a statute of limitations on the counties’ submission of overburden claims, and imputing a six-month grace period from the date of the Court’s decision for the continued submission of such claims. See also Matter of County of Chemung v. Shah, ___ A.D.3d ___ (Jan. 8, 2015). The Department respectfully disagrees with this Court's interpretation of the 2012 amendment, and has moved for leave to appeal based on the Fourth Department's conflicting interpretation. The Department acknowledges that this Court’s decision is controlling here, and this brief 14 explains the Department's arguments for preservation purposes in the event these issues are reviewed by the Court of Appeals. Even if the 2012 amendment were treated like a statute of limitations, which it is not, it was not necessary for this Court to engraft a six-month grace period on the 2012 amendment in order to uphold it. What grace period, if any, to provide is for the Legislature, not the courts, to decide. The Legislature could reasonably have determined counties had already had sufficient time to submit overburden claims: when the 2012 amendment was enacted, overburden claims were between seven and twenty-eight years old. Moreover, after the amendment was included in the Governor's budget bills in mid-January 2012, counties submitted a flurry of overburden claims before April 2012, all of which were paid (R. 343, ¶ 52 & n.23). Since counties already had more than sufficient time to submit overburden claims, the Legislature could reasonably have determined that there was no need for a further grace period to preserve the statute’s constitutionality. Even without a grace period, the 2012 amendment is constitutional. As a statute duly enacted by the Legislature and signed by the Governor, the 2012 amendment enjoys a strong presumption of constitutionality, see Dalton v. Pataki, 5 N.Y.3d 243, 255, cert. denied, 546 U.S. 1032 (2005), and may not be annulled except upon a showing that it is unconstitutional “beyond a 15 reasonable doubt.” Matter of E.S. v. P.D., 8 N.Y.3d 150, 158 (2007). The County has failed to carry that heavy burden. Supreme Court concluded that the 2012 amendment deprives the County of its vested right to reimbursement for overburden expenses in violation of article I, § 6 of the New York Constitution, which provides in relevant part that “[n]o person shall be deprived of life, liberty or property without due process of law.” This conclusion is in error for two reasons. First, under settled law, the County, as a political subdivision of the State deriving its power and authority wholly from the State, is not a “person” who can have a New York constitutional due process clause claim against the State; consequently, the County cannot mount a vested rights challenge to a state law that reallocates, even retroactively, how the State and its political subdivisions share the cost of a governmental program. Second, even if the County could properly claim a due process right based on the statutory allocation of Medicaid costs between the State and its political subdivisions, the 2012 amendment is constitutional under the balancing test applied by the Court of Appeals in vested rights cases. A. The County has no due process clause claim against the State regarding the 2012 Amendment. The County’s due process arguments rest on a simple, but fundamentally flawed, analogy. The County likens itself to a creditor and the 16 State to a debtor. It has repeatedly characterized the overburden litigation as a simple collection action. Based on this false premise, the County contends that the Legislature, through the 2012 amendment, has unconstitutionally attempted to extinguish a debt owed to the County, thereby depriving it of vested property rights. This analogy is mistaken. Social Services Law § 368-a, the statute on which the County bases its due process claim, does not create property “rights” in favor of a political subdivision against the State. To the contrary, this statute allocated the financial responsibilities of the State and local social services districts with respect to Medicaid expenditures before January 2006. To be sure, that statute imposed obligations on the Department, as the State’s administrator of the Medicaid program. While that statute was in effect, counties could obtain judicial relief if the Department did not comply with its statutory obligations. But the Legislature retains ultimate authority to change the allocation of the State’s and the counties’ fiscal responsibilities for Medicaid expenditures. That authority includes extinguishing stale reimbursement obligations like those at issue here, which are as much as 30 years old. When the Legislature does so, as it did in the 2012 amendment, it does not impair any property right belonging to a county. 17 Thus, Supreme Court erred in holding the 2012 amendment unconstitutional, because the State’s allocation or reallocation of the costs of government between itself and its political subdivisions creates no vested rights that a county may invoke against the State. Counties such as petitioner are political subdivisions created by the state itself “for the convenient carrying out of the State’s governmental powers and responsibilities as its agents.” City of New York v. State of New York, 86 N.Y.2d 286, 290 (1995). As a result, a county has “no privileges or immunities under the federal constitution which it may invoke in opposition to the will of its creator.” Williams v. Mayor, 289 U.S. 36, 40 (1933) (Cardozo, J.); see also Trenton v. New Jersey, 262 U.S. 182, 186-87 (1923) (federal constitution does not bar a state from taking municipal property without compensation). Just as states are not persons within the meaning of the Fifth Amendment’s Due Process Clause, South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966), so too are political subdivisions not persons entitled to federal due process protection from the states that created them. City of New York v. Richardson, 473 F.2d 923, 929 (2d Cir.) (“[p]olitical subdivisions of a state may not challenge the validity of a state statute under the Fourteenth Amendment”), cert. denied, 412 U.S. 950 (1973); City of E. St. Louis v. Cir. Ct. for the Twentieth Jud. Cir., St. Clair Cnty, Ill., 986 F.2d 1142, 1144 (7th Cir. 1993) (municipalities are 18 not persons for due process purposes); see also South Dakota v. United States DOI, 665 F.3d 986, 991 & n.4 (8th Cir. 2012) (expressing doubt whether political subdivisions are persons, but not deciding issue); but see In Re Real Est. Title & Settlement Servs. Antitrust Litig., 869 F.2d 760, 765 n.3 (3d Cir. 1989) (school districts are persons for due process purposes). Although New York courts have sometimes construed the New York constitution’s due process clause more expansively than the Supreme Court has construed the federal clause, Hernandez v. Robles, 7 N.Y.3d 338, 361-62 (2006), New York has followed federal decisions holding that political subdivisions cannot challenge state statutes on due process and similar constitutional grounds. The Court of Appeals has explained that the “alteration, impairment or destruction of [the] powers [of a political subdivision] by the Legislature presents no question of constitutionality” and does not implicate the due process clause. Black Riv. Reg. Dist. v. Adirondack League Club, 307 N.Y. 475, 487 (1954) (emphasis added, citations and paragraph break omitted), appeal dismissed, 351 U.S. 922 (1956). Indeed, “political power conferred by the Legislature confers no vested right as against the government itself * * * The concept of the supreme power of the Legislature over its creatures has been respected and followed in many decisions.” Id. at 488. 19 Similarly, in Matter of Jeter v. Ellenville Central School District, 41 N.Y.2d 283, 287 (1977), a city board of education and a city department of social services alleged that a state law imposing certain educational costs on them violated their rights to due process and equal protection. The Court held that while these municipal entities had standing to challenge the state law, they lacked the “substantive right” to mount state and federal due process and equal protection challenges to the law. Id. In so concluding, the Court followed the federal authorities holding that political subdivisions of a state may not challenge the validity of a state statute under the Fourteenth Amendment. Id. In Matter of County of St. Lawrence v. Shah, 2014 N.Y. App. Div. LEXIS 8230, this Court concluded that the Department’s argument that the County was not a person for purposes of mounting a due process challenge to a State law was essentially an argument that the County lacked capacity. 2014 N.Y. App. Div. LEXIS 8230 at *3-*4. Any argument that the County lacked capacity, this Court held, had been waived because it was not raised in Supreme Court. We acknowledge that this Court’s conclusion is binding here, but note our disagreement for preservation purposes. The argument that a County is not a person within the meaning of New York’s due process clause is separate and distinct from the affirmative defense that the County lacks capacity. Capacity is a threshold issue, and concerns a litigant’s power to 20 appear and bring its grievance before the court. Silver v. Pataki, 96 N.Y.2d 532, 537 (2001). Even if the County has capacity here because it claims a proprietary interest in a specific fund of money, see Krauskopf v. Perales, 139 A.D.2d 147, 153 (3d Dep’t 1988), aff’d, 74 N.Y.2d 730 (1989) (which did not involve a due process claim), the County’s due process vested rights claim fails on the merits because a political subdivision is not a person entitled to due process protection and, thus, lacks the substantive right to challenge a State law on due process grounds. See Matter of Jeter, 41 N.Y.2d at 287. In other words, it is necessary to distinguish between the county’s authority to sue (capacity) and its entitlement to protection under the due process clause (the merits). In South Macomb Disposal Authority v. Township of Washington, 790 F.2d 500, 504-505 (6th Cir. 1986), the Sixth Circuit expressly drew this distinction. The court observed that although there may be occasions in which a political subdivision has the capacity to challenge the constitutionality of state legislation on grounds other than the Fourteenth Amendment, a political subdivision may not challenge state legislation on equal protection or due process grounds because it is not a “person” entitled to constitutional protection under the Fourteenth Amendment. Id. at 504- 505. City of New York v. State of New York, 86 N.Y.2d at 286, relied on by the County, did not involve a challenge by a political subdivision to a statute 21 on due process grounds. That case addressed only the doctrine of capacity and did not suggest – let alone hold – that capacity and personhood and personhood for purposes of a due process claim are the same. In contrast, the cases that have squarely addressed the question of whether a political subdivision is a person (see cases cited on pages 18-20, supra) have held that political subdivisions are not persons entitled to due process protection. Thus, here the County has no “substantive right,” that is, no due process claim that it was deprived of vested property rights by the Legislature that created it. The New York Constitution’s Due Process Clause does not restrict the Legislature’s authority to allocate the cost of Medicaid expenses between the State and its counties as it sees fit, and to change that allocation even after the relevant expenses have been incurred. Once the Legislature unambiguously extinguished overburden reimbursement, the County, as a political subdivision of the State, could have no due process claim against the State for further overburden payments. Consequently, petitioner’s due process/vested rights claim has no merit and Supreme Court erred in declaring the 2012 amendment unconstitutional. B. The 2012 Amendment is constitutional under a due process vested rights analysis. The conclusion that the County has no due process vested rights claim on the merits against the State suffices to dispose of the County’s 22 constitutional claim and require reversal here. But even if the County had a due process claim against the State, the 2012 amendment would not violate the County’s vested rights. There is no merit to the County’s argument that because the County incurred overburden expenses before 2006 at a time when overburden reimbursement was required by statute, the Legislature can never terminate the County’s claims for those expenses. As the Court of Appeals has observed, “the vested rights doctrine is conclusory, and indeed a fiction.” Matter of Hodes v. Axelrod, 70 N.Y.2d 364, 370 (1987). Although older cases evinced an aversion to retroactive legislation generally, “the modern cases reflect a less rigid view of the Legislature’s right to pass such legislation and more candid consideration – on a case-by-case basis – of the various policy considerations upon which the constitutionality of retroactive legislation depends.” Id. at 371. Determination of whether legislation impermissibly impairs vested property rights entails a balancing of “a number of factors, including fairness to the parties, reliance on pre-existing law, the extent of retroactivity, and the nature of the public interest to be served by the law.” Alliance of American Insurers v. Chu, 77 N.Y.2d 573, 586 (1991) (internal quotations omitted); see Hodes, 70 N.Y.2d at 370; Matter of Chrysler Properties v. Morris, 23 N.Y.2d 515, 518 (1969). The balance of these factors in this case tips decisively in favor of the 2012 amendment. 23 1. The 2012 Amendment is not unfair. The 2012 amendment is not unfair to the County. The County’s claims are stale, in some cases dating back decades. The 2012 amendment terminating these claims is part of a new cost sharing system under the cap statute pursuant to which New York’s counties have been relieved of responsibility for billions of dollars of Medicaid expenditures. Thus, there is no merit to the County’s claim below that extinguishment of pre-2006 overburden liabilities is unfair because those monies were due and owing, the failure to pay them is the State’s fault, and the State has not undertaken a project to calculate and determine the total overburden reimbursement owed counties dating back to 1984. The Legislature took a different view of the matter, determining that the time has come to close the books on these stale claims. Long before the advent of the new Medicaid cap cost-sharing system, the State made available a process under 18 N.Y.C.R.R. § 601.4 and Part 635 by which counties could have submitted claims for overburden reimbursement. Broome County and some other counties, however, failed to fully take advantage of that process until after the Medicaid Cap Statute went into effect in 2006. By the time the Legislature passed the 2012 amendment, overburden claims were between seven and twenty-eight years old. Governmental operations, especially fiscal planning, are compromised by 24 such stale reimbursement claims of indeterminate amounts, and it was reasonable for the Legislature to extinguish the claims. Even so, as it considered the 2012 amendment, the Legislature afforded counties in opportunity for one last round of claims, allowing payment of pre-2006 overburden claims submitted before April 1, 2012. The Legislature’s judgment in this regard is entitled to deference. See Brothers v. Florence, 95 N.Y.2d 290, 301 (2000) (if the Legislature shortens a statute of limitations period but sets a reasonable grace period, “its determination of what constitutes a reasonable time is entitled to deference in the absence of some ‘palpable error’”); Roman Catholic Diocese of Albany, N.Y. v. New York State Workers’ Compensation Board, 96 A.D.3d 1288, 1290 (3d Dep’t 2012) (“due process is satisfied when the Legislature expressly sets a ‘reasonable grace period’”). There is nothing inequitable in this result. The 2012 amendment is part of the Medicaid Cap statute, which has saved counties billions of dollars since its enactment in 2005. Although counties can no longer obtain reimbursement for old overburden claims, they enjoy substantial savings from the new cap methodology. For the five-year period between the 2005- 2006 fiscal year and the 2009-2010 fiscal year, counties saved approximately $6.4 billion “as a result of the Medicaid cap and an additional $2.5 billion as a result of the State takeover of Family Health Plus,” a Medicaid expansion 25 program (R. 812). Broome County itself has saved more than $60 million since the Medicaid Cap’s inception (R. 264, ¶ 43). And because the counties’ financial obligations are now fixed, the cap provides them with stability and predictability with respect to their future Medicaid obligations. Thus, the financial trade-offs reflected in the Cap Statute as amended in 2012 strongly favor the counties: although the law terminated the state overburden claims, the counties have saved billions in present and future Medicaid expenditures. Another positive trade-off that counties have received under the new cap regime is protection from pre-2006 Medicaid liabilities. Although the Cap Statute as amended in 2012 does not allow for reimbursement of pre- 2006 Medicaid claims, the statute shields counties from pre-2006 liabilities they otherwise would owe under the old cost-sharing system, including paying for federal disallowances of old Medicaid expenditures or judgments for increased reimbursement to providers for pre-2006 services. But here the County seeks the benefits of both cost-sharing systems and the burdens of neither: it now enjoys substantial savings from the Medicaid cap, protection from pre-2006 liabilities (i.e., federal disallowances and judgments directing increased reimbursement for providers), and at the same time it seeks reimbursement for state overburden claims payable only under the old law. The Legislature, in enacting the Cap Statute and the 2012 amendment, made the reasonable policy decision that the substantial 26 financial benefits counties receive from the new cap law, including the protection it affords from old liabilities, warranted extinguishment of pre- 2006 overburden claims. The courts may not overrule the Legislature’s policy judgment simply on the basis of a contrary policy judgment. Even if counties are entitled to due process protection, the legislative process itself – in which they lobbied vigorously against the 2012 amendment – afforded them constitutionally adequate process. See United States v. Locke, 471 U.S. 84, 108 (1985) (“In altering substantive rights through enactment of rules of general applicability, a legislature generally provides constitutionally adequate process simply by enacting the statute, publishing it, and, to the extent the statute regulates private conduct, affording those within the statute’s reach a reasonable opportunity both to familiarize themselves with the general requirements imposed and to comply with those requirements”). “While the legislative alteration or elimination of a previously conferred property interest may be a ‘deprivation,’ the legislative process itself provides citizens with all of the ‘process’ they are ‘due.’” Gattis v. Gravett, 806 F.2d 778, 781 (8th Cir. 1986); see also Correa-Ruiz v. Fortuno, 573 F.3d 1, 15 (1st Cir. 2009) (same). Thus, under all the relevant circumstances, the 2012 Amendment was fair and reasonable. 27 2. The County had at most a minimal reliance interest based on prior law. By April 1, 2012, any reliance by the County on pre-2006 law to support its view that reimbursement of its pre-2006 overburden claims would continue indefinitely was unwarranted. Before 2012, the County had ample forewarning that its claims might be extinguished. The County does not deny that the 2005 Cap Statute extinguished the State’s responsibility for overburden reimbursement prospectively for periods after 2005 – all the County’s claims pertain to periods before 2006. Yet the County waited over seven more years before pursuing the claims at issue here. Although before 2006, the County expected based on then-existing law that it would be reimbursed for overburden expenditures that it incurred, it had no reason to believe that its claims might not be altered by subsequent law, or that it could indefinitely postpone the submission of its claims. Moreover, after 2005, the County did not rely on prior law to incur any new reimbursable expenditures or take other affirmative detrimental actions. The County’s only reliance after 2005 was its failure to submit all of its pre- 2006 claims during the more than six years after the Cap Statute went into effect and before the 2012 amendment unambiguously extinguished overburden reimbursement. 28 Although the County might have initially expected that it would continue to be reimbursed for pre-2006 claims despite the Cap Statute, the enactment of that statute, the Department’s interpretation of it, and the ensuing litigation at the very least gave petitioner reason to be cautious in relying on its ability to indefinitely postpone its claims. In addition, the Legislature’s enactment of the 2010 amendment, and the Department’s application of that law, gave petitioner further notice that it would be unwise to further delay submitting its by now stale reimbursement claims. Thus, petitioner reasonably should have been aware well before the enactment of the 2012 amendment that its pre-2006 claims were on borrowed time, and consequently its reliance on pre-2006 law to justify its more than six-year delay in submitting them was unwarranted. This conclusion is bolstered by the more than two-month period between the January introduction of the 2012 amendment and its April effective date. Once the amendment had been introduced by the Governor, petitioner had additional notice that further delay would result in termination of its claims. Other counties submitted a flurry of claims during this grace period, and the Department paid them in June 2012 (R. 355 n.23). Consequently, any reliance interest in overburden reimbursement that petitioner may have had by the time of the enactment of the 2012 29 amendment was minimal, and the Legislature adequately accommodated it here. 3. The extent of retroactivity is not excessive. There is no merit to the County’s claim below that the 2012 amendment is excessively retroactive. On the contrary, the amendment is prospective to the extent that it extinguished only claims that were submitted after its enactment. The Department has paid all claims that were submitted before April 1, 2012. Furthermore, the 2012 amendment is a “remedial statute” that was intended to clarify that reimbursement for pre-2006 overburden claims was no longer available after the Medicaid cap regime went into effect. See Matter of Ideal Mutual Insurance Co. v. Superintendent of Insurance, 82 A.D.3d 518, 519-20 (1st Dep’t 2011) (no vested right in the statutory distribution scheme for liquidation of insurance companies, which is “subject to change at the discretion of the Legislature”). Because the Legislature intended the 2012 amendment to be curative, it is appropriately retroactive to the extent that it prospectively ended reimbursement of claims for the County’s Medicaid costs that the County paid before 2006 for services provided to overburden-eligible recipients. As reflected in its legislative history, the purpose of the 2012 amendment was to “clarify that local governments cannot claim for overburden expenses incurred prior to January 1, 2006, when the ‘local cap’ statute that limited 30 local contributions to Medicaid expenditures took effect” (R. 373). Legislative history like this indicating the purpose of clarifying legislation is probative in interpreting the prior law that is the subject of the clarification. See Held v. State of New York Workers’ Compensation Board, 85 A.D.3d 35, 41 (3d Dep’t) (2008 clarifying amendments to the Workers’ Compensation Law confirmed that Board was authorized under pre-existing law to impose assessments with respect to individual and group self-insurers), appeal dismissed, lv. denied, 17 N.Y.3d 837 (2011); see also Matter of OnBank & Trust Co., 90 N.Y.2d 725, 731 (1997). The County argued below that the 2012 amendment is not a clarifying amendment because both this Court and the Third Department have held that the original Cap Statute did not extinguish pre-2006 overburden liabilities. But as its legislative history makes clear, the 2012 amendment was a remedial response to “adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute” (R. 380). In enacting the 2012 amendment, the Legislature made clear that the Medicaid cost-allocation system that the Cap Statute implemented was meant to exclude overburden reimbursement. The Legislature recognized that continued State payment of pre-2006 overburden claims would defeat one of the key requirements of the 31 new cost allocation system: that each County pay its mandated cap amount toward Medicaid expenditures. However, the Legislature did not seek to reverse the effect of this Court’s decisions regarding claims submitted between 2006 and April 1, 2012. In precluding payment of old overburden claims after April 1, 2012, the Legislature properly clarified, on a prospective basis, the correct allocation of fiscal responsibility between counties and the State under the Cap Statute. The 2012 amendment is thus not excessively retroactive. 4. The 2012 Amendment serves an important public interest. By foreclosing payment of stale overburden liabilities now as much as 29 years old, the 2012 amendment provides the State with needed closure and repose, especially during an extreme fiscal crisis. Unlike Alliance of American Insurers v. Chu, 77 N.Y.2d at 586, where the challenged statute affected the rights of private corporations, here the State has amended its statutory reimbursement obligations to its political subdivisions, which it created to assist it in the provision of public services. See City of New York v. State of New York, 86 N.Y.2d at 290. In this regard, the County misses the mark in arguing that the State has converted County funds. The overburden funds that have not been paid to the counties have been used for other governmental purposes, not to enrich private individuals. As far as due 32 process is concerned, the Legislature retains sole discretion regarding how to allocate the costs of governmental programs between the State and the counties, including the County. In sum, in the 2012 amendment to the Cap Statute, the Legislature properly clarified the allocation of fiscal responsibility between the State and its political subdivisions for Medicaid expenditures. The allocation of Medicaid costs set forth in the Cap Statute, as amended in the 2012 amendment, reflects trade-offs that, on balance, are very much in the counties’ favor. Even if a due process/vested rights analysis were appropriate here, and it is not, the 2012 amendment would be constitutional. POINT II THE COUNTY LACKS A CLEAR LEGAL RIGHT TO MANDAMUS RELIEF DIRECTING THE DEPARTMENT OF HEALTH TO CALCULATE AND DETERMINE ALL OUTSTANDING OVERBURDEN LIABILITIES Supreme Court further erred in directing the Department to calculate and pay all outstanding overburden liabilities owed the County (R. 14). This relief is unwarranted, and should be reversed, even if this Court otherwise affirms Supreme Court’s judgment. Again, we acknowledge that this Court recently affirmed the grant of mandamus relief in County of St. Lawrence v. Shah, 2014 N.Y. App. Div. LEXIS 8230, but note for preservation purposes the conflicting decision in Matter of County of Niagara v. Shah, 2014 N.Y. 33 App. Div. LEXIS 7738 (4th Dep’t Nov. 14, 2014), where the Fourth Department rejected the County’s argument that respondents have an ongoing duty to reimburse petitioner for all prior overburden expenditures without regard to whether petitioner submits a claim. 2014 N.Y. App. Div. LEXIS 7738 at *8. We respectfully assert that the Fourth Department's decision was correct, for the reasons explained by that Court: if it were to “accept [the County’s] contention that [the Department] must forthwith search out all prior possible instances of unreimbursed overburden expenditures and submit payment for them to petitioner notwithstanding [the 2012 amendment], then there is no situation in which a claim for such payment will be submitted. Thus, there will be no situation in which [the 2012 amendment] will apply, rendering it a nullity.” 2014 N.Y. App. Div. LEXIS 7738 at *8-*9. Consequently, the 2012 amendment extinguished entirely any state liability to the counties for overburden, and the Supreme Courts grant of mandamus relief was error. 34 CONCLUSION This Court should reverse the judgment, declare that section 61 of Part D of chapter 56 of the laws of 2012 is constitutional, and dismiss the petition/complaint. Alternatively, the Court should reverse the parts of the judgment that direct the Department to calculate and pay all outstanding overburden liabilities owed the County. Dated: Albany, New York January 8, 2015 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) 776-2012 ANDREW D. BING Deputy Solicitor General VICTOR PALADINO Assistant Solicitor General of Counsel Reproduced on Recycled Paper