American Economy Insurance Company, et al., Respondents,v.State of New York, et al., Appellants.

Brief

N.Y.September 7, 2017

Appeal No. APL-2016-00100 To be argued by: STEVEN C. WU 20 minutes requested Supreme Court, New York County, Index No. 156923/2013 State of New York Court of Appeals AMERICAN ECONOMY INSURANCE COMPANY, AMERICAN FIRE AND CASUALTY COMPANY, AMERICAN STATES INSURANCE COMPANY, EMPLOYERS INSURANCE COMPANY OF WAUSAU, EXCELSIOR INSURANCE COMPANY, FIRST LIBERTY INSURANCE CORP., GENERAL INSURANCE COMPANY OF AMERICA, LIBERTY INSURANCE CORPORATION, LIBERTY MUTUAL FIRE INSURANCE CO., LIBERTY MUTUAL INSURANCE COMPANY, LM INSURANCE CORPORATION, NETHERLANDS INSURANCE COMPANY, THE OHIO CASUALTY INSURANCE COMPANY, OHIO SECURITY INSURANCE COMPANY, PEERLESS INDEMNITY INSURANCE COMPANY, PEERLESS INSURANCE COMPANY, WAUSAU BUSINESS INSURANCE COMPANY, WAUSAU GENERAL INSURANCE COMPANY, WAUSAU UNDERWRITERS INSURANCE COMPANY and WEST AMERICAN INSURANCE COMPANY, Plaintiffs-Respondents, -against- THE STATE OF NEW YORK, THE NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES, BENJAMIN M. LAWSKY, in his official capacity as Superintendent of the New York State Department of Financial Services and STATE OF NEW YORK WORKERS’ COMPENSATION BOARD, Defendants-Appellants. BRIEF FOR APPELLANTS BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Deputy Solicitor General CLAUDE S. PLATTON Senior Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Appellants 120 Broadway New York, New York 10271 (212) 416-6312 (212) 416-8962 (facsimile) Dated: August 5, 2016 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................ iv PRELIMINARY STATEMENT ........................................................ 1 QUESTIONS PRESENTED ............................................................ 4 STATEMENT OF THE CASE ......................................................... 4 A. Statutory Background .................................................... 4 1. The workers’-compensation system ........................ 4 2. The Legislature creates the Fund for Reopened Cases for the benefit of injured workers and insurance carriers .............................. 8 3. Skyrocketing costs prompt the Governor and industry stakeholders to reassess the Fund’s continued viability ................................................ 12 4. In 2013, the Legislature closes the Fund to new applications ................................................... 18 B. Plaintiffs’ Challenge to the Fund’s Closure ................. 21 1. Proceedings in Supreme Court ............................. 21 2. The Appellate Division’s decision ......................... 24 ARGUMENT .................................................................................. 27 POINT I - THE FUND’S CLOSURE TO NEW TRANSFER APPLICATIONS HAD ONLY PROSPECTIVE EFFECT ....................................... 28 ii TABLE OF CONTENTS (cont’d) Page A. The Closure Altered Only the Manner of Handling Future Transfer Applications in Reopened Cases. ................................................. 29 B. The Appellate Division’s Grounds for Finding Retroactivity Are Meritless. ................. 39 1. The Legislature did not act retroactively merely by unsettling carriers’ expectation that the Fund would be indefinitely available. .................................... 39 2. The Fund’s closure is not rendered retroactive by the possibility that carriers’ future payment obligations will exceed past premiums. .................................. 45 3. Carriers were never granted an inviolable “right” to have their liabilities transferred to the Fund. ................................ 51 POINT II - EVEN IF THE FUND’S CLOSURE TO NEW APPLICATIONS HAD RETROACTIVE EFFECT, PLAINTIFFS’ CONSTITUTIONAL CHALLENGES WOULD STILL FAIL ................... 53 A. The Closure Satisfied the Rationality Requirement of Substantive Due Process. ........ 55 B. The Closure Did Not Violate the Contract Clause. ................................................................ 58 C. The Closure Did Not Effect a Taking of Private Property. ................................................ 62 iii TABLE OF CONTENTS (cont’d) Page POINT III - DISPUTED ISSUES OF FACT PRECLUDE ENTRY OF JUDGMENT IN PLAINTIFFS’ FAVOR .................................................................... 68 CONCLUSION ............................................................................... 73 iv TABLE OF AUTHORITIES Cases Page(s) 19th St. Assocs. v. State, 79 N.Y.2d 434 (1992) ..................................................... 58, 59, 62 Ballentine v. Koch, 89 N.Y.2d 51 (1996) ................................................................... 60 Becker v. Huss Co., 43 N.Y.2d 527 (1978) ............................................... 42, 43, 47, 49 Burlew v. Am. Mut. Ins. Co., 63 N.Y.2d 412 (1984) ................................................................. 41 Commonwealth Edison Co. v. United States, 271 F.3d 1327 (Fed. Cir. 2001) .................................................. 63 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211 (1986) .................................................. 64, 65, 66, 67 County of Sacramento v. Lewis, 523 U.S. 833 (1998) .................................................................... 55 Eastern Enters. v. Apfel, 524 U.S. 498 (1998) .................................................. 35, 62, 64, 65 Employer: Del Labs, No. 2940-8739, 2009 WL 193434 (Work. Comp. Bd. Jan. 14, 2009) ............................................ 8, 36 Health Ins. Ass’n of Am. v. Harnett, 44 N.Y.2d 302 (1978) ............................................... 55, 56, 60, 61 Landgraf v. USI Film Prods., 511 U.S. 244 (1994) ............................................................ passim Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005) .................................................................... 63 v TABLE OF AUTHORITIES (cont’d) Cases Page(s) Matter of Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219 (1993) ................................................................. 56 Matter of Busch v. Austin Co., 37 A.D.2d 648 (3d Dep’t 1971) ................................................... 43 Matter of Casey v. Hinkle Iron Works, 299 N.Y. 382 (1949) ................................................... 6, 10, 36, 38 Matter of De Concilus v. Juney Juniors, Inc., 9 A.D.2d 17 (3d Dep’t 1959) ....................................................... 44 Matter of De Mayo v. Rensselaer Polytech Inst., 74 N.Y.2d 459 (1989). (See R. 54.) ............................................... 9 Matter of Donnelly v. Alden Cent. Schs., 83 A.D.3d 1368 (3d Dep’t 2011) ................................................. 10 Matter of Gazza v. N.Y. Dep’t of Envtl. Conservation, 89 N.Y.2d 603 (1997) ................................................................. 63 Matter of Hogan v. Lawlor & Cavanaugh Co., 286 A.D. 600 (3d Dep’t 1955) ......................................... 42, 47, 49 Matter of Jones v. HSBC, 304 A.D.2d 864 (3d Dep’t 2003) ................................................. 10 Matter of Kirchner v. Park Edge Supermarkets, Inc., 75 A.D.2d 916 (3d Dep’t 1980) ................................................... 44 Matter of Mills v. Staffking (Hidden Valley), 271 A.D.2d 146 (3d Dep’t 2000) ........................................... 31, 44 Matter of Norcross v. Camden Cent. Sch., 78 A.D.3d 1339 (3d Dep’t 2010) ................................................. 36 vi TABLE OF AUTHORITIES (cont’d) Cases Page(s) Matter of Raynor v. Landmark Chrysler, 18 N.Y.3d 48 (2011) ........................................................... passim Matter of Riley v. Aircraft Prods. Mfg. Corp., 40 N.Y.2d at 369 (1976) ....................................................... 10, 37 Matter of Schmidt v. Wolf Contracting Co., 269 A.D. 201 (3d Dep’t 1945) ............................................... 43, 54 Matter of Selective Ins. Co. of Am., Inc., v. State of N.Y. Workers’ Comp. Bd., 102 A.D.3d 728 (3d Dep’t 2012) ................................................. 20 Matter of Tipton v. Lang’s Bakery, 250 A.D. 696, aff’d, 275 N.Y. 572 (1937) ..................................... 8 Matter of Vleck v. Parry, 270 N.Y. 371 (1936) ..................................................................... 9 Matter of Waters v. William J. Taylor Co., 218 N.Y. 248 (1916) ..................................................................... 5 Matter of Zechmann v. Canisteo Volunteer Fire Dep’t, 85 N.Y.2d 747 (1995) ........................................................... 37, 38 People v. Smith, 79 N.Y.2d 309 (1992) ................................................................. 31 Polone v. Comm’r, 505 F.3d 966 (9th Cir. 2007) ................................................ 32, 33 Rockland Power & Light Co. v. City of N.Y., 289 N.Y. 45 (1942) ................................................................ 71-72 Shanahan v. Monarch Engineering Co., 219 N.Y. 469 (1916) ................................................................... 53 vii TABLE OF AUTHORITIES (cont’d) Cases Page(s) Swisher Int’l, Inc. v. Schafer, 550 F.3d 1046 (11th Cir. 2008) .................................................. 64 Constitutions N.Y. Const. art. I, § 7 ............................................................... 22, 62 U.S. Const. art. I, § 10 ............................................................................. 21, 58 art. I, § 18 ................................................................................... 53 amend. V .............................................................................. 22, 62 amend. XIV, § 1.......................................................................... 22 Laws C.P.L.R. 5601 .................................................................................. 26 Budget Reconciliation Act of 2013, ch. 57, 2013 N.Y. Laws (L.R.S.) ................................................ 19, 20, 30 Workers’ Compensation Law § 10 ........................................................................................... 4, 5 § 13 ........................................................................................... 4, 6 § 14 ............................................................................................... 4 § 15 ....................................................................................... 12, 13 § 16 ............................................................................................... 4 § 23 ............................................................................................. 43 § 25-a ........................................................................................ 2, 9 § 50 ............................................................................................... 5 § 107 ........................................................................................... 18 § 123 ............................................................................................. 7 § 151 ........................................................................................... 12 viii TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) 27 N.Y. Prac., Workers’ Compensation (2d ed.) § 18:11 ........................................................................................ 48 § 18:18 ........................................................................................ 48 Am. Ins. Ass’n, “AIA Endorses Gov. Cuomo’s Workers’ Compensation Proposals” (Jan. 23, 2013), available at http://www.aiadc.org/media-center/all-news- releases/aia-endorses-gov-cuomos-workers- compensation-proposals%20355438 .............................. 17, 18, 57 Gov. Andrew M. Cuomo, N.Y. Rising: State of the State 2013 (Oct. 29, 2012), available at http://www.nyscoss.org/img/news/news_29j731jzvt. pdf ......................................................................................... 16, 17 Governor’s Program Bill Mem., reprinted in Bill Jacket for ch. 6 (2007) ........................................................................... 13 Ken Pokalsky, “Testimony to Senate Finance Committee and Assembly Ways and Means Committee: Joint Legislative Public Hearings on the FY 2013-2014 Executive Budget Proposal” (Feb. 12, 2013), available at https://www.nysenate.gov/sites/default/files/ articles/attachments/%283%29%20Business%20Cou ncil%20of%20NYS.pdf ......................................................... 17, 57 Larson’s Worker’s Compensation Law (Matthew Bender rev. ed. 2014) § 131.01 ........................................................................................ 7 § 131.06 ........................................................................................ 8 ix TABLE OF AUTHORITIES (cont’d) Miscellaneous Authorities Page(s) New York Compensation Insurance Rating Board, New York Workers Compensation Rate Revision, Explanatory Mem. (Oct. 1, 2007), available at http://www.dfs.ny.gov/insurance/wc/2007_nycirb_rf_ expltr.pdf. ................................................................................... 14 N.Y. Workers’ Compensation Handbook (Matthew Bender 2016) § 1.08 ............................................................................................ 6 § 1.09 ............................................................................................ 6 § 2.16 .................................................................................... 13, 14 § 2.18 ........................................................................ 10, 11, 16, 20 § 2.19 .......................................................................................... 18 § 11.06 ................................................................................ 6, 7, 10 Scott J. Lefkowitz & Steven G. McKinnon, New York State Workers Compensation Board Assessments: A Discussion of Assessments and Recent Increases Impacting Employers (Apr. 2013), available at http://www.oliverwyman.de/content/dam/oliver- wyman/global/en/files/archive/2012/NYC- ADM90101-072_ny_state_comp_assessments.pdf. ............. 15, 16 1 PRELIMINARY STATEMENT In this action, plaintiff insurance carriers challenge the Legislature’s authority to prevent significant harms to the State’s economy and businesses by altering how future claims in existing workers’-compensation cases are handled. The Appellate Division, First Department held that this change was impermissibly retroactive. This Court should reverse and confirm the Legislature’s authority to make this policy choice. At issue is 2013 legislation reforming the Fund for Reopened Cases, a State-maintained and employer-subsidized special fund that had relieved insurance carriers of their obligation to pay further benefits in certain workers’-compensation cases that “reopened” after an extended period of inactivity. Before the reforms, carriers could apply to have the Fund accept their obligation to pay benefits as those obligations arose in such reopened cases. The Fund’s ongoing operation required employers to contribute over $300 million every year—a staggeringly high sum that the Legislature anticipated would continue into the future. To curb these skyrocketing costs, the Legislature amended 2 Workers’ Compensation Law (WCL) § 25-a to close the Fund solely as to new transfer applications made by carriers more than nine months after the legislation’s enactment. The Fund would continue to pay benefits in all cases that carriers had previously transferred to the Fund. Supreme Court, New York County rejected the plaintiffs’ characterization of this reform as imposing retroactive liability and consequently dismissed plaintiffs’ constitutional challenges. The Appellate Division, First Department reversed, declaring the legislation unconstitutional as applied to workers’-compensation cases that existed at the time of the legislation’s enactment. The Appellate Division erred in holding that the Fund’s closure imposed retroactive liability. The sole effect of the Fund’s closure was prospective: the Legislature provided that the Fund would not accept future applications to transfer carriers’ preexisting liabilities in reopened cases. Even if, as plaintiffs assert, this change increases their financial exposure for those cases, such an effect is not impermissibly retroactive, as this Court has long recognized. 3 In any event, if the Fund’s closure to new applications were retroactive, it would not thereby transgress constitutional limitations. There is no general prohibition on retroactive legislation, and the Legislature’s measured response to a pressing public-policy problem here easily withstands plaintiffs’ challenges under the federal Constitution’s Due Process Clause and Contract Clause and the federal and state Constitution’s Takings Clauses. The Legislature made a rational policy judgment that the Fund’s continuing subsidy to carriers was no longer justified in light of the onerous costs that the Fund imposed on employers. Carriers had no constitutionally protected expectation that the Legislature would continue to allow reopened cases to be transferred to the Fund, effectively subsidizing a portion of carriers’ payment obligations on an ongoing basis. If the Court concludes, however, that plaintiffs’ claims should not be rejected as a matter of law, it should reverse the Appellate Division’s entry of a declaratory judgment and return the case to Supreme Court to address multiple factual disputes that preclude entry of judgment in plaintiffs’ favor. 4 QUESTIONS PRESENTED 1. Did the Legislature impose retroactive liability on insurance carriers by barring future applications to transfer liabilities to the Fund for Reopened Cases? 2. If so, did the Fund’s closure to future applications violate (a) the Due Process Clause of the federal Constitution, (b) the Contract Clause of the federal Constitution, or (c) the Takings Clauses of the federal or state Constitution? STATEMENT OF THE CASE A. Statutory Background 1. The workers’-compensation system New York’s Workers’ Compensation Law requires employers to pay benefits, without regard to fault, when an employee is injured, disabled, or killed in the course of employment. WCL § 10(1). Employers are liable for several types of benefits, including replacement of lost wages (known as “indemnity payments”), medical care for an injury or disease causally related to employment, and death benefits. Id. §§ 13, 14, 16. 5 To assure payment of these benefits, the WCL requires employers to obtain one of three forms of coverage: (1) workers’- compensation insurance from an approved private insurance carrier; (2) coverage from the State Insurance Fund, a State-run insurance carrier; or (3) self-insurance, with the approval of the Workers’ Compensation Board, which is the state agency charged with administering the workers’-compensation system. Id. §§ 10(1), 50; see Matter of Raynor v. Landmark Chrysler, 18 N.Y.3d 48, 53 (2011). This system of mandatory insurance works both for the benefit of the injured worker and also “for the benefit of the state,” which “otherwise might be charged with his support.” Matter of Waters v. William J. Taylor Co., 218 N.Y. 248, 252 (1916). This appeal concerns insurance carriers. Under typical policy terms, insurance carriers are responsible for the future payment of all workers’-compensation obligations of the employers they cover if those obligations arise from injuries that occurred during the policy term. (Record (R.) 53 [¶ 7].) As a result, carriers may be responsible for paying benefits for years or decades after an injury occurred, particularly with respect to payments for 6 medical care (R. 67 [¶ 60]), for which “liability may extend over the entire remaining life of the injured employee,” N.Y. Workers’ Compensation Handbook § 1.08(1) (Matthew Bender 2016); see WCL § 13(a). Carriers refer to their continuing responsibility to pay benefits for injured workers as creating a “long tail” of liability. (R. 67; see R. 351.) The Board is responsible for adjudicating disputed claims for workers’-compensation benefits and determining whether an injured worker is entitled to an award of benefits. See N.Y. Workers’ Compensation Handbook, supra, § 1.09. When issuing a benefit award, the Board will formally “close” a claimant’s case if it determines that no further proceedings are contemplated for the injury. See Matter of Casey v. Hinkle Iron Works, 299 N.Y. 382, 385 (1949). Closing a case means “that the Board does not automatically list the case as requiring a further hearing.” N.Y. Workers’ Compensation Handbook, supra, § 11.06(1). 7 Closed cases “are almost always capable of being reopened in the event that further issues arise that require Board resolution.”1 N.Y. Workers’ Compensation Handbook, supra, § 11.06(1). The option to reopen a case reflects the fact that “a claimant’s condition and earning prospects at the time of hearing . . . may later change markedly.” Arthur Larson & Lex K. Larson, 8 Larson’s Worker’s Compensation Law § 131.01 (Matthew Bender rev. ed. 2014). Reopening allows the Board to “increase, decrease, revive, or terminate payments to correspond to a claimant’s changed condition.” Id. The Board may reopen a case on its own motion or in response to various triggering actions (see R. 57 [¶ 23]), including where a claimant files a new claim for compensation with the Board, the physician treating the claimant submits a medical report to the Board indicating a change in the claimant’s condition or a new 1 A closed case may be reopened to allow a further award to a claimant up to eighteen years from the date of injury or eight years from the last payment of compensation benefits, whichever is later. WCL § 123; see N.Y. Workers’ Compensation Handbook, supra, § 11.06(1). 8 diagnosis, or a party raises the issue of transfer to the Fund at a hearing. The Board is also authorized to reopen a case when an insurance carrier files an application with the Board to transfer a case to the Fund. See Employer: Del Labs, No. 2940-8739, 2009 WL 193434, at *6 (Work. Comp. Bd. Jan. 14, 2009). 2. The Legislature creates the Fund for Reopened Cases for the benefit of injured workers and insurance carriers In 1933, the Legislature established the Fund for Reopened Cases—then and now the only fund of its kind in the nation, see Larson’s Worker’s Compensation Law § 131.06(1)—for the benefit of both injured workers and insurance carriers. The purpose of the Fund was to mitigate certain risks caused by the long-term nature of workers’-compensation payments. Injured workers were at risk that, for instance, an insurance carrier would become insolvent or go out of business during the decades that a workers’- compensation case might continue. Matter of Tipton v. Lang’s Bakery, 250 A.D. 696, 698–99 (3d Dep’t), aff’d, 275 N.Y. 572 (1937). Insurance carriers also faced burdens when long-closed 9 cases unexpectedly reopened and imposed unanticipated financial obligations. (R. 125.) The Legislature addressed these concerns by creating the Fund. Insurance carriers could apply to transfer their payment obligations in reopened cases to the Fund in carefully defined circumstances. See Matter of De Mayo v. Rensselaer Polytech Inst., 74 N.Y.2d 459, 462–63 (1989). (See R. 54.) If the eligibility criteria were met, the Fund would accept transfer of the case and pay future benefits due to the claimant and his or her healthcare providers in the carrier’s place.2 (R. 401.) Carriers could apply to transfer a previously closed case to the Fund if a payment obligation arose in the case after two time periods had elapsed: (a) seven years since the date of injury and (b) three years since “the last payment of compensation” to the claimant (aside from payment of medical benefits). WCL § 25-a(1); 2 Carriers were permitted to apply for the transfer of cases that had originated years before the Fund was established. See, e.g., Matter of Vleck v. Parry, 270 N.Y. 371, 373–74 (1936) (approving transfer to the Fund of claim arising from a 1923 injury, where case reopened four days after the effective date of the 1933 legislation creating the Fund). 10 see N.Y. Workers’ Compensation Handbook, supra, § 2.18(1); see, e.g., Matter of Donnelly v. Alden Cent. Schs., 83 A.D.3d 1368, 1368 (3d Dep’t 2011). In addition, the carrier was required to establish that the case sought to be transferred had truly been closed, meaning that no further proceedings had been contemplated at the time the Board designated the case as closed. Matter of Casey, 299 N.Y. at 385; see, e.g., Matter of Jones v. HSBC, 304 A.D.2d 864, 866 (3d Dep’t 2003). This criterion was intended to ensure that transfer to the Fund was limited to the situation where the claimant had made a “fresh application” for an award of benefits that was not foreseeable at the time the case was closed—such as, for example, when an employee required additional, unanticipated medical treatment related to the original injury. See Matter of Riley v. Aircraft Prods. Mfg. Corp., 40 N.Y.2d at 369 (1976); see also Matter of Casey, 299 N.Y. at 385; N.Y. Workers’ Compensation Handbook, supra, § 11.06(1). Transfer to the Fund was not automatic upon the carrier’s application. Rather, the WCL provided that the Board could reopen a case for the purpose of considering an application for 11 transfer, and the WCL established an “involved process” of adversarial administrative proceedings (R. 57–58 [¶¶ 22, 26]) in which the carrier bore the burden of showing that the criteria for transfer were met (R. 58 [¶ 29]). A “complex body of case law” developed regarding when a reopened case was eligible for transfer. (R. 60 [¶ 36].) Among the most heavily litigated issues (R. 61 [¶ 37]) was whether any further proceedings had actually been contemplated at the time the case was closed. The Fund was intended to provide relief in what was expected to be a limited number of cases. (See R. 56, 401.) Based on the assumption that the class of cases eligible for transfer to the Fund would be small, the Fund was initially financed by a one-time assessment on insurance carriers. N.Y. Workers’ Compensation Handbook, supra, § 2.18(3). However, “the financing then provided for the Fund was not satisfactory and it proved less so as the years went by.” (R. 125; see R. 167–168.) In 1948, the Legislature responded to this funding shortfall by authorizing the Workers’ Compensation Board to determine and impose annual assessments to maintain the Fund. (See 12 R. 188, 195, 202.) Although the assessments were formally imposed on carriers, carriers could pass along those assessments to policyholders (i.e., employers) in the form of surcharges imposed in addition to premiums. See WCL § 151(1), (4). (R. 54–55 [¶ 12].) Thus, following the 1948 amendment, the Fund ultimately was sustained by payments from employers. From that point on, insurance carriers received the substantial benefit of relief from ongoing liability for certain new claims in reopened cases that they could transfer to the Fund, but no longer had to bear the burden of contributing to maintain the Fund. (See R. 39 [¶ 66] (appellants’ allegation that “the Fund is maintained by assessments upon employers”).) 3. Skyrocketing costs prompt the Governor and industry stakeholders to reassess the Fund’s continued viability The closure of the Fund for Reopened Cases in 2013 was preceded by the related closure of the Special Fund for Second Injuries, also known as the Special Disability Fund, in 2007. See WCL § 15(8). The Special Disability Fund reimbursed a carrier or self-insured employer for medical and indemnity payments made 13 after a specified period in cases involving a claimant with a preexisting permanent injury that substantially compounded the severity of a covered on-the-job injury. WCL § 15(8)(d). In 2007, the Legislature determined that the Special Disability Fund “no longer serve[d]” its original purpose and had become a vast drain on employers’ resources. Governor’s Program Bill Mem., reprinted in Bill Jacket for ch. 6 (2007), at 18. The fund’s annual liabilities had ballooned from $45 million in 1980 to $1.3 billion in 2001, requiring a 200 percent increase in annual assessments on employers between 1995 and 2007 alone. Id. Thus, the fund “had become more of a burden on the [workers’- compensation] system and a cost to the employers than a benefit to either employers or employees.” N.Y. Workers’ Compensation Handbook, supra, § 2.16(2). The Legislature accordingly phased out the Special Disability Fund in 2007 by (a) barring claims for reimbursement from the fund in cases arising from injuries that occurred on or after July 1, 2007, and (b) barring all claims for reimbursement after July 1, 2010. See WCL § 15(8)(h)(2)(A). The Legislature kept the fund to open to handle cases accepted before 14 these phase-out deadlines. See N.Y. Workers’ Compensation Handbook, supra, § 2.16(6). The closure was expected to reduce costs to employers by requiring carriers to retain responsibility for claims. As explained by the New York Compensation Insurance Rating Board (CIRB), a nonprofit association of insurance carriers (see R. 37 [¶ 47]), closing the fund would make carriers “responsible for the full loss payment” on claims that previously would have been eligible for reimbursement from the fund, and thereby provide carriers with “more accountability and incentive to more aggressively control, manage and settle these cases.” CIRB, New York Workers Compensation Rate Revision, Explanatory Mem., at 6 (Oct. 1, 2007). Events following the closure of the Special Disability Fund in 2007 led the Governor and the Legislature to consider whether the Fund for Reopened Cases should also be closed. As plaintiffs have acknowledged, “[t]here has been a surge in reopened cases in recent years,” paralleling the earlier vast growth of the Special Disability Fund. (R. 39 [¶ 68].) In the seven-year period starting in 15 2006, the Fund’s liabilities increased significantly, and the annual assessments required to maintain the Fund more than tripled, from less than $100 million in 2006 to nearly $315 million in 2013. (R. 66–67 [¶ 59].) Although these assessments were imposed directly on insurance carriers, they were passed along to and ultimately borne by employers. (R. 67 [¶ 59].) This surge in the Fund’s liabilities may have been in part an unintended consequence of the 2007 reforms. As one commentary has explained, carriers and self-insured employers seem to have responded to the closing of the Special Disability Fund by turning to the Fund for Reopened Cases for relief. Scott J. Lefkowitz & Steven G. McKinnon, New York State Workers Compensation Board Assessments: A Discussion of Assessments and Recent Increases Impacting Employers, at 6 (Apr. 2013). The increase in the Fund’s liabilities may also have resulted from carriers’ growing practice of reaching “indemnity-only settlements” under WCL § 32. (See R. 64–65 [¶¶ 48–50].) In such a settlement, a carrier (or self-insured employer) resolves its obligation to make further indemnity payments to an injured worker, while leaving 16 open its liability for medical payments. The carrier would then apply to transfer its medical liability to the Fund after the statutory time limits had elapsed. See N.Y. Workers’ Compensation Handbook, supra, § 2.18(2). As a result, the Fund, rather than fulfilling its intended function of ensuring payment of benefits in a small number of cases that unexpectedly reopened (see R. 125), was instead absorbing substantial liability for foreseeable ongoing medical care (R. 65 [¶ 51]). Indeed, the mere existence of the Fund created a perverse incentive for carriers not to reach settlements on liability for medical benefits, because they knew they could apply to transfer their obligations for medical benefits to the Fund. See Lefkowitz & McKinnon, New York State Compensation Board Assessments, supra, at 6. The Fund’s skyrocketing costs prompted the Governor in 2012 to propose closing the Fund to new applications as part of a package of reforms intended to “restore the State as a national model” for workers’ compensation. Gov. Andrew M. Cuomo, N.Y. Rising: State of the State 2013, at 20 (Oct. 29, 2012). The reforms 17 were designed to “reduce the cost and improve the administration of workers’ compensation for New York’s businesses and workers.” Id. at 21. The Governor explained that continued operation of the Fund was “unnecessary” and that closing it to new applications would “generate an immediate annual assessment savings to New York State employers of approximately $300 million.” Id. at 25. The Governor’s proposal received strong support from representatives of employers and insurance carriers. The Business Council, a consortium representing more than 2,500 private-sector employers across the State, endorsed closing the Fund to new applications, estimating that this change would save employers $300 million annually. Ken Pokalsky, “Testimony to Senate Finance Committee and Assembly Ways and Means Committee: Joint Legislative Public Hearings on the FY 2013-2014 Executive Budget Proposal” at 1, 4 (Feb. 12, 2013). The American Insurance Association also advocated closing the Fund, along with another special fund, stating that “[i]t is time for these funds to be phased out.” Am. Ins. Ass’n, “AIA Endorses Gov. Cuomo’s Workers’ Compensation Proposals” (Jan. 23, 2013). The association 18 explained that “[w]hile these funds may have served a purpose when originally instituted, they now simply add costs to the system without providing any benefits to injured workers.” Id. 4. In 2013, the Legislature closes the Fund to new applications In 2013, the Legislature decided to control the skyrocketing operating costs of the Fund—and the concomitant burden on employers—by closing the Fund to new applications. The Legislature effected this change in the Budget Reconciliation Act of 2013, as one of a number of reforms to the WCL described as a “Business Relief Bill.” (R. 401.) As explained in the Governor’s memorandum accompanying the legislation, the Fund had ceased to adequately fulfill its “original intent” of “provid[ing] carriers relief in a small number of cases where liability unexpected arises after a case has been closed for many years.”3 (R. 401.) Closing the 3 The Fund’s other original function of protecting injured workers is now served by the Workers’ Compensation Security Fund, see WCL § 107, which assumes responsibility for providing benefits to injured workers if a carrier becomes insolvent, see N.Y. Workers’ Compensation Handbook, supra, § 2.19(1). 19 Fund would “save New York businesses hundreds of millions of dollars in assessments per year.” (R. 401.) To close the Fund to new applications, the Legislature amended WCL § 25-a, in pertinent part, to state that “[n]o application by a self-insured employer or an insurance carrier for transfer of liability of a claim to the fund for reopened cases shall be accepted by the board on or after the first day of January, two thousand fourteen.” Budget Reconciliation Act of 2013, ch. 57, pt. GG, § 13, 2013 N.Y. Laws (L.R.S.), at 144 (amending WCL § 25- a(1-a)). This date was nine months after the date of the statute’s enactment. Thus, although most of the legislation’s other reforms of the workers’-compensation system took effect immediately, ch. 57, pt. GG, § 37, 2013 N.Y. Laws (L.R.S.) at 171, insurance carriers received a grace period of nine months—through December 31, 2013—before the Fund was closed to new applications, id. § 13, 2013 N.Y. Laws (L.R.S.), at 144. The amendment preserved the Workers’ Compensation Board’s jurisdiction to adjudicate applications for transfer made on or 20 before that date. Id.; see N.Y. Workers’ Compensation Handbook, supra, § 2.18(2). The 2013 legislation also contained other provisions that mitigated the effect of the Fund’s closure on insurance carriers by providing them with a significant financial benefit. Those provisions streamlined the process for collecting assessments from employers for the Fund, and allowed carriers to more straightforwardly pass along those assessments to employers through surcharges. (R. 401.) One effect of this change was to guarantee that carriers could recoup from employers the full amount of the assessments levied for the operation of the Fund, other special workers’-compensation funds, and the Board; the adequacy of such recoupment had previously been a matter of uncertainty for carriers, Matter of Selective Ins. Co. of Am., Inc., v. State of N.Y. Workers’ Comp. Bd., 102 A.D.3d 72, 74, 77–78 (3d Dep’t 2012). 21 B. Plaintiffs’ Challenge to the Fund’s Closure 1. Proceedings in Supreme Court The plaintiffs-appellants in this action are twenty-one affiliated insurance companies licensed to underwrite workers’- compensation policies in New York. (R. 31–34 [¶¶ 10–30].) In July 2013—months before the Fund was actually closed to new applications—these carriers brought suit in Supreme Court, New York County, against the State, the Department of Financial Services and its superintendent, and the Workers’ Compensation Board, to challenge the constitutionality of the amendment to WCL § 25-a that closed the Fund. Plaintiffs alleged that the Fund’s closure retroactively increased their liability for closed cases, causing them to set aside reserves of $62 million to cover this “unfunded liability.” (R. 41 [¶ 83].) They further alleged that the imposition of this retroactive liability violated (1) the Contract Clause of the federal Constitution, U.S. Const, art. I, § 10; (2) the federal Due Process 22 Clause, id., amend. XIV, § 1;4 and (3) the Takings Clauses of the federal and state Constitutions, U.S. Const. amend. V; N.Y. Const. art. I, § 7(a). (R. 42–46). Appellants sought a declaratory judgment that the amendment to WCL § 25-a was “unconstitutional as applied retroactively to impose liability for reopened claims with a date of injury or disablement prior to January 1, 2014.” (R. 47 [¶ 124].) The defendants moved to dismiss the complaint, and appellants cross-moved for summary judgment. Supreme Court (Mills, J.) granted the defendants’ motion and dismissed the complaint. (R. 5–18.) The court rejected plaintiffs’ contention that the closure of the Fund imposed retroactive liability by preventing new applications after a nine-month grace period. (R. 13.) The court noted that the inclusion of this grace period confirmed that the Legislature intended the closure to operate only prospectively, 4 Plaintiffs also purported to invoke the state Constitution’s Due Process Clause, but instead cited and quoted from a nonexistent provision of New York’s Constitution: “N.Y. Const. Ch. 1, art. IV.” (R. 44 [¶ 110].) The quoted language appears to come from chapter 1, article IV of the Vermont Constitution. 23 since “[t]here would be no need for any postponement if the Legislature intended for the amendment to have retroactive effect.” (R. 13.) Moreover, the fact that the insurers faced liability related to injuries that predated the enactment of the statute did not render the legislation retroactive. (R. 13–14.) Nor was it inequitable for the Legislature to require insurance carriers to retain their “preexisting liability” for these cases, rather than permitting carriers to continue to transfer this liability to the Fund. (R. 14.) Having found that the Fund’s closure did not impose retroactive liability, the court rejected plaintiffs’ constitutional challenges. It found plaintiffs’ substantive-due-process challenge meritless because appellants had failed to establish that the Fund’s closure to new applications was “without legal justification and not supported by a rational legislative purpose.” (R. 16.) The court also found no merit to plaintiffs’ cause of action under the Contract Clause because (a) plaintiffs had not “allege[d] the existence of any contracts which entitle them to continue shifting workers’ compensation liability to the Fund,” and, in any event, 24 (b) the amendment closing the Fund did not substantially impair appellants’ contracts, but rather, “[a]t best . . . merely render[ed] [their] policies with their insureds less profitable.” (R. 15.) The court also concluded that the closure was “justified by the stated purpose of the amendment” to “save businesses substantial amounts in annual assessments.” (R. 15.) Finally, the court rejected plaintiffs’ Takings Clause challenge because the closure “neither increase[d] the amount of compensation owed to claimants[] nor . . . appropriate[d] the carriers’ assets for the use of the State.” (R. 17.) 2. The Appellate Division’s decision The First Department reversed Supreme Court’s judgment, declared the 2013 amendment of WCL § 25-a unconstitutional as applied to workers’-compensation cases arising before the legislation’s enactment, and directed entry of summary judgment in plaintiffs’ favor.5 (R. 544.) 5 The court declined, however, to impose a permanent injunction against implementation of the statute. (R. 543.) 25 The court first concluded that the amendment imposed retroactive “unfunded liability” on insurance carriers because the premiums that carriers had collected for policy years prior to the legislation’s enactment were calculated based on the assumption that some number of claims would ultimately be eligible for transfer to the Fund. (R. 537.) The court acknowledged that this Court has long held that the Legislature may impose on workers’- compensation carriers “‘financial obligations not contemplated when prior insurance premiums had been computed.’” (R. 540 (quoting Becker v. Huss Co., 43 N.Y.2d 527, 540 (1978)).) But the First Department found this precedent inapposite because the closure of the Fund to new applications had deprived carriers of their “right to transfer eligible cases to the Fund . . . and created a new class of unfunded liability.” (R. 540.) The First Department acknowledged that, in the regulation of workers’-compensation insurance, the Legislature may “retroactively affect an entity’s rights or liabilities by a new statutory enactment.” (R. 540–541.) The court concluded, however, that the Legislature did not validly do so in this instance because 26 “the record fails to reflect that the legislature amended the statute with an understanding of the impact it would have on policies issued before October 1, 2013.” (R. 541.) The court further concluded that the amendment violated the federal Constitution’s Contract Clause by impairing carriers’ contractual rights without serving “‘a significant and legitimate public purpose,” and that it effected a taking of property without just compensation, in violation of the takings clauses of the state and federal Constitutions. (R. 537 (quoting 19th St. Assocs. v. State, 79 N.Y.2d 434, 443 (1992)).) Defendants appealed to this Court as of right. See C.P.L.R. 5601(b)(1). (R. 545.) 27 ARGUMENT In 2013, the Legislature made the judgment that the Fund for Reopened Cases had outlived its usefulness and was imposing an intolerable financial burden on the State’s employers. The Legislature accordingly decided that the Fund would no longer accept new applications from insurance carriers to transfer their liability for newly reopened cases to the Fund. However, the Fund would continue operating to pay claims in previously transferred cases. The Appellate Division invalidated this legislative judgment on the ground that it imposed impermissible retroactive liability on carriers. That holding is fundamentally mistaken for two independent reasons. First, the Legislature acted prospectively, not retroactively, when it closed the Fund to new applications: the sole effect of the Fund’s closure was to prevent future transfers from carriers to the Fund, without disturbing any past transfers. Second, even assuming that the Fund’s closure had some retroactive effect, it did not thereby transgress any constitutional limitation on the Legislature’s powers. The Legislature is not 28 generally prohibited from enacting retroactive statutes, reflecting the fact that retroactivity can often serve legitimate and beneficial policy goals. Here, the Legislature’s closure of the Fund was a sensible and tailored solution to the pressing problem posed by the Fund’s growing financial unsustainability. The Legislature’s policy judgment violated no constitutional provision. POINT I THE FUND’S CLOSURE TO NEW TRANSFER APPLICATIONS HAD ONLY PROSPECTIVE EFFECT The Appellate Division’s decision below rests on the erroneous premise that the statute closing the Fund had retroactive effect. To the contrary, the statute’s effect was entirely prospective, affecting only carriers’ ability to make future applications to the Fund to transfer payment obligations in reopened cases. The fact that carriers will now be required to retain these payment obligations, when they had previously expected to be able to shift them to the Fund, does not render the statute retroactive. In the field of workers’ compensation, carriers 29 accept an ongoing responsibility to provide benefits to injured workers that may continue for years or decades after the injury occurred. It is firmly established that the Legislature may alter carriers’ future payment obligations in satisfaction of this ongoing responsibility without imposing retroactive liability. The Legislature has done no more than that here. A. The Closure Altered Only the Manner of Handling Future Transfer Applications in Reopened Cases. A statute has retroactive effect only if it “attaches new legal consequences to events completed before its enactment,” Landgraf v. USI Film Prods., 511 U.S. 244, 270 (1994). The Legislature’s closure of the Fund to new applications had no such effect. The statute closing the Fund applies only to new transfer applications by carriers that (at the time of the statute’s enactment) had not even been filed, let alone “completed.” And those new applications often would have sought to transfer liability for benefits claims in response to developments arising unexpectedly after the statute’s enactment. The Legislature’s treatment of these new applications was thus entirely prospective. 30 Several aspects of the statute make its prospective effect clear. First, the closure of the Fund affects only new applications by carriers, not any “completed” applications: the Legislature provided that “[n]o application by . . . an insurance carrier for transfer of liability of a claim to the fund for reopened cases shall be accepted” on or after the effective date of January 1, 2014. Ch. 57, pt. GG, § 13, 2013 N.Y. Laws (L.R.S.) at 144 (amending WCL § 25-a(1-a)). That change is entirely forward-looking, since it applies only to applications for transfer submitted by carriers more than nine months after the legislation’s enactment.6 By 6 The Appellate Division suggested that the Legislature had not “clearly indicated a considered determination” that the Fund’s closure should apply to transfer applications affecting existing cases. (R. 540.) But the Legislature did clearly indicate its intention in closing the Fund—indeed, it has never been disputed in this litigation that the legislation would bar future transfer applications in existing cases. The court also suggested that the legislation should not apply to transfer applications in existing cases because the Governor’s memorandum reflected an “incorrect belief” that carriers’ premiums would cover their liability for reopened cases that could not be transferred to the Fund. (R. 541.) Where the meaning of a statute is clear, however, courts may not resist its operation in reliance on a conviction that the statute is misguided, unwise, or based on a misunderstanding. See Matter of Raynor, 18 (continued on next page) 31 contrast, the Fund will continue to cover, for years or decades, all payment obligations arising from applications that carriers submitted before the statute’s effective date. Thus, at the time of the 2013 legislation’s enactment, the Fund’s closure to new applications did not affect any carrier’s then-existing payment obligations. Cf. Matter of Mills v. Staffking (Hidden Valley), 271 A.D.2d 146, 149–50 (3d Dep’t 2000) (applying an amendment of the WCL to cases arising up to two years before the amendment’s enactment, except cases where the Board had “finally determined” an employer’s right to reimbursement from the Special Disability Fund before the enactment). Indeed, the Legislature took pains to ensure that carriers would have adequate time to identify and apply to transfer to the Fund any cases presently eligible for transfer. Instead of closing the Fund immediately to new applications, the Legislature provided a nine-month grace period before closure. Thus, far from N.Y.3d at 48 (when construing a statute, a court may not “pass on its fairness or wisdom”); People v. Smith, 79 N.Y.2d 309, 311 (1992) (same). 32 interfering with any present payment obligations, the Legislature sought to ensure that carriers would have sufficient time to apply to transfer any of their existing liabilities to the Fund. The sole effect of the closure was thus to prevent carriers from making applications to be relieved of payment obligations in the future. The prospective nature of the Legislature’s treatment of future transfer applications is not altered by the fact that the carriers’ underlying obligations may relate to a past injury. This Court has squarely held that “[a] statute is not retroactive . . . when made to apply to future transactions merely because such transactions” may “relate to an injury that occurred prior to the enactment of the statute.” Matter of Raynor, 18 N.Y.3d at 57 (quotation marks omitted). Employing similar reasoning, the U.S. Court of Appeals for the Ninth Circuit has held that Congress did not impose retroactive liability when it eliminated a tax exemption that effectively reduced future installment payments of a defamation award that had been issued prior to the statute’s enactment. Polone v. Comm’r, 505 F.3d 966, 969, 972 (9th Cir. 2007). The court explained that this change in tax treatment did 33 not “attach new legal consequences to completed payments” because it applied only to payments received after its effective date, even though those payments were in satisfaction of a damages award issued prior to the effective date. Id. at 972. This analysis applies equally here. The Legislature closed the Fund only to new applications filed nine months after the statute’s enactment, without affecting any applications filed before that future date. Second, contrary to the Appellate Division’s reasoning, the Fund’s closure to new applications did not alter carriers’ “‘preexisting liability.’” (R. 538–39 (quoting Matter of Raynor, 18 N.Y.3d at 57).) Rather, the legislation required carriers to retain their contractual obligation to make benefit payments in reopened cases, if and when those benefits were required in the future. Plaintiffs’ existing policies with employers already hold them responsible for paying future benefits in reopened cases—indeed, the very premise of plaintiffs’ challenge is that they will have to pay benefits in those cases if the Fund does not accept them (see R. 41 [¶¶ 81–84]). The Legislature previously chose to make the 34 Fund available to accept the transfer of the carriers’ responsibility for certain reopened cases, but until that transfer occurred the responsibility to make future benefit payments remained with the carriers. Thus, the supposedly “new” liability that the Appellate Division believed carriers would face after the Fund’s closure to new applications (see R. 542) represents nothing more than carriers’ preexisting contractual responsibilities. Under similar circumstances, this Court has previously held that the Legislature did not impermissibly alter carriers’ “preexisting liability” when it modified the future payments they were required to make to satisfy their contractual obligations to employers. Matter of Raynor, 18 N.Y.3d at 57. In Matter of Raynor, this Court sustained the validity of a 2007 amendment mandating that carriers deposit the present value of certain long- term indemnity awards into a special fund, rather than paying out those awards over many years. Id. at 54. As this Court explained, this new requirement did not operate retroactively because it “merely changed the time and manner of payments” made to satisfy carriers’ preexisting obligations. Id. at 57. So too here: the 35 closure of the Fund did not create any new liability not already covered by carriers’ policies, but instead merely altered the manner in which carriers fulfilled their extant contractual responsibilities in the future. The fact that the statute here preserves carriers’ preexisting liability, rather than imposing unforeseen new obligations, distinguishes this case from Eastern Enterprises v. Apfel, 524 U.S. 498 (1998), which the Appellate Division relied on below (see R. 538). At issue in that case was a federal statute that imposed new assessments on employers to fund lifetime medical benefits for their former employees or the employees of an affiliated entity. See Eastern Enters., 524 U.S. at 514 (plurality op. of Justice O’Connor). Although the Court found the federal statute there impermissibly retroactive, its holding rested on the fact that the statute’s imposition of an obligation to pay lifetime medical benefits was a new obligation that arose only after the plaintiff- employer in the case had left the industry. Id. at 535-36 (plurality op.); id. at 550 (Kennedy, J., concurring). Here, by contrast, 36 carriers’ liability as to reopened cases is not new; instead, it arises from their own preexisting insurance contracts. Third, the prospective nature of the statute at issue here is highlighted by the fact that, in many instances, the new applications affected by the Fund’s closure will be triggered by a newly arising change in the claimant’s condition—i.e., a new circumstance occurring after the date of the statute’s enactment.7 Although a newly arising claim for benefits in a reopened case must have some causal connection to a prior workplace injury, the claim itself is a “fresh application” for an award of benefits, Matter of Casey, 299 N.Y. at 385, typically based on developments that arise unexpectedly in the course of a carrier’s ongoing relationship with an injured worker. 7 To be sure, in some circumstances a carrier could apply to transfer a case to the Fund without a change in the claimant’s condition, if it faced future payment obligations to the claimant continuing beyond the seven-year and three-year statutory periods for transfer to the Fund. See Employer: Del Labs, 2009 WL 193434, at *6; see also Matter of Norcross v. Camden Cent. Sch., 78 A.D.3d 1339, 1339–40 (3d Dep’t 2010). 37 The central purpose of the Fund was to provide relief where, “after extended periods,” a worker experienced an unforeseeable change in condition, such as “a recurrence of malady, a progress in disease not anticipated, or a pathological development not previously prognosticated, arising out of the injury.” Matter of Riley, 40 N.Y.2d at 369 (quotation marks omitted). Such unanticipated developments may occur decades after the initial injury, and for reasons that arise only years after a worker’s case has been formally closed. For example, in a case where this Court upheld a transfer to the Fund, a worker who had sustained a workplace head injury in 1951 suffered a fatal stroke more than thirty years later that was found to be “related to the 1951 accident.” Matter of Zechmann v. Canisteo Volunteer Fire Dep’t, 85 N.Y.2d 747, 750 (1995). The claim of the worker’s spouse for death benefits was the trigger for the carrier’s successful transfer application. See id. at 750.8 As this case illustrates, the 8 The actual legal issue in dispute in Matter of Zechmann was whether the spouse’s claim for death benefits was barred by the statute of limitations. This Court ultimately held that it was (continued on next page) 38 change in condition that permits transfer of liability to the Fund (e.g., the worker’s death in Matter of Zechmann) may be a newly arising and often unforeseeable development in a long-dormant case. The Legislature’s decision to close the Fund with respect to “fresh” benefit claims arising from such future developments, Matter of Casey, 299 N.Y. at 385, does not operate retroactively. In short, the statute at issue here applies to new applications made more than nine months after the legislation’s enactment. The sole effect of the Fund’s closure is not to impose new liabilities, but rather to require carriers to retain their preexisting contractual responsibilities. And in many instances the transfer applications barred by the statute would have been triggered by newly arising payment obligations that the carrier did not face at the time of the legislation’s enactment. In light of these undisputed aspects of the statute, the Fund’s closure to new applications imposes no retroactive liability on carriers. not. Matter of Zechmann, 85 N.Y.2d at 753. For present purposes, however, the relevant aspect of this Court’s opinion was its acceptance of the Board’s determination that the spouse’s newly arising claim was a liability of the Fund. See id. at 750–51. 39 B. The Appellate Division’s Grounds for Finding Retroactivity Are Meritless. The Appellate Division concluded that the Fund’s closure had retroactive effect because it deprived carriers of a previously available form of financial relief and thus effectively imposed “unfunded liability” on them. (R. 537.) This reasoning mischaracterized both the statutory scheme and the nature of carriers’ expectations. 1. The Legislature did not act retroactively merely by unsettling carriers’ expectation that the Fund would be indefinitely available. As the U.S. Supreme Court has explained, “[e]ven uncontroversially prospective statutes may unsettle expectations and impose burdens on past conduct.” Landgraf v. USI Film Prods., 511 U.S. 244, 269 n.21 (1994). By way of example, the Court noted that “a new property tax or zoning regulation may upset the reasonable expectations that prompted those affected to acquire property” without having retroactive effect. Id. For example, a new owner may have purchased property on the assumption that he would be eligible to apply for certain tax 40 credits, or able to apply for permission to use his property in a certain way. A new tax law or zoning regulation could preclude the owner from seeking the favorable tax treatment or zoning approvals that he had reasonably expected to be available. But such prospective changes do not thereby retroactively “attach[] new legal consequences” to any completed event—instead, they merely affect future transactions in a manner that is at odds with the property owner’s previous expectations. Id. at 270. So too here. When insurance carriers issued their policies, they may well have hoped that the Fund would remain open forever to absorb their payment obligations in reopened cases. But that expectation was simply an assumption that the status quo would continue—much as, in the Supreme Court’s example, an investor might enter into a real-estate transaction on the assumption that property taxes or zoning regulations would remain as they are. As Landgraf makes clear, however, a law does not operate retroactively merely because it upends a regulated entity’s incorrect predictions regarding the future. Indeed, as the Supreme Court observed, if legislation “were made secure against 41 any change in legal rules” whenever a party “relied on existing law in arranging his affairs,” the result would be that “the whole body of our law would be ossified forever.” Id. at 269 n.21 (quotation marks omitted). That observation applies with even greater force to the field of workers’ compensation, where legislative alteration of the status quo, and even frustration of settled expectations, has long been a necessary component of state oversight. New York’s workers’-compensation scheme is a “far-reaching” and “thorough system of regulation, administration, and . . . sanctions.” Burlew v. Am. Mut. Ins. Co., 63 N.Y.2d 412, 416 (1984). Under this scheme, insurance carriers are required to accept open-ended liability, under which they commit to pay benefits to injured workers for however long those benefits may be required. See supra at 5–6. Their liability can continue for years after a policy issues, and there may be numerous legislative reforms and economic changes during that period. Given this typically “long tail” of liability (R. 67 [¶ 60]), at any given time carriers may be paying benefits, or may potentially 42 be liable for future benefits, in numerous cases that arose years or decades earlier. The Legislature would be disabled from effectively regulating workers’ compensation if it could alter carriers’ payment obligations only for future injuries, and could not also respond to changed circumstances by altering carriers’ future obligations toward already-injured workers. Recognizing this reality, this Court has long held that the “allocation of economic benefits and burdens” in the area of workers’ compensation is appropriately “subject to adjustment” in ways that necessarily affect preexisting cases, Becker, 43 N.Y.2d at 541; see id. (“[I]t is not unusual that carriers or employers have had their burdens shifted or increased with relation to past industrial accidents.”). Thus, courts have repeatedly recognized that “[i]n carrying out [the WCL’s] social purpose, the Legislature has the power to increase the burden on the employer for disability or expenses occurring or continuing after the date of the enactment of the amendatory statute, even though the accident which gave rise to the disability or expenses had occurred prior to that time.” Matter of Hogan v. Lawlor & Cavanaugh Co., 286 A.D. 43 600, 604 (3d Dep’t 1955). This “flexibility of the compensation law in achieving its social goals” is “much greater than that found in the more traditional forms of law.” Becker, 43 N.Y.2d at 541. For example, the Third Department—which has exclusive jurisdiction over appeals from decisions of the Workers’ Compensation Board, see WCL § 23—has held that the Legislature may permissibly increase the maximum payments available for a total disability going forward, even if the disability was due to a prior injury. Matter of Schmidt v. Wolf Contracting Co., 269 A.D. 201, 202–03, 207 (3d Dep’t 1945), aff’d, 295 N.Y. 748 (1946). Similarly, the Third Department has upheld an amendment expanding death benefits for the permanently disabled child of a deceased employee, even though the amendment was passed after the employee’s accident and death. See Matter of Busch v. Austin Co., 37 A.D.2d 648, 648–49 (3d Dep’t 1971). The court also upheld an amendment that more than doubled carriers’ payment obligations in cases eligible for reimbursement from the Special Disability Fund, even though the amendment expressly affected cases that had arisen up to two 44 years before its enactment. Matter of Mills, 271 A.D.2d at 147–49. Numerous other cases reach a similar conclusion—giving effect to legislative changes even though the changes applied to preexisting cases, potentially thwarting prior assumptions regarding carriers’ future liability.9 The retroactivity rule adopted by the First Department here cannot be squared with nearly a century of cases confirming the Legislature’s authority to adjust carriers’ future obligations in ongoing cases. Accepting that analysis would handcuff the Legislature in addressing the shortcomings of the workers’- compensation system, freezing the status quo for existing cases and potentially preventing the implementation of critical reforms 9 See, e.g., Matter of Kirchner v. Park Edge Supermarkets, Inc., 75 A.D.2d 916, 916 (3d Dep’t 1980) (upholding application of post-injury amendment “applicable to any awards made on or after such effective date” (quotation marks omitted)); Matter of De Concilus v. Juney Juniors, Inc., 9 A.D.2d 17, 18 (3d Dep’t 1959) (holding that post-injury increase in maximum benefits applied to claimant when “[e]verything about the text suggests that it reached future weekly benefits without regard to when the disability occurred”). 45 for decades despite substantial, ongoing costs or overwhelming evidence that injured workers require relief.10 2. The Fund’s closure is not rendered retroactive by the possibility that carriers’ future payment obligations will exceed past premiums. The Appellate Division also found that the Fund’s closure had retroactive effect because insurers would assertedly be required to maintain additional reserves to cover their liabilities for cases they could no longer transfer to the Fund. (R. 537.) Plaintiffs have alleged (R. 40–41 [¶¶ 76–79]) that these reserves would be required because premium rates for policy years prior to 10 As applied here, the Appellate Division’s mistaken retroactivity rule would also produce inequitable results for employers that began operating in the State recently, or will begin operating here in the future. Those employers will pay increased premiums to compensate carriers for the obligation to retain liability for reopened cases in the future, yet will also pay substantial assessments for years or decades to sustain the Fund’s ability to accept existing cases as they reopen. Those employers, however, will receive no benefit from the Fund, which under the court’s ruling is closed as to cases arising after the legislation’s effective date. (R. 544.) The Legislature was entitled to choose a different way of allocating the inevitable burdens of closing the Fund among the various stakeholders in the workers’- compensation system. 46 the legislation’s enactment were calculated on the assumption that carriers would be able to reduce their exposure by transferring cases to the Fund. This argument fails for multiple reasons. As an initial matter, even crediting plaintiffs’ allegations about the need to set aside additional reserves, those reserves do not pertain to any past liability that the 2013 legislation retroactively altered. To the contrary, as plaintiffs themselves admit, the reserves constitute an estimate of future payment obligations that plaintiffs could potentially face for an as-yet-unknown set of cases that “could reasonably have been expected to become eligible for transfer to the Fund at some future date.” (R. 212.) In other words, by plaintiffs’ own admission, these reserves reflect an estimate of future, not past, payment obligations.11 Plaintiffs cannot 11 (See R. 209 [¶ 4] (“A ‘loss reserve’ is the amount of money that an insurance company sets aside to pay for claims related to accidents and injuries that have already occurred. Since the true value of the liability for claims at any accounting date can be known only when all attendant claims have been settled, the calculation of the amount of an appropriate loss reserve includes uncertainty and is based on unpaid claim estimates.”).) 47 demonstrate any impermissible retroactive effect by citing the need to maintain reserves as an anticipatory measure for future costs—any more than a property owner facing a new tax law can complain that he now has to save more money to fulfill his future tax obligations. In any event, if plaintiffs did actually face some tangible, present financial harm from the Fund’s closure due to the inadequacy of past premiums, such harm would not establish that the closure imposed retroactive liability. This Court has already rejected the argument that legislation is impermissibly retroactive because it imposes “financial obligations not contemplated when prior insurance premiums had been computed.” Becker, 43 N.Y.2d at 540. And the Third Department has likewise squarely rejected the argument that a legislative adjustment to workers’- compensation obligations operates retroactively on a carrier simply because “the insurance premiums collected by [the carrier] from its insured had been based upon liability of a less burdensome character.” Matter of Hogan, 286 A.D. at 604; see Matter of Raynor, 18 N.Y.3d at 60 (rejecting objection that WCL 48 amendment imposed “an unanticipated financial burden” on carriers). Plaintiffs’ contrary argument reflects the mistaken belief that their previously calculated premiums represent a guarantee of adequate coverage for all future costs. But the annual ratemaking process that establishes permissible premium rates for workers’-compensation policies includes no such guarantee. The process has never expressly presumed the continued existence of the Fund for Reopened cases. And although the ratemaking process uses historical cost data and actuarial projections of future losses in an effort to arrive at premium rates that will meet carriers’ claim costs, it is well known that, over the many years that workers’-compensations cases may continue, numerous unanticipated factors—including statutory changes—may cause carriers’ actual costs to deviate from these initial estimates. See Martin Minkowitz, 27 N.Y. Prac., Workers’ Compensation §§ 18:11, 18:18 (2d ed.). This Court has never held that carriers must be compensated for such unexpected changes, or that they may resist legislative reforms on the ground that their premiums—which 49 may have been set decades before—did not properly incorporate the Legislature’s future actions. There is no unfairness in requiring carriers to bear the future costs of legislative reforms that were not specifically anticipated at the time that they collected premiums. It is the nature of plaintiffs’ business as insurers to bear the risk that future events, including changes in the law, may cause their premiums to fall short; an “insurance company must be deemed to have assumed the risk of such changes in the law, in its dealings with its insureds,” Matter of Hogan, 286 A.D. at 604. Given the practical reality of frequent legislative changes to the workers’- compensation system, and the extensive body of precedent upholding the application of these changes to existing cases, no carrier could reasonably have believed that its past collection of premiums precluded the Legislature from reassessing the continued usefulness and viability of the Fund. See Becker, 43 N.Y.2d at 537 (“The [workers’-compensation] carrier’s financial burden is rarely fixed in amount and fluctuates because of a number of contingencies.”). 50 Moreover, as plaintiffs’ expert in this litigation acknowledged (see R. 254 [¶ 32]), legislative reforms often benefit insurance carriers by reducing their ongoing costs—thus leading to a windfall situation in which carriers’ premiums end up exceeding the costs they actually incurred to a greater degree than they anticipated. The legislation creating the Fund provides one such example: carriers were permitted to transfer cases to the Fund that had originated even before the Fund was established, notwithstanding the fact that the premiums collected for such cases had not accounted for such a transfer and had instead assumed that carriers would retain liability for those cases indefinitely. See supra at 9 n.2. More recent legislation has also provided benefits to carriers that were not reflected in their premiums. For example, the 2007 reforms of the WCL included a substantial “concession to insurance carriers”: a cap on the number of weeks that a claimant could receive benefits for certain types of injuries. Matter of Raynor, 18 N.Y.3d at 53, 54. Likewise, the 2013 legislation that closed the Fund also, among other things, streamlined the process 51 for collecting assessments from employers to support the various workers’-compensation funds—a change that substantially benefitted carriers. See supra at 20. Plaintiffs do not suggest that they have ever offered to refund premiums to employers when legislative reforms unexpectedly reduce their costs. By the same token, plaintiffs may not object to prospective legislation that assertedly increases their ongoing costs by pointing to the premiums they previously collected.12 3. Carriers were never granted an inviolable “right” to have their liabilities transferred to the Fund. Finally, the Appellate Division held that closing the Fund would improperly deprive carriers of their “right” to transfer cases to the Fund. (R. 540.) Carriers, however, never had an entitlement 12 Plaintiffs have also suggested that the profitability of their business depends on whether the premiums they collected for a given policy year are sufficient to cover their losses associated with that particular year. (See, e.g. R. 253 [¶ 20].) But in evaluating the burden purportedly imposed by legislation, there is no reason to focus only on a carrier’s profit in a particular policy year. The true burden on carriers must be evaluated on the basis of all their collected premiums and payment obligations over the entire period affected by the legislation. 52 to have the Fund take over their contractual obligations. To the contrary, the Fund was an ongoing benefit available only so long as the Legislature chose to maintain it. The Fund thus functioned essentially as an ongoing subsidy to carriers—shielding them from the risk of certain payment obligations. But the Legislature’s decision to grant such a subsidy to carriers in the past did not tie its hands going forward. Moreover, the Appellate Division’s finding of a “right” to transfer cases is inconsistent with the Fund’s operation. Even before the 2013 legislation, there was no guarantee that a carrier could transfer any particular payment obligation to the Fund. Such a transfer would occur only after an adversarial administrative proceeding in which multiple potential objections to transfer could be raised. See supra at 10–11. Given these many contingencies, the statute previously afforded carriers only the opportunity to apply to transfer a case to the Fund; it did not guarantee that any case that reopened after the minimum time requirements would necessarily be transferred. No entitlement 53 immune from legislative change can be inferred from such a scheme. POINT II EVEN IF THE FUND’S CLOSURE TO NEW APPLICATIONS HAD RETROACTIVE EFFECT, PLAINTIFFS’ CONSTITUTIONAL CHALLENGES WOULD STILL FAIL Even if the Appellate Division had been correct that the Fund’s closure to new transfer applications had retroactive effect, the court nonetheless should have rejected plaintiffs’ constitutional challenges.13 Outside of the criminal context, the 13 Plaintiffs’ challenges under the state Constitution arguably are barred by article I, § 18 of the Constitution, enacted in 1913, which provides in relevant part that “[n]othing contained in this constitution shall be construed to limit the power of the legislature to enact laws for the protection of the lives, health, or safety of employees; or for the payment, either by employers, or by employers and employees or otherwise, either directly or through a state or other system of insurance or otherwise, of compensation for injuries to employees or for death of employees resulting from such injuries without regard to fault as a cause thereof . . . .” The courts have said that this provision “overrides all else in the Constitution,” Shanahan v. Monarch Engineering Co., 219 N.Y. 469, 475 (1916), and “removes all constitutional limitations on the (continued on next page) 54 constitutional limitations on retroactive legislation are “modest.” Landgraf, 511 U.S. at 272. Retroactivity generally raises no concerns because it “often serve[s] entirely benign and legitimate purposes, whether to respond to emergencies, to correct mistakes, to prevent circumvention of a new statute in the interval immediately preceding its passage, or simply to give comprehensive effect to a new law [that the legislature] considers salutary.” Id. at 267–68. Given these benefits, “the potential unfairness of retroactive civil legislation is not a sufficient reason for a court to fail to give a statute its intended scope.” Id. at 267. Rather, retroactive legislation is unconstitutional only if it is so extreme that it transgresses a fundamental prohibition on legislative action. Plaintiffs made no such showing in this case. power of the Legislature to enact laws dealing with workers compensation,” Matter of Schmidt, 269 A.D. at 207 [1945]. 55 A. The Closure Satisfied the Rationality Requirement of Substantive Due Process. Although the Appellate Division did not explicitly address plaintiffs’ challenge under the Due Process Clause, the court stated in its discussion of the Contract Clause that the challenged legislation did not reasonably serve a “‘significant and legitimate public purpose.’” (R. 542 (quoting 19th St. Assocs., 79 N.Y.2d at 443).) If this statement reflects a conclusion that the legislation also fails to satisfy the rationality requirement of substantive due process, the Appellate Division erred. The Due Process Clause requires that legislation have a “reasonable justification in the service of a legitimate governmental objective.” County of Sacramento v. Lewis, 523 U.S. 833, 846 (1998). A statute satisfies substantive due process so long as “there is some fair, just and reasonable connection between it and the promotion of the health, comfort, safety and welfare of society.” Health Ins. Ass’n of Am. v. Harnett, 44 N.Y.2d 302, 310 (1978). The Legislature’s judgments about rationality are subject to substantial deference, particularly in the area of insurance, since “insurance is a business to which the government has long 56 had a special relation” given the close connection of insurance to the public interest. Id. at 308 (quotation marks omitted). Contrary to the Appellate Division’s conclusion, the closing of the Fund to new applications serves a legitimate government purpose. It is undisputed that the cost of operating the Fund had skyrocketed in the years before its closure, causing the assessments ultimately borne by employers to more than triple, from less than $100 million in 2006 to more than $315 million in 2013. (R. 66-67 [¶ 59].) The Legislature has a substantial interest in promoting the State’s economy by lifting unnecessary burdens on insured businesses. See Matter of Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219, 226 (1993); Health Ins. Ass’n of Am., 44 N.Y.2d at 309. The Legislature rationally determined that the problem of skyrocketing assessments should be addressed by closing the Fund to new applications, while minimizing the disruption to carriers’ settled expectations by keeping the Fund in place for cases that had already been transferred. As it had concluded with the Special Disability Fund (see supra at 12–14), the Legislature projected that closing the Fund for Reopened Cases would provide 57 substantial relief, “sav[ing] New York businesses hundreds of millions of dollars in assessments per year” (R. 401). Multiple stakeholders in the workers’-compensation system endorsed this analysis. The Business Council, a trade group representing employers, opined that the closure would save New York employers $300 million annually. See Pokalsky, “Testimony to Senate Finance Committee and Assembly Ways and Means Committee,” supra, at 4. And the American Insurance Association, an insurance-industry trade group, supported the Fund’s closure because the Fund “simply add[ed] costs to the system without providing any benefits to injured workers.” Am. Ins. Ass’n, “AIA Endorses Gov. Cuomo’s Workers’ Compensation Proposals,” supra. The Appellate Division concluded that the Legislature should have closed the Fund only as to cases arising from injuries that occurred after the amendment’s effective date, rather than as to cases for which applications for transfer were made after that date. (See R. 544.) But that alternative policy would have forced the Fund to incur substantial new liabilities for years, given the long lifespan of many workers’-compensation cases. (See R. 67 58 [¶ 60].) During that extended period, the assessments on businesses would have continued to increase, and the economic benefit that the Legislature sought—the reduction and eventual elimination of these assessments—would have been indefinitely delayed. It was reasonable for the Legislature to conclude that employers should not continue to bear indefinitely the substantial burden of subsidizing a fund that primarily benefitted carriers. B. The Closure Did Not Violate the Contract Clause. The Appellate Division also erred in holding that the Fund’s closure to new applications violated the Contract Clause. That provision states that “[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts.” U.S. Const. art. I, § 10. This language “should not be read literally” because “the States retain the power to safeguard the vital interests of their people” even where legislation impairs contractual obligations. 19th St. Assocs., 79 N.Y.2d at 442 (quotation marks omitted). Thus, even if a challenger demonstrates that “‘the state law has, in fact, operated as a substantial impairment of a contractual 59 relationship,’” “the State may avoid a finding of unconstitutional impairment by demonstrating the existence of ‘a significant or legitimate public purpose . . . such as the remedying of a broad and general social or economic problem.’” Id. at 442, 443 (quoting Energy Reserves Grp., Inc. v. Kan. Power and Light Co., 459 U.S. 400, 411, 412 (1983)). Here, plaintiffs’ Contract Clause claim fails at the outset because the Fund’s closure did not impair plaintiffs’ contractual relationships. Simply put, the Fund’s continuing acceptance of new applications was not a bargained-for term of plaintiffs’ contracts. Plaintiffs have not entered into any contract with the State that guaranteed them the right to transfer reopened cases to the Fund. And plaintiffs’ contracts with insureds are silent about the possibility of such transfers: the contracts do not reference the Fund or condition the carriers’ obligations to pay benefits on the Fund’s continuing acceptance of those obligations.14 (The record 14 Indeed, if the contracts conditioned carriers’ payment obligations on the Fund’s availability to receive reopened cases, carriers would presumably be able to disclaim liability now that (continued on next page) 60 contains a copy of plaintiffs’ standard-form insurance contract (see R. 263–270).) Because there is “no existing contractual agreement regarding the terms changed by the legislation,” plaintiffs’ Contract Clause claim necessarily fails. Ballentine v. Koch, 89 N.Y.2d 51, 60 (1996). The most that can be said about the closure of the Fund is that it has “render[ed] plaintiffs’ policies with their insureds less profitable,” as Supreme Court explained (R. 15). But this Court squarely held in Matter of Raynor that a statute’s effect on carriers’ profitability is “not a substantial impairment” of any contractual relationship. 18 N.Y.3d at 59. The Appellate Division mistakenly relied on Health Insurance Association of America v. Harnett, 44 N.Y.2d 302 (1978). (See R. 541–542.) In that case, this Court found a violation of the Contract Clause where a recently enacted state law required health insurers to include coverage for maternity care in the Fund has been closed to new applications. Plaintiffs have never argued, however, that their contractual obligation to pay is dependent on the existence of the Fund. 61 guaranteed-renewal policies that were renewed after the legislation’s effective date. The Court reasoned that carriers must have the choice either to renew the policies with the expanded coverage (for which it could charge higher premiums) or decline to renew the policies “and escape the added risk imposed by the statutory modification.” Health Ins. Ass’n of Am., 44 N.Y.2d at 313. The Contract Clause does not mandate that carriers receive such a choice here because the Fund’s closure to new applications did not similarly impose any new contractual terms on the parties to insurance contracts. Plaintiffs continue to be liable for any benefits due to injured workers under past policies; the option to transfer reopened cases to the Fund was not a bargained-for term of the contracts. All that has changed as a result of the challenged legislation is plaintiffs’ actuarial assessment of their future payment obligations in cases that may have been eligible for transfer to the Fund. Even if the Fund’s closure to new transfer applications did impair any contractual provision, closing the Fund would not violate the Contract Clause because the Legislature’s policy was 62 “reasonable and necessary to serve an important public purpose.” 19th St. Assocs., 79 N.Y.2d at 443 (quotation marks omitted). As explained above (see supra at 56–58), the Legislature reasonably determined that the Fund’s prospective closure would serve the important state interest in promoting the vitality of the State’s economy by lifting a substantial and unnecessary burden on employers. Courts must defer to such legislative judgments regarding “the reasonableness or necessity of a particular measure.” 19th St. Assocs., 79 N.Y.2d at 443. Plaintiffs’ Contract Clause challenge thus fails on this basis as well. C. The Closure Did Not Effect a Taking of Private Property. The Fund’s closure to new applications does not violate the federal or state Constitution’s Takings Clause by appropriating property for public use without “just compensation,” U.S. Const. amend. V; N.Y. Const. art. I, § 7(a). Plaintiffs do not allege that the Fund’s closure effects a “‘classic taking’ in which the government directly appropriates private property for its own use,” Eastern Enters., 524 U.S. at 522. Rather, their challenge 63 asserts a “regulatory taking,” which requires them to show that the legislative change is “so onerous that its effect is tantamount to a direct appropriation or ouster” of property, Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 537 (2005). As a threshold matter, plaintiffs’ takings challenge fails because no cognizable property interest was taken as a result of the Fund’s closure. See Matter of Gazza v. N.Y. Dep’t of Envtl. Conservation, 89 N.Y.2d 603, 613 (1997) (“Our courts have long recognized that a property interest must exist before it may be ‘taken.’”). The WCL does not grant plaintiffs a property interest in the money held by the Fund, which insurance carriers did not provide and were never entitled to receive. Plaintiffs have instead alleged that the Fund’s closure to new applications effects a taking because it may cause them to face additional “unfunded liability”—that is, they may have to pay more money in the future than they expected. (R. 41 [¶ 83].) Such a financial loss is insufficient to establish a taking: a majority of the U.S. Supreme Court has “rejected the theory that an obligation to pay money constitutes a taking.” Commonwealth Edison Co. v. United States, 64 271 F.3d 1327, 1339 (Fed. Cir. 2001); see Eastern Enters., 524 U.S. at 540 (Kennedy, J., concurring in the judgment and dissenting in part) (concluding that the challenged law did not effect a taking by “impos[ing] a staggering financial burden on the petitioner”); 524 U.S. at 554 (Breyer, J., joined by Stevens, Souter, and Ginsberg, JJ., dissenting) (concluding that the Takings Clause does not apply to “an ordinary liability to pay money, and not to the Government, but to third parties”); see also Swisher Int’l, Inc. v. Schafer, 550 F.3d 1046, 1056–57 (11th Cir. 2008) (federal Takings Clause does not apply to “the power of Congress to impose a mere monetary obligation”).15 If plaintiffs’ takings challenge were cognizable, it still would not prevail. Because “[g]overnment regulation often curtails some potential for the use or economic exploitation of private property, . . . not every destruction or injury to property by governmental 15 The Supreme Court had, before Eastern Enterprises, entertained a takings claim based on the premise that the challenged legislation required an “uncompensated transfer” of assets to a trust. Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 221 (1986). But as discussed below, the Court did not find that a taking had occurred on this basis. 65 action has been held to be a ‘taking’ in the constitutional sense.” Eastern Enters., 524 U.S. at 523 (quotation marks omitted). Evaluating a taking challenge requires consideration of the following factors, with the ultimate goal of determining the “justice and fairness” of the regulation: (1) the “economic impact of the regulation,” (2) the regulation’s “interference with reasonable investment backed expectations,” and (3) the “character of the governmental action.” Id. at 523–24 (quotation marks omitted). Applying these factors, the U.S. Supreme Court in Connolly v. Pension Benefit Guaranty Corporation rejected a takings claim much like plaintiffs’ claim here. Connolly involved a challenge to a federal statute under which employers withdrawing from a multi- employer pension plan were required to make a deposit into a government-owned fund to satisfy their remaining pension liabilities. See 475 U.S. at 216–17. The plaintiffs contended that this requirement “violate[d] the Taking Clause by requiring employers to transfer their assets for the private use of pension trusts and, in any event, by requiring an uncompensated transfer.” Id. at 221. 66 The Court rejected this claim. It first determined that the economic impact was not substantial because the size of an employer’s liability was proportional to its contributions to the pension plan. Id. at 225–26. The Court further concluded that the imposition of this liability did not interfere with reasonable investment-backed expectations because pension plans “were the objects of legislative concern” well before the statute was enacted; “[p]rudent employers” thus had reason to anticipate that the liability might be imposed. Id. at 226–27. Finally, the Court emphasized that the law merely “adjust[ed] the benefits and burdens of economic life to promote the common good,” id. at 225, by “safeguard[ing] the solvency of private pension plans,” and thereby preventing workers from being deprived of pensions to which they were entitled, id. at 228. These considerations are present here as well. First, the Fund’s closure to new applications requires carriers to retain liability proportionate to the extent of their underwriting of workers’-compensation policies: carriers with more business in past policy years are likely to have more closed cases that could 67 reopen. Indeed, one of plaintiffs’ experts in this litigation premised his analysis on the assumption that a carrier’s “unfunded liability” as a result of the Fund’s closure to new applications would be “proportionate to its market share.” (R. 257 [¶ 52].) Second, carriers had no reasonable investment-backed expectation that the Fund would remain open to new applications. As discussed earlier, workers’-compensation carriers operate in a highly regulated industry that is the subject of frequent legislative revision. Carriers could have foreseen that the Fund’s skyrocketing costs would compel the Legislature to alter the terms of the Fund, particularly in light of the Legislature’s similar closure of the Special Disability Fund only six years earlier (see supra at 12–14). Third, the purpose of the amendment closing the Fund, much like that of the legislation in Connolly, was to “adjust[] the benefits and burdens of [the workers’-compensation system] to promote the common good,” 475 U.S. at 225. Plaintiffs might have preferred that employers continue to bear indefinitely the substantial financial burden of maintaining the Fund for their 68 benefit. But the Legislature was not constitutionally prohibited from selecting a different approach. POINT III DISPUTED ISSUES OF FACT PRECLUDE ENTRY OF JUDGMENT IN PLAINTIFFS’ FAVOR The arguments above require dismissal of plaintiffs’ constitutional claims as a matter of law. But if this Court disagrees that dismissal is warranted, it should at minimum reverse the Appellate Division’s direction of summary judgment in plaintiffs’ favor (R. 542–543). On this record, at least four disputed issues of material fact precluded entry of summary judgment for plaintiffs. Should this Court conclude that the Appellate Division’s retroactivity analysis was correct, and thus that plaintiffs’ constitutional claims are viable, it should vacate the declaratory judgment in plaintiffs’ favor and return the case to Supreme Court for further proceedings. First, plaintiffs’ causes of action under the Due Process Clause and Contract Clause rested on the allegation that the legislation lacked a rational basis because it would not in fact 69 reduce the financial burden on employers. (See R. 31 [¶ 8], 44 [¶ 105], 45 [¶ 114].) As discussed above (see supra at 56–58), the Legislature had a sound basis to conclude otherwise, and this Court should defer to the Legislature’s judgment on the effectiveness of public policy. But if this Court declines to accept the Legislature’s judgment, and considers a dispute over the effectiveness of a statute to be a question of fact, it should remand for further fact-finding into plaintiffs’ allegation that the law would not achieve its intended aim. Defendants would then have the opportunity to demonstrate through expert testimony and documentary evidence that the Legislature’s anticipated cost savings had a rational basis. Second, plaintiffs’ cause of action under the Contract Clause asserted that the closure of the Fund to new applications would interfere with their contracts with insureds. (See R. 44 [¶ 107].) As discussed (see supra at 59–60), that assertion is refuted by plaintiffs’ own standard-form insurance policy, which contains no provision guaranteeing the availability of the Fund (see R. 263– 70 270). But if the Court finds any ambiguity in the policy’s terms, that ambiguity should be addressed first by Supreme Court. Third, plaintiffs have not established the extent to which the $62 million in additional reserves that they claim to have set aside (R. 41 [¶¶ 83–84]) constitute a significant economic burden. Their Contract Clause claim, however, requires proof of a substantial impairment of contractual rights (see supra at 58–59), and their takings claim likewise requires proof of the economic impact of the challenged legislation on their business (see supra at 65). Critical facts remain to be developed on the precise burden faced by plaintiffs. In particular, plaintiffs have not disclosed how their reserves after the Fund’s closure compares to (1) the reserves that they established for those cases before the closure, (2) their total reserves, or (3) their business in the State overall. Moreover, plaintiffs have not shown that they were actually harmed by the 2013 legislation as a whole, given that it also contained provisions that undisputedly benefitted them (see supra at 20). Fourth, plaintiffs’ takings claims require proof that the challenged legislation frustrated reasonable investment-backed 71 expectations. As defendants have shown (see supra at 12–16, 41– 44), it would have been unreasonable as a matter of law for carriers to presume that the Fund would remain in existence in perpetuity, given the frequency of legislative reform in this area, the Fund’s skyrocketing costs in the years leading up to its closure to new applications, and the Legislature’s closure of the related Special Disability Fund in 2007. It is unlikely that carriers in fact took no steps to protect themselves against the possibility that the Legislature would close the Fund for Reopened Cases as well. Thus, whether the legislation actually frustrated any reasonable expectation is a question that ought to be addressed, if at all, by Supreme Court in the first instance. No act of the Legislature should be facially invalidated while questions of fact germane to its constitutionality remain unresolved. That is particularly so when the legislation in question aims to relieve thousands of businesses of an annual financial burden of hundreds of millions of dollars. Supreme Court had no occasion to consider these factual disputes because it dismissed plaintiffs’ complaint as a matter of law. See Rockland 72 Power & Light Co. v. City of N.Y., 289 N.Y. 45, 51 (1942) (“If the court grants [a] motion to dismiss then it cannot logically grant, at the same time, a judgment on the merits declaring the rights and legal relations of the parties.”). This Court should sustain Supreme Court’s judgment and hold that plaintiffs’ claims were properly dismissed. But if this Court finds that dismissal of plaintiffs’ claims on the pleadings is unwarranted, then the proper course is to return the case to Supreme Court so that defendants may have the opportunity to test the factual assertions that underlie plaintiffs’ constitutional claims. CONCLUSION The decision and order of the Appellate Division should be reversed. Dated: New York, NY August 2016 BARBARA D. UNDERWOOD Solicitor General STEVEN C. Wu Deputy Sol~citor General CLAUDE 8. PLATTON Senior Assistant Solicitor General of Counsel Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of NezL' York Attorney for Appellants CLAUDE S. PLATTON Senior Assistant Solicitor General 120 Broadway, 25th Floor New York, NY 10271 (212) 416-8020 Reproduced on Recycled Paper AFFIDAVIT OF SERVICE STATE OF NEW YORK ) : ss.: COUNTY OF NEvV YORK ): Megan Murphy, being duly sworn, deposes and (1) I am over eighteen of and an employee in the office of Eric T. Schneiderman, Attorney General ofthe State of New York, attorney for the Appellants herein. (2) On the 5th day of August, 2016, I served the attached Brief for Appellants by enclosing three copy/copies thereof in a properly addressed overnight delivery wrapper and placing it into the custody of an overnight delivery service at 120 Broadway, New York, NY, 10271, upon the following named person(s): Greenberg Traurig, LLP 54 State Street, Sixth Floor Albany, New York 12207 Sworn to before me this 5th4ay ofAugust,' 2016 / • I