In the Matter of County of Chemung, Respondent,v.Nirav R. Shah,, et al., Appellants.BriefN.Y.September 7, 2016APL-2015-00089, APL-2015-00088, APL-2015-00115, APL-2015-00116 APL-2015-00140, APL-2015-00141, APL-2015-00195, APL-2015-00196 QI:ourt of %lppeals ~tate of ~ew ~ork In the Matter of the Application of COUNTY OF 8'1'. LAWRENCE, Petitioner-Plaintiff/ Respondent, against NIRA v SHAH, as Commissioner of the New York State Department of Health and the NEW Y ORK STATE DEPARTMENT OF HEALTH, Respondents-Defendants I Appellants. (and seven related appeals) BRIEF FOR AMICUS CURIAE THE CITY OF NEW YORK RICIIARD DEARING DEVIN SLACK MICHAEL PASTOR BRIAN HORAN MICHAEL PFAUTZ of Counsel July 22, 2016 ZACHARY W. CAH.'l'ER Corporation Counsel ofthe City of New York Attomey for Amicus Curiae 100 Church Street New York, New York 10007 Tel: 212-356-0838 or -2500 Fax: 212-356-2509 mpastor@law .nyc.gov Reproduced on Recycled Paper TABLE OF CONTENTS Page TABLE OF AUTHORITIES ........ ... .... .. ............. ... ........ ........ ....... ii INTEREST OF THE CITY OF NEW YORK .. ............................ 1 ARGUMENT ........................................ ...................................... . 4 No Categorical Rule Bars a Local Government from Challenging Retroactive State Legislation that Destroys Its Proprietary Rights ............................ 4 CONCLUSION ........... .... .. ......... .. ................................ ... .......... .. 15 1 TABLE OF AUTHORITIES Page(s) Constitutional Provisions N.Y. Const . art. IX, § 1 ....................................... ............ ... .. .. .. .. ... .... 6 N.Y. Const. art. IX, § 2 ..................... ... .. ... ....... ................................. 6 Cases Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573 (1991) ................................... .......................... 8, 11 Black River Regulating Dist. v. Adirondack League Club, 307 N.Y.2d 475 (1954) ............ .. .. .. .......... ........ .. ..... 8 Carl v. Bd. of R egents, 577 P.2d 912 (Okla. 1978) ... .... ... ................ .. ... .. .. .. .. ................. . 12 City of New York u. Lawton, 128 A.D.2d 202 (3d Dep't 1987) ..... ........... .......... ...... ... .. .. .. ........ 10 City of New York v. State, 86 N.Y.2d 286 (1995) ....... .... ... .. .................. .............. .. ...... . passim County of Albany v. Ilooker, 204 N.Y. 1 (1912) ............................... .. ....................... .. ............... 5 County of R ensselaer u. R egan, 173 A.D.2d 37 (3d Dep't 1991), aff'd, 80 N.Y.2d 988 (1992) ........ .... .. .................. .. ........................ 9 Hodes u. Axelrod, 70 N.Y.2d 364 (1987) .............................. .... ..................... 8, 11, 13 Jeter u. Ellenville Cent. Sch. Dist., 41 N.Y.2d 283 (1977) .... ... .... .............. ...... ...... _. ............................. 8 11 TABLE OF AUTHORITIES (cont'd) Page(s) State ex rel. N.M. State Highway Comm 'n v. Taira, 430 P.2d 773 (N.M. 1967) ..... ....................... ..... .. .. ... .. .... ............ 12 Purcell v. Regan, 126 A.D.2d 849 (3d Dep't 1987) .............. : ... .... .. ................... 10, 11 Schropp Indus. v. Wash. County Attorney's Office, 794 N.W.2d 685 (Neb. 2011) .... ...... ............... ..... .. ....... ... ............ 12 Ill INTEREST OF THE CITY OF NEW YORK The City of New York files this brief as amicus curiae to refute the State's categorical contention that the State Constitution affords local governments no legally enforceable protection against state legislation that retroactively destroys their vested proprietary rights. The City expresses no view on the ultimate merits of the particular vested-rights claims raised by the plaintiff counties in these related appeals. We focus instead on showing that such claims, in principle, exist on behalf of local governments. Thus, if this Court reaches the State's argument to the contrary, the Court should reject it. No one disputes that local governments are ordinarily barred from challenging state legislation on constitutional grounds. But this general prohibition-described by the Court as a restriction on local governments' capacity to sue-is tempered in New York by four limited but crucial exceptions. See City of New York v. State, 86 N.Y.2d 286, 291- 92 (1995). Here, the State does not contest that it has waived any objection to the plaintiff counties' claim of capacity under the "proprietary interest" exception- under which a local government may challenge state legislation that affects its proprietary interest in specific funds. But the State seeks to undo the practical effect of that waiver by erecting a new bar to the claim under a different legal label-denying that the State Constitution affords local governments any underlying protection from the type of invasion of proprietary rights claimed here. This contention, if accepted, would cut the heart out of the proprietary-interest exception to the capacity bar. The Court's recognition of that exception was not meant to be an empty formality, but rather reflected a determination that local governments should be able to obtain redress against state action that unlawfully invades their proprietary interests. And the vested-rights doctrine invoked by the counties here represents one of the fundamental protections that our State Constitution affords to such proprietary interests. Though the counties may or may not succeed on the merits under the multi-factored vested-rights analysis, the claim is available to them to assert. 2 The City of New York has a powerful interest in ensuring that local governments retain this core protection against arbitrary state interference with their vested proprietary interests. Municipalities and other local governments are the primary providers of critical public services to the people of New York. In many arenas, we fulfill this function by spending our own local funds in reliance on promises from the State that we will be reimbursed for expenses incurred. The City, by itself, spends billions of dollars each year providing services to its 8.5 million residents (who comprise more than 40% of all New Yorkers), relying on the State's assurances of reimbursement. These reimbursable expenditures run the gamut, including, for example, $1.2 billion for temporary assistance to needy families, $500 million for childcare programs, $500 million for Medicaid administration, $500 million for school transportation, $235 million for foster care, and $120 million for various public health programs. The ultimate beneficiaries of these services are individuals and families, and they are the ones who will suffer the most in a 3 world where the proprietary-interest exception is real in theory, but illusory in practice. Because our constitutional structure affords limited means for local governments to raise revenues of their own accord, it is critical to our City's functioning-and thus to the daily lives of our City's residents-that local governments in this State continue to receive legally enforceable protection against overreaching legislation that retroactively extinguishes vested reimbursement rights. ARGUMENT No Categorical Rule Bars a Local Government from Challenging Retroactive State Legislation that Destroys Its Proprietary Rights The State has taken these long-running and knotty litigations over the plaintiff counties' right to reimbursement for certain Medicaid expenditures as an opportunity to try to secure the Court's imprimatur on a new and sweeping categorical rule that it did not even advance at the trial level. The State thus argues that local governments are without any constitutional protection from state legislation that retroactively extinguishes their vested proprietary rights. This broad attack on local 4 governments' ability to seek judicial review of state invasion of their vested proprietary interests is not only unpreserved, it is deeply flawed. To be sure, this Court has made clear that the traditional understanding of the State's sovereignty means that its political subdivisions are generally prohibited from raising State constitutional challenges to state legislation. See City v. State , 86 N.Y.2d at 290. But this Court also long ago recognized that this prohibition is not absolute. See County of Albany u. Hooker, 204 N.Y. 1, 9, 16 (1912). Instead, the general prohibition-treated by this Court as a limit on local governments' legal capacity to sue the State-is subject to four exceptions: (1) where there is an express statutory authorization to bring such a suit; (2) where state legislation impairs a local government's proprietary interest in specific funds; (3) where state legislation impinges upon a local govemment's Home Rule powers; or (4) where a local government alleges that complying with state legislation would cause it to 5 violate a constitutional proscription. City u. State, 86 N.Y.2d at 291-92. This case concerns the "proprietary interest" exception.! Now, two decades after City v. State, the State seeks to use this litigation as a vehicle for rendering the proprietary-interest exception close to an empty vessel statewide. In defending against the plaintiff counties' claims on appeal, the State in one breath concedes that local governments have the capacity to challenge in court state legislation that extinguishes or impairs their proprietary interests, yet in the next breath claims that basic constitutional protections for proprietary interests against legislative overreaching do not apply to local governments. The State contends, in essence, that the proprietary-interest exception is a ground for suit in name only. 1 The State has suggested that, even if its position were adopted, local governments could continue to bring suits for violation of the home rule message r equirement in article IX, section 2 of the State Constitution. That is beside the point, however, as City u. State identified home-rule challenges as a distinct ground for suit- separate and apart from the proprietary-interest doctrine. 86 N.Y.2d at 291-92. Nor does the State's suggestion grapple with the explici t acknowledgment in the home-rule article, see N.Y. Canst. art. IX, § 1, that local governments have rights "granted by other provisions of this constitution." For "[e]ffective local self-government," identified as a state · purpose in that section, to have real meaning, the vested proprietary rights discussed here must be among those rights. 6 But the State cannot so easily reverse City u. State by repackaging its arguments in different cloth. In that case, this Court was clear that the proprietary-interest exception is not boundless. See id. at 295 (expressing concern that an expansive proprietary-interest exception would "swallow up the general rule barring suit against the State by local governments"). But the Court was equally clear that the exception is not meant to be a dead letter and contemplated that it would have meaningful reach and application. In other words, City u. State was not a hollow rumination on a hypothetical gateway to a case that could almost never exist, as the State suggests. Local governments, like anyone else, need a pathway to judicial review for those (hopefully rare) cases where the State has destroyed their proprietary interests. The vested-rights doctrine invoked by the plaintiff counties here reflects one of the most fundamental constitutional protections against the State's power to extinguish vested rights- by subjecting retroactive legislation to appropriate judicial scrutiny under a multi-factored analysis focused on fairness, reliance, and the public interests purportedly 7 served by the legislation. See generally Alliance of American Insurers u. Chu, 77 N.Y.2d 573, 586 (1991); Hodes v. Axelrod, 70 N.Y.2d 364, 369- 71 (1987). In asserting that this basic protection for proprietary interests is unavailable to local governments, despite their recognized capacity to assert constitutional claims against the State to vindicate such interests, the State cites two cases from this Court. Neither supports its assertion. In Black River Regulating District v. Adirondack League Club, for example, the Court held that the "political power" conferred on a regulating district by the Legislature did not give rise to a vested right against future legislative amendment. 307 N.Y.2d 475, 488 (1954). And in Jeter v. Ellenville Central School District, the Court rejected municipal governments' effort to assert generalized due process and equal protection challenges to prospective changes in the state scheme for education funding. 41 N.Y.2d 283, 287 (1977). Because neither case addressed the proprietary rights of political subdivisions in specific funds or a constitutional doctrine centered on protection of such vested proprietary rights, neither case 8 provides grounds for nullifying the Court's later recognition in City v. State that local governments may sue the State to raise constitutional claims vindicating their proprietary interests. The point is borne out by a trio of decisions from the Third Department. For example, in County of Rensselaer u. Regan, the court not only upheld the county's standing to raise a constitutional claim against the State asserting "a proprietary claim of entitlement to a specific fund," but ruled in the county's favor on the merits of the claim. 173 A.D.2d 37, 40- 42 (3d Dep't 1991), affd, 80 N.Y.2d 988 (1992). This Court, indeed, cited the Third Department's decision in Regan in support of its recognition of the proprietary-interest exception to the capacity bar. See City u. State, 86 N .Y.2d at 292. The State seeks to distinguish Regan on the ground that it involved a different constitutional claim-the Constitution's specific limitation on allocation of powers to the State Comptroller. But if anything, the constitutional limitation on retroactive elimination of vested proprietary rights is yet a more natural fit with the proprietary-interest exception than is a 9 structural prov1s1on about allocation of powers among state officials, as was involved in Regan. Moreover, in City of New York v. Lawton, the Third Department upheld the City's ability to assert a claim against the State challenging retroactive elimination of rights to reimbursement. The court relied upon the equitable principle that a court may decline to give an agency the benefit of a law where the agency has delayed in anticipation of the law's amendment, and further noted that the restrictions on suits by local governments against the State apply "only to situations in which the statute concerns the subdivision's governmental as opposed to proprietary rights." 128 A.D.2d 202, 206 (3d Dep't 1987). And in Purcell v. Regan, the court likewise entertained a county's constitutional claims challenging state legislation that withheld certain monies promised to counties, though ultimately holding that the claims did not succeed. 126 A.D.2d 849 (3d Dep't 1987). There, too, the Third Department made clear that the tradition of the · State's sovereignty barred claims by a local government challenging "a statute that affects or restricts its 10 governmental powers and duties," but raised no similar bar to claims involving local governments' "proprietary" interests. ld. at 850. None of this is to say that local governments will always prevail when the State wields retroactive legislation to extinguish their vested proprietary interests-only that such state action should receive the kind of judicial scrutiny that would be afforded to other holders of proprietary rights to ensure that the State's disruption of reasonable proprietary expectations adheres to basic understandings of fairness. See generally Alliance of American Insurers, 77 N.Y.2d at 586; Hodes, 70 N.Y.2d at 369-71. The Court's recognition of the proprietary-interest exception to the capacity bar leads directly to a corollary recognition that local governments may invoke the fundamental constitutional protections afforded to proprietary rights. After all, the Court's capacity doctrine is meant precisely to distinguish those areas in which local governments may assert constitutional claims from those areas in which they may not, based on consideration of the very sovereign interests that the 11 State marshals here.2 Thus, local governments should not be denied basic constitutional protections against state legislation affecting their vested proprietary rights, which by their nature are akin to the proprietary rights asserted by private parties, and stand apart from the governmental and political rights delegated by the State. Leaving open this limited pathway to judicial review makes particular sense in the specific reimbursement context in which these litigations arise. Nothing requires the State to extend particularized promises of reimbursement to local governments, upon which such local governments rely by expending their own 2 There is no force to the State's observation that other jurisdictions have chosen the different approach of taking these sovereign interests into account through a "personhood," rather than capacity, analysis. In any event, the State vastly oversimplifies the legal landscape in other jurisdictions (App. Br., at 31), since many of the cited decisions have nothing to do with local governments' proprietary rights. See, e.g., Schropp Indus. v. Wash. County Attorney's Office, 794 N .W.2d 685, 696 (Neb. 2011) (claim based on county's privileged investigative files); State ex rel. N.M. State H ighway Comm 'n v. Taira, 430 P.2d 773, 778 (N.M. 1967) (objection to disclosing publicly funded property survey); Carl v. Bd. of Regents, 577 P.2d 912, 915-16 (Okla. 1978) (privacy and equal protection claims regarding open admissions committee meetings). Overall, authority from other jurisdictions is decidedly mixed and often confusing. The key point remains that this Court's explicit recognition of the proprietary-interest doctrine confirms what the rule is in this jurisdiction. · 12 funds. But when the State does so, the entire point of the proprietary-interest exception is that local governments will have a means to call the State to account. The sweeping revision of legal principles proposed by the State here would gut the proprietary-interest exception and disable it from serving this core function. The converse is not true: honoring the proprietary-interest doctrine does not risk a barrage of local governmental challenges to state legislation. By definition, the exception is confined to the vindication of proprietary interests as defined in City v. State; it does not allow local governments to launch broad-based challenges to the revocation or alteration of the governmental and political powers delegated to them by the State. Nor is the vested-rights doctrine itself a broad or insurmountable restriction on legislative action. S ee, e.g ., Hodes, 70 N.Y.2d at 371 (holding public interest outweighed a constitutional objection to retroactive impact of a statute). No opening of floodgates is threatened here, as evidenced by the paucity of suits brought by local governments asserting proprietary rights against the State in the two decades since this 13 Court reaffirmed the proprietary-interest exception in City v. State. The , State's prop~sed ,categorical bar against v~sted-rights . . . ' . . ; . . . claims by local governments should be rejected. . . ~ ·. ' . . . . 14 CONCLUSION For these reasons, should the Court reach the question, the Court should reject the State's categorical argument that local governments have no enforceable constitutional protections against State legislation that retroactively extinguishes their vested proprietary rights. Dated: New York, New York July 22, 2016 RICHARD DEARING DEVIN SLACK MICHAEL PASTOR BRIAN H ORAN MICHAEL P FAUTZ of Counsel By: Respectfully submitted, ZACHARYVV.CARTER Corporation Counsel of the City of New York Attomey for Amicus Curiae MICHAEL PFAUTZ MICHAEL PASTOR Assistant Corporation Counsel 100 Church Street New York, New York 10007 212-356-0838 m pastor@law .nyc.gov 15 16