text:
    In the Matter of New York Public Interest Research Group, Inc., et al., Respondents, v New York State Department of Insurance, Appellant.
    Argued November 14, 1985;
    decided December 19, 1985

      POINTS OF COUNSEL

      Robert Abrams, Attorney-General (Wayne L. Benjamin, Robert Hermann and Peter H. Schiff of counsel), for appellant.
    I. Because Insurance Law § 2329 confers on the Superintendent broad discretion to decide how the existence and the amount of any excess profits shall be determined, the court below erred in declaring 11 NYCRR part 166 invalid. (Kolbe v Aetna Life & Cas. Cos., 119 Misc 2d 942; Permian Basin Area Rate Cases, 390 US 747; Matter of B. & R. Excess Corp. v Thacher, 37 Misc 2d 307, 18 AD2d 1137; Breen v Cunard Lines S. S. Co., 33 NY2d 508; Ostrer v Schenck, 41 NY2d 782; Matter of Burger King v State Tax Commn., 51 NY2d 614; Matter of Bernstein v Toia, 43 NY2d 437; Mourning v Family Pub. Serv., 411 US 356; Matter of City of New York v State of New York Commn. on Cable T. V., 47 NY2d 89; Matter of Procaccino v Stewart, 32 AD2d 486, 25 NY2d 301.) II. The Superintendent rationally concluded that because Insurance Law § 2329 provides for the determination and refund to policyholders of an "insurer’s excess profit, if any, on [automobile insurance] policies”, there is no statutory requirement that excess profits be determined independently for each individual "line” or part of these policies. (Ostrer v Schenck, 41 NY2d 782.)

      Lewis B. Oliver, Jr., and Harriet B. Oliver for respondents.
    Insurance Law §§ 2329 and 2323 (a) require the implementing regulations pertaining to automobile excess profits at 11 NYCRR part 166 to employ a methodology for computing "profits” which is uniform with the methodology employed for computing profits in the regulations at 11 NYCRR part 165, and, therefore, the regulations at part 166 are invalid because they contradict the requirement of uniformity mandated by Insurance Law § 2329. (Servomation Corp. v State Tax Commn., 51 NY2d 608; Matter of Zalenski v Crucible Steel, 91 AD2d 807; Matter of Harbolic v Berger, 43 NY2d 102; Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451; Matter of City of New York v State of New York Commn. on Cable T. V., 47 NY2d 89; Finger Lakes Racing Assn. v New York State Racing & Wagering Bd., 45 NY2d 471; Matter of Jones v Berman, 37 NY2d 42; Dental Socy. v New York State Tax Commn., 110 AD2d 988; Matter of Burger King v State Tax Commn., 51 NY2d 614; Matter of Bernstein v Toia, 43 NY2d 437.)
   OPINION OF THE COURT

Meyer, J.

The use in regulations promulgated by the Superintendent of Insurance pursuant to Insurance Law § 2329 of aggregate industry data rather than the individual carriers’ line-by-line results in order to determine the excess profit to be refunded on motor vehicle insurance policies is not inconsistent with the provisions of that section. The order of the Appellate Division should, therefore, be reversed, with costs, and judgment granted in favor of defendant declaring 11 NYCRR part 166 to be valid.

I

Petitioners/plaintiffs (hereafter plaintiffs) are the New York Public Interest Research Group (NYPIRG), a not-for-profit membership corporation, whose purposes include protection of consumers’ rights, and six individual members of NYPIRG each of whom owns an automobile for which he or she has purchased automobile insurance. By their petition/complaint they ask article 78 relief with respect to regulations (11 NYCRR part 166) promulgated by the Superintendent of Insurance establishing the method for determining excess profit under Insurance Law § 2329, as well as judgment declaring the regulations invalid for failure to comply with that section. Their contention is that the regulations, which adopted an aggregate industry approach to determination of the point at which profit becomes excess, contravenes section 2329, because it requires the same company-by-company, line-by-line determination called for by regulations (11 NYCRR part 165) adopted pursuant to Insurance Law § 2323.

Respondent/defendant Department of Insurance (hereafter defendant or Department) filed objections in point of law and moved to dismiss for failure to state a cause of action. Special Term granted the motion to dismiss, holding that the adoption of the regulations was legislative action not reviewable in an article 78 proceeding and that, there being legislative findings supporting the method used by the Department, the regulations were valid. On appeal to the Appellate Division, a majority of that court agreed that an article 78 proceeding was not a proper method by which to challenge quasi-legislative action, but concluded that the part 166 regulations were invalid because at variance with the part 165 regulations, whereas Insurance Law § 2329 required that excess profits under section 2329 be "computed in accordance with” the regulation required by section 2323. It, therefore, modified on the law by reversing so much of Special Term’s judgment as dismissed the complaint, declared the regulations unlawful and invalid, and, as so modified, affirmed. The dissenting justices concluded that the part 166 regulations were rationally based and, therefore, valid. They reasoned that the purposes behind the two Insurance Law sections differed; that part 165 vested discretion in the Superintendent to permit or require use of a different method of computing profit than that provided for in that part when doing so would produce a more reliable result and that the Superintendent had concluded, after long study, that use of aggregate industry data was necessary to minimize random fluctuations and avoid unfair treatment of some insurers; and that to set an excess profit threshold for each individual insurer involved serious technical problems. We agree, although on somewhat different reasoning, with the result reached by the dissenting justices and, therefore, reverse and grant judgment declaring part 166 valid.

II

Insurance Law § 2323 (a) provides that:

"(a) The superintendent shall by regulation establish a method for determining profitability, from whatever source profits are derived, and rates of return on net worth, assets and earned premiums, with respect to each kind of insurance subject to this article, based on reasonable and uniform assumptions, including assumptions as to:
"(1) amounts of net worth attributable to such kinds of insurance;
"(2) assets available for investment generated by such kinds of insurance;
"(3) federal income taxes; and
"(4) average earnings on insurers’ investments.”

The subdivision applies "to all kinds of insurance written on risks or operations in this state”, with exceptions not pertinent to this case (Insurance Law § 2302 [a]).

Section 2329, on the other hand, deals only with excess profits on motor vehicle insurance. To the extent here pertinent, it provides: "In accordance with regulations prescribed by the superintendent, each insurer issuing policies which are subject to article fifty-one of this chapter, including policies of motor vehicle personal injury liability insurance or policies of motor vehicle property damage liability insurance or insurance for loss or damage to a motor vehicle, shall establish a fair, practicable, and nondiscriminatory plan for refunding or otherwise crediting to those purchasing such policies their share of the insurer’s excess profit, if any, on such policies. An excess profit shall be a profit beyond a percentage rate of return on net worth attributable to such policies, computed in accordance with the regulation required by section two thousand three hundred twenty-three of this article, and determined by the superintendent to be so far above a reasonable average profit as to amount to an excess profit, taking into consideration the fact that losses or profits below a reasonable average profit will not be recouped from such policyholders. Each plan shall apply to policy periods between January first, nineteen hundred seventy-four and December thirty-first, nineteen hundred eighty-five.”

The Appellate Division majority noted that part 165 and part 166 were consistent to the extent that both define profit in terms of net worth, that the part 165 formula includes industry data and the part 166 formula considers individual insurer data, and that part 166’s computation of profits on an aggregate industry basis rather than on a percompany basis as under part 165 "may be well advised and thoughtfully conceived” (106 AD2d, at p 831), but nevertheless held part 166 invalid because not "in accordance with * * * part 165.” For a number of reasons we disagree.

The Superintendent of Insurance is vested by Insurance Law § 301 with the power to prescribe regulations interpreting the provisions of the Insurance Law, provided only that his regulations are not inconsistent with some specific provision of the law (Ostrer v Schenck, 41 NY2d 782, 785). By that section he is granted " 'broad power to interpret, clarify, and implement the legislative policy’ ” (id.) and his interpretation, if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459; Matter of Howard v Wyman, 28 NY2d 434, 438; see, Matter of Jones v Berman, 37 NY2d 42).

It is not argued in the present case that the 21% excess profit threshold established by part 166 is irrational. Rather it is contended, and the Appellate Division held, that the regulation was inconsistent with the requirement of section 2329 that it be "in accordance with” part 165, the regulation issued under section 2323. Inconsistency as a matter of statutory interpretation within the rule of the Kurcsics case exists, however, only if "in accordance with” means in strict conformity with rather than in harmony with, or not inconsistent with. Yet the phrase has generally been construed to require not identicality of result but only reasonable or just correspondence (City & County of San Francisco v Boyd, 22 Cal 2d 685, 690, 140 P2d 666, 668 ["in accordance with” the prevailing rate of compensation does not proscribe a rate in excess of the prevailing maximum]; Holmgren v City of Lincoln, 199 Neb 178, 182, 256 NW2d 686, 689 [the words "in accordance with a comprehensive plan” establish the plan as a guide, not something which "sets future zoning in concrete until the plan itself is changed”]; City of Norfolk v Norfolk Landmark Pub. Co., 95 Va 564, 567, 28 SE 959, 960 ["in accordance with the constitution and laws of this state” is the equivalent of "not repugnant to,” "not in conflict with,” or "not inconsistent with”; a statute authorizing a city to tax anything for which a license is required by the State does not preclude its taxing what the State does not]; see, In re Coane’s Estate, 310 Pa 138, 143, 165 Atl 2, 4 [a bequest made "in accordance with” an antenuptial agreement requiring payment of an annual stipend "unconditionally” was not intended by the testator to modify the agreement but to comply with it "unconditionally”]). It follows that, as the dissenting justice stated, "the Superintendent of Insurance could rationally construe the uniformity requirement [of section 2329] as prohibiting inconsistent results, rather than mandating identical formulas” (106 AD2d, at p 832).

There is, moreover, a further ambiguity in the second sentence of section 2329 which brings into play the Superintendent’s power of interpretation and his expertise: is it, as plaintiffs argue, "profit” that is to be "computed in accordance with” part 165 on a company-by-company, line-by-line basis, or, as the Department contends, "net worth attributable to” motor vehicle insurance that must be so computed, leaving the Superintendent free to compute the rate of return on net worth which constitutes an excess profit on an aggregate industry basis, the rate thus arrived at to be then applied to individual carriers. That the latter rather than the former was intended is, as the dissent below pointed out, consistent with the different purposes of the two provisions. Thus, the reason for assessing profitability as provided in section 2323 is to assure that insurance rates "not be excessive, inadequate or discriminatory, to promote price competition and competitive behavior among insurers, to provide rates that are responsive to competitive market conditions” (Insurance Law § 2301). Section 2323 applies to a wide variety of insurance coverages (Insurance Law § 2302), whereas section 2329, which applies only to motor vehicle insurance, was intended to give motor vehicle policyholders the benefit of the reduction in automobile accidents and resulting claims fortuitously produced by the then existing gasoline shortage and the enactment in 1973 of no-fault legislation. It is apparent, therefore, that the reductions which section 2329 required were occasioned not by individual carrier activity, but by outside factors which would be expected to affect all carriers in approximately the same way.

That conclusion is also strongly suggested by the section’s use of "reasonable average profit” as a measure of excessiveness. Reasonable average profit could refer to the annual profits of an individual insurer averaged over a given period (e.g., the six-year cycle which the industry apparently accepts as appropriate, see, 11 NYCRR 166-2.3), but the industry-wide factors motivating the section suggest rather that it refers to a reasonable profit average as determined by the Superintendent on an industry basis, against which to measure excessiveness resulting from external and unforeseen factors. This follows reasonably from the direction that the Superintendent take "into consideration the fact that losses or profits below a reasonable average profit will not be recouped from such policyholders”, for if it is a company and line reasonable average profit rather than one based on industry average, the reasonable average profit will have to be set higher for some carriers in order to protect them against the nonrecoverability of their losses, or below average profits, in later years, to the disadvantage of policyholders who will, as a result, receive a lesser distribution.

Both plaintiffs and defendant argue that the Legislature’s failure to amend the section favors their or its interpretation; plaintiffs, because though part 165 was promulgated in 1975, the sunset date of section 2329 was extended three times thereafter (citing L 1977, ch 9; L 1979, ch 498; L 1982, ch 527) and continued in the same form in the 1984 recodification of the Insurance Law; the Department, because part 166 was promulgated December 30, 1982 and the Legislature thereafter, by Laws of 1983 (ch 472), again extended the sunset date of the section and then continued the section in the 1984 recodification without change. We have held legislative acquiescence by silence significant in prior cases (Lucenti v Cayuga Apts., 48 NY2d 530, 541; Engle v Talarico, 33 NY2d 237, 242), but when the inferences arising from legislative inaction are as contradictory as those sought to be drawn here, we think it the more realistic course to decline to draw an inference of legislative intent either way from the failure to act (cf. Boys Mkts. v Clerks Union, 398 US 235, 241; Dickerson, The Interpretation and Application of Statutes, at 181-182).

Finally, it is necessary only to note that plaintiffs’ line-byline contention is inconsistent with the reference in the first sentence of section 2329 to various types of motor vehicle insurance and the requirement by that sentence of a plan for refund "to those purchasing such policies their share of the insurer’s excess profit, if any, on such policies”. The repeated reference to "policies” without regard to whether one or more lines of coverage are included in the policy can only be read as requiring a refund per policy rather than per line, or at least the Superintendent could reasonably so interpret the section.

For the foregoing reasons, the order of the Appellate Division should be reversed, with costs, and judgment should be granted in favor of defendant declaring 11 NYCRR part 166 valid.

Chief Judge Wachtler and Judges Jasen, Simons, Kaye, Alexander and Titone concur.

Order, insofar as appealed from, reversed, etc.

      . The December 31, 1985 limitation of the plan corresponds with the expiration of section 2323 on the same date (Insurance Law § 2342).

      . Section 2329 was enacted by the Laws of 1973 (ch 13) and amended by the Laws of 1974 (ch 501). The 1974 amendments were part of Governor Wilson’s legislative program (1974 NY Legis Ann, at 217) and, as noted in his message sending the amendatory bill to the Legislature (id.) and in his approval message (id., at 388), were motivated by both the energy crisis and the passage of the no-fault statute.

      . Ultimately, of course, individual experience will play a part in what a particular carrier is required to return to its policyholders (see, 11 NYCRR 166-2.6 [b], [c]).


source: Caselaw Access Project

author: Jasen, J. Titone, J.

license: Public Domain

text:
    Thomas Bland et al., Respondents, v Amir Manocherian et al., Doing Business as Fraydun Realty Co., Defendants-Appellants and Third-Party Plaintiffs-Respondents. Barney Schogel Incorporated, Third-Party Defendant-Appellant. Ollis A. Wright et al., Respondents, v State of New York, Appellant.
    Argued November 11, 1985;
    decided December 19, 1985

      POINTS OF COUNSEL

      Anthony J. McNulty for defendants-appellants and third-party plaintiffs-respondents in the first above-entitled action.
    I. There was no actionable violation by Fraydun of Labor Law § 240 (1) in this case. Even if there was, then the jury’s finding of improper ladder placement should bar plaintiffs recovery because the statute was not designed to insure against his own avoidable fault. (Allen v Cloutier Constr. Corp., 44 NY2d 290; Haimes v New York Tel. Co., 46 NY2d 132; Wehr v Memhard & Co., 106 AD2d 262; Gargiulo v Oppenheim, 63 NY2d 843; Pastoriza v State of New York, 108 AD2d 605; Robinson v Reed-Prentice, 49 NY2d 471; Voss v Black & Decker Mfg. Co., 59 NY2d 102; Codling v Paglia, 32 NY2d 330; Koenig v Patrick Constr. Corp., 298 NY 313; Duda v Rouse Constr. Corp., 32 NY2d 405.) II. This jury charge was erroneous, confusing and anomalous. (Abromowitz v Board of Educ., 78 AD2d 836; Up-Front Indus. v U. S. Indus., 63 NY2d 1004; Clark v Board of Educ., 304 NY 488; Pajak v Pajak, 56 NY2d 394.) III. The indemnity portion of the judgment in favor of Fraydun against Schogel should remain undisturbed. (Long v Forest-Fehlhaber, 55 NY2d 154; Klinger v Dudley, 41 NY2d 362; McDermott v City of New York, 50 NY2d 211; Riviello v Waldron, 47 NY2d 297; Logan v Esterly, 34 NY2d 648; Rogers v Dorchester Assoc., 32 NY2d 553.)

      William F. Larkin, Raymond C. Green and Douglas E. McKeon for third-party defendant-appellant in the first above-entitled action.
    I. The order appealed from erroneously affirmed the judgment based upon the incorrect interpretation and application of Labor Law § 240. (Kluttz v Citron, 21 NY2d 379; Duda v Rouse Constr. Co., 32 NY2d 405; Smith v Hooker Chems. & Plastics Corp., 89 AD2d 361; Lagzdins v United Welfare Fund-Security, 77 AD2d 585; Koenig v Patrick Constr. Corp., 298 NY 313; Long v Forest-Fehlhaber, 55 NY2d 154; Van Slyke v Niagara Mohawk Power Corp., 93 AD2d 990; Wingert v Krakauer, 76 App Div 34; Haimes v New York Tel. Co., 46 NY2d 132.) II. Plaintiffs’ action should have been dismissed either by the trial court or the court below. (Quinones v St. Vincent’s Hosp., 20 AD2d 529; Duda v Rouse Constr. Corp., 32 NY2d 405; Kluttz v Citron, 2 NY2d 379; Halsey v Ford Motor Co., 24 AD2d 826; Lahr v Tirrill, 274 NY 112; O’Connor v 595 Realty Assoc., 23 AD2d 69.) III. The trial court deprived defendant of a fair trial by its charge. (Zipay v Benson, 47 AD2d 233; Truesdale v Dueger, 3 AD2d 985; Molnar v Slattery Contr. Co., 8 AD2d 95; Beach v Richtmyer, 275 App Div 466; Fields v City of New York, 4 NY2d 334.) IV. The trial court erred in disallowing the issue of plaintiff Thomas Bland’s negligence in causing or contributing to his accident. (Long v Forest-Fehlhaber, 55 NY2d 154; Haimes v New York Tel. Co., 46 NY2d 132; Mack v Altmans Stage Light. Co., 98 AD2d 468; Smith v Hooker Chems. & Plastics Corp., 89 AD2d 361; Kenny v Fuller Co., 87 AD2d 183; Kalofonos v State of New York, 104 AD2d 75; Cardile v D’Ambrosia, 72 AD2d 544; Crawford v Leimzider, 100 AD2d 568; Larabee v Triangle Steel, 86 AD2d 289; Kopacz v Airco Carbon, 104 AD2d 722.) V. A complete judicial reevaluation of the absolute duty statutes in the light of developments in the law is in order. (Haimes v New York Tel. Co., 46 NY2d 132; Allen v Cloutier Constr. Corp., 44 NY2d 290; Teller v Prospect Hgts. Hosp., 280 NY 456; Flynn v City of New York, 103 AD2d 98; Abergest v Board of Educ., 65 NY2d 161; Kelly v Diesel Constr., 35 NY2d 1; Heritage v Van Patten, 59 NY2d 1017; Crawford v Leimzider, 100 AD2d 568; Horning v Gore, 87 AD2d 34.)

      Scott N. Singer, Melvin Sacks and Jon W. Green for respondents in the first above-entitled action.
    I. Judgment was properly awarded to plaintiffs upon the jury’s finding that the ladder which collapsed beneath Mr. Bland was improperly placed and that the improper placement of the ladder was the proximate cause of his injuries. (Koenig v Patrick Constr. Corp., 298 NY 313; Heath v Soloff Constr., 107 AD2d 507; DaBolt v Bethlehem Steel Corp., 92 AD2d 70; Haimes v New York Tel. Co., 46 NY2d 132; Cardile v D’Ambrosia, 72 AD2d 544; Carinha v Action Crane Corp., 58 AD2d 261; Novell v Carney Elec. Constr. Corp., 123 Misc 2d 1089; Zimmer v Chemung County Performing Arts, 65 NY2d 513; Reinhart v Long Is. Light. Co., 91 AD2d 571; Long v Murnane Assoc., 68 AD2d 166.) II. The jury’s finding that the ladder was improperly placed was supported by the evidence at trial and predicated on a proper jury charge. (Haimes v New York Tel. Co., 46 NY2d 132; Weaver v Lazarus, 93 AD2d 859; Engel v Nedwidek, 91 AD2d 794; Rea v Elia Bldg. Co., 79 AD2d 1102; Reinhart v Long Is. Light. Co., 91 AD2d 571; Pereira v Herman Constr. Co., 74 AD2d 531; Long v Murnane Assoc., 68 AD2d 166; Katz v Press Mgt. Corp., 117 Misc 2d 870; Cardile v D’Ambrosia, 72 AD2d 544; Brant v Republic Steel Corp., 91 AD2d 841.) III. Defendant violated Labor Law § 240 (1) by failing to provide plaintiff with any safety equipment for the performance of his work. (Zimmer v Chemung County Performing Arts, 65 NY2d 513; Ansorge v Kane, 244 NY 395; Hornstein v Podwitz, 254 NY 443.) IV. In the absence of legislative amendment, this court should not depart from precedent construing Labor Law § 240 (1). (Zimmer v Chemung County Performing Arts, 65 NY2d 513; Haimes v New York Tel. Co., 46 NY2d 132; Koenig v Patrick Constr. Corp., 298 NY 313; Allen v Cloutier Constr. Corp., 44 NY2d 290; Kluttz v Citron, 2 NY2d 379; Reinhart v Long Is. Light. Co., 91 AD2d 571; Engel v Nedwidek, 91 AD2d 794; Long v Murnane Assoc., 68 AD2d 166.)

      T. Alan Brown for appellant in the second above-entitled action.
    I. There was no violation of Labor Law § 240. (Larabee v Triangle Steel, 86 AD2d 289; Zimmer v Chemung County Performing Arts, 65 NY2d 513; Rea v Elia Bldg. Co., 79 AD2d 1102; Sullivan v Held, 81 AD2d 663; Long v Forest-Fehlhaber, 55 NY2d 154.) II. Claimant-respondent was contributorily negligent. (Monroe v City of New York, 67 AD2d 89; Smith v Hooker Chems. & Plastic Corp., 89 AD2d 361, 58 NY2d 824.) III. Claimant’s culpable conduct must be taken into account when determining any liability which might exist under section 241 (6). (Maidman v Stagg, 82 AD2d 299.)

      Richard P. Weisbeck, Jr., for respondents in the second above-entitled action.
    I. The court below correctly construed Labor Law § 240 and its factual determination that section 240 (1) was violated is beyond review in this court. (Kalofonos v State of New York, 104 AD2d 75; Zimmer v Chemung County Performing Arts, 65 NY2d 513; Struble v John Arborio, Inc., 74 AD2d 55; Parsolano v County of Nassau, 93 AD2d 815; Haimes v New York Tel. Co., 46 NY2d 132; Koenig v Patrick Constr. Co., 298 NY 313; Quigley v Thatcher, 207 NY 66; Reinhart v Long Is. Light. Co., 91 AD2d 571.) II. The State’s argument that respondent was contributorily negligent is not an issue properly before this court. (Cohen v Hallmark Cards, 45 NY2d 493.) III. The award of damages on the derivative claim is a factual issue beyond review by the Court of Appeals. (Zipprich v Smith Trucking Co., 2 NY2d 177; Tate v Colabello, 58 NY2d 84.)
   OPINION OF THE COURT

Jasen, J.

These appeals arise out of construction site accidents involving workmen injured as a result of alleged violations of Labor Law § 240.

In Bland v Manocherian, plaintiff sustained injuries while working on an apartment building owned by defendants who had hired third-party defendant, plaintiff’s employer, to make certain alterations. Plaintiff fell through a fourth story window when the ladder upon which he was standing suddenly collapsed beneath him. Plaintiff and his spouse brought this action under Labor Law § 240 seeking damages resulting from a construction accident.

At the first trial, the court refused to charge that improper placement of the ladder constituted a violation of the statute on the part of defendants, but the jury, nonetheless, returned a verdict for both plaintiffs finding, in its answers to interrogatories, that defendants had violated Labor Law § 240 by failing to provide plaintiff with a safety belt. On appeal, the Appellate Division reversed and ordered a new trial on the ground that the court had erred in instructing the jury that a safety belt was a necessary "device”, under the circumstances, as a matter of law, regardless of industry custom and practice.

At the second trial, plaintiff testified that a co-worker had brought the ladder furnished by third-party defendant employer into the apartment, that plaintiff himself positioned the ladder "sideways” to and several inches from the window, and that, as he stood on the ladder removing the window sashes, the ladder collapsed and folded beneath him, causing him to fall through the window. The jury returned a second verdict in plaintiffs’ favor, having unanimously answered the court’s special verdict questions as follows:

"1. Did the accident happen substantially in the manner claimed by plaintiff?

"Answer: Yes.

"2 Was the ladder defective?

"Answer: No.

"2 (a) If the answer to two (2) is yes, was the defect a proximate cause of the accident?

"Answer:

"3. Was the ladder placed so as to give proper protection to the plaintiff?

"Answer: No.

"3 (a) If the answer to three (3) is no, was the improper placement of the ladder a proximate cause of the accident?

"Answer: Yes.”

Thereafter, the court directed a verdict for defendants owners against third-party defendant employer and, upon the latter’s motion, reduced plaintiffs’ damages. On cross appeals, the Appellate Division modified by ordering a new trial on the issue of damages unless plaintiffs consented to accept the verdicts as reduced by the trial court.

In Wright v State of New York, claimant was injured while working on a construction project in Allegany State Park. He was working in a sitting position on a so-called "carpenter’s bracket scaffold” which he and a co-worker had erected. When claimant attempted to stand, as was necessitated by the project, he lost his balance and fell approximately seven feet to the ground. At the time of the accident, the scaffold had in place only one, of two, 12-inch-wide planks for use as a standing platform, and neither a guardrail nor other protective device had been installed to prevent such a fall.

Claimant and his spouse brought this action under Labor Law §§ 240 and 241, alleging the State’s failure, as owner of the project site, to provide a safe place to work. The Court of Claims found that the scaffold did not give "proper protection” to claimant, that "considering the scaffold’s height and narrow width, there was a clear danger of injury if some protective devices were not provided”, and that the absence of "safety railings * * * was a substantial factor in causing the injuries”. Nevertheless, the court held that the Labor Law provisions in question did not impose absolute liability on the owner of the work site under such facts, but, instead, required the court to determine the extent to which the claimant himself contributed to the accident. The court found that the claimant’s share of responsibility for the accident was 50% and that he was, therefore, entitled to recovery of only half the damages he sustained.

On appeal, the Appellate Division modified, finding that the lack of guardrails or other protective devices was a failure to give "proper protection” under Labor Law § 240 (1), and was a proximate cause of the accident. The court held that comparative negligence is irrelevant under that statutory provision and, consequently, that the State was liable for the full amount of claimant’s damages.

On appeal to this court, the owner of the premises in the Bland v Manocherian case argues that there was no actionable violation of Labor Law § 240 (1) and, even if there were, that the jury’s finding of improper ladder placement should bar recovery for plaintiffs because the statute was not designed to insure a worker against his own avoidable fault.

In Wright v State of New York, the State argues that Labor Law § 240 does not apply to the facts of this case as there was no evidence offered as to the propriety or impropriety of the use of guardrails in connection with a carpenter’s bracket scaffold at a height of seven feet. Where a scaffold is adequately constructed, the State claims, height alone determines the need for the guardrails as the statute specifically requires such guardrails only when scaffolds exceed 20 feet.

Recently, this court held in Zimmer v Chemung County Performing Arts (65 NY2d 513) that Labor Law § 240 (l) imposes absolute liability upon an owner or contractor for failing to provide or erect safety devices necessary to give proper protection to a worker who sustains injuries proximately caused by that failure. It was noted that the legislative purpose of Labor Law §§ 240 and 241 was to place " 'ultimate responsibility for safety practices at building construction jobs . where such responsibility actually belongs, on the owner and general contractor’ ” (id., at p 520, quoting 1969 NY Legis Ann, at 407), and that the statutory provisions were " 'to be construed as liberally as may be for the accomplishment of the purpose for which [they were] thus framed’ ” (id., at p 521, quoting Quigley v Thatcher, 207 NY 66, 68). Finally, the majority in Zimmer explained that once it is determined that the owner or contractor failed to provide the necessary safety devices required to give a worker "proper protection”, absolute liability is "unavoidable” under section 240 (1), as well as under the first five subdivisions of section 241, regardless of the injured worker’s own negligence in contributing to his accident (id., at pp 521-522). This interpretation of the statutory provisions is now binding precedent upon the entire court. (Foss v City of Rochester, 66 NY2d 872].)

Application of the foregoing requirements enunciated in Zimmer presents little difficulty in the two appeals before us. In Bland v Manocherian, there are affirmed findings of fact that the ladder from which plaintiff fell was not "placed so as to give proper protection” and that the improper placement was a proximate cause of the accident. These findings are supported by legally sufficient evidence in the record. There was testimony at trial explaining the manner in which old windows were removed and replaced with new ones. Specifically, there was testimony by the job foreman that pressure would have to be applied to the sashes and, at the same time, the windows forcibly twisted loose, all while plaintiff was standing on a ladder. There was further testimony from the job foreman that the floor upon which the ladder was placed was bare, highly polished and shiny. Additionally, plaintiff testified that the ladder, which he had positioned sideways, approximately six inches from the window, fell from beneath him as he was pushing against the sash of that window. Finally, there was also testimony by the job foreman that no safety equipment, safety belts, hard hats, scaffolding or anything else, was used to protect plaintiff from falling through the fourth floor window or to secure the ladder to insure that it remained steady and erect while plaintiff was applying pressure to that window.

The jury was clearly entitled to find that, under the circumstances, defendants failed to satisfy the responsibilities imposed by section 240 (1) in that they had not "erected” or "placed” the ladder from which plaintiff fell in such a manner, or with such safeguards, as necessary to provide plaintiff with "proper protection” while he was working on defendants’ building. Consequently, regardless of any carelessness on plaintiff’s part which might also have contributed to his fall, defendants were properly held absolutely liable for the full extent of the damages proximately resulting from the improper placement of the ladder.

This court’s decision in Long v Forest-Fehlhaber (55 NY2d 154) is inapposite. In that case, we held that a violation of Labor Law § 241 (6) does not constitute negligence as a matter of law resulting in absolute liability because "subdivision 6 does no more than broadly provide” that the work area " 'provide reasonable and adequate protection and safety.’ ” (Id., at p 160.) We explicitly contrasted section 240 and the first five subdivisions of section 241 which set forth more specific requirements, where the failure to comply automatically renders the owner or contractor absolutely liable without regard to the worker’s own negligence. (Id,., at p 160; see also, Zimmer v Chemung County Performing Arts, 65 NY2d 513, 521-522, supra.)

Similarly, a diminishment of defendants’ liability under the doctrine of comparative causation as applied by this court in Arbegast v Board of Educ. (65 NY2d 161) is inapplicable here. The policy purpose underlying Labor Law § 240 is to impose a "flat and unvarying” duty upon the owner and contractor despite any contributing culpability on the part of the worker. (Zimmer v Chemung County Performing Arts, supra, at p 521.) In Arbegast, we specifically recognized that the diminishment of liability by a comparative evaluation of the injured party’s culpability would, indeed, be disallowed where thus proscribed by public policy. (Arbegast v Board of Educ., supra, at p 170; cf. Rosado v Proctor & Schwartz, 66 NY2d 21.)

In Wright v State of New York, both courts below found that the absence of guardrails or other protective devices resulted in a denial of proper safety protection to claimant while he was working on the scaffold and, in turn, that this absence was a proximate cause of claimant’s fall to the ground below. Notwithstanding that section 240 (2) specifically requires guardrails only where the scaffold is more than 20 feet high, the general standard of section 240 (1), as correctly applied by the Appellate Division, requires that scaffolding be so constructed and erected as "to give proper protection” to the worker, without regard to height. In other words, Labor Law § 240 (1) mandates guardrails on scaffolds less than 20 feet in height wherever a risk is posed to a construction worker so as to require guardrails to provide such worker with "proper protection”. Under the circumstances here, the courts below agreed, as a question of fact, that the scaffolding should have been equipped with railing or other safety device to provide the necessary protection to the worker. Consequently, claimant’s own negligence being inapplicable under section 240 (1), the State was properly held absolutely liable for the full extent of the damages proximately caused by the absence of guardrails or other safety device to prevent a fall from the scaffold.

We have examined the State’s contentions regarding the derivative claim and find them to be without merit.

Accordingly, in each case, the order of the Appellate Division should be affirmed, with costs.

Titone, J.

(dissenting). These appeals test the reach of Labor Law § 240, the scaffolding act, which, with certain exclusions not relevant here, casts the owner and contractor of a construction site in absolute liability for injuries sustained by an employee at the site. In each case, I would hold that liability, if any, can be imposed only under Labor Law § 241 (6), to which comparative fault is a defense.

Labor Law § 240 is a "self-executing statute” containing specific standards with which owners and contractors must comply (Long v Forest-Fehlhaber, 55 NY2d 154, 160; see also, Monroe v City of New York, 67 AD2d 89). The duty is nondelegable and is not diminished by contributory fault (1 NY PJI2d 502). There are two subdivisions. The first requires owners and contractors to furnish and erect scaffolding and ladders which are so constructed and placed as to give proper protection to the person performing the work. The second subdivision provides that when scaffolding is more than 20 feet from the ground, it "shall have a safety rail of suitable material properly attached” (Labor Law § 240 [2]).

Although, as a statute designed to protect workers, Labor Law § 240 should be liberally construed (Zimmer v Chemung County Performing Arts, 65 NY2d 513), what amounts to an absolute duty to guarantee safety may not be extended to establish a right of recovery not envisioned by the Legislature (Mack v Altmans Stage Light. Co., 98 AD2d 468, 473; DaBolt v Bethlehem Steel Corp., 92 AD2d 70, 75; Deso v Albany Ladder Co., 26 AD2d 182, 185). It "benefits only those persons injured by a fall from an elevated height due to a lack of, or defective, safety devices designed to prevent such a fall” (Van Slyke v Niagara Mohawk Power Corp., 93 AD2d 990, 991, affd in part, appeal dismissed in part 60 NY2d 774; see also, Zimmer v Chemung County Performing Arts, supra; Mack v Altmans Stage Light. Co., supra), and does not establish a rule of law to the effect that anyone who falls off a ladder may recover damages from the owner. An insurer’s liability without fault is the function of workers’ compensation, not Labor Law § 240.

In contrast to Labor Law § 240, Labor Law § 241 (6), imposes a general, albeit nondelegable, duty upon owners and contractors to provide a safe place to work. It requires all work areas to "be so constructed, shored, equipped, guarded, arranged, operated and conducted as to provide reasonable and adequate protection and safety to the persons employed therein” (Labor Law § 241 [6]). The Board of Standards and Appeals is authorized to make rules to carry out the statutory purposes, a violation of which is merely evidence of negligence, and damages may be reduced by the contributory fault of the employee (Long v Forest-Fehlhaber, 55 NY2d 154, supra; La France v Niagara Mohawk Power Corp., 89 AD2d 757, appeal dismissed 58 NY2d 747; 1 NY PJI2d 502).

Thus, as we emphasized in Long v Forest-Fehlhaber (supra), Labor Law §§ 240 and 241 (6) impose different standards of care and different obligations, and for the purpose of analysis, must be kept separate and apart. When absolute liability is imposed under Labor Law § 240, the standard of care must have its roots either in the statute itself or in decisional law construing the statute; the rules of the Board of Standards and Appeals, which are pertinent in an action predicated on Labor Law § 241 (6), are foreign to Labor Law § 240 (Long v Forest-Fehlhaber, supra; see, Prosser and Keeton, Torts § 36, at 227 [5th ed]; Restatement [Second] of Torts § 285, illustration 4; § 282 comment f; 1A Warren’s Negligence, Statutes and Ordinances §§ 7.06, 9.02 [2d ed]). In my view, neither case before us comes within the ambit of Labor Law § 240.

In Bland v Manocherian, plaintiff Thomas Bland, an iron worker, was working inside the fourth floor of an apartment building. He alone took a 5-foot high wooden "A”-frame stepladder, which his employer supplied, and placed it alongside the window that he was going to remove, some 6 or 7 inches from the window sash and 9 or 10 inches from the outside of the building. It appears that he fell out the window in a feat of acrobatics, as he was reaching up to twist the sash.

Although the jury found that the ladder was not defective, it found defendant Fraydun Realty, the owner, absolutely liable because of a claimed "misplacement” of the ladder by the window, which, it bears emphasis, Bland himself had used and. placed. There is absolutely no proof in the record to support such a finding, much less a breach of duty by the defendants.

The evidence established that the ladder was placed on a level, nonslippery, wooden floor, and that it did not slip when it purportedly collapsed. There is no proof of any lack of a safety footing on the ladder which could have caused a skid. There is no direct evidence of improper placement, and, unlike Glielmi v Toys "R" Us (62 NY2d 664), no specific safety standards were submitted to the jury. In short, there is "no evidence 'that ought reasonably to satisfy a jury that the fact[s] sought to be proved [are] established’ ” (Garcia v City of New York, 65 NY2d 805, 807, affg 104 AD2d 438, quoting Blum v Fresh Grown Preserve Corp., 292 NY 241, 246). Nothing could reasonably convince a fact finder that there was any actionable breach of Labor Law § 240, and it is our duty to set the verdict aside (Garcia v City of New York, supra).

More important, I simply cannot accept the notion that there is a duty upon an owner to follow a worker and verify that the worker has "properly placed” a ladder in order for the owner to satisfy the statutory mandate. Such a proposition is, on its face, absurd. Indeed, Bland himself testified that he would only take directions from his foreman and would pay no attention to anyone else.

I read Zimmer v Chemung County Performing Arts (65 NY2d 513, supra) and Haimes v New York Tel. Co. (46 NY2d 132) as requiring owners and contractors to supply safe equipment and safety devices. In Zimmer, it was an "uncontroverted fact that no safety devices were provided to plaintiff at the work-site” (65 NY2d, at p 523; emphasis supplied), which is not the case here. These authorities should not be extended to cover injuries more appropriately compensated through the Workers’ Compensation Law.

It may be that Bland could have recovered damages above that provided by workers’ compensation by proceeding under a Labor Law § 241 (6) theory. In that case, of course, his own culpable conduct would have reduced recoverable damages. The case should not be returned for a new trial, however, because plaintiff’s counsel expressly declined to submit that cause of action to the jury.

In Wright v State of New York, the basis for reversal is even more clear. The Court of Claims found liability under Labor Law § 241 (6) because of a failure to supply guardrails on the scaffold involved, reduced recovery by reason of the workers’ culpable conduct, and dismissed the spouse’s claim for loss of consortium. The Appellate Division, however, reversed and granted full recovery, including $10,000 for loss of consortium, on the theory that the failure to supply guardrails on the scaffold was the proximate cause of injury, mandating recovery under Labor Law § 240.

As indicated, Labor Law § 240 (2) requires safety rails on scaffolds "more than twenty feet from the ground,” and since the scaffold here was seven feet from the ground, no liability may be imposed under that subdivision (Ryan v Cenci, 95 AD2d 963, 964). Nor is it appropriate to read such a safety rail requirement into the general language in subdivision 1 (see, McKinney’s Cons Laws of NY, Book 1, Statutes §§ 97, 98). Had the Legislature intended to mandate safety rails on scaffolds less than 20 feet in height, it would have done so.

Although section 23-5.1 of the Industrial Code states that scaffolds seven feet or more should have their open sides equipped with safety railings (12 NYCRR 23-5.1 [j] [1]), that standard is irrelevant to a Labor Law § 240 claim. Use of the Industrial Code in such a circumstance amounts to an impermissible end run around Long v Forest-Fehlhaber (supra).

Insofar as the loss of consortium claim is concerned, there is no evidence to support an award of damages. As the Court of Claims observed, "the only evidence in that regard is that her husband helped around the house, drove the family car, [and] mowed the lawn with a riding mower. Since the accident he cannot do the household repairs as well as previously and he has difficulty in lifting, buttoning his shirt or tying his necktie.”

Accordingly, in Bland I would reverse the order of the Appellate Division and dismiss the complaint, and in Wright I would reverse the order of the Appellate Division and reinstate the judgment of the Court of Claims.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye and Alexander concur with Judge Jasen; Judge Titone dissents and votes to reverse in a separate opinion.

In each case: Order affirmed, with costs.

      . Labor Law § 240 (1) provides in pertinent part: "1. All contractors and owners and their agents, except owners of one and two-family dwellings who contract for but do not direct or control the work, in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to be furnished or erected for the performance of such labor, scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes, and other devices which shall be so constructed, placed and operated as to give proper protection to a person so employed.” (Emphasis added.)

      . Indeed, this court noted in somewhat similar respects in Zimmer that "[ljadders were present at the worksite, but none had been erected for plaintiffs specific task.” (65 NY2d, at p 519.) Absolute liability was imposed under Labor Law § 240 (1) even though a factual question was raised as to whether other safety devices were necessary or even feasible.

      . We disagree with the dissenter that safety rails are not required unless the scaffolding is more than 20 feet above the ground. Rather, we believe that the Legislature has mandated safety rails and whatever "other devices” are necessary to protect the worker regardless of the height at which he is working above the ground. Section 240 (1) expressly requires, without any height limitation or other qualification, that "scaffolding * * * and other devices * * * be so constructed * * * as to give proper protection.”

       A prior verdict, predicated on the theory that defendant failed to supply Bland with a safety belt, was reversed by the Appellate Division, First Department (93 AD2d 689).


author: Jasen, J.

text:
    In the Matter of Colt Industries, Inc., Respondent, v New York City Department of Finance, Appellant.
    Argued November 14, 1985;
    decided December 19, 1985
    POINTS OF COUNSEL

      Frederick A. O. Schwarz, Jr., Corporation Counsel (Peter Rabinowitz, Glenn Newman, Cornelius F. Roche and James F. Eller of counsel), for appellant.
    I. Having designed and treated its management fee as a single service charge, Colt cannot now transform any part of it from business income into interest income from subsidiary capital. (Commissioner v National Alfalfa Dehydrating, 417 US 134; Higgins v Smith, 308 US 473; Spector v Commissioner of Internal Revenue, 641 F2d 376, 454 US 868; Sullivan v United States, 618 F2d 1001; Matter of Sverdlow v Bates, 283 App Div 487; Matter of Steen, 509 F2d 1398; Harvey Radio Labs. v Commissioner of Internal Revenue, 470 F2d 118; Balthrope v Commissioner of Internal Revenue, 356 F2d 28; Schulz v Commissioner of Internal Revenue, 294 F2d 52; Ullman v Commissioner of Internal Revenue, 264 F2d 305.) II. There is substantial evidence in the record that no portion of the management fee was income from subsidiary capital. Therefore, the Department’s determination that the entire fee was business income, no portion of which was excludable from entire net income for city tax purposes, should not have been vacated. (Utility Trailer Mfg. Co. v United States, 212 F Supp 773; Matter of Stork Rest. v Boland, 282 NY 256; Matter of West 151st St. Liq. Store v State Liq. Auth., 13 AD2d 731, 11 NY2d 678; Matter of Cumberland Farms Food Stores v State Liq. Auth., 86 AD2d 742, 56 NY2d 504; Matter of Briggs v Page, 20 AD2d 834; Matter of Zacher v Michael, 98 AD2d 681, 64 NY2d 686; Matter of Grace v New York State Tax Commn., 37 NY2d 193; Matter of Dolly Co. v Tully, 65 AD2d 99; Matter of Koner v Procaccino, 39 NY2d 258.)

      Peter L. Faber, Stanley H. Fuld, Michael Malina and Sarah G. Austrian for respondent.
    I. The court below was correct in holding that the portion of the management fee representing a reimbursement of nondeductible interest is nontaxable income from subsidiary capital. (Dobson v Commissioner, 320 US 489, 321 US 231.) II. Alternatively, the decision of the court below should be affirmed because a portion of the management fee was in fact interest charged by Colt to its subsidiaries and as such is excludable income from subsidiary capital. (Deputy v du Pont, 308 US 488; Old Colony R. R. Co. v Commissioner, 284 US 552; Dorzback v Collison, 195 F2d 69; Utility Trailer Mfg. Co. v United States, 212 F Supp 773; Diedrich v Commissioner, 457 US 191; Lyon Co. v United States, 435 US 561; Commissioner v Hansen, 360 US 446; Helvering v Tex-Penn Co., 300 US 481; Eisner v Macomber, 252 US 189; Grannis v Stevens, 216 NY 583, 217 NY 664.) III. Colt is not taxable on amounts that it received as a conduit between outside lenders and its subsidiaries. (Commissioner v Kresge Dept. Stores, 134 F2d 76, 319 US 761; Gregory v Helvering, 293 US 465; Matter of Marx v Bragalini, 6 NY2d 322; Matter of Russell, 294 NY 99; Matter of Cregan, 275 NY 337; People ex rel. Mosbacher v Graves, 254 App Div 438, 279 NY 793; Matter of Rogers, 269 App Div 551, 296 NY 676, 772; Matter of Watson, 70 AD2d 777; Matter of Columbian Protective Assn. v McGoldrick, 292 NY 171; Matter of Guardian Life Ins. Co. v Joseph, 272 App Div 481, 297 NY 976.)
   OPINION OF THE COURT

Jasen, J.

The issue presented upon this appeal is whether the management fee imposed by petitioner upon its subsidiary corporations included interest income from subsidiary capital, and was to that extent excludable from entire net income for purposes of the New York City general corporation tax.

Petitioner, Colt Industries, Inc., a Pennsylvania corporation with its headquarters in New York City, is the successor in interest by merger to Colt Industries, Inc., a Delaware corporation, which was the taxpayer during the years in issue. Colt was both a managing company and a holding company. As a management company, Colt’s functions and responsibilities were in the areas of general management, policy development and formation, and centralized service functions. As a holding company, Colt owned all the stock of operating subsidiaries. Colt’s principal subsidiaries were Crucible, Inc., Colt Industries Operating Corp., Central Moloney, Inc. and Trent Tube B.V. In its capacity as a holding company, Colt served as the principal financing vehicle for its subsidiaries, borrowing money from third-party lenders and advancing funds to its subsidiaries to satisfy their working capital needs. Funds borrowed by Colt which were not needed by the subsidiaries at the time of each loan were temporarily invested in short-term securities for cash management purposes. Colt performed this borrowing function on behalf of its subsidiaries on a centralized basis because, by backing each loan with the combined assets of all the subsidiaries, it could borrow funds at more favorable rates and terms than could the subsidiaries acting individually.

In order to recover its operating costs, which included general administrative, selling and net interest expenses, incurred for services rendered to its subsidiaries, Colt imposed upon each of its subsidiaries a charge, denominated by Colt a "management fee”. This management fee was based upon a percentage of the gross projected sales of each subsidiary. In determining the percentage of sales to be charged in a given year, Colt estimated its over-all head office operating costs which included general administrative, selling and net interest expenses. Colt then estimated the sales of each subsidiary for the coming year and totaled all of its projected sales. This ratio of parent costs over subsidiary sales constituted the percentage of sales which Colt generally charged each subsidiary as a management fee for the coming year.

The management fee imposed upon the subsidiaries by Colt included an interest factor. The interest factor of the management fee represented Colt’s net interest expense, determined by subtracting from its gross interest expense the estimated income it derived from temporarily investing funds borrowed from third-party lenders in short-term money market instruments. The management fee did not contain a profit element. During the years in question, the major portion of the management fee represented interest expenses. Colt, however, failed to identify any portion of the management fee as interest income on its books or tax returns. Similarly, the subsidiaries did not label the management fee as "interest” upon their tax returns. The management fee represented a unified charge for all services rendered by Colt to its subsidiaries, and while the fee contained an interest factor, it could not, according to the New York City Department of Finance (Department), be broken down into component parts.

The Department issued notices of determination dated September 28, 1978, advising Colt that there were due general corporation tax deficiencies for the years 1971 through 1974. Colt filed a timely petition for redetermination of such deficiencies and, further, sought a refund of general corporation tax for 1971. Before the Department, Colt contended that a portion of the management fees paid to Colt by its subsidiaries contained a verifiable interest factor, so that the management fee constituted income from subsidiary capital which is excludable from entire net income under New York City Administrative Code § R46-2.0 (8) (a) (1). The Department disagreed with this view, and determined that there existed a deficiency in New York City general corporation tax in the principal amount of $759,008 plus interest of $463,722.33, representing a total of $1,222,730.33 for 1972, 1973 and 1974. The Department also denied Colt’s claim for a refund of general corporation tax for 1971 in the amount of $6,586.82. Colt commenced this article 78 proceeding to review the determination of the Department. The Appellate Division vacated that determinatian of the Department, dated June 24, 1983, and thereby reversed the assessment of deficiencies against Colt for the years 1972-1974 and the denial of Colt’s refund claim for 1971. For the reasons that follow, we now reverse the judgment of the Appellate Division.

The Administrative Code of the City of New York (Administrative Code) provides that for the privilege of doing business in the City of New York, every domestic or foreign corporation shall annually pay a tax upon the basis of its entire net income. (Administrative Code § R46-3.0 [1].) Entire net income is defined as "net income from all sources which shall be the same as the taxpayer’s federal taxable income” subject to certain modifications. These modifications, insofar as are relevant to this appeal, are set forth in Administrative Code § R46-2.0 (8) (a) (1) and § R46-2.0 (8) (b) (6). Administrative Code § R46-2.0 (8) (a) (1) provides that a taxpayer can deduct "income, gains and losses from subsidiary capital”. Also, section 3-11 (b) (2) (i) of the New York City General Corporation Tax Regulations provides that a taxpayer may deduct from Federal taxable income "all dividends, interest and gains from subsidiary capital * * * but not any other income from subsidiaries.”

At the outset of our discussion, it is necessary to set forth our standard of appellate review. As stated in Kurcsics v Merchants Mut. Ins. Co. (49 NY2d 451, 459), "[w]here the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom, the courts regularly defer to the governmental agency charged with the responsibility for administration of the statute. If its interpretation is not irrational or unreasonable, it will be upheld (Matter of Howard v Wyman, 28 NY2d 434; cf. Ostrer v Schenck, 41 NY2d 782, 786)”. Moreover, it is the taxpayer’s burden to establish its entitlement to an exclusion from tax. (Matter of Mobil Oil Corp. v Finance Administrator, 58 NY2d 95, 99.) In this case, the determinations of the Department were based upon a characterization of the management fee, as well as an analysis of the structure and function of said fee. The Department’s evaluation of the management fee is, of course, sharply disputed by Colt. Under these circumstances, the role of this court is to ascertain whether the Department’s construction of Administrative Code § R46-2.0 (8) (a) (1) and its concomitant tax treatment of the management fee were irrational or unreasonable.

Pursuant to Administrative Code § R46-2.0 (8) (a) (1), taxpayers are entitled to exclude, in computing entire net income, interest income from subsidiary capital. The Department, construing Administrative Code § R46-2.0 (8) (a) (1), determined that Colt’s management fee, while technically income from a subsidiary, was not shown to be "income from subsidiary capital”. This view is, under the circumstances presented by this appeal, neither irrational nor unreasonable. Colt itself chose to treat the amounts now claimed to be interest income as an undenominated part of a lump-sum management fee, not matched in form or substance to borrowings, and to characterize the fee on its books and tax returns (as did its subsidiaries) as business income (or business expense). The management fees collected by Colt from its subsidiaries were based upon a fixed percentage of the estimated volume of the subsidiaries’ projected gross sales. The management fee was not assessed according to the level of management services received by the subsidiaries, nor was it based upon the amount borrowed by any particular subsidiary or the amount of income generated by Colt’s investment in each subsidiary. Nor can it be said, on this record, that the management fee directly reflected compensation paid by the subsidiaries to Colt for use of the latter’s funds especially since the subsidiaries failed to identify any portion of the fee as "interest” upon their tax returns. Recognizing that the management fee did not represent income resulting from the investment of capital, and the unified, nondivisible charge was not identified by Colt as interest income, and was, in reality, directly correlated to a fixed percentage of subsidiary sales, the determination of the Department that the management fee was not "income from subsidiary capital” was both rational and reasonable.

Accordingly, the judgment of the Appellate Division should be reversed, with costs, the June 24, 1983 determination of the New York City Department of Finance reinstated, and the petition dismissed.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Alexander and Titone concur.

Judgment reversed, etc.

      . For the purposes of clarity, "Colt” hereinafter refers only to the taxpayer.

      . As noted by the Appellate Division, "[t]he parties are in agreement that the portion of Colt’s management fees represented by interest expense was attributable to subsidiary capital and therefore not deductible under section R46-2.0 (subd 8, par [b], cl [6]) of the city’s Administrative Code”. (106 AD2d 59, 63.) Accordingly, we review only the Department’s construction of New York City Administrative Code § R46-2.0 (8) (a) (1).

      . " 'Subsidiary capital’ ” is defined, pursuant to Administrative Code § R46-2.0 (3) as: "investments in the stock of subsidiaries and any indebtedness from subsidiaries, exclusive of accounts receivable acquired in the ordinary course of trade or business for services rendered or for sales of property held primarily for sale to customers, whether or not evidenced by written instrument, on which interest is not claimed and deducted by the subsidiary for purposes of taxation under this part or part three of this title, provided, however, that, in the discretion of the director of finance, there shall be deducted from subsidiary capital any liabilities payable by their terms on demand or within one year from the date incurred, other than loans or advances outstanding for more than a year as of any date during the year covered by the report, which are attributable to subsidiary capital”.


author: Titone, J.

text:
    Celia Duffy, Individually and as Executrix of Joseph Duffy, Deceased, Appellant, v Horton Memorial Hospital et al., Defendants. Horton Memorial Hospital and Benab Chau Ting, Third-Party Plaintiffs-Appellants. Jeanne Greenberg et al., as Executrices of Isidore Greenberg, Deceased, Third-Party Defendants-Respondents.
    Argued November 19, 1985;
    decided December 26, 1985

      POINTS OF COUNSEL

      Perry Gary Fish and Lester Raskin for appellant.
    The statutory construction of CPLR 203 (e) by the First and Fourth Departments allowing the assertion of a direct cause of action against the third-party defendant notwithstanding the expiration of the Statute of Limitations provided that said third-party defendant had been brought into the action as such prior to the expiration of the Statute of Limitations reflects more cogent reasoning and conforms with the legislative intent of the "relation-back” doctrine. Hence, the order of Special Term as affirmed by the court below should be reversed as a matter of law. (Trybus v Nipark Realty Corp., 26 AD2d 563; Storch v Moritsky, 24 AD2d 1027; Village of St. Johnsville v Travelers Indem. Co., 93 AD2d 932; Harriss v Tams, 258 NY 229; Knorr v City of Albany, 58 AD2d 904; Mastandrea v State of New York, 57 AD2d 679; McCabe v Queensboro Farm Prods., 15 AD2d 553, 11 NY2d 963; Flanagan v Mount Eden Gen. Hosp., 24 NY2d 427.)

      Monte J. Rosenstein for third-party plaintiffs-appellants.
    There is no valid legal rationale to deny a plaintiff the right to assert a direct cause of action against a third-party defendant who was a party to the action prior to the expiration of the Statute of Limitations and who had full notice of the possibility of being named as a direct defendant before the statute ran. (Holst v Edinger, 93 AD2d 313; Lancaster Silo & Block Co. v Northern Propane Gas Co., 75 AD2d 55; Allstate Ins. Co. v Emsco Homes, 93 AD2d 874; Landi v We’re Assoc., 124 Misc 2d 331; Brock v Bua, 83 AD2d 61; Trybus v Nipark Realty Corp., 26 AD2d 563.)

      Terry D. Homer and Myra I. Packman for third-party defendants-respondents.
    I. CPLR 203 (e) cannot validate plaintiff’s time-barred direct claim since it was not intended to govern third-party practice. (City of New York v New York Tel. Co., 108 AD2d 372; Matter of Schultz Mgt. v Board of Stds. & Appeals, 103 AD2d 687, 64 NY2d 1057; Goncalves v Regent Intl. Hotels, 58 NY2d 206; Lichtman v Nadler, 74 AD2d 66.) II. Plaintiff’s direct claim against Dr. Greenberg was properly barred since (1) he did not have notice of the transactions or occurrences sought to be alleged against him and (2) plaintiff was guilty of loches in seeking the amendment. (Brock v Bua, 83 AD2d 61; Knorr v City of Albany, 58 AD2d 904.)
   OPINION OF THE COURT

Titone, J.

The question presented is whether a plaintiff’s direct claim against a third-party defendant, which is asserted in an amended complaint, relates back to the date of service of the third-party complaint for purposes of the Statute of Limitations, pursuant to CPLR 203 (e), where the third-party complaint and the amended complaint are based on the same transaction or occurrence. We hold that it does.

Plaintiff and her husband commenced this medical malpractice action in August 1979, alleging that defendants had failed to recognize and diagnose an early stage of the husband’s lung cancer. The husband’s condition deteriorated and he died in May 1981. Special Term subsequently granted plaintiff’s motion for substitution and for an amendment of the complaint to add a wrongful death claim.

In June 1981, defendants brought a timely third-party action against Dr. Isidore Greenberg, the family physician who had treated the husband before and after a 1978 hospital examination. A deposition of Dr. Greenberg was conducted in October 1982, after which plaintiff sought to amend her complaint to name him as a defendant. Plaintiff urged that the claim was not barred by the Statute of Limitations because of the provisions of CPLR 203 (e): "A claim asserted in an amended pleading is deemed to have been interposed, at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.”

Special Term initially granted the motion, but reversed itself on reargument, properly deeming itself bound by the Third Department’s decisions in Village of St. Johnsville v Travelers Indem. Co. (93 AD2d 932) and Knorr v City of Albany (58 AD2d 904). (Mountain View Coach Lines v Storms, 102 AD2d 663.) The Appellate Division, Third Department, affirmed, adhering to its position that a plaintiff’s direct claim against a third-party defendant cannot be asserted after the Statute of Limitations has run. The appeal to this court has been taken by permission of the Appellate Division, which has certified the question of whether its order was correctly made.

The Appellate Divisions have divided in their treatment of applications to amend complaints in these circumstances. The First and Fourth Departments have held, contrary to the Third Department, that because service of a third-party complaint gives the third-party defendant adequate notice of the transactions or occurrences underlying the litigation, for purposes of the Statute of Limitations, an amendment asserting a direct claim relates back to the service of the third-party complaint (Holst v Edinger, 93 AD2d 313 [1st Dept]; Lancaster Silo & Block Co. v Northern Propane Gas Co., 75 AD2d 55 [4th Dept]). The Second Department initially followed the same approach as the Third Department (Allstate Ins. Co. v Emsco Homes, 93 AD2d 874; Trybus v Nipark Realty Corp., 26 AD2d 563; see also, Brock v Bua, 83 AD2d 61, 65, n), but recently attempted to distinguish the earlier cases and embraced the position of the First and Fourth Departments (Cucuzza v Vaccaro, 109 AD2d 101, stay denied 66 NY2d 760).

The language of the governing statute, CPLR 203 (e), is not particularly helpful, since it does not state whether or not it is applicable to an amended complaint served upon someone not named in the original complaint. Analysis should, therefore, turn on the policy considerations underlying Statutes of Limitations (see, Friedenthal, Kane, Miller, Civil Procedure § 5.27; Green, Basic Civil Procedure, at 134-135 [2d ed]; James & Hazard, Civil Procedure § 4.16 [3d ed]).

We have emphasized that the primary purpose of a limitations period is fairness to a defendant (Flanagan v Mount Eden Gen. Hosp., 24 NY2d 427, 429). A defendant should " 'be secure in his reasonable expectation that the slate has been wiped clean of ancient obligations, and he ought not to be called on to resist a claim where the "evidence has been lost, memories have faded, and witnesses have disappeared” ’ ” (id., quoting Developments in the Law: Statutes of Limitations, 63 Harv L Rev 1177, 1185). There is also the need to protect the judicial system from the burden of adjudicating stale and groundless claims (see, Brock v Bua, 83 AD2d 61, supra; Connell v Hayden, 83 AD2d 30; 2 Carmody-Wait 2d, NY Prac § 13:1; 1 Weinstein-Korn-Miller, NY Civ Prac ¶ 201.01; Note, Federal Rule of Civil Procedure 15(c): Relation Back of Amendments, 57 Minn L Rev 83, 84-85).

An amendment which merely adds a new theory of recovery or defense arising out of a transaction or occurrence already in litigation clearly does not conflict with these policies (see, Cerrato v Crown Co., 58 AD2d 721; Henegar v Freudenheim, 40 AD2d 825). A party is likely to have collected and preserved available evidence relating to the entire transaction or occurrence and the defendant’s sense of security has already been disturbed by the pending action (see, e.g., Caffaro v Trayna, 35 NY2d 245; Owens v Palm Tree Nursing Home, 50 AD2d 865; Watso v City of New York, 39 AD2d 960; James & Hazard, Civil Procedure op. cit., § 3.16).

The situation is far more difficult, however, when an amendment is sought to add a new party defendant. It is one thing to permit an amendment to relate back as applied to parties before the court. It is quite another thing to permit an amendment to relate back when a new party is sought to be added by the amendment against whom the Statute of Limitations has run. (Green, Basic Civil Procedure op. cit., at 135; cf. Boyd v United States Mtge. & Trust Co., 187 NY 262, 270.)

Thus, if the new defendant has been a complete stranger to the suit up to the point of the requested amendment, the bar of the Statute of Limitations must be applied (see, Arnold v Mayal Realty Co., 299 NY 57; Bringing in Party—Limitations, Ann., 8 ALR2d 6, §§ 53, 58). But where, within the statutory period, a potential defendant is fully aware that a claim is being made against him with respect to the transaction or occurrence involved in the suit, and is, in fact, a participant in the litigation, permitting an amendment to relate back would not necessarily be at odds with the policies underlying the Statute of Limitations (Boyd v United States Mtge. & Trust Co., 187 NY 262, 270, supra; cf. Williams v United States, 405 F2d 234, 236-237). In such cases, there is room for the exercise of a sound judicial discretion to determine whether, on the facts, there is any operative prejudice precluding a retroactive amendment (Green, Basic Civil Procedure op. cit., at 135; see, Loomis v Corinno Constr. Corp., 54 NY2d 18, 23; Donnici, Amendment of Pleadings—A Study of the Operation of Judicial Discretion in the Federal Courts, 37 S Cal L Rev 529).

It is evident that when a third party has been served with the third-party complaint, and all prior pleadings in the action as required by CPLR 1007, the third-party defendant has actual notice of the plaintiff’s potential claim at that time. The third-party defendant must gather evidence and vigorously prepare a defense. There is no temporal repose. Consequently, an amendment of the complaint may be permitted, in the court’s discretion, and a direct claim asserted against the third-party defendant, which, for the purposes of computing the Statute of Limitations period, relates back to the date of service of the third-party complaint (see, McLaughlin, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, C203:ll, p 124; Siegel, NY Prac § 49, at 17-18 [1985 Supp]; 6 Wright and Miller, Federal Practice & Procedure § 1498).

In this case, both Special Term and the Appellate Division erred in denying the motion to amend solely upon the ground that the claim would be barred by the Statute of Limitations. Accordingly, we must remit the matter to the Appellate Division to give that court the opportunity to exercise its discretion in determining whether an amendment is warranted (CPLR 5613; Beary v City of Rye, 44 NY2d 398, 415).

For the reasons stated, the order of the Appellate Division should be reversed, with costs, the certified question answered in the negative, and the matter remitted to that court for further proceedings in accordance with this opinion. The appeal by the defendants should be dismissed, without costs, upon the ground that they are not parties aggrieved.

Chief Judge Wachtler and Judges Jasen, Meyer, Simons, Kaye and Alexander concur.

On plaintiff’s appeal, order reversed, with costs, and case remitted to the Appellate Division, Third Department, for further proceedings in accordance with the opinion herein. Question certified answered in the negative. Appeal by defendants and third-party plaintiffs dismissed, without costs.

      . Dr. Greenberg died after the entry of Special Term’s order. The executrices of his estate have been substituted as third-party defendants.

      . CPLR 1009 permits a plaintiff to amend the complaint as of right within 20 days after service of the third-party complaint (see, Johnson v Equitable Life Assur. Socy., 22 AD2d 141, affd 18 NY2d 933). After that time period expires, plaintiff must obtain leave of court (Siegel, NY Prac § 164).

      . Although the third-party plaintiffs have purported to appeal as well, since the validity of the third-party complaint is not in issue, they are not parties aggrieved (CPLR 5511), and their appeal should be dismissed (Abbott v New York, Lake Erie & W. R. R. Co., 120 NY 652).


author: Alexander, J.

text:
    Evelyn Lerner et al., Appellants, v Karageorgis Lines, Inc., Respondent.
    Argued October 7, 1985;
    decided December 26, 1985

      POINTS OF COUNSEL

      Steven R. Lapidus for appellants.
    I. The one-year time limitation provision contained in clause 13 of the contract of carriage is inapplicable to the facts in the case at bar, without considering CPLR 4544. (Kossick v United Fruit Co., 365 US 731; Wilburn Boat Co. v Fireman’s Ins. Co., 348 US 310.) II. The one-year time limitation contained in clause 13 of the contract of carriage is invalid, regardless of CPLR 4544, because the print is too small to be noticeable or readable. (Lisi v Alitalia-Linee Aerre Italiene, 253 F Supp 237, 370 F2d 508, 390 US 455; Egan v American Airlines, 21 NY2d 160, 390 US 1039; Molitch v Irish Intl. Airlines, 436 F2d 42; The Majestic, 166 US 375; Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11.) III. The one-year time limitation contained in clause 13 of the contract of carriage is invalid because it is violative of CPLR 4544. (Shankles v Costa Armatori, S.P.A. 722 F2d 861; Western Fuel Co. v Garcia, 257 US 233; Spencer Kellogg Co. v Hicks, 285 US 502; Celeste v Prudential-Grace Lines, 35 NY2d 60; Wilburn Boat Co. v Fireman’s Ins. Co., 348 US 310; Kossick v United Fruit Co., 365 US 731; Matter of Rederi [Dow Chem. Co.], 25 NY2d 576; Matter of Heaney v Carlin Constr. Co., 269 NY 93; Industrial Commn. v Nordenholt Corp., 259 US 263; Matter of Cassaretakis, 289 NY 119.) IV. Irrespective of the applicability of CPLR 4544, defendant has not made a reasonable effort to warn plaintiffs on the face of the ticket that there were time limitations contained inside the contract of carriage, and, therefore, the time limitations are invalid. (The Majestic, 166 US 375; Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11; The Kungsholm, 86 F2d 703; Maibrunn v Hamburg-American S. S. Co., 77 F2d 304; Raskin v Campania de Vapores Realma, 521 F Supp 337; Owens v Italia Societa Per Azione Di Navagazione-Genova, 70 Misc 2d 719, 75 Misc 2d 104; DeNicola v Cunard Line, 642 F2d 5; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896; Lipton v National Hellenic Am. Lines, 294 F Supp 308; Baron v Compagnie Generale Transatlantique, 108 F2d 21.) V. The contractual Statute of Limitations applies only to suits commenced in Greece and not to this action pending in New York. (Meachem v Jamestown, Franklin & Clearfield R. R. Co., 211 NY 346; Kyler v United States Trotting Assn., 12 AD2d 874; Sliosberg v New York Life Ins. Co., 217 App Div 685; Wydallis v United States Fid. & Guar. Co., 63 NY2d 872.)

      Kathleen McQuilling and Steven P. Calkins for respondent.
    I. The court below correctly held that Federal maritime law has preempted the field of suit time-limitation clauses in maritime contracts. (Scheibel v Agwilines, Inc., 156 F2d 636; Moore v American Scantic Line, 30 F Supp 843, 121 F2d 767; Murray v Cunard S. S. Co., 235 NY 162; Garrett v Moore-McCormack Co., 317 US 239; Alvez v American Export Lines, 46 NY2d 634, 446 US 274; Celeste v Prudential-Grace Lines, 35 NY2d 60; Matter of Rederi [Dow Chem. Co.], 25 NY2d 576, 398 US 939; Schwartz v S. S. Nassau, 345 F2d 465, 382 US 919; Jansson v Swedish Am. Line, 185 F2d 212; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896.) II. Clauses exonerating or limiting air carrier’s liability under the Warsaw Convention stand on a different footing and are distinguishable from the subject clause 13 limiting time to commence suit to one year. (Bergman v Pan Am. World Airways, 32 AD2d 95; Molitch v Irish Intl. Airlines, 436 F2d 42; Lipton v National Hellenic Am. Lines, 294 F Supp 308; Shankles v Costa Armatori, S.P.A., 722 F2d 861; DeNicola v Cunard Line, 642 F2d 5; Gardner v Greek Line, 388 F Supp 856; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896; Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11; Furr v Societa Italiana Transporti Marittimmi, 162 F Supp 645.) III. The two-prong test of reasonable notice in the passenger ticket contract and adequate opportunity for plaintiffs to inform themselves of the limitation of suit time provision was satisfied under the circumstances of this case. (Shankles v Costa Armatori, S.P.A., 722 F2d 861; DeNicola v Cunard Line, 642 F2d 5; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896; Silvestri v Italia Societa Per Azione Di Navigazione, 388 F2d 11; Lipton v National Hellenic Am. Lines,, 294 F Supp 308; The Majestic, 166 US 375; The Kungsholm, 86 F2d 703; Maibrunn v Hamburg-American S. S. Co., 77 F2d 304; Raskin v Campania de Vapores Realma, 521 F Supp 337; Carpenter v Kolosters Rederi, 604 F2d 11.) IV. Passenger contracts of carriage are not consumer contracts for goods or services under CPLR 4544. (Drelich v Kenlyn Homes, 86 AD2d 648.) V. The strict print size requirement of CPLR 4544 cannot modify, alter or add to the rights and liabilities between passenger and ocean carrier under the Federal maritime law. (Matter of Rederi [Dow Chem. Co.], 25 NY2d 576; Shankles v Costa Armatori, S.P.A., 722 F2d 861; Matter of Heaney v Carlin Constr. Co., 269 NY 93; Matter of Cassaretakis, 289 NY 119.) VI. The court below correctly dismissed plaintiffs’ third cause of action for passage fare refund. (Shankles v Costa Armatori, S.P.A., 722 F2d 861; Yollin v Holland Am. Cruises, 97 AD2d 720.)

      Graydon S. Staring, John C. McHose and Lizabeth L. Burrell for Maritime Law Association of the United States, amicus curiae.

    I. The court below was correct in ruling that CPLR 4544 cannot be applied to a maritime contract asserted in defense to a claim involving an alleged injury to a cruise passenger since such cases are governed by Federal maritime law. (McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896; Alvez v American Export Lines, 46 NY2d 634, 446 US 274; Mulvihill v Furness, Withy & Co., 136 F Supp 201; Kossick v United Fruit Co., 365 US 731; Garrett v Moore-McCormack Co., 317 US 239; Union Fish Co. v Erickson, 248 US 308; Corbitt v Diamond M. Drilling Co., 654 F2d 329; Navieros Oceanikos, S.A. v S.T. Mobil Trader, 554 F2d 43; Hudson Waterways Corp. v Coastal Mar. Serv., 436 F Supp 597; Matter of Rederi [Dow Chem. Co.], 25 NY2d 576, 398 US 939.) II. The Constitution provides for a body of national maritime law to govern all maritime claims, whether brought in State or Federal court. (Romero v International Term. Co., 358 US 354; Pope & Talbot v Hawn, 346 US 406; Panama R. R. Co. v Johnson, 264 US 375; Washington v Dawson & Co., 264 US 219; Knickerbocker Ice Co. v Stewart, 253 US 149; The Lottawanna, 21 Wall [88 US] 558; Riley v Agwilines, Inc., 296 NY 402; United Brands Co. v Mutual Mar. Off., 117 Misc 2d 507; Matter of Rederi [Dow Chem. Co.], 25 NY2d 576, 398 US 939.) III. Because there is a well-developed body of Federal maritime law setting forth standards for passage contracts, the conflicting State statute cannot be applied. (Scheibel v Agwilines, Inc., 156 F2d 636; The Majestic, 166 US 375; Baron v Compagnie Generale Transatlantique, 108 F2d 21; DeNicola v Cunard Line, 642 F2d 5; Lipton v National Hellenic Am. Lines, 294 F Supp 308; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, 516 F2d 896; Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11; Shankles v Costa Armatori, S.P.A., 722 F2d 861; Carpenter v Klosters Rederi, 604 F2d 11; Raskin v Campania de Vapores Realma, 521 F Supp 337.) IV. Because application of CPLR 4544 would work prejudice to the characteristic features of the maritime law and impair its uniformity, the statute should not be applied. (Southern Pac. Co. v Jensen, 244 US 205; Knickerbocker Ice Co. v Stewart, 253 US 149; Chelentis v Luckenbach S. S. Co., 247 US 372; Byrd v Bryd, 657 F2d 615; Moye v Henderson, 496 F2d 973, 419 US 884; Jansson v Swedish Am. Line, 185 F2d 212; In re Holoholo, 557 F Supp 1024; Raymond Intl. v M/T Dalzelleagle, 336 F Supp 679; Danielsen v Morse Dry Dock & Repair Co., 235 NY 439.) V. Application of CPLR 4544 is impermissible because rights and liabilities under maritime law can be neither enlarged nor diminished by State law. (Jansson v Swedish Am. Line, 185 F2d 212; Pope & Talbot v Hawn, 346 US 406; Garrett v Moore-McCormack Co., 317 US 239; Byrd v Byrd, 657 F2d 615; Moye v Henderson, 496 F2d 973, 419 US 884; Celeste v Prudential-Grace Lines, 35 NY2d 60; Robins Dry Dock & Repair Co. v Dahl, 266 US 449; Chelentis v Luckenbach S. S. Co., 247 US 372; Branch v Schumann, 445 F2d 175; Scheibel v Agwilines, Inc., 156 F2d 636.) VI. Since CPLR 4544 is not a common-law remedy, it may not be applied by a State court in a maritime action. (Panama R. R. v Vasquez, 271 US 557; Matter of Rederi [Dow Chem Co.], 25 NY2d 576, 398 US 939; Knickerbocker Ice Co. v Stewart, 253 US 149.)
   OPINION OF THE COURT

Alexander, J.

In April 1981, plaintiffs purchased tickets from a travel agent in the United States for a 14-day Mediterranean cruise on defendant’s ship, the S.S. Nacarino, departing from Venice on August 1. Clause 13 of the "General Conditions” of the ticket provided, in four-point type, that, inter alla, "[s]ult to recover on any claim shall not be maintainable unless commenced and process served within one (1) year from the date when the death or injury occurred in respect of any claim for loss of life or bodily injury in any case where * * * [46 USC § 183b (a)] shall apply” and "2. [wjithin six (6) months after the Passenger shall be landed from the Vessel or the Voyage shall be abandoned or broken up * * * in respect of any claim whatsoever unless such claim is included within category (1) just mentioned.”

Plaintiffs flew from New York to Brussels and from there to Venice where they embarked. On August 7, the vessel ran aground near Patmos, Greece, injuring plaintiff, Evelyn Lerner. After they reported the accident to defendant’s representative and settlement negotiations proved fruitless, plaintiffs, on November 11, 1982, commenced this action to recover damages for personal injuries, loss of consortium and breach of contract.

After interposing an answer asserting various affirmative defenses, including that "[pjlaintiffs are timebarred from maintaining this action by provisions of the contract of carriage, applicable statute of limitations and loches”, defendant moved for summary judgment dismissing the complaint. Special Term denied the motion, concluding that the passenger ticket constituted a contract or agreement involving a consumer transaction within the meaning of CPLR 4544, and "that the time limitation provisions contained in said contract do not meet the minimum type size requirements of the statute, which bars its enforcement.” A divided Appellate Division modified, on the law, by granting defendant’s motion for summary judgment dismissing the complaint, holding, in essence, that CPLR 4544 had been preempted by Federal maritime law, which specifically authorizes a contractual one-year limitations period for the commencement of actions on bodily injury claims by ship passengers.

The Federal Judiciary Act, by virtue of its "saving to suitors” clause (28 USC § 1333 [1]) vests original jurisdiction of all admiralty and maritime cases concurrently in the Federal District and State courts. In maritime cases, State courts must apply Federal law "to secure a single and uniform body of maritime law” (Matter of Rederi [Dow Chem. Co.], 25 NY2d 576, 581, cert denied 398 US 939; see also, Ugarte v United States Lines, 64 NY2d 836, rearg denied 64 NY2d 1041; Alvez v American Export Lines, 46 NY2d 634, affd 446 US 274). A State court may not limit a party’s substantive rights by applying its own procedural rules if those rules would "significantly affect the result of the litigation, i.e., would be outcome determinative” (Matter of Rederi [Dow Chem. Co.] supra, at p 581). Thus, CPLR 4544, which is a rule of evidence may not be employed to nullify a contractual limitation enforceable under Federal maritime law.

Maritime law provides that, when a limitation is "wrought into the tissue * * * inseparably integrated” into the ticket, which is a contract between the passenger and the carrier (Murray v Cunard S. S. Co., 235 NY 162, 166), the passenger is bound by that limitation because "[i]n such circumstances, the act of acceptance [of the ticket] gives rise to an implication of assent” (id.). Whether or not the limitation is "wrought into the tissue” of the ticket so as to result in a binding contract depends on whether "the steamship line ha[s] done all it reasonably could to warn the passenger that the terms and conditions were important matters of contract affecting bis legal rights” (Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11, 17).

Federal courts examine where the conditions of limitations are placed in respect to the balance of the ticket; whether the passenger is given appropriate notice of the conditions of limitation; the placement of that notice; the size of the type used; and the existence of any other conspicuous lettering or symbols designed to call attention to the conditions and limitations (see, e.g., Shankles v Costa Armatori, S.P.A., 722 F2d 861; DeNicola v Cunard Line, 642 F2d 5; Silvestri v Italia Societa Per Azioni Di Navigazione, 388 F2d 11, supra; McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, affd 516 F2d 896; Lipton v National Hellenic Am. Lines, 294 F Supp 308; Ann., 5 ALR Fed 394).

Here, the ticket was contained in an oblong booklet measuring eight inches by three and five-eighths inches and bound on the left side. Set out in bold type on the first page are "General Conditions,” which alert the passengers that:

"THE CONTRACT TERMS AND CONDITIONS REFERRED IN THIS TICKET AND SET FORTH ON THIS AND THE FOLLOWING PAGES TO WHICH PASSENGER EXPRESSLY AGREES AND WHICH ARE TO APPLY TO AND GOVERN THE RELATIONS WHATEVER THEY MAY BE BETWEEN PASSENGER AND THE CARRIER MASTER VESSEL OWNER OFFICERS, CREW AND AGENTS IN EVERY CONTINGENCY WHATSOEVER AND WHERESOEVER OCCURRING AND EVEN IN THE EVENT OF OR DURING DEVIATION OF UNSEAWORTHINESS OF THE VESSEL AT THE INCEPTION OF THE VOYAGE OR SUBSEQUENTLY AS FOLLOWS: THE TERMS OF THIS PASSAGE CONTRACT SUPERSEDE ALL RESPRESENTA-TIONS, PROMISES AND AGREEMENTS WHATSOEVER THAT MAY HAVE BEEN MADE OR MAY BE CLAIMED TO HAVE BEEN MADE TO OR WITH THE PASSENGERS OR HIS AGENT OR REPRESENTATIVE BY ANYONE ON BEHALF OF THE CARRIER.

"NOTICE: The Passenger’s attention is particularly directed to the terms and the limitations of this contract.”

The terms and conditions on the following pages are set out in small but legible type, and while it may be difficult to pick out any one of the conditions, no reason is advanced why plaintiffs, one of whom is a lawyer, could not have located the time-bar provisions and timely commenced suit (see, Haroski v Home Line Cruises, 1983 AMC 1217 [App Term, 1st Dept]).

There is a second prong to the "reasonable communicativeness” standard applied by the Federal courts in determining whether a passenger is properly to be bound by limitations on notice and commencement of suit contained in tickets of passage: "That is, that the circumstances surrounding the passenger’s purchase and subsequent retention of the ticket/ contract may be of equal importance as the prominence of warnings and clarity of conditions * * * the question of whether the passenger is bound by the ticket provisions should also take into account the circumstances of the passenger’s possession of and familiarity with the ticket” (Shankles v Costa Armatori, S.P.A., 722 F2d 861, 865, supra).

Here, it is undisputed that plaintiffs possessed their tickets for some four months prior to the cruise, and there is no allegation that they were required to surrender them when they boarded the vessel (cf. McQuillan v "Italia” Societa Per Azione Di Navigazione, 386 F Supp 462, supra [tickets picked up by the defendant just prior to boarding and were never signed or seen again by the plaintiff]). Plaintiffs had "both ample time and a powerful incentive to study the passage contract ticket promptly after [the accident] occurred” (Lipton v National Hellenic Am. Lines, 294 F Supp 308, 311, supra; Geller v Holland-America Line, 201 F Supp 508, affd 298 F2d 618, cert denied 370 US 909; Miller v Lykes Bros. S. S. Co., 467 F2d 464). "[T]he passenger who has the ticket in his possession and fails to read it takes the risk of such omission” (Geller v Holland-America Line, 201 F Supp 508, 509, supra).

Subparagraph (1) of clause 13, by its terms, unambiguously provides that it shall be operative only "in any case where * * * [46 USC § 183b (a)] shall apply.” That statute, in turn, unambiguously states that it shall apply only to "any seagoing vessel * * * transporting passengers * * * from or between ports of the United States and foreign ports” (emphasis added). It is undisputed that the S.S. Nacarino touched no United States port, therefore, the one-year limitations period embodied in clause 13 of the General Conditions cannot bar plaintiffs’ action. However, the residuary six-month period does therefore apply. Plaintiffs do not claim that such limitation is unenforceable under substantive United States maritime law.

Having themselves conceded "that the Courts of New York must apply Federal Maritime Law to this lawsuit”, plaintiffs did not below and do not here suggest that the law of any nation other than the United States should govern. Although the courts below were entitled to take judicial notice of any potentially applicable foreign law even absent a request from the parties (CPLR 4511 [b]), it simply cannot be said that they abused their discretion as a matter of law in declining to do so under these circumstances (see, Watts v Swiss Bank Corp., 27 NY2d 270, 275, 276).

Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Wachtler and Judges Jasen, Meyer, Kaye and Titone concur; Judge Simons taking no part.

Order affirmed, with costs.

      . That statute provides, in pertinent part: "It shall be unlawful for the manager, agent, master, or owner of any sea-going vessel * * * transporting passengers or merchandise or property from or between ports of the United States and foreign ports to provide by rule, contract, regulation, or otherwise a shorter period for giving notice of, or filing claims for loss of life or bodily injury, than six months, and for the institution of suits on such claims, than one year, such period for institution of suits to be computed from the day when the death or injury occurred.”

      . A cross motion seeking leave to amend the complaint to substitute the name of proper party defendant was granted and is not at issue on this appeal.

      . CPLR 4544 provides, in pertinent part: "The portion of any printed contract or agreement involving a consumer transaction * * * where the print is not clear and legible or is less than eight points in depth or five and one-half points in depth for upper case type may not be received in evidence in any trial, hearing or proceeding on behalf of the party who printed or prepared such contract or agreement, or who caused said agreement or contract to be printed or prepared.”

      . The Appellate Division let stand that portion of Special Term’s order which granted plaintiffs’ cross motion.

      . Clause 13 also provides in part that "any action against the Carrier must be brought only before the courts of Piraeus, Greece, to the jurisdiction of which Passenger submits himself formally excluding the jurisdiction of all and other court or courts of any other country or countries which court or courts otherwise could have been competent to deal with such action.” Defendant has not relied on this clause, the validity of which is therefore not before us.

      . Jansson v Swedish Am. Line (185 F2d 212), is not to the contrary. In Jansson the contract specifically provided that Swedish law would apply and both parties raised the possibility that the law of another nation might apply. Under such circumstances, CPLR 4511 might well require New York courts to consider foreign law. Here, however, "neither party has offered proof of, or otherwise sought to rely on [foreign] law at any stage of this proceeding” (DeNicola v Cunard Line, 642 F2d 5, 7, n 2 [applying general maritime law although the ticket provided that "(a)ll questions arising on this contract ticket shall be decided acccording to English law with reference to which this contract is made”]).