author: Wachtler, J.

text:
    The People of the State of New York, Respondent, v Joseph Segal, Appellant.
    Argued September 10, 1981;
    decided October 27, 1981

      POINTS OF COUNSEL

      Herald Price Fahringer, Barbara Davies Eberl and Julia Pamela Heit for appellant. I.
    Where appellant’s medical evidence demonstrating a dull-normal IQ and severe memory deficit, resulting from organic brain syndrome, was offered as part of a defense of impaired memory and inability to recall, appellant was denied his constitutional rights of due process when all this medical evidence as defense to perjury charges was improperly striken by the trial court. (Matter of Lee v County Ct. of Erie County, 27 NY2d 432; United States v Baird, 414 F2d 700; People v Traver, 70 Misc 2d 162; People v Reed, 40 NY2d 204; People v Baier, 73 AD2d 649; People v Parks, 41 NY2d 36.) II. The prosecutor’s unconscionable conduct during final argument denied appellant his right to a fair trial guaranteed by the Sixth and Fourteenth Amendments and requires that the judgment of conviction be reversed. (People v Ashwal, 39 NY2d 105; People v Lovello, 1 NY2d 436; People v McMillan, 66 AD2d 830; People v Reyes, 64 AD2d 657; People v Garcia, 40 AD2d 983; People v Lombardi, 20 NY2d 266; People v Tufano, 69 AD2d 826; People v Moore, 26 AD2d 902; People v Streeter, 67 AD2d 877; People v Slaughter, 28 AD2d 1082.) III. Multiple errors in the court’s charge deprived appellant of his constitutional right to a fair trial, thereby mandating the reversal of the conviction and the granting of a new trial. (Bronston v United States, 409 US 352; People v Evans, 63 AD2d 653; People v Sharp, 71 AD2d 1034; People v Barnes, 50 NY2d 375; People v Lagana, 36 NY2d 71; People v Benzinger, 36 NY2d 29; People v Doody, 172 NY 165; People v Von Werne, 41 NY2d 584; People v Smith, 63 AD2d 661; United States v Russell, 411 US 423.) IV. The framing of the three-count indictment to encompass multifalse and duplicitous statements in a single count, which count overlapped with the other two counts, producing multiplicity, deprived appellant of his due process right to a fair trial. (People v Brannon, 58 AD2d 34; People v Matarese, 57 AD2d 765; Matter of Di Lorenzo v Murtagh, 36 NY2d 306; United States v Starks, 515 F2d 112; Bins v United States, 331 F2d 390, 379 US 880; United States v Isaacs, 347 F Supp 743; Yates v United States, 354 US 298; Stromberg v California, 283 US 359; United States v Natelli, 527 F2d 311, 425 US 934.) V. The trial court committed reversible error by permitting the prosecutor to read to the jury the bulk of appellant’s entire Grand Jury testimony. (United States v Vaught, 485 F2d 320; United States v Tomaiolo, 249 F2d 683; People v Roland, 40 AD2d 1007; People v McGrath, 46 NY2d 12; United States v Camporeale, 515 F2d 184; United States v Turoff, 291 F2d 864; People v Stanard, 32 NY2d 143; People v Perillo, 48 AD2d 862; People v Philpot, 50 AD2d 822; People v Maldonado, 50 AD2d 556.)

      Edward J. Kuriansky, Deputy Attorney-General for Medicaid Fraud Control (Richard D. Carruthers and Arthur G. Weinstein of counsel), for respondent.
    I. The evidence proved beyond a reasonable doubt that Segal repeatedly lied under oath before the Grand Jury. (People v Pomerantz, 46 NY2d 240.) II. The court properly struck the testimony of Segal’s psychiatric experts after he refused to submit to examination by psychiatrists who were to be retained by the prosecutor. (Matter of Finnerty v McDowell, 36 AD2d 900; People v Atwood, 101 Misc 2d 291; People v Casassa, 49 NY2d 668; Davis v United States, 160 US 469 ; Durham v United States, 214 F2d 862; Alexander v United States, 380 F2d 33; Pope v United States, 372 F2d 710; United States v Albright, 388 F2d 719; United States v Baird, 414 F2d 700; United States v Jines, 536 F2d 1255.) III. The indictment which charged Segal with three counts of perjury in the first degree was pleaded properly. (People v Cona, 49 NY2d 26; Harris v People, 64 NY 148; Arena v United States, 226 F2d 227; United States v Bonacorsa, 528 F2d 1218; United States v Isaacs, 493 F2d 1124; Vitello v United States, 425 F2d 416; People v Doody, 72 App Div 372, 172 NY 165; Matter of Di Lorenzo v Murtagh, 36 NY2d 306; Wood v People, 59 NY 117; United States v Natelli, 527 F2d 311.) IV. The trial court’s charge to the jury was fair and legally correct in all respects. Segal’s criticisms of the charge are unfair and are based upon clearly erroneous statement of the law. (Matter of Nigrone v Murtagh, 36 NY2d 421; United States v Dionisio, 410 US 1; Matter of Hynes v Moskowitz, 44 NY2d 383; People v Kirchhoff, 68 AD2d 917, 46 NY2d 1081; People v Barnes, 50 NY2d 375; People v Gerard, 50 NY2d 392; Bronston v United States, 409 US 352; People v Neumann, 51 NY2d 658.) V. The prosecutor’s summation was eminently fair to Segal. The remarks about which Segal complains constituted nothing more than reasoned rebuttal to inflammatory statements by his own lawyer. (People v Doody, 72 App Div 372, 172 NY 165.) VI. Segal was not prejudiced by the introduction of selected portions of his Grand Jury testimony which were relevant to the charges in the indictment and repetitive of material already in evidence. (Wood v People, 59 NY 117; People v Pomerantz, 46 NY2d 240; People v McGrath, 46 NY2d 12; United States v Apfelbaum, 445 US 115.)
   OPINION OF THE COURT

Wachtler, J.

The defendant, convicted of perjury, appeals from an order of the Appellate Division affirming his conviction. His primary contention is that his constitutional rights were violated when the trial court excluded testimony of the defendant’s experts, concerning an alleged mental defect impairing his memory, after the defendant refused to submit to examination by the People’s expert.

The defendant’s perjury conviction stems from the Special Prosecutor’s 1975 investigation into fraudulent practices employed by some nursing home operators and suppliers seeking Medicaid reimbursement, as previously discussed in People v Pomerantz (46 NY2d 240, 244). At that time, the defendant was vice-president of a Brooklyn wholesaler who supplied groceries to nursing homes. Like Pomerantz, the defendant met with Ira Feinberg, a nursing home operator who, unknown to defendant, was working as an undercover agent for the Special Prosecutor in exchange for consideration on a recent Federal conviction. During that meeting, held at Feinberg’s office in August, 1975, the defendant in essence admitted that he gave kickbacks to some nursing home operators, described how the schemes worked and offered Feinberg a kickback deal. The conversation was secretly recorded by the Special Prosecutor’s investigators.

In July, 1976 the defendant was ordered to appear before a Grand Jury investigating corruption in the nursing home industry. In response to questions concerning kickback schemes and his involvement in them the defendant testified that he did not recall them; had never discussed such schemes with a nursing home operator and had never offered a kickback to any operator, including Ira Feinberg. Subsequently the Grand Jury indicted the defendant for three counts of perjury in the first degree.

At trial, before a jury, the defendant called two experts, a psychologist and a psychiatrist, to testify that he was suffering from an organic brain defect which impaired his memory and, in the opinion of the psychiatrist, made him incapable of recalling the details of his 1975 meeting with Feinberg when he testified before the Grand Jury in 1976. Before they testified the prosecutor had requested an offer of proof and after being advised of the nature of the proposed testimony, objected to its admissibility and also urged “in the alternative that the People should have a right to examine Mr. Segal with a psychiatrist if that be the defense.” The court, however, allowed the testimony after defense counsel noted that he had not made similar demands with respect to prosecution witnesses and urged that he “should be allowed to proceed with my proof and he [the prosecutor] can object at any time he thinks it is inappropriate.”

After the defendant’s experts had testified the prosecutor renewed his request that the defendant be examined by the People’s psychiatrist. The defendant refused to consent to the exam and urged that the court could not direct him to participate because there was “no authority” for such an order and it would infringe on his Fifth Amendment privilege against self incrimination. The court granted the prosecutor’s application noting that the People’s “psychiatrist will not be permitted to give any testimony whatsoever as to any admissions made by the defendant during said examination.”

When the defendant still refused to submit to the exam in reliance on his Fifth Amendment right the prosecutor moved to strike the testimony of the defendant’s experts. The defendant objected on the ground that to do so at this stage could only prejudice his case with the jury. He also urged that the court should not strike the testimony of his psychologist because it was based on “objective tests” unrelated to the prosecution and in fact performed before his Grand Jury appearance and indictment. The court found, however, that it would not be fair to permit the defendant to introduce expert testimony concerning his memory while he refused to allow the People an opportunity to conduct a psychiatric exam to test the validity of his experts’ opinions. Accordingly, the testimony of the defendant’s experts was stricken, the jury was instructed to disregard it and was further instructed that they were not to speculate about the reasons for this ruling nor should they draw any unfavorable inferences against the defendant as a result of this ruling.

The defendant was found guilty as charged. The Appellate Division affirmed, without opinion. One Justice dissented, with respect to the trial court’s order striking the expert testimony, and granted the defendant leave to appeal to this court.

The trial court’s ruling was expressly based on our decision in Matter of Lee v County Ct. of Erie County (27 NY2d 432). In that case we held that a defendant who raises the defense of insanity waives his Fifth Amendment privilege against self incrimination with respect to his mental capacity and, if he refuses to submit to a mental examination requested by the prosecutor, the court may preclude the defendant from introducing expert testimony on his own behalf. The defendant has not suggested that this procedure is constitutionally flawed (cf. Estelle v Smith, 451 US 454). He urges, however, that it applies only to statutory, as opposed to “non statutory” defenses. In the alternative he argues that the court’s order was too broad and that the People waived their right by requesting an examination at the “eleventh hour”.

The defendant notes that in Lee we dealt with a common-law defense which had been expressly recognized by statute (former Penal Law, § 1120, now Penal Law, § 30.05), that the statute requires the defendant to give the prosecutor pretrial notice of the defense (former Code Grim Pro, § 336, now GPL 250.10) and authorizes the court to order a psychiatric examination of the defendant if requested by the prosecutor (former Code Grim Pro, § 658, now GPL 250.10). He also notes that these statutes are not applicable to a defense of impaired memory, that there is no comparable statutory procedures for such a defense and concludes that there is therefore no basis for the prosecutor to request or the court to order the defendant to submit to an examination by the People’s expert when that defense is raised. The defendant can raise the issue and, if he chooses, ask the jury to decide it by hearing only from his psychiatric experts.

The defendant takes too narrow a view of the Lee holding to the extent that he suggests it simply involved a matter of statutory construction or authority. In Lee it was noted that the prosecutor’s right to examine the defendant although recognized by statute was also, and more broadly, based on principles of fairness and the integrity of the trial process. We observed that once a defendant raised the issue of his mental competence the People had the burden of proving his sanity and rejected the notion that “a defendant who proffers an insanity defense may hide behind the defense because of his privilege and thereby make the People’s burden of proving sanity insurmountable” (Matter of Lee v County Ct. of Erie County, 27 NY2d 432, 440, supra). The rule adopted — that the defendant’s expert testimony would be “inadmissible” unless he “fully co-operated and submitted to a mental examination, where one has been sought by the People” (Matter of Lee v County Ct. of Erie County, supra, p 442) — was not provided for in any of the statutes relating to the insanity defense. However, it was in accord with the rule in several other jurisdictions where it was considered a necessary exercise of the court’s inherent power to insure fairness and to preserve the integrity of the fact-finding process even when, as in the Federal courts, the defense was not statutory and there was an absence of legislative authority for a court-ordered examination of the defendant (see, e.g., United States v Albright, 388 F2d 719; United States v Baird, 414 F2d 700; see, also, Federal Rules of Criminal Procedure, rule 12.2, eff Dec. 1975.)

Nevertheless the defendant urges that there is no need to afford the prosecutor an opportunity to examine him when he submits expert evidence on a nonstatutory defense, such as impaired memory, because “the prosecution had no burden whatsoever with respect to the evidence presented by” the defendant. He notes that evidence of impaired memory would not constitute a “complete” defense, as would proof of insanity; “it was merely evidence adduced on the question of appellant’s lack of intent to swear falsely.” He also urges that in view of the fact that impaired memory is not specifically designated as a defense by statute and the defendant had no obligation to give the prosecutor pretrial notice of the defense, the prosecutor had no burden to disprove it. Thus he contends that “there is no basis for any prosecution expert to conduct an examination of appellant in the absence of any prosecution burden of proof”.

The defendant’s argument overlooks a basic point. At a criminal trial the People bear the burden of proof, not only with respect to ordinary defenses which have been codified (Penal Law, § 25.00, subd 1) but more fundamentally they must prove every element of the crime, including intent whenever relevant (CPL 70.20). Although proof of a mental defect other than insanity may not have acquired the status of a statutory defense, and will not constitute a “complete” defense in the sense that it would relieve the defendant of responsibility for all his acts (see, e.g., Penal Law, § 30.05) it may in a particular case negate a specific intent necessary to establish guilt (see, e.g., People v Moran, 249 NY 179; People v Colavecchio, 11 AD2d 161).

In this case the People were bound to prove that the defendant gave false testimony during his Grand Jury appearance (Penal Law, § 210.15) and that he did so intentionally (Penal Law, § 210.00, subd 5). The evidence of the alleged memory defect was admittedly offered by the defendant to show that this intent was lacking. It was understood by the parties, and the court charged the jury, that in order for the People to establish intent they were bound to prove beyond a reasonable doubt that the Grand Jury statements were not the product of a faulty memory or an inability to recall. So viewed, the case is essentially indistinguishable from Lee. The defendant sought, on the one hand, to put the People to their proof with respect to his mental capacity and, on the other hand, denied them an opportunity to effectively meet the burden. Thus the trial court properly held that the defendant could not submit expert testimony in support of his defense unless he afforded the People an opportunity to examine him so that they may submit evidence of similar quality.

When the defendant refused to consent to the People’s request to conduct a psychiatric examination the court could properly strike the testimony of the defendant’s experts. The court’s order was not unnecessarily broad although it included the testimony of the defendant’s psychologist. On the record it was reasonable for the court to conclude that the worth and accuracy of his conclusions could only be adequately tested in conjunction with a psychiatric interview of the defendant and that it would therefore be unfair to permit this evidence to stand as long as the defendant denied the People the opportunity to conduct such an examination. Similarly the fact that the psychologist’s examination of the defendant preceded his Grand Jury appearance is irrelevant in terms of affording the People an opportunity to meet the defendant’s proof with fully effective expert testimony of their own (cf. United States v Weiser, 428 F2d 932).

Finally, there is no merit to the defendant’s complaint that the court should not permit the prosecution “to sit back and watch, without objection, as the defendant develops his proof and then, at the eleventh hour, make an application for its own examination as a condition to the admissibility of defendant’s medical evidence.” The record shows that the prosecutor made his intention known as soon as the defendant’s experts were called to testify and the decision to delay ruling on this and the other points urged by the prosecutor was made at the specific request of defense counsel who chose to first get his proof on the record. In short the People did not waive their right and any prejudice to the defendant’s case was a risk deliberately and obviously assumed by defense counsel at trial. We have considered the other arguments raised by the defendant and find them to be without merit.

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

Chief Judge Cooke and Judges Jasen, Gabrielli, Jones, Fuchsberg and Meyer concur.

Order affirmed.

      . Although the Code of Criminal Procedure authorized the court to order a psychiatric exam of the defendant when requested by the People in connection with an insanity defense, the CPL effective 1971 made no provision for such an exam and this apparently unintended omission was not corrected until a 1980 amendment to CPL 250.10. In the interim, however, courts continued to order such exams pursuant to Lee despite the absence of statutory support (see, e.g., People v Sullivan, 39 NY2d 903, 905; People v Traver, 70 Misc 2d 162).

      . The People of course have no burden to disprove “affirmative defenses” (Penal Law, § 25.00, subd 2).


source: Caselaw Access Project

author: Jasen, J.

license: Public Domain

text:
    G. C. Murphy Company, Appellant, et al., Plaintiffs, v Reserve Insurance Company, Respondent, et al., Defendants. (And a Third-Party Action.)
    Argued September 10,1981;
    decided October 29, 1981

      POINTS OF COUNSEL

      C. Raymond Nelson and Eugene Wollan for appellant.
    I. The undertaking filed pursuant to subdivision 3 of section 59-a of the Insurance Law secures plaintiff’s claim and is separate and apart from the general assets of the insolvent insurer. (Ace Grain Co. v Rhode Is. Ins. Co., 107 F Supp 80,199 F2d 758; Matter of B. & R. Excess Carp, v Thacher, 37 Misc 2d 307, 18 AD2d 1137; Dean Constr. Co. v Agricultural Ins. Co., 42 Misvc 2d 834, 22 AD2d 82; Kelly v Overseas Investors, 24 AD2d 157,18 NY2d 622.) II. Plaintiff Murphy is the holder of a secured claim as defined by the Uniform Insurers Liquidation Act and may resort to the security in lieu of proceeding against the liquidator. (Vlasaty v Avco Rent-A-Car System, 60 Misc 2d 928; Ace Grain Co. v Rhode Is. Ins. Co., 107 F Supp 80,199 F2d 758; People v Granite State Provident Assn., 161 NY 492; Matter of People [Southern Sur. Co. of N. Y.], 282 NY 54.) III. American Reserve Insurance Company of New York, the surety of the undertaking, is a necessary party to this action to enable plaintiff to resort to the security filed for plaintiff’s benefit. (Hudson Trading Co. v Durand, 194 App Div 248; Winter v Maple City Mfg. Co., 132 Misc 631; Grafton v United States Fid. & Guar. Co., 227 NY 162; ABKCO Inds. v Apple Films, 39 NY2d 670; Baumgold Bros, v Schwarzschild Bros., 276 App Div 158, 302 NY 628; Morgan v Mutual Benefit Life Ins. Co., 189 NY 447; Seider v Roth, 17 NY2d 111; Simpson v Loehmann, 21 NY2d 305; Matter of Riggle, 11 NY2d 73.)

      John N. Gavin, of the Illinois Bar, admitted on motion pro hac vice, and Nicholas R. Perrella for respondent.
    I. Murphy’s continued prosecution of this action would undermine the purposes of both the Uniform Insurers Liquidation Act and the order of liquidation. (Vlasaty v Avco Rent-A-Car System, 60 Misc 2d 928; Rosen v Massachusetts Acc. Co., 282 NY 447; Ace Grain Co. v Rhode Is. Ins. Co., 107 F Supp 80, 199 F2d 758.) II. The Uniform Insurers Liquidation Act requires that this proceeding against Reserve be stayed or dismissed. (Vlasty v Avco Rent-A-Car System, 60 Misc 2d 928; Matter of People [Southern Sur. Co. of N. Y.], 282 NY 54; Matter of Knickerbocker Agency [Holz], 4 NY2d 245; People v Mobil Oil Corp., 48 NY2d 192; Aetna Cas. Sur. Co. v O’Connor, 8 AD2d 530, 8 NY2d 359; Ezell v Equity Gen. Ins. Co., 219 F Supp 51; Matter of Allcity Ins. Co. [Kondak], 66 AD2d 531.) III. The Illinois court’s injunction requires that this proceeding against Reserve be stayed or dismissed. (Rosen v Massachusetts Acc. Co., 282 NY 447; Anshutz v McDermott Co., 642 F2d 94; Janak v Allstate Ins. Co., 319 F Supp 215; American Cast Iron Pipe Co. v Statesman Ins. Co., 343 F Supp 860; Thacher v Baldwin Agency, 283 F2d 857; Pink v Title Guar. & Trust Co., 274 NY 167; Padway v Pacific Mut. Life Ins. Co. of Cal., 42 F Supp 569; Blackhawk Heating & Plumbing Co. v Geeslin, 530 F2d 154; Matter of People [Emmet — Empire State Sur. Co.], 164 App Div 586). IV. American Reserve Insurance Company of New York cannot be made a party to this action. (Richardson v County of Steuben, 226 NY 13; Evansville Nat. Bank of Evansville, Ind. v Kaufmann, 93 NY 273; Grafton v United States Fid. & Guar. Co., 227 NY 162; People v Metropolitan Sur. Co., 205 NY 135; Glassman v Hyder, 23 NY2d 354.) V. The trial court’s exercise of authority with respect to the securities deposited by Reserve with American Reserve Insurance Company of New York is unjustified. (Pennoyer v Neff, 95 US 714; Penn Co. v Pennsylvania, 294 US 189; Clark v Williard, 292 US 112.)
   OPINION OF THE COURT

Jasen, J.

On this appeal, we are called upon to reconcile various provisions of the Uniform Insurers Liquidation Act. (Insurance Law, § 517 et seq.) The specific question presented is whether, absent the appointment of an ancillary receiver in this State, a claim asserted in a New York action against an out-of-State insurance company that is undergoing liquidation must be pursued in the domiciliary State of the insurer even though that claim is secured by an undertaking filed pursuant to section 59-a of the Insurance Law.

In 1973, plaintiff G. C. Murphy Company (Murphy) brought this action against various parties, including defendant Reserve Insurance Company (Reserve), seeking to recover $875,000 in unearned premiums to which Murphy claims it is entitled by reason of the cancellation of an insurance policy issued in New York to Murphy by Reserve. Reserve is an Illinois corporation that never obtained a license to do business in New York. Because Reserve was an unauthorized foreign insurer, Special Term issued an order pursuant to section 59-a of the Insurance Law directing Reserve to post an undertaking in the amount of $1,077,000 before filing any pleadings in the action. In compliance with this order, a bond eventually was supplied by American Reserve Insurance Company of New York (American Reserve), an affiliate of Reserve.

On May 16, 1979, the Circuit Court of Cook County, Illinois, issued an order appointing the Director of Insurance of the State of Illinois as liquidator of Reserve. The same court, on May 29, 1979, issued a second order placing Reserve in liquidation because of insolvency. This order, inter alia, enjoined all persons “from bringing or further prosecuting any action” against Reserve, “from obtaining preferences, judgments, attachments, or liens” against the defendant, and “from asserting any claim against the Liquidator or Reserve Insurance Company except insofar as such claims arise in liquidation proceedings of Reserve Insurance Company.”

Pursuant to the Illinois order of liquidation and the provisions of the Uniform Insurers Liquidation Act, Reserve, on behalf of the liquidator, moved for dismissal of the action against it or, alternatively, for a stay pending the Illinois liquidation proceedings. For its part, Murphy made two motions: (1) for an order requiring Reserve to deposit additional security with the court and enjoining Reserve from removing or transferring property deposited by it with American Reserve; and (2) for leave to join American Reserve as a party defendant and to assert a cause of action against it as surety for the obligation of Reserve.

Special Term consolidated the three motions for disposition. The court denied Reserve’s motion to stay or dismiss the action, stating that “the Uniform Insurers Liquidation Act may not be used to deprive [Murphy] of the security provided to it under subdivision 3 of section 59-a of the Insurance Law or deprive this court of jurisdiction.” (101 Misc 2d, p 734.) In addition, Special Term granted Murphy’s motion to join American Reserve as a party defendant and directed that the Reserve property left with American Reserve was available as part of the security provided to Murphy.

On appeal, the Appellate Division, two Justices dissenting, modified. The court below held that, since no ancillary receiver was appointed in New York, “Murphy must pursue the instant claim against the liquidator in Illinois.” (74 AD2d, p 239.) The Appellate Division accordingly granted Reserve’s motion to the extent of staying the action as against it, with leave given to Murphy to file its claim against the liquidator in Illinois and denied Murphy’s motions as academic. Thereafter, the Appellate Division granted Murphy leave to appeal to this court, certifying the following question for our review: “Was the order of this Court, which modified the order of Supreme Court, properly made?”

In this court, Murphy contends that, by virtue of the undertaking filed pursuant to section 59-a of the Insurance Law, it is the owner of a “secured claim” within the meaning of the Uniform Insurers Liquidation Act (see Insurance Law, § 517, subd 11) and that as such, it is entitled under section 522 of the Insurance Law to proceed against this security in a New York action, independent of the Illinois liquidation proceedings. We cannot agree. Assuming that Murphy possesses a “secured claim”, we nevertheless conclude that the Uniform Insurers Liquidation Act mandates that Murphy pursue its claim against Reserve in the Illinois liquidation proceedings.

At the outset, we dispose of a procedural issue. Murphy’s application, pursuant to CPLR 1002 (subd [b]) and 3025 (subd [b]), to join the surety, American Reserve, as a party defendant was granted by Special Term. The Appellate Division denied the application on the ground that it was “academic” in view of that court’s order staying the entire action against Reserve. We conclude that this was error. Inasmuch as our essential purpose in affirming the determination of the Appellate Division to stay this action in New York pending the disposition of Murphy’s claims in the Illinois liquidation proceedings is to protect the rights that Murphy acquired against the surety pursuant to the provisions of section 59-a, Murphy should now be granted permission to join the surety as a defendant, and, if so joined, the surety should be afforded the opportunity to protect its interests. The opposition to the motion to join the surety was based on the contention that the action against Reserve should be dismissed and that if it were dismissed, the dependant claim against American Reserve as surety would be moot. Inasmuch as the action against Reserve is not being dismissed, there is no substance to the opposition to join American Reserve as a party defendant. Of course, the action against the surety cannot proceed until there has been a favorable adjudication of Murphy’s claim against Reserve.

Difficulties encountered in the forced liquidation of multistate insurance companies led to the promulgation of the Uniform Insurers Liquidation Act. (13 Uniform Laws Ann [Master ed], pp 429-457.) In a prefatory note accompanying this act, the following observations were made by the National Conference of Commissioners on Uniform State Laws: “Insurance company assets take the form, for the most part, of special deposits required by state law, balances in the hands of insurance agents, policy premiums due but unpaid, and investments of reserve funds. The greater number of these assets naturally have their situs in the state of domicile of the company, but a substantial portion is normally scattered over the entire territory within which the company carries on its business. This is necessarily true of the special deposits required by the laws of non-domiciliary states and the balances in the hands of nonresident agents. On the other side of the balance sheet the liabilities of insurance companies, consisting primarily of policy obligations, are also distributed over the several states in which the companies do business. This wide distribution of assets and liabilities creates a formidable array of problems when liquidation, rehabilitation or reorganization proceedings become necessary for an insurer which has drifted into financial difficulties. The equitable and expeditious solution of these problems is rendered the more difficult by wide differences in the provisions of the statutes of the several states regarding such matters as special deposits, preferred claims, securities, set-off, and the administrative and judicial procedures to be followed. If statutory means can be provided which will facilitate delinquency proceedings by eradicating these difficulties they will be of great service.” (13 ULA [Master ed], pp 429-430.)

The drafters went on to note six specific “embarrassments” that the uniform act was designed to eliminate: (1) the inefficient administration of the liquidation process caused by the appointment of receivers other than the various State Insurance Commissioners; (2) the lack of authority on the part of domiciliary receivers to proceed in non-domiciliary States leading to the dissipation of assets outside the home State and enabling out-of-State debtors to avoid their obligations; (3) the ineffective administration of the liquidation process caused by differences in the laws of the various States regarding the title and right to possession of the property of a defunct nonresident insurer; (4) the serious inconvenience in proving claims experienced by creditors living outside the defunct insurer’s domicile; (5) the problems generated by diverse State laws governing preferences such as wage claims, compensation claims and tax claims; and (6) the inequity resulting from preferences obtained by diligent nondomiciliary creditors with advance information of an insurer’s impending insolvency. (13 ULA [Master ed], pp 430-431.) Thus, the Uniform Insurers Liquidation Act was adopted with the main purpose in mind of providing a uniform system for the orderly and equitable administration of the assets and liabilities of defunct multistate insurers.

Both New York and Illinois have adopted the Uniform Insurers Liquidation Act. (Insurance Law, § 517 et seq.; Ill Rev Stat, ch 73, § 833.1 et seq.) Because Illinois qualifies as a “reciprocal state” (Insurance Law, § 517, subd 7; see Kelly v Overseas Investors, 24 AD2d 157, revd on other grounds 18 NY2d 622), this State must recognize the right of the Illinois liquidator, as domiciliary receiver, to take possession of Reserve’s assets and to seek a stay of all proceedings against the defunct insurer. (Insurance Law, § 519, subd 2.) These are the exact goals that the Illinois Circuit Court’s liquidation order attempts to achieve.

Where, as here, liquidation proceedings are commenced in a reciprocal State against an insurer domiciled in that State, New York residents may file their claims either with the ancillary receiver, if any, appointed in this State, or with the domiciliary receiver in the reciprocal State. (Insurance Law, § 521.) Under such circumstances, the statute confers upon the Superintendent of Insurance the exclusive right to act as an ancillary receiver in this State, provided that he determines that there are sufficient assets of the defunct insurer located within New York to justify the ancillary receivership or 10 or more residents of this State having claims against the nondomiciliary insurer petition the superintendent requesting the appointment of an ancillary receiver. (Insurance Law, § 519, subd 1.)

In this case, there has been no ancillary receiver appointed in New York. In fact, plaintiff Murphy requested the Superintendent of Insurance to act as ancillary receiver in New York, but the superintendent declined to do so because Reserve’s assets in New York were insufficient to justify ancillary administration in this State. Therefore, under section 521 of the Insurance Law, in the absence of an ancillary receiver in New York, Murphy must pursue its claim against the liquidator in Illinois. (Accord Vlasaty v Avco Rent-A-Car System, 60 Misc 2d 928; Clark v Standard Life & Ace. Ins. Co., 68 Ill App 3d 977; Zullo Lbr. v King Constr., 146 NJ Super 88.)

Nor does Murphy’s reliance on subdivision 4 of section 522 of the Insurance Law serve to alter this result. That section, which relates to the priority of claims and not to how they are filed, provides that the owner of a “secured claim” may either surrender his security and file his claim as a general creditor or proceed against the security itself. If the latter option is chosen, any deficiency present after the security is exhausted is treated as an unsecured claim in the liquidation proceedings. This subdivision also provides that “[i]f the amount of the deficiency * * * has been adjudicated by a court of competent jurisdiction in proceedings in which the domiciliary receiver has had notice and opportunity to be heard, such amount shall be conclusive.” (Insurance Law, § 522, subd 4.) Plaintiff Murphy would have us interpret this isolated reference in the uniform act to a deficiency determination by a “court of competent jurisdiction” as conferring an absolute right upon a secured creditor to have his entire claim against a defunct insurer adjudicated in an out-of-State action independent of the domiciliary liquidation proceedings. This we decline to do.

As noted above, section 522 of the Insurance Law deals solely with the priority of secured claims. The exclusive provisions for the filing of such claims, found in section 521 of the Insurance Law, only allow claims to be presented to the ancillary receiver, if any, or the domiciliary receiver. Moreover, subdivision 4 of section 522 of the Insurance Law refers solely to the binding effect to be given to a “deficiency” adjudication made by a “court of competent jurisdiction”. No such deficiency has been established or is sought in the present action and, therefore, subdivision 4 of section 522 of the Insurance Law does not apply to this case.

Beyond these reasons, the interpretation of section 522 of the Insurance Law that plaintiff would have us adopt would clearly frustrate the spirit and intent of the Uniform Insurers Liquidation Act. This uniform act is to “be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states that enact it.” (Insurance Law, § 524, subd 2.) Yet, under Murphy’s view, all secured creditors would be authorized to maintain actions independent of the liquidation proceeding and thereby render ineffectual the purpose of the uniform act to provide consolidated, orderly and equitable liquidations of multistate insurers. Indeed, under Murphy’s view, a claimant with advance notice of an insurer’s impending financial difficulties could obtain security for his claim and thereby completely avoid the liquidation proceedings to the potential detriment of other claimants. As noted earlier, this was a practice which the drafters of the uniform act specifically sought to prohibit. Nowhere in the history leading to the adoption of the uniform act can support be found for plaintiff’s contention that secured claimants can pursue their claims in independent court actions, and the uniform act

(n. contd.) itself clearly contemplates that “secured claims” are to be resolved within the liquidation proceedings. (Insurance Law, § 519, subd 2; § 521, subd 2.) Thus, we believe that, whatever the nature of the claim asserted, absent the appointment of an ancillary receiver, the Uniform Insurers Liquidation Act requires that the claimant prove his claim in the domiciliary liquidation proceedings.

A few final comments are in order. We are not unmindful that the purpose of section 59-a of the Insurance Law is to provide New York residents with meaningful recourse to the courts of this State without having to pursue their claims against foreign unauthorized insurers in distant forums. Nonetheless, the Legislature has specifically provided that to the extent that provisions of the Uniform Insurers Liquidation Act, when applicable, conflict with other provisions of the Insurance Law, the provisions of the uniform act control. (Insurance Law, § 524, subd 2.) We are also cognizant of the individual hardship suffered by the present plaintiff, who has been in the throes of litigation for the past seven years and now must pursue its claim in the distant forum of Illinois. By enacting the Uniform Insurers Liquidation Act, our Legislature has determined that such occasional instances of adversity are outweighed by the paramount interest of the various States in seeing that insurance companies domiciled within their respective boundaries are liquidated in a uniform, orderly and equitable manner without interference from external tribunals.

For the reasons stated, the order of the Appellate Division should be modified to reinstate those portions of the order of Supreme Court which authorized the joinder of American Reserve Insurance Company as a party defendant and, as so modified, affirmed, with costs, and the certified question answered in the negative.

Chief Judge Cooke and Judges Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur.

Order modified in accordance with the opinion herein and, as so modified, affirmed, with costs to respondent. Question certified answered in the negative.

      . Section 59-a (subd 3, par [a]) of the Insurance Law provides in relevant part: “Before any unauthorized foreign or alien insurer shall file or cause to be filed any pleading in any action, suit or proceeding instituted against it, such unauthorized insurer shall either (1) deposit with the clerk of the court in which such action, suit or proceeding is pending, cash or securities or file with such clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure the payment of any final judgment which may be rendered in such action * * * or (2) procure a license to do an insurance business in this state.”

      . We would note our disagreement with the view expressed by the Appellate Division that Murphy is the owner of a “special deposit claim”. A “special deposit claim” is defined as “any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class or classes of persons, but not including any general assets.” (Insurance Law, § 517, subd 10.) The history of the Uniform Insurers Liquidation Act indicates that the term “special deposit” was intended to mean security deposits exacted from a foreign insurer as a condition precedent to doing business in a State for purposes of providing a general fund for the protection of resident policyholders. (See Handbook of Nat Conference of Comrs on Uniform State Laws, 1936, p 258.) Such “special deposits” are required in this State. (Insurance Law, §§ 103-104.) An undertaking posted by an unauthorized foreign insurer pursuant to section 59-a of the Insurance Law, however, secures a particular claim and is filed only after an action has been instituted against the insurer. As such, a claim backed by an undertaking filed pursuant to section 59-a should be classified under the broader definition of a “secured claim” found in subdivision 11 of section 517 of the Insurance Law: “ ‘Secured claim’ means any claim secured by mortgage, trust, deed, pledge, deposit as security, escrow, or otherwise”.

      . The Uniform Insurers Liquidation Act was adopted by the National Conference of Commissioners on Uniform State Laws in 1939. (See Handbook of Nat Conference of Comrs on Uniform State Law, 1939, pp 141-142.) One year later, the uniform act was enacted in New York. (L 1940, ch 631.) To date, 31 States have adopted the act. (See 13 ULA [Master ed], p 429.)

      . The major concern of the drafters of the uniform act in regard to “secured claims” centered around the constitutionality of a proposed draft which would have placed secured and unsecured claims on equal footing in the liquidation proceedings, thereby displacing the vested rights of those whose claims were secured. (Handbook of Nat Conference of Comrs on Uniform State Laws, 1937, p 331.) There is no indication, however, that the drafters were concerned with affording secured creditors a local forum independent of the liquidation proceedings in which to adjudicate their claims. Interestingly, the last proposed draft of the uniform act did not even contain the language presently found in subdivision 4 of section 522 of the Insurance Law. Rather, the section relating to “secured claims” provided only that the amount of any deficiency was to “be ascertained and determined in the delinquency proceeding in the domiciliary state of [the] insurer.” (Handbook of Nat Conference of Comrs on Uniform State Laws, 1938, p 380.) When, however, the uniform act was adopted one year later, the troublesome reference to deficiency adjudications “by a court of competent judisdiction” inexplicably was inserted. (See 13 ULA, [Master ed], § 8, p 454.) Perhaps this was done by the drafters out of practical anticipation, which later proved true, that certain States that did not adopt the uniform act would nevertheless render judgments against defunct out-of-State insurers that would be entitled to full faith and credit. (See Clark v Williard, 294 US 211.)

      . Subdivision 1 of section 59-a provides in relevant part: “The legislature declares that it is a subject of concern that many residents of this state hold policies of insurance issued or delivered in this state by insurers while not authorized to do business in this state, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies.”

      . One Federal court, in speaking of the statutes of New York relating to the liquidation of insolvent insurance companies, noted: “Experience has demonstrated that, in order to secure an economical, efficient, and orderly liquidation and distribution of the assets of an insolvent corporation for the benefit of all creditors and stockholders, it is essential that the title, custody, and control of the assets be entrusted to a single management under the supervision of one court. Hence other courts, except when called upon by the court of primary jurisdiction for assistance, are excluded from participation. This should be particularly true as to proceedings for the liquidation of insolvent insurance companies.” (Motlow v Southern Holding & Securities Corp., 95 F2d 721, 725-726, cert den 305 US 609; see, also, Matter of Knickerbocker Agency [Holz], 4 NY2d 245.)


text:
    Douglas M. Breed et al., as Shareholders of Shepard Niles Crane and Hoist Corporation and All Others Similarly Situated, Appellants, v George T. Barton et al., Respondents.
    Argued September 17, 1981;
    decided October 29, 1981

      POINTS OF COUNSEL

      Robert S. Lesher for appellants. I.
    The dissenting shareholders of a merged corporation may properly maintain a derivative suit in the right of their corporation for a judgment in its favor based on a cause of action arising out of the merger, even though they are pursuing their appraisal rights and the corporation is no longer in existence. (Independent Investor Protective League v Time, Inc., 50 NY2d 259; Eisenberg v Central Zone Prop. Corp., 306 NY 58; Albert v Salzman, 41 AD2d 501; Yoss v Sacks, 26 AD2d 671; Miller v Steinbach, 268 F Supp 255; Smallwood v Pearl Brewing Co., 489 F2d 579; Ross v Bernhard, 396 US 531.) II. The complaint sufficiently alleges that the conduct of the individual defendants as directors of Old Shepard and Vulcan, Inc., constituted a breach of their respective fiduciary duties to Old Shepard and is properly remedied by a derivative suit on behalf of Old Shepard and by an individual shareholders action. (Lockley v Robie, 276 App Div 291; November v National Exhibition Co., 10 Misc 2d 537; Johnson v American Gen. Ins. Co., 296 F Supp 802.) III. Development of the law of New York by judicially refined legal principles governing derivative actions and appraisal rights will be progressive and reflective of developments throughout the United States in the field of corporation law. (Sanie Fe Inds. v Green, 430 US 462.)

      Stephen H. Kelly, John E. Dickinson and Ward B. Hinkle for respondents.
    I. Plaintiffs’ appraisal remedy is exclusive and the court below was correct in holding that plaintiffs have neither a derivative nor an individual action to recover damages representing the fair value of their stock. (Beloff v Consolidated Edison Co. of N. Y., 300 NY 11; Anderson v International Mins. & Chem. Corp., 295 NY 343; Matter of Drosnes, 187 App Div 425; Eisenberg v Central Zone Prop. Corp., 306 NY 58; Clark v Pattern Analysis & Recognition Corp., 87 Misc 2d 385; Yoss v Sacks, 26 AD2d 671; Independent Investor Protective League v Time, Inc., 50 NY2d 259; Lehrman v Godchaur Sugars, 207 Misc 314; Albert v Salzman, 41 AD2d 501; Schur v Salzman, 50 AD2d 784.) II. The complaint should be dismissed on the grounds that it does not contain the specific allegations of fraud required by CPLR 3016 (subd [b]). (Lessler v Dominion Textile, 411 F Supp 40; Tanzer Economic Assoc. v Haynie, 388 F Supp 365.)
   OPINION OP THE COURT

Wachtler, J.

This appeal presents two issues for our consideration. First, may shareholders who dissent from a corporate merger and pursue their statutory appraisal rights maintain a derivative action on behalf of the merged corporation? Second, may these dissenting shareholders maintain an action for money damages in their individual capacity for fraud alleged to have occurred in connection with the merger, absent a primary request for equitable relief?

Shepard Niles Crane and Hoist Corporation (Old Shepard) merged into Shepcan Corporation (Shepcan) a wholly owned subsidiary of Vulcan, Inc. (Vulcan), in 1971. Shepcan thereafter changed its name to Shepard Niles Crane and Hoist Corporation (New Shepard) and continued the business of Old Shepard.

Appellants, minority shareholders of Old Shepard, filed their notice of election to dissent from the merger and brought appraisal proceedings in Supreme Court, Chemung County, seeking to receive the fair value of their stock in cash. In 1977 they commenced this action as individuals and derivatively on behalf of Old Shepard. Appellants contend that they were damaged by an inadequate price offered for their stock in the merger agreement made by Vulcan while it was exercising a controlling influence over Old Shepard. They also allege that the directors of Old Shepard at the time of the merger knew or should have known of the untrue statements in, and the failure to state material facts concerning, the merger agreement. The complaint seeks money damages in the amount of $56 per share of Old Shepard stock, which plaintiffs allege was the price of Old Shepard shortly before consummation of the merger, less the value of Vulcan preferred stock issued in exchange for shares of Old Shepard.

Respondent moved to dismiss the complaint for failure to state a cause of action. Special Term struck the allegations purporting to set forth a derivative action, but sustained the complaint insofar as it set forth a cause of action with respect to the individual rights of the named appellants. The Appellate Division modified the decision of Special Term by dismissing the complaint in its entirety, as setting forth neither a derivative nor an individual cause of action. We affirm.

When appellants exercised the right under sections 910 and 623 of the Business Corporation Law to have their stock appraised in a judicial proceeding, they abandoned their alternative rights as shareholders. Subdivision (e) of section 623 provides that upon filing of notice of election to dissent, a shareholder ceases “to have any of the rights of a shareholder except the right to be paid the fair value of his shares”. Appellants are therefore excluded from “any other right to which [they] might otherwise be entitled by virtue of share ownership” (§ 623, subd [k]). Appellants contend, however, that the exception contained in subdivision (k) of section 623, which permits a dissenting shareholder “to bring or maintain an appropriate action to obtain relief on the ground that such corporate action will be or is unlawful or fraudulent as to him”, permits the prosecution of both an individual and derivative action for money damages. We agree with the Appellate Division that neither type of action may be asserted once the appraisal right has been exercised.

A derivative action on behalf of Old Shepard is clearly precluded under the statute. Subdivision (k) of section 623 is specific in stating that a dissenting shareholder may commence an action when corporate activity is alleged to be unlawful or fraudulent “as to him”. It is evident from the express language of subdivision (k) that this exception to the general rule of exclusivity of the appraisal remedy permits a shareholder to pursue an appropriate action only in his individual capacity and not as the institgator of a derivative suit (see Independent Investor Protective League v Time, Inc., 50 NY2d 259). Should the Legislature desire to accord dissenting shareholders the right, even after appraisal proceedings, to bring shareholders’ derivative actions the statute could be amended expressly so to provide. As presently drafted the stautory provisions are too unambiguous to permit the courts to recognize any such right.

It is equally clear that appellants may not obtain relief in their individual capacity in the form of money damages. Initially, we note that the complaint contains no cause of action requesting that relief in their individual capacity. Although inartfully drawn, we assume for the purpose of further discussion that the complaint sets forth an individual shareholder cause of action, especially in light of respondents’ failure to argue the point on appeal to this court.

The narrow exception to the rule of exclusivity of the right of appraisal found in subdivision (k) of section 623 permits a dissenting shareholder to bring an “appropriate action” in his individual capacity to remedy unlawful or fraudulent corporate conduct. It is evident from the language of subdivision (k) that the Legislature intended to limit the type of action a dissenting shareholder would be entitled to prosecute in the face of an appraisal election. As we noted in Matter of Willcox v Stern (18 NY2d 195) subdivision (k) of section 623 codified the common-law exception to the rule of exclusivity that a proceeding in equity will lie, notwithstanding the availability or exercise of the right of appraisal when corporate action is alleged to be fraudulent or illegal (see Eisenberg v Central Zone Prop. Corp., 306 NY 58; 3 White, New York Corporations [13th ed], par 623.02, p 6-567). Accordingly, an “appropriate action” within the meaning of subdivision (k) is one in which a dissenting shareholder seeks some form of equitable relief.

The common-law fraud exception to the exclusivity rule codified in subdivision (k) of section 623 is no more than a particular application of the maxim that equity will act only when no adequate remedy is available at law. Allowing the prosecution of a legal action for damages after the exercise of the right of appraisal would be unnecessarily duplicative in that full and proper monetary recovery of the fair value of the dissenters’ shares may be obtained in the appraisal proceeding. Limiting the exception to equitable relief thereby serves the valid function of denying dissenting shareholders the ability to reopen prior appraisal proceedings and again seek the identical relief merely by alleging fraudulent or unlawful corporate conduct in relation to the merger.

Although the complaint in this case alleges fraud, misrepresentation and overreaching, there is a fatal absence of any primary request for equitable relief. While it may be true that damages may be awarded in an “appropriate action” (see Yoss v Sacks, 26 AD2d 671), it follows from what we have said that any monetary recovery, if available at all, can only be ancillary to a grant of some form of equitable relief. In recovering the fair value of their stock in the appraisal proceeding, appellants had an adequate and exclusive legal remedy for the damages they seek and thus should not be permitted to duplicate or supplement that recovery through the medium of the instant proceeding.

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

Chief Judge Cooke and Judges Jasen, Gabrielli, Jones, Fuchsberg and Meyer concur.

Order affirmed.

      . Appellants argue that subdivision (d) of section 80 of the Model Business Corporation Act supports their position that a derivative action is contemplated by the New York statute. Examination of this provision, however, which refers to the rights of a dissenting shareholder in his individual capacity, appears to lead one to the opposite conclusion. Thus, subdivision (d) of section 80 in declaring the rule as to exclusivity of appraisal remedy for dissenting shareholders expressed the exception therefrom as follows: “except when the corporate action is unlawful or fraudulent with regard to the complaining shareholder or to the corporation” (emphasis added). There is no counterpart to the italicized phrase in the New York statute.

      . Appellant argues that appraisal is not an adequate remedy because it will only compensate those particular shareholders seeking appraisal and will not account for those damages recoverable by Old Shepard against its former directors. This argument is based on the erroneous premise that a derivative action is authorized by subdivision (k) of section 623.


author: Meyer, J.

text:
    In the Matter of John P., Appellant, v Robert P. Whalen, as Commissioner of the Department of Health of the State of New York, et al., Respondents.
    Decided September 11, 1981;
    decided October 29, 1981

      POINTS OF COUNSEL

      Francis J. Offermann, Jr., for appellant. I. Section 87 (subd 2, par [a]) of the Public Officers Law permits disclosure of the information sought by appellant.

      (Matter of Sheehan v City of Binghamton, 59 AD2d 808; Matter of Marshall v State Bd. for Professional Med. Conduct, 73 AD2d 798; Matter of Lazarus, 268 App Div 547; Matter of Burke v Yudelson, 81 Misc 2d 870; Ackerly v Ley, 420 F2d 1336; Metropolitan Life Ins. Co. v Usery, 426 F. Supp 150.) II. Section 87 (subd 2, par [g]) of the Public Officers Law permits disclosure of the information sought by appellant. (Matter of Marshall v State Bd. for Professional Med. Conduct, 73 AD2d 798; Matter of McAulay v Board of Educ., 61 AD2d 1048, 48 NY2d 659; Matter of Sheehan v City of Binghamton, 59 AD2d 808.) III. Section 87 (subd 2, par [b]) of the Public Officers Law permits disclosure of the information sought by appellant. IV. Appellant was not adequately apprised of the reasons for denial of the documents requested.

      Robert Abrams, Attorney-General (Franklin K. Breselor and Shirley Adelson Siegel of counsel), for respondents.
    I. Although the Freedom of Information Law requires dis-

      closure of almost all documents held by State agencies, it exempts the confidential records involved in this case. (Matter of State Bd. for Professional Med. Conduct v New York State Comr. of Mental Hygiene, 64 AD2d 224; Schachter v Whalen, 581 F2d 35; Young v Town of Huntington, 88 Misc 2d 632; Whalen v Roe, 429 US 589; EPA v Mink, 410 US 73; NLRB v Sears, Roebuck & Co., 421 US 132; Matter of Fink v Lefkowitz, 47 NY2d 567.) II. The identical issue sought to be presented by appellant has. been finally determined against him in a proceeding against Commissioner Whalen. (Matter of Doolan v Board of Coop Educational Servs., Second Supervisory Dist. of Suffolk County, 48 NY2d 341; Park of Edgewater v Joy, 50 NY2d 946; Matter of Whalen v John P., 72 AD2d 961.)
   OPINION OF THE COURT

Meyer, J.

Records of a disciplinary proceeding conducted pursuant to section 230 of the Public Health Law consisting of patients’ records and interviews with patients and with other doctors obtained during investigation of professional misconduct are confidential under the provisions of section 230 and, therefore, exempt from public access by section 87 (subd 2, par [a]) of the Public Officers Law. The order of the Appellate Division should, therefore, be affirmed, with costs.

Petitioner is a doctor who is under investigation by the State Board of Professional Medical Conduct (see Public Health Law, § 230). The notice of hearing and statement of charges, was served on petitioner in July, 1977. During an adjournment of the hearing on those charges, petitioner’s attorney issued subpoenas for the production of certain records and the oral examination of various persons. On the commissioner’s motion to quash the subpoenas the Appellate Division affirmed so much of Special Term’s order as held that an attorney’s subpoenas could not be issued in such a proceeding and reversed so much as directed the presiding officer of the board’s hearing committee or the commissioner to issue the subpoenas, holding that the subpoena power granted by the Public Health Law did not authorize issuance of subpoenas in the investigatory stage (72 AD2d 961, 962).

Petitioner then requested access pursuant to the Freedom of Information Law (Public Officers Law, art 6) to medical records, patient interviews and interviews with other doctors obtained by the commissioner during the investigation. After denial of the request by the agency’s records access officer and records access appeals officer, petitioner brought an article 78 proceeding to review their rulings. In an unreported decision Special Term dismissed the petition, holding the material not discoverable under CPLR 3101 and exempt as part of the investigatory file and under common-law governmental privilege. Petitioner appealed, but the Freedom of Information Law having been substantially revised and liberalized by the repeal of the prior law and enactment of chapter 933 of the Laws of 1977, effective within a few weeks after the Special Term decision, permitted that appeal to be dismissed for failure to prosecute, and instituted a new and separate demand for access under the new law.

The new demand sought essentially the same materials: statements by and notes of interviews with designated patients, statements given the investigating committee by named doctors, and medical records of the same patients received by the committee. The records access officer denied the request on the grounds that, under paragraphs (a), (b), (e), and (g) of subdivision 2 of section 87, the material was exempt from disclosure by section 230 of the Public Health Law and CPLR article 31, that its disclosure would constitute an unwarranted invasion of the privacy of the patients, and that it was compiled for law enforcement and was interagency or intraagency material of the type exempted by the statute. After affirmance by the records access appeals officer, petitioner sought an opinion from the executive director of the Committee on Public Access to Records (see Public Officers Law, § 89, subd 1, par [b], cl ii) and having received an opinion partially in his favor, then commenced a new article 78 proceeding to review the denial. Respondents (the commissioner, the regional health director, the records access officer, the records access appeals officer and the Attorney-General) in answering pleaded, among other defenses, res judicata and that the material was exempted from disclosure by section 230 of the Public Health Law, which “specifically prohibits discovery of the items sought by sub-section 9”, as well as by CPLR 3101 (subds [b], [c], [d]). Special Term ordered that petitioner be given access to all of the materials he had requested, but the Appellate Division reversed and dismissed. Petitioner’s appeal of that order is before us as of right.

The commissioner’s invocation of res judicata is without basis. It is, of course, true that if both requests are viewed as being a single proceeding, the dismissal for failure to prosecute of petitioner’s first appeal would bar him from now seeking review of the same issues (see Bray v Cox, 38 NY2d 350 [dismissal for failure to prosecute interlocutory appeal on choice-of-law issue precluded its consideration on appeal after final judgment]). However, petitioner’s first request for information was made under the 1974 version of the Freedom of Information Law. The 1977 act materially changed the parties’ rights in that it accorded to the agency the discretion to provide access to sensitive information rather than excluding it entirely (compare Public Officers Law, § 87, subd 2, with former § 88, subd 6, as enacted by L 1974, ch 578, § 2), and by placing on the agency the burden of proving the propriety of denying access to information (compare Public Officers Law, § 89, subd 4, par [b], with former § 88, subd 7, as enacted by L 1974, ch 578, §2).

The request now being reviewed is, thus, a separate and independent request made pursuant to the new law. As such, it is a “transaction” wholly distinct from the first request. Consequently, applying the transactional analysis approach to res judicata questions adopted in this State (see Matter of Reilly v Reid, 45 NY2d 24, 29; Restatement, Judgments 2d [Tent Draft No. 5], § 61), the parties are not bound by the determination made on petitioner’s first request.

Before turning to the merits there is another threshold issue, injected by petitioner’s emphasis on the advisory opinion obtained by him from the executive director of the Committee on Public Access to Records, that must be considered. The Freedom of Information Law requires the committee to furnish an advisory opinion regarding the law to any agency or any person (Public Officers Law, § 89, subd 1, par [b], els i, ii). It does not, however, give the committee any part in the review process established by subdivision 4 of section 89 except to require that a copy of any appeal to the records access appeals officer and the determination thereon be furnished by the agency to the committee. Review of the determination of an agency’s designated appeal officer is, rather, by a court pursuant to article 78 (Public Officers Law, § 89, subd 4, par [b]). The committee may, in addition to furnishing opinions, promulgate rules and regulations with respect to designated provisions of the law as well as guidelines on personal privacy (Public Officers Law, § 89, subd 1, par [b], cl iii; subd 2, par [a]) and make recommendations for changes in the law (Public Officers Law, § 89, subd 1, par [b], cl v). But what the Committee on Public Access has been given oversight of is the Freedom of Information Law, or at most the Freedom of Information Law as it affects other agencies and the laws they administer. The statute requiring interpretation in this case is the Public Health Law. Surely the commissioner, who is directly concerned with that law, has no less expertise concerning its meaning than the committee, which is only indirectly concerned with it. The rule that the construction given a statute by the agency responsible for its administration will be upheld if not irrational or irresponsible (Matter of Howard v Wyman, 28 NY2d 434,438; Matter of Mounting & Finishing Co. v McGoldrick, 294 NY 104, 108) should, therefore, support the commissioner’s interpretation rather than the committee’s. From this it follows that while an individual who has unsuccessfully sought agency disclosure under the Freedom of Information Law may properly resort to the committee, at any time, for an advisory opinion, such an opinion, though supporting his position before the agency, is neither binding upon the agency nor entitled to greater deference in an article 78 proceeding than is the construction of the agency. From the perspective of judicial review over agency determinations denying Freedom of Information Law requests, committee advisory opinions carry such weight as results from the strength of the reasoning and analysis they contain, but no more.

Turning now to the merits of petitioner’s requests for access, we note that section 87 (subd 2, par [a]) exempts records that “are specifically exempted from disclosure by state * * * statute.” It is suggested that because subdivision 9 of sectipn 230 of the Public Health Law exempts proceedings and records of a committee on professional conduct “from disclosure under article thirty-one of the civil practice law and rules except as hereinafter provided,” it does not exempt those proceedings and records from disclosure under the Freedom of Information Law. The rule of construction that specific mention of one thing impliedly excludes others is not, however, anything more than an aid to construction and “must not be utilized to defeat the purpose of an enactment or to override the manifest legislative intent” (Erie County v Whalen, 57 AD2d 281, 284, affd on App Div opn 44 NY2d 817; accord Matter of Auburn Police Local 195 v Helsby, 62 AD2d 12, 16, affd on reasoning of App Div 46 NY2d 1034; McKinney’s Cons Laws of NY, Book 1, Statutes, § 240, p 414). As is made clear by both the words “except as hereinafter provided” in subdivision 9 of section 230 of the Public Health Law and by the established rules of construction, all parts of section 230 are to be read together and interpreted with reference to the scheme of the entire section (People v Mobil Oil Corp., 48 NY2d 192, 199; McKinney’s Statutes, op. cit, §§97, 98,130). So construed it is clear that the reference in CPLR article 31 (subd 9) was not a tacit exception of Freedom of Information Law requests from the confidentiality provisions of section 230 of the Public Health Law; that is, that section 230 is a State statute exempting information from disclosure within the meaning of section 87 (subd 2, par [a]) of the Public Officers Law.

The conclusion just stated follows from a reading of subdivision 9, paragraph (Z) of subdivision 10 and paragraph (a) of subdivision 11 together, for together they make clear a legislative policy to protect the confidentiality of all records and proceedings of the State Board for Professional Medical Conduct and of a Committee on Professional Conduct in relation to a disciplinary inquiry or proceeding, whether patient statements, statements by doctors, or medical records of patients. Thus, by section 230 (subd 11, par [a]) the Legislature has plainly decreed that reports to the board by physicians or members of the public concerning possible misconduct “shall remain confidential and shall not be admitted into evidence in any administrative or judicial proceeding except that the board, its staff, or the members of its committees may begin investigations on the basis of such reports and may use them to develop further information”; by paragraph (a) of subdivision 10, has authorized the board, by a committee, to investigate suspected professional misconduct, and required it to investigate each complaint received “regardless of the source”; and by paragraph (Z) of subdivision 10, has authorized the board or its representative to “examine and obtain records of patients in any investigation or proceeding”, and provided that “[u]nless expressly waived by the patient, any information so obtained shall be confidential and shall not be disclosed except to the extent necessary for the proper function of the board and the New York state board of regents” and that “Any other use or dissemination by any person by any means, unless pursuant to a valid court order or otherwise provided by law, is prohibited” (emphasis supplied). Petitioner suggests that the reports to the board referred to in paragraph (a) of subdivision 11, cannot be equated with investigative statements obtained as a result of such reports. The subdivisions considered together, however, expose the weakness of the attempted distinction. Reports, which are confidential (subd 11, par [a]), may and in some cases must be followed by investigation (subd 10, par [a]), which may include investigation of patients’ records (subd 10, par [£]). Not only those records, but also “any information” obtained through obtaining and examining those records is confidential (id.), and all become part of the proceedings or records of the committee protected from disclosure by subdivision 9 (cf. Matter of Marshall v State Bd. For Professional Med. Conduct, 73 AD2d 798, app den 49 NY2d 709).

Petitioner argues that to the extent that the patient records he seeks are of his treatment of his patients and therefore known to him, the conclusion we reached runs contrary to logic and that, in any event, under section 89 (subd 4, par [b]) of the Public Officers Law it is respondents’ burden to show that the records sought are exempt under subdivision 2 of section 87, wherefore patients’ records cannot be deemed exempted by section 230 (subd 10, par [Z]) without affirmative proof by respondents that the patients have not “expressly waived” confidentiality. The short answer to the first is that the standing of one who seeks access to records under the Freedom of Information Law is as a member of the public, and is neither enhanced (Matter of Fitzpatrick v County of Nassau, Dept. of Public Works, 83 Misc 2d 884, 887-888, affd 53 AD2d 628) nor restricted (Matter of Burke v Yudelson, 51 AD2d 673, 674) because he is also a litigant or potential litigant. As for the second, we conclude that respondents meet their burden by showing that patients’ records are involved unless petitioner goes forward with proof that some or all of the named patients have expressly waived confidentiality. Section 230 (subd 10, par [Z] of the Public Health Law recognizes that the privilege is that of the patient and may be waived by him. It does not deal with by whom the waiver should be obtained. To read its express waiver provision as requiring that waiver be obtained by the person seeking access imposes no unusual burden upon such a person. To read that provision together with section 89 (subd 4, par [b]), of the Public Officers Law to require the board or its representative to ask each patient interviewed whether he is willing to waive is to impose an unnecessary burden not only on the investigative process but also upon the patients whose records are involved.

For the foregoing reasons, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Cooke and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed.

      . On the res judicata point, three members of the court disagree with the transactional analysis set forth above, but concur in the result on the theory that the revision of the Freedom of Information Law constituted “an intervening change in the applicable legal context” (Restatement, Judgments 2d [Tent Draft No. 4], § 68.1, subd b, and Comment c) rendering inappropriate the application of rules of preclusion (see Matter of North Manursing Wildlife Sanctuary [City of Rye], 48 NY2d 135, 142; Matter of American Bible Soc. v Lewisohn, 40 NY2d 78, 84).

      . The opinion on which petitioner relies is that of the executive director of the committee. Whether the committee has delegated the advisory opinion function to the executive director is not discernible from the record.

      . Matter of Sheehan v City of Binghamton (59 AD2d 808) is not to the contrary since the interpretations of the agency .and of the committee in that case were not in conflict.

      . Petitioner argues that because respondents’ affirmative defense specifically pleaded subdivision 9 and made no similar reference to paragraph (Z) of subdivision 10 and paragraph (a) of subdivision 11, they cannot now rely on the latter subdivisions. The argument overlooks the first affirmative defense which pleaded full compliance with law, but more importantly overlooks the public policy for confidentiality contained in section 230, which is not waived by failure affirmatively to plead (see 3 Weinstein-Korn-Miller, NY Civ Prac, par 3018.18). Nor does the rule that a court may not rely on a ground not “invoked by the agency” (Matter of Barry v O’Connell, 303 NY 46, 50) aid petitioner in this respect for the records access officer’s denial relied upon “section 230” without limitation as to subdivision.

      . In light of the underscored words it is clear that the Freedom of Information Law cannot be deemed to have “otherwise provided by law”, for so to hold would render the strong prohibitory language of the last sentence of paragraph (l) utterly meaningless and the result absurd (Matter of Sabot v Lavine, 42 NY2d 1068, 1069; Williams v Williams, 23 NY2d 592, 599; McKinney Statutes, op. cit., § 145).

      . In view of our conclusion that section 230 is an exempting State statute within the meaning of section 87 (subd 2, par [a]) of the Public Officers Law, we need not consider whether the CPLE is such a statute, nor do we reach respondents’ arguments that the materials sought are in any event exempt under paragraph (b), clause (i) of paragraph (e) and paragraph (g) of that subdivision.


text:
    In the Matter of Frieda Wasservogel, Appellant, v Barbara Blum, as Commissioner of the New York State Department of Social Services, et al., Respondents.
    Argued October 20, 1981;
    decided October 29, 1981

      POINTS OF COUNSEL

      Jane Greengold Stevens, Toby Golick and John C. Gray, Jr., for appellant.
    It violates both State law and the State Constitution to reduce home relief assistance based on assumed income which is not actually available to the recipient. (Matter of Lee v Smith, 43 NY2d 453; Matter of Dumbleton v Reed, 40 NY2d 586; Matter of Harbolic v Berger, 43 NY2d 102; Matter of Moffett v Blum, 74 AD2d 625; Matter of Memoli v Toia, 68 AD2d 889; Matter of De Pietto v Toia, 67 AD2d 663; Matter of Simmons v Van Alstyne, 65 AD2d 869; Matter of Williams v Toia, 61 AD2d 333; Matter of Mastan v Fahey, 60 AD2d 304; Tucker v Toia, 43 NY2d 1.)

      Robert Abrams, Attorney-General (Eugene E Zegarowicz and Shirley Adelson Siegel of counsel), for Barbara Blum, respondent.
    In determining the amount of available (or countable) income for home relief purposes, the agency may properly take into account a prepayment of assistance (SSI) by the Federal .Government. (RAM v Blum, 77 AD2d 278; Billy v Consolidated Mach. Tool Cory., 51 NY2d 152; Matter of Dumbleton v Reed, 40 NY2d 586; Matter of Har

      bolic v berger, 43 NY2d 102; Matter of Richards v Lavine, 48 AD2d 204; Matter of Lee v Smith, 43 NY2d 453; Dandridge v Williams, 397 US 471; Magnum v Mitchell, 638 F2d 203; Matter of Mastan v Fahey, 60 AD2d 304.)
   OPINION OF THE COURT

Meyer, J.

A Supplemental Security Income (SSI) payment to which a home relief recipient would be entitled were the payment not being withheld by the Federal Government to recoup overpayment made because of its error is not available to, or being received by, the home relief recipient and may not be counted as income of the recipient in computing the home relief payment to be made to him or her. The order of the Appellate Division should, therefore, be reversed and the determination of the Commissioner of Social Services should be annulled to the extent inconsistent with this opinion.

Petitioner at the time of the home relief application here in question was 91 years of age and was receiving Social Security■ (OASDI) and SSI benefits. She resides with her niece who receives neither Federal nor State assistance benefits. Petitioner had been receiving OASDI of $114.10 and SSI of $79.90, but the Social Security Administration, concluding that it had erred in computing petitioner’s grant, reduced the SSI payment to $12.42 and, thereafter, suspended payment of the $12.42 amount to which petitioner was entitled in order to recoup the overpayment previously made to her through the administration’s error. The overpayment was the result of calculating petitioner’s grant at the payment level for an individual living alone whereas petitioner, because she was living with her niece and not paying her pro rata share of the living expenses, was entitled only to the benefit payable to a person living in the household of another.

Because petitioner was thus reduced to her OASDI pension of $114.10 per month on which she could not subsist, she applied in April, 1978 for a home belief grant. The New York City Department of Social Services denied the application entirely because the Social Security Administration was recouping its SSI overpayment. On fair hearing, however, the State commissioner, applying our holding in Matter of Lee v Smith (43 NY2d 453), held that all home relief could not be denied because her public assistance needs were greater than her countable income even with the $12.42 SSI payment, and directed the city agency “to provide a supplemental grant of home relief with countable income consisting of the correct benefit level, including the$12.42recoupment” (italics supplied).

Petitioner then began this article 78 proceeding to review the State commissioner’s ruling as to computation of computable income. Special Term dismissed the proceeding holding that the prior SSI overpayment constituted a prepayment of income which respondents could take into account in determining the proper home relief allowance. The Appellate Division affirmed, without opinion, and we granted leave to appeal in order to resolve the conflict of its decision with the holding of the Third Department in Matter of Mastan v Fahey (60 AD2d 304). Petitioner argues both that the computation made is incorrect under governing statute and regulation and that it constitutes a denial of equal protection. We reverse on the first ground and, thus, need not reach the constitutional question.

Eligibility for home relief is determined by section 158 of the Social Services Law. That section provides that “A person who is receiving federal supplemental security income payments * * * shall not be eligible for home relief” (italics supplied) and section 142 of the same law mandates that “No person receiving federal supplemental security income payments * * * shall for the same period receive any other of such forms of assistance” (italics supplied) . A person who is not receiving a payment because of a prior prepayment cannot in any realistic sense be said to be receiving the payment and certainly is not receiving the payment for the same period. Indeed, the rationale of Special Term was not that it was paid for the same period but that because it was paid in an earlier period it need not be paid in the present period.

The conclusion we reach is consistent with our holdings in Matter of Harbolic v Berger (43 NY2d 102) that so much of a recipient’s pay as is withheld for taxes is not “available income” and, therefore, cannot be considered in computing minimum level subsistence benefits, and in Matter of Dumbleton v Reed (40 NY2d 586) that a similar deduction for the employee-recipient’s Social Security tax is not “income available” to him in determining eligibility for Medicaid benefits. It is, moreover, a conclusion mandated not only by the wording of the statute sections referred to, but also by the regulations governing eligibility.

Thus, 18 NYCRR 352.16 (a) provides that: “All income and resources of an applicant * * * shall be considered in order to determine its availability * * * and, when determined to be available, after policies governing the exemption and disregard of such income and resources have been applied, shall be applied towards meeting the needs of an individual.” Similarly, but in another context, 18 NYCRR 352.17 (b) (4) directs that “When wages are garnisheed, property income assigned, bank accounts attached, or other cash income is unavailable to the applicant or recipient, such income shall not be applied against need until and unless the agency can secure a release from such restriction” (italics supplied). Federal recoupment most assuredly makes the $12.42 here in contest unavailable to petitioner and, therefore, proscribes its application against need. Consistent with that interpretation is 18 NYCRR 352.31 (a) (2) which directs that “All available and unrestricted income of an applicant * * * shall be prorated and applied against his needs” (italics supplied). The $12.42 which the agency seeks to apply against need is clearly not available to her or unrestricted and the fact that at some time in the past she received, through error of the Federal administration, more than technically she should have does not furnish her with funds with which to meet her present needs.

Within the strictures of the constitutional provision construed in Matter of Lee v Smith (supra), the Legislature may determine that receivable but in fact unreceived income is to be counted in determining need and the commissioner may, to an extent consistent with both Constitution and legislation, provide by regulation what shall be counted. Here, however, neither statute nor regulation support the determination made. It must, therefore, to the extent sought to be overturned by petitioner, be annulled.

Accordingly, the order of the Appellate Division should be reversed, with costs.

Chief Judge Cooke and Judges Jasen, Garrielli, Jones, Watchler and Fuchsrerg concur.

Order reversed, with costs, and the determination of the commissioner annulled in accordance with the opinion herein.

       The two preceding sentences of section 158 also use the word “receiving”. Also pertinent is the fact noted in Matter of Mastan (supra), that the words used in the prior version of section 158 were “eligible for” rather than “receiving”.