text:
    Leon E. Wein, Appellant, v Hugh L. Carey, as Governor of the State of New York, et al., Respondents.
    Argued March 22, 1977;
    decided March 31, 1977

      Leon Edward Wein, pro se, and William J. Quirk, Brooklyn, for Leon E. Wein, appellant.

      Louis J. Lefkowitz, Attorney-General (Shirley Adelson Siegel and Samuel A. Hirshowitz of counsel), New York City, for respondents.

      Edwin B. Mishkin, Stephen L. Dinces, Evan A. Davis, Victor

      I. Lewkow and Edmund H. Kerr, New York City, for Solomon Brothers and others, amici curiae.

   Chief Judge Breitel.

Plaintiff, as a taxpayer, seeks a declaratory judgment that some unspecified portion of State tax and revenue anticipation notes issued in the aggregate amount of $3.72 billion in the spring months of 1976 was, as a matter of law under the State Constitution, void. He seeks too an injunction barring the State from issuing further tax and revenue anticipation notes until it achieves a "balanced budget”. At stake, therefore, is also the prospective issuance by the State of almost $4 billion of similar notes in the spring 1977 financing of the State budget plan for fiscal year 1977-1978, which financing starts on the heels of the decision by this court.

The complaint stands dismissed on summary judgment under CPLR 3212. The Appellate Division by a divided vote affirmed the dismissal at Special Term.

The critical question is whether, with respect to the State’s 1976-1977 fiscal year, there were issued anticipation notes by the State’s officials with knowledge, actual or constructive, that there was no authentic balance between expenditures and moneys from all sources in the State’s budget plan. If so, there was no constitutional authority to issue the anticipation notes (NY Const, art VII, § 9). There are subsidiary questions: upon whom falls the burden of proof to establish that there is, or is not, the balanced budget required by the Constitution (art VII, §2; Wein v State of New York, 39 NY2d 136, 141-142), and whether that burden of proof has been sustained. There are also peripheral questions with respect to plaintiff’s standing as a taxpayer to raise the questions, the State’s sovereign immunity from suit without its consent, the validity of notes issued in violation of the Constitution, and the enforceability of such notes in the hands of bona fide holders for value without notice of defects.

Before considering the ultimate merits of the appeal, the peripheral questions, because they are of recurring prime significance, must be treated.

Plaintiff has standing and State officials such as defendants, at least in the case of the Comptroller, possess none of the sovereign immunity of the State. None may read the majority opinion in Boryszewski v Brydges (37 NY2d 361, 362-364) without concluding that a citizen or taxpayer has the right to challenge in the courts, as unconstitutional, acts of government—"the classical means for effective scrutiny of legislative and executive action” (p 364). The right of a taxpayer or citizen to sue has since been recognized by the Legislature (State Finance Law, art 7-A [as added by L 1975, ch 827]). This is not to say that there may or may not be limits. It is enough that this appeal does not exceed possible limits and follows naturally in the wake of Wein v State of New York (39 NY2d 136, supra), a case upon which all the parties rely.

On the showing in this case, even if the anticipation notes had been issued in violation of the Constitution and are therefore invalid and unenforceable between the issuer and purchasers who took with notice or without value, purchasers in good faith for value would not necessarily be without remedy. There is patent authority in the Constitution and the statutes to issue them upon the findings and certifications of the appropriate authorities (NY Const, art VII, § 9; State Finance Law, § 55).

Bonds and notes issued by the State and its municipal subdivisions, at least when there is explicit constitutional authority, are prima facie invulnerable and the investor may rely on such patent authority (cf. Citizens’ Sav. Bank v Town of Greenburgh, 173 NY 215, 222-226; Van Dolsen v Board of Educ., 162 NY 446, 451-452; Hoag v Town of Greenwich, 133 NY 152, 163; Brownell v Town of Greenwich, 114 NY 518, 528-529; Town of Solon v Williamsburgh Sav. Bank, 114 NY 122, 133-134, 137-139; Cagwin v Town of Hancock, 84 NY 532, 541-542; but cf. Alvord v Syracuse Sav. Bank, 98 NY 599, 604; see, generally, 64 Am Jur 2d, Public Securities and Obligations, §§ 308-323, and cases cited, indicating that a distinction must be made between lack of patent authority to issue securites, by reason of which securites may be wholly void, and latent infirmities, such as lack of underlying preconditions, whether of substance or form, which may render public securities subject only to remedies not enforceable against bona fide holders for value; see, also, Uniform Commercial Code, § 8-202, subd [2], including Official Comments, esp Comment 6, which, because subject to constitutional limitations, is not determinative but is, nevertheless, instructive).

On this last view, the complaint in seeking without qualification a declaration of "voidness” of the anticipation notes may not be sustained. When the alleged infirmities, as here, relate to procedures, findings, accounts, and nonpublicized documents, never readily available to investors, security analysts, and financial institutions, the purchasers of the governmental obligations may rely on the patent, meaning explicit, authority of the issuers to do as they have done.

The principle last discussed rests not only in reason but in necessity. Otherwise, even long-term public bonds, issued directly by the State or governmental entities apparently by express authority of the Constitution, would always, until payment, or even afterward, remain vulnerable to constitutional attack. Vulnerability of that sort would make bonds speculative rather than the prime investment securities they are, issuable at comparatively low rates of interest. The Legislature has recognized this concern (State Finance Law, § 123-b, subd 1, which statute, of course, is also subject to constitutional limitations).

The ultimate issues on this appeal are of a different order and quite easily and definitively resolved. This case is a sequel to the Wein case (supra), in the opinions of which the background and relevant constitutional issues implicated in State finance, and particularly the mechanisms involved in the use of anticipation notes, are detailed. Reference is made to those opinions in order to keep the compass of the present discussion reasonably limited.

In the spring of 1976 the State by action of the Governor and the Legislature adopted a purportedly balanced budget plan, implemented by statutes providing for revenue raised by taxes to supplement other revenues and moneys, and appropriations for the operation of the State government, including various forms of local assistance. The budget plan as implemented balanced at $10.9 billion (Exhibit D, Official Statement of April 15, 1976, p 22). Included in the plan was provision for the redemption of anticipation notes, shortly to mature, in the sum of $382 million, the product of a deficit resulting from the 1975-1976 fiscal year. As required by the Constitution and the State Finance Law these deficit notes were to be and were paid in the 1976-1977 fiscal year from certain revenues impounded by the Comptroller (NY Const, art VII, § 9; State Finance Law, § 55, subd 1, par [b]).

Plaintiff emphasizes that the $382 million deficit was then but the last of a series of deficits which the State had experienced successively during prior years.

In the budget plan for 1977-1978, there is a "new” remainder of deficit anticipation notes from the 1976-1977 fiscal year in the sum of $158 million. These too are to be paid out of certain revenues impounded by the Comptroller.

Beyond the amounts of deficit anticipation notes running over from one fiscal year to another, the State in each of the last two fiscal years has experienced a deficit in the once balanced budget plans of revenues and expenditures. Either revenues have fallen short of the budget estimates or expenditures have exceeded those contained in the budget estimates, or both have occurred.

On the basis of these facts of the past and present, plaintiff urges that the State has failed in its constitutional obligation to provide for a balanced budget, and that therefore the recurring issuance of anticipation notes in successive years is in violation of the Constitution. He relies on the holding in Wein v State of New York (39 NY2d 136, supra) that "if repayment of tax and revenue anticipation notes may only be made by creating, directly or indirectly, a budgetary deficit in the year of repayment, such borrowing is not an anticipation of the receipt of taxes and revenues and thus violates constitutional limitations” (p 149). He relies further on the repeated admonition in the Wein case that in order for a budget to be balanced, the estimates of revenues and expenditures must be "authentic” (id., pp 148, 149).

His syllogism is simple but mistaken. It is, in effect, that a planned deficit is unconstitutional (which it is); that two successive annual deficits occurred (which is true); and, therefore, that there must have been a planned deficit (which results in a classic example of the fallacy of the undistributed middle term). On the basis of this disjointed syllogism, he argues, therefore, that the anticipation notes of 1976-1977 were invalid, and, to make matters worse, by implication and necessary consequence from the relief he seeks, that the plan to issue more anticipation notes in 1977-1978 would be an ill-disguised "rollover” or unconstitutional refinancing of a planned deficit.

To support his flawed syllogism plaintiff quotes an inner quotation from the Wein case: "As was stated by the 1938 Subcommittee on Taxation and Finance of the Constitutional Convention Committee: 'The spirit of the clause implied that the State must not have two or more budgetary deficits in succession’ ” (39 NY2d 136, 149, supra). The context in which the inner quotation appears makes clear that the reference is to two planned deficits in succession. In common sense it could not have meant otherwise. Note too that this is a quotation from a subcommittee of a committee for the planning of the convention, and not a dictum considered and voted by the convention.

The fact is that there may be an indefinite series of deficits honestly suffered. All that is necessary to produce the result are successive years of unpredictable shortfalls in revenues or rises in required spending beyond estimates. Depressed economic conditions can affect both sides of the balance. Catastrophies, emergencies, or, in smaller scale, significant needs may arise, which, if unanticipated, may upset the balance on one side or the other. Indeed, it is unattainable for any budget plan, perfectly and honestly balanced in advance, to remain in balance to the end of the fiscal year. There must, as a practical matter, in every year be either a deficit or a surplus. Nothing in the Wein case (supra) suggests otherwise.

It is only when the estimates are dishonest that fault may be found with the budget plan or that which is done pursuant to it. It is then that the use of anticipation notes to balance the imbalanced budget plan is an unconstitutional practice.

To prove that the budget plans of the successive years were truly imbalanced, plaintiff points to the Governor’s Annual Message to the Legislature on January 5, 1977 that "It is among the abuses of prior years that the purposes of full faith and credit bonds were distorted with their proceeds used to finance general fund deficits”. Assuming that to be true, and even assuming that in past years there was an invalid refinancing or "rollover” of anticipated deficits by temporary notes in violation of the Constitution, it does not follow that a current budget plan, whether that current for 1976-1977 or 1977-1978, is in violation of the Constitution. For, even an invalid issuance of anticipation notes must be paid, as indicated earlier, and if provision is made for such payment in a balanced budget that last budget plan is both good and valid.

As a consequence, one making an attack, as plaintiff does in this case, cannot prevail merely by showing successive deficits or that provisions have been made for successive series of deficit anticipation notes.

The proof of improper budget manipulation must be found in the estimates of revenues and expenditures. At this point, plaintiff argues that, once given the successive deficits, the State should have the burden of proof as to the authenticity of the estimates. Assuming it were feasible to convert a courtroom into a super-auditing office to receive and criticize the budget estimates of a State with an $11 billion budget, the idea is not only a practical monstrosity but would duplicate exactly what the Legislature and the Governor do together, in harmony or in conflict, most often in conflict, for several months of each year.

The justification of the budget plan before the Legislature and its fiscal committees is the responsibility of the Governor for the executive branch, and of judicial representatives for the judicial branch. That is the constitutional process, and indeed the only practical one. Consequently, it would be ludicrous to deny prima facie validity to this constitutionally mandated and meticulously directed process (NY Const, art VII, §§ 1-4).

The burden of proof, therefore, is on one who attacks the budget plan. It is a formidable burden in any event and, realistically, impossible as to some categories of estimates. But there are some estimates that could be demonstrated on their face to be unreasonable. An extreme example would be a tripling of the estimates of personal income tax revenue, without a change in the tax rate, in a period in which the economy appears to be on a plateau or in decline. Another would be an estimate of expenditures falling short of statute-mandated expenses or constitutionally directed covering of maturing indebtedness. Still another would be an omission of estimated expenditures for judgments rendered in courts of law. There are many other possible examples.

That the task is not an easy one is no reason to alter the allocation of the burden of proof. The reverse would be much worse of an evil—the occasionally irresponsible attack on a budget plan requiring enormous expenditures of time and money in the wrong forum to resolve the issue.

None of the foregoing should be read to permit judicial review of a State budget plan directly. There is no such power (cf. New York Public Interest Research Group v Steingut, 40 NY2d 250, 257). Judicial intervention may be invoked only in the narrowest of instances. The issue in this case, like the issue in the Wein case (supra), is one such instance, namely, where the validity of indebtedness determinable only by reference to the budget plan requires such intervention in order to resolve the constitutional question.

On this analysis, it is evident that plaintiff’s ambitious venture may not succeed. The shortcut, based, in the first instance, on a logical fallacy, and the attempted misplacement of the burden of proof demonstrate the summary judgment was justified. No issue of fact is presented requiring a trial. That does not mean that, in truth, all is as it should be, but only that there has been no showing that it may not be as it should be.

Consequently, beyond the prayer for a declaration that the 1976-1977 anticipation notes or some portion of them are void, plaintiff has not established the right to injunctive relief.

Accordingly, the order of the Appellate Division should be affirmed, without costs.

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

Order affirmed.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    In the Matter of Anonymous Attorneys, Appellants. Bar Association of Erie County, Respondent. In the Matter of Anonymous, an Attorney, Appellant. Bar Association of Erie County, Respondent.
    Argued February 15, 1977;
    decided April 5, 1977

      Thomas P. Flaherty and Philip H. Magner, Jr., Buffalo, for appellants.

      John B. Walsh, Buffalo, for respondent.
   Per Curiam.

The sole issue before the court is whether incriminating testimony given by an attorney, following a grant of immunity, may be used as evidence against him in a disciplinary proceeding.

The appellants, attorneys admitted to practice in the State of New York, were called to testify before a Grand Jury investigating alleged irregularities in the fixing of traffic tickets in the City Court of Buffalo. The District Attorney requested that they execute waivers of immunity which they declined to do, and the Grand Jury then voted them full immunity pursuant to CPL 50.10. The Grand Jury probe resulted in an indictment against certain officials and, subsequently, the appellants, still retaining immunity, testified at the trial of these officials. Thereafter, they were served with a petition and notice of motion instituted by the respondent Bar Association seeking to have them disciplined for their involvement in the activity concerning which they had testified. After service of the petitions, the appellants commenced an action in the Federal District Court seeking an injunction against prosecution of these disciplinary proceedings. The respondent’s motion to dismiss the Federal action was granted on the ground of insufficiency under the abstention doctrine of Younger v Harris (401 US 37), and that dismissal was affirmed (Anonymous J. v Bar Assn, of Erie County, 515 F2d 435, cert den 423 US 840). Thereafter, appellants moved in the Appellate Division for an order dismissing the petitions on the ground that they had been granted immunity from any penalties or forfeitures arising out of the transactions concerning which they had testified. The Appellate Division denied the motion to dismiss and granted leave to appeal to this court on a certified question. We affirm the order of the Appellate Division and answer the certified question in the affirmative.

Initially, we confront the question of statutory construction of the immunity statute. The appellants were granted immunity pursuant to and defined in CPL 50.10 which provides that: "A person who has been a witness in a legal proceeding, and who cannot, except as otherwise provided in this subdivision, be convicted of any offense ór subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he gave evidence therein, possesses 'immunity’ from any such conviction, penalty or forfeiture. A person who possesses such immunity may nevertheless be convicted of perjury as a result of having given false testimony in such legal proceeding, and may be convicted of or adjudged in contempt as a result of having contumaciously refused to give evidence therein.” The appellants strongly urge that the possible sanctions flowing from the disciplinary proceeding constitute a "penalty or forfeiture” within the meaning of the statute. Without doubt the sanctions which may be imposed in such proceedings may have serious consequences resulting in impairment of repute, loss of clientele, or, in the case of disbarment, loss of license to practice a profession which is their very source of livelihood. Although serious in consequence, these sanctions are not penalties or forfeitures within the meaning of the Criminal Procedure Law. The penalties and forfeitures encompassed by this immunity are those imposed or sought to be imposed as punishment upon conviction for a criminal offense committed in violation of the Penal Law or other statute of the State (Matter of Klebanoff, 21 NY2d 920, cert den 393 US 840; Matter of Zuckerman, 20 NY2d 430, cert den 390 US 925, reh den 390 US 975; People ex rel. Karlin v Culkin, 248 NY 465; Matter of Rouss, 221 NY 81; Matter of Ungar, 27 AD2d 925, cert den 389 US 1007). We hold that disciplinary sanctions are not punishment within the meaning of section 50.10. As Judge Cardozo explained in Matter of Rouss (supra, pp 84-85): "Membership in the bar is a privilege burdened with conditions. A fair private and professional character is one of them. Compliance with that condition is essential at the moment of admission; but it is equally essential afterwards [citations omitted]. Whenever the condition is broken, the privilege is lost. To refuse admission to an unworthy applicant is not to punish him for past offenses. The examination into character, like the examination into learning is merely a test of fitness. To strike the unworthy lawyer from the roll is not to add to the pains and penalties of crime.” Whether the practice of law is termed a privilege (Matter of Rouss, supra) or a right (Matter of Levy, 37 NY2d 279, 282) disciplinary sanctions imposed for misconduct are not criminal penalties under the statute.

Immunity does not protect against all private consequences of the facts or involvement revealed by testimony given under its shelter. And some people, because of their relationship with government, may suffer governmentally imposed consequences of a serious nature (see Uniformed Sanitation Men Assn. v Commissioner of Sanitation, 426 F2d 619, cert den 403 US 917; Note, Immunity Statutes and the Constitution, 68 Col L Rev 959). The criterion is whether the sanctions are imposed in the context of a criminal proceeding, covered by immunity, or whether such subsequent proceedings are civil in nature where immunity does not necessarily extend. Disciplinary proceedings against an attorney for professional misconduct have consistently been held not to be criminal proceedings but rather are those which serve to protect the court and society from the practice of law by persons who fail to maintain the necessary standards of integrity and probity (Matter of Zuckerman, supra; Matter of Randel, 158 NY 216; Matter of Dougherty, 7 AD2d 163, affd 7 NY2d 869, remittitur amd 7 NY2d 965; Judiciary Law, § 90; Chilingirian, State Disbarment Proceedings and the Privilege Against Self-Incrimination, 18 Buffalo L Rev 489). The immunity statute, prohibiting use of covered testimonial evidence in criminal proceedings, does not bar the use of such evidence in disciplinary proceedings brought against an attorney on the grounds of misconduct; and this has been the established law in this State for over 40 years (Matter of Solovei, 250 App Div 117, 121, affd 276 NY 647).

The appellants also contend that the Fifth Amendment privilege against self incrimination precludes the use of any immunity-clothed statements in a disciplinary proceeding. The appellants were concededly granted transactional immunity in return for their Grand Jury and trial testimony. They assert that their testimony was compelled by the grant of immunity arguing that subsequent refusal would result in contempt charges and as such must be coextensive with the privilege against self incrimination which it replaced and that privilege must be deemed to protect against the use of compelled self-incriminating statements in disciplinary proceedings. This argument has a surface attractiveness that dissipates under analysis.

The Fifth Amendment provides that no person "shall be compelled in any criminal case to be a witness against himself’ (emphasis added), and the State Constitution assures this privilege in the very same language (NY Const, art I, § 6). These constitutional protections forbid the State from compelling incriminating answers which may be used in any criminal proceedings but they permit "that very testimony to be compelled if neither it nor its fruits are available for such use” (Lefkowitz v Turley, 414 US 70, 84; Kastigar v United States, 406 US 441). Where immunity coextensive with the privilege against self incrimination is granted, the courts have the power to compel testimony by the use of civil contempt and coerced imprisonment (Lefkowitz v Turley, supra; Shillitani v United States, 384 US 364; Matter of Rushkin v Detken, 32 NY2d 293; see People v Ianniello, 21 NY2d 418, cert den 393 US 827). The Supreme Court has held that "immunity from use and derivative use is coextensive with the scope of the privilege against self incrimination, and therefore is sufficient to compel testimony over a claim of the privilege” (Kastigar v United States, supra, p 453). The New York statute goes further and provides full transactional immunity (Matter of Gold v Menna, 25 NY2d 475; Pitler, New York Criminal Practice under the CPL, p 241). Thus, the appellants are clothed with full transactional immunity which immunizes them against prosecutions for any and all crimes to which their testimony might relate.

The constitutional protection does not, however, extend to its use in other than criminal proceedings. It is certain that the privilege against self incrimination may be asserted in any situation where the testimony may ultimately be used in a criminal proceeding against the person testifying (Matter of Gault, 387 US 1, 47-48), but where immunity bars such use the testimony is nonetheless admissible in other noncriminal hearings such as those involving disciplinary charges. The salient question is whether that proceeding is a criminal case within the purview of the Fifth Amendment. A criminal case is "one which may result in sanctions being imposed upon a person as a result of his conduct being adjudged violative of the criminal law. The essence of state bar disciplinary proceedings, however, is not a resolution regarding the alleged criminality of a person’s acts, but rather a determination of the moral fitness of an attorney to continue in the practice of law. Although conduct which could form the basis for a criminal prosecution might also underlie the institution of disciplinary proceedings, the focus is upon gauging an individual’s character and fitness, and not upon adjudging the criminality of his prior acts or inflicting punishment for them” (Matter of Daley, 549 F2d 469, 474). In urging a contrary position, appellants rely on cases which are not here applicable. In Spevack v Klein (385 US 511) the Supreme Court held that an attorney could not be disciplined solely on the ground that he had asserted his privilege against self incrimination. The threat of disbarment for the mere exercise of the privilege was viewed as an unconstitutional compulsion to waive the privilege without a coextensive protection against the ultimate use of those statements in a criminal proceeding. Likewise in Garrity v New Jersey (385 US 493) certain police officers made incriminating statements during an inquiry concerning the fixing of traffic tickets. The statements were made under the threat that if they refused to respond to the questions put to them, they would be removed from office. Since no immunity was granted, the Supreme Court considered those threats coercive, negating any apparent waiver of the privilege against self incrimination and the statements were thus declared inadmissible in a later criminal action against them. Further, in Gardner v Broderick (392 US 273) the court held that refusal to waive the privilege could not be grounds for termination of a police officer’s employment. In all of these cases testimony was being compelled by threats of disbarment or the loss of employment without a guarantee that the statements would not later be used in criminal proceedings. The Fifth Amendment and our State Constitution prohibit such coercion. But these decisions in no way imply that once immunity coextensive with the privilege is granted, the statements may not be used in a disciplinary hearing. When assurance is made that the statements cannot be used in a related criminal action, the constitutional privilege is satisfied and no more is required. Further use of the information does not offend the essential purposes of the privilege but guarantees the proper opportunity for the pursuit of other public values.

The State has a compelling interest in regulating our system of justice to assure high standards of professional conduct. Sanctions imposed in that capacity are distinct and apart from penalties and forfeitures stemming from criminal proceedings. Once the constitutional guarantee that no person "shall be compelled in any criminal case to be a witness against himself’ is assured by a grant of immunity, the State may act, and indeed must act, in its supervisory capacity to assure that those standards are maintained.

Accordingly, the order of the Appellate Division should be affirmed and the certified question answered in the affirmative.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler, Fuchsberg and Cooke concur in Per Curiam opinion.

Order affirmed, without costs. Question certified answered in the affirmative.


author: Chief Judge Breitel.

text:
    G.R.F., Inc., Respondent, v Board of Assessors of the County of Nassau, Appellant.
    Argued February 9, 1977;
    decided April 5, 1977

      James M. Catterson, Jr., County Attorney (Leon Friedman of counsel), Mineola, for appellant.

      Israel Hoffman, New York City, for respondent.
   Chief Judge Breitel.

In a tax certiorari proceeding, petitioner G.R.F., Inc., owner of Gimbel’s department store in the Roosevelt Field Regional Shopping Center, seeks a reduction in the assessment of the land and building owned by it. Supreme Court granted the reduction, in part; the Appellate Division affirmed; and the Nassau County Board of Assessors appeals.

There should be an affirmance. The trial court, in reducing the assessments, rejected both the value arrived at by petitioner, using exclusively a capitalization of income approach, and the value urged by the Board of Assessors, using a computation based only on reproduction cost less depreciation. For the reasons to be discussed, the rejection of each theory of valuation as an exclusive basis was not error, and the adaptation of both on economic analysis was appropriate.

The Gimbel’s store was built in 1962. The owner and developer of Roosevelt Field, in return for Gimbel’s agreement to construct and operate a department store in the shopping center, conveyed the necessary land to Gimbel’s. The owner-developer had previously done the excavation and foundation work and now agreed to contribute $1,320,139.48 toward the building construction. As part of the arrangement the developer guaranteed Gimbel’s minimum gross annual sales of $14,000,000 and agreed to pay Gimbel’s 3% of the deficit. Gimbel’s agreed to pay parking and tunnel fees of Vz% of the excess of sales over $14,000,000. Most of the remainder of the vast shopping center consists of retail stores rented by Roosevelt Field to individual merchants. At issue are the tax assessments only of the Gimbel’s property for the period of 1963 to 1972.

Capitalization of income generally provides an acceptable and, in the absence of market data, a preferred method of valuing rental property (see Matter of Pepsi-Cola Co. v Tax Comm., 19 AD2d 56, 60). Where, however, a building is held for the owner’s own use, and especially where the building bears the owner’s name, income capitalization may not adequately reflect the property’s total value (Matter of Seagram & Sons v Tax Comm., 18 AD2d 109, 112, 116, affd 14 NY2d 314, 318; Matter of Pepsi-Cola Co. v Tax Comm., 19 AD2d 56, 61, supra). Thus, without equating Gimbel’s situation with the one existing in the Seagram case, Gimbel’s presence in Roosevelt Field, a large and prestigious shopping center, may have value apart from the income that use of the subject property would bring.

At the same time, an assessment based exclusively on reproduction cost less depreciation would seriously overvalue the subject property. The cost approach, which, among other things, ignores entirely factors like functional obsolescence, is useful principally, apart from specialties, to set a ceiling on valuation (see Matter of 860 Fifth Ave. Corp. v Tax Comm., 8 NY2d 29, 32; see, also, 2 Orgel, Valuation Under Eminent Domain, § 199).

Construction of the Gimbel’s store would not have been justified, economically, on the basis of the expected return from the Gimbel’s store alone. Instead the improvements were justified in part by Gimbel’s status as a "flagship” store, drawing shoppers to the remainder of the shopping center. The developer, eager to increase the rental value of the smaller stores, subsidized the construction of Gimbel’s and for the same reason would have charged a lower rental to a "flagship” store, if the property had been rented, as is usually the case.

Thus, to the extent that a flagship store is an attraction to the satellite tenants, part of the cost of construction may reflect not value to the flagship store, but value to the remainder of the typical shopping center. That value, in turn, is reflected in the increased rental value of the shopping center property other than the flagship store, and, presumably, in the tax assessment of the whole shopping center property. On this view, it would be inequitable to assess the Gimbel’s property on the basis of reproduction cost less depreciation. The problem, obviously, arises in this case because of the separate ownership of the flagship store from that of the satellite rented stores.

Presented only with these incompatible theories of valuation, flawed if either be used exclusively, the trial court reached an adjustment by treating each basis as a factor in a balancing analysis (see Matter of Pepsi-Cola Co. v Tax Comm., 19 AD2d 56, 59, supra). On the record made at trial, the trial court was entitled to select one of the theories of valuation as primary, here the reproduction cost theory, but to adjust it by recognizing the influence of the income capitalization computation. Hence, the balancing adjustment was not error.

Logic and economic analysis suggest the incongruity of combining what are on their face incompatible theories of valuation, and such combinations should be avoided where possible. Pragmatism, however, requires adjustment when the economic realities prevent placing the properties in neat logical valuation boxes (see Matter of 860 Fifth Ave. Corp. v Tax Comm., 8 NY2d 29, 30-32, supra; Matter of Pepsi-Cola Co. v Tax Comm., 19 AD2d 56, 59-62, supra). These pragmatic considerations are present in this case, and in that respect the affirmed findings of fact are demonstrably sound. Thus, an adjustment, derived it is true, from an incompatible theory of valuation, if rationally and discriminately applied, is in the exceptional case acceptable, because the adjustment, properly factored, comes closest to establishing the true market value, the ultimate basis, if determinable, for assessment.

The exceptional case arises, in large measure, when no one of the accepted but alternative (and therefore to some extent incompatible) theories of valuation will account for the divers economic purposes served by a single property (Matter of Seagram & Sons v Tax Comm., 18 AD2d 109, affd 14 NY2d 314, supra; Matter of Pepsi-Cola Co. v Tax Comm., 19 AD2d 56, supra; Matter of 860 Fifth Ave. Corp. v Tax Comm., 8 NY2d 29, supra). Not to be confused with a major adjustment of the kind involved in this case are adjustments for "special features” in a building otherwise capable of valuation on any single theory or method (cf. Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 AD2d 153, 170-172, affd 16 NY2d 497). Nor should it be said that all of the legitimate exceptions have been considered in this analysis, as for example where an ineffecient enterpriser is involved; but it can be said that before there are adjustments based on what are otherwise incompatible theories of valuation, the discovery and use of the exception must be demonstrated to be legitimate in economic theory.

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

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

Order affirmed.


author: Jones, J.

text:
    Antonio P. Yarusso, Respondent, v Stanley Arbotowicz, Appellant.
    Argued February 8, 1977;
    decided April 5, 1977

      A. Paul Goldblum, Forest Hills, for appellant.

      Stephen A. Fritz, Mineola, for respondent.
   Jones, J.

We hold that when statutory authorization exists for obtaining personal jurisdiction by some manner other than personal delivery of the summons within the State—here, sections 253 apd 254 of the Vehicle and Traffic Law—the Statute of Limitations is not tolled under CPLR 207 by defendant’s absence from the State, even though plaintiff may in fact be unsuccessful in obtaining jurisdiction by the manner so provided. Further, uncompleted service under the Vehicle and Traffic Law sections on the Secretary of State, successfully challenged by defendant for lack of personal jurisdiction, does not stop the running of the limitation period.

The present action stems from an automobile accident that occurred on November 24, 1968 in Nassau County. Although defendant was a resident of New York at the time of the accident, in November, 1970 he left the State on the vessel Moonmist and traveled to the State of Florida where he resided on the vessel, moored at a North Miami Beach marina, until February, 1971, when he moved to an apartment at 3586 North West 43rd Street, Miami, where he remained until the following February. Other than for a brief visit to New York in February, 1972, defendant never returned to this State until January, 1974, when he took up the residence he has since maintained with his father at Port Washington.

Plaintiff made several attempts to secure jurisdiction over defendant for a personal injury action. On September 29, 1971, pursuant to the provisions of sections 253 and 254 of the Vehicle and Traffic Law, he sent the summons and complaint to the New York Secretary of State and mailed copies by registered mail, return receipt requested, to defendant at the North Miami Beach marina. Because defendant had left the Moonmist seven months earlier, the envelope addressed to him was returned marked "Return to sender, Not here. Unknown”. On November 22, 1971 plaintiff again sought to obtain jurisdiction by resort to the Vehicle and Traffic Law provisions, this time addressing copies of the papers mailed to the Secretary of State to defendant at "3586 North West 41st Street, Miami, Florida”. This latter mailing was returned by the Postal Service marked "addressee unknown”, for, as noted, defendant resided on 43rd Street, not 41st Street, in Miami.

When, on May 15, 1974, plaintiff moved for default judgment on the basis of defendant’s failure to respond to the service purportedly made in compliance with the Vehicle and Traffic Law provisions in 1971, defendant successfully cross-moved for dismissal of the action for lack of personal jurisdiction on the ground that that service on him was never completed. No appeal was ever taken from the dismissal of this first action for want of personal jurisdiction.

While these cross motions were pending, on July 9, 1974 a summons and complaint were personally served on defendant at his then New York residence. Defendant then moved for summary judgment dismissing the second action, predicated on the service within the State on July 9, 1974, on the ground that it was time-barred. The denial of that motion by Special Term was affirmed at the Appellate Division, which then granted leave to appeal to our court, certifying a question whether its order of affirmance was properly made. We conclude that the dispositions by the courts below were erroneous and that defendant is entitled to summary judgment dismissing the present action.

CPLR 207, on which plaintiff relies for his claims of tolling of the three-year Statute of Limitations otherwise applicable here and of the timeliness of the present action, contains a provision by which the section—which tolls the Statute of Limitations during substantial absence of the defendant from the State—is made inapplicable "while jurisdiction over the person of the defendant can be obtained without personal delivery of the summons to him within the state” (subd 3). The present case comes squarely within this language, with the result that the benefit of the statutory toll is not available to plaintiff.

At least two methods of obtaining personal jurisdiction over this defendant, without personal delivery of process within the State, were available to plaintiff. Because the alleged negligence of defendant in the operation of a motor vehicle was a tortious act committed within the State, personal jurisdiction could have been acquired under CPLR 313 and 302 by service in Florida, after defendant had transferred his residence there, in any manner in which service can be made in this State. Alternatively, plaintiff could have elected—as he did— to pursue the method of service provided by the Vehicle and Traffic Law for claims arising from automobile accidents occurring in this State. The fact that plaintiff’s investigation was not adequate to uncover defendant’s correct addresses made means and methods of out-of-State service no less available to plaintiff for the purpose of CPLR 207 (subd 3).

It has been suggested that the words "jurisdiction over the person * * * can be obtained” in CPLR 207 (subd 3) should be read as contemplating effective service in fact (or at least a substantial practical expectation that service can be effected), rather than merely the availability of an authorized method of service by which personal jurisdiction could be obtained. We reject what appears to us to be the too narrow reading of the statutory language implicit in this suggestion. The only conclusive test, of course, as to whether jurisdiction could be obtained in the operational sense would be whether in fact it had been obtained in the particular instance. Had that been the legislative intent subdivision 3 would have been purposeless; tolling of a Statute of Limitations in that sense always occurs when jurisdiction is obtained. The broader, literal interpretation requiring only the availability of an authorized method of service comports with the treatment accorded resident defendants and conforms to policy considerations. As a matter of principle, considering the availability and practicality of long-arm jurisdiction, we see no reason to differentiate among resident, nonresident and former resident defendants. In general it is not significantly more difficult (if indeed it is more difficult at all) to locate persons residing outside the State of New York than those within its borders.

Accordingly, we are in agreement to the extent indicated with the position taken in Goodemote v McClain (40 AD2d 22), but rejected by Special Term and the Appellate Division in this case, that the availability of statutory methods of acquiring personal jurisdiction other than by personal delivery within the State makes inapplicable the tolling provisions of CPLR 207.

Both courts below proceeded further to state that under Sadek v Stewart (38 AD2d 655) and related cases service by mailing process to the Secretary of State on September 29, 1971 tolled the running of the Statute of Limitations. We do not question the holding in Sadek, but conclude that the proposition for which that case and its precedential forerunners stand is not applicable to the case now before us. Under the Sadek principle the Statute of Limitations will not operate to bar a plaintiff’s claim if the first step in the two-step method of service prescribed by the Vehicle and Traffic Law has been taken within the limitation period, ant/—this is the critical element not present in the case before us—following the "incomplete” first step the defendant thereafter submits to the jurisdiction of the court, thereby foreclosing a claim that no jurisdiction was obtained because the "service” within the statutory period was incomplete. Thus in Sadek the accident occurred on May 3, 1967; on May 1, 1970 service by mail was made on the Secretary of State under section 253 of the Vehicle and Traffic Law; mail service on the defendant was returned marked "Unknown”. On June 8, 1970, however, the defendant appeared in the action and raised the issue of the Statute of Limitations but did not question the jurisdiction of the court. The court wrote, "The appellants have appeared and we are not concerned with jurisdictional questions” (38 AD2d, at p 656) (citing Canada Gen. Ins. Co. v Pierson, 27 AD2d 484; Glines v Muszynski, 15 AD2d 435).

In Canada Gen. Ins. Co., the accident occurred on March 5, 1963; the summons and complaint were delivered to the Sheriff on February 23, 1966; service was made under section 254 of the Vehicle and Traffic Law by mail on the Secretary of State on April 22, 1966; mail to the defendant in Oregon was returned undelivered. The defendant later appeared in the action and raised the limitations issue but, as in Sadek, made no motion to dismiss for lack of jurisdiction. The court, referring to CPLR 3211, wrote: "The defendant, having moved under paragraph 5 of subdivision (a) [Statute of Limitations] without raising the objection under paragraph 8 [lack of personal jurisdiction], the defendant waived his right of objection as to jurisdiction of the person. The defendant, therefore, must be deemed to have generally appeared in the action and waived any objection he had with regard to noncompliance with the provisions of sections 253 and 254 of the Vehicle and Traffic Law.” (27 AD2d, at pp 486-487.)

Earlier there had been a similar holding in Glines. In that case the accident had occurred on May 18, 1957; the defendant was served under then sections 52 and 52-a (predecessors of present §§ 253, 254) by mail to the Secretary of State on February 24, 1960; service was attempted to be made on the defendant by mail in California on September 28, 1960. Again, however, the defendant appeared generally in the action and raised only the Statute of Limitations. Objections to the effectiveness of the service were held to have been waived by the general appearance.

By critical contrast the procedural situation in the case now before us was significantly different. Here the date of the accident was November 24, 1968. Service by mail was made on the Secretary of State on September 29, 1971 and again on November 22, 1971. Mail addressed to defendant was returned undelivered. In May, 1974 plaintiff moved for default judgment. Defendant then cross-moved to dismiss for lack of jurisdiction. That motion was granted on July 19, 1974, and no appeal was ever taken. Thus, the original action predicated on the 1971 service under the Vehicle and Traffic Law came to an end.

In the meantime personal service in the present, second action was effected on defendant in New York State on July 9, 1974. In this latter action defendant moved for summary judgment on the ground that plaintiff’s claim was then barred by the three-year Statute of Limitations. It is our conclusion that this motion should have been granted. Because there were available authorized methods of service by which personal jurisdiction could have been obtained over the defendant while a nonresident, the Statute of Limitations was not tolled (CPLR 207, subd 3). Then, because he had not submitted to the jurisdiction of the court, as had the defendants in Sadek, Canada Gen. Ins. Co. and Glines, he was not precluded from successfully challenging the sufficiency of the attempted service under the Vehicle and Traffic Law in the original action.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to Supreme Court, Suffolk County, for the entry of summary judgment dismissing the complaint.

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

Order reversed, with costs, and the case remitted to Supreme Court, Suffolk County, for the entry of summary judgment dismissing the complaint. Question certified answered in the negative.


author: Fuchsberg, J.

text:
    Salesian Society, Inc., Appellant, v Village of Ellenville et al., Respondents, et al., Defendant.
    Argued February 7, 1977;
    decided April 5, 1977

      Theodore P. Daly, Richard T. Graham, Henry E. Otto and John Peri, Jr., New York City, for appellant.

      James J. Murray, Ellenville, for the Village of Ellenville, respondent.

      Jay L. Samoff, Joseph Friedman and Douglas Jesse Hunt, Ellenville, for Ice Caves Mountain Corp., respondent.
   Fuchsberg, J.

We hold that under the peculiar circumstances of this case the failure to timely serve and file a notice of claim on the Village of Ellenville as required by former section 341-b of the Village Law was not a bar to the plaintiff’s recovery in this action brought to determine title to real property under article 15 of the Real Property Actions and Proceedings Law.

The dispute centers on the correct location of a boundary line separating contiguous parcels owned by the plaintiff and the village. It was plaintiff’s position that, since a time almost 10 years prior to the commencement of the action, the other defendants unlawfully occupied 15 acres of plaintiff’s land under purported leases from the village.

The action was commenced on October 26, 1967; the complaint contained no allegation of the service of a notice of claim. On June 9, 1969, all the parties entered into a written stipulation which stated the contentions of the parties; it did not in any way suggest any issue concerning compliance with notice of claim requirements. After a trial without a jury in September and October, 1973, plaintiff was granted possession of the disputed land, its boundaries fixed and the plaintiff declared its owner; the issue of the determination of damages was reserved for trial at a later date.

On initial appeal, again neither party raised any question concerning the fact that plaintiff had not pleaded nor proved that it had served and filed a notice of claim. The Appellate Division, on its own initiative, nevertheless reversed the judgment and dismissed the complaint on that ground alone. It did not address or rule on any of the other issues in the case, including the substantive one of adverse possession raised by the village or the contention asserted by the plaintiff that that defense had been waived.

While we do not doubt the power of the Appellate Division to have treated with that issue sua sponte (see Vestal, Sua Sponte Consideration in Appellate Review, 27 Fordham L Rev 477; cf. Rivera v W & R. Serv. Sta., 34 AD2d 115, 117), we conclude that, in the context of this case, it should not have been dispositive of the appeal before it, and, therefore, we may not permit the order of reversal to stand.

Former section 341-b of the Village Law (subsequently reenacted in substantially the same form as CPLR 9802 by L 1972, ch 890), makes clear that any action against a village must be commenced within one year, except where based upon or arising out of a tort or contract. Also, a "written verified claim” together with a written notice of intention to sue must be filed with the village clerk within six months after the cause of action shall have accrued. We have recently had occasion to reiterate that compliance with these provisions is a condition precedent to be pleaded and proved by the one bringing suit (Stage v Village of Oswego, 39 NY2d 1017, affg on mem thereat 48 AD2d 985), so that failure to present a claim within the applicable time period ordinarily "operates to bar any claim or action against the village for that particular cause of action” (8 Weinstein-Korn-Miller, NY Civ Prac, par 9802.02, p 98-7).

Such statutes are not indigenous to New York alone (see, generally, 2 Antieau, Municipal Corporation Law, § 16.08; 17 McQuillan, Municipal Corporations, § 48.02). Whether regarded as permissible qualifications upon a legislatively created right or as reasonable conditions for the exercise of a common-law right, among their recognized purposes is the affording to local governments of the opportunity to fully investigate and, if regarded as appropriate, to settle claims without the expense and hazards of litigation (Teresta v City of New York, 304 NY 440, 443; Sweeney v City of New York, 225 NY 271, 273; Purdy v City of New York, 193 NY 521, 523). Another purpose is to lessen the possibility of "connivance of corrupt officials” (17 McQuillan, Municipal Corporations, § 48.02). Thus, though notice of claim provisions also benefit claimants by assuring earlier processing and consideration of their claims, they are enacted primarily for the benefit of the governmental agencies to which they apply and ordinarily may not be waived by their officials, most certainly not in advance of litigation.

But this is not such a case. There was here no waiver prior to the inception of the action. Moreover, though no notice had been filed and, consequently, there was no allegation to that effect in the complaint, the village never availed itself of the statutory practice devices by which we now interpose the equivalents of the ancient common-law pleas in bar or in abatement or enter a general demurrer (CPLR 3211; 4 Weinstein-Korn-Miller, NY Civ Prac, par 3211.01). More than that, in the entire six years between the start of suit and the opening of trial, it in no way ever raised the matter of the notice at all, not at trial or on appeal. It did not even do so when the Trial Judge, most pointedly, had occasion to remark to counsel that "municipalities are not too bashful in setting up defenses * * * as to claims.” And it continued to fail to do so, in its briefing and on its oral argument, even when, having been unsuccessful at trial, it sought appellate reversal of the judgment against it.

This litigation has been vigorously contested by both sides throughout. Each was represented by diligent counsel. The trial itself consumed five days. The substance of the pretrial stipulation entered into between the attorneys in 1969, close to two years after suit had been started, evidences extensive adversarial activity in contemplation of an expectation that the case was going to be decided on the merits of the substantive issues. The stipulation was later marked in evidence and was the subject of argument at trial; as indicated, it made no mention of any issue of notice.

It is significant that these events occurred in a litigation context. The exposure of the dispute between the parties to the formal and open processes of an on-going lawsuit, including, in this case, those of a full trial as well as an appellate review, provided a strong guarantee that the village’s tactic of not contesting the case on the question of notice, but instead directly on the basic underlying issues, was one adopted by its representatives in good faith.

The management of litigation calls upon counsel to exercise a highly judgmental function as they "chart their * * * procedural course through the courts” (Stevenson v News Syndicate Co., 302 NY 81, 87). For instance, although the longstanding nature of the alleged trespass on plaintiff’s property may not bring this case within the reach of those decisions in which notice of claim requirements are inapplicable because of the immediacy with which the granting of equitable relief would be warranted (Schenker v Village of Liberty, 261 App Div 54, affd 289 NY 788; Thomann v City of Rochester, 256 NY 165), the village’s counsel conceivably may have decided not to raise the notice question because he believed that it did. The point is that whether that decision ultimately turned out to be right or wrong would not be determinative of counsel’s right to hold, and act upon, that opinion. And it is no more so because we find it unnecessary to reach that particular question in the light of our conclusion that, under the circumstances in this case, the failure of the village to have raised the notice issue prior to final judgment, whether rationalized or not, precluded it from further relying on the fact that compliance with the notice requirements was neither pleaded nor proved.

The stipulation to which we have previously alluded makes that conclusion particularly compelling in this case. By its provisions the parties expressly defined the "issue herein” to be whether the title to the disputed lands was in the defendant or the appellant and then goes on to provide that "[i]n the event that the issue described * * * is resolved in favor of the defendants * * * [j]udgment herein shall be in favor of defendants against plaintiff.” In its opinion, the trial court, as it had a right to do, relied on it explicitly. Courts have long favored the fashioning of stipulations by opposing counsel as effective and enforceable means for expediting trials by permitting them to focus on the controverted issues (see Matter of New York, Lackawanna & Western R. R. Co., 98 NY 447, 453). Such a procedural path may be employed not only by attorneys who represent private litigants but those who represent public ones as well (see Thrash v O’Donnell, 448 F2d 886, 889, n 7; Girdler v State of New York, 42 Misc 2d 558).

Of course, notwithstanding such considerations, if the waiver, though occurring in the course of litigation, were one tainted by collusion, fraud, overreaching or the like, of none of which is there any suggestion here, it might not be sustainable. Or, if, despite circumstances otherwise supporting a waiver in a litigation situation, it appeared that the underlying transaction to which the litigation was directed was illegal, the waiver might be disregarded.

Furthermore, though the failure to plead compliance with notice requirements is not a jurisdictional defect going to the competence of a court to adjudicate its consequences (cf. Lacks v Lacks, 41 NY2d 71; Nuerenberger v State of New York, 41 NY2d 111), it may be stated as a general proposition that public policy would be offended if a municipality purports, no matter how "inadvertently”, to waive a notice of claim requirement for an indisputably stale cause of action (cf. Camarella v East Irondequoit Cent. School Bd., 34 NY2d 139; Pugh v Board of Educ., 38 AD2d 619, affd 30 NY2d 968). However, the case before us, as the village in its brief itself agrees, involves a continuing trespass and, as the Appellate Division noted, plaintiff, in the face of dismissal on the narrow issue of notice alone, could, therefore, now file a notice of claim and thereafter bring a new cause of action. Considerations of judicial economy interdict that course.

Finally, in view of its prior appellate history, we deem it best to remit this case for consideration of both the law and the facts by the Appellate Division, so that it may review the entire record on the merits (cf. Cohen and Karger, Powers of the New York Court of Appeals, § 143, p 575).

Accordingly, the order of the Appellate Division should be reversed, without costs, and the matter remitted to that court for further proceedings consistent with this opinion.

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

Order reversed, etc.

      . Tort and contract actions must be commenced within one year and 90 days and one year and six months, respectively, after a claim accrues (CPLR 9801, 9802; see 8 Weinstein-Korn-Miller, NY Civ Prac, par 9801.02). Service and filing of a notice of claim (within one year in contract actions, 90 days in tort actions) is a prerequisite to suit in these cases also (ibid.).

      . As we are advised on this appeal, plaintiff in fact has done just that.


author: Cooke, J.

text:
    Board of Education, Great Neck Union Free School District, Appellant, v Zita J. Areman, as President of the Great Neck Teachers’ Association, Respondent.
    Argued February 10, 1977;
    decided April 5, 1977

      Jerome H. Ehrlich and Charles D. Maurer, Garden City, for appellant.

      Paul Henry Janis and Eugene M. Kaufman, New York City, for respondent.
   Cooke, J.

The Board of Education of Great Neck Union Free School District and the Great Neck Teachers’ Association, the latter being the negotiating agent for all teachers employed by the board, engaged in collective bargaining which culminated in a three-year agreement dated July 1, 1973. Article 32 of that agreement, entitled "personnel files”, provided in subdivision A that a teacher’s official personnel file was to include the following materials:

"1. Application

"2. Official statement of courses taken and degrees granted

"3. Certificate

"4. Military discharge paper (if any) and pertinent correspondence

"5. Requests for salary re-classification

"6. Requests for leave

"7. Requests for transfer or promotion

"8. Recommendations from previous employers

"9. Principal’s evaluations made subsequent to July 1, 1968

"10. All commendations

"11. Communications relating to service with professional organizations

"12. Reports of disciplinary action taken.”

Access to that file was to be governed by subdivision E which provided that each faculty member’s file shall be available for inspection only to:

"1. The Superintendent

"2. The Assistant Superintendents

"3. The Director of Elementary or Secondary Instruction or Pupil Personnel Services, depending on which one of these is appropriate to the particular faculty member

"4. The Director of Personnel

"5. The Building Principal

"6. The faculty member whose file it is.”

Article 18 of the agreement contained provision for the resolution of grievances by arbitration, the term "grievance” being defined therein as "any claimed violation, misinterpretation or inequitable application of existing laws, Board policies, rules, procedures, regulations, administrative orders or rules governing conditions of professional service to the extent provided by law; or the provisions of this agreement.”

A demand for arbitration, dated October 4, 1974, was served upon the board. In its demand, the Teachers’ Association asserted that the board "violated Articles 1, 3 C7, 32 et al of the 1973-76 collective bargaining agreement” such violation occurring as a result of: (A.) The examination by Board of Education members, of teachers personnel files; and (B.) The adoption, by the Board of Education, of the following resolution: "Resolved, that the Board of Education authorizes, empowers and directs the Superintendent of Schools and/or other members of the school administration having jurisdiction thereof to make available to said Board or any member of the Board any and all written, formal evaluations and observation reports of all school personnel for the examination of said Board.”

The remedy sought was fivefold: (1) rescission, by the Board of Education, of resolution quoted above; (2) destruction of all copies of items in teachers’ personnel files currently in possession of any member of the Board of Education; (3) a save-harmless guarantee for all teachers whose personnel files were reviewed by members of the Board of Education; (4) immediate and complete termination of examination of teachers’ personnel files by Board of Education members; and (5) any other remedy the arbitrator may deem appropriate.

The theory underlying the association’s demand was that the Board of Education, not being listed in subdivision E of article 32, does not have the right to inspect teacher personnel files and, having breached the agreement by inspection of such files and by adoption of the afore-mentioned resolution, may be called to account before the arbitrator.

An application to stay arbitration was made by the Board of Education and granted by Special Term. Accepting the board’s position, the court reasoned that while our State recognizes and respects agreements to arbitrate, citing Matter of Exercycle Corp. (Maratta) (9 NY2d 329), an exception to that policy exists where the performance which is the subject of the demand for arbitration is prohibited by statute. The court viewed the instant case as falling within the ambit of that exception. Reliance was not placed upon a particular prohibiting statute, but rather upon the nondelegable statutory duty of the board to employ qualified teachers (Education Law, § 1709). Since the ultimate obligation or responsibility is the board’s, "it follows”, wrote Special Term, "that its members have an inherent right to review the records and files of those whom they employ. Indeed, under section 3010 of the Education Law, members of a board of education might well subject themselves to criminal liability by failing to assure themselves of the qualifications of teachers whose employment they approve.” (80 Misc 2d 659, 662.) Thus, arbitration was permanently stayed, the court holding the dispute not arbitrable.

At the Appellate Division, Special Term’s order was reversed. In the appellate court’s view, the Education Law presented no bar to a collective bargaining agreement limiting a board of education’s right to inspect teacher personnel files. Whether the agreement did so limit the board’s right, was, the court held, a question for the arbitrator.

The Appellate Division’s reversal vests this court with jurisdiction and places before us the question of whether a board of education has the freedom to bargain away its right to inspect teacher personnel files. Numerous factors considered, our answer to this question is no. Such decision we ground not merely upon the several statutory provisions yet to be discussed, but, additionally, upon a base of public policy.

To begin, we note that this is but another variant in a line of recent cases wherein the board of education of a school district, be it union free, city or other, has entered into a collective bargaining agreement with the recognized organization representing the district’s teachers and then, later, raises questions as to its power to agree and bind itself to certain of the contract provisions (see, e.g., Board of Educ. v Associated Teachers of Huntington, 30 NY2d 122 [various economic benefits and arbitration of disputes concerning disciplinary action]; Syracuse Teachers Assn. v Board of Educ., 35 NY2d 743 [establishment of a "Sick Leave Bank”]; Matter of Susquehanna Val. Cent. School Dist. at Conklin [Susquehanna Val. Teachers’ Assn.], 37 NY2d 614 [staff size]; Matter of Union Free School Dist. No. 2 of Town of Cheektowaga v Nyquist, 38 NY2d 137 [transfer credits]; Matter of Cohoes City School Dist. v Cohoes Teachers Assn., 40 NY2d 774 [tenure determinations]; cf. Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46 [class size]).

In the earliest of these cases, Board of Educ. v Associated Teachers of Huntington (30 NY2d 122, 130, supra), we recognized that absent a statutory provision expressly or impliedly prohibiting collective bargaining as to a particular term or condition of employment, boards of education are presumed to possess the broad powers needed to negotiate with employees. In Syracuse Teachers Assn. v Board of Educ. (35 NY2d 743, 744, supra), this court construed the Huntington language "to mean that collective bargaining under the Taylor Law (Civil Service Law, § 204, subd. 1) has broad scope with respect to the terms and conditions of employment, limited by plain and clear, rather than express, prohibitions in the statute or decisional law (see, generally, Matter of West Irondequoit Teachers’ Assn. v. Helsby, 35 N Y 2d 46, citing and discussing the Huntington case).” Further clarification and elucidation of the limitation or restriction is to be found in Matter of Susquehanna Val. Cent. School Dist. at Conklin [Susquehanna Val. Teachers’ Assn.] (37 NY2d 614, supra). There, public policy was presented as a possible restriction independent of statute. The court explained: "Public policy, whether derived from, and whether explicit or implicit in statute or decisional law, or in neither, may also restrict the freedom to arbitrate” (37 NY2d, at pp 616-617). In Matter of Cohoes City School Dist. v Cohoes Teachers Assn. (40 NY2d 774, supra), the majority of this court held unenforceable a contract provision which purported to prohibit termination of nontenured teachers at the end of the probationary period without just cause. The court identified the several sections of the Education Law which vest in the board of education the authority to make tenure decisions (Education Law, §§2509, 2573, 3012, 3013, 6206) and recognized that, as such responsibility cannot be delegated or abnegated, it is "beyond the power of the board to surrender this responsibility as part of any agreement reached in consequence of collective bargaining” (40 NY2d 774, 778). While the court reiterated the general rule that any matter in controversy between a board of education and its teachers may be the subject of collective bargaining, it relied upon the limitation placed upon that rule by public policy, implicit there in the several sections of the Education Law.

Different from private matters where freedom to contract is virtually unlimited, public school matters are, from time to time, subject to restrictive policies which reflect governmental interests and public concerns (Matter of Susquehanna Val. Cent. School Dist. at Conklin [Susquehanna Val. Teachers’ Assn.], 37 NY2d 614, 616, supra). Boards of education are but representatives of the public interest and the public interest must, certainly at times, bind these representatives and limit or restrict their power to, in turn, bind the public which they represent. This said, we must now examine the nature of a board of education’s right to inspect teacher personnel files as reflected in the light of existing statutes and public policy, the latter as expressed within or without such statutes.

The State Legislature has, in the Education Law, made provision for, inter alia, an Education Department, charged with the general management and supervision of all public schools (Education Law, § 101). The Regents of the University of the State of New York head that department and have the power to appoint the Commissioner of Education, the Chief Administrative Officer (Education Law, § 101; see, generally, Graves, Development of the Education Law in New York, McKinney’s Cons Laws of NY, Book 16, Education Law, pp XII-XVII). School districts of various types including common school districts (art 33), union free school districts (art 35), central school districts (art 37) and city school districts (arts 51, 52) likewise owe their continuing existence to the Legislature (Education Law, § 1501), as do their governing bodies, their boards of education (or in the case of common school districts, boards of trustees). In the instant case, we are concerned with the board of education of a union free school district, the powers and duties of which are set forth in section 1709 et seq. of the Education Law. One such duty with its concomitant power is the duty "[t]o contract with and employ such persons as by the provisions of this chapter are qualified teachers” (Education Law, § 1709, subd 16). As the board indicates in its argument, its total and unrelieved accountability for compliance with subdivision 16 of section 1709 is made clear in section 3010 of the Education Law, which provides that "Any trustee or member of a board of education who applies, or directs, or consents to the application of, any district money to the payment of an unqualified teacher’s salary, thereby commits a misdemeanor; and any fine imposed upon him therefor shall be for the benefit of the common schools of the district.” Having ultimate, ongoing and fixed responsibility for employing qualified teachers, the board must have access to its teacher’s personnel files.

Similarly, the necessity of access to teacher’s personnel files is highlighted when focusing upon the board of education’s authority and responsibility to grant or deny tenure (see, e.g., Education Law, §§ 3012, 3013, 3031). The relatively recent amendment to section 3031 of the Education Law, for example, gives a teacher the right to request from the board a written statement of that body’s reasons for its intention not to grant tenure when tenure has been recommended by a superintendent or district principal and provides that "within seven days thereafter such written statement should be furnished” (Education Law, § 3031, subd [b]). Absent access to teacher personnel files, the board’s ability to make such independent determinations, as well as its ability to furnish written statements in support thereof, would be impaired greatly. Moreover, as referred to in Matter of Anderson v Board of Educ. (38 NY2d 897), section 3031 may lead to a situation where a superintendent is called upon to justify and defend his decisions before the board. That board, receiving such a presentation but without all relevant materials independently available to it, would not be in an effective position from which to question or challenge. Certainly, boards of education, representatives of the points of view of the community and responsible for the "superintendence and management” of the educational affairs of the district must be on equal footing with superintendents and principals, representatives of the points of view of professional educators. The balance is one set by public policy. It cannot be tipped by an act of the board.

Our recognition that a board of education has the right to inspect teacher personnel files and has no power to bargain away such right is supported by statute and public policy. The right of which we speak, however, must be considered from the point of view of the teachers whose files must remain open to their employer. The Teachers’ Association characterizes article 32 of the collective bargaining agreement as merely an attempt to prevent lay members of the Board of Education from randomly perusing teacher files and making judgments concerning teacher performance without one of the professionals listed in the agreement laying a proper foundation. This argument has two aspects, one related to perusal, the other to independent judgments. It cannot be disputed that the board can make judgments different from those of the professionals it employs (see, e.g., Education Law, § 3031) even where the foundation has been laid. Thus, it is not the independence of the judgment that the teachers can rightfully question but, rather, the random perusal of their files. While the board has the right and the duty to inspect teacher’s personnel files, there is no question that any inspection must be related to legitimate board purposes and functions.

Under section 88 of the Public Officers Law, while certain records are open and available to the public, employee personnel files constitute one of the enumerated exceptions (Public Officers Law, § 88, subd 3, par b). Thus, teachers and other public employees can expect a measure of personal privacy as to the materials housed in the personnel files their employers maintain. Although access by the board of education cannot be limited, improper roving in personnel files should not be countenanced and, in fact, improper use of information thus obtained might serve as a ground for removal of a member of the Board of Education (Education Law, §§ 306, 1706; but cf. Komyathy v Board of Educ., 75 Misc 2d 859, 868-869).

In that regard we note that while the Regents exercise legislative functions concerning the educational system of the State of New York and determine educational policy for the State (Education Law, § 207), both the Regents and the Commissioner of Education have the power to establish rules for carrying into effect the laws and policies of the State relating to education (Education Law, §§207, 301). Under section 306 of the Education Law, the commissioner, after a hearing and upon satisfactory proof, has the power to remove from office a member of a board of education if such member "has been guilty of any wilful violation or neglect of duty under this chapter * * * or wilfully disobeying any decision, order, rule or regulation of the regents or of the commissioner of education”, while under sections 1706 and 2559 the commissioner can remove a board member "for cause shown”. While improper use of materials gathered from personnel files might come within the language and operation of the existing provisions, the court takes this opportunity to suggest that, if there is significant evidence of abuse in this area, those with rule-making power should undertake a study so as to determine the need for a specific rule or regulation directed at preventing potential abuse, particularly as notice of proscribed conduct is an essential element of due process (Matter of Beal Props. v State Liq. Auth., 37 NY2d 861, 862).

In conclusion we repeat that a board of education cannot bargain away its right to inspect teacher personnel files and that a provision in a collective bargaining agreement which might reflect such a bargain is unenforceable as against public policy.

The order of the Appellate Division should be reversed, and that of Special Term, permanently staying arbitration, should be reinstated.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones and Fuchsberg concur; Judge Wachtler taking no part.

Order reversed, with costs, and the order of Supreme Court, Nassau County, reinstated.