author: Titone, J.

text:
    Hector Rosado, Plaintiff, v Proctor & Schwartz, Inc., Defendant and Third-Party Plaintiff-Appellant. Comet Fibers, Inc., Third-Party Defendant-Respondent.
    Argued September 11, 1985;
    decided October 15, 1985
    POINTS OF COUNSEL

      Irwin H. Haut for defendant and third-party plaintiff-appellant.
    The trial court erred in dismissing the claim of defendant-appellant, manufacturer, against third-party defendant-respondent, employer, for implied contractual indemnity or quasi-contractual indemnity. (Robinson v Reed-Prentice Div., 49 NY2d 471; Garrett v Holiday Inns, 86 AD2d 469, 58 NY2d 253; McDermott v

      City of New York, 50 NY2d 211; Cox v Cordice, 90 AD2d 297; Brown v Rosenbaum, 287 NY 510; Mauro v McCrindle, 70 AD2d 77, 52 NY2d 719; Kelly v Diesel Constr. Div., 35 NY2d 1; Rogers v Dorchester Assoc., 32 NY2d 553; Proctor & Schwartz v United States Equip. Co., 624 F2d 771.)

      Anne Flanagan and Michael N. Stevens for third-party defendant-respondent.
    I. The contractual clause requiring respondent employer to provide guards for the machine in compliance with local law did not abrogate the manufacturer’s duty to design, a reasonably safe product nor create an implied indemnification agreement. (McDermott v City of New York, 50 NY2d 211; County of Westchester v Becket Assoc., 102 AD2d 34; Codling v Paglia, 32 NY2d 330; Voss v Black & Decker Mfg. Co., 59 NY2d 102; Proctor & Schwartz v United States Equip. Co., 624 F2d 510; Mauro v McCrindle, 70 AD2d 77, 52 NY2d 719; Kelly v Diesel Constr. Div., 35 NY2d 1; Rogers v Dorchester Assoc., 32 NY2d 553.) II. A finding of liability under any theory would have precluded appellant from obtaining indemnity. (Robinson v Reed-Prentice Div., 49 NY2d 471; Micallef v Miehle Co., 39 NY2d 376; Lancaster Silo & Block Co. v Northern Propane Gas Co., 75 AD2d 55.)
   OPINION OF THE COURT

Titone, J.

In this products liability action, defendant and third-party plaintiff, Proctor & Schwartz, Inc. (Proctor), appeals from an order of the Appellate Division, First Department, which affirmed an order of the Supreme Court, New York County, granting a motion made by third-party defendant, Comet Fibers, Inc. (Comet), to dismiss a cause of action seeking indemnification. The issue is whether a manufacturer of a defective product may obtain indemnification from the purchaser where the sales contract contains a provision requiring the purchaser to install certain safety devices and the purchaser’s employee, who is injured by the failure to properly install such devices, brings an action against the manufacturer predicated on the manufacturer’s marketing of a machine that is not reasonably safe. We hold that indemnification may not be obtained in such circumstances.

Plaintiff Hector Rosado was employed by Comet as one of the three operators of a garnett, a machine used in the textile industry to convert clumped fibers into a form of matting. The machine contains a series of massive chains and pulleys that operate the gears and rollers which straighten the fiber in the correct direction.

Comet purchased the garnett from Proctor in 1970. The contract of sale required Comet to install all "necessary guards for the exposed moving parts of the machine in accordance with the laws of the district in which the machine is to be located” as well as to "supply disconnect switches as required.”

When delivered, the machine had no safety devices. Comet installed a mesh fence around the gear and pulley area, but there was a gap of two to three feet between the gate and the machine, and the gate had several broad doors. When these doors were opened, all the pulleys, chains and gears were exposed. There was only a simple latch on the gate, without any interlock, or other machine cutoff at the gate area. The garnett thus would be fully operative with the gate open, and it appears that it was customary for the workers to operate it in that manner.

A few moments before closing time on September 9,1976, the plaintiff was instructed to rake the droppings around the machine. To do so, he was required to kneel next to the machine and, using a rake, pull debris from underneath. The plaintiff suddenly heard what he described as a "terrible noise” and immediately tried to stand up. Moving away, he hit his back on the fence and was caused to rebound in such a fashion that his right hand came into contact with unprotected chain and gears, severing his thumb and fingers.

Plaintiff Rosado commenced a suit against Proctor which, in turn, brought a third-party action against Comet, seeking contribution and indemnity. The indemnification claim, the subject of this appeal, was dismissed by Trial Term on the eve of trial. Comet then consummated a settlement agreement with plaintiff, thus foreclosing Proctor’s claim for contribution (see, General Obligations Law § 15-108).

Proctor thereafter settled with plaintiff subsequent to the commencement of trial but prior to verdict. Proctor then appealed from the dismissal of its claim for indemnification. The Appellate Division, First Department, affirmed, by a divided court, and Proctor, having abandoned the claim for contribution thereby rendering the order final (CPLR 5611; see, Cohen and Karger, Powers of the New York Court of Appeals §§ 20, 21 [rev ed]), appeals as of right (CPLR 5601 [a] [i]). We affirm.

To place the issue before us in focus, it is useful to restate the important substantive distinctions between contribution and indemnity. Basically, in contribution the loss is distributed among tort-feasors, by requiring joint tort-feasors to pay a proportionate share of the loss to one who has discharged their joint liability, while in indemnity the party held legally liable shifts the entire loss to another (see, D’Ambrosio v City of New York, 55 NY2d 454, 460-461; McDermott v City of New York, 50 NY2d 211, 216-217; Rock v Reed-Prentice Div., 39 NY2d 34, 38-39; McFall v Compagnie Mar. Belge [Lloyd Royal], S.A., 304 NY 314, 327-328; Prosser and Keeton, Torts § 51, at 341 [5th ed]; Siegel, NY Prac § 169). Contribution arises automatically when certain factors are present and does not require any kind of agreement between or among the wrongdoers (Siegel, NY Prac § 169). Indemnity, on the other hand, arises out of a contract which may be express or may be implied in law "to prevent a result which is regarded as unjust or unsatisfactory” (Prosser and Keeton, op. cit., at 341; see, McFall v Compagnie Mar. Belge [Lloyd Royal], S.A., supra, at pp 327-328; Garrett v Holiday Inns, 86 AD2d 469, mod on other grounds 58 NY2d 253; Tipaldi v Riverside Mem. Chapel, 273 App Div 414, affd 298 NY 686; Restatement [Second] of Torts § 886B).

Implied indemnity is frequently employed in favor of one who is vicariously liable for the tort of another (see, e.g., Rogers v Dorchester Assoc., 32 NY2d 553), but the principle is not so limited and has been invoked in other contexts as well (see, e.g, McDermott v City of New York, 50 NY2d 211, supra; McFall v Compagnie Mar. Belge [Lloyd Royal], S.A., 304 NY 314, supra; Garrett v Holiday Inns, supra, at p 471; Tipaldi v Riverside Mem. Chapel, supra). Nonetheless, "an indemnity cause of action can be sustained only if the third-party plaintiff and the third-party defendant have breached a duty to plaintiff and also if some duty to indemnify exists between them” (Garrett v Holiday Inns, supra, at p 471).

The distinctions between contribution and indemnity take on added importance in settlement negotiations. In order to remove a disincentive to settlement, the Legislature amended General Obligations Law § 15-108 (L 1974, ch 742) to provide that a settling tort-feasor can neither obtain, nor be liable for, a contribution claim (see, Mitchell v New York Hosp., 61 NY2d 208, 215; Mielcarek v Knights, 50 AD2d 122; 1974 NY Legis Ann, at 15; Occhialino, Contribution, Nineteenth Ann Report of NY Judicial Conference, 1974 NY Legis Doc No. 90, at 217; McLaughlin, Practice Commentary, McKinney’s Cons Laws of NY, Book 23 A, General Obligations Law § 15-108, pp 717-718). Inasmuch as an entire shifting of the loss to another would not act as a disincentive to settlement or necessitate an examination of relative degrees of fault, indemnification claims are not barred (McDermott v City of New York, 50 NY2d 211, 218-219, supra; Riviello v Waldron, 47 NY2d 297). A party who has settled and seeks what it characterizes as indemnification thus must show that it may not be held responsible in any degree. The statutory bar to contribution may not be circumvented by the simple expedient of calling the claim indemnification (County of Westchester v Becket Assoc., 66 NY2d 642, affg 102 AD2d 34, 47; Siffin v Rambuski, 87 AD2d 979). (See generally, Davis, Comparative Negligence, Comparative Contribution, and Equal Protection in the Trial and Settlement of Multiple Defendant Product Cases, 10 Ind L Rev 831; Comment, Comparative Negligence, Multiple Parties, and Settlements, 65 Cal L Rev 1264).

Proctor recognizes, as it must, that by virtue of the settlement agreements, any claim for contribution has been statutorily extinguished, and also seems to accept that no basis for contractual indemnity exists since Comet did not explicitly agree to indemnify or hold it harmless from product liability claims (see, Vey v Port Auth., 54 NY2d 221, 226-227; Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153; Margolin v New York Life Ins. Co., 32 NY2d 149, 153; Levine v Shell Oil Co., 28 NY2d 205; 1 NY PJI2d 616). Proctor argues, however, that the entire loss may be shifted to Comet on an implied indemnity theory. It contends that Comet was primarily responsible for plaintiff’s injury because it failed to properly install the safety devices as it was contractually obligated to do. According to Proctor, strict products liability is a species of liability without fault, so that even if its duty to manufacture and market a reasonably safe product is nondelegable, it may still recover its entire loss from its delegate if the jury were to conclude that it was otherwise blameless (see, Kemp v Lakelands Precast, 55 NY2d 1032; Kelly v Diesel Constr., 35 NY2d 1, 6; Abram v Lyon Steel Rigging Corp., 111 AD2d 291, 294). Alternatively, Proctor urges that Comet undertook a duty to install the appropriate safety devices under the sales contract, and that Comet’s breach of duty caused the loss, so that the equities compel that it be made whole. Neither premise is sound.

A strict products liability action is not analogous to vicarious liability, resulting in the imposition of liability without regard to fault. A manufacturer is held accountable as a wrongdoer, and, while the proof that must be adduced by a plaintiff is not as exacting as it would be in a pure negligence action, a prima facie case is not established unless it is shown, among other things, that in relation to those who will use it, the product was defective when it left the hands of the manufacturer because it was not reasonably safe (see, Cover v Cohen, 61 NY2d 261, 270; Steckal v Haughton Elevator Co., 59 NY2d 628; Voss v Black & Decker Mfg. Co., 59 NY2d 102, 107-108; Robinson v Reed-Prentice Div., 49 NY2d 471, 478-479; Micallef v Miehle Co., 39 NY2d 376, 385; Codling v Paglia, 32 NY2d 330, 341; Prosser and Keeton, op. cit. § 103; 1 NY PJI2d 169 [1984 Supp]). Any analogy to vicarious liability under the Labor Law (Allen v Cloutier Constr. Corp., 44 NY2d 290), respondeat superior, or the Vehicle and Traffic Law — instances in which liability is fixed upon another without regard to any volitional act — is clearly flawed.

In support of its argument that a duty to indemnify arises out of Comet’s contractual undertaking to install safety devices, Proctor points to Proctor & Schwartz v United States Equip. Co. (624 F2d 771), a case in which the United States Court of Appeals for the Sixth Circuit, applying what it perceived to be Michigan law, sustained a similar implied indemnity claim brought by Proctor. The purchaser there had agreed " 'to perform a certain service or furnish a product’ ” to the seller (624 F2d, at p 774), and the Sixth Circuit reasoned, in essence, that the purchaser was in the best position to know local law and to install appropriate safety devices. The holding has been followed by the Michigan Court of Appeals (Skinner v D-M-E Corp., 124 Mich App 580, 335 NW2d 90, 94; Cutter v Massey-Ferguson, Inc., 114 Mich App 28, 318 NW2d 554, 556-557), but it appears contrary to established law elsewhere (e.g., Bradford v Bendix-Westinghouse Automotive Air Brake Co., 33 Col App 99, 517 P2d 406, 415; Products Liability— Right to Indemnity, Ann., 28 ALR3d 943, 981 § 9 [a]), and we reject it.

Contrary to Proctor & Schwartz v United States Equip. Co. (supra), we hold that where, as here, the manufacturer is in the best position to know the dangers inherent in its product, and the dangers do not vary depending on jobsite, it is also in the best position to determine what safety devices should be employed (see, Robinson v Reed-Prentice Div., 49 NY2d 471, 480-481, supra; Codling v Paglia, 32 NY2d 330, 340-341, supra; cf. Biss v Tenneco, Inc., 64 AD2d 204, 207-208, lv denied 46 NY2d 711). Preventing injuries in the first place is the primary public policy underlying the doctrine of strict products liability. To allow a manufacturer like Proctor, which sells a product like a garnett with no safety devices, to shift the ultimate duty of care to others through boilerplate language in a sales contract, would erode the economic incentive manufacturers have to maintain safety and give sanction to the marketing of dangerous, stripped down, machines. This we decline to do.

McDermott v City of New York (50 NY2d 211, supra) offers no support for Proctor. In that case, the manufacturer breached a duty to the injured plaintiff by supplying defective equipment to his employer, the City of New York. We held that the city was entitled to indemnification for the damages that it had to pay on account of the manufacturer’s breach of duty. Our holding rested on the duty running from the manufacturer to the employee (McDermott v City of New York, supra, at p 219).

Here, Proctor seeks the converse. Proctor breached its duty to Comet’s employee and seeks to recover from Comet básed upon the contract between them. Unlike the manufacturer in McDermott, whose malfeasance compelled the city to pay damages to its employee, the damages Proctor is compelled to pay stem from its own wrong and there is no unjust enrichment on Comet’s part. As Justice Fein observed below, at best Comet’s failure to supply the safety devices amounted to a separate breach of contract, and inasmuch as there can be no liability for contractual indemnification unless it is explicitly assumed (Vey v Port Auth., 54 NY2d 221, 226-227, supra; Margolin v New York Life Ins. Co., 32 NY2d 149, supra; Levine v Shell Oil Co., 28 NY2d 205, supra), there should similarly be no basis for implied indemnity (see, Jackson v Long Is. Light. Co., 59 AD2d 523, 524).

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

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

Order affirmed, with costs.

       Parenthetically, the sales contract in this case provides that Pennsylvania law is to govern its construction and interpretation. Neither party has addressed the choice of law question and has assumed that New York law should control. Although we decline to reach that issue on our own, we would note that, under Pennsylvania law, no third-party action could be pursued against Comet (see, Heckendorn v Consolidated Rail Corp., 502 Pa 101, 465 A2d 609).


source: Caselaw Access Project

author: Simons, J.

license: Public Domain

text:
    Robert Sasso et al., as Trustees of Local 282 Welfare and Pension Trust Funds, Appellants, v Charles F. Vachris et al., Respondents.
    Argued September 5, 1985;
    decided October 22, 1985

      POINTS OF COUNSEL

      Steven R. Miller for appellants.
    Since Business Corporation Law § 630 merely affords a remedy to recover delinquent contributions and does not regulate employee benefit plans, the statute is not preempted by ERISA. (Stone & Webster Eng. Corp. v Ilsley, 690 F2d 323, affd sub nom. Arcudi v Stone & Webster Eng. Corp., 463 US 1220; Rebaldo v Cuomo, 749 F2d 133; American Tel. & Tel. Co. v Merry, 592 F2d 113; Local Union 212 v Local 212 Intl. Bhd. of Elec. Workers Credit Union, 549 F Supp 1299, 735 F2d 1010; Deiches v Carpenters’ Health & Welfare Fund, 572 F Supp 766; Employees Sav. Plan v Geer, 535 F Supp 1052; Johnson v Clay Partition Co., 93 Misc 2d 414, 65 AD2d 737; Sasso v Millbrook Enters., 108 Misc 2d 562; Sasso v Gallucci, 112 Misc 2d 865; Alessi v Raybestos-Manhattan, Inc., 451 US 504.)

      John J. Howard and George E. Reed, Jr., for Charles F. Vachris, respondent.
    An action against shareholders under Business Corporation Law § 630 for contributions to an employee benefit plan is preempted by ERISA. (Shaw v Delta Air Lines, 463 US 85; Franchise Tax Bd. v Laborers Vacation Trust, 463 US 1; California Hosp. Assn. v Henning, 569 F Supp 1544; Retail Shoe Health Commn. v Reminick, 62 NY2d 173; California Chamber of Commerce v Simpson, 601 F Supp 104; Tolson v Retirement Comm., 566 F Supp 1503; Alessi v Raybestos-Manhattan, Inc., 451 US 504; Champion Intl. Corp. v Brown, 731 F2d 1406; Stone & Webster Eng. Corp. v Ilsley, 690 F2d 323, affd sub nom. Arcudi v Stone & Webster Eng. Corp., 463 US 1220; Lane v Goren, 743 F2d 1337.)

      Robert Abrams, Attorney-General (Andrew Schulz, Robert Hermann, O. Peter Sherwood, Carlin Meyer and Jane Lauer Barker of counsel),
    in his statutory capacity under section 71 of the Executive Law, amicus curiae. ERISA does not preempt State laws enforcing employer obligations to make benefit fund contributions. (Ray v Atlantic Richfield Co., 435 US 151; Rice v Santa Fe Elevator Corp., 331 US 218; Alessi v Raybestos-Manhattan, Inc., 451 US 504; Rebaldo v Cuomo, 749 F2d 133; Belknap, Inc. v Hale, 463 US 491; Farmer v Carpenters, 430 US 290; Bristor v Smith, 158 NY 157; Lindsey v Winkler, 52 Misc 2d 1037; De Canas v Bica, 424 US 351; Catholic High School Assn. v Culvert, 753 F2d 1161.)
   OPINION OF THE COURT

Simons, J.

The question presented is whether Business Corporation Law § 630, which provides an enforcement mechanism for employees to recover unpaid contributions to employee pension funds and welfare benefits directly from the 10 largest shareholders of a closely held corporation, is preempted by section 514 (a) of the Employee Retirement Income Security Act (ERISA) of 1974 (29 USC § 1144 [a]) because it impermissibly regulates the terms and conditions of employee benefit plans. We conclude that it is not.

Plaintiffs are trustees of a welfare and pension trust fund established by Local Union 282. They commenced this action against defendants, shareholders of the Vacar Construction Company, to recover payments which the corporation failed to contribute to the trust fund created to provide welfare and retirement benefits for plaintiffs’ members and other covered employees. The unpaid contributions were required by the collective bargaining and trust agreements entered into between Local 282 and Vacar for services performed by Local 282 employees between May 1978 and February 9,1979. This action was commenced after plaintiffs’ attempt to collect the unpaid contributions from Vacar was thwarted when the corporation filed a petition for arrangement under chapter XI of the Bankruptcy Act (11 USC § 1101 etseq.).

Plaintiffs’ complaint alleged two causes of action, the first against the present defendants seeking to recover unpaid contributions under the provisions of Business Corporation Law § 630, and the second against Vacar’s officers seeking to recover under Labor Law § 198-c.

Following service of an answer, plaintiffs moved for summary judgment in their favor, dismissal of the affirmative defenses asserted in defendants’ answers, and a default judgment against defendant Anthony Vachris who had not appeared. Defendant Charles Vachris submitted a cross motion seeking summary judgment dismissing the complaint. Defendant Helen Vachris joined in his motion opposing plaintiffs’ application, claiming that plaintiffs’ claim was preempted by ERISA, that plaintiffs had failed to give timely written notice pursuant to Business Corporation Law § 630 and she also asserted that she had not been served with notice. Special Term found the second cause of action predicated on the Labor Law not preempted by ERISA and granted plaintiff summary judgment on it. It dismissed that cause of action against Helen Vachris, however, because she was not an officer of the corporation. It dismissed the first cause of action against the shareholder defendants founded on the Business Corporation Law finding that it was preempted by ERISA (116 Mise 2d 797, 800-802). The Appellate Division modified by dismissing plaintiff’s second cause of action as well, holding that no private civil cause of actian is to be implied from Labor Law § 198-c (106 AD2d 132, 141, citing Stoganovic v Dinolfo, 61 NY2d 812, affd for reasons stated at 92 AD2d 729). Plaintiffs do not challenge the Appellate Division’s interpretation of the Labor Law on this appeal.

Business Corporation Law § 630 imposes personal liability upon the 10 largest shareholders of closely held New York corporations for the payment of wages and salaries due and owing to its employees. The statute expressly defines wages and salaries to include employer contributions for welfare benefits and to pension funds (see, Business Corporation Law § 630 [a], [b]). It was designed to remedy precisely the default which is alleged in this litigation and to provide a safeguard for employees who would otherwise be left without recourse in the event of the corporation’s insolvency (see, Lindsey v Winkler, 52 Misc 2d 1037, 1038; Kane v Benson, 86 FRD 460, 462; 3 White, New York Corporations ¶ 630.01, at 6-736.1). That purpose is achieved by creating a civil cause of action in favor of employees providing them with an additional remedy or enforcement mechanism, not otherwise available, by which they may recover delinquent contributions determined to be "due and owing” by the corporate employer.

ERISA was enacted in 1974 to promote the interests of participants in employee welfare and pension plans by subjecting the plans to Federal regulation (Shaw v Delta Air Lines, 463 US 85, 90; 29 USC § 1001). It imposes substantive requirements relating to participation, funding and vesting of pension plans and it also establishes procedural standards for reporting, disclosure and fiduciary responsibilities for both welfare benefits and pension plans (Metropolitan Life Ins. Co. v Massachusetts, 471 US —, —, 85 L ed 2d 728, 735; see, Shaw v Delta Air Lines, supra, at p 91; 29 USC §§ 1021-1114). Although the statute specifies that it provides only minimum standards (see, 29 USC § 1001 [a]), it contains a preemption clause that is so broad on its face that it has been described as "virtually unique” (Franchise Tax Bd. v Laborers Vacation Trust, 463 US 1, 24, n 26). Section 514 (a) of ERISA (29 USC § 1144 [a]) provides, with exceptions not relevant here, that it "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. Because it is undisputed that the employee benefit plan involved in this case is covered by ERISA (see, 29 USC § 1003 [a]), the issue presented is whether Business Corporation Law § 630 impermissibly “relates to” the plan — within the meaning of section 514 (a).

The United States Supreme Court has held that the phrase "relates to” found in section 514 (a) of ERISA must be interpreted broadly as its plain language indicates, and that “[a] law 'relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan” (Shaw v Delta Air Lines, 463 US 85, 96-97, supra). Both the Supreme Court and several Circuit Courts of Appeals have recognized, however, that “there are necessary limits to the reach of the phrase 'relates to’ ” (Savings & Profit Sharing Fund v Gago, 717 F2d 1038, 1040) and that ERISA’s preemption clause is “neither all-encompassing * * * nor unlimited” (Rebaldo v Cuomo, 749 F2d 133, 138 [2d Cir]). Thus, only State laws which purport "to regulate, directly or indirectly, the terms and conditions of employee benefit plans” (29 USC § 1144 [c] [2]) “relate to” employee benefit plans and are thus preempted (see, Rebaldo v Cuomo, supra, at p 137; Lane v Goren, 743 F2d 1337, 1339; Stone & Webster Eng. Corp. v Ilsley, 690 F2d 323, 329, affd sub nom. Arcudi v Stone & Webster Eng. Corp., 463 US 1220). State laws that affect employee benefit plans in a “tenuous, remote, or peripheral” manner are not preempted (Shaw v Delta Air Lines, 463 US 85, 100, n 21, supra; see, American Tel. & Tel. Co. v Merry, 592 F2d 118, 121).

Plaintiffs assert that when these principles are applied, it is manifest that Business Corporation Law § 630 is not preempted because it is remedial only and does not regulate the terms and conditions of the welfare and pension plan. Defendants contend, on the other hand, that the Supreme Court’s expansive interpretation of ERISA’s preemption clause in Shaw means that ERISA occupies the entire field of employee benefit plans and that Business Corporation Law § 630 falls within its preemptive sweep because it explicitly provides for recovery of employer contributions for welfare benefits or to pension funds. Alternatively, they maintain that section 630 does regulate the terms and conditions of the employee benefit plan and, therefore, is preempted by expanding liability beyond what ERISA requires.

Analysis begins with the presumption that the State law has not been preempted by Federal statute in the absence of persuasive evidence to the contrary (see, Metropolitan Life Ins. Co. v Massachusetts, 471 US —, —, 85 L ed 2d 728, 741, supra; Alessi v Raybestos-Manhattan, Inc., 451 US 504, 522) and with the knowledge that our task in deciding this preemption question is to ascertain and give effect to the congressional intent embodied in the Federal statute at issue Metropolitan Life Ins. Co. v Massachusetts, supra, at p 739). So viewed, we have no difficulty in concluding that Business Corporation Law § 630 is not preempted by ER-ISA.

As noted, section 630 is remedial in nature; it provides an additional enforcement mechanism by which plaintiffs can recover delinquent contributions already due and owing to them pursuant to the corporation’s obligations under the collective bargaining and trust agreements. It does not "regulate, directly or indirectly, the terms and conditions” of plaintiffs’ welfare and pension plan (29 USC § 1144 [c] [2]) and, therefore, does not "relate to” the employee benefit plan within the meaning of section 514 (a) of ERISA (see, Rebaldo v Cuomo, 749 F2d 133, 137, supra; Stone & Webster Eng. Corp. v Ilsley, 690 F2d 323, 329, affd sub nom. Arcudi v Stone & Webster Eng. Corp., 463 US 1220, supra). The statute, unlike the laws the Supreme Court has found "relate to” employee benefit plans, does not require or prohibit the provision of specific benefits or practices relative to the calculation of benefits (see, Metropolitan Life Ins. Co. v Massachusetts, 471 US—, 85 L ed 2d 728, supra [State law requiring all general health insurance policies that provide hospital and surgical coverage to provide minimum mental health protection]; Stone & Webster Eng. Corp. v Ilsley, 690 F2d 323, affd sub nom. Arcudi v Stone & Webster Eng. Corp., 463 US 1220, supra [Connecticut law requiring employer to provide health and life insurance for former employee now receiving workers’ compensation]; Shaw v Delta Air Lines, 463 US 85, supra [New York Human Rights Law provision forbidding discrimination in employee benefit plans on basis of pregnancy and Disability Benefits Law requirement that employer pay sick leave to pregnant workers]; Alessi v Raybestos-Manhattan, Inc., 451 US 504, supra [State law forbidding reduction of pension benefits by workers’ compensation award]; see also, Retail Shoe Health Commn. v Reminick, 62 NY2d 173 [breach of fiduciary duties by individual benefit plan trustees]). To the contrary, sectian 630 "relates to” the scope of shareholder immunity, excluding the 10 largest shareholders of a closed corporation from such immunity, not only as to employee benefit plans but also for all debts, wages or salaries due employees for services performed for the corporation. Like the Pennsylvania Wage Payment and Collection Law considered in Carpenters Health & Welfare Fund v Kenneth R. Ambrose, Inc. (727 F2d 279) and the garnishment statute invoked against the pension plan interest of an employee by a former wife seeking payment of past due support in American Tel. & Tel. Co. v Merry (592 F2d 118, supra), the only effect of section 630 on employee benefit plans is to give plaintiffs a cause of action to recover payments the corporation was already obligated to provide. If the statute has any palpable effect on the plan, it is the type of tenuous, remote or peripheral effect that ERISA was not meant to preempt (see, Shaw v Delta Air Lines, supra, at p 100, n 21; Rebaldo v Cuomo, 749 F2d 133, 138-139, supra [Public Health Law provision setting rates that hospitals must charge private payors including employee benefit plans]).

To the extent that Business Corporation Law § 630 imposes liability on shareholders for the corporation’s delinquent payments that would otherwise not exist, and assuming defendants are correct that it constitutes a substantive requirement, this does not alter our conclusion that it is not a "term or condition” of the plan. In finding a Massachusetts law requiring insurance policies to provide minimum mental health benefits not preempted under ERISA’s insurance exception (see, 29 USC § 1144 [b] [2] [A]), the Supreme Court in Metropolitan Life Ins. Co. v Massachusetts (471 US—, 85 L ed 2d 728, supra) noted that "laws that regulate only the insurer, or the way in which it may sell insurance, do not 'relate to’ benefit plans in the first instance * * * [and] they would not be preempted by § 514 (a)” (id., at p 741). The court distinguished between laws regulating the insurer or the transaction of selling insurance from content-based laws such as the mandated-benefit law at issue there (see, id., at p 733, n 2). Similarly, that portion of section 630 that imposes joint and several liability on defendants is a law regulating the employer only, rather than a content-based law, regulating the plan, and as such is not preempted by ERISA.

Defendants point to the remedies contained in ERISA, and particularly the 1980 amendments which added specific provisions dealing with delinquent contributions, as support for their contention that ERISA preempts Business Corporation Law § 630. To the contrary, we find these provisions support our conclusion that section 630 is not preempted. As originally enacted, ERISA contained no provision dealing with delinquent employer contributions and would have allowed plaintiffs only equitable relief to enforce the statute or the terms of the employee benefit plan (see, 29 USC § 1132 [a] [3]). The courts have construed this to mean that other remedies were not preempted and that "[u]nder ERISA [as originally enacted] delinquent contributions were enforced by an action founded either on state law, the collective bargaining agreement between the parties or the trust agreement” (Central States, Southeast & Southwest Areas Pension Fund v Alco Express Co., 522 F Supp 919, 922 [ED Mich] [emphasis added]; see, Central States, Southeast & Southwest Areas Pension Fund v Kraftco, Inc., 589 F Supp 1061, 1072 [MD Tenn]; Lewart v Woodhull Care Center Assoc., 549 F Supp 879, 885 [SDNY]).

Nor do the 1980 amendments to ERISA indicate an intent on the part of Congress to preempt existing State remedies such as section 630. They merely added a statutory obligation upon employers to make contributions to multiemployer plans as required by the terms of the employee benefit plan or the collective bargaining agreement (Pub L 96-364 § 306 [a], 94 US Stat 1295, codified at 29 USC § 1145) and provided a civil cause of action in favor of fiduciaries to enforce this obligation (Pub L 96-364 § 306 [b], 94 US Stat 1295, codified at 29 USC § 1132 [g] [2]). Contrary to the position taken by defendants, the relevant legislative history of these amendments evince a specific congressional intent that ERISA’s civil remedies merely supplement, rather than supersede, existing State remedies such as Business Corporation Law § 630, at least insofar as they provide for the collection of delinquent employer contributions to employee benefit plans (see, HR Rep No. 96-869 [II], 96th Cong, 2d Sess, at 48-49, reprinted, in 1980 US Code Cong & Ad News 2918, 3037-3038; Joint Explanation of S 1076: Multiemployer Pension Plan Amendments Act of 1980, 126 Cong Rec 20189, 20202 [1980]; see also, Carpenters Health & Welfare Fund v Kenneth R. Ambrose, Inc., 727 F2d 279, 282 [3d Cir], supra [imposing liability on corporate officers for delinquent contributions to employee benefit plan under Pennsylvania law not preempted by ERISA]).

Defendant Helen Vachris contended in the courts below that she did not receive the statutory notice to shareholders required by section 630 and defendant Charles Vachris contended the notice to him was untimely. Because the affidavits submitted by the parties present disputed questions of law and fact not decided by the courts below and not addressed by the parties in this court, the matter should be remitted so that those issues may be resolved.

Accordingly, the order of the Appellate Division should be reversed, plaintiffs’ first cause of action seeking relief under the Business Corporation Law reinstated, and the matter remitted to Supreme Court, Nassau County, for further proceedings in accordance with this opinion.

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

Order reversed, with costs, plaintiffs’ first cause of action seeking relief under the Business Corporation Law reinstated, and case remitted to Supreme Court, Nassau County, for further proceedings in accordance with the opinion herein.

      . In pertinent part, section 630 (a) provides: "The ten largest shareholders, as determined by the fair value of their beneficial interest as of the beginning of the period during which the unpaid services referred to in this section are performed, of every corporation (other than an investment company registered as such under an act of congress entitled 'Investment Company Act of 1940’), no shares of which are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association, shall jointly and severally be personally liable for all debts, wages or salaries due and owing to any of its laborers, servants or employees other than contractors, for services performed by them for such corporation” (n omitted).

      . In fact the Supreme Court has stated that ERISA’s preemption clause is broad enough to reach State laws not specifically designed to affect employee benefit plans, those dealing with subj ect matters not covered by ERISA and even State laws consistent with the Federal statute’s requirements (see, Shaw v Delta AirLines, 463 US 85, 98-100; see also, Metropolitan Life Ins. Co. v Massachusetts, 471 US —, —, 85 L ed 2d 728, 740).

      . In pertinent part, these sections provide as follows:
      "§ 1145. Delinquent contributions
      "Every employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement.”
      "§ 1132. Civil Enforcement
      * ** *
      "(g) Attorney’s fees and costs; awards in actions involving delinquent contributions.
      * * *
      "(2) In any action under this title by a fiduciary for or on behalf of a plan to enforce section 515 [29 USC § 1145] in which a judgment in favor of the plan is awarded, the court shall award the plan—
      "(A) the unpaid contributions,
      "(B) interest on the unpaid contributions,
      "(C) an amount equal to the greater of—
      "(i) interest on the unpaid contributions, or
      "(ii) liquidated damages provided for under the plan in an amount not in excess of 20 percent (or such higher percentage as may be permitted under Federal or State law) of the amount determined by the court under subparagraph (A),
      "(D) reasonable attorney’s fees and costs of the action, to be paid by the defendant, and
      "(E) such other legal or equitable relief as the court deems appropriate” (emphasis added).

      . The Senate Labor and Finance Committees’ joint explanation of S 1076, which contained the provisions that later became 29 USC §§ 1145 and 1132 (g) (2), contained the following statement:
      "Under the bill, in the case of a civil action by any person to collect delinquent multiemployer plan contributions, regardless of otherwise applicable law, in which a judgment in favor of the plan is awarded, the court before which the action is brought must award the plan (1) the unpaid contributions; (2) interest on the unpaid contributions, (3) an amount equal to the greater of interest on the unpaid contributions or liquidated damages provided for under the plan not to exceed 20 percent of the amount of delinquent contributions as determined by the court. The bill preempts any State or other law which would prevent the award of reasonable attorneys fees, court costs or liquidated damages or which would limit liquidated damages to an amount below the 20 percent level.
      "However, the bill does not preclude the award of liquidated damages in excess of the 20 percent level where an award of such a higher level of liquidated damages is permitted under applicable State or other law. This does not change any other type of remedy permitted under State or Federal law with respect to delinquent multiemployerplan contributions ” (126 Cong Rec, at 20202).
      The Report of the House Ways and Means Committee to accompany HR 3904, the companion House bill, contained a virtually identical statement (see, HR Rep No. 96-869 [II], 96th Cong, 2d Sess, at 48-49, reprinted in 1980 US Code Cong & Ad News 2918, 3037-3038). Thus, it is clear that both Houses of Congress viewed the enforcement amendments of 1980 as setting forth a floor of Federal remedy in the case of delinquent contributions below which the States could not go but which did not preempt or supersede State remedies that granted greater protection than that contained in ERISA. Notably, this language in the legislative history also conflicts with the view that section 514 (a) of ERISA preempts State remedies and provides additional support for our view that ERISA was never meant to preempt State enforcement statutes such as Business Corporation Law § 630.


author: Meyer, J.

text:
    Fourth Ocean Putnam Corp., Appellant, v Interstate Wrecking Co., Inc. et al., Respondents.
    Decided October 15, 1985

      APPEARANCES OF COUNSEL

      A. Thomas Levin for appellant.

      Joseph Winston for Interstate Wrecking Co., Inc., respondent.

      Frank L. Amoroso for Incorporated Village of Atlantic Beach, respondent.
   OPINION OF THE COURT

Meyer, J.

An action brought by a property owner claiming to be the third-party beneficiary of a contract between a wrecking company, as promisor, and a municipality, as promisee, is an action "arising out of a contract” of the municipality within the meaning of CPLR 9802 and, no notice of claim having been filed until four years after completion of the contract, is barred as to the municipality by that section. Nor may the action be maintained against the wrecking company-promisor by the property owner as a third-party beneficiary, the latter not being an intended beneficiary of the contract. The order of the Appellate Division dismissing the complaint in its entirety should, therefore, be affirmed, with costs.

I

Plaintiff, Fourth Ocean Putnam Corp. (Fourth Ocean), owned the Atlantic Beach Hotel. The hotel was so severely damaged by fire that in 1977 the Incorporated Village of Atlantic Beach (Village), acting under a Village ordinance so authorizing, obtained a court order compelling plaintiff to remove the structure as a public nuisance and as a dangerous, unsafe fire hazard. When plaintiff failed to demolish the structure within the time required, the Village entered into a demolition contract with defendant Interstate Wrecking Co., Inc. (Interstate) as authorized by the Supreme Court order and the ordinance.

The contract called for Interstate to demolish and remove buildings and boardwalk and stated that as demolition progressed all materials and debris were to be removed from the premises and that the lot, after demolition, was to be compacted and graded to "grade level” with dirt. In paragraph 5 the parties also agreed that, "All walls and foundations shall be removed one (1) foot below the elevation of the existing grade of the sidewalk adjacent to it. The slab will be crushed for drainage and all large pieces removed.” Before demolition commenced, Fourth Ocean brought an action for injunction to prevent it, but after a preliminary injunction was denied, the action was, apparently, abandoned. Demolition was concluded in July 1978, at a cost of $86,373.63 to the Village, which subsequently recovered that sum from Fourth Ocean.

In March 1982, Fourth Ocean began construction of new buildings on the site formerly occupied by the hotel. During initial excavation work it discovered that the walls and foundations had not been removed one foot below existing grade nor had the slab been crushed and all large pieces removed as required by the contract. It concedes, however, that it knew at the time that the demolition took place that the boardwalk had not been removed. In July 1982, plaintiff filed a notice of claim against the Village and, in September 1982, commenced this action against both the Village and Interstate.

The first cause of action, for breach of contract, was asserted against both defendants and alleged that plaintiff was a third-party beneficiary of the demolition contract entered into by the defendants, that Interstate failed to remove the concrete foundation and boardwalk, to crush the slab and to remove the large pieces, and that the Village breached its obligation to the plaintiff in failing to supervise and to insure that the contract and the judgment were fully complied with. Plaintiff also pleaded a second cause of action, against the Village alone, for "return of that portion of the cost of demolition which was paid to cover the cost of the removal of the foundation, slab and boardwalk.”

Interstate moved for summary judgment, contending that as a matter of law Fourth Ocean could not be a third-party beneficiary. The Village also moved for summary judgment on the same ground and on the further ground that Fourth Ocean’s notice of claim was not timely served and filed nor was the action timely commenced.

Special Term dismissed the action against the Village as untimely, holding that the claimed breach of contract occurred upon completion of the demolition and that notice of claim had not been filed nor the action begun within the 18 months after completion allowed by CPLR 9802. Defendant Interstate’s motion was, however, denied, the court holding that the contract conferred a benefit upon plaintiff "as the owner of the property where the hazardous structures were demolished,” but that whether such benefit was intended by the parties was a triable issue of fact.

Both Fourth Ocean and Interstate appealed. The Appellate Division modified the order of Special Term by granting Interstate’s motion for summary judgment and dismissing the complaint in its entirety, and otherwise affirmed. It held that, as a matter of law, Fourth Ocean could not be considered a third-party beneficiary because the demolition "was not done to prepare the latter’s property for further income producing development but rather was done to benefit the community at large by removing structurally dangerous and unsafe buildings.” (108 AD2d, at p 8.) The court also noted Fourth Ocean’s recalcitrant posture in regard to the demolition and concluded that plaintiff was merely an incidental beneficiary and could not maintain an action for breach of contract. Fourth Ocean appeals to us as of right on the basis of that modification, thus also bringing up for review that part of the Appellate Division order which affirmed dismissal of the complaint against the Village (Dalrymple v Shults Chevrolet, 39 NY2d 795). We affirm, although as to the third-party claim on somewhat different reasoning.

II

To the extent pertinent to this appeal, CPLR 9802 provides that: "no action shall be maintained against the village upon or arising out of a contract of the village unless the same shall be commenced within eighteen months after the cause of action therefor shall have accrued, nor unless a written verified claim shall have been filed with the village clerk within one year after the cause of action shall have accrued * * * The omission to present a claim or to commence an action thereon within the respective periods of time above stated applicable to such claim, shall be a bar to any claim or action therefor against said village”.

Plaintiff’s first cause of action alleges that the Village breached its obligation to plaintiff in failing to supervise and see that the items.of the contract awarded by the Village to Interstate were fully carried out and claims damages of $100,000 for the breach. Its second cause of action repeats and realleges the claimed breach and avers that as a result thereof it is entitled to the return of that portion of the cost of demolition paid by it to the Village which relates to removal of the foundation, slab and boardwalk. Both causes of action, therefore, as pleaded and as argued by the parties, rest either on the contract between the Village and Interstate of which plaintiff claims to be third-party beneficiary (first cause of action), upon an implied in fact obligation resulting from that contract (first cause of action), or upon an implied in law restitution claim resulting from breach of that contract (second cause of action). Both claims are, therefore, either "upon or arising out of a contract of the village,” within the meaning of CPLR 9802.

Plaintiff does not argue otherwise. Rather, although it admits knowledge at the time demolition was completed that the boardwalk had not been removed, it contends that it did not discover until it sought to rebuild that the contract provisions concerning the foundation and slab had not been carried out, and argues by analogy to the foreign object cases, such as Martin v Edward Labs. (60 NY2d 417), that it should be held that its cause of action did not accrue until discovery. For a number of reasons we disagree. First, unlike the situation in Victorson v Bock Laundry Mach. Co. (37 NY2d 395), plaintiff had cause to complain from the moment the demolition work was completed and a ground (the same third-party beneficiary basis on which the present action rests) upon which a claim could be made (id., at p 403). Second, plaintiff was fully aware that the contract had been made, concedes awareness that the boardwalk portion of the contract had not been carried out and as the owner of the property was free to excavate sufficiently to ascertain whether its foundation and slab provisions had been carried out. There is, therefore, no need for a discovery rule as in foreign object cases (see, Martin v Edward Labs., supra, at p 427).

Third, and most importantly, the purpose behind statutes such as CPLR 9802 is to give the municipality early notice of a claim so that investigation can be promptly made and evidence relating to the claim can be preserved (see, Matter of Beary v City of Rye, 44 NY2d 398, 412). A cause of action against a municipality for breach of contract accrues when the breach occurs (Kassner & Co. v City of New York, 46 NY2d 544, 550; Stage v Village of Owego, 39 NY2d 1017, affg on mem at App Div 48 AD2d 985; 4 Corbin, Contracts § 820). To adopt the discovery rule for which plaintiff contends would be inconsistent not only with the purpose of CPLR 9802, but also with the mandate of CPLR 201 that, "No court shall extend the time limited by law for the commencement of an action”, and with the implication arising from the enactment by the Legislature of discovery provisions in those cases in which it deemed discovery the proper rule — CPLR 213 (5) (action by the State for spoliation or other misappropriation of public property); 213 (8) (action based upon fraud); 214-a (action for medical malpractice based upon discovery of a foreign object in the body of a patient); 214-b (action for personal injury caused by contact with or exposure to phenoxy herbicides); Domestic Relations Law § 171 (3); § 200 (4) (action for divorce or separation based on adultery). As we held in Thornton v Roosevelt Hosp. (47 NY2d 780) and have reiterated most recently in Fleishman v Lilly & Co. (62 NY2d 888, 890), "Any departure from the policies underlying these well-established precedents is a matter for the Legislature and not the courts.” Dismissal of the action as against the Village was, therefore, proper.

Ill

Dismissal of the third-party beneficiary claim was also proper. The third-party beneficiary concept arises from the notion that "it is just and practical to permit the person for whose benefit the contract is made to enforce it against one whose duty it is to pay” or perform (Seaver v Ransom, 224 NY 233, 237; see also, Lawrence v Fox, 20 NY 268). The intent to benefit test has, however, been difficult to apply (Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d 652, 655) and a "prolific source of judicial and academic discussion” (Seaver v Ransom, supra, at p 236). The difficulty stemmed in large part from distinctions drawn in the case law between "donee” and "creditor” beneficiaries and between contracts involving a governmental agency on the one hand and those between promisors and promisees all of whom were private parties, on the other.

Recognizing that "the terms 'donee’ beneficiary and 'creditor’ beneficiary carry overtones of obsolete doctrinal difficulties,” the Restatement (Second) of Contracts, has abandoned those terms in favor of "the terms 'intended’ beneficiary and 'incidental’ beneficiary * * * to distinguish beneficiaries who have rights from those who do not” (Restatement [Second] of Contracts ch 14, Introductory Note, at 439). An incidental beneficiary is one who is not an intended beneficiary (Restatement [Second] of Contracts § 302 [2]). Essential to status as an intended beneficiary under subdivision 1 of that section is either that "performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary” or that "the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.” Among the circumstances to be considered is whether manifestation of the intention of the promisor and promisee is "sufficient, in a contractual setting, to make reliance by the beneficiary both reasonable and probable” {id. comment d). And under section 313 (1) the same rules apply to contracts with a government or governmental agency except to the extent that application would contravene the policy of the law authorizing the contract or prescribing remedies for its breach.

We think that the Restatement formulations state the essence of the prior holdings of this court while clearing away some of the unnecessary differentiations and circuitous language set forth in some of those decisions. Thus, the absence of any duty of the promisee to the beneficiary has been held to negate an intention to benefit in both governmental and private contract cases (Moch Co. v Rensselaer Water Co., 247 NY 160, 165; Durnherr v Rau, 135 NY 219, 221; Corporate Leasing v AFA Protective Sys., 101 AD2d 768), but we have also noted in McClare v Massachusetts Bonding & Ins. Co. (266 NY 371, 379) that, "The requirement of some obligation or duty running from the promisee to the third party beneficiary has been progressively relaxed until a mere shadow of the relationship suffices, if indeed it has not reached the vanishing point.” Rather than duty, we have emphasized when upholding the third party’s right to enforce the contract that no one other than the third party can recover if the promisor breaches the contract (Seaver v Ransom, 224 NY 233, 239, supra; see, Matter of International Ry. Co. v Rann, 224 NY 83, 88) or that the language of the contract otherwise clearly evidences an intent to permit enforcement by the third party (McClare v Massachusetts Bonding & Ins. Co., supra; Rigney v New York Cent. & Hudson Riv. R. R. Co., 217 NY 31, 38), as by fixing the rate or price at which the third party can obtain services or goods (Pond v New Rochelle Water Co., 183 NY 330, 336; Little v Banks, 85 NY 258), even though there was no duty of the promisee to the third party.

Here, as i n Matter of American Ins. Co. (Messinger—Aetna Cas. & Sur. Co.) (43 NY2d 184, 189, n 2), we think that analysis and exposition will be advanced by adopting the terminology and concepts of the Restatement. Applying those concepts to the present case as delineated by the motion papers, we conclude, as did the Appellate Division, that plaintiff was an incidental rather than an intended beneficiary. Plaintiff argues that because the work was being performed to satisfy plaintiff’s obligation, the contracting parties must have intended to benefit plaintiff. As the Appellate Division noted, however, the work was being performed not as a means of benefiting plaintiff but to remedy plaintiff’s default in order to protect the public against a public nuisance as authorized by the ordinance. Nothing in the ordinance required inclusion in the contract of the language of paragraph 5 on which plaintiff now seeks to rely. Nor is there anything in the contract other than the inclusion of that language, from the full performance of which plaintiff might ultimately benefit, which suggests an intent to benefit plaintiff. That paragraph cannot, however, be viewed as a promise intended to benefit no one other than plaintiff, for the Village had a contingent interest in its performance arising from the possibility that if plaintiff failed to reimburse it for its contract expenditures it would become owner of the property through forfeiture. Nor is there anything in the contract or in the affidavits suggesting that, within the contemplation of the contracting parties, reliance by plaintiff was reasonable and probable or that plaintiff in fact relied upon the provision.

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

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

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order affirmed, with costs.

      . What plaintiff seeks to enforce against the Village is not any obligation undertaken by the Village in its contract with Interstate for plaintiff’s benefit (the only obligation undertaken by the Village in that contract was to pay the consideration, which it did). Rather, as already noted, plaintiff seeks to imply from the contract an independent obligation on the part of the Village to require full performance by Interstate. Because both claims are barred by CPLR 9802, it is not necessary to consider further the third-party beneficiary claim against the Village.

      . The section also provides that intention can be negated by express agreement of the promisor and the promisee and that recognition of the beneficiary’s right to performance must be appropriate to effect the intention of the parties.

      . Section 313 (2) provides that: "In particular, a promisor who contracts with a government or governmental agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless (a) the terms of the promise provide for such liability; or (b) the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach.”

      . E.g., the benefit "must be immediate in such a sense and to such a degree as to indicate the assumption of a duty to make reparation if the benefit is lost” (Associated Flour Haulers & Warehousemen v Hoffman, 282 NY 173, 180; accord, Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314, 336).


author: Per Curiam.

text:
    In the Matter of Francis M. Savastano, as Director of Mental Health Information Services, et al., Respondents, v James A. Prevost, as Commissioner of the New York State Office of Mental Health, et al., Appellants.
    Decided October 15, 1985

      APPEARANCES OF COUNSEL

      Robert Abrams, Attorney-General (Robert L. Schonfeld and Robert Hermann of counsel), for appellants.

      Francis M. Savastano, pro se, and Dennis B. Feld for Francis M. Savastano, respondent.
   OPINION OF THE COURT

Per Curiam.

This article 78 proceeding was commenced on behalf of 25 patients (petitioners) at Creedmoor Psychiatric Center, a facility under the jurisdiction of respondent Commissioner of the Office of Mental Health (OMH), seeking transfer to an appropriate facility under the jurisdiction of respondent Commissioner of the Office of Mental Retardation and Developmental Disabilities (OMRDD). The central issues on appeal are, first, whether respondents are precluded by a decision in another action from litigating the issues raised and, second, whether at this juncture respondents can be compelled to transfer patients when they contend they lack the funding and facilities to do so. We conclude that respondents are not estopped from litigating the issues raised, and that on this record mandamus does not lie to compel the transfer.

In 1977 the Legislature created three independent offices: OMH, charged with treatment of the mentally ill; OMRDD, charged with treatment of the mentally retarded and developmentally disabled; and an Office of Alcoholism and Substance Abuse (see, L 1977, ch 978). This division of responsibilities made it necessary for the State to test and classify patients in its care, for transfer to the appropriate facility. By early 1982, according to respondents, some 800 patients had been identified who clinically belonged in OMRDD facilities — including petitioners — but who could not be accepted immediately because of a claimed lack of funds and facilities. With newly appropriated funds, a three-year plan was drawn, projecting that OMRDD would be able to accept all of these patients by the close of the 1984-1985 fiscal year. As of June 15, 1985, some 340 such patients remained in OMH facilities.

Petitioners urge that they are entitled to immediate transfer because placement of clinically eligible patients in OMRDD facilities and suitable treatment are mandated by the Mental Hygiene Law, and that in any event respondents are estopped to deny the right to immediate transfer by Savastano v Prevost (NYLJ, June 4, 1982, p 15, col 3) (Savastano I), a decision of Supreme Court, Queens County, holding that the Mental Hygiene Law mandated suitable placement and ordering transfer within 60 days of three Creedmoor patients. Respondents, in support of their motion to dismiss, contend that implementation of their transfer plan is dependent on appropriations, which have been delayed, and have submitted affidavits setting forth the measures taken to effect transfers. Respondents further urge that transfer is a discretionary duty for which mandamus does not lie, that they have not acted arbitrarily, and that they are not estopped by Savastano I. Special Term concluded that Savastano I precluded relitigation of the issues raised by respondents, and granted the petition, directing transfer within 90 days to an appropriate OMRDD facility. The Appellate Division affirmed, citing Savastano I. We now reverse.

Respondents are not estopped from litigating the propriety of immediate transfer of petitioners. Savastano I was brought on behalf of three Creedmoor patients eligible for transfer, and these patients were actually transferred shortly after judgment and before an appeal was perfected. There were at that time some 800 patients eligible for transfer. Moreover, the three petitioners in Savastano I were in the initial group of patients scheduled for transfer. No similar showing of priority has been made with respect to the 25 petitioners here. In addition, there is no evidence that the State "explicitly * * * recogniz[ed] the potential preclusive effects of an adverse determination in [the prior] case” (Koch v Consolidated Edison Co., 62 NY2d 548, 557), when it chose— upon transfer of the three petitioners — not to pursue its appeal to the Appellate Division. In sum, a review of " 'the realities of litigation’ ” (Gilberg v Barbieri, 53 NY2d 285, 292) demonstrates that preclusion is unwarranted.

On the issue before us, there is no basis for mandamus compelling the transfer. Mandamus may lie to compel the performance of a ministerial, nondiscretionary act where there is a clear legal right to the relief sought (Klostermann v Cuomo, 61 NY2d 525, 539), but no such right has been shown here. There is no contention that respondents have failed to formulate any plan for the transfer of patients from OMH to OMRDD; indeed, the converse is evident on this record. Petitioners cite various sections of the Mental Hygiene Law, including sections 5.05 (b), 13.01 and 33.03 (a), but none of these can be considered a directive to transfer patients immediately. Section 13.01 declares the policy of the State to develop and implement a comprehensive system of services, and section 5.05 (b) directs the Commissioners to "ensure that the state policy * * * is planned, developed and implemented comprehensively”. Section 33.03 provides generally that each patient "shall receive care and treatment * * * suited to his needs”.

Moreover, other sections of the Mental Hygiene Law demonstrate the intention of the Legislature not to create a mandatory duty but to vest discretion in respondent Commissioner, and to allow him to consider budgetary restrictions in implementing a program. Section 13.15 (a), for example, provides that the OMRDD Commissioner shall "take all actions that are necessary, desirable, or proper to implement the purposes of this chapter and to carry out the purposes and objectives of the office within the amounts made available therefor by appropriation grant, gift, devise, bequest, or allocation from the mental hygiene services fund established under section ninety-seven-f of the state finance law.” Section 29.07 (a) of the Mental Hygiene Law provides that the Commissioner "may by order defer admissions to any facility in the department when the total number of patients therein exceeds its capacity to an extent which will not permit adequate care and treatment to be provided patients.”

Finally, the petition alleges that the refusal of OMRDD to accept the petitioners for care and treatment both violated their "constitutional rights to treatment guaranteed by the Eighth and Fourteenth Amendments of the United States Constitution” (see, Youngberg v Romeo, 457 US 307, 319-323; Jackson v Indiana, 406 US 715, 738; Matter of Kesselbrenner v Anonymous, 33 NY2d 161, 165) and was arbitrary, capricious and an abuse of discretion (see, CPLR 7803 [3]; Matter of Pell v Board of Educ., 34 NY2d 222, 231). These issues raised by the petition have not yet been considered by either court below.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to Supreme Court, Queens County, for further proceedings on the petition.

Chief Judge Wachtler and Judges Jasen, Meyer, Simons, Kaye, Alexander and Titone concur in Per Curiam opinion.

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order reversed, etc.

       While all 25 patients who are the subject of the petition have by now been transferred to an OMRDD facility, we retain jurisdiction because of the substantial issues raised, the likelihood of repetition, and the fact that these issues may otherwise evade review (see, Matter of Hearst Corp. v Clyne, 50 NY2d 707, 714-715).


author: Chief Judge Wachtler.

text:
    The People of the State of New York, Appellant, v Phillip Gallina, Respondent.
    Argued September 12, 1985;
    decided October 15, 1985

      POINTS OF COUNSEL

      Elizabeth Holtzman, District Attorney (Barbara D. Underwood and Nikki Kowalski of counsel), for appellant.
    Evidence from wiretap six was erroneously suppressed because the prosecution complied with the statutory requirements concerning wiretap extensions and inactivation of surveillance equipment and because in any event the suppressed evidence was not derived from any illegality. (United States v Grant, 462 F2d 28, 409 US 914; People v Sher, 38 NY2d 600; People v Winograd, 125 Misc 2d 754; United States v Ragusa, 586 F Supp 1256; Smith v Maryland, 442 US 735; United States v Donovan, 429 US 413; United States v Giordano,
      416 US 505; People v Zendano, 62 AD2d 537; People v Fortmuller, 59 AD2d 947; People v Arnau, 58 NY2d 27.)

      Stephen P. Scaring and Laurie Stein Hershey for respondent.
    I. Wiretaps two, five and six were correctly suppressed because the prosecution violated the mandatory requirements of the Criminal Procedure Law pertaining to extension orders and inactivation of surveillance equipment. Wiretap three should be suppressed as tainted by wiretap two. (People v Glasser, 58 AD2d 448; People v Washington, 46 NY2d 116; People v Winograd, 125 Misc 2d 754; Berger v New York, 388 US 41; People v Sher, 38 NY2d 600; People v Mark, 68 AD2d 315; United States v Giordano, 416 US 505; United States v Cafero, 473 F2d 489, 417 US 918; United States v Grant, 462 F2d 28; People v Pecoraro, 58 AD2d 462.) II. The evidence derived from wiretaps two, four and six should be suppressed since the People failed to timely seal the tapes as required by CPL 700.50 (2). (People v Edelstein, 54 NY2d 306; People v Basilicato, 64 NY2d 103; People v Washington, 46 NY2d 116; People v Sher, 38 NY2d 600;People v Nicoletti, 34 NY2d 249.)
   OPINION OF THE COURT

Chief Judge Wachtler.

This appeal presents the issue of the degree to which the mandates of Criminal Procedure Law article 700 must be followed in the conduct of a wiretap investigation and the consequences that follow if the required standards are not met. We find, as did the Appellate Division, that the degree of compliance in this case was inadequate and that suppression was the proper remedy. Accordingly, we affirm.

In connection with an investigation into sales of heroin at a meat market where defendant worked, the People obtained authorizations for nine wiretaps; Our only concern on this appeal is with wiretaps numbered three through six.

A warrant authorized wiretap three on two telephones at the meat market from July 13, 1981 to August 11, 1981. On August 10,1981, the District Attorney applied for an extension of wiretap three, and a warrant issued authorizing wiretap four from August 11,1981 to midnight of September 9,1981. At the conclusion of wiretap four, the eavesdropping equipment was ordered turned off and no further conversations were intercepted. However, the equipment was left in place in anticipation of a renewal of wiretapping authority, and no equipment or splices into telephone lines were removed. The tapes obtained during wiretap four were sealed on September 11, 1981. On September 15, 1981, the District Attorney obtained a warrant to wiretap five, which expired on October 14,1981.

On October 13,1981, before the warrant authorizing wiretap five expired, a warrant authorizing wiretap six until midnight, November 11,1981 was obtained. The tapes wiretap six produced were sealed on November 13,1981.

At the suppression hearing, the People attributed the delays in sealing the tapes resulting from wiretaps four and six, each of which terminated on midnight of a Wednesday, but were not sealed until late in the afternoon of the following Friday, to difficulty in retrieving the tapes from the Special Narcotics Prosecutor’s office, where they were taken from the plant for inventory, copying and custody, and, in the case of wiretap four, to the unavailability of the issuing justice.

The delay in obtaining an extension of wiretap four from the expiration of the warrant on September 9 to September 15,1981 was attributed to delays in transcription and obtaining translation of several of the conversations, which were in a Sicilian dialect. In addition, the People asserted that two business days’ delay was attributable to "mechanical problems,” which, upon cross-examination, turned out to be the failure of a single typewriter made available to the District Attorney’s office by the wife of one of the detectives assigned to the investigation. However, it was conceded that there were, during that time, at least 100 functioning typewriters in the District Attorney’s office, and at least that many typists who were capable of typing the renewal application.

After Criminal Term denied defendant’s motion to suppress, he was convicted, upon a jury verdict, of criminal sale of a controlled substance in the first and second degrees, and sentence was imposed. On appeal from the judgment of conviction, which brought up for review the denial of defendant’s motion to suppress the wiretap evidence, the Appellate Division reversed, on the law, granted the motion to suppress any evidence obtained from wiretaps two and five "and any subsequent extension thereof’ and ordered a new trial. The People have appealed by leave of a Judge of this court.

I.

The People’s first contention is that CPL 700.40 does not prohibit the issuance of an order extending a wiretap after the original wiretap order has expired. Characterizing the application for an extension order of wiretap four as "mislabelled,” and asserting that the statutory requirements for both an original and an extension application had been met, the People argue that "[t]o attach crucial significance to the caption exalts form over substance in a manner that has no conceivable purpose.”

We reject this contention for several reasons. The clear language of the applicable statute requires that an application for an order of extension, if one is desired, be made "prior to the expiration of a eavesdropping warrant,” a requirement that should be strictly construed (Bellacosa, Practice Commentary, McKinney’s Cons Laws of NY, Book 11 A, CPL 700.40, p 502). Focusing on the subsequent statutory language providing that "the applicant may apply * * * for an order of extension” misses the mark. The permissive language clearly refers to the decision whether to request an extension at all; if an extension is desired, it must be sought before the original warrant expires. A contrary interpretation would render the timeliness requirement a nullity, in violation of accepted canons of statutory construction (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 231).

That the parallel provision of the Federal wiretapping statute (18 USC § 2518 [5]) does not require the making of an extension application before the expiration of the original warrant makes no difference, in light of the clear mandate of our own statute. Although our own wiretapping statute is patterned largely upon the Federal statute, any variances between the two. must be regarded as purposeful (People v Washington, 46 NY2d 116, 122).

We need not decide whether, as the People contend, any "exigent circumstances” exception should be engrafted upon the requirement that an application for an extension warrant be made before the expiration of the original warrant. Upon the record before us, it is clear that no such exigency existed. The breakdown of a single typewriter, when at least 100 others, with the necessary personnel, were available, does not constitute an exigency. Even if the difficulties in translating the intercepted communications could constitute an exigency where the untranslated conversations comprise the only evidentiary basis for obtaining the extension, the People do not here contend they had insufficient evidence without those conversations.

Finally, we reject the People’s assertion that the extension application here is the functional equivalent of a new original application. The People are well aware, or should be, that notice must be given to the target of a wiretap at most 90 days after the expiration of the warrant or any extension thereof (CPL 700.50 [3]). Obviously, then, where a gap in surveillance and then a second wiretap follow an original wiretap, two notices must be given, which was not done in this case. To sustain the People’s contention that the application for a warrant for wiretap five was a new original application while allowing them to circumvent the notice requirement would defeat the statutory scheme in this sensitive area where statutory requirements must be strictly construed (People v Washington, supra).

II.

We also find that the inactivation requirement was not met here, where the eavesdropping devices were merely turned off. The danger of inadequate inactivation is, of course, that an unauthorized eavesdropping will result. While it is true, as the People contend, that no inactivation short of removal (the alternative under the statute) is truly permanent, we regard the permanent inactivation alternative as being met only upon a showing that steps were taken which would cut off the possibility of listening in on communications to or from the tapped premises. Here, the effeet of simply turning off the equipment could obviously and easily be reversed by anyone who had access to the plant. That no unauthorized eavesdropping may have occurred is beside the point, because it is the potential for abuse that is the focus of analysis (cf. People v Nicoletti, 34 NY2d 249, 253, n).

III.

The People contend the evidence obtained by wiretap six should not have been suppressed because the application for it was not based on the violations of the extension and inactivation provisions of the statutes which preceded the granting of authorization for wiretap five. In other words, the People assert, "it is inappropriate to suppress evidence lawfully seized simply because the police have blundered in a way wholly unrelated to the seizure of that evidence.” The flaw in this contention is that it assumes the admitted blunders occurring in between wiretaps four and five were unrelated to the subsequent issuance of a warrant for wiretap six.

The Federal statutes provide that wiretap evidence may not be received in evidence in any trial, State or Federal, "if the disclosure of that information would be in violation of this chapter” (18 USC § 2515), and that a motion for suppression may be made by any aggrieved person on the ground that "the communication was unlawfully intercepted” (18 USC § 2518 [10] [a] [i]). A communication is unlawfully intercepted when there is a " 'failure to satisfy any of those statutory requirements that directly and substantially implement the congressional intention to limit the use of intercept procedures to those situations clearly calling for the employment of this extraordinary investigative device’ ” (United States v Donovan, 429 US 413, 433-434, quoting United States v Giordano, 416 US 505, 527). It cannot be gainsaid that the extension and inactivation requirements reflect and implement a policy of circumscribing the use of eavesdropping devices. Nor can the People claim that the warrant authorizing wiretap six did not depend on information obtained from wiretap five, especially when it is conceded that the results of wiretap five were incorporated into the application for a warrant authorizing wiretap six (see, United States v Cirillo, 499 F2d 872, 878, n 3, cert denied 419 US 1056; Fishman, Wiretapping and Eavesdropping § 184).

The People’s reliance on People v Arnau (58 NY2d 27, cert denied — US —, 104 S Ct 3585) and similar cases for the proposition that illegal police activity requires suppression only of evidence obtained as a result of that illegal activity is misplaced. As indicated above, wiretap six was a direct product of wiretap five, which in turn was the result of a direct violation of the extension application and inactivation statutes. More importantly, however, and independently of the fruit of the poisonous tree doctrine, suppression is warranted here, as in many other cases involving violations of the eavesdropping statutes, because of the potential for abuse (see, e.g., People v Basilicato, 64 NY2d 103; People v Washington, 46 NY2d 116, supra; People v Sher, 38 NY2d 600).

Admission of the evidence obtained from wiretap six was not harmless, whether the error is considered constitutional or not (cf. People v Brenes, 42 NY2d 41, 49). That evidence was of the only transaction in which the undercover officer dealt directly with defendant and discussed the purchase of drugs without the inter-mediation of an informant, through whom the undercover officer had made all previous purchases. It was that critical evidence which destroyed defendant’s agency defense.

IV.

Defendant also claims, as an alternative ground for affirmance (see, CPL 470.35 [2] [b]), that the sealing requirements of CPL 700.50 (2) were not met in this case. We have consistently held that the sealing requirement must be strictly construed to effectuate its purposes of preventing tampering, alterations or editing, aiding in establishing a chain of custody and protecting the confidentiality of the tapes (People v Basilicato, 64 NY2d 103, 116, supra; People v Nicoletti, 34 NY2d 249, 253, supra). Although we have held that a one-day delay in sealing may be excused, even absent an explanation (People v Edelstein, 54 NY2d 306, 310, rearg denied 55 NY2d 878), any additional delay, if not satisfactorily explained, requires suppression (People v Basilicato, 64 NY2d 103, 116, supra). Moreover, a defendant is not required to prove that the tapes were tampered with; because of the potential for abuse, it is the People who must provide a satisfactory explanation for untimely sealing (People v Basilicato, 64 NY2d 103, 116, supra).

Here, almost two full business days passed before the tapes resulting from wiretaps four and six were sealed. Inadequate police procedures, apparently responsible for the delay, do not constitute a valid excuse (People v Washington, 46 NY2d 116, 124-125, supra). Nor does the unavailability of the issuing justice constitute a valid excuse for the failure to timely seal the tapes produced by wiretap four in a county where several other justices are present each business day. Accordingly, we hold the People’s failure to comply with the sealing requirement, in addition to their failure to timely apply for a warrant extending wiretap four and to permanently inactivate the eavesdropping equipment during the lapse in wiretapping authority, all require affirmance of so much of the order as was appealed from.

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

Order affirmed.

      . CPL 700.40 provides: "At any time prior to the expiration of an eavesdropping warrant, the applicant may apply to the issuing justice, or, if he is unavailable, to another justice, for an order of extension. The period of extension shall be no longer than the justice deems necessary to achieve the purposes for which it was granted and in no event longer than thirty days. The application for an order of extension must conform in all respects to the provisions of section 700.20 and, in addition, must contain a statement setting forth the results thus far obtained from the interception, or a reasonable explanation of the failure to obtain such results. The provisions of sections 700.15 and 700.25 are applicable in the determination of such application. The order of extension must conform in all respects to the provisions of section 700.30. In the execution of such order of extension the provisions of section 700.35 are applicable.”

      . 18 USC § 2518 (5) provides in pertinent part: "Extensions of an order may be granted, but only upon application for an extension made in accordance with subsection (1) of this section and the court making the findings required by subsection (3) of this section.”

      . CPL 700.50 (3) provides in pertinent part: "Within a reasonable time, but in no case later than ninety days after termination of an eavesdropping warrant, or expiration of an extension order * * * written notice of the fact and date of the issuance of the eavesdropping warrant, and of the period of authorized eavesdropping, and of the fact that during such period communications were or were not intercepted, must be personally served upon the person named in the warrant and such other parties to the intercepted communications as the justice may determine in his discretion is in the interest of justice.”

      . The pertinent statutory provision is CPL 700.35 (2), which states: "Upon termination of the authorization in the warrant, eavesdropping must cease and any device installed for such purpose must be removed or permanently inactivated as soon as practicable. Entry upon a private place or premise for the removal or permanent inactivation of such device'is deemed to be authorized by the warrant.”

      . The People, by their brief, have limited their appeal to the ruling suppressing evidence obtained through wiretap six, though the Appellate Division also suppressed evidence obtained through wiretap two, none of which appears to have been introduced at the trial. We do not consider defendant’s arguments in support of his contention that the evidence obtained from wiretap three should also be suppressed, because the Appellate Division order of reversal was not adverse to defendant and thus, he could not be granted leave to cross appeal (CPL 450.90 [1]).

      . CPL 700.50 (2) provides: "Immediately upon the expiration of the period of an eavesdropping warrant, the recordings of communications made pursuant to subdivision three of section 700.35 must be made available to the issuing justice and sealed under his directions.”