author: Gabrielli, J. Meyer, J.

text:
    Mildred A. Billy, as Executrix of Joseph M. Billy, Jr., Deceased, Appellant, v Consolidated Machine Tool Corporation et al., Respondents.
    Argued September 3, 1980;
    decided October 21, 1980

      POINTS OF COUNSEL

      Robert J. Michael and Jay M. Friedman for appellant.
    I. The claims against Consolidated and Parrel are nothing more than ordinary third-party products liability claims against manufacturers of defective machinery. II. Defendant USM is the successor of Consolidated and Parrel and as such is liable for their tortious conduct. (Cyr v Offen & Co., 501 F2d 1145; Shannon v Langston Co., 379 F Supp 797.) III. The Workers’ Compensation Law does not bar the claim against USM as the corporate successor of Consolidated and Parrel. IV. In its memorandum decision, the court below specifically deferred to the Court of Appeals as to whether the State of New York should adopt the dual capacity doctrine which allows claims against an employer under certain circumstances by employees. (Costanzo v Mackler, 34 Misc 2d 188, 17 AD2d 948; Williams v Hartshorn, 296 NY 49; Minsky v Baitelman, 281 App Div 910; Reed v The Yaka, 373 US 410.) V. The possibility that under Delaware law Consolidated may be liable even though it is a dissolved corporation does not appear to have been addressed by the courts below. VI. The action against defendant Emhart Corporation which may be liable through its relationship with defendant, USM, should not be barred. VII. Section 11 of the Workers’ Compensation Law, as applied by the courts below, violates plaintiffs rights under the due process and equal protection clauses of the New York and United States Constitutions. VIII. This court has jurisdiction of this appeal by reason of its having granted leave to appeal, pursuant to CPLR 5602 (subd a).

      Thomas C. Burke for respondents.
    I. The Workers’ Compensation Law, as applied, is constitutional. (Shanahan v Monarch Eng. Co., 219 NY 469; Matter of Jensen v Southern Pacific Co., 215 NY 514; Matter of White v New York Cent. & Hudson Riv. R. R. Co., 216 NY 653, sub nom. New York Cent. R. R. Co. v White, 243 US 188.) II. Plaintiffs complaint was properly dismissed as to defendant Emhart. III. Plaintiffs complaint was properly dismissed as to defendants Consolidated Machine Tool Corporation, Farrel-Birmingham Co., Inc., and Farrel Corporation. (Matter of Riley v Aircraft Prods. Mfg. Corp., 40 NY2d 366.) IV. Plaintiffs complaint was properly dismissed as to the decedent’s employer USM Corporation. (Costanzo v Mackler, 34 Misc 2d 188, 17 AD2d 948; D’Agostino v Wagenaar, 183 Misc 184, 268 App Div 912; Winter v Doelger Brewing Co., 95 Misc 150, 175 App Div 796, 226 NY 581; De Giuseppe v City of New York, 188 Misc 897, 273 App Div 1010; Minsky v Baitelman, 281 App Div 910; Williams v Hartshorn, 296 NY 49; O’Rourke v Long, 41 NY2d 219; Garcia v Iserson, 33 NY2d 421; Doyle v Jennings, 26 NY2d 957; Velasquez v Pine Grove Resort Ranch, 61 AD2d 1102.) V. Any adoption of the so-called dual capacity doctrine in New York should be legislative. (Lawrence Constr. Corp. v State of New York, 293 NY 634; People v Kupprat, 6 NY2d 88; Matter of White v New York Cent. & Hudson Riv. R. R. Co., 216 NY 653, sub nom. New York Cent. R. R. Co. v White, 243 US 188; Williams v Hartshorn, 296 NY 49; Naso v Lafata, 4 NY2d 585; Rauch v Jones, 4 NY2d 592; Ryder Truck Lines v Maiorano, 44 NY2d 364; Matter of Granger v Urda, 44 NY2d 91.)

      Robert Abrams, Attorney-General (Stanley Fishman and Shirley Adelson Siegel of counsel), in his statutory capacity under section 71 of the Executive Law.
    The holding of the
    courts below — that section 11 of the Workers’ Compensation Law makes workers’ compensation the exclusive remedy available to an employee injured during the course of his employment (as against his employer), - thus barring common-law remedies which might otherwise have been available to the employee — does not violate the due process or equal protection clauses of the New York State or United States Constitutions
      (Barrencotto v Cocker Saw Co., 266 NY 139; Koutrakos v Long Is. Coll. Hosp., 47 AD2d 500, 39 NY2d 1026; Montgomery v Daniels, 38 NY2d 41; New York Cent. R. R. Co. v White, 243 US 188; Matter of Jensen v Southern Pacific Co., 215 NY 514; Duke Power Co. v Carolina Environmental Study Group, 438 US 59; Cifolo v General Elec. Co., 305 NY 209; Ryder Truck Lines v Maiorano, 44 NY2d 364.)
   OPINION OF THE COURT

Gabrielli, J.

As a general rule, when an employee is injured in the course of his employment, his sole remedy against his employer lies in his entitlement to a recovery under the Workers’ Compensation Law (Workers’ Compensation Law, § 11). In our previous decisions, we have adhered strictly to this basic rule and have declined to recognize exceptions, even when the liability is purportedly premised upon conduct of the employer acting in a capacity other than that of employer (e.g., Williams v Hartshorn, 296 NY 49; Winter v Doelger Brewing Co., 175 App Div 796, affd without opn 226 NY 581). We have not previously been called upon to consider, however, a situation in which the employer’s liability, if any, is alleged to have arisen solely fyom its independent assumption, by contract or operation of law, of the obligations and liabilities of a third-party tort-feasor. Having examined all of the relevant precedent as well as the firmly rooted policies underlying the Workers’ Compensation Law, we conclude that, in such situations, the exclusivity provisions of that statute do not bar a common-law action against the employer for injuries sustained by an employee in the course of his employment.

Plaintiff’s decedent, an employee of defendant USM Corporation, was killed when a 4,600-pound "ram” from a vertical boring mill broke loose and struck him. There was no doubt that the October 21, 1976 accident occurred "in the course of’ the decedent’s employment within the meaning of section 10 of the Workers’ Compensation Law. Although the decedent’s widow applied for and received workers’ compensation benefits, she subsequently commenced a common-law tort action against USM Corporation, seeking recompense for the decedent’s personal injuries and wrongful death. Also named as party defendants were Emhart Corporation, the parent of USM, and Consolidated Machine Tool Corporation, Farrel-Birmingham Company and Parrel Corporation, all of which had been absorbed by USM through corporate mergers prior to the accident. In her complaint, plaintiff alleged that the accident had been caused by certain defects in the manufacture and design of the vertical boring mill and in the two moving parts that had been directly involved in the accident, a metal "lifting bar” and a 4,600-pound "ram”.

After preliminary discovery had taken place, each of the five corporate defendants moved for summary judgment. USM Corporation, the decedent’s employer, based its summary judgment motion primarily upon section 11 of the Workers’ Compensation Law. That section provides that the employer’s obligation to furnish workers’ compensation benefits is "exclusive and in place of any other liability whatsoever” to employees or their dependents for injuries sustained in the course of employment.

Both Special Term and the Appellate Division concluded that section 11 constituted an absolute bar to the assertion of any common-law claim that plaintiff might have against USM Corporation, regardless of the theory of liability advanced. Accordingly, the causes of action asserted against USM were dismissed. We granted plaintiffs motion for leave to appeal on November 20, 1979 (48 NY2d 608). Because we find the principle of exclusivity embodied in section 11 to be inapplicable to the unique set of facts presented in this case, we now reverse this aspect of the lower courts’ rulings and hold that the causes of action asserted against USM should be reinstated.

It is undisputed that the vertical boring mill which allegedly caused decedent’s injuries was designed several decades ago and manufactured during the early 1950’s by Consolidated Machine Tool Corporation and Farrel-Birmingham Company. It was also established through discovery that Consolidated Machine Tool Corporation had played a significant role in the design of the 4,600-pound "ram” that eventually broke loose from the machine and killed the decedent. Farrel-Birmingham Company was apparently responsible for the 1955 installation of the vertical boring mill in the plant now operated by USM.

Through a series of consolidations and mergers that took place during the 1950’s and 1960’s, Consolidated Machine Tool Corporation and Farrel-Birmingham Company were ultimately absorbed into USM Corporation. In 1954, Farrel-Birmingham, which had acquired a controlling interest in Consolidated three years earlier, dissolved that corporation and, concededly, assumed its assets and liabilities. In 1963, the name of the resulting corporate entity was changed from Farrel-Birmingham Company to Farrel Corporation. Farrel Corporation was finally merged into USM Corporation, the decedent’s employer, in 1968, eight years before the accident in question occurred. It is not seriously disputed that this merger resulted in the assumption by USM, a New Jersey corporation, of the liabilities and obligations of Farrel, a Connecticut corporation, including those liabilities that Farrel had inherited from Consolidated (see Conn Gen Stats Ann, § 33-371, subd [d]; NJ Stats Ann, § 14A:10 — 7, subd [3]; see, also, Business Corporation Law, § 906, subd [b], par [3]).

At the outset, we note our rejection of plaintiffs contention that, notwithstanding section 11 of the Workers’ Compensation Law, she is entitled to maintain a common-law action against USM either in its capacity as a participant in the manufacture and design of the metal "lifting bar” which was involved in the accident or in its capacity as the owner of the premises on which the accident occurred. The theory advanced by plaintiff, commonly known as the "dual capacity” doctrine, has been described by one noted commentator as follows: "[A]n employer normally shielded from tort liability by the exclusive remedy principle [embodied in section 11 of the Workers’ Compensation Law] may become liable in tort to his own employee if he occupies, in addition to his capacity as an employer, a second capacity that confers on him obligations independent of those imposed on him as employer” (2A Larson, Workmen’s Compensation Law, § 72.80, at p 14-112; see, e.g., Reed v The Yaka, 373 US 410; Duprey v Shane, 39 Cal 2d 781; Smith v Metropolitan Sanitary Dist., 77 Ill 2d 313; see, generally, Kelly, Workmen’s Compensation and Employer Suability: The Dual-Capacity Doctrine, 5 St Mary’s LJ 818). The doctrine is most frequently invoked when, as here, an employee or his dependents are seeking to hold the employer liable at common law as the owner of the property upon which a job-related injury has occurred (2A Larson, Workmen’s Compensation Law, at p 14-113). Although several jurisdictions have permitted maintenance of a common-law action under this theory (e.g., State ex rel. Auchter Co. v Luckie, 145 So 2d 239 [Fla]; Marcus v Green, 13 Ill App 3d 699; Duplechin v Pittsburgh Plate Glass Co., 265 So 2d 787 [La]; but see McCarty v City of Marshall, 51 Ill App 3d 842), we have squarely rejected its use in our State (William v Hartshorn, 296 NY 49, supra; Winter v Doelger Brewing Co., 175 App Div 796, affd without opn 226 NY 581, supra; see Minsky v Baitelman, 281 App Div 910; see, also, Murray v City of New York, 43 NY2d 400; cf. Volk v City of New York, 284 NY 279), as have several other jurisdictions (Kottis v United States Steel Corp., 543 F2d 22; Vaughn v Jernigan, 144 Ga App 745; Jansen v Harmon, 164 NW2d 323 [Iowa]; Frith v Harrah South Shore Corp., 92 Nev 447; Billings v Dugger, 50 Tenn App 403). In a similar vein, there has been a spate of cases in recent years in which employees have attempted to avoid the effects of the exclusivity rule by suing their employers in their capacities as manufacturers or designers of hazardous equipment causing injury on the job. While some courts have recognized and adopted this approach (Douglas v E. & J. Gallo Winery, 69 Cal App 3d 103; Mercer v Uniroyal, Inc., 49 Ohio App 2d 279), most have specifically refused to do so (Mapson v Montgomery White Trucks, 357 So 2d 971 [Ala]; Profilet v Falconite, 56 Ill App 3d 168; Winkler v Hyster Co., 54 Ill App 3d 282; Needham v Fred’s Frozen Foods, 359 NE2d 544 [Ind]; Atchison v Archer-Daniels-Midland Co., 360 So 2d 599 [La]; Schlenk v Aerial Contractors, 268 NW2d 466 [ND]; Kottis v United States Steel Corp., 543 F2d 22, supra).

Having examined all of the pertinent precedent, we conclude that the "dual capacity” doctrine as it has been applied to permit common-law suits against employers in their capacities as property owners or manufacturers of plant equipment is fundamentally unsound. The Workers’ Compensation Law was designed to spread the risk of industrial accidents through the vehicle of insurance coverage and, more specifically, to "provide a swift and sure source of benefits to the injured employee or to the dependents of [a] deceased employee” (O’Rourke v Long, 41 NY2d 219, 222), without regard to fault in most instances. In exchange for the security of knowing that fixed benefits will be paid without the need to resort to expensive and sometimes risky litigation, however, the employee has been asked to pay a price in the form of the loss of his common-law right to sue his employer in tort and perhaps to enjoy a more substantial recovery through a jury award. The legislative implementation of this "trade-off” is embodied in section 11 of the Workers’ Compensation Law, which precludes suits against the employer and limits the employees to the recompense afforded under the statute when he is injured in the course of his employment.

We cannot sanction the circumvention of this clear legislative plan by approving a theory which would permit the employer to be sued in his capacity as property owner or manufacturer of equipment used on the job site. As we have previously observed, "an employer remains an employer in his relations with his employees as to all matters arising from and connected with their employment. He may not be treated as a dual legal personality, 'a sort of Dr. Jekyl and Mr. Hyde’ ” (Williams v Hartshorn, 296 NY 49, 50-51, supra, quoting Winter v Doelger Brewing Co., 95 Misc 150, 153). Employers are expected to provide their employees with a safe workplace that is reasonably free of hazards. This obligation to provide a safe workplace simply cannot be separated in a logical and orderly fashion from the duties owed by the employer to his employees by reason of his ownership of the premises or his manufacture of the equipment with which the employees must work. Indeed, these duties are merely subcategories within the complex of obligations that arise in connection with the employment relation. We would be seriously undermining the salutary social purposes underlying the existing workers’ compensation scheme if we were to permit common-law recovery outside of that scheme on the basis of such illusory distinctions. This we decline to do.

Plaintiff’s claim against USM as the successor to the liabilities of Consolidated Machine Tool Corporation and FarrelBirmingham Company, however, stands on a somewhat different footing. It is well settled that the policies underlying the Workers’ Compensation Law do not preclude the maintenance of a common-law action against third-party tort-feasors who may be responsible, in whole or in part, for an. employee’s injuries. "[I]n compensation law, social policy has dispensed with fault concepts to the extent necessary to ensure an automatic recovery by the injured workman; but the disregard of fault goes no further than to accomplish that object, and, with payment of the workman assured, the quest of the law for the actual wrongdoer may proceed in the usual way” (2A Larson, Workmen’s Compensation Law, § 71.10, at p 14-2). In the present case, had the corporate identities of Consolidated Machine Tool Corporation and Farrel-Birmingham Company been preserved, plaintiff would have had a right to maintain an action against those corporations on the theory that they exposed her deceased husband to the risk of injury by designing and manufacturing a defective vertical boring mill and "ram”. It is only because these corporations were consolidated and then merged with USM Corporation that plaintiff is now without the means to hold them directly accountable as third-party tort-feasors.

As previously noted, USM has not seriously disputed that it had succeeded to the liabilities ánd obligations of Consolidated and Farrel-Birmingham as a result of the 1968 merger (see Business Corporation Law, § 906, subd [b], par [3]). In effect, USM stands in the shoes of these two defunct corporations and, in the ordinary course of events, would be fully answerable to plaintiff for their tortious conduct. Under the circumstances of this case, we cannot accept USM’s contention that the obligations it inherited through corporate merger may be avoided simply because of the fortuity that the injured party was an employee covered by the provisions of the Workers’ Compensation Law. In short, we conclude that the exclusivity rule of section 11 is not available as a defense to a common-law tort action under these facts.

Conceptually, the deceased employee’s executrix is suing not the decedent’s former employer, but rather the successor to the liabilities of the two alleged tort-feasors. That USM also happens to have been the injured party’s employer is not of controlling significance, since the obligation upon which it is being sued arose not out of the employment relation, but rather out of an independent business transaction between USM and Farrel. What distinguishes this case from the "dual-capacity” cases discussed above is that here the tort in question was not committed by the employer or any of its agents; instead, the tort, if any, was committed by third parties, which, as it appears on the present record, never had an employer-employee relationship with the injured party. Since these third parties would have had no basis for invoking section 11 of the Workers’ Compensation Law as a defense in a common-law action brought against them by the employee or his dependents, USM, which stands in their shoes with respect to the question of liability, should similarly not be permitted to do so.

Through its merger with Consolidated and Parrel, USM voluntarily assumed any obligations that those corporations may have had to individuals who might suffer injury as a result of a defect in their product. It would be grossly inequitable to permit USM to avoid its assumed obligations solely because the injured party was coincidentally an employee and the injuries in question arose in the course of his employment. As we have already seen, the policies underlying the Workers’ Compensation Law do not extend so far as to preclude actions by an injured worker against a third-party manufacturer whose defective product has caused the injury. Inasmuch as plaintiff’s action represents essentially an attempt to recover from third-party manufacturers through a suit against their corporate successor, plaintiff should be permitted to maintain the action, notwithstanding that the successor corporation is also an employer which would otherwise be immune from suit under section 11. Accordingly, we hold that it was error for the courts below to dismiss plaintiff’s causes of action against USM on the basis of its status as employer.

We note that plaintiff had also named Emhart Corporation, USM’s parent, as a party defendant in the action. It was plaintiff’s position that Emhart should be answerable for the obligations of USM because its involvement in its subsidiary’s management was so extensive as to render the subsidiary a mere "alter ego” of the parent (see, generally, Berkey v Third Ave. Ry. Co., 244 NY 84; Lowendahl v Baltimore & Ohio R. R. Co., 247 App Div 144, affd 272 NY 360). Upon Emhart’s motion for summary judgment, the courts below dismissed the complaint against that corporation, but only because they had concluded that USM, upon which Emhart’s alleged liability was based, could not itself be held liable to plaintiff. Inasmuch as we have reached a contrary conclusion as to USM’s potential liability, we must now consider whether, assuming USM to be liable, there are sufficient facts on the record to permit plaintiff to continue the action against Emhart.

As a general rule, the law treats corporations as having an existence separate and distinct from that of their shareholders and, consequently, will not impose liability upon shareholders for the acts of the corporation (Port Chester Elec. Constr. Corp. v Atlas, 40 NY2d 652, 656). Indeed, the avoidance of personal liability for obligations incurred by a business enterprise is one of the fundamental purposes of doing business in the corporate form (see Rapid Tr. Subway Constr. Co. v City of New York, 259 NY 472, 487-488). It is true that, on occasion, the courts will disregard the separate legal personality of the corporation and assign liability to its owners where necessary "to prevent fraud or to achieve equity” (International Aircraft Trading Co. v Manufacturers Trust Co., 297 NY 285, 292). But, such liability can never be predicated solely upon the fact of a parent corporation’s ownership of a controlling interest in the shares of its subsidiary. At the very least, there must be direct intervention by the parent in the management of the subsidiary to such an extent that "the subsidiary’s paraphernalia of incorporation, directors and officers” are completely ignored (Lowendahl v Baltimore & Ohio R. R. Co., 247 App Div 144, 155, affd 272 NY 360, supra).

Here, there has been no showing whatsoever that Emhart disregarded the separate identity of USM and involved itself directly in the affairs of that corporation. In response to Emhart’s moving papers, which assert that Emhart is merely a holding company with no employees involved in the management of USM, plaintiff has stated only that her claim against Emhart is "based on the fact that the defendant USM Corporation is [a] wholly-owned subsidiary [of Emhart]”. Of course, this fact alone would not be sufficient to support the imposition of liability upon Emhart for the acts of its subsidiary.

Nevertheless, plaintiff argues that a grant of summary judgment in favor of Emhart would be premature because it is still unclear whether "there is the necessary control exerted by the parent corporation to make it liable for the acts of its subsidiary”. Plaintiff further contends that additional discovery is "essential in this connection”. While it is true that CPLR 3212 (subd [f]) authorizes the court to deny summary judgment or grant a continuance pending discovery when "facts essential to justify opposition [to the motion] may exist but cannot be stated”, we cannot conclude that such action would be warranted here, since plaintiff has given no indication as to what "essential” facts she believes exist that would justify a denial of Emhart’s motion to dismiss her complaint. Consequently, l^mhart is entitled to summary judgment on its motion.

Finally, we hold that the dismissal of the complaint as it pertained to defendants Consolidated Machine Tool Corporation, Farrel-Birmingham Company and Farrel Corporation was entirely proper. Those corporations had long since ceased to exist at the time the instant action was commenced, and there is no indication that there remain any assets or insurance coverage which would provide a source of recovery. Inasmuch as these corporations have been completely absorbed by USM, plaintiff’s sole remedy for any injuries resulting from their tortious conduct lies in an action against that corporate entity.

Accordingly, the order of the Appellate Division should be modified, with costs to plaintiff against USM Corporation, by reinstating plaintiff’s causes of action against USM Corporation in accordance with the opinion herein and, as so modified, affirmed, with costs to the remaining defendants against plaintiff.

Meyer, J.

(dissenting). I would affirm. I agree that the dual capacity doctrine is inapplicable, though on different grounds than the majority, but I disagree with their conclusion that the Business Corporation Law, when all its pertinent provisions are considered, authorizes the action.

As the majority notes, the dual capacity doctrine holds a manufacturer-employer liable at common law for injury to an employee which results from a defect in the product. The theory underlying liability is that the duty of the manufacturer to make a product free of defect is unrelated to the employment relationship by reason of which the employer’s compensation liability and resultant immunity from tort liability comes into being. But even under the most liberal application of that doctrine a manufacturer-employer is held protected by compensation immunity when the product was manufactured solely for his own use and not for distribution to the general public (see Douglas v E. & J. Gallo Winery, 69 Cal App 3d 103, Mercer v Uniroyal, Inc., 49 Ohio App 2d 279).

Here Farrel-Birmingham ("Farrel”) acquired Consolidated in 1951 and Consolidated was formally dissolved on December 31, 1954. The record indicates that Consolidated designed the vertical boring mill, that it was manufactured by Consolidated and Farrel during the latter part of 1954 and part of 1955 and installed in the Farrel plant in August, 1955. Since no cause of action for the claimed design defect could exist before completion of installation (Sears, Roebuck & Co. v Enco Assoc., 43 NY2d 389; Sosnow v Paul, 36 NY2d 780), Consolidated, which had been dissolved before that time, had no liability as an entity separate from Farrel. Moreover, since Farrel caused the mill to be installed for use in its own plant, the dual capacity doctrine would not apply to it, to impose common-law liability to an employee, in any event.

My disagreement with the majority is that it has applied only a part of the provisions of the Business Corporation Law. Relying on the provision in section 906 (subd [b], par [3]) of that law, which makes the surviving corporation "liable for all the liabilities, obligations and penalties of each of the constituent corporations,” it ignores paragraph (1) of subdivision (b) of the same section which endows the surviving corporation with "all the rights, privileges, immunities, powers and purposes of each of the constituent corporations.”

Accepting for purposes of argument that the dual capacity doctrine will not be applied in New York, we then have a situation in which Farrel, USM’s predecessor corporation, incurred an inchoate liability at the time the defectively designed boring mill was installed in its plant, to anyone injured by the defect other than an employee, as to whom the compensation law immunized it from common-law liability. Since both immunities and liabilities of the predecessor corporation, Farrel, are available to or imposed upon the survivor or consolidated corporation, USM, it necessarily follows that the latter corporation is immune from liability if the person injured by the defect when the previously inchoate liability becomes choate is one of USM’s employees. The reason, quite simply, is that the predecessor corporation would have been immune had there been no merger or consolidation and section 906 explicitly says that merger or consolidation does not affect immunity. That there might have been liability had the injury occurred before merger or consolidation is immaterial, for the coalescence of defect and injury which makes liability choate is accompanied by employment of the injured person, which under the Business Corporation Law immunizes the surviving corporation from tort liability. The facts that Billy was never employed by Parrel and that Barrel is not the surviving corporation are immaterial for USM as the surviving corporation was entitled as to its employees to the immunity to which Barrel, one of the constituent corporations, would have been entitled had there been no merger.

The majority’s argument that Barrel would be subject to suit by Mr. Billy’s survivors had it not merged with USM and that USM, therefore, should not escape liability through the "fortuity” of its merger with USM is inconsistent not only with the Business Corporation Law but with the facts and with decisional law. Had Billy been injured while working for Barrel, Barrel would have been immunized by section 11 of the compensation law and USM as the successor to Barrel would have been immune to suit by Billy because Barrel was. There could be liability on USM’s part for an injury to Billy only if Barrel sold the mill to USM and did not merge with it. There was, however, no sale, and there was, indeed, a merger.

All that has occurred is that USM acquired the corporations that built the allegedly defective mill and used it in their work. The mill has never been removed from the employment operation and neither corporation ever surrendered the immunity from suit which was conferred upon it by reason of compliance with the Workers’ Compensation Law. When USM acquired Barrel, it acquired as well the immunity of which Barrel was possessed, an immunity USM would not have acquired if it had merely purchaséd the mill from Barrel. That immunity protected Barrel from liability resulting from defective design for injury to an employee in the course of his employment by equipment manufactured by Barrel for its own use. Both the immunity and the liability remained inchoate until the occurrence of an injury brought both into play. If the person injured was a nonemployee of USM, USM would be liable for the design defect because Barrel would have been and USM was the successor corporation. If the injured person was an employee of USM, USM would be immune from liability because Barrel was and USM was the successor corporation. It is immaterial that Billy never worked for Farrel (cf. majority opn, footnote, p 161). USM was immune from liability to Billy as its employee not because Billy was a Farrel employee but because Farrel was immune from liability to an employee and USM inherited that immunity. This is made clear by McElwain v Primavera (180 App Div 288, 289) which teaches that the effect of section 906 is that "nothing is lost by a merger; that the company formed by the merger stands in the place of those merged, and any right which belonged to them can be asserted by it”.

Nor are the assets of a merged corporation to be considered as having been transferred to the surviving corporation. As is illustrated by Torrey Delivery v Chautauqua Truck Sales & Serv. (47 AD2d 279), there is a substantial difference between a transfer of stock and a transfer of property. In that case plaintiff tenant had been granted a right of first refusal by its corporate landlord. On the death of the landlord’s sole stockholder, his stock was acquired by another corporation. Claiming that the stock sale violated its right of first refusal, the tenant sued to enforce it. The Appellate Division held that there had been no change of ownership of the landlord-corporation’s property, that "the corporate merger cannot be viewed as divesting or separating control of the subject property from the corporate entity” (47 AD2d, at p 283). Similarly, USM, Billy’s employer, stands in the place of Farrel and benefits from the compensation law’s grant of immunity.

The fallacy of the majority’s reasoning becomes apparent if we consider the consequences. Assume that a person works for a company which has manufactured its own equipment, that the corporation is acquired by another corporation and that the employee remains in his job. Under the majority’s reasoning, although the former employer had protection against suit, the Workers’ Compensation Law does not protect the acquiring corporation against suit if an injury to the employee is caused by any of the acquired equipment built by its predecessor. To make common-law liability of an employer otherwise entitled to section 11 immunity turn on whether the injury causing equipment was built by it or its predecessor is unrealistic. An acquiring corporation should not be required to take inventory of the equipment acquired through merger and obtain general liability insurance on so much of it as was manufactured by the acquired corporation, and nothing in either section 906 of the Business Corporation Law or section 11 of the Workers’ Compensation Law suggests that the Legislature so intended.

The majority’s conclusion is, in my view, theoretically deficient and impractical. Since the courts below properly granted summary judgment to defendant, the order of the Appellate Division should be affirmed.

Chief Judge Cooke and Judges Jones, Wachtler and Fuchsberg concur with Judge Gabrielli; Judge Meyer dissents and votes to affirm in a separate opinion in which Judge Jasen concurs.

Order modified, with costs to plaintiff against defendant USM Corporation, in accordance with the opinion herein and, as so modified, affirmed, with costs to the remaining defendants against plaintiff.

       There is no record evidence that the decedent was ever employed by the predecessor corporations, Farrel-Birmingham and Consolidated. Moreover, inasmuch as Farrel was not the surviving corporation (Business Corporation Law, § 901, subd [b], par [4]), decedent’s subsequent employment by USM cannot be attributed to Parrel. It is therefore unnecessary for us to consider or, indeed, to speculate whether USM Corporation would have inherited the immunity from suit which these corporations would have enjoyed had decedent been in their employ at some time prior to the merger (see Business Corporation Law, § 906, subd [b], par [1]). The dissenter’s reasoning to the contrary is unavailing. Inasmuch as Parrel never employed decedent Billy and, therefore, never invested in workers’ compensation insurance to cover injuries decedent might sustain during the course of his employment, it cannot be said, logically or legally, that section 11 of the Workers’ Compensation Law would have afforded Parrel any immunity from a lawsuit instituted on behalf of Billy; it follows that since Parrel possessed no "immunity” from such a suit, there was no immunity for USM to "inherit” in consequence of its ultimate merger with Parrel.

       Since the majority posits liability under section 906 of the Business Corporation Law, there is no occasion to discuss the merits of the dual capacity doctrine and developments subsequent to Williams v Hartshorn (296 NY 49), not briefed by the parties or discussed by the majority, such as our decision in Dole v Dow Chem. Co. (30 NY2d 143), which materially affected the employer’s workers’ compensation protection, the predicate for Hartshorn’s conclusion.


source: Caselaw Access Project

author: Wachtler, J. Chief Judge Cooke

license: Public Domain

text:
    The People of the State of New York, Respondent, v Theodore Payton, Appellant.
    Argued September 8, 1980;
    decided October 14, 1980

      POINTS OF COUNSEL

      William E. Hellerstein for appellant.
    I. It would be inconsistent with the mandate of the court below for this court to now determine that exigent circumstances excused the failure of the police to obtain an arrest warrant prior to the entry of Payton’s apartment. (People v Fitzpatrick, 32 NY2d 499.) II. No exigent circumstances existed to excuse the failure of the police to obtain a warrant prior to their breaking down the door of Payton’s apartment. (McDonald v United States, 335 US 451; Johnson v United States, 333 US 10; Schmerber v California, 384 US 757; Chimel v California, 395 US 752; Warden v Hayden, 387 US 294; United States v Santana, 427 US 38; Mincey v Arizona, 437 US 385; Dorman v United States, 435 F2d 385.) III. The People are not entitled to a remand on the issue of exigent circumstances when they, themselves, were responsible for whatever deficiencies may exist in the record. (McDonald v United States, 335 US 451; Matter of Kwok T., 43 NY2d 213; People v Malinsky, 15 NY2d 86; People v Havelka, 45 NY2d 636; People v Bryant, 37 NY2d 208; People v Hendricks, 25 NY2d 129; Whiteley v Warden, 401 US 560.) IV. The District Attorney’s argument that Pay-ton is not entitled to suppression of the shell casing seized unlawfully from his apartment is frivolous. (United States v Peltier, 422 US 531; Stovall v Denno, 388 US 293; Bowen v United States, 422 US 916; Almeida-Sanchez v United States, 413 US 266; Linkletter v Walker, 381 US 618; Mapp v Ohio, 367 US 643; Coolidge v New Hampshire, 403 US 443.)

      Robert M. Morgenthau, District Attorney (Peter L. Zimroth, Brian Rosner and Vivian Berger of counsel), for respondent.
    I. Payton’s arrest without a warrant was proper because it was the result of a continuous, intensive and uninterrupted pursuit of an armed killer. (Dorman v United States, 435 F2d 385; Vance v State of North Carolina, 432 F2d 984; United States v Kulcsar, 586 F2d 1283; United States v Reed, 572 F2d 412; United States v Shye, 492 F2d 886; United States v Campbell, 581 F2d 22; United States v Brown, 540 F2d 1048; United States v Watson, 423 US 411; United States v Brown, 467 F2d 419.) II. This court should in no event summarily reject the People’s argument advanced in point I. At the very least, if the court is dissatisfied with the state of the record before it on this issue, it should order a remand for fuller development of the relevant facts. (People v Fitzpatrick, 32 NY2d 499; People v Malinsky, 15 NY2d 86; People v Havelka, 45 NY2d 636.) III. Payton is not entitled to the benefit of the exclusionary rule because, when the police entered his apartment in January 1970, they did so under the express authority of a State statute, at a time when neither they nor any other law enforcement official could have had any serious doubts about the legality of following the statute. (Bivens v Six Unknown Fed. Narcotics Agents, 403 US 388; United States v Ceccolini, 435 US 268; United States v Calandra, 414 US 338; People v McGrath, 46 NY2d 12; Alderman v United States, 394 US 165; United States v Janis, 428 US 433; United States v Peltier, 422 US 531; Michigan v Tucker, 417 US 433; Elkins v United States, 364 US 206; Olmstead v United States, 277 US 438.)
   OPINION OF THE COURT

Wachtler, J.

The defendant has been convicted of murder at a trial in which the prosecutor introduced a shell casing found in the defendant’s apartment, when the police forcibly entered to arrest him without a warrant. On appeal the United States Supreme Court held that the police may not enter private premises without a warrant unless there are exigent circumstances and found unconstitutional certain New York statutes insofar as they would permit "routine” warrantless entry by arresting officers. On remand the defendant urges that the shell casing be suppressed, his conviction reversed and a new trial ordered. However the prosecutor, who successfully relied on the arrest statutes at the pretrial suppression hearing, now argues that there were exigent circumstances and urges that we either so find on the record as it stands, reopen the hearing for additional evidence on this issue, or hold the exclusionary rule inapplicable when police conduct was authorized by statute.

On January 12, 1970 a man armed with a rifle and wearing a ski mask robbed a Manhattan gas station. During the robbery the gas station manager was shot and killed. On January 15 the police went to the defendant’s apartment. It is conceded that at this point, as a result of their investigation, the police had probable cause to believe the defendant was the man who had robbed and killed at the gas station three days earlier. They had not, however, obtained a warrant for his arrest. At the apartment the police could hear a radio playing behind the door and saw light beneath it. But when they knocked they were not admitted. They then called for technical assistance and when it arrived, one half hour later, they forceably entered the apartment. The police were unable to find the defendant in the apartment but they saw and seized a shell casing which had been lying in plain view on a stereo set. The following day the defendant surrendered to the police. He was indicted for felony murder and intentional murder.

Prior to trial the defendant moved to suppress the shell casing. At a hearing on the motion the defendant brought out the fact that the police had not obtained a warrant to enter the premises. He also sought to show that the police had sufficient time to obtain a warrant and no excuse for having not done so. However, the District Attorney objected to this line of questioning noting that under the statutes then in effect (Code Crim Pro, §§ 177, 178) the police were authorized to enter a person’s home to arrest him without a warrant and that the statutes did not limit this authority to cases where there were exigent circumstances. The court agreed with the prosecutor and sustained his objections on this and later occasions when the defendant sought to introduce proof on this point. At the conclusion of the hearing the court refused to suppress the shell casing, holding that it had been observed in plain view while the police were lawfully on the premises pursuant to the statutes. The court also found the statutes constitutional.

The People introduced the shell casing at trial and produced expert testimony that the shell had come from the murder weapon. The jury found the defendant guilty of murder.

The conviction was affirmed by the Appellate Division (55 AD2d 859) and this court (45 NY2d 300). However, as noted, on appeal to the United States Supreme Court it was held that the Fourth Amendment "prohibits the police from making a warrantless and nonconsensual entry into a suspect’s home in order to make a routine felony arrest” (Payton v New York, 445 US 573, 576). With respect to exigent circumstances, it was noted that the Trial Judge “had no occasion *** to decide whether” the circumstances preceding the entry of the defendant’s apartment “would have justified the failure to obtain a warrant, because he concluded that the warrantless entry was adequately supported by the statute without regard to the circumstances” (ibid., at pp 577-578). And, although the Supreme Court later indicated that “it is arguable that the warrantless entry to effect Payton’s arrest might have been justified by exigent circumstances” it nevertheless declined to pass on the issue since “none of the New York courts relied on any such justification” (ibid., at p 583). In sum, the Supreme Court rejected the theory the People had relied upon at the pretrial suppression hearing; found the New York statutes unconstitutional to the extent they would permit the police to forceably enter private premises without a warrant to make routine felony arrests and, accordingly, reversed and remanded to this court “for further proceedings not inconsistent with this opinion” (ibid., at p 603).

The defendant urges that the only appropriate action at this stage is to suppress the shell casing, reverse the Appellate Division order affirming the conviction and remit the case for a new trial. In the companion case of People v Riddick (51 NY2d 764) we have summarily suppressed the evidence. In the case now before us, however, the District Attorney has not conceded, as the prosecutor did in Riddick, that there are no exigent circumstances. In addition, and more fundamentally, the District Attorney urges that in the instant case the exclusionary rule cannot be applied.

With respect to this latter point, it is the prosecutor’s position that the exclusionary rule, which was designed to compel the police to follow lawful procedures, should not be applied when the police conduct was expressly authorized by statute. He urges that this is especially true when, as here, the statutes the police relied upon have been in existence for nearly a century, codified a widespread practice and were only found to be unconstitutional long after the police had acted.

In a narrow sense, it is true that the exclusionary rule was originally created to deter police unlawfulness by removing the incentive (United States v Calandra, 414 US 338, 347-348). In a broader sense, however, the exclusionary rule serves to insure that the State itself, and not just its police officers, respect the constitutional rights of the accused. Thus, for instance, evidence will be suppressed if it was seized by the police pursuant to a court order or warrant subsequently found to be defective (see, e.g., Whiteley v Warden, 401 US 560; Spinelli v United States, 393 US 410) or pursuant to an order expressly authorized by a statute later determined to be unconstitutional (see, e.g., Berger v New York, 388 US 41). In those cases, of course, the police simply carried out a court order, as they were bound to do, and the fault lay with other branches of the government. Nevertheless, the exclusionary rule was held applicable to deny the State the benefits of its violation of the defendant’s constitutional rights.

Moreover, if as the prosecutor urges, police activities indorsed by statute or widespread practice are immune from the exclusionary rule, the Supreme Court’s decision in this case, and other decisions in like cases, could not affect Pay-ton’s conviction or the prosecution in which the statute or practice was first challenged. They would only provide guidance for future cases. In a system of government which requires the courts generally to decide only concrete cases and controversies, and to avoid advisory or purely prospective opinions (see, e.g., Stovall v Denno, 388 US 293, 301) this would mean that statutes and widespread practices broadly affecting the rights of accused persons would, ironically, be beyond judicial review for all practical purposes. Thus it is not so much the nature of the exclusionary rule but rather the nature of judicial process and the need to actually resolve a live controversy which requires that the exclusionary sanction be applied in cases which change the law or hold invalid practices which had previously been widely believed to be constitutionally acceptable.

That consideration, of course, is not present when the court is asked to decide whether a new rule of law announced in an earlier case should be applied to cases or incidents concluded before the law changed. It appears that when retroactivity is at issue, concerns similar to those expressed by the prosecutor may be considered important, or in some cases, controlling factors (United States v Peltier, 422 US 531). But they cannot affect the outcome of the "first case” to decide the substantive point (Stovall v Denno, 388 US 293, supra).

We also note that the prosecutor apparently argued the inapplicability of the exclusionary rule when this case was before the Supreme Court. Although this point was not discussed in the Supreme Court’s opinion, we view its reversal as an implicit rejection of the argument that the exclusionary rule can have no application in this case.

The prosecutor’s second, and principal, contention is that there were exigent circumstances which relieved the police of the obligation to obtain a warrant before entering the defendant’s apartment. He argues that the existing record supports this contention. Alternatively he requests that the suppression hearing be reopened so that the People may submit additional evidence on this point. The defendant urges that the record as it stands does not show exigent circumstances and that the People should not be given a second chance to submit proof on this issue because "they, themselves were responsible for whatever deficiency may exist in the record”. The defendant also argues that for the courts of this State to now determine whether there were exigent circumstances would be "inconsistent with the mandate of the Supreme Court”.

The court has concluded that the exigency question cannot be resolved on the existing record in view of the District Attorney’s objections, sustained by the hearing court, to the defendant’s efforts to fully develop the circumstances preceding the entry of his apartment. However, the District Attorney should not be penalized for his initial success at the hearing to the extent of being precluded from introducing proof of exigency at a new hearing. The Supreme Court’s determination did not expressly or by implication foreclose inquiry on this point. On the contrary, the Supreme Court’s determination prohibiting the People from relying on statutes authorizing police entry of private premises for routine arrests has now, and for the first time, made proof of exigency relevant and necessary to the People’s case. Nor does the law of this State prohibit the People from submitting proof to support this alternative theory at a new hearing.

The People, of course, are not entitled to a new hearing every time they lose a suppression issue on appeal. All that fairness requires is that they be given "one full opportunity” to prove the admissibility of the evidence sought to be suppressed (People v Havelka, 45 NY2d 636). In Havelka we noted (at p 643) that the People have not been given such an opportunity, and thus should be granted a new hearing if "an error of law is committed by the hearing court which directly causes the People to fail to offer potentially critical evidence”. For instance if the People fail to call an informant based on a hearing court’s determination that such testimony is unnecessary, the People will be entitled to a new hearing in the event the hearing court’s ruling is found to be erroneous on appeal (People v Malinsky, 15 NY2d 86). Similarly if the People successfully rely on a warrant to justify a search they will not be precluded from submitting proof on another theory, at a new hearing, if it is found that the hearing court erred in holding that the warrant authorized the search (People v Green, 33 NY2d 496; see, also, People v Whitehurst, 25 NY2d 389).

On the other hand, if the People had a full opportunity to present their case at the original hearing, and failed through their own neglect, they are not entitled to try again when the defect is discovered on appeal. Thus if the prosecutor claims that evidence is admissible on a particular theory and yet, through no fault of the court, fails to submit sufficient proof to support that theory, we will not order a new hearing (People v Havelka, 45 NY2d 636, supra).

In Payton’s case the hearing court held that if the police had probable cause to arrest the defendant they had authority to enter his premises without a warrant regardless of the circumstances. Obviously that holding made it unnecessary for the People to attempt to prove that there were exigent circumstances. Now that the ruling has been held to be erroneous there is no reason why the People should be denied an opportunity to submit proof of exigent circumstances when this alternative theory has become critical to their case.

The fact that the court’s erroneous ruling, precluding proof of these circumstances, was prompted by the District Attor-' ney’s objections is not controlling (see, e.g., People v Malinsky, supra, at p 90). At the hearing, the People had a right to rely on the statutes — which had been routinely employed by law enforcement officers for nearly a century — and to object to evidence which was irrelevant under the theory relied upon. To hold that the People who had succeeded on one theory must nevertheless develop or defend alternative grounds on the merits whenever their primary point has been attacked would prolong pretrial suppression hearings beyond necessity in most cases, and in some no doubt, to the limits of ingenuity. Time-consuming pretrial practices which will accomplish nothing in most cases are a " 'procedural luxury’ ” which the courts cannot afford to adopt or encourage (see, e.g., People v Gruden, 42 NY2d 214, 217).

In sum the People should be given an opportunity to submit proof of exigent circumstances, if any, at a new hearing. They should not be precluded from submitting evidence on a critical point when it becomes necessary, simply because they failed to do so at a time when the court had erroneously held the evidence was not necessary and indeed irrelevant to their case.

Accordingly, the order of the Appellate Division should be modified and the matter remitted to Supreme Court, New York County, for a hearing in accordance with this opinion and for the entry of either an order granting defendant’s motion to suppress and ordering a new trial or an amended judgment reflecting the disposition made at the hearing.

Chief Judge Cooke

(dissenting). The prosecution in a criminal case deserves a full chance to develop at a suppression hearing an admissible base for its evidence. Normally, it does not deserve a second chance, and particularly so where its own actions at the first hearing created the lack of that base. By remitting this case for. a new suppression hearing, the majority today gives the prosecution just such an unwarranted second chance.

The evidence in question was discovered by police after they broke into defendant’s unoccupied apartment to make a warrantless arrest. At the pretrial suppression hearing, the prosecution relied on a State statute permitting warrantless arrests of persons in their residences. The United States Supreme Court has since held that statute to be unconstitutional, ruling that a warrantless arrest in a private residence, was unconstitutional absent exigent circumstances (Payton v New York, 445 US 573). On remand to this court, the issue is thus whether a new suppression hearing should be held to determine if exigent circumstances excusing the absence of a warrant existed or whether the evidence must be suppressed and a new trial granted.

As this court stated in People v Havelka (45 NY2d 636, 643), the prosecution should have "one full opportunity” to establish the admissibility of its evidence. In this case the prosecution had such an opportunity and not only failed to use it fully, but actively thwarted attempts by defense counsel to explore the very issue of exigent circumstances.

Havelka held that a rehearing was appropriate where "an error of law is committed by the hearing court which directly causes the People to fail to offer potentially critical evidence” (45 NY2d 636, 643). In Havelka, the prosecution’s failure to establish the admissibility of its evidence was caused by its reliance on a line of cases that was subsequently overruled. This court refused to allow the prosecution an opportunity to meet the new standard.

This case makes an even stronger argument against a rehearing. It was this very case, not an unrelated intervening case, that ultimately overturned the statute on which the prosecution relied. With the validity of the statute thus directly involved, the prosecution made a tactical decision to rely solely on the statute and did not attempt to show exigent circumstances as a precaution against the statute being struck down. Taking such a precaution would hardly have been an unreasonable step for the prosecution to have taken. As the Supreme Court noted in Payton, there had been a "significant decline during the last decade in the number of States permitting warrantless entries for arrest” in residences, dicta in prior Supreme Court decisions "raising questions about the practice” (445 US 573, 599), and holdings by five Federal courts of appeal that the practice was unconstitutional (id., at p 575). The issue of exigent circumstances was thus hardly irrelevant. And, contrary to the majority’s assertion, exploration of that issue would not have consumed an inordinate amount of time. The most relevant witness was on the stand and testified at length about other matters. The few moments that he would have taken in responding to defense counsel’s inquiries pale in comparison to the resources and time that will be consumed by remanding the matter for a new hearing at this point.

More important, when the defense counsel attempted to cross-examine the police officer supervising the investigation, the prosecution successfully blocked, through objections, any attempt to explore the presence or absence of exigent circumstances. As this court noted in People v Wise (46 NY2d 321, 329), "where the defendant is denied an opportunity at the suppression hearing to delve into the circumstances attendant upon his arrest or detention, his motion to suppress would be favorably entertained on appeal”. Since the prosecution was thus directly responsible for the inadequacy of the record, it would be unfair to the defendant, and unwarranted under this court’s rulings, to grant a new suppression hearing. The order of the Appellate Division should be reversed, the motion to suppress granted and a new trial ordered.

Judges Jasen, Gabrielli, Jones, Fuchsberg and Meyer concur with Judge Wachtler; Chief Judge Cooke dissents in part and votes to reverse, grant defendant’s motion to suppress and order a new trial in a separate opinion.

Upon reargument, following remand by the Supreme Court of the United States, order modified and case remitted to the Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

      . The police also found other items during a thorough search of the defendant’s apartment but the prosecutor conceded that they had been illegally seized and would not be introduced at trial. In addition one of those items, a receipt for a rifle, led to the man who had sold the defendant the gun used in the robbery. On the prior appeal his evidence was found to be admissible on the inevitable discovery theory (45 NY2d 300). The Supreme Court refused to consider the validity of that holding (see 439 US 1044). Its inquiry was limited solely to the seizure of the shell casing. Thus, on remand, we too are only concerned with the admissibility of the shell casing.

      . We. of course, are not required to decide retroactivity in this case and express no view as to whether the decision in Payton v New York (445 US 573 ) should be given retroactive effect.


author:
      Per Curiam.
     Meyer, J.

text:
    In the Matter of Charles Schlaifer et al., Appellants, v Victor Sedlow, Respondent.
    Argued September 2, 1980;
    decided October 14, 1980

      POINTS OF COUNSEL

      George P. Birnbaum and Charles Ballon for appellants.
    I. The court below erred in overturning the decision of the Supreme Court that the unambiguous general release acts to cancel the agreement to arbitrate. (Matter of Bronston [Glassman], 10 NY2d 158; Matter of Langer [Liverant], 14 NY2d 642; Matter of Binger [Thatcher], 304 NY 627; Matter of Minkin [Halperin], 304 NY 617; Matter of Sanders [New York Joint Bd., Amalgamated Clothing Workers of Amer.], 280 App Div 781; Matter of NTA [Tableau Tel.], 11 Misc 2d 333; Matter of Stein-Tex [Ide Mfg. Co.], 19 Misc 2d 123, 9 AD2d 288; Baranello & Sons v City of New York, 52 AD2d 531.) II. The court below erred by not considering appellants’ Statute of Limitations contention. Sedlow does not contest the fact that he received a sizable salary increase in 1966 which changed the terms of his employment. Accordingly, his claims under the 1964 agreements providing for "deferred compensation” have been barred by the Statute of Limitations for five and one-half years. (Matter of Schlaifer v Kaiser, 84 Misc 2d 817, 46 AD2d 850, 50 AD2d 749.)

      Joseph Calderon and Richard A. Whitney for respondent.
    I. The agreements containing the arbitration provision were not canceled by the general release. (Matter of Stein-Tex [Ide Mfg. Co.], 9 AD2d 288, 10 AD2d 557, 7 NY2d 711.) II. The effect of the general release is an issue for the arbitrators. (Matter of Bronston [Glassman], 13 AD2d 486, 10 NY2d 158; Matter of Minkin [Halperin], 304 NY 617; Matter of Stein-Tex [Ide Mfg. Co.], 19 Misc 2d 123, 9 AD2d 288, 10 AD2d 557, 7 NY2d 711; Fuller Co. v Gustafson Co., 55 AD2d 872; Matter of United Nations Dev. Corp. v Norkin Plumbing Co., 45 NY2d 358.) III. The Statute of Limitations issue was correctly decided by the court below. (Matter of Schlaifer v Kaiser, 84 Misc 2d 817, 50 AD2d 749.)
   OPINION OF THE COURT

Per Curiam.

The order of the Appellate Division should be affirmed, with costs. Whether the general release signed by respondent was the product of economic duress and what effect should be given to it in any event are issues to be resolved by the arbitrator pursuant to the arbitration agreement made by the parties.

On March 31, 1964 respondent Sedlow and three individuals entered into a stockholders agreement with Charles Schlaifer & Company, Inc., an advertising agency and the corporate appellant. On the following day Sedlow and the corporation entered into a related employment agreement. The stockholders agreement and the employment contract contained parallei arbitration provisions that "[a]ll disputes, differences and controversies arising out of, under or in connection with this agreement shall be settled and finally determined by arbitration”. Differences of opinion between the parties and the assertion by Sedlow of claims under his agreements with the corporation led to the payment by the corporation to him of $5,000, and the execution and delivery to the corporation by him of the familiar form of boiler plate general release, releasing all claims from the beginning of the world to the date of the release with no mention made of either the stockholders agreement or the agreement of employment. Sedlow now seeks arbitration of his claim that under the agreements he is entitled to 5% of the corporate profits and 5% of the corporate stock. The controversy between the parties which is presented to us focuses not on the merits of Sedlow’s substantive claim but only on what effect the general release had on the arbitration provisions of the prior agreements.

The contention of the. corporation that the effect to be given the general release should be determined by the courts and that the courts should conclude that it operated to wipe out the arbitration agreements ignores the separability of provisions as to forum selection from the substantive provisions of an agreement, fails to recognize the character and function of a general release, and overlooks the significance of our pertinent decisions. In Matter of Minkin (Halperin) (279 App Div 226, affd 304 NY 617), on which the corporate appellant and the dissenter rely so heavily, we were confronted with an instrument of cancellation, by which the parties had expressly agreed that their prior agreement "is hereby cancelled and declared of no further force and effect, and said agreement shall be interpreted as though it had not been executed”— that is, there was a complete nullification, ab initio, of every provision of the prior agreement, including its arbitration clause.

To be sharply distinguished from such an instrument of obliteration is a general release of claims, particularly where, as here, it has been executed and delivered in exchange for the payment of a significant sum of money. A general release is based on the assumption that there was a prior valid agreement out of the substantive provisions of which certain asserted claims had arisen, and manifests a subsequent agreement pursuant to which those claims have been given up and released. In legal effect then a general release accompanying a settlement of a substantive dispute is a form of contract termination with respect to the substantive rights of the parties under the original agreement. Unlike a cancellation, however, it falls short of a complete nullification of every provision of the prior agreement both substantive and procedural. Thus in the absence of express provision to the contrary, where the differences between the parties relate only to the substantive terms of their agreement, they will be held in releasing claims to have dealt only with such substantive rights and obligations, not with the separate and distinct subject of choice of the arbitration forum for the resolution of disputes.

Once the parties to a broad arbitration clause have made a valid choice of forum, as here, all questions with respect to the validity and effect of subsequent documents purporting to work a modification or termination of the substantive provisions of their original agreement are to be resolved by the arbitrator (cf. Matter of Stein-Tex [Ide Mfg. Co.], 9 AD2d 288, mot for lv to app den 7 NY2d 711; Matter of Lipman [Haeuser Shellac Co.] 289 NY 76). Because voluntary arbitration is the creature of contract it is of course open to the parties in any instrument in which they modify the substantive provisions of their original agreement, as well to provide explicitly for modification or termination of their agreement to arbitrate. (See Matter of American Ins. Co. [Messinger—Aetna Cas. & Sur. Co.] 43 NY2d 184, 193-194; County of Sullivan v Edward L. Nezelek, Inc., 42 NY2d 123, 128.) In the case now before us, however, there is no reference either in the general release or in the October 12, 1976 letter of transmittal to Sedlow’s right to seek arbitration. Nor is there any indication that when the general release was executed it was the intention of the parties to cancel or terminate their agreement to arbitrate, as well as to settle their substantive differences.

Meyer, J.

(dissenting in part). I agree that there is a difference between the general release of a claim under a contract and the cancellation of a contract, but cannot agree to the result reached by the majority because it ignores the fact that the demand for arbitration in the instant case refers not to one but to two contracts, one of which, unless we are flatly to overrule Matter of Minkin (Halperin) (304 NY 617), Matter of Binger (Thatcher) (304 NY 627), and Matter of Bronston (Glassman) (10 NY2d 158), has been canceled. The order of the Appellate Division should, therefore, be modified by directing that the judgment of Special Term stay arbitration under the contract of March 31, 1964 only and, except as thus modified, the Special Term judgment should be affirmed.

When Sedlow and his former partners, Kaiser and Temple, joined the Schlaifer Agency, individual employment contracts, dated April 1, 1964, and a stockholders agreement among the three of them, Schlaifer and the Schlaifer Company, dated March 31, 1964, were signed. Each employment contract fixed the compensation of the individual employee, provided for a term of two years, and contained an arbitration provision. The stockholders agreement fixed the amount of common stock to which each was entitled (Kaiser 15%, Sedlow and Temple 5% each), required Schlaifer Company, or if it had insufficient surplus then Schlaifer individually, to buy back the stock at the end of two years, and contained its own arbitration clause.

Minkin, Binger and Bronston make clear that when a release not only settles a claim under a contract providing for arbitration but cancels the contract there is no arbitrable issue because there is no longer any agreement to arbitrate. Moreover, the intention of the parties with respect to the operation of the release as a cancellation of the contract is to be gleaned from not only the release but also from any accompanying letter (see Matter of Lipman [Haeuser Shellac Co.], 289 NY 76, 78).

Here Sedlow does not dispute that he received from Schlaifer a letter dated October 12, 1976, together with a general release form which the letter asked that he sign and return, and together with a $5,000 check. Indeed, he acknowledged receipt of the letter by signing a receipt form immediately below Schlaifer’s signature. He also acknowledges that he executed the release, which is dated October 15, 1976, and received and cashed the check.

Considered by itself, the release, it is argued, does not explicitly cancel the March 31, 1964 contract, because it refers only to "contracts” generally and mentions "law, admiralty or equity,” but not arbitration. Whatever deficiency there may be in the release, if any, is, however, supplied by the letter of October 12, 1976, which expressly describes the claims made by Sedlow’s former partners "under the agreement dated March 31, 1964, despite the fact that the agreement expired and no rights survived.” It likewise states that Kaiser, "took his claim to arbitration,” that Sedlow has "acknowledged to me that you do not have any rights under this agreement” and that his signing of the release "will end any possibility of your making such a claim in the future.” There, thus, is no question that Sedlow knew when he signed the release that he was, in fact, terminating the March 31, 1964 agreement and that he was concluding not only any right to litigate but also to arbitrate under the contract. Indeed, he does not now say otherwise, arguing only that he has the right to arbitrate whether his signature of the release after receipt of the October 12, 1976 letter was obtained by economic duress. The same argument was made and rejected in Matter of Minkin (Halperin) (304 NY 617, supra) which held that duress is an issue to be determined in a plenary proceeding at law to set aside the release, not by arbitrators in a proceeding under the arbitration clause of the contract.

As to the April 1, 1964 employment contract between Sedlow and Schlaifer Company, however, it cannot be said, as it can with respect to the March 31, 1964 stockholders agreement, that the parties had evidenced their clear intent to terminate it. The October 12, 1976 letter makes no reference to the employment agreement and, in fact, Sedlow’s employment under the latter agreement continued for another year after the date of that letter. But his continued employment after termination of the March 31, 1964 stockholders agreement could not entitle him to the stock and share of the profits he seeks through his demand for arbitration. The two agreements cannot, after the March 31 agreement has been terminated, be read together as was done in Kaiser’s case (Matter of Schlaifer [Kaiser], 84 Misc 2d 817, affd on opn below 50 AD2d 749), for Sedlow, unlike Kaiser, did indeed abandon, and agree not to assert any rights under, the stockholders agreement (cf. Matter of Schlaifer [Kaiser], 84 Misc 2d, at p 822, supra; and see Hughes v Eddy Valve Co., 147 App Div 356). While that probably means that arbitration under the April 1, 1964 agreement will avail Sedlow nothing, it should not be stayed because that contract was not intentionally terminated and its arbitration provision, therefore, remains in effect.

Chief Judge Cooke and Judges Gabrielli, Jones and Wachtler concur in Per Curiam opinion; Judge Meyer dissents in part and votes to modify in a separate opinion in which Judges Jasen and Fuchsberg concur.

Order affirmed.

       We held in Minkin that whether the cancellation agreement had been induced by coercion and duress was an issue to be resolved by the court. Entirely aside from the distinction, which is critical for present purposes, between a cancellation and a general release, it may be that, while questions as to the scope and effect of a cancellation agreement would be for the court, issues as to coercion or fraud in its inducement would now be held to be for the arbitrator in view of our subsequent decision in Matter of Weinrott [Carp] (32 NY2d 190).


author: Jasen, J.

text:
    Ernie Renn et al., Appellants, v Orval Kimbark et al., Respondents.
    Argued September 8, 1980;
    decided October 16, 1980

      POINTS OF COUNSEL

      Thomas F. De Soye and John J. Connolly for appellants.
    I. Sections 553 and 554 of the Insurance Law contemplate payment of 2% of the gross premiums collected by foreign insurers to and for the benefit of all individuals providing fire protection in a particular locality and no preference is created therein for volunteer firemen over paid firemen and subsequent special enactments are intended to effect changes not in the beneficial distribution of the money but solely in its administration. (Trustees of Exempt Firemen’s Benevolent Fund of City of N. Y. v Roome, 93 NY 313; Fire Dept. of City of Rochester v City of Rochester, 45 Misc 2d 1097, 23 AD2d 183, 16 NY2d 933; Matter of Grumet v Goodbody, 1 Misc 2d 222, 309 NY 956.) II. Assuming, arguendo, that special legislation may in certain instances create a preference in the beneficial distribution of moneys generated by sections 553 and 554 of the Insurance. Law, no such legislation exists herein so as to alter the patently intended beneficiaries established by statute, the fire departments of various localities. (Wilcox v Schenck, 52 AD2d 349; Cary v City of Oneida, 158 App Div 773.)

      Edward T. Feeney for respondents.
    I. Plaintiffs, members of the paid Fire Department of the City of Kingston, as a matter of law, are not entitled to share in the distribution of the funds received pursuant to section 553 and 554 of the Insurance Law because of defendants receiving the same pursuant to an act of the Legislature of June 5, 1939 and legislative intent must control. (Abeline v Firemen’s Benevolent Fund Assn. of Vil. of Herkimer, 55 Misc 2d 406; Ashley Co. v Fire Dept. of Rochester, 73 Misc 636; Exempt Volunteer Firemen’s Assn. of Lockport v City of Lockport, 31 AD2d 311; Fire Dept. of City of Rochester v City of Rochester, 23 AD2d 183, 16 NY2d 933.) II. The law is specific that the 2% tax funds were to be used pursuant to statute and the special act of the Legislature for the volunteer firemen of the City of Kingston. Historically these moneys had been made for their use and any claimed inequity must be remedied by the Legislature or the City of Kingston and not by the courts.
   OPINION OF THE COURT

Jasen, J.

In this action submitted by the parties upon stipulated facts pursuant to CPLR 3222, the question posed for our consideration is whether full-time paid firemen of the City of Kingston are entitled to share with volunteer firemen the 2% tax levied by sections 553 and 554 of the Insurance Law on fire insurance premiums paid to foreign insurance companies for coverage on properties located within the City of Kingston. To resolve this issue, we are required to examine the specific legislative enactments and charter provisions which relate to the Kingston Fire Department and distribution of the insurance money appropriated to it pursuant to sections 553 and 554 of the Insurance Law.

In 1879, the "Fire Department of the City of Kingston” was established. (L 1879, ch 325, § 1.) This corporation was to consist of "[a]ll such persons as are now or hereafter shall be members of each and every fire company organized, and to be organized, by the common council of the city of Kingston”. The Legislature also provided that the proceeds of the fire insurance premium tax were to be applied by the Board of Trustees of the Kingston Fire Department "as they shall deem proper, for the use and benefit of said fire department.” (Id., § 5.) At the time of this enactment, fire protection in Kingston was rendered solely by volunteer fire companies. In 1907, however, the City of Kingston established a full-time paid fire department, retaining a number of volunteer fire companies to augment the newly established full-time paid fire department. (See Kingston City Charter, § 107.) These paid firemen were expressly made part of the "Fire Department of the City of Kingston.”

In 1939, the Legislature passed a special law which provided that "[u]pon the disbandment of any of the companies comprising the volunteer fire department of the city of Kingston, there shall be paid by the * * * officer receiving the taxes upon foreign fire insurance premiums on risks located in the city of Kingston to the Exempt Firemen’s Association of the City of Kingston * * * such proportion of such taxes as the number of companies so disbanded bears to the total number of companies comprising such volunteer fire department on the first day of January, nineteen hundred thirty nine * * * [to] be used by such corporation for the care and relief of disabled or indigent volunteer and exempt firemen and their families.” (L 1939, ch 734, § 1.) The Exempt Firemen’s Association of Kingston is an organization primarily composed of those honorably discharged from the ranks of the volunteer fire companies.

The City of Kingston currently has eight active volunteer fire companies with an aggregate membership of about 160 firemen. There are also approximately 75 full-time paid firemen in the Kingston Fire Department. Both paid and volunteer firemen respond to alarms, fight fires and render aid in the Kingston area.

It is undisputed that since 1879 all moneys collected pursuant to sections 553 and 554 of the Insurance Law have been allocated by the Board of Trustees of the Kingston Fire Department solely to the benefit of the volunteer firemen in Kingston. After a demand upon the board of trustees to allocate a proportionate share of these funds to the paid firemen of the City of Kingston was denied, this action was instituted.

Trial Term declared the levy should continue to be "exclusively applied for the use and benefit of volunteer firemen and the representative of disbanded volunteer companies and that no portion thereof be used to benefit paid firemen.” Relying primarily on the 1939 act which required the premium tax to be applied to the Exempt Firemen’s Association upon the disbandment of the volunteer fire companies in Kingston (L 1939, ch 734, § 1), Trial Term concluded that the Legislature intended to exclude the paid firemen of Kingston from receiving any portion of the tax under the Insurance Law.

On appeal, a divided Appellate Division affirmed, stating that the "clear import” of the 1939 amendment was that "the Exempt Firemen’s Association would get all the tax proceeds in the event that every volunteer fire company disbanded” and, therefore, "the paid firemen were not entitled to any portion of these proceeds.” We disagree.

Section 553 of the Insurance Law, in pertinent part, provides that "[e]xcept in the cities of New York and Buffalo[], there shall be paid to the treasurer of the fire department of every city, village, fire district, or other organized territory afforded fire protection by any fire department * * * by every foreign and alien fire insurance corporation * * * which insure^] property against loss or damage by fire, except foreign mutual fire insurance companies, for the use and benefit of such fire department and the company or companies comprising the same,” a designated percentage of the premiums received for fire insurance upon property situated within the area protected by the fire department (emphasis supplied).

Section 554 of the Insurance Law provides, in somewhat different language, that foreign mutual fire insurance companies shall be similarly taxed and that a portion of this levy is to be paid "to the treasurer of the fire department of each city * * * for the use and benefit of such department”.

Sections 553 and 554 had their origins at a time when fire protection was provided solely by volunteer groups. Funds were generated from taxes collected from insurance companies in order to aid injured and disabled firemen and their families. (See L 1849, ch 178.) The general purpose behind such enactments was to strengthen and stimulate the growth of organized fire protection throughout the State. (See Trustees of Exempt Firemen’s Benevolent Fund of City of N. Y. v Roome, 93 NY 313, 322.)

This practice has been carried forward to the present day and is currently authorized by sections 553 and 554 of the Insurance Law. With the advent of the full-time paid fireman, however, these statutes have been construed to apply to volunteer and paid firemen alike. (See, e.g., Fire Dept. of City of Rochester v City of Rochester, 23 AD2d 183, affd 16 NY2d 933.) This is understandable when one considers the clear language of sections 553 and 554 of the Insurance Law which creates no preference in favor of volunteer firemen as recipients of these moneys. (See Wilcox v Schenck, 52 AD2d 349; Cary v City of Oneida, 158 App Div 773; Eisinger v Stern, 57 Misc 2d 16.) Thus, the question is whether the 1939 act (L 1939, ch 734, § 1) which allocated to the Exempt Firemen’s Association of the City of Kingston funds formerly payable to the disbanded volunteer companies of Kingston exempts the Board of Trustees of the Kingston Fire Department from the application of the general language of the Insurance Law which requires disbursement of the insurance premium tax to any fire department affording fire protection.

Prior cases dealing with sections 553 and 554 of the Insurance Law did not involve any special legislative enactments which sought to exclude paid firemen as beneficiaries of the tax. (See, e.g., Cary v City of Oneida, 158 App Div 773, supra; Amsterdam Permanent Firemen’s Assn. v City of Amsterdam, 40 Misc 2d 323.) In fact, these cases usually concerned enactments which only changed the official designated to receive the funds and had no effect on distribution to the ultimate beneficiaries. (See, e.g., Fire Dept. of City of Rochester v City of Rochester, 23 AD2d 183, affd 16 NY2d 933, supra.) Moreover, enactments which expressly included paid firemen as beneficiaries of the tax have been sustained on the theory that, by giving the paid firemen a pro rata share, such enactments caused the "general purposes and uses of the proceeds [to] comply with the intent and meaning of sections 553 and 554 of the Insurance Law”. (Exempt Volunteer Firemen’s Assn. of Lockport v City of Lockport, 31 AD2d 311, 312.) Thus, in each of the cases construing sections 553 and 554, in the absence of an express legislative enactment precluding the paid firemen of a particular city from sharing in the insurance premium tax, all firemen in the locality were entitled to share ratably in the funds collected pursuant to the Insurance Law.

Turning to the City of Kingston, we find no special enactment which evinces an intent on the Legislature’s part to exclude the paid firemen of that city from receiving the proceeds of the tax imposed by sections 553 and 554. In this regard, reliance by the courts below on the 1939 act is misplaced. That act only sought to ensure that the Exempt Firemen’s Association would continue to receive a preferential "portion of the tax money in the event any of the volunteer companies in existence in 1939 were subsequently disbanded, thereby enabling the association to carry out its purpose of aiding disabled and indigent volunteer firemen. (See L 1939, ch 734, § 1.) Thus, this act merely allocates to the Exempt Firemen’s Association a portion of the funds that a volunteer fire company would lawfully have been entitled to receive had it not disbanded. The 1939 enactment does not expressly preclude disbursement to the paid members of the Kingston Fire Department, nor does it provide that all tax moneys be paid over to the volunteers or the Exempt Firemen’s Association. Therefore, this enactment cannot serve to deprive the paid firemen of Kingston of their proportionate share authorized by the Insurance Law to all fire departments affording fire protection.

In fact, the Legislature specifically has directed that in Kingston the money collected under sections 553 and 554 be applied "for the purposes set forth in * * * the insurance law.” (L 1915, ch 611, § 30; Kingston City Charter, § 106.) These purposes, as mentioned earlier, are to aid and stimulate local fire departments without discriminating between the paid and volunteer members thereof. (See Fire Dept. of City of Rochester v City of Rochester, 23 AD2d 183, affd 16 NY2d 933, supra; Cary v City of Oneida, 158 App Div 773, supra.)

As active members of the "Fire Department of the City of Kingston” (see Kingston City Charter, § 107), the paid firemen have a primary responsibility of providing fire protection to the city. To deprive these firefighters of the benefits afforded them by the Insurance Law without a clear direction to do so from the Legislature is contrary to the avowed purpose of the statute to assist those affording fire protection. Therefore, all firemen in the City of Kingston should share proportionately in the tax moneys generated by sections 553 and 554 of the Insurance Law. (Accord Wilcox v Schenck, 52 AD2d 349, supra; Cary v City of Oneida, 158 App Div 773, supra.)

Accordingly, the order appealed from should be modified to the extent of granting judgment in favor of the plaintiffs providing that the tax funds presently held and future tax moneys received be paid pursuant to sections 553 and 554 of the Insurance Law for the use and benefit of the Fire Department of the City of Kingston, consisting of the city-paid firemen as well as the present recipients. As so modified, the order should be affirmed.

Judges Gabrielli, Jones, Wachtler, Fuchsberg and Meyer concur; Chief Judge Cooke taking no part.

Order modified, with costs to plaintiffs, in accordance with the opinion herein and, as so modified, affirmed.

      . In the Cities of New York and Buffalo, the tax on fire insurance premiums paid to foreign insurance companies is imposed pursuant to local law. (NY City Administrative Code, § H46-2.0; Buffalo City Charter, § 490.)

      . We are not called upon in this case to consider any direct application of the provisions of chapter 734. (L 1939, ch 734.)